The Life Sciences Report: David, you've been a venture capitalist (VC) investing in early-stage biotechnology. The companies you follow today as a sellside analyst are more sophisticated and advanced than the companies you once held in your private equity portfolios. How does that VC experience inform the work you do today, performing diligence on public biotech companies?
David Nierengarten: The risk/reward equation on early-stage companies is often quite dramatic, and that VC background did help me learn how to properly gauge that equation. Early-stage biotechs do not have the more traditional metrics used by stock analysts, like revenues or earnings. I also hold a Ph.D. in molecular and cell biology, and that helps me evaluate the science.
TLSR: You've also had experience working in a biotech company with at least one product in the clinic, and the company was in the position of needing capital. In that way, you were on the other side of the street, mindful of achieving milestones. Has that experience been helpful to you when talking to a company? Are you able to get a sense of management's ability to achieve goals?
DN: Working with Epiphany Biosciences Inc. (private) on valomaciclovir stearate did a couple of things for me. It instilled a gut check, where I look to see whether management is mindful of timelines and is being conservative in terms estimating time to completion of clinical trials. Also, looking at companies from the corporate side, the experience provided a certain perspective. Is this a management team that I think will present the case well to investors? Back in the day, I was a part of those presentations.
"Right now—and in the foreseeable future—gene therapy is only going to be used in monogenic diseases."
The other, more subtle thing that experience did was give me an opportunity to see how clinical trials are run and managed in a corporate setting. This helps me evaluate whether expectations, clinical planning and interactions are realistic. I'm also able to see if there are upsides or downsides to what management expects in terms of clinical trial recruitment and acceptance by physicians in allocating patients to clinical trials. I think those questions should come up frequently, but they don't necessarily come up on the investor side of things.
TLSR: You have a strong focus on gene therapy in your practice. What are your thoughts on the events, and aftermath, of September 1999, when 18-year-old Jesse Gelsinger died as he took part in a safety trial at the University of Pennsylvania? He had a mild form of a disease caused by an enzyme deficiency. He was not really sick and was able to manage his condition. Today, it's almost a reflex that when people hear the term "gene therapy," they think of that young patient. Why do you think that case got so much attention?
DN: Gene therapy was a novelty at that time, and it held a lot of promise. It was attempted in several patients, but that one very unfortunate incident became very high profile because of the therapy's novelty.
TLSR: Do you think the Gelsinger death impeded the progress of gene therapy?
DN: It definitely did, especially here in the U.S. In fact, some of the technology and initial clinical studies relating to companies I cover comes from Europe, which has been supportive of more and varied trials in the past decade than the U.S. Food and Drug Administration (FDA) has been. This unfortunate incident resulted in a moratorium on clinical trials here in the U.S. for years, until companies came back with what I see as safer technologies, and technologies focused on life-threatening diseases.
TLSR: Today, companies involved in antisense, RNA interference (RNAi) and even DNA-based immunization never refer to their platforms as gene therapy. It seems like there's a bias against that term. But companies like Applied Genetic Technologies (NASDAQ:AGTC) and bluebird bio Inc. (BLUE:NASDAQ) have begun using that term with some pride.
DN: I don't view RNAi and these other technologies as gene therapies, even though they're working on the genetic level. That's because they don't effect a permanent change. That's the main selling point of gene therapy. Not only are you correcting the disease at its source—that one defective gene—but it is a one-time treatment.
TLSR: Because antisense and RNAi are reversible?
DN: Yes, exactly. You could argue, with RNAi or antisense, that you are treating disease at a genetic source or close to the genetic source, but they require chronic treatment.
TLSR: But that permanence presents a danger factor too, because it is irreversible. That could be a big problem, couldn't it?
DN: Potentially. That's another reason the majority of gene therapy companies are looking at relatively rare diseases. Frankly, it would be tragic to have side effects occur. But you have to balance public safety and public health. If the potential for serious adverse events is only going to occur in a few thousand people out of 300 million (300M) in America, that's a different proposition than the adverse event profile for a drug like Lipitor (atorvastatin), which 29M people have been prescribed.
TLSR: Most diseases are polygenic (involve multiple genetic factors) in origin. Is gene therapy useful in polygenic disease, or is it only useful in monogenic disease?
DN: It's hard to say what may come in 10 or 20 years, but right now—and in the foreseeable future—gene therapy is only going to be used in monogenic diseases, with some exceptions. Some companies are looking to treat diseases, such as heart failure, which is a polygenic disease, by increasing the expression of or replacing a single protein in the person's body. That may be the one exception to the rule. The fact is, you might be treating a polygenic disease with a single gene. That said, the vast majority of companies right now are looking to treat single gene mutation-caused diseases with a corrected form of that one gene.
TLSR: David, do you consider gene therapy to be a more difficult technology to get through the regulatory process than, say, protein inhibition with a small molecule or antibody?
DN: I think it's definitely more complicated. The complexities arise not just from the permanence of gene therapy's effect, but also from the technology used and the manufacturing processes used to create the viruses in the therapies. There are multiple regulatory checks required that the FDA really hasn't dealt with in the past, as opposed to making a pill, which the FDA has been dealing with for 50 years. Even making a protein—the FDA has been dealing with that for more than 20 years. The FDA hasn't established a regulatory pathway for making a virus to deliver a gene that will have a permanent, irreversible effect on the patient.
"The FDA hasn't established a regulatory pathway for making a virus to deliver a gene that will have a permanent, irreversible effect on the patient."
The FDA has been working with companies to initiate gene therapy clinical trials for several years, but we still haven't seen an approved gene therapy or approval pathway in the U.S. The FDA might want something close to a permanent conditional approval, where you can treat with the gene therapy but each patient must be monitored for his or her lifetime. Is that going to be part of the treatment paradigm? There are several open questions. The number and length of the safety database are primary questions that need to be resolved for the FDA to approve these therapies.
TLSR: Would you please go ahead and choose a company under coverage to talk about?
DN: Let's start with two of the gene therapy companies, since we're on that topic. I'll begin with bluebird bio, which has had some really remarkable results to date. The company is focused on treating genetic diseases, and what's gotten people excited is initial data in beta thalassemia, where the company has essentially cured two patients to date with its latest formation. We got a data update on the next few patients at the annual meeting of the American Society of Hematology (ASH), which just took place in San Francisco. The data was really quite remarkable, with continued cures seen in additional beta thalassemia patients, with no significant safety issues or other concerns. It's amazing to think about a permanent cure for this disease. Over the next few months there will be continued updates for these patients and others in the treatment queue.
Beta thalassemia patients require transfusions to keep their red blood cell counts up to treat their anemia. What's exciting about bluebird's therapy is that the first patients became transfusion-free almost immediately after the treatment. Frankly, it is a result that I didn't think was physiologically possible. I thought, at a minimum, you would have to wait three, six, maybe 12 months to see transfusion independence develop. The response was exciting to see. Those initial data were reported at the European Hematology Association meeting back in mid-June, in Milan, Italy.
Since then, bluebird has also treated a sickle cell anemia patient. We should see initial data for that patient sometime in 2015—maybe in H1/15. We'll then see how the data evolve. Sickle cell anemia is a significant and serious disease here in America, and worldwide. The initial safety data at ASH was encouraging—the sickle cell patient appears to be tracking close to how the beta thalassemia patients began, which should bode well for efficacy in that patient.
The company has another program in childhood cerebral X-linked adrenoleukodystrophy (ALD), which is a devastating disease that affects boys. It's a neurological disease that leads invariably to death in roughly two or three years. In an earlier version of the bluebird technology, treatment stopped the progression of this disease in four boys. We're looking for the company to complete enrollment in its ALD trial in 2015. Hopefully, early data will start coming out a year or so after that. Bluebird has real potential for very exciting data flow over the next one to two years in those indications.
TLSR: David, I'm noting the Phase 2/3 trial in X-linked adrenoleukodystrophy has 15 patients in it.
DN: It's an extremely rare disease.
TLSR: Conducting clinical trials with so few patients is a very inexpensive process compared to regular drug development. Plus, companies have regulatory orphan disease benefits as well. Could this Phase 2/3 trial be pivotal?
DN: Yes. If it has positive data, I would expect bluebird to file for approval after the data are mature.
TLSR: The start date on this Phase 2/3 trial was August 2013, and the primary completion date is August 2018. I'm sure we'll have results long before 2018. Could this gene therapy be approved before that final, formal completion date?
DN: I think it's a possibility. It's going to hinge upon the duration of safety data, as well as the efficacy data. We're talking about a one-time cure, but no one really knows. No one has ever followed these patients over a very long period of time. The FDA might want a certain minimum treatment period during which these patients are followed.
TLSR: Do these viral vector therapies migrate to the cells that are supposed to have the genes turned on to express the correct protein? Do the genes normally get expressed in the "right" cells?
DN: It's a very good question, and brings us to a couple of the different technologies used in gene therapy. Bluebird bio uses what's called a lentivirus vector in the context of an autologous stem cell transplant. It takes a patient's stem cells out of the patient's body, ex vivo, and changes them with the lentivirus vector by inserting the corrected gene into the cells and putting them back into the patient. This is an autologous transplant procedure because the patient's own cells are used. The technique doesn't require the virus to home in on the right tissue.
"The safety database is a primary question that needs to be resolved for the FDA to approve gene therapies."
Other companies, like Applied Genetic Technologies, are focused on tissue-specific gene corrections that either use localized injection or specific tropisms (affinity for targets) of another type of vector called adeno-associated virus (AAV), which prefer to infect particular tissues. Some AAVs prefer to go to central nervous system tissue or to muscle. Different companies use different versions of the virus to enhance delivery into the tissue where the desired correction is to be made.
TLSR: That's a good segue to Applied Genetics Technologies. Go ahead and address it.
DN: This company is really exciting, and also has an exciting 2015 teed up. It is working with AAV virus, which is locally delivered in the eye with the corrected gene to cure rare genetic causes of blindness. It is looking to begin trials in two different diseases—X-linked retinoschisis (XLRS) and achromatopsia—in early 2015, with potential early results at the end of next year.
The virus is delivered either by an intravitreal injection, meaning into the gelatinous mass between the retina in the back of the eye and the lens in the front, or by a subretinal injection, into a space that's created between retinal layers. This ensures the virus is delivered to the specific tissue layer of the eye where gene correction is desired. The company has had some very good results in animal model disease, and it also had positive results in an indication that it is no longer pursuing, which is Leber congenital amaurosis. It has treated several patients using its technology and caused improvements in vision in those patients. It's an exciting company with a different approach than bluebird's.
TLSR: Antisense and RNAi companies started developing therapies for the eye, which is a closed, self-contained compartment that's walled off from the immune system. For that reason, intraocular therapies appear to be a safe place to start. However, Applied Genetic's alpha-1 antitrypsin (AAT) deficiency therapy is an intramuscular injection. This AAT deficiency therapy is now in a Phase 2b trial. Will we see this platform translate in a non-ocular indication?
DN: The eye has been very attractive for gene therapy because of its immune-privileged position. Also, with an eye-delivered agent, huge volumes of virus or drug material do not need to be manufactured to effect a change. Presumably, if you have lower yield on the manufacturing side, your costs won't be as high going into the eye. That's another reason why I think companies view the eye as an attractive place.
Applied Genetic's AAT program also uses a virus. The company is trying an isolated limb perfusion technique to get enough virus into the needed tissues. It's the flip side of using the eye with the technology. Some other indications—for instance, muscular dystrophy—may not be ideal targets for gene therapy. It depends on the potency of the viral vector that you're using and the amount of protein required to be expressed by the new gene to cure the disease. When you start bringing up another compartment—other tissues outside the eye—there's the potential for immune reactions, not just to the virus itself, but also to the transformed cell, which is producing a protein the body might have never seen before because of a patient's inborn genetic defect. Even if it's the correct or corrected protein, it could trigger an immune response.
That's another reason why systemic therapies have lagged behind the progress we've seen in developing therapies for eye disorders, or in the alternative bluebird bio approach, which is essentially using transformed stem cells to correct the defect in the hematopoietic cells in the bone marrow.
TLSR: Is there another name you could discuss today?
DN: I'm looking for NPS Pharmaceuticals Inc.'s (NPSP:NASDAQ) Natpara (rhPTH[1-84]) to be approved by its Prescription Drug User Fee Act (PDUFA) date of Jan. 24, 2015, and that product launch, along with continued growth in the company's Gattex (teduglutide [rDNA]) franchise, both in the U.S. and ex-U.S., to drive the company and the shares in 2015.
TLSR: NPS has a $3.6 billion ($3.6B) market cap. It's not going to be as easy to move these shares as it is for Applied Genetic, a small-cap company with a $345 million ($345M) market cap, or the low mid-cap bluebird bio, with a $2.4B market cap. Can Gattex revenue propel this name?
DN: Rare disease-focused companies tend to have higher sales multiples than other biotech/pharma companies, so yes, I think continued growth in the Gattex franchise will support NPS shares. But it is the combination of that growth and the Natpara launch that should cause more significant share price appreciation.
TLSR: Can hypoparathyroidism actually move the needle on NPS?
DN: I think Naptara's market opportunity is approximately the same as Gattex's, so I definitely think hypoparathyroidism can move the needle. One factor that everyone is watching will be the Natpara label, assuming approval. If it's too restrictive, it might slow the launch. I tend to think the label will be less restrictive than feared by some on The Street, and that the launch will meet or exceed estimates.
TLSR: Thank you, David.
David Nierengarten is an analyst covering stocks in the biotechnology sector. His prior sellside research experience at Robert W. Baird & Co. covered biotechnology companies of all market capitalizations, with a focus on oncology and rare diseases. Nierengarten's prior early-stage venture capital investing experience helps him evaluate developmental-stage biotechnology companies that comprise his current major coverage focus. His experience on the other side of that equation, in a clinical-stage, venture-backed biotechnology company, provides him with additional insights into corporate operations. He received his bachelor's degree in biochemistry from the University of Wisconsin-Madison and his Ph.D. in molecular and cell biology from the University of California Berkeley.
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