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Friday, September 27, 2013

Biotech IPOs

2013 has been a rebound year for the biotech IPO. Here is a summary from back in mid-August from Mathew Herper of Forbes. Here is Bruce Booth. Here is Xconomy. Over $3B has been raised in IPOs for biotechnology pharmaceutical companies this year. The question is why.

Here is a sampling from the above authors.
With some stocks boasting double- or triple-digit percentage gains from their offer prices, many biotech watches just want to know to things: is this a bubble, and how long will it last? - Mathew Herper 
Outperformance of a “mere” 1000 basis points by a sector may sway a generalist fund manager’s allocation models; a differential of 10,000 basis points definitely will.  This sector differential means that any generalist fund manager who hasn’t had enough weighting to biotech in their portfolios over the past three years has likely underperformed indices, and those with overweight positions have done remarkably well. - Bruce Booth 
There are some promising companies in this 2013 class, but they aren’t that promising. It all looks like the herd is moving into biotech, out of fear of missing out on the next big thing, and desire for the quick buck. - Luke Timmerman
The investors have to cloud up their minds with basis points and performance indices. The pundits fear a bubble. The Cargo Cult angle here is that no scientific breakthroughs are available to explain any of this. As Mathew Herper points out, the IPO mania has offered up a stem cell, a synthetic biology and gene therapy company. Why should they succeed now where their predecessors failed? Can allocation models, basis points and performance indices explain any of this?

These new public companies do not represent a new breed of biotech-pharmaceutics. For example, Biospace has announced yesterday that Ophthotech Corporation pulled in $167M. Ophthotech is developing "novel therapies for age-related macular degeneration (AMD). The field of angiogenesis offers up a therapy for AMD in the form of vascular endothelial growth factor (VEGF) inhibitors. According to BioCenturys' BCIQ, there are 54 compounds in active development that target VEGF or its receptors, not counting line extensions of approved VEGF and VEGF receptor inhibitors. What does Ophthotech bring to the world of VEGF inhibition?

Ophthotech has completed a multicenter, randomized, double-masked, controlled Phase 2b clinical trial evaluating the efficacy and safety of FovistaTM administered in combination with an anti-VEGF agent for the treatment of patients newly diagnosed with wet AMD. The trial included 449 patients at approximately 69 centers in North America, South America, Europe and Israel.
In this study, FovistaTM 1.5mg administered in combination with Lucentis® (ranibizumab injection) demonstrated statistically significant superiority compared to Lucentis® monotherapy based on the primary endpoint of mean change in visual acuity from baseline at 24 weeks. Patients receiving the combination of 1.5 mg of FovistaTM and Lucentis® gained a mean of 10.6 letters from baseline on a standardized chart of vision testing compared to a mean gain of 6.5 letters from baseline for patients receiving Lucentis® monotherapy, representing a 62% comparative benefit from baseline. FovistaTM exhibited a favorable safety profile and no significant safety imbalances were observed for FovistaTM combination therapy as compared to Lucentis® monotherapy.

The endpoint for a clinical trial of a secondary treatment the is the foundation of a company that just pulled in $167M is seeing eye chart. What does Fovista do on its own?

FovistaTM is designed to target platelet derived growth factor (PDGF) and in combination with anti-VEGF drugs disrupt the formation of abnormal new blood vessels in wet AMD. It prevents PDGF from binding to its natural receptor on pericytes, thus causing pericytes to be stripped from newly formed abnormal blood vessels. Left unprotected, the endothelial cells are highly vulnerable to the effects of anti-VEGF drugs. Because of the ability of FovistaTM to induce pericyte stripping from newly formed blood vessels, the administration of FovistaTM in combination with anti-VEGF drugs is likely to inhibit abnormal new blood vessel growth associated with wet AMD more effectively than anti-VEGF drugs alone and may also enhance neovascular regression.
Fovista does not treat AMD on its own. The end point is the eye test and not a quantitative analysis of abnormal new blood vessel growth associated with wet AMD, the hallmark of the disease. Fovista is now ready to enter a phase III clinical trial. It seems like a huge risk to go public at this point. Why don't the investors simply offer up $167M to pay for that phase III trial? Why bring the market and their speculators to gamble on the road ahead? Science is not about speculation.  Luckily Ophthotech has another drug in clinical  trials.

Ophthotech has completed a multicenter, ascending-dose, parallel-group, open-label Phase 1/2a clinical trial evaluating the safety and tolerability of ARC1905 administered in combination with an anti-VEGF drug for the treatment of wet AMD. ARC1905 was generally well tolerated in this trial when tested in combination with anti-VEGF treatment.
VEGF is nothing new. A science czar would be most interested in how this group of scientists measure anti-VEGF treatments. In cargo cult terms, we want to see the technology development report on the angiogenesis assays.

Ophthotech was one of the last IPOs so far this year. Lets look at the first IPO of the year, Stemline Therapeutics. This company targets cancer stem cells which is a baby in the scientific world. Cancer steam cells are in the initial stages of research. Like most cancer theories, cancer stem cell theory is not clearly understood.What Stemline does is to take a home run swing at one of the best knuckle balls ever thrown. What does Wall Street see?

This has a far greater impact than a phase 2b clinical trial that uses an eye chart test on the stock market. Stemline is success without scientific backup. Money is what this is all about. Scientifically speaking, there is no there there.

Cancer stem cells is an exciting idea. Cancer stem cells were discussed in the documentary "Forks Over Knives". Perhaps there is a signal in our DNA when the telemeres get too short. A signal is sent out and our built in expiration mechanism is triggered. CSCs represent a legitimate basic research opportunity. There is controversy still, which is good. Controversy is where a good scientist will sink his teeth in. Wikipedia:

The existence of CSCs is a subject of debate within medical research, because many studies have not been successful in discovering the similarities and differences between normal tissue stem cells and cancer (stem) cells.[7] Cancer cells must be capable of continuous proliferation and self-renewal in order to retain the many mutations required forcarcinogenesis, and to sustain the growth of a tumor since differentiated cells (constrained by the Hayflick Limit[8]) cannot divide indefinitely. However, it is debated whether such cells represent a minority. If most cells of the tumor are endowed with stem cell properties, there is no incentive to focus on a specific subpopulation. There is also debate on the cell of origin of CSCs - whether they originate from normal stem cells that have lost the ability to regulate proliferation, or from more differentiated population of progenitor cells that have acquired abilities to self-renew (which is related to the issue of stem cell plasticity).

So what is the science behind the biotech IPO craze? Wouldn't it be fun to be that group of scientists whose job it is to test the tests. Take the technology transfer and match what has been said with what you find in your research. Rather, the work has been handed over for clinical trial analysis. During that time stocks will rise and fall based on speculation. Scientifically speaking, biotech IPOs do not represent an exciting time. Cargo Cult Scientifically speaking, perhaps the IPOs are the cargo. And the cargo has landed. You just need to know if you are receiving the cargo or if your investment is the cargo.


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