Source: George S. Mack of The Life Sciences Report (1/30/14)
Disease progression and drug resistance mean that very sick patients ultimately run out of options. In the case of orphan diseases, patients often run out of alternatives immediately after they are diagnosed. In this interview with The Life Sciences Report, Echo He of the Maxim Group discusses her focus on how patients with unmet needs might ultimately get a fighting chance. To that end, she has selected two names that could produce both welcome cures and stunning share price results for investors who understand the value proposition of last-resort therapies.
The Life Sciences Report: I understand you attended the annual JPMorgan Healthcare Conference in San Francisco in January. Was there anything there that caught your eye?
EH: Basically, companies were updating their ongoing efforts in clinical development and their timetables for near-term catalysts. Some results were announced, but I was there to look at early-stage drug development in disease areas with higher unmet medical needs.
TLSR: A lot of companies these days are talking about and seeking U.S. Food and Drug Administration (FDA) breakthrough therapy designation for drugs in development. Did you notice that at the conference?
EH: Yes. I noticed more companies talking about breakthrough designation, but that doesn’t mean they are getting it. I don’t have data on that yet. It seems like the trend at the FDA is toward more flexible approval of drugs—even those with only phase 2 data, and most especially those in areas where patients are running out of options.
EH: I don’t believe FDA is approving these drugs because the mechanisms are innovative. It’s because these drugs are targeting disease populations where there are inadequate treatments.
TLSR: Is that your theme for the coming year? Is it about unmet needs in patients who are running out of choices?
EH: Yes, I’m thinking that way. I think drug approval is disease-demand-driven instead of mechanism-driven.
TLSR: Could we talk about a couple of companies, please?
EH: Yes. Let’s first talk about a small company called Catalyst Pharmaceutical Partners Inc. (CPRX:NASDAQ). Its market cap is only around $105 million ($105M), and it’s an orphan drug developer. The company’s lead drug candidate is Firdapse (amifampridine), targeting a neurological disorder called Lambert-Eaton myasthenic syndrome (LEMS).
LEMS patients gradually lose muscle strength over time, and become severely disabled. It’s a disease of low prevalence, with just more than 3,000 patients in the U.S. and a few more in Canada. These are just the ones who have been diagnosed. The drug has both orphan drug status and breakthrough designation. Amifampridine is approved in Europe for LEMS, but there are no FDA-approved therapies for LEMS in the U.S. However, some compounding pharmacies provide the drug to physicians and patients in the U.S. right now. When a product gets approval, the compounding goes away.
TLSR: That brings up a question. The company says Firdapse would address a $100M market opportunity in the U.S. I’m aware that children are automatically covered under Medicaid when catastrophic disease strikes, but this is not just a childhood syndrome, and drug companies must accept what Medicaid will pay. How do you derive that much revenue from that few patients?
EH: We are estimating that there are 3,500 cases in the U.S. and Canada. Assuming a year of treatment costs $50,000–60,000M and that eventually 60% patients are treated with Firdapse, that suggests peak sales of about $100M.
TLSR: Echo, as far as you know, did Catalyst complete enrollment of its 30-patient, phase 3 trial (NCT01377922) with Firdapse in LEMS by year-end 2013? I haven’t seen a press release to that effect.
EH: It has not. The company is actually planning to enroll 36 patients, but that’s probably not in the clinicaltrials.gov database yet. It will probably complete enrollment sometime in Q1/14.
TLSR: Your target price on Catalyst Pharmaceutical Partners is $4, which represents an implied return of almost 100%, a double from current levels. What is the timeframe on that target price?
EH: It’s a 12-month target price, which I published on Jan. 8. That’s supported by catalysts/milestones, which include completion of phase 3 enrollment, a phase 3 efficacy data report in Q3/14, completion of safety studies and the new drug application (NDA) submission early in 2015. The cardiovascular toxicity study was reported on Jan. 8 in human subjects. The reproductive toxicity will be reported from animal data, and that is required for the NDA.
TLSR: Do you imagine that we’re looking at a 2016 launch for Firdapse in LEMS?
EH: Yes. It wouldn’t take that long for a larger company, but Catalyst needs some time to get everything in place to submit a complete NDA. Probably that will stretch to 2015. Then I give the FDA a full year for approval. Then we’re looking at the drug’s launch.
TLSR: I noted an interesting data point coming from the company. Half of LEMS cases are associated with small cell lung cancer, rather than the autoimmune etiology. Antibodies bind to the tumor cell antigens and to calcium channels in nerve cells, thereby creating this muscle weakness. I’m thinking that there may be several diseases involving muscle weakness where Firdapse could be helpful to patients.
EH: If there is a possibility to expand the drug to new therapeutic areas, I would think it’s in other neurodegenerative diseases, or in calcium channel disorders that cause neurological disease. The company previously suggested that if other diseases share the same symptoms as LEMS, it could expand this drug to those diseases. The FDA may require some new trials.
TLSR: When you think about it, a phase 3 trial with 36 patients is very inexpensive and can be done very rapidly. The idea, obviously, is to get the drug approved, and then the company can expand its indications. If and when Firdapse is approved, it might be used on an off-label basis for some of these other disease indications. What do you think?
EH: Your assumption may be correct. In the U.S. market, doctors tend to use drugs on an off-label basis if the clinician believes it could help a patient. But the company definitely is not allowed to promote it in other indications—only for what is on the drug’s label. If the physician prescribes it without promotion from the company’s representative, that’s usually allowed in this market.
TLSR: The problem here is obviously reimbursement. Would that work with the drug being used on an off-label basis?
EH: If doctors can justify the drug’s cost by documenting symptom relief or other patient benefits, the payers would pay for that. We have seen that in quite a few cases in the U.S., even if the drug is used off label.
TLSR: Go ahead to another company, please.
EH: Rexahn Pharmaceuticals Inc. (RNN:NYSE.MKT) is also a small company, with a market cap of about $150M right now. It’s a cancer drug development company, and its lead product is Archexin (antisense RNA inhibitor of Akt1), targeting a signal transduction pathway in cancers. Right now, the drug is in a phase 2a trialin renal cell carcinoma (RCC); this is the most advanced development program for this company.
Rexahn also has two early-stage compounds: supinoxin (phosphorylated-p68 RNA helicase inhibitor) in phase 1 and RX-3117, which entered the clinic in phase 1 at the end of 2013. These phase 1 drugs are interesting, but Archexin is the value driver right now because it’s in phase 2.
TLSR: Is Archexin partnered with anyone?
EH: Rexahn has 100% rights to this compound, but the company is working to get development partners in North America, as well as ex-U.S. My discounted cash flow (DCF) model 10 years out is based on the company having a partner and taking a royalty on this drug, and that DCF model is what supports my current price target of $1.50.
TLSR: Recently Rexahn was trading at $1/share, so I’m thinking that you must not be looking for any near-term catalysts.
EH: I did talk to management recently. The company will probably report some data on its two phase 1 candidates during 2014, but not on the phase 2 trial for Archexin. One catalyst might be a partnership with a big pharma on the two oral compounds in phase 1. There is a possibility on that front.
TLSR: But your target price is based on Archexin as the value driver.
EH: Archexin is my main driver. I have not placed any valuation on the other molecules, mainly because I don’t believe the company has specific disease indications for them as yet. It is just saying solid tumors at this point. It will probably test these drugs—RX-3117 and supinoxin (RX-5902)—in multiple solid tumors, but after the phase 1 trials, the company will have a better sense of which solid tumor to go after. Then I can build my assumptions.
TLSR: RCC is a difficult indication, and the company’s phase 2 trial is even more difficult because Rexahn is testing Archexin in metastatic RCC. The company says this is a $6 billion ($6B) market. How much of that market could Rexahn carve out with this drug?
EH: First of all, Rexahn is not targeting the entire RCC patient population. It’s just the metastatic, as you say. Also, Archexin will come in after a first-line treatment fails. The indication is second-line metastatic RCC, which is probably a small portion of the total population. I would not factor in $6B. My assumption is going to be for a very limited eligible patient population.
TLSR: Thank you so much, Echo.
EH: Thank you, too.
Echo Yinghui He, M.D., Ph.D, joined Maxim Group LLC in 2009 as a senior vice president in equity research. Prior to joining Maxim Group, Dr. He was a director at Oppenheimer & Co (formerly CIBC World Markets), where she was an equity analyst covering U.S.-listed Chinese stocks. Prior to Oppenheimer & Co., Dr. He served as a vice president at CRT Capital Group, where she conducted equity and credit analysis on Chinese and U.S. biotechnology companies. Earlier in her career, Dr. He served as a research scientist at the National Institutes of Health (NIH), where she participated Human Genome Project aimed at interpreting diseases and their risks by genetic patterns. Prior to the NIH, she worked as a post-doctoral research fellow at Indiana University Medical Center, where she investigated gene therapy for pulmonary diseases and potential drug targets of human HIV infected cells. Dr. He received a M.D. in clinical medicine from Beijing University Medical School, a Ph.D. in medical sciences from the Medical College of Ohio and a master’s degree in business administration from the University of Chicago Booth School of Business.
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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.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report:Catalyst Pharmaceutical Partners Inc. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Echo He: I or my family own shares of the following companies mentioned in this interview: None. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Maxim Group has received compensation for investment banking services from Rexahn Pharmaceuticals Inc. in the past 12 months. Maxim Group expects to receive or intends to seek compensation for investment banking services from Rexahn Pharmaceuticals Inc, in the next three months. Maxim Group makes a market in Rexahn Pharmaceuticals Inc. Maxim Group managed/co-managed a public offering of the securities for Catalyst Pharmaceuticals Partners, Inc. in the past 12 months. Maxim Group expects to receive or intends to seek compensation for investment banking services from Catalyst Pharmaceuticals Partners Inc. in the next three months. Maxim Group received compensation for investment banking services from Catalyst Pharmaceuticals Partners Inc. in the past 12 months. Maxim Group makes a market in Catalyst Pharmaceuticals Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. 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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