Submitted by The
Life Sciences Report
as part of our
contributors program
.
This interview was conducted by George S. Mack of
The Life Sciences Report
(10/25/12)
Hematological cancers present special opportunities for
investors. In this exclusive interview with
The Life Sciences Report
,
John McCamant, editor of the
Medical Technology Stock Letter,
comments on several companies in the hematology/oncology space,
describing the challenges and successes that influence investment
in the sector. In the case of two companies with very different
valuations, McCamant makes his preference clear.
The Life Sciences Report:
I know you have great interest in cancer drug development. Do you
see hematology/oncology (heme/onc) indications as areas of unmet
need right now?
John McCamant:
Heme/onc has been an area of success for biotech companies. We have
seen Celgene Corp. (CELG:NASDAQ) target multiple myeloma with
Revlimid (lenalidomide), and we've seen other drugs in this space,
such as Genentech/Roche Holding AG's (RHHBY:OTCQX) Rituxan
(rituximab) targeting B-cell lymphomas. Pharmacyclics Inc.
(PCYC:NASDAQ) has been a big winner for us at the
Medical Technology Stock Letter
,
with its Bruton's tyrosine kinase (
BTK
) inhibitor ibrutinib (PCI-32765). BTK is found in blood cells,
including the B cells.
It is easier to measure tumor loads in heme/onc than in the
solid tumors, where you have to evaluate response rates?excepting
survival rates, of course?with imaging techniques. The clinical
trial endpoints are clear, and that makes the sector a good place
for investors.
The other factor is that the size of heme/onc markets don't
always reflect the potential impact the drugs can have in a broader
market. A lot of drugs approved in this space will work in other
types of hematological cancers and other types of disease. The
initial markets shouldn't be thought of as too small because the
drugs could open up much larger market opportunities down the road.
Take Rituxan, which was originally thought to be only a niche
product. Now it and other B-cell targeting agents have been
expanded for use in autoimmune disease, such as rheumatoid
arthritis.
I'm a non-scientist, but I think most biotech investors can
understand how cancer drugs work in hematological cancers versus
solid tumors. It is really simple. Heme/onc disease is more
susceptible to drugs because it doesn't amass itself into a solid
tumor, where you literally have to debulk and get at multiple
layers. Heme/onc disease is circulating in the blood. If we get
drugs into the bloodstream, they have a chance to get at almost all
of the cancer cells, whether we use a targeted biologic drug or a
chemotherapy. Fundamentally, I think that is why we have had more
success with heme/onc than with solid tumors.
TLSR:
You make an interesting point about blood cancers not being
encapsulated or amassed, and therefore more accessible to drug
therapies. Azacytidine and decitabine have been successful in
treating myelodysplastic syndromes (MDS/diseases of the blood and
blood marrow in which blood stem cells do not mature into
functional white blood cells, red blood cells and platelets). Yet
when the same principal investigators attempt to translate those
drugs to solid tumors, they haven't had the same magnitude of
success.
JM:
It makes sense. Think about drug resistance in cancers. Once you
treat a solid tumor the first time, if it is not completely
debulked, the tumor and its cells develop resistance. This makes
the tumor more resistant the next time you come at it with the
drug, as it may not have been completely exposed to the drug the
first time.
TLSR:
Do you see any particular blood cancers that are in great need of
new therapies?
JM:
There are not a lot of great new drugs on the market now for MDS
and acute myeloid leukemia (AML), so that's an area where there is
some unmet need. Also, these disorders tend to manifest in elderly
patients, who cannot tolerate as many cycles of chemotherapy or as
many aggressive drug regimens. It is a unique patient population,
composed of people who are more fragile but severely ill. MDS and
AML look like a couple of nice opportunities for investors. You
don't need to have patient populations in the hundreds of thousands
in cancer. Tens of thousands represent very good-size markets in
this space.
TLSR:
John, the cover page of the 2008 annual report for Cyclacel
Pharmaceuticals Inc (CYCC:NASDAQ) had a picture of an 82-year-old
patient who had failed standard chemotherapy for AML. He was
treated on an expanded access (compassionate use) basis with
Cyclacel's sapacitabine, which was in phase 1 trials at the time.
The patient achieved two more birthdays after having been given two
weeks to live by his physician in Odessa, Texas. Here we are now,
toward the end of 2012, and the drug is in phase 3 for AML and late
phase 2 for MDS. This feels like a painfully slow process. Over the
last three years the regulatory process for drug development has
been accelerated under the Obama administration, with drugs
approved faster and earlier than anticipated in some cases. How
much difference can these new U.S. Food and Drug Administration
(FDA) policies make?
JM:
The FDA only represents a small slice of the timeline or cycle in
drug development. The two critical components are more in the
company's control. The first is enrollment. Does the company want a
fast trial that has loose exclusion/inclusion criteria so that it
ultimately ends up with more patients who might not fit the
criteria? Or should the company exhibit more patience and only
enroll the appropriate patient population? We certainly prefer the
latter, as you rarely get a second chance in drug development once
you fail in the clinic.
The other issue is that companies must deliver survival data, or
at least progression-free survival data. That takes a long time.
Even if patients are expected to live six, eight or 10 months in
the trials, it can still run a year or two after the trial is fully
enrolled. There is no way to accelerate development in a phase 3
trial where survival is used as an endpoint.
But my point is that enrollment is key. If a trial is designed
to be fast and it gets the right patients, it could be a sign of
patients voting with their feet and crossing over into the
experimental arm of the study. We believe that is happening with
Pharmacyclics. It almost has to fight patients to keep them out of
the trial. Those are some of the battles companies must wage to
manage expectations, particularly with investors.
TLSR:
We just got some news from Cyclacel. It announced data in an
ongoing phase 2 trial with sapacitabine for older patients with MDS
who had failed azacitidine and/or decitabine. Expected survival
rates were doubled. What is your opinion on this study?
JM:
We looked at some of the data, and the data looks solid,
particularly with the phase 3 trial ongoing in AML. That makes a
difference for us. The key is the larger phase 3 trial with AML:
The potential gives the Street and analysts a little more
confidence. The phase 2 MDS trial does not use a placebo as the
control arm, as it would be unethical to not use standard-of-care
in elderly and frail patients. We also know that other trials are
coming, using the Cyclacel compound in similar cancers. The data
have been good to date, and the stock has responded nicely. We look
forward to viewing the phase 3 data in AML.
TLSR:
Do you cover Cyclacel in your newsletter?
JM:
No, but we've followed Cyclacel over the years. Frankly, it has
been slow in development, but things seem to be accelerating, and
the valuation looks pretty attractive right now. The company is a
little low on cash, so we would not be surprised to see it trying
to raise some capital. Also, it does not yet have a partner, which
would help validate the technology. But it has a pretty good
development team and a very nice pedigree, with Christopher Henney,
a co-founder of Dendreon Corp. (DNDN:NASDAQ) and Immunex Corp.
(acquired by Amgen Inc. [AMGN:NASDAQ] for $16 billion in 2002), as
a board member. We're going to do a little more homework on
Cyclacel. We are trying to sit down with management and get its
take on what's going on as the company moves forward.
TLSR:
Because of the recent data, Cyclacel's stock is up sharply over the
last month. However, even with its performance, the company only
has a $46 million ($46M) market cap.
JM:
That's the key number. We can talk about share prices and all these
other numbers, but that market cap really dials us in. For a phase
3 cancer company, that's an unusual valuation. The recent price
rise probably increases the odds that the company can go out and
raise some money. But Wall Street is skeptical when it comes to
unpartnered small biotech companies. It is hard for these types of
companies to gain traction or get any visibility. At the end of the
day, if Cyclacel keeps doing its job and delivering good data,
valuation will take care of itself.
TLSR:
Can you speak to Astex Pharmaceuticals Inc. (ASTX:NSADAQ) (formerly
SuperGen Inc.)? It is also heavily involved in the heme/onc
space.
JM:
Astex is a different type of company. It has been around for quite
some time under a different name. It made a good move when it
merged with a British company and acquired a platform technology.
Now Astex appears to be making some moves forward in the heme/onc
space. That being said, we're looking at a much different
valuation.
TLSR:
A $276M market cap, right?
JM:
The market cap is five times that of Cyclacel. But Astex has an
approved MDS product, Dacogen (decitabine), and it generates some
revenue with that product. Management is solid. Generally,
investors want an exciting molecule rather than a
revenue-producing, older cancer drug. It can be difficult running
two different companies at the same time?one having a sales
organization out there marketing, and the other focusing on
research and development. It is a lot for a smaller company to
manage effectively.
TLSR:
Dacogen is a DNA methyltransferase inhibitor used in MDS and AML.
If Cyclacel gets sapacitabine approved for those indications, how
much would that eat into Dacogen revenues?
JM:
Quite possibly a good bit, because we are talking about a novel
oral compound from Cyclacel. Safety is more important in these
elderly patients, but efficacy is needed.
TLSR:
Would you consider following Astex in your newsletter?
JM:
We have been tracking it off and on. We've known the company as
SuperGen, from back in the day. But we have learned to never say
never. The acquisition of Astex Pharmaceuticals (the British
company mentioned above; SuperGen changed its name to Astex
following the merger), with its discovery platform, is intriguing
to us. It looks like the lead molecules make sense and are in the
right cancer space. But the company has a different valuation than
Cyclacel. We'll do some work here, but it looks like the more
exciting molecule might be at Cyclacel.
Both companies are interesting. They are taking two different
approaches. In theory, using revenue-producing drugs to support the
research and development of the other compounds can work if it's
executed well.
TLSR:
I've enjoyed talking with you very much, as always.
JM:
Thank you. It's my pleasure.
John McCamant joined the
Medical Technology Stock Letter
as associate editor in 1987 and was named editor of this
leading investment newsletter in August 2000. McCamant has spent 25
years on the frontlines of biotechnology investing. As an equities
analyst for the American Healthcare Fund, he uncovered investment
opportunities and guided investment strategy. At Burrill &
Company, a San Francisco-based private merchant bank, he was a lead
in raising $75M for a venture capital fund. McCamant has
established an extensive network that includes contacts throughout
the investment banking and venture capital communities. His
expertise in biotechnology investments is a subject of media
interest. He is frequently consulted and quoted by the
Washington Post, Business Week,
Reuters, Bloomberg, CBS and
Marketwatch.
Want to read more exclusive
Life Sciences Report
interviews like this? Sign up for our free e-newsletter, and you'll
learn when new articles have been published. To see a list of
recent interviews with industry analysts and commentators, visit
our Exclusive Interviews page.
DISCLOSURE:
1) George S. Mack of
The Life Sciences Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
None.
2) The following companies mentioned in the interview are sponsors
of
The Life Sciences Report:
Cyclacel Pharmaceuticals Inc. Streetwise Reports does not accept
stock in exchange for services. Interviews are edited for clarity.
3) John McCamant: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I personally
and/or my family am paid by the following companies mentioned in
this interview: None. I was not paid by Streetwise Reports for
participating in this interview.
Streetwise ?
The Life Sciences Report
is Copyright