DCGN :Update From Analyst Day in Iceland
2006-06-27 15:11 (New York)
Piper Jaffray & Co.
Company Note
June 27, 2006
(DCGN - $5.86)
Market Perform Volatility: Medium
Update From Analyst Day in Iceland
Edward A. Tenthoff, Sr Research Reason for Report:
Analyst Company Update
212 284-9403,
edward.a.tenthoff@pjc.com
William T. Ho, Research Analyst
212 284-9308, william.t.ho@pjc.com
KEY POINTS:
* Yesterday, June 26, deCODE hosted its annual analyst day at its
headquarters in Reykjavik, providing a comprehensive update on the
company's emerging clinical pipeline.
* Importantly, deCODE disclosed Cephalon as the partner for the asthma
program. In a randomized, double-blind, placebo controlled Phase II
clinical trial in 160 asthma patients with the at-risk variants, CEPH-
1347 demonstrated a dose-dependant improvement in some parameters of lung
function including methacholine challenge test (MCT), peak expiratory
flow (PEF) rates and biomarkers for inflammation, of which only MCT was a
primary endpoint. Other primary endpoints including rates of exhaled
nitric oxide, sputum IL-6 and IL-8 all failed to reach significance.
* deCODE recently dosed the first patient in the Phase III Leukotrienes in
Coronary Artery Disease (LTCAD) trial for lead candidate veliflapon (DG-
031). The Phase III trial will enroll 3,450 African Americans who have
recently suffered a heart attack with 80% of patients HapK+, which
confers an increased risk. The randomized, double blind trial will
compare 500mg of veliflapon twice daily (BID) to placebo on top of
current therapies. The primary end-point is a reduction in cardiac
events, namely fatal or non-fatal MI and stroke, hospitalization for
unstable angina and need for urgent revascularization.
* We anticipate deCODE will file an IND for follow-on compound DG-051 that
targets leukotriene-A4 hydrolase shortly.
* deCODE also recently commenced the Phase IIa biomarker study of DG-041 in
peripheral artery disease (PAD) to evaluate safety, tolerability, and
seek the dose ranges that affect platelet function. Patients will be
divided into cohorts receiving the 100mg, 400mg twice daily (BID) or
placebo for four weeks.
* We also learned that deCODE's lead pain candidates DG-061 were unable to
sufficiently cross the blood brain barrier equating to a setback for the
program and no IND filing this year.
* deCODE reviewed the recent diagnostic partnership with Illumina where the
2 companies will develop DNA-based diagnostics for heart attack, type-
2 diabetes and breast cancer.
* deCODE retains $140 million in cash to advance this pipeline and provided
2006 burn guidance of $75-$80 million.
From To Price: $5.86
Changes (Previous) (Current) 52 Week High: $10.77
Rating -- MarketPerform 52 Week Low: $5.57
Price Tgt -- $8.00 Price Target: $8.00
FY06E Rev -- $37.1 Proj Valuation of $450M
(mil) Shares Out (mil): 54.6
FY07E Rev -- $33.0 Market Cap. (mil): $320.0
(mil) Avg Daily Vol (000): 452
FY06E EPS -- ($1.68) Book Value/Share: ($0.40)
FY07E EPS -- ($1.94) Cash Per Share: $2.57
Debt to Total Capital: NA
Div (ann): $0.00
Est LT EPS Growth: NM
P/E to LT EPS Growth (FY06): NA
Est Next Rep Date: 08/07/2006
Fiscal Year End: Dec
Rev (mil) 2005A 2006E 2007E EPS 2005A 2006E 2007E
Mar $9.5A $10.1A $9.0E Mar ($0.32)A ($0.37)A ($0.45)E
Jun $11.4A $8.5E $8.5E Jun ($0.25)A ($0.40)E ($0.47)E
Sep $13.2A $9.0E $8.0E Sep ($0.21)A ($0.42)E ($0.47)E
Dec $9.8A $9.5E $7.5E Dec ($0.39)A ($0.49)E ($0.55)E
FY $44.0A $37.1E $33.0E FY ($1.17)A ($1.68)E ($1.94)E
CY $44.0A $37.1E $33.0E CY ($1.17)A ($1.68)E ($1.94)E
FY RM 7.3x 8.6x 9.7x FY P/E NM NM NM
CY RM 7.3x 8.6x 9.7x CY P/E NM NM NM
INVESTMENT RECOMMENDATION:
We reaffirm our Market Perform rating and $8 price target based on a
projected valuation of $450 million. We anticipate limited clinical data
this year to drive shares higher.
RISKS TO ACHIEVEMENT OF TARGET PRICE:
Risks associated with deCODE are common to all drug discovery companies,
including developmental, clinical, and regulatory. DG031 could fail in the
clinic. deCODE may fail to file INDs or enter into new collaborations,
thereby lowering revenues. deCODE may require additional capital or may
face litigation.
COMPANY DESCRIPTION:
deCODE is a population genetics company located in Iceland that is focused
on developing drugs and diagnostic products.
CEP-1347: Asthma
Based on the success of the DG-031 program, deCODE announced a clinical
development partnership for the treatment of asthma in December 2004.
deCODE's genetic work uncovered a gene that encodes MAP3K9 (Mitogen-
Activating Protein Kinase Kinase Kinase), a kinase that plays a key role in
asthma. The partner Cephalon was developing CEP-1347 that targets MAP3K9
for a different indication and has already demonstrated the safety of the
compound in 800 patients for up to two years.
CEP-1347 is an inhibitor of MAP3K9 that is a part of a subfamily of the
ras/raf/MEK/erk pathway, a complex signal transduction pathway responsible
for signaling gene transcription. The pathway involves a cascade of kinase
proteins involved in a wide variety of functions from immune response to
the regulation of cell proliferation, survival, migration and
differentiation. Multiple studies have demonstrated that the activation of
the RAS or RAF pathway can lead to a cascade reaction of downstream
transcription factors including the NF-kB, c-Myc, and JNK. When activated,
JNK translocates into the nucleus to target the C-Jun, ATF and ELK
transcription factors. These transcription factors are clearly an important
family of genes that have recently been validated by new cancer and immune
system therapies. deCODE's MAPK inhibitor seeks to block the C-Jun kinase
pathway and cytokine production without affecting humoral or cell-mediated
immune responses.
In its preclinical studies, deCODE determined that MAP3K9 haplotypes are
significantly correlated with asthma as determined by FEV1% (p=0.02), MCh
PC20 (p=0.03), use of inhaled Glucocorticoid steroids (GC) (p=0.02), need
for GC drugs (p<0.05) and rate of ER visits and hospitalizations (p<0.05).
Further, it was found that 40% of all Icelandic asthma patients are
carriers of at-risk haplotypes in MAP3K9 and these results have been
reproducible in Denmark and the UK. MAP3K9 genes can be found expressed in
epithelium, endothelium, airway smooth muscle and other inflammatory cells.
In May 2005, deCODE began a proof-of-concept, randomized, double-blind
Phase II trial in 160 asthma patients with the at-risk variants. Patients
received either placebo or one of three doses (the dose have not been
disclosed but are x, 2.5x, 5x mg) BID of the MAPK inhibiting drug in
addition to standard of care treatment for 8 weeks, with a 2-week follow-
up. Inclusion criteria for the Phase II trial include being between the
ages of 18 years to 75 years, a carrier of the MAP3K9 haplotype, a
physician diagnosis and lung measurements demonstrating persistent mild,
moderate or severe asthma, regular use of glucocorticoid drugs and FEV >12%
or >45% of predicted value at baseline among others criteria.
The trial will seek to determine improvement in lung function and reduction
in airway inflammation. deCODE will measure spriometry tests, nitric oxide
exhalation concentrations, bronchial provocation tests and biomarkers in
the sputum to determine activity. The last patient in this trial was dosed
in December 2005 and data was presented at deCODE's analyst day in June.
The results indicate that CEPH-1347 demonstrated an initial efficacy signal
through a dose-dependant improvement in some parameters of lung function
including methacholine challenge test (MCT), peak expiratory flow (PEF)
rates and biomarkers for inflammation. These positive trends are only
observed when a longitudinal exposure analysis is performed and only MCT
was a primary endpoint. Other primary endpoints including FEV1, rates of
exhaled nitric oxide, sputum IL-6 and IL-8 all failed to reach
significance. deCODE has presented the data to Cephalon and awaits a
decision regarding the future development of the program. We believe deCODE
intends to advance the program into additional dose-finding phase II
studies.
Table 1: deCODE Phase IIa Results for CEP-1347 in Asthma
| | |Exposure|Dose Related|
| |ANCOVA |Analysis|Trend |
|FEV1 |p=0.77 |p>0.15 |No |
|MCT Challenge (PC20)|p=0.23 |p=0.02 |Yes |
|Diary PEFam |p=0.55 |p=0.03 |Yes |
|Diary PEFpm |p=0.72 |p=0.15 |Yes |
|eNO |p=0.091|p=0.17 |No |
|Sputum IL-6 |p=0.74 |N/A |N/A |
|Sputum IL-8 |p=0.86 |N/A |N/A |
|MMP-9 |p=0.038|Pending |Pending |
Source: Company Reports
BOLD = primary endpoint
DG-031: Myocardial Infarction
In November 2003, deCODE in-licensed veliflapon (DG-031) from Bayer, now
called DG-031. The drug had been administered to more than 1,000 patients
by Bayer in Phase I and Phase II asthma trials and appears to be safe and
well tolerated. 5-lipoxygenase activating protein (FLAP) stimulates
leukotriene-B4 production and causes inflammation. The goal of FLAP
inhibition is to stabilize plaque, thus preventing rupture and heart
attack. veliflapon works by binding to the FLAP protein and acting as a
competitive inhibitor of the 5-lipoxygenase receptors. This prevents the
translocation of 5-lipoxygenase from the cytosol to the cell membrane and
reducing inflammation.
In October 2004, deCODE completed a Phase IIa trial of 191 Icelanders with
a history of heart attacks that were enrolled in a double-blind, variable-
dose, placebo-controlled cross-over study. The cross-over design allows
investigators to examine placebo effects and any carry-over effects from
treatment phase to placebo. 87% of those enrolled carried an at risk
genetic variant of FLAP and 172 patients completed all visits. The
majority, 161 (85%) of the patients, were also on statin therapy during the
trial. The patients were randomized and dosed three times daily with total
concentrations of 250mg, 500mg or 750mg/day of either placebo or DG-031 for
four weeks. Following dosing and a two week washout period, the drug and
placebo groups were switched and dosed for another four weeks (the cross-
over). All patients were evaluated for biomarkers at weeks 4 and 7.
As expected, the results of the trial demonstrate DG-031 to be safe and
well tolerated with no serious adverse events including liver toxicity. The
primary endpoints demonstrated that DG-031 had a significant and dose-
dependent effect including:
* 26% reduction in leukotriene B4 production by activated neutrophils in
the 750mg/day cohort (95% CI, p=0.003)
* 12% reduction in myeloperoxidase in whole blood in the 750 mg/day cohort
(95% CI, p=0.02)
* 3% reduction in sICAM-I in the 750mg/day cohort (95% CI, p=0.03)
Importantly, the data demonstrated that patients in the pooled 500mg and
750mg/day cohorts of DG-031 also had a reduction in CRP by 16% (95% CI,
p=0.07) at the end of 2 weeks. Although not statistically significant, a
carryover effect was seen. These reductions appear to be persistent and
improve to a statistically significant 25% reduction in CRP at week 6 or
visit #5 (95% CI, p=0.02).
Following completion of the initial study, an open-label randomized follow-
on study was conducted in 75 patients. In this study, 3 groups of 25
patients each received a regimen of DG-031 for 8 days (there was no
placebo) to examine the PK and PD relationship between DG-031, leukotriene
B4, and myeloperoxidase. These cohorts were dosed 375mg/day, 750mg/day
based on 375 mg BID, and 750mg/day based on 250mg 3xs daily. In this study,
a statistically significant 23% (95% CI, p=0.01) overall reduction of CRP
levels was seen in the entire 75 patient population. However, between the
cohorts, the results were not statistically significant and a non-linear
response was observed. After 8 days, CRP levels declined 28% (95% CI,
p=0.02) in the 375mg/day cohort, by 38% (95% CI, p=0.02) in the 250mg, 3xs
daily group and no reduction was seen in the 375mg BID cohort. Importantly,
this reduction in CRP was achieved in addition to any reductions or benefit
caused by the use of statins.
On May 3, deCODE reached a Special Protocol Assessment (SPA) agreement with
the FDA over on the design of the Phase III trial of DG031 for the
prevention of heart attack. The Phase III trial called Leukotrienes in
Coronary Artery Disease (LTCAD) was initiated in May 2006 and will enroll
3450 African Americans who have recently suffered a heart attack and are at
the highest risk of MI. We understand deCODE will enrich the trial with a
subset of patients who carry the HapK variant in leukotriene A4 hydrolase
gene, which confers a 250% increased risk. The randomized, double blind
trial will compare 500mg of DG031 twice daily (BID) to placebo on top of
current therapies such as statins. The primary end-point will be a
reduction in cardiac events, namely fatal or non-fatal MI and stroke,
hospitalization for unstable angina and need for urgent revascularization.
Although the duration of the trial is driven by the number of cardiac
events, we believe this targeted patient enrollment may prove slow and
expect the trial to take up to 3 years to complete with a potential interim
look in 2008. deCODE expects the trial should complete in mid-2009 with an
NDA filing that year and potential approval in 2010.
At this point, we do not expect deCODE to partner this program until after
the Phase III trial, however will ultimately deal for marketing and
distribution. With $140 million in cash, we do believe deCODE has
sufficient resources to fund the trial, which we estimate could cost upward
of $75 million, however may have to raise additional capital at some point
before launch. Importantly, if DG-031 is successful in the Phase III trial,
deCODE should command even more attractive economics from a marketing
partner.
Important to note, the issued composition of matter and manufacturing
process patents on DG-031 expire in 2009 and 2012, respectively. deCODE
filed new patents on the specific test and treatment use of this compound
for novel indications, which could potentially extend patent protection
through 2022. For example, Haplotype K could also be used as a diagnostic
test similar to the HER2/Neu test for Herceptin. In the worst case
scenario, upon potential approval in 2010, deCODE will have 5-year new
chemical entity (NCE) marketing exclusivity as allowed under the Federal
Food, Drug and Cosmetic Act. Intellectual property is one reason that
deCODE's follow-on compound DG-051 targeting leukotriene-A4 hydrolase is
important to the cardiovascular franchise.
DG-051 - LTA4 Hydrolase. deCODE's work in myocardial infarction also
identified a second gene within the leukotriene pathway that confers an
increased risk of heart attacks. The leukotriene-A4 hydrolase enzyme
confers risk of MI that is similar to LDL cholesterol in addition to the
risk previously associated with FLAP. deCODE has identified a follow-on
compound to DG-031 named DG-051. In preclinical studies, DG-051 has
demonstrated potent inhibition of LTB4 production in a once-daily oral
formulation and we look for the company to file an IND shortly.
DG-041: Peripheral Artery Disease
Using information from its population genetics studies, deCODE found that
the two most common haplotypes (15% and 7% of patients respectively) confer
a relative risk of more than 7 times for Peripheral Artery Disease! PAD is
a serious disorder involving atherosclerotic plaques within the arteries of
the legs affecting 1 in 5 elderly patients over the age of 70. PAD can lead
to tissue damage, ulceration, gangrene and in 2%-10% of patients even the
amputation of limbs. deCODE's Pharmaceutical unit discovered a lead series,
selected a development candidate, DG-041 and filed an IND in 3 years.
In January 2005, deCODE filed its first proprietary IND for DG-041 to treat
PAD. DG-041 is an orally available anti-platelet drug that selectively
targets the EP3 receptor for prostaglandin E2 (PGE2). The EP3 receptor is
expressed in smooth muscle cells, found in atherosclerotic plaques and its
binding by PGE2 results in increased platelet aggregation promoting the
formation of plaques. In preclinical studies, deCODE demonstrated that DG-
041 is a potent antagonist of the EP3 receptor for PGE2 resulting in the
inhibition of human platelet aggregation induced in vitro by PGE2.
In March, deCODE initiated a Phase I clinical trial for DG-041. The trial
was an ascending-dose, single-blind, placebo controlled, randomized trial
to evaluate the safety, tolerability, pharmacokinetics and pharmacodynamic
profiles of DG-041 in 54 healthy volunteers. The trial was completed in
fall 2005 and initial data in 18 patients demonstrate DG-041 to be well
tolerated and PK analysis resulted in dose proportionate plasma
concentrations. It appeared that in the higher 100mg and 200mg cohorts, DG-
041 was able to completely inhibit platelet aggregation through the EP3
receptor. Unfortunately, the Phase I trials demonstrated a high level of
variability in oral bioavailability leading deCODE to reformulate the
compound.
deCODE has now completed the second Phase I trial of reformulated DG-041.
In this study, deCODE dosed a total of 196 healthy volunteers up to 1600mg
per day for 7 days. The drug was found to be safe and well tolerated with
no drug-related serious adverse events (SAEs). The new formulation
demonstrated improved PK/PD properties with a 4x improvement in absorption.
Importantly, DG-041 did exhibit a dose-dependent decrease in platelet
aggregation without causing significant changes in bleeding time or
platelet function. deCODE identified likely therapeutic doses.
At this point, DG-041 appears to be a safe drug that decreases platelet
aggregation without extending bleeding times and could be an attractive new
therapy for PAD. In June 2006, deCODE initiated a Phase IIa trial to
evaluate the safety, tolerability, dose ranges that affect platelet
function and a range of serum biomarkers associated with atherosclerosis.
The randomized, placebo-controlled, double-blind trial will enroll 150
patients with intermittent claudication due to PAD. Patients will be
divided into three cohorts receiving the 100mg, 400mg twice daily (BID) or
placebo for four weeks. The trial will enroll both patients with and
without the gene variants that deCODE has linked to risk of PAD. |
