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How Three Companies Have Been Resurrected from Failed Clinical Trials: George Zavoico of JonesTrading RVX, SNSS, THLD, AST, ABEO
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George Zavoico Data can create or destroy the value of a biotech investment in an instant, but hitting or missing an endpoint doesn't always tell the story. For instance, Genentech's Herceptin (trastuzumab) is a blockbuster, bringing in $7.4B in revenue during 2015, but at one point investigators thought it was a complete failure. It took patience, time, additional capital and careful analysis of subpopulations of breast cancer patients to figure out that Herceptin would ultimately save many lives. In this interview with The Life Sciences Report, George Zavoico of JonesTrading Institutional Services discusses the growth prospects of three biotech names that have been wrecked and left for dead, but could ultimately resurrect themselves from a misleading pile of rubble.

[Editor's Note: This is part one of a two-part series with Dr. George Zavoico.]

The Life Sciences Report: You have been a biotechnology analyst for a very long time now, and you've seen trends. Is there any such thing as a durable trend?

George Zavoico: I think the only durable trend is the fact that science progresses inexorably toward better and greater understanding of underlying mechanisms of biology, physiology and disease. That provides a tremendous and always enlarging platform that enables us to evaluate what happens when things go wrong in human health, and to come up with solutions. Consequently, we are better able to create technologies and design drugs to address and target unmet clinical needs. The durable trend is that advances keep happening, sometimes a bit faster and with more impactful or disruptive discoveries than at other times.

TLSR: Can you pick out any meaningful and momentous platforms that would benefit investors today?

GZ: I can think of a few. Recently, the most obvious have been advances in immunology, and particularly in immuno-oncology, where we've seen a lot of interest in new drugs, including checkpoint inhibitors, chimeric antigen receptor T-cells and bispecific antibodies. In the immunology arena, you're targeting a patient's immune system, not the disease, and this represents a true paradigm shift in cancer biology that researchers have begun to exploit. Immunology is a very important area of research.

"Resverlogix Corp. is an interesting resurrection story; the company has discovered a couple of very interesting things about the mechanism of action of RVX-208."

There is also the critical area of neurodegenerative diseases, particularly Alzheimer's disease. We've seen some spectacular failures in antibodies that have targeted beta-amyloid. In the background, some small, poorly funded companies have been looking at other mechanisms of disease in Alzheimer's, and also in other degenerative diseases like Parkinson's, Huntington's and, to some extent, amyotrophic lateral sclerosis (ALS). I think the shift away from beta-amyloid has enabled interesting research into mechanisms of amyloid plaque formation and how hyperphosphorylated tau protein forms neurofibrillary tangles. I think Alzheimer's is a very complex disease that will require more than one treatment modality.

TLSR: George, a lot of capital was sunk into beta-amyloid research. It feels like we all ran down a rabbit hole. What is your impression? Investors would be curious to know why so many investigators chase these dead ends.

GZ: Amyloid and tau are phenomenological events that you can see through a microscope, which is why drug companies went after them in the first place. It is something they could see and measure pretty easily, and it was clearly associated with the disease. In contrast, the biochemical changes going on in the brain are much more difficult to see and measure, but they are much more important in getting at the mechanisms of disease. There are several small companies that have largely been working behind the scenes that might be poised to provide important new scientific breakthroughs, perhaps leading to effective treatments for neurodegenerative disease.

"Sunesis Pharmaceuticals Inc. is going after registration for vosaroxin in the European Union."

Going back to momentous trends, there have been very interesting developments in cell and gene therapy. Tremendous advances in the ability to isolate and culture stem cells, and then to direct their differentiation to specific phenotypes, have been made. We are also seeing the development of induced pluripotent stem cells and placenta-derived cells into specific, differentiated phenotypes, the latter from Pluristem Therapeutics Inc. (PSTI:NASDAQ). Another company, Asterias Biotherapeutics Inc. (AST:NYSE.MKT), which was spun out of Geron Corp. (GERN:NASDAQ), is using human embryonic stem cells harvested from blastocysts. Notably, Asterias is expanding and using the same cell line Geron developed 20 years ago from a single blastocyst. We just saw a tremendous achievement by Vericel Corp. (VCEL:NASDAQ), formerly Aastrom Biosciences, in a Phase 2b trial performed with ixmyelocel-T, an autologous bone marrow-derived cell therapy. For the first time, we've seen a clinically meaningful, substantial prolongation of overall survival in a heart failure study. It's a tremendous achievement.

Another area that's been trending is the development of gene therapy for rare diseases. Abeona Therapeutics Inc. (ABEO:NASDAQ) is playing in the gene therapy space by targeting Sanfilippo syndromes Types A and B with adeno-associated viral vectors that specifically cross the blood-brain barrier to deliver a normal copies of the dysfunctional gene in this rare, lysosomal storage disease.

Gene therapy and cell therapy for multiple indications—cardiovascular disease, cancer, autoimmune disease—are very exciting places to be. Right now, the big pharmaceutical companies are not all that comfortable with cell and gene therapy. I think we'll see some of the smaller players emerging in these areas, and their successes might compel big pharma to jump in with deals, mergers and acquisitions, not unlike what they did when antibody therapeutics began to prove their value in the 1990s.

"Another area that's been trending is the development of gene therapy for rare diseases."

Finally, the last big trend I'd like to mention is the identification of biomarkers and their use in targeted therapies. It's well established now that one can dramatically increase the chances of a successful clinical trial with targeted therapies if the patients to be treated are defined as being most likely to respond by specific biomarkers. More and more, we're seeing companion diagnostics for specific biomarkers being developed in parallel with therapeutics.

TLSR: George, could we talk about some stocks, please?

GZ: I'll start with Resverlogix Corp. (RVX:TSX), which is an interesting resurrection story. Its lead drug, RVX-208 (apabetalone), failed in a Phase 2b clinical trial back in 2013, but then the company discovered a couple of very interesting things about the compound. Now it better understands the mechanism of action of RVX-208, which is an epigenetic inhibitor. The drug is an inhibitor of BET (bromodomain and extraterminal) domains and it was shown to increase levels of apolipoprotein A1 (ApoA1), which is a component of high-density lipoproteins (HDL/good cholesterol).

This is a classic example of how a company can design a new trial from what was learned in a failed trial. Instead of giving up after the failed 324-patient Phase 2b ASSURE trial in 2013, Resverlogix made adjustments to increase its chances of success. It started a big Phase 3 trial this past October in high-risk, type 2 diabetes patients with coronary artery disease. The primary endpoint is time to first occurrence of a major cardiovascular event (MACE), with expectations that RVX-208 will also increase HDL-C, ApoA1, and large HDLs and HDL particle size. Fittingly, this Phase 3 trial is called BETonMACE. Now, after seeing the complete data set from ASSURE and other studies of RVX-208, a lot of key opinion leaders are behind the drug candidate.

"Successes in gene therapy and cell therapy for multiple indications might compel big pharma to jump in with deals, mergers and acquisitions."

What's interesting about Resverlogix is that it has a whole platform behind this BET domain inhibitor story. Given its history, the issue for the company now is how to regain the confidence of Wall Street, which has memory of the failed ASSURE trial. The most likely way is with positive clinical trial data.

TLSR: This Phase 3 trial with RSV-208 is double-blind and placebo-controlled, with 2,400 patients in the study. Final data collection is scheduled for September 2018. Are we going to get interim looks at data that could be drivers of the stock in the meantime?

GZ: I believe Resverlogix has some independent Data and Safety Monitoring Board (DSMB) looks scheduled. The first one might only be to say whether the trial is futile, or whether it should keep going.

TLSR: Resverlogix's market cap is now about $130 million ($130M). Is its market valuation large enough for any institutional investors to own?

GZ: Yes. Some institutions are agnostic toward market cap. Resverlogix is in a lower market-cap slot right now, and obviously, if and when it gets up above $250M or $500M, more institutions will jump in.

TLSR: You used to follow Sunesis Pharmaceuticals Inc. (SNSS:NASDAQ), which also had a trial failure, and the share price was hurt pretty badly. Are you able to comment on it?

GZ: It's been a couple of years since I've covered Sunesis, but it's in the same sort of situation as Resverlogix. Its Phase 3 VALOR trial of vosaroxin (Qinprezo) with cytarabine in patients with first relapsed or refractory acute myeloid leukemia (AML) did not achieve the primary endpoint of overall survival. But the company looked at the data and found that there was actually a significant survival benefit in patients who were 60 years of age or older, and especially in patients who achieved a complete response. Notably, Sunesis found that the addition of vosaroxin to cytarabine more than doubled the complete response rate. So Sunesis is going after registration in the European Union (EU). This is not unlike what Eisai Inc. (ESALF:OTCPK) did with its epigenetic inhibitor Dacogen (decitabine). Dacogen did not get approved for AML in the U.S. because it too missed its primary endpoint, but it did get approval in Europe because it provided a measurable clinical benefit. I'm not willing to put a probability on approval of vosaroxin in the EU, but we will watch and see what happens. Meanwhile, Sunesis has an early-stage pipeline to work on, but those drugs are several years out.

TLSR: Do you have another name with a similar trial-failure theme?

GZ: I'd like to mention Threshold Pharmaceuticals Inc. (THLD:NASDAQ). Its drug, evofosfamide (TH-302), a hypoxia-activated chemotherapy prodrug, failed as frontline therapy in soft tissue sarcoma and in pancreatic cancer when combined with doxorubicin and gemcitabine, respectively. Threshold was in a partnership with Merck KGaA (MKGAY:OTCPK) on this. But, in looking at the pancreatic cancer data, there was a substantial and significant—almost 50%—improvement in the overall survival in Japanese and South Korean patients in the trial. It just barely missed in the U.S. with a p-value of 0.058, and in the rest of the world in the intent-to-treat population.

"Immunology targets a patient's immune system, not the disease, and this represents a true paradigm shift in cancer biology."

Looking at the data closer, Threshold found that overall survival, progression-free survival and the overall response rate for the intent-to-treat population was very similar to that of low-dose evofosfamide in the Phase 2 trial. Since the improvement in these efficacy parameters was much more impressive with a higher dose in the Phase 2 trial, Threshold went with high dose in the Phase 3 trial. But the finding that the efficacy parameters looked like what was seen in Phase 2 suggests that a substantial number of patients may not have gotten the high dose. How can this happen? Perhaps patients weren't as well monitored as they were in the Phase 2 trial. Perhaps when some of these patients began getting a rash, mucositis or gastrointestinal disturbances, they were taken off the drug or the dose was reduced, whereas in the Phase 2 trial, with better monitoring, they may have been treated for those symptoms, and therefore they were able to stay on the higher dose and experience the efficacy. Since patients treated in Japan and South Korea did better, it also suggests that patients were monitored better there. Moreover, there may have been an incentive to get patients off this trial when adverse events emerged in order to switch them to the combination of gemcitabine and Abraxane, which was approved midway through Threshold's trial in the U.S., but not in Japan.

TLSR: Was there an assumption that evofosfamide was a dud? Is this a case of shoot first and ask questions later?

"Several small companies might be poised to provide scientific breakthroughs, perhaps leading to effective treatments for neurodegenerative disease."

GZ: That's how investors saw it—just looking at the top line of the Phase 3. I'm confident that evofosfamide is an active drug, and the company confirmed publicly on March 10, with its Q4/15 financials, that it will continue to develop the drug in Japan. Threshold is also continuing development of evofosfamide for other indications where it has seen some promising preclinical results. It is about to begin studies of evofosfamide in combination with immuno-oncology agents, which target the immune system and not the tumor cells. Effector T-cells need a lot of oxygen to kill tumor cells, and when they encounter a hypoxic region, they just cannot do their job and spare those tumors a certain death. If you administer a drug that is activated by a low-oxygen environment and disrupt the hypoxic regions in tumors, then effector T-cells may be able to go into those regions and attack tumor cells that are otherwise hidden from the immune system. I think it's worth watching Threshold Pharmaceuticals carefully.

TLSR: Thank you so much, George.

Dr. George Zavoico, senior equity analyst at JonesTrading Institutional Services LLC, has more than 10 years of experience as a life sciences equity analyst writing research on publicly traded equities. His principal focus is on biotechnology, biopharmaceutical, specialty pharmaceutical, and molecular diagnostics companies. Previously, Zavoico was a senior equity research analyst in the healthcare sector at MLV & Co., and an equity analyst at Cantor Fitzgerald and Westport Capital Markets. Prior to becoming an equity analyst, Zavoico established his own consulting company serving the biotech and pharmaceutical industries, providing competitive intelligence and marketing research, due diligence services and guidance in regulatory affairs. Zavoico began his career as a senior research scientist at Bristol-Myers Squibb Co., moving on to management positions at Alexion Pharmaceuticals Inc. and T Cell Sciences Inc. (now Celldex Therapeutics Inc.). Zavoico has a bachelor's degree in biology from St. Lawrence University and a Ph.D. in physiology from the University of Virginia. He held post-doctoral fellowships at the University of Connecticut School of Medicine and Harvard Medical School/Brigham & Women's Hospital. He has published more than 30 papers in peer-reviewed journals and has coauthored four book chapters. He received The Financial Times/Starmine Award two years in a row for being among the top-ranked earnings estimators in the biotechnology sector.

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DISCLOSURE:
1) Dr. George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Resverlogix Corp., Sunesis Pharmaceuticals Inc. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
3) George Zavoico: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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