Platform Technologies Promise Big Payoffs: Juan Sanchez
Source: George S. Mack of
The Life Sciences Report
Platform technologies promise big payoffs because they offer
the prospect of nearly unlimited assets that might be developed
to combat disease, but they make investors very nervous because
of their propensity to burn cash in a hurry. In this exclusive
The Life Sciences Report,
Ladenburg Thalmann & Co. Vice President and Senior Analyst
Juan Sanchez makes his case for a few companies that could
produce numerous products from their technology-rich
The Life Sciences Report:
Have any of the proposals from the U.S. Food and Drug
Administration's (FDA) Critical Path Initiative begun to collapse
timeframes or make drug development more efficient and less
When the FDA's Critical Path Initiative first came out in 2004,
it made a lot of sense. Back then, there were conversations on
Wall Street about different parties and the FDA working together.
That led to unique collaborations and kind of a different
culture. But I'm not sure you can quantify the success of an
initiative like that because you are, after all, at the mercy of
biology as well as higher regulatory standards. The FDA is still
approving 22-30 new drugs every year, and I think it was 30 new
ones in 2011. The fact that this continues to be the case when
clinical trials are becoming so much more complicated and so much
more difficult, and when the low-hanging fruit of drugable
targets has already been taken, tells us something important when
a decent number of new approvals are still coming out. Just
keeping up with the pace means something is working. However, I
am not sure if this relative success can be attributed to the
Critical Path Initiative. There are a lot of headwinds, and I'm
not sure what the right measure of success is.
Juan, you follow some companies with platform technologies, which
are supposed to yield lots of products. From what you are seeing,
do the platforms eat up capital? Do you see some of these as
expensive science projects, or do you see them as prolific
creators of value?
Wall Street interest for platform technologies has been up and
down throughout the years. With the sequencing of the human
genome in the late '90s and early 2000s, everyone was going for
platforms. Then they fell out of favor and fewer companies were
attractive to investors. But recently there has been a second
wave of understanding that platforms may have some real value.
They do take a lot of money to operate. I believe platform
technology companies need to have one or two projects perceived
as promising early on. Otherwise the cost of capital to operate
these companies could escalate, making it difficult to sustain
infrastructure. However, even if a single platform seems very
robust, I do believe the probability of having two successes out
of that platform is low.
Can you give me an example of a platform company?
I follow Micromet Inc. (MITI:NASDAQ), which is a good platform
story now being acquired by Amgen Inc. (AMGN:NASDAQ) for $1.16
). It wasn't a cheap company to run. It costs almost $100 million
)/year just to run the business, but it has a really promising
first product in MT103 (blinatumomab) for acute lymphoblastic
leukemia, which is now in pivotal phase 3 trials. However, MT102
(adecatumumab) has been driving most of the valuation. Companies
may also need to validate their platform technologies through
some corporate collaborations. Without collaborations for
earlier-stage programs, few investors are going to assign you
much value for the platform technology. The Micromet is a good
example of an important lead product combined with a plethora of
earlier stage corporate collaborations. In fact, the hands-on
experience that Amgen had with Micromet's technology could have
been a definitive factor for the proposed acquisition. That tells
you that Micromet's positioning was good, but in reality who
knows if this platform technology is going to generate more than
one product. I'm highly confident that the first program, MT103,
is likely to be successful. But, time will tell if other products
Neurobiology has not been developed to the level of oncology or
cardiovascular disease or even autoimmune disease. Are we
beginning to see a sharper focus now on central nervous system (
Big pharma is not investing in central nervous system (
) disease as much as before. Some companies are walking away.
That said, we have seen a lot of new CNS science over the last
15-20 years. New targets and approaches that were proposed in the
'90s for depression and schizophrenia, for example, are now being
evaluated in phase 2 clinical trials. Groups are now working on
better ways to design and run clinical trials and on validating
biomarkers so we can become smarter in developing CNS drugs. That
is very encouraging. But, it is difficult to predict when that is
going to result in the successful development of better
You also follow companies focused on infectious disease, for
instance Optimer Pharmaceuticals Inc. (OPTR:NASDAQ) with its
newly approved product Dificid (fidaxomicin) for
). But I'm wondering if there's enough incentive to develop
antibiotics for new or old indications.
There haven't been too many recent approvals in the space. But
Dificid approved in May 2011 and Teflaro (ceftaroline fosamil)
(Forest Laboratories Inc. (FRX:NYSE)) approved in October 2010
are important examples. There has been some stagnation in the
development of antibiotics for a couple of reasons. One is that a
lot of good antibiotics went generic, and there is not the
willingness of payers and hospitals to pay for the expensive
ones. Therefore, incentives for companies to compete in this
space with poorly differentiated products do not exist. In
addition, there was a period of regulatory uncertainty for
indications such as community acquired pneumonia and acute
bacterial skin and skin-structure infections. Recent draft
guidance by the FDA on how to design clinical trials for these
indications is reinvigorating investment. Finally, the two major
drivers/incentives to develop antibiotics are the unavoidable
obsolescence of existing ones due to resistance, and the second
is the availability of novel antibiotic platforms, which we are
now beginning to see.
Juan, are you a little bit disappointed in the uptake of
No, on the contrary the launch was better than expected. We'll
see what happens this year. Generally it's tough to start selling
a premium-priced new drug, especially when you partially depend
on hospitals, as in this case. But Optimer has taken very robust
commercial measures for a strong launch.
Some other products are coming along and under development for
CDI. For instance, Merck & Co. Inc. (MRK:NYSE) has two
monoclonal antibodies designed to be used together in phase 2
studies. What effect might that have on Dificid when newer
products for CDI are approved?
I don't think it will have a great effect because the size of the
CDI problem has been significantly underestimated. That's an
important variable. Existing data on incidence of infection are
not accurate, and so all we can assume is that the market is
bigger than what current data shows. As for antibodies, I assume
they are going to be used in the most severe cases of high
recurrence and in combination with Dificid and other approaches.
Therefore I don't believe Dificid will be negatively
Are you still rating Optimer a Buy?
Yes, I am and the target price is $15.
Another platform company?
If you're looking at platform technologies, you need to pay
attention to a Swiss company called Addex Pharmaceuticals (
). Its allosteric modulator technology platform has a lot of
The Street tends to focus on negative aspects. Addex had a
positive allosteric modulator (a metabotropic glutamate receptor
4 (mGluR4)) under development for Parkinson's disease with
partner Merck & Co. After a four-year collaboration, Merck
returned the product with all rights to Addex this past
September. Is this going to be a psychological barrier for the
It was back then. The stock went down when it happened. I don't
think there's anything wrong with that program, but investors and
Wall Street usually take a skeptical approach to these events. An
asset is not truly validated until positive news starts to
emerge. But, in 2012 you are going to have news from two
different Addex drugs. The first is dipraglurant-IR, an mGluR5
negative allosteric modulator in Parkinson's disease
levadopa-induced dyskinesia (PD-LID). We expect initial
proof-of-concept, phase 2a data, in the first half of this year.
The second one is ADX71149 (an mGluR2 positive allosteric
modulator) in a collaboration with Johnson & Johnson
(JNJ:NYSE) for schizophrenia. The product returned by Merck to
Addex is a very small part of the story. Addex has a platform
technology with multiple partnerships. You lose one partnership,
that's something that happens in the industry.
You also follow Valeant Pharmaceuticals International Inc.
(VRX:NYSE; VRX:TSX). What do you like about them?
Valeant is a very well-run company with Michael Pearson, a very
pragmatic CEO who is adept at allocating capital and thinking
big. There's a very good management team here, which is getting
stronger by the day. As a long-term player, this company is
likely to continue growing mainly through acquisitions and
finding efficiencies at every level of the organization. The most
recent is a small $150M-acquisition of Probiotica Laboratorios
Ltd. in Brazil. But whenever Valeant does an acquisition, it also
makes sure it continues to grow organically. I think for the next
few years there are enough assets out there in the world for
Valeant to continue with its acquisition strategy. When you have
a good management team that has proven itself many, many times,
you trust in them more and more. As a long-term investment, I
You follow Questcor Pharmaceuticals Inc. (QCOR:NASDAQ). Do you
still have it rated as a Buy?
Yes, and my target is $46.
The company has increased the size of its sales force. How long
will it take to see the result of this?
We are already seeing very positive results in Acthar (repository
corticotrophin) prescriptions for neprhotic syndrome (NS). By
mid-year we will see another sales force expansion to support NS
You are also following AMAG Pharmaceuticals Inc. (AMAG: NASDAQ).
The company has had some organizational turmoil, which has hurt
sales performance. Is it making any progress in getting by these
AMAG is trying, but it is not clear how successful it will be on
its own. At this point the Street is focused on the potential for
AMAG being acquired.
Who would be a plausible suitor?
Takeda Pharmaceutical Co. Ltd. (TKPYY:OTCPK) is AMAG's partner in
Europe and Canada.
Juan, I appreciate your time. Thank you.
Thank you very much.
Dr. Juan F. Sanchez is a vice president at Ladenburg
Thalmann & Co. Inc, Research Division. He covers
biotechnology and nanotechnology sectors with a focus on
central nervous system therapeutics. Dr. Sanchez's previous
experience includes oncology marketing at Bristol Myers Squibb
and post-genomic strategy planning at the Office of the Vice
Provost, Columbia University. He has five years of experience
in clinical medical practice. Dr. Sanchez received a Master in
International Affairs from Columbia University, a Master of
Business Administration from University of Los Andes and a
Medical Doctor degree from Javeriana University.
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:
2) The following companies mentioned in the interview are
The Life Sciences Report:
Addex Pharmaceuticals SA. Streetwise Reports does not accept
stock in exchange for services.
3) Juan Sanchez: 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
for participating in this story.
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