Subscribe And Get My Articles Emailed Directly To You - It's Free!!

Thursday, October 1, 2015

Nuvo Research Spin-Out Should Unlock Value For Investors

On September 15, 2015, Nuvo Research, Inc. (NRI.TO) (NRIFF) announced that it plans to split into two separately traded public companies, with a goal of enhancing long-term value for Nuvo shareholders. The strategy will be to separate the pure-play commercial organization that includes a growing revenue base and significant positive EBITDA based on the strength of the Pennsaid® and Pennsaid® 2% franchise from the drug development company that is currently conducting a Phase 2 clinical trial on WF10™ for allergic rhinitis. Nuvo shareholders on record will receive shares of both companies. Nuvo management plans to distribute an information circular to investors in mid-to-late November 2015 that will go into more detail on the exact make-up of each separate company. Shareholders will vote on the matter in early 2016, with a positive vote likely leading to the transaction taking place in February 2016. What we do know is that Nuvo has a substantial cash balance - approximately CDN$51.8 million as of June 30, 2015 - and that should set up both companies with resources necessary to execute on these two distinct models.

For the purpose of this article, I will focus on what I believe to be the key growth areas for each company, which for simplicity sake I am referring to as Nuvo-Commercial and Nuvo-Development. Investors should be aware that I worked with and have spoken in-depth to Nuvo management for the preparation of this article, but that all opinions expressed on the potential future success of each company, sales forecasts, earnings potential, and likely valuations are mine alone.

Brief Background on Nuvo Research

For all intents and purposes, Nuvo Research has been operating with two distinct business units for much of 2015. In April 2015, the company provided a strategy update to investors noting its intension to spin-off WF10 for the treatment of allergic rhinitis from the company's revenue generating assets, which largely included all the intellectual property around Pennsaid and Pennsaid 2%. For the commercial organization, the strategy is to acquire new products or businesses that can become immediately accretive to profitability and cash flow. At the center of the Nuvo-Commercial will be the company's manufacturing plant in Varennes, Quebec, which is currently providing and will provide Pennsaid and Pennsaid 2% to commercial partners in the U.S., Canada, Russia, and several countries in Europe. For the drug development organization, Nuvo-Development, the key asset is WF10, currently in a Phase 2 study being conducted in Canada with top-line data expected late 2015 or early 2016.

On August 5, 2015, the company reported financial results for the first six month of 2015. Product sales for the six months ending June 30, 2015 were CDN$6.8 million, up a solid 103% from the same period in 2014. Product gross margin increased to 35% from 17% during the first six months of 2014. Much of the revenue growth at Nuvo is coming from transfer of manufactured product to its U.S. Pennsaid 2% commercial partner, Horizon Pharma USA. Yet despite the strong revenue growth during the first six months of 2015, Nuvo Research was not profitable on an EBITDA or cash flow basis. This is because the company has sizable research and development expenses associated with its active clinical programs, namely WF10. R&D expense during the first six months of the year totaled CDN$6.3 million, of which $4.8 million was associated with WF10. As a result, net loss for the six month period ending June 30, 2015 was CDN$6.3 million, or $0.57 per share based on an average of approximately 10.9 million shares outstanding.

Management feels as though the strong revenue growth and segment profitability of the commercial business is being masked by losses on the R&D side. That is probably the case, but it is important that investors understand that many small biotech and specialty pharmaceutical companies have losses on the R&D side. However, Nuvo's strategy with the commercial organization is a bit different from a typical binary event biopharma company. There are investors that like small, profitable manufacturing organizations with plenty of scale and upside based on acquiring additional commercial products. The strategy works if new products are accretive and can be added into the operational structure to create leverage. Most of these investors are not looking for binary risk. On the other hand, there are investors looking for "homeruns" in the biopharma development area and WF10 has that sort of potential; and, this potential upside is muted by operations on the manufacturing side. The impetus for the split is to separate these two distinct business lines and thus allow for maximum value creation as standalone organizations. We've all heard the saying, "One plus one equals three" when it comes to mergers and acquisitions in the healthcare industry. Nuvo is hoping the reverse is also true, and that separately these companies will have more value than the market is assigning to the combined company today.

A Look at Nuvo-Commercial

The commercial organization at Nuvo will consist of several approved and revenue-generating products, but the majority of the value for Nuvo-Commercial will come from Pennsaid® and Pennsaid® 2%. Pennsaid 2% is a non-steroidal anti-inflammatory drug (NSAID) containing 2% diclofenac sodium compared to 1.5% for original Pennsaid. It is more viscous than original Pennsaid, is supplied in a metered dose pump bottle, and has been approved in the U.S. for twice daily dosing compared to four times a day for Pennsaid for the treatment of pain of osteoarthritis (OA) of the knee.

Nuvo owns extensive intellectual property around Pennsaid and Pennsaid 2% that consists of over 30 issued and pending international patents. Nuvo-Commercial will retain the current Pennsaid 2% manufacturing and distribution agreement with Horizon Pharma plc (HZNP) for the U.S. market and the existing Pennsaid license and distribution agreements with Paladin Labs Inc. in Canada, Vianex S.A. in Greece, Italchimici S.p.A. in Italy, and Movianto UK Limited in the UK. Additionally, licensing agreements for Pennsaid 2% have been signed with Paladin Labs Inc. for Canada and NovaMedica LLC for Russia and the Community of Independent States. All future international licensing and distribution agreements for Pennsaid and Pennsaid 2% will be entered into by Nuvo-Commercial.

In June 2015, the company retained PricewaterhouseCoopers Corporate Finance Inc. (PWC) to assist it in securing international license agreements for Pennsaid 2%. Key regions available for out-licensing include South America, Central America, Africa, and Israel. The picture below shows the regions for which Pennsaid 2% is available for out-licensing and future potential sale. As investors can see, the available opportunity is significant.

Pennsaid 2% was approved by the U.S. FDA in January 2014 and is currently being sold in the U.S. by Horizon Pharma. Horizon took over promotion for Pennsaid 2% in January 2015 after Nuvo regained the rights from previous development and commercialization partner, Mallinckrodt plc (MNK), in September 2014. Horizon paid Nuvo $45 million for the U.S. rights to the drug and continues to pay Nuvo a fixed transfer price for commercial product (including any sampling that Horizon does) that Nuvo manufactures at its plant in Varennes, Quebec.

These product sales totaled CND$2.1 million in the second quarter ending June 30, 2015. For the first six months of the year, Pennsaid 2% transfer sales to Horizon Pharma totaled CND$4.3 million. Sales in the first quarter ending March 30, 2015 were larger than the second quarter due to initial inventory stocking by Horizon, which Horizon then spent most of the second quarter working down. I think going forward, the growth and trajectory of U.S. Pennsaid 2% sales at Horizon will be more accurately reflected in transfer product sales at Nuvo-Commercial.

For example, Horizon reported sales of Pennsaid 2% of $18.2 million in the first quarter 2015 and $29.4 million in the second quarter 2015. According to IMS Health, approximately 76,000 and 107,000 Pennsaid 2% prescriptions were dispensed in the three and six months ended June 30, 2015. The consensus estimate based on Thompson-Reuters for the third quarter is $33.0 million and $36.2 million for the fourth quarter 2015. For the full year, Wall Street analysts are expecting Horizon to post Pennsaid 2% sales of around $117 million in 2015. For 2016, the consensus estimate for U.S. Pennsaid 2% sales is $160 million, up 35% year-over-year. Analysts are looking for 20% growth in 2017 to $195 million and another 15% growth in 2018 to $225 million for Pennsaid 2%. I ultimately see Horizon selling enough Pennsaid 2% to surpass Voltaren Gel, a 1% topical diclofenac sodium product sold by Endo Pharma (ENDP) in the U.S. that is on pace to post around $200 million in sales in 2015 (Endo reported $96 million in sales for the first six months of the year). The impressive growth of Pennsaid® 2% in the U.S. will translate into a growing and profitable revenue stream over at Nuvo-Commercial.

Besides Pennsaid 2%, Nuvo-Commercial will continue to supply original Pennsaid to its commercial partners. Sales of Pennsaid totaled $0.6 million for the second quarter ending June 30, 2015. For the first six months of the year, Pennsaid sales totaled $2.0 million. Sales are declining due to patent expirations, the entry of generics, and transferring of marketing efforts over to Pennsaid 2%. Royalties on Pennsaid totaled $0.1 million and $0.6 million for the three and six months ending June 30, 2015. Royalties are received from Paladin Labs in Canada. Royalties are declining due to the emergence of generic diclofenac sodium in Canada. Paladin is also the Canadian commercial partner for Pennsaid 2%.

Nuvo's goal is to continue to help Horizon by providing product as the ramp gains steam throughout 2015 and on into 2016. The manufacturing mark-up has not been disclosed by Nuvo management, but investors can see the gross margin line at Nuvo has been steadily improving. The company reported a gross margin of 35% in the second quarter ending June 30, 2015, up from 32% in the second quarter 2014. I think gross margin will continue to expand at Nuvo-Commercial as Pennsaid 2% production increases. By the end of 2016, I would not be surprised to see the gross margin line eclipse 45%.

To gain approval for Pennsaid 2% outside of the U.S., management initiated a Phase 3 study of Pennsaid 2% for the treatment of acute pain in July 2015. It is important to note that the U.S. label is for pain of osteoarthritis of the knee. The Phase 3 study being conducted in Germany will evaluate the efficacy of Pennsaid 2% for the relief of pain associated with acute, localized muscle or joint injuries such as sprains, strains or sports-related injuries. This is a wider label indication than in the U.S. Top-line results from the trial are expected late 2015 or early 2016. Positive data will allow Paladin Labs to seek approval for Pennsaid 2% in Canada and position Nuvo-Commercial to sign licensing and distribution agreements for Pennsaid 2% in Europe that will likely come with upfront cash and the potential for additional milestones or royalties in the future.

I expect the majority of the current CND$51.8 million cash balance will be allocated to the spun-off Nuvo-Development, but some of the cash will remain with Nuvo-Commercial. Management believes that Nuvo-Commercial will be cash-flow positive in 2016, so the organization does not need a substantial cash balance to execute on the business model. That being said, I expect management to look to expand Nuvo-Commercial by acquiring businesses or products that can be nicely fit into the planned manufacturing and licensing strategy. This may include small contract research organizations (CROs), other topical products that can be manufactured at the company's plant in Varennes, Quebec, or commercial divisions from larger organizations that might be a better fit at a small company like Nuvo-Commercial. I also see the potential that Nuvo-Commercial looks to manufacture or distribute OTC products or generic products. The manufacturing capacity at Varennes seems more than adequate, with plenty of room to expand, and thus management's strategy to strategically expand - in whatever direction - makes excellent sense.

From an operational standpoint, I don't see Nuvo-Commercial having much overhead besides the plant in Varennes. Management has stated that Nuvo-Commercial will be profitable on an EBITDA and cash flow basis in 2016, and thus operating expenses are likely only to be in the CND$2.0-2.5 million per year range. Below I've put together a quick revenue and EBITDA ramp for investors to get a sense of what I think Nuvo-Commercial will look like in the coming years.

As investors can see, based on the projected ramp of Pennsaid 2% around the globe, Nuvo-Commercial should be quite profitable and post some impressive growth on an EBITDA basis in the coming years. From a valuation standpoint, we can now get a sense of what Nuvo-Commercial is worth. For example, based on data I pulled from Capital-IQ, contract manufacturing organizations trade on average at 2.0x projected twelve month revenues (peer-group: Lonza Group, Evonik Industries, Patheon, Catalent, Inc., DaitoPharma). Based on 2016 projected revenues for Nuvo-Commercial of CND$21 million, this equates to a market capitalization of around CND$42 million. The number could grow to CND$62 million in 2016 based on 2017 forecasts.

On an EBITDA basis, the Canadian specialty pharmaceutical industry average (peer-group: Knight Therapeutics, Cipher Pharmaceuticals, Merus Labs, Tribute Pharmaceuticals, BioSyent Inc., Theratechnolgies Inc.) trades at an enterprise value to 2016 EBITDA of roughly 12.5x. Applying this multiple to my projected 2016 EBITDA for Nuvo-Commercial and the shares could be worth a CND$74 million in value today. Nuvo Research (NRI.TO) currently trades with a market capitalization of CND$72 million ($55 million USD). Assuming Nuvo-Commercial is left with roughly CND$5 million in cash from the existing balance of CND$51.8 million as of June 30, 2015 and to me it looks like Nuvo Research investors will get 100% of the value of their shares in just Nuvo-Commercial alone. This means they are getting Nuvo-Development for free.

A Look at Nuvo-Development

At the center of the new Nuvo-Development will be WF10™, the company's Phase 2 drug for the treatment of allergic rhinitis. Also being spun-out to Nuvo-Development will be the rest of the topical and transdermal development stage assets, which includes the Heated Lidocaine/Tetracaine (HLT) Patch, Flexicaine, Pliaglis, DuraPeel, alprazolam patch, risperidone patch, and Ibuprofen foam. Several of these products are approved and generating small revenues - roughly CND$0.4 million in the second quarter 2015 - to Nuvo Research, Inc. The liquid version of WF10, Oxoferin™, approved and on the market in various countries in Europe and Asia for the treatment of chronic wounds, will also be spun-out with Nuvo-Development.

However, the key asset for Nuvo-Development is clearly WF10. The market is assigning little to no value to this drug, likely due to the fact that on January 30, 2015, Nuvo announced disappointing resultsfrom its 184 patient Phase 2b allergic rhinitis study. This was a 16-week, randomized, double-blind, placebo-controlled study to assess the efficacy, safety and tolerability of a regimen of five infusions of either WF10 or its main constituents (sodium chlorite and sodium chlorate) relative to saline control (sodium chloride) in patients who suffer from refractory allergic rhinitis with positive skin test to at least one allergen. The study took place at 15 sites entirely in Germany. Endpoints included assessment of total nasal symptom score (TNSS), total ocular symptom score (TOSS), and other secondary endpoints. The study failed to demonstrate statistically significant separation of WF10 versus placebo. This was in stark contracts to previous Phase 2 data that showed very nice separation between the drug and placebo group on both per protocol and intent-to-treat analyses.

In the Phase 2b study, results showed that the WF10 arm demonstrated a reduction in TNSS over the course of the observation period similar to the reduction in TNSS demonstrated in the WF10 arm in the company's previous 2010 Phase 2a proof-of-concept study. The baseline TNSS score was around 7 (entry criteria ≥ 6) and pooled patient data showed a reduction to ~2 at 3, 6, and 12 weeks for the 2010 Phase 2a study. However, in the recent Phase 2b study, the placebo arm demonstrated a reduction in TNSS over the course of the observation period that was significantly greater than expected based on the Phase 2a data. Specifically, in the 2010 study, the placebo group saw a meaningful decline by week 3, but patients got worse as time went on, exiting week 12 with a TNSS score at around 5. This was not the case for the recent Phase 2b. The baseline TNSS score for the most recent Phase 2b study was around 8 according to the conference call held back in January 2015.

Management believes the 2010 trial more accurately illustrates the efficacy of WF10 in the treatment of allergic rhinitis. The company suggests the placebo group in the 2014 trial did not record as high TNSS and TOSS scores compared to the 2010 trial due to a longer enrollment period that started later in the allergy season, varying environmental conditions (more rain during the spring and summer in Germany leading to lower allergic response by patients), and other factors that resulted in some patients in the 2014 trial not being exposed to a high enough concentration of the allergens throughout the trial period.

Still believing that WF10 offers utility in the enormous allergic rhinitis market, Nuvo Research announced a strategic update in April 2015 noting its intension to conduct another Phase 2 study. The new Phase 2 trial is a randomized, double-blind, placebo-controlled, trial to assess the efficacy, safety and tolerability of a regimen of five WF10 infusions. The study is taking place entirely at an environmental exposure chamber (EEC) facility operated by Inflamax Research Inc. in Ontario, Canada. Nuvo received approval from Health Canada to initiate the study in June 2015 and dosing was quickly completed shortly thereafter.

The trial enrolled patients who have confirmed moderate to severe allergy to grass and ragweed pollen. Patients' symptoms to grass and ragweed were recorded prior to commencement of the grass allergy season in an EEC and symptoms will be recorded in the field throughout the grass and ragweed allergy seasons and again in the EEC after completion of the ragweed season. A total of 74 patients were enrolled, less than the original target of 146 but management believes this is sufficient to analyze the safety and efficacy of WF10 in the treatment of allergic rhinitis and to make a decision on its further development. Top-line data are expected late 2015 or early 2016.

Nuvo's external costs of conducting the trial are estimated at approximately CND$4-5 million. As of June 30, 2015, the company has paid CND$2.0 million of costs related to this trial.

Nuvo-Development will be spun-off with the majority of the current cash balance. Above I estimated that Nuvo-Commercial will keep about CND$5 million in cash, or roughly 10% of the current balance. That leaves the other 90% to go to Nuvo-Development, or around CND$40 million assuming burn for the second half of 2015 is similar to the first half of 2015. If the current WF10 Trial is successful, the company plans to continue WF10 development in 2016. The next steps in WF10 development are likely a Phase 2 dose-justification study and an active ingredient identification study. Keep in mind, the current Phase 2 study is dosing five injections of WF10. Nuvo-Development will want to explore potentially fewer doses looking for the minimum efficacious dose. After all, the fewer shots you can give someone, the better! Similarly, WF10 is composed of sodium chlorite and sodium chlorate. Management at Nuvo-Development will want to have explored the full mechanism of action of the drug prior to engaging with the U.S. FDA at the end of 2016 to discuss plans for a pivotal program in 2017. Costs in 2016 to move WF10 forward are likely another CND$8-10 million.

Should the current Phase 2 trial be unsuccessful, the company plans to discontinue WF10 development and it will use its significant cash balance, likely still in excess of CND$40 million, to move other topical and transdermal products forward in 2016 or explore new opportunities by in-licensing mid-to-late stage product candidates. Recall, the goal of Nuvo-Development is to develop drugs to U.S. and Canadian approval, so I suspect that the company will be active on the R&D front in 2016 regardless.

The question for current Nuvo Research shareholders is, What is Nuvo-Development worth? Above I've outlined why I think Nuvo-Commercial can be worth CND$62 million based on industry-average valuation multiples. This is pretty straightforward. Valuing Nuvo-Development is a little more subjective, but what seems clear is that WF10 is targeting a very large market opportunity. For example, according to the American College of Allergy, Asthma & Immunology, over 75 million Americans suffer from allergies, and approximately 17 million American adults and 6.7 million children have seasonal allergies. In 2014, more than 13.4 million visits to physician offices, hospital outpatient departments and emergency departments were due to allergic rhinitis.

This second statistic would seem to suggest, that despite the availability of OTC medications like diphenhydramine (Benadryl®), loratadine (Claritin®), and certirizine (Zyrtec®), a significant percent of Americans are still suffering from seasonal or perennial allergic rhinitis, and might be interested in a new and effective treatment option like WF10. According to The Allergy and Asthma Center, some 10 million Americans are failing OTC or Rx medications and would benefit from allergy shots (subcutaneous immunotherapy); however, only 50% actually follow-through due to the fact that people do not like shots, and subcutaneous immunotherapy is both costly and time consuming. For example, the shots are typically ever 2-4 weeks for 4-5 months and the cost for the first year of treatment can be as much as $1000 (source: WebMD). Plus, you have to know exactly what you are allergic too because the shots are allergen-specific. So if an individual is allergic to grass, ragweed, dust mites, and mold, this might end up requiring four different course of immunotherapy. Yikes! And, according to a 1999 study published in the New England Journal of Medicine, these shots only work if you continue to take them (Zitt M. et al., 1999). Stop taking the shots and most of the time symptoms return immediately.

Nuvo believes WF10 alters the immune system, thus having an immunomodulatory effect that is not allergen-specific. One course of treatment with WF10 may work to curb allergic rhinitis irrespective of the underlying cause of the allergy. Plus, the drug has a short-duration of treatment. This would be an enormous leap forward for patients.

If Nuvo-Development can generate data for the current Phase 2 EEC study that confirms the 2010 Phase 2 study, I think the market will begin to assign real value to WF10. A 2014 marketing report by Psscion Consulting commissioned by Nuvo Research interviewed patients, allergists, and payers and forecasted that WF10 would capture 10-15% of the U.S. refractory allergic rhinitis market. That is a potential 500,000 to 750,000 patients that might be on WF10. At a price of $1,000 for treatment, the potential market opportunity to Nuvo-Development is $500 million to $750 million. I chose $1,000 because this is the current comparable cost of subcutaneous immunotherapy, but I believe this cost may prove to be very conservative given the non-allergen-specific mechanism of action for WF10. A broad-immunomodulating effect would potentially allow for a significantly higher cost while still providing pharmacoeconomic value to both patients and payors.

To value Nuvo-Development, we can apply a risk-adjusted discount to an industry-average multiple on the potential peak sales of WF10 in the U.S. For example, the specialty pharmaceutical industry typically trades at a Price to Sales ratio of around 4x (peer group: Allergan, Valeant, Horizon, Depomed, Shire, Endo). If the current Phase 2 study is successful, Nuvo-Development will probably be in position to initiate the first of two Phase 3 programs in 2017. I believe the company can move rather quickly with these programs and be in position to file for approval of WF10, assuming the data stays looking strong, in 2020. This would put the commercial launch in 2021, and if we assume six years to achieve peak sales, then the company will have sales of around $625 million in 2027. Based on 4x peak sales, Nuvo-Development could be worth $2.5 billion in 2027.

Keep in mind, I'm not saying Nuvo-Development is worth $2.5 billion right now. I'm saying that it could be worth this amount in 2027 if WF10 is successfully commercialized and achieves peak sales of $625 million. To find the value today, we need to apply both a probability-adjustment and time-value discount.

I would consider Nuvo-Development a high-risk specialty pharmaceutical company, and although it will likely be well-capitalized at the time of the spin-off, I still think the cost of capital will be high, and thus the required return for investors will also be high. I am applying a 25% yearly discount rate to the $2.5 billion valuation in 2027. As such, bringing the $2.5 billion value back to present day reduces the value to $170 million. This is what Nuvo-Development would be worth if there was 100% chance WF10 succeeds as I've outlined above. Given that the drug is only in Phase 2 and failed a Phase 2b study in January 2015, I think it is prudent to chop this probability down significantly. At this stage, I would apply only a 20% chance of success as I've outlined above. Under this risk-adjusted assumption, Nuvo-Development is worth approximately $34 million today. If the current Phase 2 trial is successful, I think it is fair to increase the probability rate to 40%, which doubles the value to $68 million.

The company will likely be seeded with CND$35+ million ($25 million USD) in cash, but I also suspect that much of that cash will be earmarked for the future development of the drug. I suspect it will take as much as CND$10 million in funds to bring WF10 to the point where management can sit down for an "end of Phase 2" meeting with the U.S. FDA. Nevertheless, CND$34 million in value for Nuvo-Development, which really includes no additional value for the rest of the topical and transdermal pipeline, is still far more than the market is applying to Nuvo Research, Inc. today.


The current market value for Nuvo Research, Inc. shares is largely based on the product sales and future potential royalties of Pennsaid 2%. As I've outlined above, I think Nuvo-Commercial is worth today roughly what the entire company is trading at right now. Current Nuvo Research shareholders can continue to expect upside in the shares based on Horizon's ramp of Pennsaid 2% in the U.S. and the potential for new markets with the drug like Canada and Europe. The success of the current Phase 3 study being conducted in Germany will be key to unlocking more potential upside for Nuvo-Commercial in 2016.

With Nuvo-Development, shareholders are receiving a call option on the outcome of the current Phase 2 environmental exposure chamber study being conducted in Canada right now. Nuvo management believes there is tremendous upside if this trial succeeds. I agree, and as I've outlined above, Nuvo-Development can become a potential multi-billion dollar company based on the success of WF10. As of right now, this upside is being masked by investor focus on the commercial side. The impetus for the spin-off is to unlock this value.

My valuation work for the two separate companies tells me if you own Nuvo Research today, you are likely to see almost all the value be maintained in the shares of Nuvo-Commercial. Nuvo-Development, whatever the market decides to value this company at, is essentially free. That's why I referred to it above as a call option. I think it should be worth $34 million today, but investors can play with the numbers themselves by adjusting the peak sales, discount rate, and probability of success accordingly. Remember though, Nuvo-Development will likely be spun-off with CND$35+ million in cash, so my value of CND$34 million for WF10 looks conservative.

My work tells me the spin-off could unlock about 30% of hidden value in the shares for investors. That type of upside is very attractive in this market, and it comes with what I see as limited risk given that the trajectory of Pennsaid 2% at Horizon looks solid and the cash position protects on the downside should WF10 fail. As noted above, Nuvo Research will distribute an information circular in early November 2015 to shareholders of record. This circular will further elaborate on the strategy for each company and likely provide some initial financial guidance. The improved visibility could act as a nice catalyst for the shares.

Tuesday, September 29, 2015

Can-Fite BioPharma Gets FDA Fast Track for CF102

Last week, Can-Fite BioPharma Ltd. (CANF) announced the U.S. Food and Drug Administration (FDA) had granted CF102 Fast Track designation as a second line treatment for hepatocellular carcinoma (HCC), the most common form of primary liver cancer. This is an indication for which Can-Fite has also been granted Orphan Drug status given the high unmet medical need and lack of effective treatment options for patients failing first line therapy. It is also approved for compassionate use in Israel.

Zacks biotech analyst, David Bautz, PhD, published an article providing for investors an in-depth look at the science and mechanism of CF102. I encourage investors to read this article because I'm not going to rehash the scientific rationale for CF102 here. Instead, this article will focus on the market opportunity and just how big CF102 could be if Can-Fite is successful in its development.

Can-Fite's Phase 2 Program

As Dr. Bautz noted in this article, Can-Fite is currently conducting a Phase 2 trial with CF102 in patients with advanced HCC and Child-Pugh B cirrhosis (NCT02128958). Child-Pugh is a scoring system proposed as a way to predict the outcome of liver cancer patients following surgical resection. The scale looks at variables of liver function, including bilirubin and albumin levels, as well as incidences of ascites, encephalopathy, and prothrombin (clotting) time. The scale is highly correlated with overall survival, with a paper by Cabibbo et al., 2012 finding that the median survival of Child-Pugh A, B and C patients with HCC and not appropriate for curative or palliative treatments were 9.8 month (range 6.4-13), 6.1 months (range 4.9-7.3), and 3.7 months (range 1.5-6), respectively. 

In Can-Fite's Phase 2 trial, a total of 78 patients are expected to be randomized 2:1 to receive 25 mg of CF102 or placebo twice a day for consecutive 28-day cycles. The study is currently enrolling patients in Israel and Europe. The primary outcome of the study is overall survival, which will not be evaluated until after 75 deaths have occurred. The first patient was dosed in December 2014 and management anticipates data from the study in mid-2016.

Nexavar Failures - Still A Big Market

Standard of care for these HCC patients is Nexavar® (sorafenib), a drug that has been shown to increase median overall survival by approximately just shy of three months - 10.7 months in the sorafenib group vs. 7.9 months in the placebo group (hazard ratio = 0.69 [95% CI 0.55-0.87]; P<0.001) - in a randomized, double-blind Phase 3 study conducted at 121 centers in 21 countries around Europe, North America, South America, Australia, and Asia (Llovet et al., 2008). However, 97% of the patients (581 of 602) in this Phase 3 trial were Child-Pugh A. 

A second Phase 3 study with Nexavar® was conducted in 226 HCC patients at 23 centers in China, South Korea, and Taiwan. The median overall survival was 6.5 months in patients treated with sorafenib, compared with 4.2 months in those who received placebo (hazard ratio = 0.68 [95% CI 0.50-0.93]; p=0.014) (Cheng et al., 2009). All 226 patients were Child-Pugh A.

A retrospective study conducted by DA Fonseca et al., 2015, found that Nexavar's utility in Child-Pugh B patients is significantly lower than in the less advanced, Child-Pugh A, patients. For example, the median overall survival of Child-Pugh B patients from the two Phase 3 studies (n=20) was only 2.53 months [95% CI 0.33-5.92] vs. that of 9.71 months (95% CI: 6.22-13.04) for Child-Pugh A patients; the difference was statistically significant (P=0.002). The results for the Child-Pugh A patients were very similar to what Cabibbo et al., 2012 published (9.8 months vs. 9.7 months), but the results in Child-Pugh B were far worse (6.1 months vs. 2.5 months). This seems to suggest that Nexavar® is simply an ineffective drug in HCC patients with Child-Pugh B cirrhosis. 

CF102 Shows Potential Utility In This Difficult To Treat Population

Can-Fite previously completed a open-label Phase 1/2 study with CF102 in 18 HCC patients that yielded encouraging results (NCT00790218). According to the 2013 publication, median overall survival in the study population, 67% of whom had received prior Nexavar®, was 7.8 months, and for Child Pugh B patients (28%) it was 8.1 months. Stable disease by RECIST was observed in four patients for at least 4 months. CF102 also helped maintain liver function over a 6-month period (Stemmer et al. 2013). The authors found a correlation between receptor over-expression levels at baseline and patients' overall survival. One of the patients who presented with skin nodules that were biopsy-proven to be HCC metastases prior to the trial showed complete metastasis regression during three months of treatment with CF102. This would be an astonishing leap forward from the Phase 3 data in Child-Pugh B patients observed in the global program for Nexavar®.

CF102 Shows Good Safety & Tolerability

The Phase 3 data on Nexavar® show the drug to be poorly tolerated. For example, 80% of the patients reported adverse events (vs. 52% for the placebo group), with the biggest, statistically significant, issues being gastrointestinal side effects such as anorexia, weight loss, diarrhea, nausea, and vomiting. Other issues included alopecia, skin reactions, hypertension, abdominal pain, and bleeding. In contrast, in the CF102 Phase 1/2 trial, no serious drug-related adverse events or dose-limiting toxicities were observed. CF102 also showed no adverse effect on routine measures of liver function over a six-month period in 12 patients treated for at least that duration, suggesting that CF102 could be utilized safely in patients with cirrhosis or decreased liver function, like that of Child-Pugh B patients.

CF102 Can Be Big For Can-Fite

American Cancer Society predicts there will be 35,660 new cases of primary liver cancer in the U.S. in 2015. The organization also predicts 24,550 deaths from the disease in 2015. That being said, liver cancer is much more common in countries in sub-Saharan Africa and Southeast Asia than in the U.S. In many of these countries it is the most common type of cancer, likely due to the rampant infection rate of hepatitis B and C in these regions. The ACS predicts more than 700,000 people are diagnosed with this cancer each year throughout the world, or which nearly 400,000 or so live in China (source: Onyx Pharmaceuticals). 

Nexavar® is indicated for the treatment of patients with unresectable hepatocellular carcinoma. The drug is also approved for advanced renal cell carcinoma (RCC). The drug did roughly $1 billion in sales in 2014, and management comments hinted that roughly 40-45% of the global sales is coming from the HCC indication (Gorkin, 2011). This suggests a penetrable global market for HCC at roughly $400 to $500 million. Nexavar® costs approximately $6,500 per month (source: GoodRx), or around $65,000 for an average 10 month treatment period. Keep in mind, patients will have likely failed transarterial chemoembolization (TACE), a form of intra-arterial catheter-based chemotherapy that selectively delivers high doses of cytotoxic drug to the tumor bed, before they progress to Nexavar®, and the drug failed a Phase 3 trial in patients keeping HCC from returning following surgical resection.   

Based on the Barcelona Clinic Liver Cancer (BCLC) algorithm for the treatment of hepatocellular carcinoma, the estimated target market for Nexavar® is around 40% of the diagnosed population. This equates to roughly 14,250 patients in the U.S. It removes the 30-40% of patients that are cured through surgical resection or liver transplant and the 20% that respond to TACE. It also excluded the 10%  Child-Pugh C patients that are terminally ill and likely to receive only supportive care. 

Based on the available Nexavar® Phase 3 data stratified by liver performance status (Kostner et al., 2013) the market opportunity for a drug like CF102 is still significant. The target patient population includes all Child-Pugh B patients and those that either do not respond to Nexavar® or are unlikely to respond to Nexavar® based on performance status. I estimate this is easily 10,000 to 12,000 patients in the U.S. each year. The course of treatment in these patients may be less than the approximate 10 month average for Nexavar®, but even if Can-Fite prices CF102 at a similar rate of $6,500 per month, at an average course of treatment of eight months that equates to $52,000 per patient.

With a minimum of 10,000 targetable patients in the U.S., the peak opportunity to Can-Fite looks like approximately $500 million. Based on Nexavar® sales, Onyx has been able to penetrate about 30% of the addressable market. If Can-Fite, through a commercial partnership similar to the one Onyx signed with Bayer/Amgen, can accomplish a similar level of penetration, the U.S. revenue opportunity for CF102 is approximately $150 million. The opportunity in Europe is likely another $100 million in my view.

Asia Represents A Large Partnering Opportunity 

The interesting opportunity for Can-Fite is in countries in Southeast Asia. Above I noted that these areas of the world have significantly higher rates of primary liver cancer due to epidemic-like infection rates of hepatitis B and C. The World Cancer Research Fund International estimates that 80% of the global primary liver cancer patients on earth are found in less developed countries outside the U.S. and EU. For example, the highest incidence rates can be found in Mongolia, Lao, Gambia, Vietnam, Korea, Thailand, Cambodia, and China.

I believe there is a meaningful opportunity for Can-Fite to sign licensing and distribution agreements in areas like China and Korea. Management has already out-licensed its other clinical-stage candidate, CF101, to Kwang Dong Pharmaceutical in Korea, so this management team has experience partnering with large Korean pharmaceutical companies. They also have experience negotiating term sheets with companies in China and Japan. Licensing deals that provide upfront cash to Can-Fite for CF102 in Asia will help support the U.S. and EU development plans.


Can-Fite has had some good news over the past few weeks, first announcing that the U.S. FDA granted Fast Track status to CF102 as a second line treatment for hepatocellular carcinoma and recently closing on a $9 million registered direct offering that will extend the current runway to the middle of 2017. I believe the opportunity to out-license CF102 in Asia is the next potential catalyst for the company. It seems as though the market is starting to pay more attention to CF102 now and that presents investors with a very interesting catalyst mid next year when the top-line Phase 2 data is expected.

Thursday, September 24, 2015

Immune Pharma's R&D Day Highlights Potential For Bertilimumab In Dermatology

On Tuesday, September 8, 2015, I attended the Immune Pharmaceuticals (IMNP) R&D Day at the company's U.S. headquarters at the Alexandria Center for Life Science, in New York City. The majority of the event was spent talking about Immune's lead pipeline candidate, bertilimumab, for the treatment of immune-inflammatory diseases of the skin and gastrointestinal tract. For the purpose of this article, I look at two potential indications for bertilimumab, bullous pemphigoid (BP) and atopic dermatitis (AD), discuss the rationale behind why and how Immune believes their drug works, and what the respective market opportunities might be for the company upon successful development. Future articles will touch on the potential use of bertilimumab for ulcerative colitis, Crohn's disease, and non-alcoholic fatty liver disease and non-alcoholic steatohepatitis (NASH).

Background on Bullous Pemphigoid and Role of Eotaxin-1

Bullous Pemphigoid is a chronic autoimmune skin disease that involves the formation of blisters, known as bullae, at the space between the epidermis and dermis layers of the skin. The disease may be acute, but typically will wax and wane over a period of several years. The primary affected regions include the inner thighs and upper arms, but the trunk and extremities are also frequently involved. The disease typically affects individuals over the age of 65 years old, with an estimated 65,000 afflicted patients in the U.S. and European "Big 5" (Korman, 1998). It has been designated as an orphan disease by both in both regions.

Bullous pemphigoid is a chronic inflammatory disease. If untreated, the disease can persist for months or years, with periods of spontaneous remissions and exacerbations. In most patients who are treated, bullous pemphigoid remits within five years or onset. Patients with aggressive or widespread disease, those requiring high doses of corticosteroids and immunosuppressive agents, and those with underlying medical problems have a nearly two-fold increased morbidity and risk of death (Langan et al., 2008). And, because the average age at onset of bullous pemphigoid is about 65 years, patients with bullous pemphigoid frequently have other comorbid conditions that are common in elderly persons, thus making them more vulnerable to the adverse effects of corticosteroids and immunosuppressive agents (Medscape).

The disease may be fatal, particularly in patients who are debilitated. The primary causes of death are infection with sepsis and adverse events associated with treatment. Patients receiving high-dose corticosteroids and immunosuppressants are at risk for several adverse events (AES) including peptic ulcer disease, GI bleeds, glaucoma, osteoporosis, hypopituitary-pituitary-adrenal (HPA) axis suppression, psychological effects, agranulocytosis, and diabetes. A Swiss prospective study confirmed a high-case fatality rate, with three-fold increased one year mortality compared with the expected mortality rate for age-adjusted and sex-adjusted general population (Cortes et al., 2011).

Onset of the disease is largely idiopathic, but is associated with other nonbullous chronic inflammatory skin diseases such as pruritus, lichen planus, and psoriasis (Bakker CV et al., 2013). BP has been reported to be precipitated by ultraviolet irradiation, x-ray therapy, and exposure to some drugs, including furosemide, ibuprofen, and other nonsteroidal anti-inflammatory agents, captopril, penicillin and other antibiotics.

Clinical manifestations are widespread tense blisters/bullae and urticarial lesions associated with moderate to severe pruritus. The bullae may eventually erupt, which may cause pain and increase risk of infection, but generally the lesions heal without scarring or milia formation. Blistering on the palms and the soles of the feet can severely interfere with patients' daily functions. Other symptoms include blisters in the mouth, which may cause dysphagia, and redness and soreness of the eyes.

The bullae are formed by an immune reaction, initiated by the formation of IgG autoantibodies targeting Dystonin, also called Bullous Pemphigoid Antigen 1 (BPAG1) or AgBP230 (Iwasaki et al., 1995) and/or type XVII collagen, also called Bullous Pemphigoid Antigen 2 (AGBP2) or AgBP180 (Xu et al., 2000). The binding of IgG autoantibodies at the basement membrane activates complement and inflammatory mediators that lead to a cascade of immuno-modulators resulting in a variable surge of immune cells, including neutrophils, lymphocytes and eosinophils to the affected area. These inflammatory cells are postulated to release proteases, which degrade hemidesmosomal proteins and lead to blister formation.

Eosinophils are characteristically present in human patients' blisters as demonstrated by histopathologic analysis, although their presence is not an absolute diagnostic criterion. Eotaxin, an eosinophil-selective chemokine, is strongly expressed in the basal layer of the epidermis of lesional bullous pemphigoid skin and parallels the accumulation of eosinophils in the skin basement membrane zone area. It may play a role in the recruitment of eosinophils to the skin basement membrane area (Frezzolini et al., 2004).

Eotaxin-1 is a master regulator of the immune cellular network by inducing key immune cytokine responses. A study published in the European Journal of Dermatology found an increased level of serum eotaxin-1 in BP patients compared to patients with pemphigus vulgaris (PV), another skin blistering disorder, and healthy controls (Frezzolini et al., 2002). In addition, the authors found that eotaxin-1 is correlated with disease severity, with the level of eotaxin-1 in blister fluids found to be approximately 10-fold higher than in corresponding sera and when compared to blister fluid obtained from suction blisters from healthy volunteers.

Results published in the British Journal of Dermatology also showed elevated levels of eotaxin-1 in blister fluid from BP patients. Quite interestingly, level of the eotaxin-1 was strongly associated with dermal infiltrating eosinophils in BP patients, and immunohistochemistry analysis showed that eotaxin was strongly over-expressed in epidermal keratinocytes around BP (Wakugawa et al., 2000, ) but not in healthy controls (Shrikhande et al., 2000). Data published in Clinical and Experimental Immunology examined the level of eotaxin-1 in BP patients stratified by disease severity. The authors found that the highest levels of eotaxin-1 were in patients suffering from the most severe disease, suggesting a correlation between the level of eotaxin-1 over-expression and disease severity (G√ľnther et al., 2011).

Based on available peer-reviewed literature, it can be concluded that eotaxin-1 is an important mediator of eosinophil transmigration into tissue and its over-expression is highly correlated with manifestation of bullous pemphigoid. Eosinophils co-localized with basal keratinocytes expressing higher eotaxin-1 and CCR3 - CCR is known to be expressed by hematopoietic cells only but a few publications suggest CCR3 to be expressed by non hematopoietic cells as well such as keratinocytes (Petering H et al., 2001) as well as fibroblasts - the main receptor in eosinophils with high affinity for eotaxin-1, in skin lesions and bullae of BP patients. Immune Pharmaceuticals believes that these data indicate eotaxin-1 is involved in the dermal eosinophilia and the pathogenesis of BP, thus making eotaxin-1 a valid therapeutic target for treatment of BP disease.

Current Treatment Options for Patients with BP

There is no cure for BP; thus, treatment options are utilized to reduce the size of blisters and provide symptom relief, which includes inflammation and itching. The most commonly used medications are class-1 anti-inflammatory agents (e.g., corticosteroids, tetracyclines, and clobetasol) and are generally sufficient to reduce flare-ups and safe for short-term use. A study done in Europe provided evidence that strong topical corticosteroid treatment may be as effective as systemic oral corticosteroids in patients with BP while avoiding systemic adverse effects from systemic use (Joly et al., 2002). However, long-term use of high-dose corticosteroids results in significant side effects, including weight gain, glaucoma, diabetes, high blood pressure, hormone imbalances, osteoporosis, and edema and thus is not suitable for patients with severe or recurrent BP (Mayo Clinic).

For more severe cases, systemic steroids such as prednisone along with immunosuppressives (e.g., azathioprine, methotrexate, mycophenolate mofetil, and cyclophosphamide) may be needed to control the disease. Antibiotics such as tetracycline or erythromycin may also control the disease and prevent infection (Olivry et al., 2000). In patients who cannot use corticosteroids, an anti-CD20 antibody (rituximab), which is relatively specific in targeting the antibody-producing B cells, has been found to be effective (Olivry et al., 2000). What seems clear, however, is that new treatment options for patients with severe or recurrent disease are necessary. As noted above, patients with severe disease refractory to anti-inflammatory or immunosuppressive drugs have a three-fold increased risk of mortality. This is a clear unmeet need that needs to be addressed.

Background on Bertilimumab

Bertilimumab is a first-in-class fully human IgG4 monoclonal antibody with high target affinity against eotaxin-1. The antibody was originally discovered by Cambridge Antibody Technology (CAT) using is fully human phage display library. Bertilimumab, originally called CAT-213, binds to the aforementioned eotaxin-1 with very high affinity (~80 pM) and specificity. For example, ELISA analysis conducted using a series of human cytokines and chemokines, including the functionally related eotaxin-2 and eotaxin-3, demonstrates the high affinity and specificity of the antibody for eotaxin-1. This high degree of specificity and affinity should decrease any off-target effects or toxicities due to cross-reactivity with other antigens.

Multiple clinical and preclinical studies with bertilimumab confirm the drugs strong inhibition of eosinophil through the binding of eotaxin-1. For example, bertilimumab neutralizes the ability of eotaxin-1 to cause an increase in intracellular calcium signaling (Figure-6a), neutralizes eotaxin-1 mediated CCR3-expressing cell migration (Figure 6b), and inhibits eosinophil shape change and chemotaxis in vitro (Figure 6c) (source: Immune Pharma).

Pharmacokinetic data in 25 healthy male subjects found the elimination half-life to be approximately 14 days, consistent with other monoclonal antibodies. Safety data found no anti-bertilimumab antibody formation after a single intravenous dose. Beyond the blistering skin disease bullous pemphigoid, Immune Pharma sees the anti-eotaxin-1 mechanism offering therapeutic potential in other immuno-inflammatory disease such as Crohn's disease and ulcerative colitis, atopic dermatitis, pulmonary and liver fibrosis, non-alcoholic fatty-liver disease and non-alcoholic steatohepatitis , and ovarian cancer. Scientists have even found increasing levels of eotaxin-1 correlate with age and decreased neurogenesis (Figure 7) (Villeda et al., 2011).

Bertilimumab for the Treatment of BP

Immune Pharma is currently conducting a Phase 2a open-label, proof-of-concept, single group study in adult patients with newly diagnosed, moderate to extensive BP (NCT0222146). The study will consist of three periods; a screening period of up to two weeks, an open-label treatment period lasting two weeks consisting of intravenous infusion of 10 mg/kg bertilimumab on Days 0 and 14, and a safety and efficacy follow-up period of approximately six weeks. Enrollment is slated for up to 15 patients and will take place at two centers in Israel. The first center, Sourasky-Ichilov Tel Aviv Medical Center in Tel Aviv, Israel is currently recruiting patients. A second center is expected to come online shortly.

Patients will receive concomitant low-dose oral prednisone starting at 30 mg per day during the treatment and follow-up period, which is approximately half of what a typical starting dose would be for a BP patient. The dosage of prednisone will be tapered down rapidly beginning as early as week one based on patient response. The primary goal of the study is to evaluate the safety and clinical efficacy of bertilimumab in newly diagnosed patients with BP. Key secondary objectives include evaluating additional efficacy and pharmacodynamic (PD) effects of the drug in this patient population. The primary efficacy analysis will be

disease control as measured by the Bullous Pemphigoid Disease Area Index (BPDAI), a quantitative measure of disease activity that takes into account the number and size of lesions as well as their location (skin vs. mucosa), as well as the percentage of patients who achieve a steroid dose of less than 10 mg per day. I anticipate initial data from the trial to be reported in late 2015 or early 2016.

Prior studies of bertilimumab have shown nearly a 100% reduction in eotaxin-1 levels within 24 hours of administering the drug, with more than 50% of the inhibition lasting for several weeks. Thus, while only dosing patients twice times (Days 0 and 14), the company believes that bertilimumab may provide enough of a rapid and sustained response to show initial proof-of-concept. Furthermore, I suspect that with the medium dose of steroids (30 mg prednisone per day) it is unlikely that more than 3 or 4 patients respond, thus potentially creating a low hurdle for bertilimumab to add value. As such, a successful outcome for the Phase 2a trial could be if only half of the targeted 15 patients respond to therapy with bertilimumab, as this would most likely be proof that the drug is working and can be advanced to the next clinical stage.

If the open-label Phase 2a study above is successful, Immune will likely push forward into a Phase 2/3 clinical trial in 2016. Because BP is an Orphan Disease, it seems logical to assume that this next trial will count as one of the required pivotal studies required prior to U.S. FDA approval. Immune has already filed for Orphan Drug designation for bertilimumab in BP in October 2014; however, the FDA responded saying they would like to see the data from the Phase 2a open-label study before they grant the designation. If all goes well, Orphan Drug designation could come during the first half of 2016. I see no reason why it should not be granted if the data are encouraging. As a reminder, Immune is working closely with medical opinion leaders and with the International Pemphigus and Pemphigoid Association (IPPF) to help develop better awareness of the disease and to accelerate the availability of new drugs to patients who need them.

A Quick Review of Atopic Dermatitis

Atopic Dermatitis (AD), also known as eczema, is a chronic inflammatory disease that results in itchy, red, swollen, and cracked skin. The itching and scratching typically leads to redness, swelling, cracking, "weeping" clear fluid, and finally, crusting and scaling. Unlike contact dermatitis or dyshidrotic eczema, atopic dermatitis is often inherited or associated with other systemic allergic reactions. However, similar to many other inflammatory skin diseases such as bullous pemphigoid and psoriasis, there are periods of exacerbations or flares and periods of remission.

The cause of AD is not known, but the disease seems to result from a combination of genetic (hereditary), immune system dysfunction, and environmental factors. Children are more likely to develop this disorder if a parent has had it or another atopic disease like asthma or hay fever. As some children with atopic dermatitis grow older, their skin disease improves or disappears altogether, although their skin often remains dry and easily irritated. In others, atopic dermatitis continues to be a significant problem into adulthood.

Treatment involves avoiding triggering factors, daily bathing with application of a moisturizing cream afterwards, and medications to help with itchiness (Tollefson et al., 2014). Regular, liberal use of emollients is recommended. The primary pharmacologic treatment is topical corticosteroids, which have been shown to reduce relapse rates in patients who have recurrent moderate to severe atopic dermatitis (Berke et al., 2012). Pimecrolimus and tacrolimus are calcineurin inhibitors that are recommended as second-line treatment for persons with moderate to severe atopic dermatitis and who are at risk of atrophy from topical corticosteroids, although the U.S. FDA has issued a boxed warning about a possible link between these medications and skin malignancies and lymphoma. Topical and oral antibiotics may be used to treat secondary bacterial infections, but are not effective in preventing atopic dermatitis flare-ups. The effectiveness of alternative therapies, such as Chinese herbal preparations, homeopathy, hypnotherapy/biofeedback, and massage therapy, has not been established (American Academy of Family Physicians, 2012).

According to the National Eczema Association, a substantial proportion of the U.S. population has either eczema - 31.6 million, or moderate to severe atopic dermatitis - 17.8 million. The prevalence of childhood eczema/atopic dermatitis in the U.S. is 10.7% overall and as high as 18.1% in individual states. Approximately one out of every three children with atopic dermatitis has moderate to severe disease. A recent study found that the prevalence of eczema in adults is 10.2%, which suggests that most children with eczema/atopic dermatitis continue to be affected even in adulthood. Three percent of U.S. adults have moderate to severe eczema/atopic dermatitis requiring systemic therapy. These numbers are much higher than for psoriasis, a disease that now has many good-targeted treatments for moderate to severe patients. Yet, there are still very large unmet needs for the treatment of patients with atopic dermatitis.

Bertilimumab for the Treatment of AD

Chemokines are thought to play an important part in the development of inflammation in atopic dermatitis (Yawalkar et al., 1999). A paper published in the Journal of Investigative Dermatology (1999) showed that skin biopsy specimens obtained from non-lesional and lesional skin of patients with atopic dermatitis had significantly increased levels of eotaxin and CCR3 compared to non-atopic controls. As mentioned previously, CCR3 is known to be expressed by hematopoietic cells but some publications suggest CCR3 to be expressed by keratinocytes and fibroblasts, the latter suggesting a critical link to the pathogenesis of atopic dermatitis (Huber MA et al., 2002). Non-lesional atopic dermatitis CCR3 expression was also significantly increased at the mRNA and protein level, whereas eotaxin was increased at the mRNA level only. No significant difference in the expression of other chemoattractant activators of human eosinophil such as MCP-3, MIP-1alpha, and interleukin-8 was found in skin biopsy specimens from AD patients. The authors concluded that the enhanced local production of eotaxin may lead to the recruitment of eosinophils and T lymphocytes, which both express CCR3 and contribute to the initiation and maintenance of inflammation in patients with atopic dermatitis.

A paper published in Allergy (2001) investigated the level of circulating eotaxin in children with skin allergy in relation to clinical activity and lesion type. Plasma eotaxin was assayed in 78 infants and children, of whom 16 had AD, 19 had acute urticaria (AU), and 43 were healthy matched subjects. Results showed that the plasma eotaxin levels in children with AD (168±61 pg/ml) were significantly higher than the healthy control values (59.5±18.5 pg/ml) or in children with AU (124±33 pg/ml). The authors concluded that circulating levels of eotaxin increase in AD and during flares of AU, probably to serve in the recruitment and activation of eosinophils, and this may represent a biomarker of lesional activity (Hossny et al., 2001).

Immune Pharma plans to initiate clinical studies with bertilimumab in patients with atopic dermatitis in 2016. We believe this could be a significant label expansion for synergistic promotion for the drug when targeting dermatologists initially focusing on the BP indication. We note that Immune has also recently in-licensed a topical nano-formulation of Cyclosporin A in June 2015. Cyclosporin A is a commonly-used immunosuppressive agent in organ transplant patients to prevent rejection; however, the drug also offers utility in other immune-mediated conditions including psoriasis and atopic dermatitis. Unfortunately, there are limitations to administering the drug systemically, including variation in bioavailability, drug-drug interactions, and the potential for serious side effects including hypertension and nephrotoxicity. Therefore Immune pharma is planning to conduct a study in severe and/or refractory patients using bertilimumab.

Immune believes a topical formulation of Cyclosporin A should result in fewer adverse events due to the lack of systemic absorption. In a model of human skin, Immune's topical cyclosporine A demonstrated comparable activity to the most potent topical corticosteroid, clobetasol. The company is planning to develop this topical nano-formulated version as a treatment for both mild psoriasis and mild to moderate atopic dermatitis. Similar to the planned label expansion of bertilimumab from BP to AD, this provides for leverage of a dermatology-focused sales force and synergy on the marketing and promotion side.


A quick search of the U.S. National Library of Medicine, part of the National Institutes of Health ("PubMed") shows over 1,500 publications citing eotaxin-1. One of the most powerful pieces in support of eotaxin-1 as a therapeutic target can be seen in Figure 11 below. The authors, part of the Department of Immunodermatology and Allergology, Instituto Dermopatico dell' Immacolata-IRCCS, Rome, Italy and as far as I can tell unaffiliated with Immune Pharmaceuticals, call eotaxin-1, "The most important cytokine involved in tissue inflammation." Other peer-reviewed literature suggests eotaxin-1 sits at the crossroad of immunology. Immune's bertilimumab, a potent and selective inhibitor of eotaxin-1, is the only active clinical-stage therapeutic that specifically targets this master regulator of inflammation. Quite interestingly, it is not an immunosuppressive drug, it is a patient-tailored immune regulatory therapy.

It is worth noting that with Bertilimumab and topical nano-cyclosporine A, Immune could become a major player in Immuno-Dermatology. Bertilimumab has potential in both bullous pemphigoid and severe atopic dermatitis. In the latter disease, it appears to be the only clinical stage biologic competing with Regeneron/Sanofi's Phase 3, dupilumab, a monoclonal antibody against IL-4 receptor alpha subunit, which blocks signaling from both IL-4 and IL-13. IL-4 and IL-13 are key cytokines that are required for the initiation and maintenance of the Th2 (Type 2 helper T-cell) immune response that is believed to be a critical pathway in allergic inflammation. Topical nano-cyclosporine A is one of a handful of novel treatments for patients with moderate atopic dermatitis and psoriasis, along with crisaborole (AN2728), a PDE-4 inhibitor which recently successfully Phase 3 in atopic dermatitis and is developed by Anacor.

There are an estimated 65,000 patients in the U.S. and Europe with BP. The literature suggests the large majority of these patients can be treated safety with short-term immuno-suppressants and anti-inflammatory medications. However, in at least 25% of the acute BP patients long-term high-dose systemic corticosteroids are required, resulting in significant safety and tolerability issues for patients. Other patients are simply refractory to high dose steroids and require new treatment options. I suspect that bertilimumab, with mid-range biologic pricing similar to the anti-TNF molecules like Humira®, Remicade®, and Enbrel® use for the treatment of psoriasis (note I am not assuming orphan biologic pricing), the market opportunity for Immune in BP easily looks like $350 to $400 million. Atopic dermatitis, a condition that affects over 100 million globally, could easily double this peak potential opportunity for Immune or its commercial partner. Top-line data from the company's Phase 2a BP study are expected late 2015 / early 2016.