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Small-Caps Rushing to Fill the NASH Treatment Pipeline

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Ed Arce NASH is an epidemic in the U.S., with more than 100 million people believed to be affected. Yet no FDA-approved treatments are available, with the exception of liver transplantation for end-stage disease. In part two of his interview with The Life Sciences Report, Ed Arce, managing director in equity research and senior analyst covering companies in the biopharmaceuticals and specialty pharmaceuticals sectors for H.C. Wainwright, and organizer of the recent inaugural NASH Investor Conference, says that small companies are rushing to fill the pipeline, with numerous compounds in trials.

This is Part 2 of an interview with Ed Arce on NASH. Click here to read Part 1.

The Life Sciences Report: In part one, we discussed NASH (nonalcoholic steatohepatitis), the disease's progression, the public health crisis it is becoming, and what action the larger companies are taking. What are some small-cap companies active in NASH?

Ed Arce: I'll first focus on a much smaller subset of the overall disease—the most severe—and those are the patients who have already progressed to cirrhosis. As with the milder patients, there are no FDA-approved therapies. For cirrhotics, there's really little else other than liver transplant.

A couple of companies are focused specifically on those patients who have cirrhosis from NASH. The first one is Galectin Therapeutics Inc. (GALT:NASDAQ). It has a compound that hits the galectin-3 pathway. This has been shown in a number of preclinical models to have pretty robust effects on fibrosis, as well as cirrhosis, in several animal models. Galectin has an ongoing Phase 2b trial that is expected to read out in December. The compound is being studied in that trial to either improve the cirrhosis below a certain point (MELD <10), or to prevent further progression of disease. That's one drug that is really focused on those patients.

The other company focused on cirrhotics is Conatus Pharmaceuticals Inc. (CNAT:NASDAQ). Conatus' drug has a completely different mechanism. It is a pan-caspase inhibitor. It hits several different enzymes within the caspase family (most notably 3 and 7). Caspases has been known for years to prevent apoptosis or planned, programmed cell death. Cirrhotic livers are essentially losing their function because the cells are dying, so the drug that can reverse the apoptotic process of liver cells is thought to have a direct impact on reversing cirrhosis. Last December, Conatus partnered its lead drug, emricasan, with Novartis. It now has all four Phase 2b ENCORE trials enrolling patients to look at various aspects of the disease, focused primarily on cirrhotic NASH patients.

These two compounds ultimately could be combined with a compound like the ASK1 inhibitor that has also shown some early clinical impacts on cirrhosis.

TLSR: Would you tell us about some of the research underway targeting the fibrosis stage of NASH?

EA: That is a much bigger field, where most companies are focused—on NASH patients with fibrosis and trying to prevent progression to cirrhosis. They have NAFLD Activity Scores (NAS) scores of 4 or higher and fibrosis scores of 2 or 3. This is where Tobira Therapeutics Inc. (TBRA:NASDAQ) had its patients focused, and where Genfit SA's (GNFT:Euronext) recent Phase 2 for elafibranor was focused, as well as Intercept Pharmaceuticals Inc.'s (ICPT:NASDAQ) Ocaliva. This subset of patients is most needy because they are closest to progressing to cirrhosis.

A number of these smaller companies are looking at various compounds with different targets for this same population. One of them is CymaBay Therapeutics Inc. (CBAY:NASDAQ). This is a PPAR (peroxisome proliferator-activated receptors) but is specific only to the delta isoform. There is some clear clinical evidence so far that this has a potent effect on cholestasis (bile acid metabolism). This is really part and parcel of the progression with FXR (farnesoid X receptor) agonists as well. So this is believed to have an impact on reversing NASH as well as the fibrosis.

Some of these compounds look at the same pathway but in slightly different ways. Certainly, over time, we're going to have more companies with clinical data. Those that have certain effects will be tied with those combined with others.

Even companies and KOLs that believe they understand the effects of their own compounds may end up showing that those compounds work in different ways than they had anticipated. By example, Tobira's cenicriviroc (acquired by Allergan last year) was thought to have pretty potent impact on the underlying factors of NASH itself and not so much on fibrosis. As it turns out, the results of its CENTAUR study actually showed just the opposite. Now, it is clearly viewed as an anti-fibrotic drug. As the molecular understanding of the progression of the disease as well as the compounds that are targeting that progression comes to light, I think different combinations will be used.

TLSR: Are there other smaller companies you would like to discuss?

EA: I would like to mention these last two companies because they're really different from anything else that's being looked at. DURECT Corp. (DRRX:NASDAQ) is a company that has an epigenetic regulator. This was something that was done in-house over a number of years. Even though this is quite early, it has a lot of potential because, unlike a lot of companies that will look at preclinical models—often a mouse model or a rat model of NASH—and use that as a basis for moving forward into clinical studies, DURECT has done a very thorough preclinical program with its compound.

"DURECT Corp. (DRRX:NASDAQ) has done a very thorough preclinical program with its compound."

DURECT looked at all the available preclinical models, not only in rats and mice but, also, in several other species. It has seen very consistent results in both NASH overall, as well as anti-fibrotic effects. So we're very eager to see what the impacts of this could be in the clinic. The company also released encouraging clinical data at EASL last month, in an early Phase 1b study.

The last company I would like to mention is NGM Biopharmaceuticals Inc. This is a private company that also presented at our conference. Again, I think this is a novel target. It targets fibroblast growth factor 19 (FGF19). This is targeting the same pathway as Bristol-Myers Squibb Co.'s (BMY:NYSE) compound but slightly different in that it is targeting a different isoform, FGF21. There are camps of clinicians and KOLs on both sides on whether one or the other will have better overall clinical impacts and effects on NASH and fibrosis, as well as a cleaner safety profile. We believe its profound effects on the reduction of de novo lipogenesis (DNL) is one of the more exciting results presented in Amsterdam last month at EASL, from its recent Phase 2 study.

TLSR: Thank you, Ed. We look forward to checking back in with you as research progresses.

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Ed Arce is a managing director in equity research and a senior analyst covering companies in the biopharmaceuticals and specialty pharmaceuticals sectors for H.C. Wainwright & Co. Previously, Arce was a senior research analyst with ROTH Capital Partners. Prior to ROTH, he covered biotechnology, biopharmaceutical, specialty pharmaceutical and select medical device companies as an analyst at MLV & Co. Prior to MLV, Arce covered the biotechnology sector at Wedbush Securities, and large-cap pharmaceuticals at UBS Securities. Arce started his equity research career in 2005 as a research associate at First Albany Capital, covering specialty and generic pharmaceutical companies. He holds a Master of Science degree in finance (MSF) degree from Boston College, as well as a master's degree in business administration and a bachelor's degree in civil engineering, both from Florida International University. Mr. Arce is a board-licensed professional engineer, and a Level III CFA candidate.

1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or members of her immediate household or family own, shares of the following companies mentioned in this article: None. She is, or members of her immediate household or family are, paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this interview are billboard sponsors of Streetwise Reports: DURECT Corp. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclosures about sponsor's fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Ed Arce: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. I, or members of my immediate household or family, are paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this interview: None. I determined which companies would be included in this article based on my research and understanding of the sector. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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