Nexavar misses. But did it really?

News today that Nexavar flunked its' Phase III trial in lung cancer. (NSCLC)

I'll be curious to see the data present at ASCO, because I'm not sure that they really failed. While Nexavar missed the primary endpoint (overall survival (OS)), there was an improvement in the secondary endpoint (progression-free survival(PFS.))

(I've yet to see the relevant figures. All I can go on are news reports.)

Also: every patient in the Nexavar trials had failed at least two previous (standard) therapies, with some having failed three. For NSCLC, you're talking about surgery, radiation, and chemo (2 or 3 of the 3 therapies) before being treated with the experimental targeted drug.

NSCLC is a huge market (~250,000 annual cases in the US alone) but has not yet been broadly cracked by a targeted therapeutic. (Iressa had approval, and Xalkori has approval for use in a very small %age of patients. Tarceva and Avastin both have approval, but clinicians are skeptical and the economic argument is suspect.)

But we have every reason to believe that NSCLC can be impacted by targeting EGFR and/or VEGF - Sutent (Pfizer's competitor to Nexavar) is also in late stage NSCLC trials, and a variety of not-yet-approved targeted therapies are also likely to try to impact NSCLC. Because of the large number of annual cases, and the need to audition as a thrid-line therapy, perhaps we're just setting the the bar too high or setting these trials up for failure.



(please pardon the upcoming rant)

Independent of the judgement on Nexavar in NSCLC, I am very disappointed at the FDA mandate of a placebo arm for oncology trials using late-stage, terminal patients such as the Nexavar trial discussed above. I fully appreciate that to run the most scientifically bullet-proof trial requires a control arm, but what is the humanity in dosing late-stage cancer patients with a placebo? Not only are you potentially generating false hope for the patient and their family, it seems utterly wasteful. With nearly a million cases of NSCLC every year, and decades of data tracking patient outcomes, don't we know by now what the OS and PFS are for NSCLC patients at a given stage?

I'd like to see an FDA/NCI-led project to calculate baseline survival expectation across the most lethal cancers, with these standards to serve as stand-ins for placebo arms. I'm not suggesting relaxing approval standards (I will in a minute), but instead normalizing for humanitarian reasons and economic reasons. Even better, such an FDA/NCI study would be a springboard to genomic-level understanding of outcomes.

Eliminating the placebo arm of trials of late-stage cancer patients would immediately double the base of trials-eligible patients - something very important as on of the hardest things of trial design is recruitment. (The Nexavar NSCLC trial was based on ~700 patients recruited at ~150 locations. Imagine what a pain it is to manage numbers like this, and how much $$$ could be saved if ~350 patients were not needed.)

The two reasons that the use of placebo arms continue (other than seeking perfection in experiments) are that

1) for many drug/disease combination, the survival benefit may be tiny (4.5 months versus 3), to the point of being very difficult to detect.

2) regulators have a negative biased (against approval), mostly for CYA reasons. No one ever got fired at the FDA for being too picky with approvals, while a sure way to get fired at the FDA is to be too permissive.

Combining these two arguments raises the bar for drug approvals. To obviate this, I would make the survival standards generated by the FDA/NIH (discussed above) a simple hurdle - if a drug clears the baseline hurdle survival rate or just ties it, approval is automatic, in contrast to the current approach of requiring placebo arms in order to demonstrate the statistical significance of the trial outcomes.

(Yes, I did just argue against a fundamental aspect of data analysis, but we're talking about cancer here. We need more shots on goal, and more importantly, more learning. We don't really learn anything from a placebo arm patient when we already have millions of data points in our databases.)

(end rant)

ONYX under the microscope

Related to FierceBiotech's Top 10 Promising Cancer Drugs mentioned in my last post, there's one company with two drug candidates in the Top 10 - Onyx Pharma (ONXX).

Each Onyx program is reaching an important milestone/inflection point over the next year, making this an interesting year for the stock, which makes it worth putting under the microscope.

First a refresher: ONXX has an enterprise value of $2B, largely based on Nexavar, their FDA-approved small molecule multi-TK inhibitor. (Inhibiting VEGFR, PDGFR, and Raf, and approved for RCC and HCC.) What makes Nexavar unique is that it is the only approved MAPK inhibitor. (Indeed the only survivor from very intense pharma R&D over the last 15 years.)) Nexavar sales totaled $1B in 2011, and grew 8%. ONXX stock is up 20% over the last 12 months (vs. 10% for NAS), but at 57% vs 81%, ONXX lags the NAS over the last three years.

(live link to chart.)

The partnership between Bayer and Onyx is a bit messy accounting-wise (and was very messy in every other way until last fall), but a half-interest in a growing billion dollar drug is probably worth ~$1.25B. (Quick n' dirty: 50% of $1B in annual rev * 2.5X average price to sales ratio for pharma industry.)

2012: this year Onyx might transform from a company with a single product for two disease indications to a company with three products for five disease indications based on developments in the two programs highlighted by FierceBiotech - Regorafenib for CRC and GIST (CRC is a big market, GIST is small), and Carfilzomib for multiple myeloma (huge market, with Velcade (Millennium) and Revlimid (Celgene) together accounting for >$4B in multiple myeloma drug sales.)

Regorafenib is an interesting story. Regorafenib is very similar to Nexavar, but Onyx's partner Bayer developed the drug on their own. Both sides wrestled over the IP, but eventually settled with Bayer sharing a 20% royalty to ONXX on Regorafenib. I am guessing the amended partnership agreement also included an agreement to market the two similar drugs at different markets, as Regorafenib is seeking approval in new markets relative to Nexavar.

An FDA decision on Carfilzomib will be announced before August, while Regorafenib will file for approval with the FDA later this year. (But with approval in 2013?). Both drugs have supportive late stage trial data.

So, what's ONXX worth? 

The sum of:

value of their interest in Nexavar + value of their 20% interest in Regorafenib, adjusted by the probability of FDA approval + value of Carfilzomib, adjusted by the probability of FDA approval.

here's the exciting part: the sum of the above is MULTIPLIED BY AN ACQUISITION PREMIUM, ADJUSTED FOR THE PROBABILITY OF A BIG PHARMA BUYING ONXX.

(Acquisition rationale: 1) pharmas buy growth products, 2) pharmas buy blockbusters, and 3) Bayer in particular is likely to want to buy out their partner.)

If everything was FDA approved, I think ONXX would be worth roughly

$1.25B for Nexavar

$500M for their 20% interest in Regorafenib (at $1B peak sales x 2.5 P/S ratio).

$2.5B for Carfilzomib (also $1B peak sales x 2.5 P/S ratio. $1B in revenue at peak assumes ONXX takes 25% of the $4B multiple myeloma market, likely displacing Millennium, not Celgene.)

Operating value total: $4.25B

Adding a modest 25% acquisition premium assumption would yield a predicted future value of ONXX of $5.3B, or 2.65X the current enterprise valuation.

(technically you'd discount back from the period of peak sales for each drug for it's present value, but let's keep things simple.)

The expectations for ONXX's prompt FDA approvals obviously would change (reduce) the final corporate valuation a great amount. I have absolutely no insight into what ONXX's chances are with the FDA, nor do I have any reason to make a prediction of ONXX's probability of prompt approval, so you need to adjust the ONXX valuation by your own expectations. But, another way you could look at ONXX is to infer the market's expectations of FDA and product success from today's valuation.

If ONXX's enterprise value is ~$2B, and Nexavar is "worth" $1.25B, you could infer that the discounted value of Carfilzomib + Regorafenib totals $750M. (I'm simplifying here - this analysis assumes no future value for anything else in ONXX's pipeline, which isn't fair.) By extension then, the market says that there is a 18% probability (750/($5.3B-1.25B)) of the scenario I outlined above, including acquisition of ONXX at a premium.

It's up to you to add your own perspective - this is not a recommendation to buy or sell ONXX stock. As of this writing, I hold no ONXX shares and can state definitively that this will not change over the rest of the week. If/when my disposition changes, I will update this page.

Please let me know in the comments section what you think of the above "under the microscope" analysis, and if you would be interested in my duplicating it with other bio-pharma companies in the future.

Interesting new research

1) A sign of research advances to come: a research team used DNA sequencing to find effective uses of approved cancer drugs in new cancer applications.

Study details
target disease indication: colon, lung. (CRC & NSCLC)
core technology: exome sequencing
genes of interest: RET and ALK.
Nutshell: Nexavar, Sutent, and Calpresa ("N,S&C") are each multi-kinase inhibitors approved for other cancers, but they happen to also inhibit RET in addition to their effectiveness against other primary targets (VEGFR). The researchers - backed by Foundation Medicine - found unexpected RET fusion genes in a small subset of samples, and found N,S&C effective in vitro against the cancers with RET expression. The kicker is that neither of the diseases in this study are approved applications for N,S or C. The problem is that the RET or ALK incidence was in only ~2% of the ~600 samples studied.

(Presumably the ALK findings would similarly advance the cause of PFE's Xalkori, and ALK inhibitor.)

This is the type of personalized medicine progress that we've been on the cusp of for awhile, so it is nice to see the promise of personalized medicine become tangible. I expect that we'll see many more studies like this just this year, and each one will advance treatments (and the market for therapeutics) by a tiny bit (in other words, bunt singles, not home runs), but that collectively they'll add up to a big impact, if clinicians can keep all of the findings straight, and if the FDA can fast-track approval for these minor extensions to existing drug approvals. If so, the makers of N,S&C just got a little more valuable and outcomes for patients with CRC or NSCLC just got a little better.

2) new class of anti-cholesterol drugs look tremendously effective. Anti-PSKC9 drugs from Amgen (Phase I) and Regeneron (P II) dramatically cut LDL by using a new way to interdict a known pathway. (The same one targeted by statins.) The AMGN drug is a biological delivered by monthly injection, which makes me wonder: what delivery method has higher effective compliance, a single monthly shot, or daily pills like Lipitor?

Given how early the findings are, though, I don't think we'll see either AMGN or REGN drug on the market until late 2016 at best.


(disclosure: I own a tiny amount of AMGN stock.)

India in the news (x2)

It seems like China makes news in the pharma industry about 10X as often as India, even crediting India for each appearance in the press with negative connotations, like both of this week's stories.

1) Pfizer and Biocon cancel their agreement to co-market biosimilar insulin produced by Biocon. This might be a case - as claimed in the press release - of Pfizer exiting non-core businesses in order to focus on their core branded pharmaceutical business, but if you're devoted to any kind of activity in biosimilars, insulin is a great place to start - it's a very large volume product, and currently served by basically a duopoly (Novo and Lilly.) Pfizer has some institutional knowledge in diabetes (remember the inhaled insulin introduced by Pfizer last decade?), so they must have understood the market opportunity. Pfizer wasn't shy when the agreement with Biocon was launched - it covered most of the world, and they've always been interested in huge markets needing a broad sales force. (As opposed to niche products.)

For Biocon, Pfizer would have provided big, big, big scale for their biosimilar insulin, and allowed the company to focus on manufacturing, rather than to start-up sales and distribution operations in America. Pfizer was a dream partner for Biocon, with their scale and the appeal to Biocon of learning sales & marketing from the best. I can't imagine that they pulled the plug unilaterally, or without trying to save the relationship.

As consolation for the cancellation, Biocon gets to keep a lot of cash from Pfizer (which would fund the development a pretty good US salesforce, though I imagine their next action will be to find another US partner to replace Pfizer.

I'm guessing that this news is a manifestation of strategy differences between former Pfizer CEO Jeff Kindler and his successor Ian Read finally reaching the surface. I don't buy the notion that strategic priorities 'just changed' and that while Pfizer's shifting strategy made biosimilar insulin unattractive, but all other biosimilars still of interest to Pfizer. (I think you're either "in," with Insulin as a cornerstone product for a biosimilars business, or you're "out" of biosimilars.)

The other interpretation that makes some sense is that Pfizer is re-evaluating their business with Indian and Indian companies, and less interested in becoming enmeshed in a country hostile to Pfizer's core business, as manifest by news story #2.....


2) India robs Bayer of Nexavar rights.

The only question here is if this should be called coercion with prejudice, or outright theft.

India's patent court ruled that because Bayer's Nexavar pricing put the drug so far out of reach of Indians, Bayer should be compelled to license Nexavar to an Indian generic drug maker.

India was quoted as saying "Thanks for all of that R&D and stuff, Bayer. We hope your millions invested in R&D pay-off in other countries, but not here, because we are going to free-ride on the rest of the world, as our country-wide economic mismanagement leaves us unable and unwilling to pay."

As a result, Nexavar will be manufactured and sold in India at ~1/35th of Bayer's proposed price.

Nexavar is definitely an expensive product, with a net benefit to cancer patients of about an additional six months survival time, but Bayer had suggested Nexavar pricing to India that was a fraction of "first world" pricing as a concession to India's economic status.

(Similarly, Novartis has been embroiled in similar discussions about Indian access to Gleevec, though no court finding in this case has occurred yet.)


At this point, what do you do if you're Bayer? You can either give in to India's theft, or you can close all operations in the country and presumably let Indian health suffer by not selling their medicines in the country.  (At which point the Indian generic manufacturer will start making Nexavar, without remitting royalties to Bayer.)

Neither is a good option, but after both Bayer was robbed, it is probably a matter of time before a big pharma company skips or ignores India. While I do not look forward to the poor health outcomes that would likely (temporarily) result in India should a pharma company skip India, I would like to see how India & Pharma could establish a constructive relationship one day, and foregoing India is probably the only step for pharma to take to reach those ends.

The kicker to India's decision is that the Indian court's ruling is legal under WTO rules. Other countries could copy India's approach and expropriate pharma IP at will. I highly doubt that the expropriation of Nexavar in India will be the last.