Shining a Light on Overlooked and Underfollowed Biotechs: George Zavoico


George Zavoico Prospecting for hidden biotech gems makes sense, says H.C. Wainwright & Co. Managing Director George Zavoico, who recently joined the firm's healthcare equity research team. The digging can be hard, but the rewards of successful diligence are huge. In this interview with The Life Sciences Report, Zavoico takes readers on a discovery tour that follows clinical trial data to new ideas that could bring windfalls to portfolios down the road.

The Life Sciences Report: What theme do you see working for investors in 2014?

GZ: I feel the most reliable theme, as well as the most useful, productive and rewarding, is to diligently follow the data, not the momentum. If there is a run on a particular stock or technology that is not necessarily based on data, but rather is based on sentiment, there is a chance investors can get burned. On the other hand, if investors diligently look at data, including that of companies that aren't following the most popular themes of the day, and examine clinical trial protocols and designs to see whether objectives have been met, they may find valuable, underappreciated companies. That kind of diligence could make investors more successful, and works well with stocks that are hidden from view and not well followed.

TLSR: Some retail investors are uncomfortable trying to understand clinical trials. How would you advise them?

GZ: It is key to avoid overinterpreting phase 2 data. Some investors look at phase 2 data expecting statistically significant results, and are disappointed when that doesn't occur. Not all phase 2 trials, especially those that are in phase 2a, are designed to produce those kinds of results. Take a close look at companies reporting phase 2 results. Look for key elements in the trial design and results that provide the rationale for the advancement of a product into phase 3 or perhaps a phase 2b trial. If you find that the phase 2 trial was successful in this regard, but may not have delivered statistically significant efficacy results that may have caused a sell-off, then put it on your radar or buy it on the dip.

TLSR: Is it fair to say that phase 2 trials can vary dramatically in their design and ability to be predictive of phase 3 pivotal study results? If you have a well-powered phase 2 trial that happens to be double blind and randomized, that should provide some predictive value into a phase 3 study, shouldn't it?

GZ: Yes. Drug development is a methodical, step-by-step process. You can't expect statistically significant efficacy results for trials that are underpowered by design. Safety, of course, must first be demonstrated in earlier trials, before you even think of efficacy. The purpose of phase 2 trials is to confirm safety in the target patient population and find a safe and tolerable dose to use in a phase 2b or phase 3 trial. Concurrently, phase 2 trials often have secondary efficacy endpoints, often a surrogate endpoint, that companies view as being predictive if the trial is designed and powered well enough.

"Behind Omidria, Omeros Corp. has a robust pipeline that has advanced into a number of phase 1 and phase 2 trials."

My point is that investors need to remember that the objective of a phase 2 trial is to find the endpoints, dose and study duration that maximizes the chance of a successful phase 3 trial. You're looking for trends in efficacy, not necessarily statistical significance. A confirmatory phase 2b trial might be needed to make sure you're headed in the right direction before committing to a large, expensive, multinational phase 3 trial. You also want to settle on an endpoint that will provide you with acceptable pivotal or registrational data for the U.S. Food and Drug Administration (FDA) to consider when the drug is up for approval. Another option is an adaptive phase 2/3 trial, where phase 2 goes into phase 3 as soon as you're convinced the results are going in the direction you want.

TLSR: I understand that you visited Israel in January. Was this your first trip there? Was it a single company you were looking at, or were you looking around?

GZ: Yes, it was my first trip to Israel. I was invited by Pluristem Therapeutics Inc. (PSTI:NASDAQ) to speak at its Investor Day at the Tel Aviv Stock Exchange. While there, I took the opportunity to meet with some other companies and entrepreneurs. It was an exploratory trip in that regard.

TLSR: We hear how good the country is to entrepreneurs. From all you could see, is that indeed the fact?

GZ: Yes. The environment in Israel appears to be business-friendly, and there are a lot of emerging companies, not only in biotech but also in high tech and other complex technology-oriented industries and sectors. There are mechanisms in place to help smaller companies start up, and you find a very well-educated, motivated, world-class group of scientists at the universities and research centers.

TLSR: Back in January, you chose four companies to be on The Life Sciences Report Watchlist 2014 (Watchlist Portfolio Tracker) (article). Your picks are Omeros Corp. (OMER:NASDAQ), CytoSorbents Corp. (CTSO:OTCBB), Cerus Corp. (CERS:NASDAQ) and OncoGenex Pharmaceuticals Inc. (OGXI:NASDAQ). Obviously, you think they're all going to appreciate in value this year, but are there other common threads?

GZ: Yes, there are. First, I wanted to give examples of hidden gems—companies that are overlooked by the Street. I wanted to highlight some companies outside of what are considered the popular, hot therapeutic areas of focus, including oncology, antivirals, obesity and diabetes. I wanted to show investors that they don't need to be followers and prompt them to look beyond everybody else's focus.

Second, I wanted to highlight companies that have interesting technologies—unique perhaps, not necessarily with huge blockbuster potential, but certainly very profitable in proportion to the size of the company, and therefore very good for the stock. Finally, you will find sound management in these companies, and good use of capital resources. I also look for companies who raise capital on favorable terms—not toxic deals. That's another common thread.

TLSR: Just focusing on the Watchlist 2014 companies for the moment, could you highlight the important features?

GZ: Of course. I'll start with Omeros, which has a number of features that I find interesting. First is the near-term approval of a niche product called Omidria (phenylephrine + ketorolac). The phenylephrine is a mydriatic (pupil-dilating) agent, and the ketorolac is an anti-inflammatory. The Omidria combination is an irrigant for use in intraocular lens replacement surgery to reduce inflammation and postoperative pain. Maintaining a dilated pupil is important, to maintain an open surgical field to maximize efficiency of the procedure and reduce complications. Patients like the anti-inflammatory agent since it significantly reduces post-operative pain.

Both molecules have long been in the public domain as generics, but I had the opportunity to speak to an ophthalmic surgeon who said that based on emerging trends in the field—specifically the off-label use of generic phenylephrine or epinephrine to maintain pupil dilation and regulatory issues that discourage compounding of generics by pharmacies—he would use this product. This is a procedure he performs hundreds of times each year. We think this is a low-cost, high margin and volume product that could generate about $100 million ($100M) in sales in 2016—not much by big pharma standards, but possibly enough to bring Omeros to profitability that same year.

TLSR: You mentioned a near-term approval. What's the timeline here?

GZ: The new drug application (NDA) for Omidria was filed back in the summer, and after that a marketing authorization application was filed with the European Medicines Agency (EMA). Omeros reported that both applications were accepted for review by the agencies in Q3/13, so we expect a decision after the standard 10-month review—probably midyear or early Q3/14 for the FDA—with launch sometime before the end of 2014.

"Pluristem Therapeutics Inc.'s ability to vary the cell phenotype for a specific therapy is unique in the regenerative medicine space right now."

Behind Omidria, there's a robust pipeline that the company has advanced into a number of phase 1 and phase 2 trials. These are unique products that could be first-in-class for a number of interesting indications, including some central nervous system (CNS) and inflammatory indications.

TLSR: There is more in the pipeline at Omeros than just old drugs in new packages. You mentioned CNS disease, and I note there are programs in development for cognitive and neuropsychiatric disorders. Do you see this company's business model as one of taking older products and reformulating them to quickly fund the rest of the pipeline?

GZ: That's the rationale behind Omidria—an elegant, rapid path to market for a new formulation of generics that is an attractive and simple solution for an underserved market. Revenue and profits expected in 2016 will serve to fund the backup pipeline. But Omeros may need to do a capital raise in the interim to build out a sales force, because it is planning to sell Omidria on its own.

TLSR: Go ahead with your second name.

GZ: CytoSorbents is a small company, and is well off the radar of most analysts and investors. It has an interesting blood purification product called CytoSorb (a hemoperfusion device containing polymer beads in a cartridge installed inline with a dialysis machine or a cardiopulmonary bypass pump). The beads serve as a filter for a particular molecular weight range of proteins in the blood—in particular, CytoSorb filters out cytokines in critically ill patients who may suffer multiple organ failure if something is not done quickly. This cytokine storm, as it's called, is a response to serious bodily injury, such as infection, trauma or lung injury. CytoSorb is simple to use. You just put the cartridge in a blood dialysis or cardiopulmonary bypass circuit. Nothing special needs to be done to get it into the circuit, and once installed, it filters out cytokines. It has been approved for use in all 28 countries of the European Union (EU), and it is generating revenue there.

TLSR: Is it accurate to say that CytoSorb helps the critical-care physician stabilize the patient while dealing with the etiology of disease?

GZ: It does stabilize the patient, yes. It takes away a potent proinflammatory stimulus. In other words, it may save a patient's life while the physician deals with whatever caused the problem.

TLSR: CytoSorb is approved in Europe. What about the company's prospects for growth, and for approval in the U.S.?

GZ: Yes, it is CE-marked in the EU and available in other countries that recognize the CE mark, like Russia, India and Turkey. CytoSorbents is starting out with a small sales force, but it is in the process of building the force up to get the word out about the product, and inform physicians about successful case studies and a number of investigator-sponsored trials currently underway. This looks to us like it will translate in to a steady, modest growth trajectory, with no impending near-term milestone.

As for approval in the U.S., a small pilot trial is underway that is funded by the U.S. Air Force in trauma and rhabdomyolysis (muscle-crushing trauma). Although anecdotal results show that CytoSorb is saving lives in Europe, the company must do a trial in the U.S. before the FDA considers the product for approval. Importantly, the FDA has reviewed the safety date from the European trial and given CytoSorbents an investigational device exemption approval to conduct the Air Force trial. This application is one possible path to U.S. approval. The company also plans to commence a pivotal trial in sepsis, cardiac surgery or perhaps other indications by the end of this year that could lead to U.S. approval.

I project an organic ramp-up in growth as CytoSorbents expands its sales force, which is small now because it's a small company, with a $72M market cap. It appears as though CytoSorbents will achieve $1M in trailing 12-month sales in this quarter, with sales mainly in just three countries—Germany, Austria and the United Kingdom.

TLSR: Go ahead with Cerus.

GZ: Cerus is another blood treatment company, but it's bigger than CytoSorbents, with a market cap of about $459M, and it also has far more sales revenue. The company is anticipating approval of its Intercept Blood System for platelets and plasma as early as H2/14. It is under rolling FDA review right now. That approval could be transformative for the company's revenue line.

"The most reliable theme, as well as the most useful, productive and rewarding, is to diligently follow the data, not the momentum."

The Intercept system is a pathogen-inactivation product, which is used in blood collection centers producing packed red cells, plasma and platelets for transfusion. Existing and emerging viruses, bacteria and parasites pose a threat to the blood supply, and since transmission of these pathogens is facilitated by air travel, persons who may have been infected during their travels could put recipients at risk if they donate blood upon their return. Moreover, while bacterial contamination of platelets is rare, it can occur, sometimes with fatal consequences. It is becoming burdensome and expensive to test every single donation for contaminating pathogens, and for some of them no reliable test is available.

Cerus' system inactivates any DNA in the blood product, thereby preventing replication of viruses, parasites and bacteria. This could address virtually all pathogens, and the Intercept system could ultimately replace testing for pathogens that are in the blood supply currently.

TLSR: There are some very sophisticated healthcare systems using Cerus' technology already, aren't there?

GZ: Actually, a number of countries have completely turned over their blood supply systems to the Intercept technology. In Switzerland, all platelets are processed using this system. Iceland just came over to it. France uses Cerus technology in about one-third to one-half of its blood products. Cerus has been reporting a continuous, fairly steady increase in sales, with the potential for a growth inflection point as regulatory agencies in different countries approve the product, and the blood collection services switch over. That's what we think will happen when the FDA approves the Intercept system, which we are quite confident about. The inflection will take some time, however, as Cerus builds out its sales force in the U.S., and then sells and installs its illuminator devices, which are used to drive the chemical reaction that cross-links any DNA in the product.

TLSR: Are you able to use this technology in the developing world, where you might not have stable electric power? Could it be used in field clinics or hospitals?

GZ: It can be used anywhere blood is collected to make products for transfusion and then stored. It's very simple to use. You need a device called an illuminator, because the product contains an ultraviolet (UV)-sensitive reactive compound that irreversibly cross-links any DNA that might be in the blood, whether it's viral or bacterial DNA. The blood products are illuminated with a UV light for a short period of time during processing, and this makes the DNA incapable of replicating. All other procedures are essentially the same as what is currently done. With regard to stable electric power, you must have it to refrigerate the stored blood.

TLSR: George, just for the sake of clarity, this system is possible because mature red blood cells do not have nuclei, and therefore no DNA is in mature red cells. And platelets are not really cells, they are pieces of cytoplasm that float in the serum. The point is: Whatever DNA is in blood being prepared for transfusion is DNA that you don't want. Is that correct to say?

GZ: That's exactly right. To your point, this system also kills white cells, because they are nucleated. White cells could come across in a transfusion and cause graft-versus-host disease, so the Cerus technology also eliminates that risk, as well as the risk of infection from bacterially contaminated product. This is a rare event, but it still does occur. You have an added degree of safety in blood products intended for transfusion that hasn't been there before.

TLSR: You expect FDA approval for the U.S. later this year. How big could that be for Cerus?

GZ: The U.S. market could almost double the potential revenue for Cerus in 2018 or 2019, depending on how fast sales grow in the U.S.

TLSR: The last company in the group of four from the Watchlist 2014 is OncoGenex.

GZ: OncoGenex is the only oncology company in my Group of Four. It should be no surprise that there are a lot of biotech companies developing drugs to treat cancer. The problem is choosing which to invest in. I picked OncoGenex for several reasons. One is that it has two compounds under development for several different cancers, including first- and/or second-line prostate, bladder, non-small and small cell lung and pancreatic cancers. The potential for broad applicability across several cancers is a big advantage. In most of these trials, the OncoGenex drugs are being tested in combination with chemotherapy.

Second, the products are unusual in that they are antisense oligonucleotides, which block synthesis of proteins at the gene level instead of attaching to a protein after it's produced by a gene. You don't see too many of those in the oncology space. Third, OncoGenex's molecules, custirsen (OGX-011) and apatorsen (OGX-427), are second-generation oligos, and so they have an improved pharmacokinetic profile. These only require once-a-week dosing.

TLSR: Both of these oligos have data readouts on the horizon. Could you tell me about the potential catalysts, and why you like OncoGenex this year in particular?

GZ: I think OncoGenex will do well in 2014 because of its phase 3 SYNERGY trial studying custirsen as first-line therapy in combination with docetaxel and prednisone in metastatic castrate-resistant prostate cancer. This is going to read out by the end of Q1/14, or maybe in April. OncoGenex also has a phase 2 trial for its second product, apatorsen, in bladder cancer. This is the Borealis-1 trial and it's expected to read out in the second half of this year.

SYNERGY is a randomized, open-label phase 3 trial being conducted under an FDA special protocol assessment (SPA). Custirsen is fast-tracked if the trial is successful. SYNERGY was preceded by a phase 2 trial that showed almost a seven-month median overall survival benefit with custirsen. We think that despite the appearance of two new androgen-deprivation drugs, Xtandi (enzalutamide; Astellas Pharma Inc. [ALPMF:OTCPK]) and Zytiga (abiraterone; Janssen Pharmaceuticals Inc., a subsidiary of Johnson & Johnson [JNJ:NYSE]), on the market, there is room for another drug with a different mechanism of action.

"Investors need to remember that the objective of a phase 2 trial is to find the endpoints, dose and study duration that maximizes the chance of a successful phase 3 trial."

If these two key trials read out successfully, it will provide confidence that the OncoGenex products will be applicable in other cancer indications. The reason the molecules have potentially broad use is that they target chaperone proteins. Custirsen targets production of clusterin. Apatorsen targets production of heat shock protein 27. Both of these chaperones protect the proteins involved in oncogenic signaling, which keeps a tumor cell proliferating and keeps it from going into apoptosis (cell death). These chaperones enhance survival of the cancer cell and both of OncoGenex's products interfere with those pathways, serving to tip the balance so that the tumor cells follow the path to apoptosis.

By the way, the custirsen program is partnered with Teva Pharmaceutical Industries Ltd. (TEVA:NASDAQ) of Israel, which is funding 100% of continuing clinical development. OncoGenex retains some copromotion rights in North America, with mid-teen to mid-twenties royalties on net sales. Apatorsen is not yet partnered.

TLSR: Could you talk about Prana Biotechnology Ltd. (PBT:ASX), which you've just initiated on?

GZ: Certainly. Prana has a compound called PBT2 in clinical trials. On Feb. 18, the company announced results of its phase 2a trial in Huntington's disease (HD). The primary endpoint in this randomized, double-blind study was the safety and tolerability of PBT2 in patients with HD. The exact primary endpoint was the frequency of adverse events over 26 weeks, and it turned out that the compound met that endpoint. This was not surprising, because the drug had been safely administered to Alzheimer's disease (AD) patients in a previous phase 2a trial.

Here's where things get interesting. I cautioned investors not to overinterpret and expect statistically significant data on efficacy from phase 2 trials at the start of this interview. This trial, called Reach2HD, was first and foremost a phase 2a safety trial, since PBT2 had never before been given to HD patients. A panel of secondary endpoints—a long list actually—were examined with no expectation of finding statistically significant efficacy results. Recall what I said earlier about looking for trends, not statistical significance. Prana was looking for trends in cognitive function that could then be fashioned into a confirmatory phase 2b trial that would increase the likelihood of showing a clinically significant benefit—a meaningful improvement in cognitive function.

A surprising thing was discovered in this phase 2a trial. One of the cognitive measures, specifically the Trail Making Test Part B, demonstrated a statistically significant improvement in performance versus placebo at both 12 and 26 weeks. This test is an assessment of executive function—a patient's capacity to plan and organize things and to multitask, which is weakened early on in both HD and AD. The same cognitive function showed a statistically significant improvement with PBT2 in an earlier, phase 2a AD trial, and it is also a secondary endpoint in an ongoing AD trial that's going to read out before the end of March, according to the company's guidance. If this same secondary endpoint is met in the phase 2b trial, that would be confidence building, to say the least.

TLSR: The results of the high dose of 250 mg versus the low dose of 100 mg are delineated in the phase 2a PBT2 trail. Is the efficacy of the high-dose arm strong compared to the low-dose arm?

GZ: That's right. Also, in that regard, a very small substudy was performed, in which the brains of four patients in both PBT2 trial arms were imaged. Just as in Alzheimer's disease, the brain shrinks in Huntington's disease. There was some evidence that brain atrophy was reduced in the HD patients taking PBT2. Understand that this was a trend toward conservation of brain volume with PBT2, and was not statistically significant because of the small patient population. But it was an exciting result, nevertheless.

TLSR: What is it about PBT2 that makes it potentially efficacious in Alzheimer's and Huntington's diseases?

GZ: The common pathogenesis of these diseases is protein misfolding. The misfolding is facilitated and enhanced by metals—zinc and copper, in particular. The physiologic mechanisms that remove zinc and copper, which are released and exist very transiently in the synapse during neurotransmission, just don't work as well as we age. In younger people, the metals are immediately bound and transported back to their intracellular storage sites. If they stay longer in the synapse—that space between nerve cells—they can interact with those proteins and aggregate. As disease progresses, these metal-binding proteins, or metalloproteins, form plaques, which cause dysfunction in neurotransmission and ultimately an inflammatory response that kills the affected and surrounding neurons. That's when patients begin to get overt symptoms.

In Alzheimer's and Huntington's diseases, the misfolded proteins are beta-amyloid and mutant huntingtin protein, respectively. PBT2 has a chaperone-type activity that appears to strip zinc and copper from these metalloproteins, then transports them across the neuronal cell membrane and delivers them to intracellular proteins, where the metals are normally stored. In animal models, PBT2 has been shown to reduce the amyloid burden in the brain, meaning that the amount of amyloid plaques is reduced. This is the primary endpoint in the ongoing Alzheimer's disease trial, called IMAGINE, that is expected to read out before the end of March.

Here's where it may get very exciting. If PBT2 reduces the amyloid burden in Alzheimer's disease patients after a year of treatment, and improves cognitive function, then it will be the only drug candidate to have shown this. In our view, the risk-reward ratio for PBT2 is tremendous.

Let me just caution readers that PBT2 may also fail to show a reduction in amyloid burden, in which case we expect Prana's stock to take a big hit. But having reviewed the preclinical and early clinical results to date, we think this trial has a better chance of succeeding than failing.

TLSR: Since you went to Israel last month, would you like to talk about Pluristem Therapeutics?

GZ: Absolutely. Pluristem is an emerging company in the regenerative medicine space. I had the opportunity to visit its production facility in Haifa, Israel, which is a world-class manufacturing plant for cell therapy products. It's well designed and very efficient. Pluristem harvests cells from human placentas and isolates what it calls PLX cells (full-term placenta-derived mesenchymal-like adherent stromal cells). Despite coming from different donors, Pluristem's manufacturing procedure produces very consistent batches, with little batch-to-batch variation.

I was very impressed with Pluristem's facility because, in the regenerative medicine space, a lot of companies rely on contract manufacturers, which can be a very expensive proposition that increases the cost of goods and reduces flexibility. It's very important for investors to understand that Pluristem controls its own manufacturing, and can vary the conditions of the manufacturing process as it wishes. By doing so, Pluristem can manufacture PLX cells with different properties—cells that produce a different spectrum of cytokines, growth factors and other mediators that are applicable for different indications to achieve a specific therapeutic effect. This ability to vary the cell phenotype for a specific therapy is unique in the regenerative medicine space right now, and it speaks to an emerging paradigm shift in the whole regenerative medicine field. At present, however, all of the company's clinical trials involve the PLX-PAD cell product.

"I wanted to highlight some companies outside of what are considered the popular, hot therapeutic areas of focus, including oncology, antivirals, obesity and diabetes."

The paradigm shift I'm talking about challenges the prevailing dogma as to how transplanted stem cells work. Pluristem's cells don't replace injured or damaged cells when they're injected into the body. Instead, they exert a paracrine effect. As mesenchymal cells, they are growth promoting, and they produce an anti-inflammatory set of mediators. In every disease indication that these stem cells—or those from any company—are being used for, there is an underlying inflammatory disorder. The accumulating evidence now indicates that these cells may reside in a patient for only 10–14 days—maybe three weeks at most. In this short period of time, it appears as though the cocktail of anti-inflammatory cytokines and growth factors the cells secrete are sufficient to quell, or resolve, the chronic, systemic, inflammatory response that supported disease progression or prevented proper healing. This has been shown in a number of indications.

In January, in a phase 2 trial out of Germany in hip replacement surgery, the orthopedic surgeon injected PLX-PAD cells into the gluteal muscle after replacing the hip joint. I spoke to the surgeon about this, and he said the data were remarkable. The patients who got the cells were better able to recover the strength—the contractile force—of that muscle in a statistically significant manner than patients who got placebo injections. If you're the surgeon, you want that muscle to be strong to stabilize the new joint. This trial served as a proof of concept that the cells provided clinical benefit.

TLSR: What is the lead program at Pluristem? I see trials going on in intermittent claudication, peripheral artery disease, critical limb ischemia, and of course the muscle-and-tendon injury you just spoke about. What's going to be developed first?

GZ: The fastest path to market is most likely going to be in preeclampsia or failed autologous bone marrow transplantation.

TLSR: That's because of the unmet need?

GZ: Exactly. Critical limb ischemia and intermittent claudication are not considered unmet clinical needs. There are treatments for those indications.

When Pluristem was trying to figure out what indication would be its best lead program, it had no prior guidance as to what indication would respond well to the PLX cells. The company ran a few small pilot trials and offered the cells up for compassionate use in different indications to identify the indication that provided the greatest opportunity. Pluristem is very close to starting trials in preeclampsia and failed bone marrow transplant, which fit that criteria and would also be relatively fast trials with, potentially, a rapid path to market for these unmet needs.

Based on two animal models of preeclampsia that showed PLX cells to effectively reduce blood pressure and urinary protein excretion, Pluristem is planning to commence a clinical trial in this indication. PLX cells were also used to treat a handful of patients with failed bone marrow transplants on a compassionate-use basis, with compelling results. We expect Pluristem to commence a trial in this indication as well. The company hasn't provided any firm guidance as to when it would start these trials, but we expect both to commence within 12 months.

TLSR: Is there another name you might mention?

GZ: I want to mention another Israeli company that I visited while I was there. It's Compugen Ltd. (CGEN:NASDAQ), which has a platform technology that identifies protein targets. While applicable for many different indications, Compugen focused its platform technology on the very exciting field of cancer immunotherapy, which has been of considerable interest to investors and researchers recently. Tumor cells have developed stealthy ways of avoiding the immune system by masking themselves. If you can figure out how to unmask them, then you have the Holy Grail of cancer therapy. Compugen validated its technology by finding some checkpoints we already know about, and then it went ahead and found a few new checkpoints. The result is that the company signed a deal with Bayer (BAYN:XETRA), which will explore two of the newly discovered targets and develop therapeutics against them. The potential value of this deal is more than $540M, including a $10M upfront payment.

The cancer immunotherapy space is very interesting right now and we look forward to following Compugen and its partners as they develop drugs or biologics targeting these newly discovered immune checkpoints.

TLSR: Speaking of immunotherapies, you also know an important vaccine name in that category, right?

GZ: Yes. Novavax Inc. (NVAX:NASDAQ) is a vaccine company that is likely to have multiple milestones this year. It has U.S. government funding for seasonal and pandemic flu, and is developing its own products for respiratory syncytial virus (RSV). It has a number of phase 2 trials going in all three of these indications. These phase 2 trials are fairly short because you only need to follow patients for a few weeks or months—you just need to show an antibody response measured by seroconversion (a four-fold increase over baseline in antibody titers that target the antigen) and seroprotection (a targeted percentage of subjects achieving a predefined increase in antibody titer). As a reminder, Novavax is pioneering new vaccine technologies, specifically viruslike particle and nanoparticle vaccines, which can be manufactured much faster than traditional egg-based vaccines and at lower cost.

Novavax has a phase 2 RSV immunization trial going in women of childbearing age. The intent is to immunize pregnant women to protect their babies after birth. In this case, the antibodies generated by the mother are transferred to the fetus before it is born. In the current trial, different doses and adjuvant formulations are being evaluated to establish a dose for the next trial, which is likely to enroll pregnant women (if it's proven to be safe). Another phase 2 trial with the RSV vaccine is enrolling elderly subjects. Trials of Novavax's viruslike particle vaccines are also ongoing in seasonal and pandemic flu in normal adults.

TLSR: Novavax shares have tripled in the past year, and doubled in the past six months. Given the fact that it won't have products on the market for two or three years, and now has a $1.3 billion market cap, could investors think of it as overbought at this point?

GZ: That's right. We think Novavax will have its first product on the market within two to three years, perhaps its seasonal flu vaccine, in time for the 2016–2017 flu season. But the proof in the pudding will come this year, when a number of the company's phase 2 trials play out. We expect the trials to provide favorable results, after which Novavax will go into pivotal phase 3 trials.

Is it overbought? No, I don't think so. This is a novel vaccine technology. The cost of the goods is low, and there is no vaccine for RSV, which is a common ailment among the elderly and newborns. Novavax is also developing an RSV and seasonal flu vaccine combination, which would be a unique product and targeted mainly to the elderly, who are advised to get a flu shot every year. There's big market potential across the world. Novavax is on the cusp of proving that its vaccine technology works in several indications. Also, this company is well funded.

TLSR: We have time for one more if you wish.

GZ: I'd like to mention Threshold Pharmaceuticals (THLD:NASDAQ), a company developing a hypoxia-activated prodrug (a molecule administered in an inactive form that is metabolized and rendered active in the body). TH-302 (a mustard-derived agent) targets an unusual indication in cancer, soft tissue sarcomas (STS; cancers of connective tissue cell origin). Note that tumor tissues are often hypoxic, which makes TH-302 a targeted therapy. Threshold's phase 3 trial with TH-302 in STS will read out in 2015. And the company has multiple, ongoing phase 2 trials in carcinomas (cancers of epithelial cell origin) that we expect will read out in a number of different indications this year.

I think the momentum for this company is building. There hasn't been a lot of new clinical data with TH-302 recently to keep the level of interest high in this stock, but through the course of this year and as we approach the announcement of the sarcoma data, I think we'll see interest reemerge in this name. I believe Threshold's drug works. Phase 2 trial data of TH-302 in combination with other chemotherapeutic agents are compelling. The drug seems to enhance efficacy of existing drugs in the first-line setting in a number of cases.

TLSR: What catalyst do we keep our eyes on? Is it the phase 3 STS trial?

GZ: Yes. An interim analysis by an independent data monitoring committee is expected in June or July this year, but everyone will remain blinded to that analysis unless the trial is stopped due to efficacy or futility, which we don't think will happen. The final results of the trial, triggered by a certain number of events having occurred, will probably read out in the middle of next year. Results of a number of phase 1 and 2 trials in patients with multiple myeloma, renal cell cancer and glioma are expected this year.

TLSR: You've covered a lot of territory today. Thank you.

GZ: Thank you.

Dr. George Zavoico joined H.C. Wainwright & Co. in January 2014 to focus on healthcare research. He has more than 10 years of experience as a life sciences equity analyst writing research on publicly traded equities. His principal focus is on biotechnology, biopharmaceutical, specialty pharmaceutical, and molecular diagnostics companies. He received the Financial Times/Starmine Award two years in a row for being among the top-ranked earnings estimators in the biotechnology sector. Before joining HCW, Zavoico was managing director and senior equity analyst at MLV & Co., and helped establish the healthcare equity research platform there. Previously, Zavoico was an equity research analyst in the healthcare sector at Westport Capital Markets and Cantor Fitzgerald. Prior to working as an analyst, Zavoico established his own consulting company serving the biotech and pharmaceutical industries, providing competitive intelligence and marketing research, due diligence services and guidance in regulatory affairs. Zavoico began his career as a senior research scientist at Bristol-Myers Squibb Co., moving on to management positions at Alexion Pharmaceuticals Inc. and T Cell Sciences Inc. (now Celldex Therapeutics Inc.). Zavoico has a bachelor's degree in biology from St. Lawrence University and a Ph.D. in physiology from the University of Virginia. He held post-doctoral fellowships at the University of Connecticut School of Medicine and Harvard Medical School/Brigham & Women's Hospital. He has published more than 30 papers in peer-reviewed journals and has coauthored four book chapters.

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1) George S. Mack conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
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