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Friday, November 21, 2014

Omni Bio Encouraged By Early-Stage Data At American Heart Association Meeting

By Jason Napodano, CFA

On November 19, 2014, Omni Bio Pharmaceuticals, Inc. (OMBP) presented data from a Phase 1 clinical trial studying the effects of a single dose of plasma-derived alpha-1 antitrypsin (p-AAT) in ten patients post acute ST-elevation myocardial infarction ("STEMI"). The goal of the study (NCT01936896) was to determine whether treatment with pAAT reduces inflammatory response in patients with acute STEMI. The study took place at The Virginia Commonwealth University under direction of principal investigator Antonio Abbate, M.D., Ph.D. The data were presented in poster form at the American Heart Association Scientific Sessions 2014, in Chicago, IL.

Below we provide a brief background on p-AAT, preclinical data supporting potential use of the drug in cardiovascular indications, and summarize the poster presented at AHA. We also discuss additional indications for p-AAT, some already approved, and how this data could help Omni Bio secure funds to help drive forward the company's novel synthetic formulation of alpha-1 antitrypsin.

Brief Background On AAT

Alpha-1 Antitrypsin (A1AT) is a protease inhibitor belonging to the serpin family. A1AT is a single-chain 52-kDa / 394 amino acid glycoprotein produced by the liver with a circulating reference range in blood between 1.0 and 3.5 mg/mL. A1AT acts as a serum trypsin inhibitor, inhibiting a wide variety of proteases, protecting tissue from enzymes of inflammatory cells, especially neutrophil elastase. Research shows that A1AT modifies dendritic cell maturation and promotes T-cell differentiation. Specifically, A1AT decreases the production of important inflammatory cytokines such as tumor necrosis factor (TNF)-α and interleukin (IL)-1β, two prototypical upstream mediators of inflammation. A1AT also lowers the levels of the chemokines and monocyte chemotactic protein (MCP)-1, two major chemokines in the trafficking of inflammatory cells (Lewis EC, 2011). Data presented at AHA last week is now suggestive of A1AT also lowering C-Reactive Protein.

In the absence or low levels of circulating A1AT, proteases such as neutrophil elastase are free to break down the connective tissue fiber elastin, which contributes to the elasticity of the lungs, resulting in respiratory complications such as emphysema or chronic obstructive pulmonary disease (COPD) in adults and hepatic cirrhosis in children. Genetic disorders that result in low levels of A1AT allow for the degradation of lung tissue that leads to the characteristic manifestation of pulmonary emphysema (Tuder et al, 2010).


A1AT deficiency (A1AD) has no cure. Instead, physicians attempt to manage the symptoms of the disease, either by treating the related lung or liver conditions or augmenting circulating A1AT levels with weekly infusions of plasma-derived A1AT (p-AAT). However, because p-ATT is in limited quantities (it is pooled from donated human plasma), augmentation by weekly infusions of p-AAT is recommended only for patients with severe A1AD. It's also incredibly expensive at around $2,000 per dose. And, since the half-life of p-AAT is roughly 3 to 5 days, A1AD patients require weekly infusions. This puts the yearly cost at over $100,000 for the average 60-70 kg patient.

There are four manufacturers of p-AAT worldwide, Grifols, Baxter, CSL Behring, and Kamada. The largest providers is Grifols’ with a product they call Prolastin-C. Annual sales of Prolastin-C are roughly $500 million. This is what Dr. Abbate at VCU used in the Phase 1/2 study.

The Phase 1 Study - Evidence Of Effect On CRP

Prolastin-C was provided to Dr. Abbate's lab at VCU free of charge, courtesy of Grifols. The study itself was sponsored by the American Heart Association. As noted above, the goal of the study was to determine whether treatment with pAAT reduces inflammatory response in patients with acute STEMI. A total of 10 patients were enrolled. The primary endpoint was AUC for C-Reactive Protein (CRP) with data points at baseline, day 3, and day 14. Secondary endpoints included safety and both cardiac and non-cardiac adverse events over a 3 month period following the single infusion of Prolastin-C at 60 mg/kg. Below is a cartoon depicting the trial design. We note there was no placebo group in the trial. Instead, investigators chose to compare the results with 20 historical STEMI patients (likely at the same hospital this trial took place). We also show patient characteristics below.


The data show that the area-under-the-curve (AUC) of CRP levels was significantly lower in the Prolastin-C treated group when compared to historic controls. The graph below on the left shows the AUC for CRP over the three tested time periods, infusion, day 3 and day 14. The graph on the right shows the absolute change in CRP at day 3. Investigators reported that both data sets are statistically significant when compared to historic controls.


Obviously it would have been ideal to compare these ten patients vs. another ten patients on placebo instead of 20 historic placebo patients. As stock analysts, we are skeptical of calling single-center data statistically significant when compared to historic controls. The trial design of this Phase 1 study was clearly not the gold-standard randomized, multi-center, placebo-controlled design that is required for FDA approval, let alone true proof-of-concept. However, we believe the marked reduction in CRP is clearly evidence as demonstrated in the graph above on the right. We look forward to seeing future data in this regard from next stage clinical trials.

In terms of how a reduction in CRP relates to real-world outcomes for patients, study investigators followed all 10 patents for 12 weeks after Prolastin-C infusion. One subject died during sleep at week 8. Study investigators believe this individual suffered stent thrombosis. Another subject suffered a pulmonary embolism at week 11. No subjects in the study showed new onset heart failure or recurrent myocardial infarction at week 12.

Safety results show that Prolastin C infusion was well tolerated, with no related adverse events. This was expected considering the U.S. FDA has already approved the use of Prolastin-C in A1AD patients. Below is a table showing patient vital signs prior to and at the end of infusion. The average time from percutaneous coronary intervention to drug infusion was 320 minutes [260-444] with the average infusion time taking between 12 and 15 minutes.


Animal Data Show Promise In Ischemic Heart Disease

Data shows that p-AAT may play a role in preserving tissue integrity and reducing scar formation thanks to its potent anti-inflammatory characteristic (Lewis, EL, 2012). Evidence also shows protection from ischemia reperfusion injury in renal mouse models by p-AAT (Daemen et al, 2000).

Work published in the Journal of Molecular Cell Cardiology shows the effects of exogenously administered p-AAT on caspase-1 activity and on the outcome of ischemia-reperfusion injury in a mouse model of acute myocardial infarction. Mice underwent 30 min of coronary artery ligation followed by reperfusion and were randomly assigned to receive clinical-grade A1AT or albumin at reperfusion. Infarct size was evaluated after 1 and 7 days. A1AT-treated mice had significantly smaller infarct sizes (-30% day 1 and -55% day 7) compared with mice treated with albumin (below). AAT-treated mice also exhibited a smaller increase in left ventricular end-diastolic diameter and end-systolic diameter, and smaller reduction in ejection fraction. The authors conclude that exogenous administration of clinical grade A1AT reduces caspase-1 activity in the ischemic myocardium leading to preservation of viable myocardium and prevention of adverse cardiac remodeling (Toldo S et al, 2011).


Lots Of Potential With A1AT

Besides the approved indications for drugs like Prolastin-C in treating patients with A1AD, companies like Omni Bio believe that p-AAT could have utility numbers inflammatory and metabolic disease. The lead indication seems to be in steroid refractory graft-vs-host disease (GvHD). There are two ongoing pilot studies, one under the direction of Dr. Pavan Reddy, MD at the University of Michigan (NCT01700036) and another under the direction of Dr. H. Joachim Deeg at the Fred Hutchinson Cancer Research Center (NCT01523821). The mechanism of action in GvHD is similar to how the drug works in patients post STEMI, a reduction in pro-inflammatory cytokines such as TNF-α and IL-1β in the allogeneic recipients is thought to reduce the risk of rejection. Data from the steroid refractory GvHD programs should be presented in December 2014 at the American Society of Hematology (ASH) meeting.

Diabetes is another key area of interest for p-AAT manufacturers like Grifols and Kamada. For example, a Phase 2/3 placebo controlled trial of Kamada's Glassia® in recent onset Type-1 diabetics (NCT02005848) is ongoing. This is a fairly-large trial that just began in November 2013 with a goal of enrolling 192 newly diagnosed Type-1 diabetics at four clinical sites in Israel. The primary endpoint is beta cell function at twelve months vs. baseline. A Phase 2 placebo controlled trial of Prolastin-C in recent onset Type 1 diabetics (NCT02093221) is also ongoing. This is a slightly smaller trial at only 75 patients compared to the one Kamada and Baxter are running, but the trial is being conducted at a dozen sites in the U.S. so many garner more U.S. investor attention.

On April 30, 2014, Omni Bio announce publication of a Phase 1 pilot study sponsored by the University of Colorado, Barbara Davis Center for Childhood Diabetes under the direction of Dr. Peter Gottlieb. Published results in the Journal of Clinical Endocrinology and Metabolism show that AAT may have a beneficial effect on Type-1 diabetes in recently diagnosed patients through the down-modulation of IL-1β and other pro-inflammatory cytokines.

What This Means For Omni Bio

The reason we mention these outside studies is because Omni Bio controls the intellectual property to an issued method and composition patent for the treatment of diabetes (Type-1 or Type-2) using p-AAT. The company also controls the rights to method of use patents covering p-AAT in GvHD, non-organ transplant rejection, post myocardial infarction remodeling, certain bacterial and viral infections, and radioprotection. On May 8, 2014, Omni Bio announced receipt of a Grant Notice from the European Patent Office for the use of AAT in reducing the risks of non-organ transplant rejection and graft versus host disease (GvHD) in patients who have received a cornea, bone marrow, or pancreatic islet cell transplant.

That means if Kamada or Grifols wants to seek approval to market their respective p-AAT products for diabetes or GvHD, or any other indication for which Omni Bio controls the IP, they need to come to Omni Bio for a sub-license. This creates an interesting potential bidding war between some very big players in Baxter, Kamada, and Grifols, all with significant skin-in-the-game already with their respective p-AAT products for the treatment of A1AD.

Fc-AAT – A Game Changer

Despite all the promise and potential for p-AAT, the drug remains horribly inefficient to manufacture. In an era of recombinant insulin, synthetic clotting factors, monoclonal antibodies, interference RNA, exon-skipping technology, and the ability to transplant living human neural stem cells, all of the currently available A1AT replacement therapy products are derived from pool human plasma. The market leading product, Prolastin-C, is prepared by cold ethanol fractionation from pooled human plasma purified by polyethylene glycol (PEG) precipitation, anion exchange chromatography, and cation exchange chromatography. Two additional steps, a solvent / detergent treatment and 15 nm virus removal nanofiltration are also included in the process to reduce risk of transmission of enveloped and non-enveloped viruses.

The product also has a short half-life of only 3-5 days, meaning that administration for patients with A1AD must be done through weekly infusions. The infusion process takes about 2 hours and must be performed at an infusion clinic. The average cost of therapy is around $2,000 per 60 mg/kg weekly infusion, or around $100,000 per year! It’s pretty simple, p-ATT is expensive, inconvenient, and though the products are treated extensively to reduce the risk, potentially exposes patients to blood-borne pathogens.

Omni Bio’s lead Fc-AAT molecule is a fusion protein that combines human AAT (below left) with an Fc fragment of human IgG1 immunoglobulin molecule. This fusion protein spontaneously binds together to form a dimer. Each dimer contains two AAT molecules and two Fc molecules connected by molecular bonds (below right).


Omni Bio believes the technology used to construct Fc-AAT is similar to that already used to create highly successful drugs for human application, such as Amgen / Pfizer’s Enbrel. Enbrel was jointly developed by Immunex (acquired by Amgen) and Wyeth (acquired by Pfizer). Omni Bio’s CEO, Dr. Bruce Schneider, was a senior R&D executive at Wyeth and was intimately involved in the development of Enbrel. Through our conversations with Dr. Schneider, he tells us that many of the experiences with Enbrel are transferrable to the development of Omni Bio’s Fc-AAT molecule.

We think the company’s Fc-AAT molecule has the potential to be a game-changer in this market; not only for replacement therapy in patients with AAT deficiency, but also in expanding the use of the A1AT molecule into new areas of therapeutic treatment such as Type-1 diabetes, GvHD, and myocardial infarction. Currently, all available supply of p-AAT is delegated for patients with A1AD. The new indications noted above have significant interest, but uptake would be limited by supply and cost. That’s why we think the Fc-AAT formulation has the potential to big a big seller, and we suspect even quality for ‘Breakthrough Therapy’ designation by the U.S. FDA.

Omni Bio’s recombinant Fc-AAT is 40-50x more potent than p-AAT based on early-stage animal trials. For example, Fc-AAT in models of gout and myocardial infarction that show good dose response and also that a 50 ug dose of Fc-AAT performed at least as well as a 2 mg dose of p-AAT. The drug offers improved stability and longer duration of effect. Omni Bio expects that Fc-AAT will be administered via self-administered subcutaneous injections, a huge improvement over 2+ hour trips to the local infusion center.

The company hit a major milestone earlier in November with respect with to manufacturing. Omni Bio has teamed up with Patheon and Sigma-Aldrich Fine Chemicals (SAFC) to product Fc-AAT. On November 18, Omni Bio announced that they have successfully identified several high-expression cell lines able to produce recombinant alpha-1 antitrypsin (Fc-AAT) in large enough quantities to be considered commercially viable. The news enables Omni Bio to move toward IND-enabling toxicology studies with the first and only pharmaceutically feasible recombinant A1AT candidate currently in development. We expect that Omni Bio and Patheon will move into manufacturing scale-up activities in early 2015 to support further preclinical investigations and early clinical studies. We believe a simple and low-cost manufacturing of recombinant alpha-1 antitrypsin would allow for dramatically improved supply and economics to patients.

Conclusion

Omni Bio remains squarely on our radar for potential break-out names in 2015. The recent data presented at AHA earlier in the week provides an interesting look at the mechanism of action and potential utility of p-AAT outside of just use in patients with A1AD. The expected data on the use of p-AAT in GvHD to be presented at ASH in early December should be another incremental positive for Omni Bio. However, larger-scale trials being run by Kamada, Baxter, and Grifols in diabetes, if positive, are what will lead to licensing agreements and a major move in the stock for Omni Bio. In the meantime, we are pleased with the company's recent progress on creating a recombinant alpha-1 antitrypsin molecule, and believe this has the potential to be a blockbuster product should development move to commercialization.









Wednesday, November 19, 2014

Astute Deal Brings In Another Shot On Goal For Amarantus Bio

By Jason Napodano, CFA

Amarantus Acquires Rights To Engineered Skin Substitute

On November 17, 2014, Amarantus Bioscience Holdings, Inc. (AMBS) announced that it has entered into an exclusive option agreement with Lonza Walkersville, Inc. to acquire Cutanogen Corporation. Both Lonza Walkersville and Cutanogen Corp. are subsidiaries of Lonza Group Ltd. Acquiring Cutanogen gives Amarantus rights to develop Engineered Skin Substitute (“ESS”), an autologous skin replacement product for the treatment of Stage 3 and Stage 4 intractable severe burns. Below we provide a brief background on the financial terms of the deal, the history and clinical use of ESS, how it fits into the Amarantus portfolio, and conclude with some thoughts on the deal and the Amarantus story.

Financial Terms

To acquire the rights to ESS, Amarantus paid Lonza Group, Ltd $250,000 in cash. However, this is just for the exclusive option. To execute the transaction, Amarantus will pay Lonza $4.0 million in cash. The option period expires on December 31, 2014. Amarantus has also agreed to pay milestones to Lonza of $1.0 million for a successful Phase 1 trial and $4.0 million upon the filing of a Biologic License Application (BLA). Lonza is also entitled to 2% royalties on commercial sales.

ESS is a product with a somewhat checked past (we discuss below). There is active litigation between Lonza and publicly-traded Regenicin Inc. (RGIN) that encumbers the asset from future development. In short, Regenicin is suing Lonza for breach of contract on a previous transaction / know-how agreement on the ESS product rights. To unencumber the ESS product, Amarantus is acquiring the lawsuit from Regenicin Inc. for the sum of $3.5 million in cash and $3.0 million in Amarantus stock. The schedule of payments between Amarantus and Regenicin can be found in a Form 8K filed by Amarantus on November 14, 2014. As of today, Amarantus has already paid Regenicin (or its lawyers) $500,000 in cash and 37.5 million shares of AMBS stock. The remaining $3.0 million in cash will be paid by January 31, 2015. Amarantus has also paid $450,000 to its lawyers for legal services.

All-in, this asset cost (or will cost) Amarantus $11.2 million in combined cash and stock on or before January 31, 2014. Future milestones to Lonza bring the total to $16.2 million + 2% royalties on commercial sales. In an effort to fund the initial payments to acquire ESS, Amarantus raised $3.0 million in cash on November 7, 2014 through the sale of 3,300 shares of newly designated Series E 12% Convertible Preferred Stock. On November 12, 2014, the company also extinguished $500,000 in a promissory note through an additional Series E Preferred Stock transaction. We remind investors that Amarantus also has significant room under its common stock purchase agreement with Lincoln Park Capital to raise additional capital in the near future. Under the current plan, Amarantus can raise up to $17 million in cash with LPC.

ESS Background Info

ESS, previously known as PermaDerm®, is a tissue-engineered skin substitute prepared from a patient’s own (autologous) skin cells. It is important to note that because ESS is an autologous product, there is virtually no risk of rejection. ESS is also a living-tissue human-derived product; it is not synthetic, harvested from human cadavers, made from allogenic donors, or derived from animals like a porcine or bovine dermal matrix. In a sense, it is the ideal skin substitute because each application is specifically designed for the patient in need. It is also one of the only skin substitute products available that contains both epidermal and dermal layers of skin.

ESS consists of an absorbable collagen and glycosaminoglycan matrix seeded with autologous epidermal keratinocytes and dermal fibroblasts. Skin cells are harvested through a full thickness postage-stamp sized biopsy. Keratinocytes and fibroblasts are then isolated from the harvested section in the cell therapy facility and cultured separately in nutrient media over a 30 day period designed to increase the area of the product up to 100 times the size of the biopsy. This work is done at a cGMP manufacturing facility. The newly formed living skin graft tissue combined with a biopolymer substrate fabricated from collagen recreates the structure of the skin. The final skin product is shipped back to the patient in 6 x 6 cm or 12 x 12 cm sheets housed in sterile culture medium containing gentamycin / amphotericin B. The product is stable at room temperature for up to 48 hours from time of packaging.


Patients with large burns (≥50% of their total body surface area) often do not possess sufficient skin to cover the burn with traditional meshed split-thickness grafting. Meshed grafted creates additional wounds that require attention and frequent harvesting of new skin over an excruciatingly slow and costly process. For example, the average cost for a patient in the Critical Care Unit can reach upwards of $7,000 per day. Because ESS can be expanded and stretched to fit over the patients entire wounds, the product is not only potentially life-saving, but offers dramatically improved cost saves to the healthcare system. In the U.S. alone, burns account for 900,000 hospital days and $3 billion in annual critical care costs. And, because the patient can receive coverage for a larger percent of their body, use of ESS is hypothesized to lower the risk of infection and post-CCU complications.


The product has been previously used in over 150 mostly pediatric patients. It has been in development for over 20 years, initially developed by Steven T. Boyce, PhD while working at the University of Cincinnati – Shriners Hospital for Children (UC-SHC). Dr. Boyce founded Cutanogen in 1997 to move the development of the product forward. The U.S. FDA approved an Investigation Device Exemption (IDE #G980023) in 1998, which lead to the first clinical trial conducted at UC-SHC in 28 patients. At some point, the HHS’s Office of Human Research Protection (OHRP) discovered that UCSHC did not have investigational review board (IRB) approval and notified UC of noncompliance with standard clinical trial practices. Issues noted in the OHRP letter to UC include lack of procedural consent forms and standardization of enrollment criteria. UC attempted to address the concerns of the OHRP through various levels of back-and-forth written communication between 2000 and 2003.

Meanwhile, separate from the procedural issues that drew the attention of the FDA and OHRP, Dr. Boyce was busying making multiple presentations at various medical conferences claiming the effectiveness of the product between 2000 and 2006. Presentations included talks at the American Burn Association meeting, the Australia-New Zealand Burn Association meeting, L’Oreal Recherche, the American Academy of Pediatrics, the British Society for Cell Biology, and a NIH Workshop on Engineered Human Skin (source: Sandy Frost). UC-SHC even applied to trademark the name PermaDerm®, and was granted a U.S. Patent No. 6,905,105 – Apparatus for Fabricating A Biocompatible Matrix. In 2006, Cambrex acquired Cutanogen for $1.5 million in cash and $4.8 million in future milestones. Cambrex was acquired by Lonza in February 2007.

Based on the encouraging data being presented by Dr. Boyce, the UC submitted various grants to move development of PermaDerm® forward. Grants and awards included a $1 million gift from Fifth Third Bank in November 2003 and an Army grant of $1.3 million to fund skin research awarded in December 2008. Unfortunately, all the data presentations and applications for grants drew the attention of the U.S. FDA, who conducted a “high priority” inspection of UC-SHC in March 2006. The inspection report in June 2006 noted hundreds of violations, including failure to obtain IRB approval, failure to report unanticipated adverse events, unapproved informed consent, failure to report and maintain adequate records of adverse events, inadequate or missing enrollment criteria, inadequate record keeping, failure to report protocol violations, and failure to adequately document patient background and history.

Over the next several months, the U.S. FDA sent three warning letters to UC-SHC. Additional information can be found in the three letters (here, here, and here). The primary focus of the FDA was the lack of informed consent and the failure to document and adequately report on adverse events. There were also significant procedural issues around manufacturing and reporting; these eventually warranted the FDA placing the clinical development of PermaDerm® on “Integrity Hold” in January 2007. Additional information can be found in an article written by online investigative journalist, Sandy Frost published in December 2007.

The FDA Morley Audit from March 2010 noted, “Hundreds of violations,” the majority of which were around inadequate reporting of adverse events. Despite the FDA clinical hold and warning letters, interest in PermaDerm® remained high from physicians and patients. Of course, between 2000 and 2007 one can argue only the “good data” on PermaDerm® was presented by Dr. Boyce and promoted by UC-SHC. Nevertheless, UC-SHC had petitions for compassionate use of the product. One specific instance was from a ten year old burn patient in June 2010. The FDA rejected the application a week after it was filed, noting, “Failure in data collections and oversight…” as the reasons for not allowing the products use. Quite simply, the FDA was not convinced that PermaDerm® worked as well as the data presented publicly made it seem, and was deeply concerned with the lack of reported safety data and nature and frequency of adverse events with the products use.

In August 2010, Regenicin completed an acquisition of the technology know-how on PermaDerm® from Lonza Walkersville. We note that new Amarantus BOD member and previous advisory, Dr. Joseph Rubinfeld, was appointed to Regenicin’s BOD at the time of the deal. In late 2010, Lonza reported have received access to more than $18 million in grant funding from the U.S. Department of Defense for the development and commercialization of PermaDerm®. Lonza and Regenicin planned to conduct a clinical trial in adult burn patients in 2011, but the trial never started due to the FDA clinical hold. Despite the lack of clinical progress over the past several years, in June 2012, the U.S. FDA granted Orphan Drug designation to the product.

Today, ESS, which is the new GMP manufactured version of PermaDerm®, has a new Investigational New Drug (IND) application with the U.S. FDA, essentially wiping the slate clean of existing clinical data, both good and bad. Amarantus goal is to initiate a Phase 2a clinical study with ESS in the second quarter 2015. This trial has already been listed on ClinicalTrials.gov (NCT01655407). The trial is designed to enroll 10 adult patients (age 18-40) with deep partial or full-thickness burns ≥ 50% of their total body surface area (TBSA). The trial is set up to compare treatment with ESS vs. treatment with meshed, split-thickness autograft (MSTAG) on a per-patient level. The primary assessment measures will be: 1) incidence and severity of infections (0-6 months), 2) incidence of re-grafting (0-6 months), 3) incidence of adverse events (treatment-related and all, 0-36 months), 4) percentage of engraftment assessed by investigator and by independent observer (0-6 months), 5) wound closure (0-3 months), 6) re-grafting area (0-6 months). Secondary assessments also include scaring, incidence and severity of pruritis, paresthesias, pain, sensation, contracture release, and body temperature stability.

Amarantus estimates the target patient population in the U.S. that would qualify for the study (i.e. TBSA ≥ 50%) is between 500 and 2000 individuals. However, management believes that approximately 100,000 patients have burns with TBSA ≥ 30%, meaning that a large market opportunity exists to expand the ESS development path should the initial Phase 2a study prove successful. On a global basis, burns with TBSA ≥ 30% affect over 1 million.

Amarantus plans to conduct a detailed pricing and reimbursement study for ESS in 2015. Based on reimbursement for wound care products like Epicel, Dermagraft, and Apligraf, we see a sizable market opportunity for ESS if developed to commercialization. The cost to care for a severely burned patient can range from $200,000 to over $1 million in hospital and physician’s fees alone. Complications, such as infections, fragile skin breakdown, disfigurement, scaring, depression, etc… can double or triple the all-in costs. The fact that ESS has been designated as an Orphan Drug product will only further help strengthen Amarantus’ commercial pricing efforts if approved. We believe there would be significant payor interest in a more effective product like ESS should the new clinical data match the previous excitement of a decade ago.

Our Thoughts On The Deal

Amarantus acquisition of ESS is difficult to assess at this stage. The FDA has cited “Hundreds of violations” and “Failures in both data collections and oversight” in its audit of the historic clinical data on PermaDerm®. It is clear to us that Dr. Boyce, for whatever reason, was only telling one side of the story to the public between 2000 and 2008. It is important to note, Dr. Boyce is a PhD, not an MD with clinical experience. Much of the lack of reporting and adequate record keeping seems the result from using the PermaDerm® product like a commercially approved product rather than an investigational product. Perhaps this is why there was also a lack of informed consent over use of an investigational drug. His intent does not at all seem nefarious.

Based on available data, it looked like PermaDerm® worked. However, we have almost no data to analyze on things like safety or adverse events, and how use of the product compares to standard-of-care. Beyond simply anecdotal evidence of the product working, a true assessment of the clinical data would include the risk / benefits of use and a full safety analysis vs. standard of care. This was not done, so almost the entire clinical history of the product, including use in roughly 150 individuals, needs to be thrown out.

It’s like the police just pulled over someone for speeding and found ten pounds of heroin in the trunk, but the guy gets off Scott-free because they didn’t have a warrant. We know damn-well the guy is guilty, but in this country we have rules that need to be followed. The rules were clearly not followed at UC-SHC with PermaDerm®.

As part of Amarantus due diligence on ESS, they spoke to several key opinion leaders in the burn space. Management shared with us a quote from Dr. David Ahernholz on PermaDerm®. Dr. Ahernholz noting that the failure to get this products on the market has been the, “Great disappointment… because it is a life-saving drug that works.” Dr. Ahernholz also noted that PermaDerm® would be his, “First choice of therapy of a severe-burn patient.” Dr. Ahernholz is board-certified in general surgery and is a member of numerous professional organizations including the American Burn Association, the Surgical Infection Society, the American Association for the Surgery of Trauma, the Central Surgical Society and the Minnesota Surgical Society. He is currently the Associate Director of the Burn Center at Regions Hospital and the President of the American Burn Association.

On Amarantus conference call to discuss the acquisition of the product rights, management had Dr. Nicole S. Gibran, M.D., F.A.C.S. on briefly to talk about her experience with the product. She stated, “ESS offers hope to care providers, who treat severely wounded individuals, that a reliable skin substitute will be available for the horrible situation when wound coverage is not possible. I have long wanted to see ESS developed so that we can offer this life-saving technology to our patients and I am delighted that Amarantus is committed to move this forward.” Dr. Gibran is a Professor of Surgery and Director of the University of Washington Medicine Regional Burn Center at Harborview Medical Center in Seattle, Washington, and a principle investigator for the upcoming Phase 2a ESS clinical study.

Despite the checkered past, those are some strong endorsements by key opinion leaders in the burn space. Below we summarize some of the positive attributes that Amarantus has going for it with respect to moving ESS forward:

- Strong KOL support (note the comments from Drs. Ahernholz and Gibron),
- Potential for strong pricing power (note the cost to care for severe-burn patient and ODD status),
- New active IND (releasing the previous clinical hold from 2007),
- Approved protocol for a Phase 2a study (already listed on ClinicalTrials.gov),
- Active AFIRM grant for $1.3 million, with potential to expand based on previous $18 million award (pulled when the FDA placed the product on clinical hold),
- Relatively quick path to market (thanks to ODD) and potential for priority review / expedited approval,
- Meaningful potential for label expansion beyond initial Orphan population (if ESS works, we believe treating physicians will clearly want to use the product in patients with TBSA < 50% as well), - Large market opportunity, estimated at $500M per year (based on pricing x number of patients).

That being said, Amarantus spent $11.2 million in cash and stock to acquire this product. Based on the market capitalization as of November 7, 2014 of $64 million (~800 million shares x $0.08 per share), that’s nearly 20% of the market value now assigned to a brand new asset. In order to fund the future clinical development of ESS, along with existing products like LymPro, eltoprazine, and MANF, shareholders will see significant dilution. For example, we estimate the cost of the Phase 2a ESS study will be in the area of $4 to $6 million. The current AFIRM grant only provides $1.3 million in funding. On top of that, we have some meaningful concerns or questions that still need to be addressed. These include:

- What needs to be done to secure additional funds from AFIRM or the U.S. DOD?
- How long will this take?
- Can this be done in time to fully-fund the Phase 2a trial in the timelines management has given (i.e. start the trial in the second quarter of 2015)?
- Is 30 days too long of a timeframe between when the biopsy if taken to when the product is returned to the patient for grafting?
- Are study investigators going to have a problem convincing severe-burn patient to use an investigation product in lieu of standard of care (note this has been a significant problem for Avita Medical enrolling its Phase 3 burn trial with Recell®)?
- At some point Lonza decided to stop cooperating with Regenicin on PermaDerm®. Will Amarantus have a smooth transition and working relationship with Lonza?
- Previous clinical data no doubt played a part in helping Amarantus make a decision to acquire ESS. The FDA has stated this data is unreliable. What to believe?

…Let’s Scribble On The Back Of An Envelope…

Amarantus believes that ESS has market potential of $500 million. Based on available patient population and pricing data, we believe this is a fair estimation (assumes 2,000 patients at $250,000 per treatment). Management believes that the path to approval for ESS could be rapid, potentially as quick as four years. If we assume peak sales six years after commercialization, then we are looking at $500 million in ESS sales in 2025. Historic success rate of a Phase 2a asset is around 10%. Average Price-to-Sales ratio for the biopharma industry is 5.5x. Amarantus discount rate based on the Series E convertible preferred issued on November 14, 2014 is 22% (12% coupon + 10% OID). Amarantus will owe 2% royalty on sales to Lonza. Plugging those numbers into a calculator gives us a fair-value today of $37 million; only Amarantus will require an estimated $7 million to complete the Phase 2a program and tech-transfer. The potential is there for non-dilutive capital through a new DOD grant, but until the money has been secured, we can only suspect that Amarantus will need to raise these funds themselves. So net-net, ESS looks to be worth around $30 million.

Not bad considering Amarantus paid $11.2 million (+ $5 million in potential milestones). To raise $11.2 million at $0.08 per share, Amarantus would have to issue 140 million shares. If we divide $30 million in value by 140 million shares, we get ESS worth approximately $0.21 per share. Amarantus stock is at $0.08 per share. As such, the previous rudimentary analysis tells us this is a potential accretive transaction. The key value-creating events for investors will be: 1) securing additional DOD funding, and 2) data from the Phase 2a study.

How Does This Fit In?

Amarantus stated strategy is to be an early-stage incubator for troubled, yet promising assets. That’s why the name of the company is Amarantus Bioscience Holdings, Inc. They are a “holding company” looking to secure assets, create value through advancement in clinical development, and then monetize through sales, spin-off, or out-licensing. The primary focus on the company is on rare / orphan diseases (MANF and ESS) or on large diseases where there remains a significant unmet medical need (LymPro and eltoprazine).

ESS is the company’s first move into regenerative medicine, and although ESS and the treatment of severe burns has absolutely no overlap with a rapid diagnostic for Alzheimer’s disease or a small molecule for the treatment of Parkinson disease – Levodopa Induced Dyskinesia, ESS actually has quite a lot in common with LymPro and eltoprazine in terms of the Amarantus strategy. All three products were troubled and picked up for very little upfront cash. LymPro was purchased out of bankruptcy because the previous developer did not have the necessary expertise in flow cytometry to work through clinical trial issue. Amarantus doesn’t have this expertise either, but Becton Dickinson and ICON Labs clearly do. Management has created significant value with LymPro over the past two years simply by picking up the pieces of a stalled asset and slowly putting them back together.

For products like eltoprazine and ESS were picked up thanks to key management relationships with personnel around the respective asset. For example, the deal to acquire eltoprazine was no doubt brokered by former PsychoGenics Chief Scientific Officer and current Amarantus BOD member, David A. Lowe, PhD. For PsychoGenics, a change in strategy from internal development to a CRO meant that eltoprazine was up for sale. For ESS, take note of the fact that Dr. Joseph Rubinfeld, former co-founder of Amgen, was appointed to the Regenicin BOD back in 2010 when Regenicin acquired the rights to the product from Lonza. At the time of the appointment, Regenicin said the appointing for Dr. Rubinfeld would be instrumental to assisting the company's commercialization efforts of PermaDerm®. Dr. Rubinfeld has been on Amarantus Board of Advisors since November 2012. Amarantus announced on November 17, 2014 that Dr. Rubinfeld was appointed to the BOD in conjunction with the acquisition to the rights to ESS.

Add in MANF for rare eye diseases and the Amarantus pipeline is looking rather impressive. The company has built a group of assets specifically designed to provide shareholders with at least one major value-creating event every year over the next four years. Each of these potential events could provide significant positive return for shareholders. For this reason we continue to believe that Amarantus stock is a good buy at today’s price. The current market capitalization is roughly $75 million. We think it could be worth $150 to $200 million as some of these value-creating events below are realized.



Cynapsus Set For Major Revaluation On Positive Phase 2 Data

By Jason Napodano, CFA

APL-130277 Shows Clear Proof-of-Concept In Phase 2 Trial

On November 19, 2014, Cynapsus Therapeutics Inc. (CYNAF) (CTH.V) announced what looks to be a clear demonstration of proof-of-concept via positive top-line results from the CTH-105 Phase 2 clinical trial. The CTH-105 study was the first to test Cynapsus APL-130277, a fast-acting, sublingual, thin filmstrip formulation of apomorphine in Parkinson’s patient for the management of “off” motor symptoms. We believe these data set the stage for a significant re-valuation of the shares to meaningfully higher levels. Our target is $2.75 per share, offering 250% upside.

…Quick Highlight Of The Data…

The primary objective of CTH-105 (NCT02228590) was to evaluate the efficacy, tolerability and safety of single treatments of APL-130277 in 16 patients with Parkinson's Disease (PD). The primary endpoint was the efficacy based on “time to on” using the percent change in UPDRS. Safety and tolerability, as well as frequency of adverse events, were also primary and secondary outcome measures in the study. In the trial, patients were then given escalating doses of APL-130277 (at a minimum of three hours between doses) until “on” was achieved. UPDRS III score was measured at 15, 30, 45, 60 and 90 minutes. Pooled data from 16 patients was released this morning, with management noting that three additional patients are continuing dosing.

According to management, all five doses of APL-130277 used in the study (10, 15, 20, 25, 30 mg) resulted in patients moving from “off” to “on”. We are encouraged by the fact that even the lowest dose showed efficacy, with 3 of the 16 patients (~19%) moving to “on”. Out of 16 patients treated with APL-130277, 14 converted from “off” to “on” time, with an average dose of 18.4 mg required to convert patients to "on". Study investigators hypothesized that the two patients (~13%) that did not convert to “on” probably need more drug, as their baseline UPDRS scores were significantly higher than the mean for the other 14 patients. This is consistent with prescribing label for subcutaneous apomorphine were approximately 20% of PD patients require the highest dose. We suspect that management can dose 35 or 40 mg in the upcoming Phase 3 trial.

Mean baseline UPDRS III scores for the pool group was 41.4. The maximum mean change from baseline was 18.4. This data compares well with published literature for subcutaneous apomorphine. Cynapsus reported that onset to clinically meaningful improvement was seen in as early as 10 minutes and last up to 90 minutes (the last measured time point). Mean “time to on” was 22 minutes. Below is a graph showing the mean change in UPDRS Part III from baseline over the study period for patients converting from “off” to “on” time. Take note, even at 90 minutes patients were still “on”, suggesting that APL-130277 could act as a bridge between regular oral levodopa dosing (typically 4x daily).


Cynapsus reported that treatment with APL-130277 was safe and well tolerated. Nausea, reported by three subjects at doses of 10, 15 and 20 mg, looked to be the most common side effect. One of these patients also experienced a mild episode of vomiting. There were no reports of nausea at higher doses of 25 and 30 mg. There were no reports of local irritation or hypotension in any subject treated. A total of 60 doses of APL-130277 were administered to the 16 patients who completed dosing in the CTH-105 study. Additional safety data will be presented with all 19 patients complete dosing. We expect to see individual patient data at an upcoming medical meeting or when the results are published by study investigators.

Acorda Acquires Civitas And Validates The Market

We have been saying that the market opportunity for an effective rescue medication to treat off episodes in Parkinson’s patients in a potential multi-hundred million-dollar opportunity. In fact, in our most recent Zacks report on Cynapsus Therapeutics, we estimated the peak U.S. sales for APL-130277 were $387 million. And we believe this estimate includes conservative forecasts on both pricing and market penetration (see below). It also does not include forecasts for sales in Europe or Asia.


On September 24, 2014, Acorda Therapeutics (ACOR) announced it had made an offer to acquire privately-held Civitas Therapeutics for $525 million in cash. The impetus of the acquisition by Acorda was to get CVT-301, a Phase 3 inhaled formulation of levodopa for the treatment of off episodes in Parkinson’s patients. With CVT-301, Acorda believes it has an attractive late-stage asset to add to the company’s CNS-focused pipeline. The CVT-301 Phase 3 study is expected to begin enrollment in early 2015, with a new drug application (NDA) planned for 2016. Acorda estimates the market opportunity for CVT-301 is in excess of $500 million. Civitas had been previously planning an initial public offering, but the $525 million all-cash offer from Acorda was simply too attractive to pass up.

Civitas’ CVT-301 looks only a few months ahead of Cynapsus’ APL-130277. Cynapsus just recently completed the CTH-105 study discussed above. The next step is a bridging study, dubbed CTH-200, designed to be a single dose, crossover comparative bioavailability and pharmacokinetic study in healthy volunteers. This study is designed to provide the clinical “bridge” to the FDA’s finding of safety and efficacy for the reference-listed drug (Apokyn®) – a necessary step to file an application via the 505(b)(2) pathway. The CTH-200 Bridging Study is expected to begin shortly. Meanwhile, Cynapsus has already schedule an “End of Phase 2” meeting with the U.S. FDA to discuss the Phase 3 program. This meeting is expected to take place in early February 2015. As such, we expect the Phase 3 program for APL-130277 to begin during the second quarter of 2015. Again, based on the recent positive data from CTH-105, we estimated CVT-301 is only a few months ahead of APL-130277.

…And We Think Cynapsus Drug Is Clearly Better…

Ever since the announced acquisition of Civitas, investors have been asking, “Why Civitas and not Cynapsus?” and “What does the added competition do to our forecasts?” The answer is simple – We think Acorda bought the wrong drug and that APL-130277 clearly has better attributes than CVT-301.

Specifically, CVT-301 is an inhaled formulation of levodopa. Levodopa is the most common form of dopamine replacement therapy, a backbone regimen and standard of care for the treatment of Parkinson’s disease. Parkinson’s disease is a slowly progressing neurological disorder characterized by tremor, stiffness and decreased movement. The decreased movement is a direct result of the lack of dopamine in the brain. Levodopa, when taken orally, is converted into dopamine in the substantia nigra by dopa decarboxylase. The administration of levodopa temporarily diminishes the motor symptoms associated with the lack dopamine in the substantia nigra. Carbidopa, a dopa decarboxylase inhibitor, is commonly dosed with levodopa to prevent L-DOPA metabolism before it reaches the blood-brain barrier. In fact, co-formulations of levodopa/carbidopa (Sinemet-CR) are available. Civitas’ formulation of levodopa bypasses the gut metabolism through inhalation, a pathway known to for rapid uptake and onset of action.

There are, however, major limitations to the use of levodopa as a treatment for Parkinson’s disease. Mainly, the patient must have substantial remaining dopaminergic neurons in the substantia nigra to metabolize the drug. However, according to research published in the Journal of Neural Transmission by P. Riederer et al in 1976, pathological studies of Parkinson’s disease show at least 70-80% of the dopaminergic neurons are lost before the onset of symptoms. This work was confirmed by K. Yoshikawa et al, 2004. This explains why levodopa is very effective for a period of time, then wanes with disease progression. A newly diagnosed Parkinson’s patient has the capacity to process levodopa. As the patient loses this capacity, the therapeutic window for levodopa therapy begins to narrow. Levodopa also has a relatively short half-life of only 60-90 minutes. The drugs effect, even in the mild Parkinson’s patient, only lasts for 1.5 to 2.0 hours post dose (Brooks, D, 2008).

Work done by Olanow et al, 2006 shows that a therapeutic window for Parkinson’s disease patients rapidly closes (narrows) as patients gain experience with Levodopa use. This is due to a combination of disease progression, loss of dopaminergic neurons in the substantial nigra, and the short half-life of the drug.


As such, dosing dynamics for levodopa are challenging (Schapira et al, 2009). Too much drug (or too frequent dosing) leads to leads to dyskinesia, a direct result of excess dopamine in the brain. Too little drug leads to increase “off” time (bradykinesia / akinesia), the specific condition that both Civitas and Cynapsus are aiming to treat.


We question the concept of treating “off” episodes in Parkinson’s patients with more levodopa. Many neurologists and movement disorder doctors will delay the use of levodopa in newly diagnosed Parkinson’s patients specifically to avoid the narrowing of the therapeutic window and the risks of complications such as dyskinesia (see this YouTube video from the MJFF talking about Levodopa and Off/On time). We believe CVT-301 complicates the dosing regimen for the Parkinson’s patient taking a drug like Sinemet-CR. We suspect substantial acceleration of the narrowing of the therapeutic window and dyskinesia with the drugs use. And as the Parkinson’s patient progresses from mild to moderate or severe disease, we suspect that CVT-301 will become a less effective drug. We also strongly question the approvability of an inhaled drug, with chronic use, in an elderly population for a non-pulmonary disease. The pathway to approval for CVT-301 seems arduous.

Apomorphine, the active drug in the only currently approved rescue medication for the treatment of off episodes in the U.S. in Apokyn®, is not a dopamine replacement therapy. Apomorphine is a dopamine agonist, and acts directly at the post-synaptic dopamine receptor, thus bypassing the need for dopamine and dopaminergic neurons in the substantial nigra. Instead, apomorphine can act directly on the gabaergic neurons that are not impacted by Parkinson’s disease, and provide an effective treatment option as a rescue medication to patients at all stages of disease progression.

The knock on apomorphine is that because the drug is rapidly metabolized by the liver, it must be administered by a route that bypasses the gut. As such, the currently approved formulation of apomorphine in the U.S. is a subcutaneous injection. Subcutaneous injectable apomorphine, sold in the U.S. as Apokyn®, is a horrible impractical and inefficient drug, flawed by its delivery system and quick peak-to-trough pharmacokinetic profile. Apomorphine is highly lipid soluble and quickly crosses the blood-brain barrier. Onset of action is as little as five minutes, but only lasts for 60-90 minutes. Under QID dosing for levodopa, patients with advanced disease may still experience off episodes.

Self-administration of subcutaneous Apokyn is next to impossible for the akinetic (or dyskinetic) Parkinson’s patient. For example, the Instructions For Use for Apokyn® is 27 pages long, and consists of steps that logically seem impossible for the frozen or rigid Parkinson’s patient to complete. Because self-administration of Apokyn® is nearly impossible, the treatment of off episodes requires direct caregiver support, likely from a skilled nurse. This places undue burden on the healthcare system.


The above inhibiting attributes greatly limit sales of Apokyn in the U.S. Cynapsus’ APL-130277 is a sublingual formulation of apomorphine, with each thin film strip found inside an easy to open non-superimposable die cut peelable foil laminate pouch. The product can be self-administered, under the tongue, and is designed to be used anywhere, anytime, with little or no assistance required. The comparable dose strength of Apokyn® sells for $13-15 per injection. We believe Cynapsus APL-130277, with a far more convenient administration and lack of skilled caregiver requirement, will see sizable market shares gains and expansion over the current Apokyn market.

For example, Cynapsus sponsored neurologist surgery (n=500) with data conclusions suggesting a 7.5-fold increase in penetration across the board for mild, moderate, and severe Parkinson’s patients. It is for these reasons that we believe APL-130277 has peak U.S. sales far in excess of Apokyn, or Acorda’s newly acquired CVT-301.


Conclusion, Valuation & Recommendation

Off time is a significant problem for patients with advanced Parkinson’s disease. In the U.S., there are an estimated one million PD patients (4-6 million globally). According to a recent survey by the Michael J. Fox Foundation, more than 90% of PD patients report having “off” episodes each day. Roughly two-thirds have “off” time greater than two hours, with 20% experiencing “off” time of greater than four hours. This is a significant problem for PD patients and an enormous unmet medical need.

Data from the recently completed CTH-105 study clearly validates the proof-of-concept for APL-130277. The drug demonstrated substantial signs of efficacy for all doses (10, 15, 20, 25, and 30 mg). Onset of action was as soon as ten minutes for some patients, with mean “time to on” of 22 minutes – admittedly not as rapid as CVT-301 but still well within the reasonable range for a rescue medication. More importantly, duration of effect was still evident at 90 minutes, exceeding what has been demonstrated with Apokyn or what we suspect will be shown in the CVT-301 Phase 3 trial given the half-life of levodopa has been documented to be less than 90 minutes.

In conclusion, we see APl-130277 as an easier-to-use and more effective drug than CVT-301, along with a better mechanism of action and pathway to approval. Data from CTH-105 de-risks the story and Cynapsus has enough cash to fund all necessary clinical trials prior to the U.S. NDA filing (see our quick review of the Q3 financial results). A recent paper published by researchers out of the UK on behalf of EUROPAR and EPDA confirms our belief that this is a potential enormous market. The paper concludes that early-morning “off” episodes are a significantly larger problem than believed even five years ago, with nearly two-thirds of all PD patients suffering across all stages of the disease (Rizos et al, 2012).

We do not know whether or not Acorda approached Cynapsus with a potential buy-out to acquire APL-130277 prior to its decision to scoop-up Civitas for $525 million. What we do know is that Cynapsus, on a fully-diluted basis, is currently worth only $75 million. If Civitas was worth $525 million, Cynapsus is worth more. As such, we could be looking at a ten-fold increase in valuation for Cynapsus over the next 2 years.

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