 ISSUE No. 801 | March 21, 2015
IN THIS ISSUE: March Madness; Guest Analyst Recommends ACAD
Since Last Issue: BTK: 4.7%; NBI: 4.9%; Model Portfolio: 2.6%; Trader’s Portfolio: 4.0%
Biotech Sector Spotlight
SENTIMENT — Searching for the Next Takeover Target
With about to be part of ABBV (~$21 billion) and another bidding war emerging (SLXP ~$11 billion), the current theme of the biotape is finding the next acquisition candidate. With JNJ and PFE missing out on PCYC, each bidder was willing to spend at least $15 billion on a takeover. The trickle-down effect has begun with the proceeds of the ABBV/PCYC deal releasing $15-16 billion in cash (ex-CEO Duggan’s stake) that will more than likely be filtered back into mid-sized biotech stocks. Another $11 billion or so will also be funneled to health care/biotech investors soon as specialty pharma SLXP falls into the hands of Valeant (which beat out ENDO). The abundance of big corporate cash (~$55+ billion based upon the above four examples) has kept this sector red hot in March, despite this month often being a seasonally weak period for these stocks (see MTSL issue #785). A group of new possible takeover candidates has emerged and their respective shares have factored in some M&A premium (e.g., BMRN, ICPT, RLYP, RCPT, ALNY, INCY, JUNO, KITE, etc.).
Many of the top-tier stocks reached new highs once more as the American College of Cardiology confirmed the potential of the PCSK-9 inhibitors as the next blockbuster class (e.g., AMGN, REGN/SNY and to a lesser extent MDCO/ALNY).When biotech has a new super class about to be approved, it adds another level to the already hot sentiment. Moreover, the global economy appears to have slowed a bit, therefore biotech remains one of the premier growth sectors to invest in. In addition, other sector leaders BIIB (Alzheimer’s data) and CELG (Crohn’s data in the NEJM) are each on the cusp of their own new blockbusters. Taken together, that means more new highs for biotech stocks. Sentiment is screamingly high right now, along with valuations. Stocks appear overbought on the charts, too. In the very near term, that doesn’t seem to matter with all that cash chasing the next .
DATA — Biotech Dominates New Drug Development at ACC
The prowess of the biotech industry and its ability to deliver new and innovative drugs was on full display at the recently concluded American College of Cardiology (ACC) meeting. The PCSK9 inhibitors – A “New Hot Class†that we have discussed many times – was the all the rage as Phase III trials from Regeneron/Sanofi and Amgen have both delivered impressive LDL cholesterol reductions with antibodies that easily exceed the efficacy of statins.
While the PCSK9 stocks have done quite well since the meeting, upstart Esperion may have stolen the show at ACC, as their Phase IIb data for a new cholesterol pill looks as efficacious with the major advantage of being orally-delivered (see MTSL’s “Oral Arguments†1/5/13).
The stock had >25% short interest before the data release, which helped add fuel to a >30% one day move in the stock. ESPR’s drug ETC-1002 added to statins increased efficacy by almost 25%, without any muscle soreness – a major side effect of the statin blockbuster class that has since begun to go generic.
Without a partner, ESPR may be ripe for acquisition – it was PFE who bought and sold EPSR previously, but ego would probably prevent them from re-buying the potential new Lipitor replacement. As we went to press, BIIB is presented detailed interim Phase Ib data for its Alzheimers drug, BIIB037, Friday, March 20th at the AD/PD conference in Nice, France. The oral presentation will begin at 10:35am Nice time / 5:35am New York. This is a very high profile compound for BIIB and Japanese partner, Esai, as well as the biotech industry and Alzheimer’s patients, too. In a Phase Ib trial of 166 patients, Biogen’s drug BIIB037 reversed build-up of beta amyloid in the brain and also reduced cognitive decline, with higher doses and longer treatment resulting in more improvements.
The data was so strong that BIIB will go directly into Phase III dev’t later this year. M&A – Remains Red Hot With Another Major Bidding War – In rapid fire action, this Monday Valeant outbid Endo’s Friday night takeover offer for Salix by about $1 billion – or $172 a share (roughly $11 billion). Salix specializes in gastrointestinal drugs. Either way, the deal will provide yet another chunk of cash to investors’ pockets (plus increasing their performance).
More Deals Every Day
Once more, there are too many deals to write about but another decent sized takeover, this time in device/diagnostic land, has Mallinckrodt buying Ikaria for $2-3 billion to expand its neonatal intensive care treatments/ The deal adds to Mallinckrodt’s hospital business by complementing its diagnostic radiology and pain management franchise in surgical specialties. Ikaria’s top product, INOmax, treats premature infants with breathing difficulties. Mallinckrodt has been on a buying spree. Since Mallinckrodt was spun off from Covidien Plc in 2013, Mallinckrodt acquired pain – drug maker Cadence last year for about $1-3 billion, then followed up by buying Questcor for $5-6 billion. Interestingly, the Company itself is now being rumored to be a target for Teva.
REGULATORY
Lose Some/Win Some — AcelRX Pharmaceuticals stock was down more than 30% after the FDA told the company to conduct an additional clinical study on its pain druf. The regulator rejected the drug Zalviso, once more last July. Merck’s Keytruda (an immune-oncology drug, anti-PD-1 for melanoma) is the first drug accepts under the United Kingdom’s Early Access to Medicines Scheme. Europe’s FDA started the program last year to help patients benefit from promising drugs before they’re granted approval in Europe. Last October, Keytruda received a “Promising Innovative Medicine†designation from the U.K., which was the first step necessary before early access to the drug could be granted. It was approved in the U.S. last September.
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Clinical Trial Watch
Relevant New Studies or Changes Posted on ClinicalTrials.gov for our MTSL Portfolio and/or Related Companies since last Issue:
AMGN – Trial Assessing Efficacy, Safety and Tolerability of PCSK9 Inhibition in Paediatric Subjects With Genetic LDL Disorders (HAUSER-RCT)
CELG – Romidepsin Plus Cisplatin in Locally Recurrent or Metastatic TNBC
AMGN – Trial Assessing Efficacy, Safety and Tolerability of PCSK9 Inhibition in Paediatric Subjects With Genetic LDL Disorders (HAUSER-RCT)
CELG – Romidepsin Plus Cisplatin in Locally Recurrent or Metastatic TNBC
AMGN – Trial Assessing Efficacy, Safety and Tolerability of PCSK9 Inhibition in Paediatric Subjects With Genetic LDL Disorders (HAUSER-RCT)
New Recommendation
Introduction
[s_static_display codes=â€ACADâ€]In this edition of BioInvest, we begin to expand our coverage of neurology-based companies with . 
Acadia has a potential blockbuster compound for Parkinson’s disease psychoses (PDP) and possibly Alzheimer’s disease psychoses (ADP) and schizophrenia as well. In the Acadia & Nuplazid (pimavanserin) review, we cover the Acadia corporate profile, unmet needs in PDP, Nuplazid in PDP and potential peak revenues in PDP, plus additional Nuplazid indications, product pipeline, management team assessment and the investment thesis.
About
ACADIA Pharmaceuticals is a biopharmaceutical company focused on the development and commercialization of innovate medicinets to address unmet medical needs in neurological and related central nervous system disorders. Acadia has a pipeline of product candidates led by Nuplazid (pimavanserin), for which they have reported positive Phase III trial results in Parkinson’s disease psychosis and which has the potential to be the first drug approved in the United States for this disorder.
Unmet Need in Parkinson’s
Psychoses Parkinson’s disease (PD) is a progressively debilitating neurodegenerative disease afflicting approximately one million Americans. The median age of PD is 74 years old. Dementia emerges later as a natural progression of PD and is characterized by hallucinations and delusions. Parkinson’s psychosis may impact up to 40% of PD patients. The treatment and management of PD is extremely difficult unto itself and treatment of PDP compounds that complexity and created enormous caregiver burden at home. PDP is the number one reason PD patients are admitted to skilled nursing facilities. The current standard of care for PDP is the use of off-label antipsychotics, which has some neutralizing effects on the dementia but have adverse side effects that worsen the motor symptoms of PD.
The antipsychotics have BLACK BOX warnings that describe the increase in mortality in elderly patients with dementia-related psychosis.
Nuplazid in Parkinson’s Psychoses
Nuplazid is a selective serotonin inverse agonist preferentially targeting 5-HT 2 A receptors believed to play an important role in psychosis. Nuplazid is administered orally once-a-day. Acadia discovered Nuplazid and holds worldwide rights to this new chemical entity. Nuplazid has a selective non-dopaminergic profile and selectivity on brain receptors (see Table 1 to the left).
Strong Phase III Results
Pimavanserin met the primary endpoint in the 020 Study by demonstrating highly significant antipsychotic efficacy on the 9-item SAPS-PD scale (p=0.001).
Ultimately in our view peak potential in the U.S. and worldwide revenue estimate for PDP is $5.5 billion and $9 billion respectively. Illud accumsan tacimates nam te, usu putant animal integre ad. Ne mea eruditi inimicus. Option consetetur ius et, sea eu facilisis splendide, mel at nulla causae. Vidit sadipscing vix ad. Eirmod debitis in cum, per no suas torquatos conclusionemque, eripuit quaestio te per. His nobis bonorum democritum ex. Eu clita forensibus has. No fuisset splendide mel, eu dicat aliquando quo. Quo equidem alienum ea, eos mucius invidunt elaboraret ad. Ei sed dolorum accommodare, sale electram contentiones ea per. Nam malis soluta an, no oratio aliquid theophrastus eam, nostrum appetere at mei.
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Pipeline
Acadia has a chronic pain & glaucoma compounds in Phase II and Phase I respectively that are licensed to Allergan. They have additional preclinical programs for chronic pain and Parkinson’s disease.
Management “Not” On Track
As has been written recently in the MTSL, a CEO discount is certainly appropriate at ACAD. Management has been preparing the Nuplazid NDA for over a year and announced on the November quarterly call. After repeated public assurances from the executive team including on the Q! quarterly call, that they were on track, on March they announced yet another NDA filing delay.
Clinical Trials Watch
Relevant New Studies or Changes Posted on ClinicalTrials.gov for our MTSL Portfolio and/or Related Companies since last Issue: Abramson Cancer Center UPENN-CART-meso long—term Follow-up CELG.
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Eu clita forensibus has. No fuisset splendide mel, eu dicat aliquando quo. Quo equidem alienum ea, eos mucius invidunt elaboraret ad. Ei sed dolorum accommodare, sale electram contentiones ea per. Nam malis soluta an, no oratio aliquid theophrastus eam, nostrum appetere at mei.
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Company Updates
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ANTHERA
CHABLIS Trial Designed To Increase Likelihood of Success – Reiterate BUY After the successful completion of two interim looks of the Phase III trials of blisibimod, we spoke with Anthera Chief Medical Officer Colin Hislop M.D. to further delve into the CHABLIS study design. 
After performing further due diligence, we remain confident in b-mod’s clinical potential and believe that the odds of success are much greater than they were in PEARL.
The primary objective of the CHABLIS study is to evaluate the clinical efficacy of blisibimod as measured by a composite responder index in subjects who, despite corticosteroid use, continue to have autoantibody positive, clinically-active systemic lupus erythematosus (SLE) as defined by a SELENA-SLEDAI score ≥10 (view clinical trial). The Systemic Lupus Erythematosus Responder Index (SRI) is a measurement of the activity level of a patient’s disease, and is a composite of three SLE assessment scales – the SELENA-SLEDAI, the Physician Global Assessment (PGA), and the British Isles Lupus Assessment Group (BILAG). Various symptoms, including arthritis, proteinuria, and vasculitis are evaluated using a system of points to determine the severity of disease activity and the progression of the autoimmune disease. Exhibit 1 describes this trial. An endpoint of SRI-8 indicates an improvement in a patient’s SELENA-SLEDAI score of ≥8 points, with no new lupus flares as measured by BILAG, and no worsening in their PGA score- a decrease in both a patient’s disease activity and their risk of disease flare.
Blisibimod is a selective peptibody antagonist of the BAFF cytokine that is initially being developed as a treatment for lupus. BAFF is a tumor necrosis family member and is critical to the development, maintenance and survival of B-cells. It is primarily expressed by macrophages, monocytes and dendritic cells and interacts with three different receptors on B-cells including BAFF receptor, or BAFF-R, B-cell maturation, or BCMA, and transmembrane activator and cyclophilin ligand interactor, or TACI. The BAFF-R receptor is expressed primarily on peripheral B-cells.
With one approved drug that targets B-AFF (GSK’s Benlysta), another that recently completed two Phase III studies (LLY’s tabalumab) and the b-mod studies’ patient population – ANTH has an unprecedented ~4,000 patient Lupus database with which to understand the ideal patients to include in CHABLIS. In sum, there are several features that have been factored into the studies to significantly increase the odds of a positive outcome:
a) More Severe Patients Respond The Best to BAFF Treatment – In the Benlysa AdCom, patients with more severe disease activity – those with SELENA-SLEDAI score ≥10 and low complement levels – responded better to all three of the compounds – Benlysta (see BLISS trials below), LLY’s tabalumab and b-mod in ANTH’s PEARL trials.
b) Less Non-Steroid Background Medication – We always believed that the Pearl study results, despite coming close, were confounded based on the fact that patients had variations in their background medications including steroid use. With the large database of patients treated with BAFF compounds, then analyzed and with subsequent input from KOLs and global regulators, ANTH has included a better control of background meds, including non-steroid use. Whereas investigators were give 24 weeks in PEARL to adjust such use (vs. 52 weeks of overall treatment), in CHABLIS that has been reduced to 8 weeks. As a result, the outcomes will be clearer that the positive effects in the treatment arm are due to b-mod.
c) SRI-6 Is A Proven Endpoint In All Three – Benlysta was approved on a positive SRI-4 primary endpoint. In both the LLY Phase III and the ANTH PEARL Phase II studies, SRI-6 response rates were also statistically significant (see below). As Lilly was attempting to use SRI-5 as their approvable endpoint, despite its lower potency vs. b-mod, ANTH chose to use SRI-8 as their initial Phase III endpoint – based upon PEARL and to gain a potential marketing advantage should LLY be successful. Well, now that LLY is out of the picture and that ANTH has had time to review all of the data (including some help from the LLY team) and with regulators’ blessings, it changed its endpoint to SRI-6 from SRI-8 before taking the positive interim CHABLIS look in January. As one can see from the graph below, SRI-6 changes were positive all three drug trials of BAFF inhibition. Changing endpoint mid-study often entails some statistical penalty, however, from what we understand based on the trial design that penalty is miniscule. Moreover, proving SRI-6 is less risky than proving SRI-8. To make matter more conclusive, SRI-8 still remains a secondary endpoint in the study.
What’s important to understand is that the PEARL studies were Phase II trials – not Phase III trials. The goal of a Phase II study is to help identify the ideal patients and dose to use in a Phase III or registration trial. Taken together using PEARL plus the Benlysta and tabalumab data, in our view, Anthera has designed the CHABLIS studies to vastly increase the likehood of a statistically significant outcome. Enrollment appears to be ahead of schedule, and will likely conclude by mid-year/Q3:15, with the top-line data due in Q3:16. The second CHABLIS trial is expected to begin in H2:15, and will likely also have an improved trial design. Should CHABLIS prove successful, the risk/reward of the current $140 million market cap of ANTH shares will be hard to match.
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MEDICINES COMPANY
Special Update – The Medicines Company (MDCO) – Angiomax Pre-Announcement Now Discounts Patent Loss – The Reincarnation Is Around The Corner – Reiterate BUY –
1. Q1 Angiomax Shortfall Not Entirely Unexpected –In our last Issue, we mentioned that based upon the judge’s comments from the March trial, Hospira is very optimistic that they will win the Angiomax patent lawsuit. 
They are so confident that they will emerge victorious, HSP seems to be telling hospitals not to order any Angiomax because an inexpensive generic will be available come June. While Angiomax represents important cash flow, it is not a growth product and certainly not a reason to invest in MDCO shares. In addition, the miss is entirely due to Angiomax, and there is usually some drawdown of inventory ahead of upcoming generic approval. The miss of $52-60 million is approximately a month of sales, typically 4-6 weeks of the MDCO inventory. Finally, it does not appear to change in the number of hospital procedures.
2. Here Comes The Pipeline – Investors’ focus can now shift to their broad 9-10 drug pipeline as MDCO begins to unlock that value that is, in our view, increasing in value daily as the company delivers clinical data and regulatory approvals worldwide. Three drugs just last week received EU approval – cangrelor, Orbactiv, Rapixa. Two of those products (cangrelor, raplixa) are awaiting near-term U.S. approval, and another one (IonSys) has an April 30 PDUFA date. Branded Kengrexal overseas, cangrelor is the first and only intravenous antiplatelet agent that provides immediate, consistent, and rapidly reversible P2Y12 inhibition.
The company re-submitted the NDA in December and the drug is scheduled to go before another advisory committee on April 15. In our view, the resurrection of cangrelor will go a long way in restoring management’s credibility as well as delivering a potentially important growth driver. The PDUFA date is July 28. Raplixa is the first ready-to-use, biologically active, powdered fibrin sealant that provides hemostasis in a wide range of bleeding settings. It too, has experienced some regulatory delays – not due to clinical data – and its PDUFA date is the end of April. Lastly, IonSys – a novel anesthetic transdermal patch for pain – also has an April 30 PDUFA date. Taken together, these 3-4 near-term global introductions are driving a major comeback year for the MDCO pipeline.
3. Long-term Blockbusters Increase Takeover Potential – With novel a compound in the PCSK9 race in ALN-PCS, a next-generation antibiotic in carbavance and unique new rapidly-acting IV anesthetic in ABP-700 – in our view, MDCO would be considered one of the more exciting new biotech IPOs if Angiomax was not in the picture. Hence, the takeover and global partnering potential continues to increase as these future blockbusters progress through the clinic.
4. Stock Now Discounting HSP Win – While consensus sentiment has reflected HSP winning the Angiomax patent suit, in our view, today’s pre-announcement basically discounts an actual MDCO defeat in the stock before it actually happens. Many investors have been on the sidelines awaiting a final patent decision. With today’s news, we believe, here is their opportunity. Moreover, with the patent overhang virtually out of the stocks way, MDCO’s takeover potential, we believe, also rises.
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FIVE PRIME
Five Prime lorem ipsum dolor sit amet, in sed omnis laboramus. Ex mei sonet fabulas tacimates, ridens convenire eos id. Mei ad assum conclusionemque vituperatoribus, id pri inimicus scripserit, purto dolores ullamcorper an vim. 
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Illud accumsan tacimates nam te, usu putant animal integre ad. Ne mea eruditi inimicus. Option consetetur ius et, sea eu facilisis splendide, mel at nulla causae. Vidit sadipscing vix ad. Eirmod debitis in cum, per no suas torquatos conclusionemque, eripuit quaestio te per. His nobis bonorum democritum ex.
Five Prime CEO, Lewis “Rusty” Williams is looking to acquire another company to get new products and gain a competitive advantage. He recently talked to us about his new strategy and here are the highlights.
He began by reiterating something about what he’s planning to do. Then he decided to discuss the exciting new merger and acquisition.
He feels that the combined companies will be able to dominate the market. The goal is to create a blockbuster cancer drug, and he has the right management team in place to do just that.
Read more about our take on Five Prime’s CEO Lewis “Rusty” Williams now.
Eu clita forensibus has. No fuisset splendide mel, eu dicat aliquando quo. Quo equidem alienum ea, eos mucius invidunt elaboraret ad. Ei sed dolorum accommodare, sale electram contentiones ea per. Nam malis soluta an, no oratio aliquid theophrastus eam, nostrum appetere at mei. Sed ne omnium recusabo, eam ferri blandit sadipscing ne. Vim accusam mediocritatem ne, ut oblique tibique abhorreant vix. Ei nam habeo movet prompta. Duo dictas tacimates reprehendunt id, ei sumo erat feugiat sea. Usu eruditi meliore imperdiet cu, at sea scripta facilis.
Eu clita forensibus has. No fuisset splendide mel, eu dicat aliquando quo. Quo equidem alienum ea, eos mucius invidunt elaboraret ad. Ei sed dolorum accommodare, sale electram contentiones ea per.
Nam malis soluta an, no oratio aliquid theophrastus eam, nostrum appetere at mei. Sed ne omnium recusabo, eam ferri blandit sadipscing ne. Vim accusam mediocritatem ne, ut oblique tibique abhorreant vix. Ei nam habeo movet prompta. Duo dictas tacimates reprehendunt id, ei sumo erat feugiat sea. Usu eruditi meliore imperdiet cu, at sea scripta facilis.
Eu clita forensibus has. No fuisset splendide mel, eu dicat aliquando quo. Quo equidem alienum ea, eos mucius invidunt elaboraret ad. Ei sed dolorum accommodare, sale electram contentiones ea per. Ei nam habeo movet prompta. Duo dictas tacimates reprehendunt id, ei sumo erat feugiat sea. Usu eruditi meliore imperdiet cu, at sea scripta facilis.
Illud accumsan tacimates nam te, usu putant animal integre ad. Ne mea eruditi inimicus.
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©Piedmont Venture Group (2015). Address: P.O. Box 40460, Berkeley, CA 94706. Telephone: (510) 843-1857. Fax: (510) 843-0901. BioInvest.com. Email: mtsl@bioinvest.com. Published 24 times a year. Email subscription rates: 1 year – $399, 2 years – $678, 3 years – $898. You may cancel at any time for a prorated refund. The information and opinions contained herein have been compiled or arrived at from sources believed to be reliable but no representations or warranty, express or implied, is made as to the accuracy or completeness. In no way shall this newsletter be construed as an offer to sell or solicitation of an offer to buy any securities. The publisher and its associates, directors or employees may have positions in, and may from time to time make purchases or sales of, securities mentioned herein. We cannot guarantee and you should not assume that future recommendations will equal the performance of past recommendations or be profitable.