Biotech Alert 6/22/03
[Dr. Garren likes mAbs and the companies that make them]
Getting back to the small cap biotechs I want to discuss the monoclonal antibody companies three of which I like and have been buying. During the height of this bear market these companies basically traded a little above cash— I think those days are well over. All these companies have a rich and highly developed technology with consolidated IP positions. The monoclonal antibody field is moving in the direction of more drugs in clinical trials. The recent success of Erbitux and Avastin highlight the importance of antibodies as therapeutics and even the large pharmas are beginning to recognize this fact. Lastly, may of the antibody companies have at least one drug in which they have at least a 50% ownership. The companies I like are Medarex (MEDX), Cambridge Antibody (CATG—an ADR and thinly traded) and Abgenix (ABGX). I like each of these companies for a different reason. Readers of Biotech Insight alerts should be aware of both MEDX and CATG since both stocks have been in the Model Portfolio and the subjects of prior alerts. I still like these companies at their current prices.
The case for Medarex is based mostly on the fully owned MDX-010 antibody to CTLA4. The concept behind this treatment is to activate the cellular immune system by blocking CTLA4. MEDX has good IP in this area and Phase I trial results show efficacy in melanoma patients (especially those with a history of prior or concurrent vaccine therapy). I think 010 may be the answer to finally getting cancer vaccines to work. MDX-010 may also have single agent activity and may be useful in the infectious diseases (a trial just started in HIV). Side effects that mimic autoimmune diseases are a downside, however they disappear when the drug is stopped and pulsed steroids are given. Initial work focused on melanoma patients many of whom were getting the gp100 vaccine. There were good responses with 6 out of 38 patients (combined study results) showing either partial or complete remissions and some of these were of good duration. There was a correlation between responders and the autoimmune side effects, which you might expect if T-cell activation is the mechanism. I think the risk reward benefits in both cancers and serious infections will make the side effect profile tolerable. In the past we have used much more toxic therapies such as high dose Il2 infusions, which required the patient to be in the ICU. MDX-010 is currently in Phase II trials in melanoma (dacarbazine +/- MDX-010) and prostate cancer (Taxotere +/- MDX-010) and will soon be in a breast cancer trial. MEDX also has another fully-owned potentially important antibody. This one is still preclinical and targets PSMA, an antigen found on prostate cancers. The competition is the Millennium (MLMN) J591 antibody already in early clinical trials. The confusing IP in this area was mitigated by cross-licensing agreements. My gut says that the MEDX antibody is better because it binds a conformational epitope while J591 binds a linear epitope (a long science discussion) and we already know that the MLMN product does not work as a naked antibody. MEDX stock has more than doubled from a low of $2.55 to $6.25. The current market cap is $481 million. However remember that in the stock bubble this company traded at almost $200/share. Anyway my point is that this company is still undervalued considering the early success of 010, other antibodies in their pipeline, their 31% stake in GenMab, multiple collaborations, and a net cash position of $100 million. MDX 010 is the main value driver and positive Phase II data could drive the valuation to the billion dollar range.
The case for Cambridge Antibody is based on a proprietary monoclonal CAT-152 (Trabio) a fully human monoclonal antibody to TGF beta. Three Phase III trials are underway to prevent scarring and recurrent obstruction in post-glaucoma surgery patients. Two of the trials are 152 vs a placebo and one trial compares 152 to5FU, which is used off-label in the US for this indication. We should see the first data around June of ’04. Phase II results showed a significant reduction in intraocular pressure at one year with CAT-152 and just recently three year data was presented. The market is not huge, possible $100 million/year but for a company with a market cap of $350 million this is a big deal. They also have a 50/50 collaboration with Genzyme on a related antibody (CAT 192) to treat systemic sclerosis and this could be a much bigger market because of the sustained nature of any therapeutic intervention. Phase I/II trials are underway for this indication and results should be available sometime towards the end of ’04. As with the other antibody companies CATG has many other collaborations and multiple antibodies in clinical trials. The company is in a dispute with Abbott about reductions in the 3% royalty on Humira (an anti-TNF antibody for RA), which has impacted the stock price. On the surface it would seem that CATG has the stronger case and the offsets Abbott is asking were not part of the original deal with Knoll in ’95. I still think CATG is a buyout opportunity especially since they consolidated their IP position.
I have not mentioned Abgenix before but this is another company (like Medarex) that uses a transgenic mouse to produce fully human antibodies. They also have a high-through-put system for identifying the appropriate antibody producing cells without having to go through the labor-intensive hybridoma screening stage. I like Abgenix' 50/50 partnership with Amgen on their monoclonal antibody to EGFR (epidermal growth factor receptor). This target was recently validated in the Phase III Erbitux trial (Erbitux is an antibody to the same target). Abgenix also changed the constant portion of the antibody to an IgG2 fragment to try and eliminate toxicity. Since the antibody seems to work by binding and inhibiting growth signals this may have been a good strategy. However it eliminates the possibility of recruiting the immune response as an effector function. I think the jury is out on whether this was a good design or not. Early trials show single agent efficacy in refractory colon cancer in the same order as Erbitux. However one big advantage of the ABGX antibody is that it doesn’t cause infusion reactions. These reactions occur in about 3% of Erbitux infusions causing oncologists to prophylax with steroids and other agents. This is not a big deal since we are use to doing this for other therapies but in general if there were an equivalent antibody without infusion reactions I would use it. The reason for this side effect is that Erbitux is only humanized while the Abgenix antibody is fully human. Abgenix’ registration strategy is not entirely clear but it appears the antibody works and may have a real advantage over the competition. ABGX has about $140 million net cash, a full antibody production plant, other antibodies in clinical trials and many other collaborations. The current market cap is $868 million. I expect EGFR antibodies to be broadly used as a second-line colon cancer therapy possibly moving to first-line therapy. This antibody may find broad application in many other epithelial tumors as well. I like Abgenix at the current price.
The antibody companies are no longer dirt-cheap but I don’t view them as expensive. In a reasonable market we should see prices climb as a function of clinical trial results. |
