Biotech Platform Technologies Make Big Promises
Source: George S. Mack, The Life Sciences Report (2/28/12)
Words to Invest By: Make sure you see a lead development product that big pharma is willing to bet on. I love the idea of a smart technology platform that could feed multiple product candidates into a biotech pipeline. The notion is exhilarating because that's where those rare 10- and 20-baggers come from. . .
Completion of the Human Genome Project in 2003 was a breathtaking event, but its objective was sweeping, not specific. Without knowing the sequence of genes, medicine could never move into its final frontier. But once that milestone had been accomplished, investors realized that what researchers actually had was a table of contents and not the immediate answers to all the secrets of life and disease. Cash-draining platforms became passé, and venture capitalists went back to the business of betting on single-molecule projects that might give rise to a virtual company that might ultimately be sold to a pharma. But platform companies are still alive. "They do take a lot of money," Juan Sanchez told me. "Even if a single platform is very robust, I do believe the probability of having two successes out of that platform is low. You need to be a little bit lucky that first one and maybe two projects actually work out even if the platform is validated."
Real validation only occurs when a pharma company buys into an idea with cash. Sanchez's coverage list includes Micromet Inc. (MITI:NASDAQ), which serves as a textbook case study in the platform technology business model. The company is now being acquired by Amgen Inc. (AMGN:NASDAQ) for $1.16 billion (B) in an all-cash deal that justly validates Micromet's pipeline. Amgen, with its $54B market cap, vast resources and brimming balance sheet will surely create efficiencies in the program, but the cost of running Micromet has been a pricey $100 million (M)/year. "It has a really good first product," says Sanchez. Micromet's lead drug candidate is MT103 (blinatumomab), a monoclonal antibody targeting the B-lymphocyte antigen CD19, which is now in pivotal phase 3 clinical trials for acute lymphoblastic leukemia (ALL). MT103 is also in early clinical studies for non-Hodgkin's lymphoma (NHL). "This first product has been driving most of the valuation," says Sanchez, but there are two other products in early clinical studies for solid tumors. MT110 is wholly owned by Micromet and MT111 is partnered with Millennium Pharmaceuticals, a unit of Takeda Pharmaceutical Co. Ltd. (TKPYY:OTCPK).
Sanchez says investors interested in undervalued platforms should be looking at Geneva, Switzerland-based Addex Therapeutics (ADXN:SIX; ADDXF:OTCBB) (Sanchez: Buy; Target CHF 17.00) which has an allosteric modulator technology platform that he believes has a lot of intrinsic value and is capable of producing multiple products. But Addex had something of a setback. The company's positive allosteric modulator (a metabotropic glutamate receptor 4 [mGluR4]), which has been in development for Parkinson's disease with partner Merck & Co. Inc. (MRK:NYSE), was returned to Addex last September after a four-year alliance and preclinical work. Sanchez acknowledges that this event will be a "psychological barrier" for the stock. "I don't think there's anything wrong with that program," he says, "But investors and Wall Street usually take a skeptical approach to these events." However, investors are awaiting news this year on two other Addex products, one of which is partnered with Johnson & Johnson (JNJ:NYSE) for schizophrenia. "The product returned by Merck to Addex is a very small part of the story," says Sanchez. Addex has a platform technology with multiple partnerships.
Prolific platforms will be necessary for development of products to fight infection caused by resistant strains of new microbes emerging over time. The need is urgent because regulators are apprehensive about overuse of new antibiotics to which resistance develops in a hurry. Consequently, the U.S. Food and Drug Administration (FDA) is inclined to label new antibiotics for second-line therapy instead of initial use. That begs the question, why would investors put a billion dollar-bet on a new product on the chance that when and if it's approved it could be put on the shelf and held in reserve for that great drug-resistant pandemic in the future. What are the drivers today? "The two major drivers/incentives to develop antibiotics are the unavoidable obsolescence of existing ones due to resistance, and the second is the availability of novel antibiotic platforms, which we are now beginning to see." Sanchez is following Optimer Pharmaceuticals Inc. (OPTR:NASDAQ) (Sanchez: Buy; Target $15) which has a new antibiotic product Dificid (fidaxomicin) on the market for Clostridium difficile infection (CDI). The development team lost a lot of sleep worrying about the FDA's review of the product and especially its label, but in the end Dificid received a first-line label because existing first-line products are becoming obsolete.
Sanchez shared some other ideas with me. He likes Valeant Pharmaceuticals International Inc. (VRX:NYSE; VRX:TSX) (Sanchez: Buy; Target $56) as a long term investment because it's so well-run, especially with regard to CEO Michael Pearson. The company has an acquisition strategy that Sanchez believes is working quite well. Also on his list is Questcor Pharmaceuticals Inc. (QCOR:NASDAQ) (Sanchez: Buy; Target $51) where he is seeing "very positive" results in the company's Acthar (repository corticotrophin) prescriptions for neprhotic syndrome (NS). He says AMAG Pharmaceuticals Inc. (AMAG:NASDAQ) (Sanchez: Buy; Target $19.50), with its organizational turmoil, is an acquisition target and that Takeda Pharmaceutical Co. Ltd. (TKPYY:OTCPK), AMAG's partner in Europe and Canada, is a plausible suitor.
DISCLOSURE: 1) George S. Mack of The Life Sciences Report personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: Addex Pharmaceuticals SA. Streetwise Reports does not accept stock in exchange for services.