Amarin trades down, Synergy updates on enrollment, Bristol Myers checkmates brain cancer, Immunocellular rallies on company press release, Durect files shelf, Let's go over the stories we've been watching, commenting upon and trading this week.
Amarin Corporation PL/C (NASDAQ:AMRN)
Last week, we covered the news that AMRN expects a decision from the FDA by January 15th regarding reinstatement of the ANCHOR special protocol assessment. In that coverage, we provided a probability weighted model to determine whether or not a position in AMRN would be worthwhile. Briefly, the model uses the prices upon success and failure of a given outcome, weighted by the probabilities of success or failure to determine a risk adjusted fair value. One of the other uses for such a model is to determine what probability of success the market is assigning for a given event based on the current market price. Recall that our model suggest a $1 price if the SPA is not reinstated and an $8 price is the SPA is reinstated. Based on these two prices and AMRN's Friday closing price of $1.82, the market is assigning an 11.7% probability of a successful outcome on the SPA reinstatement and eventual approval decision.
We have no position in AMRN.
Synergy Pharmaceuticals (NASDAQ:SGYP)
On Tuesday Synergy announced completion of enrollment in their Phase 2b trial of plecanatide in constipation predominant irritable bowel syndrome (IBS-C). The press release indicates that the trial will have top-line results available "in the beginning of the second quarter of 2014." SGYP is a stock we have been following for well over a year as it progressed through it's previous phase 2b/3 trial in chronic idiopathic constipation (CIC). We were expecting an announcement about the trial enrollment anytime before the end of the year based on previous company statements, and the company delivered as promised.
As of their Q3 earnings report, SGYP had $82.1 million in cash and cash equivalents. Recall that in early November we covered SGYP's cash position and we had recommended to our beta testers that entering a long position in the stock at that time was worthwhile given the expected announcements of data from the IBS-C trial in early 2014. The company has been burning $4.3 million per month this year. If that trend were to continue steady, SGYP has about 16 months of cash left. At that time, we also estimated that the company may likely spend $30 to $40 million on plecanatide R&D in 2014. If the R&D spend comes in at the higher end of this range, then the company has about 13 months of cash on hand rather than 16 months.
We have some internal estimates for when exactly we expect the top-line results from the IBS-C trial to be available. We are in the process of verifying some of our assumptions regarding timing of certain events and will be sharing these estimates with readers once we finish these checks. For now suffice to say that we don't recommend relying on the April options to capture upside from the actual top-line results.
SGYP traded up 23% this week compared to the previous week's closing price of $4.32. We attribute this to early entrants for the run-up trade ahead of the IBS-C data. We will be covering SGYP in more detail as the data gets closer. We are generally bullish on the trial showing success due to a number of factors including results from the previous CIC trials and the design of this particular trial. We will be elaborating on these points in our future coverage.
Investors in SGYP need to keep close watch on company updates regarding cash burn as well as keeping a watch on how Ironwood Pharmaceuticals (NASDAQ:IRWD) and partner Forrest Laboratories (NYSE:FRX) are faring with marketing of linaclotide. Just as with the obesity drug makers, we expect that particularly strong or particularly weak sales results for linaclotide would affect SGYP since the drugs are in the same category. In the short term the top-line results may de-couple the stock performance of IRWD and SGYP, but eventually these stocks will influence each other. As we have mentioned in previous coverage, we expect SGYP to raise cash sometime next year, perhaps just a few months after the IBS-C results are announced.
We are long SGYP.
Bristol-Myers Squibb (NYSE:BMY)
Last week we mentioned the news that BMY had sold it's diabetes business to Astra Zeneca (NYSE:AZN). We suggested that this was a strong indication that BMY is placing it's future hopes on it's immunooncology programs. This week we heard news of the CheckMate 143 clinical trial that BMS will be conducting using Nivolumab (Yervoy) or Nivolumab combined with Ipilimumab VS Bevacizumab (Avastin) in recurrent Glioblastoma multiforme (GBM). While we have been covering the GBM immunotherapy efforts of several micro-cap biotech firms throughout 2013, the entry of a large cap player in this space is quite significant. We already know that the checkpoint inhibitors have demonstrated astonishing success for several other types of cancers. If the anti PD-1/PDL-1 approach is generally applicable to all cancers, this may bode well for GBM patients.
The Checkmate trial will enroll 260 patients beginning in January 2014 and is expected to readout In January 2018. Note that, even though this is a phase 2 trial, BMY is planning to enroll 260 patients, and the trial will complete after 176 deaths. This is a stark contrast to the phase 2 trials run by the smaller biotech companies in the GBM immunotherapy space. Recall that Immunocellular Therapeutics (NYSE:IMUC) just completed a phase 2 trial that "enrolled" 278 patients, but only actually treated 124 patients with top line results after 67 deaths. Given its size, the Checkpoint 143 trial is better designed to detect a statistically significant difference in overall survival if one exists.
One of the important points to consider for the smaller companies conducting trials in GBM is that acquiring patients may become more difficult with the entry of BMY into this therapeutic space. As a GBM patient who is entering a clinical trial, the BMS name may carry more weight and legitimacy than the unproven therapies from less well-known companies. This does not mean that the smaller companies will not be able to recruit at all (unfortunately there are far too many patients suffering from these deadly cancers), but, enrollment may become more difficult especially in the best cancer treatment centers, if both patients and doctors favor BMY due to it's proven track record.
Immunocellular Therapeutics (NYSE:IMUC)
On Monday, after the market closed, IMUC issued a press release announcing the dosing of the first patient in a phase 1 trial of their second pipeline candidate ICT-121. Recall that ICT-121 is a CD-133 based dendritic cell immunotherapy aimed at attacking cancer stem cells. The single-center open-label phase 1 trial in patients with recurrent GBM is being conducted at Cedars-Sinai medical center, that same place that conducted the phase 1 trials of ICT-107 which led to much retail investor enthusiasm regarding a positive phase 2 outcome for IMUC. The ICT-121 trial in recurrent GBM is one of the trials that will face competition for patients from the BMS checkmate 143 trial (see above).
IMUC rallied as much as 25% based on this press release, not because of the ICT-121 news, which was widely expected before years' end, but rather, becuase of some comments made by IMUC CEO Andrew Gengos in the press release. First, Gengos stated that:
In 2014 we expect to have three active cancer vaccine clinical programs, led by ICT-107 in newly diagnosed GBM and including ICT-140 in ovarian cancer and ICT-121.
This was a clear indication that the company intends to press forward with further trials of ICT-107. Gengos indicated that the company is consulting with neuro-oncology experts regarding the top-line results, and expressed that the company still believes that the PFS data is an indicator of how the overall survival data may mature (despite missing statistical significance when top-line data were announced). Investors seemed to react favorably to the following statement in the press release:
I want to emphasize some key points relative to ImmunoCellular's corporate goals and strategies. We intend to build a leading cancer immunotherapy company. We think that our dendritic cell-based cancer vaccine platform has the potential to transform cancer treatment, and that our cancer vaccines in development today could represent new therapeutic options for patients. ICT-107 is the first immunotherapy in a well-designed and placebo-controlled trial to demonstrate safety and a treatment effect in newly diagnosed GBM, a disease for which nothing has been approved in the US since temozolomide in 2005. We urge patients and other stakeholders to look beyond the unsubstantiated commentary on the recent trial results to what we and clinical experts believe are important findings from this clinical program to date. We believe that ICT-107 has notched an important advance in the development of new immunotherapy treatments for GBM, and we are committed to its development. We intend to continue to make high quality, data-driven decisions about advancing and expanding our pipeline, and believe we have sufficient financial resources to meet our near-term goals. [emphasis added]
The highlighted sentence above indicates that the company is both perplexed by the recent drop in stock price and that perhaps they have also been getting questions from potential patients regarding their therapies. If patients start to question the value of the company's therapies, enrolling future trials becomes that much harder. We find it rather odd that Gengos would be calling out "unsubstantiated commentary" regarding the recent trial results. Why would investors suddenly start giving more weight to statements by the company when it was the company itself that, for several years now, touted unusually high overall survival results from their cherry-picked phase 1 trial as indicative of probable success in the phase 2 trial? While Gengos in recent times has tried to moderate expectations, the company never stopped it's misleading comparisons to the Stupp et. al. clinical trial despite the obvious problems in comparing a single center open-label cohort of 16 patients with a properly randomized double-blind trial that enrolled 573 patients. The market has correctly re-valued IMUC to reflect commercial prospects for ICT-107 given the latest available data. It is commendable that the company has shown some advancement in progression free survival for newly diagnosed GBM in a double-blind clinical trial, but this is a far cry from the 38.4 month median overall survival that was reported in their phase 1 results. Even the statistically significant PFS result of 2 to 3 months is a far cry from the 10 month PFS advantage that the phase 1 results had when compared to the Stupp. trial.
Our view is that IMUC faces significant financial challenges in being able to mount a phase 3 trial. While the company had $29.4 million in cash at the end of Q3, a phase 3 trial will cost around $50 million if not more, and the company will need additional funds to continue operations until the trial completes. There is no immediate need for them to raise cash, but once a phase 3 trial protocol is finalized, cash will be a gating factor. We expect that sometime next year, after the full trial results have been analyzed and the company has had it's end of phase 2 meeting with the FDA, IMUC will raise cash.
We have no position in IMUC.
Durect Corporation (NASDAQ:DRRX)
Last Friday Durect filed a mixed shelf registration statement registering securities with a total value of up to $100,899,998. This consisted of $75 million in new securities being registered, and $25,899,998 in securities that were previously registered under a prior S-3 registration statement. While inexperienced investors often have a knee-jerk reaction when they see a shelf registration statement with numbers like $100 million, it is important to keep in mind that a registration statement is NOT the same thing as the company actually attempting to raise the indicated amount of cash in the immediate future. In the present case, along with the S-3 there WAS a separate $25 million "controlled equity offering" agreement (ATM facility) between DRRX and Cantor Fitzgerald. These shares have been specifically registered to be sold in the near future. However, contrary to our initial thinking, even these shares may not be in play prior to the Posidur PDUFA date.
Recall that DRRX expects to hear back from the FDA on their new drug application of their post-surgical pain treatment Posidur, by February 12th. If the ATM facility were being used immediately after is was filed, this would potentially be a negative signal from the company indicating that they feel the need to raise cash now ahead of the FDA decision. However, recall that DRRX raised $11.5 million in the beginning of November, with the closing occurring on November 13th. One of the clauses in the prospectus supplement for this offering was entitled "No Sales of Similar Securities". The clause states that:
Subject to certain exceptions, the underwriters will require all of our directors and officers to agree not to offer, sell, agree to sell, directly or indirectly, or otherwise dispose of any shares of common stock or any securities convertible into or exchangeable for shares of common stock without the prior written consent of Stifel, Nicolaus & Company, Incorporated for a period of 90 days after the date of this prospectus supplement.
We have agreed that, subject to certain exceptions, for a period of 90 days after the date of this prospectus supplement, we will not, without the prior written consent of Stifel, Nicolaus & Company, Incorporated, offer, sell or otherwise dispose of any shares of common stock, except for the shares of common stock offered in this offering.
The 90-day restricted period in all of the agreements is subject to extension if (i) during the last 17 days of the restricted period we issue an earnings release or material news or a material event relating to us occurs or (ii) prior to the expiration of the restricted period, we announce that we will release earnings results during the 16-day period following the last day of the lock-up period, in which case the restrictions imposed in these lock-up agreements shall continue to apply until the expiration of the 18-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event, unless Stifel, Nicolaus & Company, Incorporated waives the extension in writing. [emphasis added]
Notice the part about not selling common stock without the consent of Stifel Nicolaus for 90 days? If Stifel consented to the company selling $25 million in stock, they would be doing a disservice to their customers who bought in to the November 13th offering. We have reached out to DRRX CFO Matt Hogan to confirm whether or not shares under the ATM facility are subject to the 90-day lock up. Our initial guess is that the ATM facility is indeed subject to restriction. In which case, the company would not be selling shares via the ATM until at least February 11th, just 1 day before the PDUFA decision is due.
While the market reacted negatively to the DRRX S-3 and ATM facility filing, the 90-day lock up from the previous financing means that there is little to no read-through from the registering of the ATM facility to the PDUFA decision. Instead, we view the ATM facility as preparation for after the PDUFA decision.
We are long DRRX.
UPDATE: We heard back from Matt Hogan - read his response to our inquiry.
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