Catalyst Pharmaceutical Partners is a specialty pharmaceutical company focused on the treatment of addiction using a molecule called vigabatrin, which has been marketed since 1989 in Europe by sanofi-aventis (EPA: SAN, NYSE: SNY, Not Rated) as an anti-epileptic and treatment for infantile spasm (West syndrome) under the name Sabril or Sabrilex. Vigabatrin is a small molecule analog of the inhibitory neurotransmitter gamma-aminobutyric acid (GABA) and functions by attenuating the breakdown of GABA in the brain. Since GABA blocks the excitatory effects of dopamine, vigabatrin can reduce the euphoric sensations caused by drugs such as cocaine and methamphetamine. All addictive drugs elevate dopamine levels in areas of the brain associated with reward and reinforcement. Catalyst is developing vigabatrin, designated CPP-109, as a treatment for cocaine and methamphetamine addiction. CPP-109 has been granted fast-track status by the FDA for the treatment of cocaine addiction, indicating the agency’s recognition of CPP-109 as a therapy for a serious or life-threatening condition wherein there is currently no effective treatment. Catalyst has obtained from Brookhaven National Laboratory—affiliated with the U.S. Department of Defense—an exclusive worldwide license for nine issued patents and four pending patents in the U.S. relating to the right to use vigabatrin to treat a wide variety of substance addictions, which expire 2018 to 2021.
Two open-label studies demonstrated positive effects of vigabatrin in reducing cravings along with cocaine and methamphetamine usage. Also, an investigator-sponsored, double-blind, randomized, placebo-controlled, 103-subject phase II trial in cocaine dependency conducted in Mexico recently reported positive top-line data. In this study, 14 patients on vigabatrin (28%) remained drug-free during the last three weeks of the evaluation period, versus only four patients in the placebo group (8%), ensuring that the primary endpoint was met with a high level of statistical significance (p=0.009).
Catalyst is also aiming to run two U.S.-based phase II trials, one in cocaine addiction and one in methamphetamine addiction. The cocaine-addiction trial was initiated in January 2008 and is slated to report results in 3Q08. The methamphetamine-addiction study is slated to begin in 1Q08 with results expected in 1H09. Positive phase II results could facilitate approval of the drug in 2011. We project peak global sales of roughly $700 million in 2017 for cocaine and methamphetamine addiction. Catalyst currently trades at approximately a $40 million valuation.
Based on the Mexican placebo-controlled trial, which involved the use of an extremely stringent primary endpoint for a difficult-to-treat patient population, we believe that Catalyst may have a unique solution to the problem of dependence on highly addictive drugs. The utility of vigabatrin may be expandable into treatment of other types of addiction—according to Dr. Frank Vocci, director of the National Institutes on Drug Abuse (NIDA), “If it works in one addiction, it’s likely to work in many of them.” The molecule was recently featured in a September 2007 article that appeared in Time magazine.
We derive our 12-month price target of $9 per share by adding the value per share to Catalyst from the firm’s lead drug candidate CPP-109—approximately $100 million risk-adjusted net present value (rNPV)—to the projected cash position of $22 million at end-2008 (which yields a total enterprise value of $130 million) and dividing the result by the projected 15 million shares outstanding at end-2008. The projected cash position includes a $9 million cash burn in 2008.
Headquartered in Cambridge, Mass., Javelin is a specialty pharmaceutical company applying innovative, proprietary technologies to develop new drugs and improved formulations of existing drugs to target unmet and underserved medical needs in the pain-management market. The firm is unique among specialty pharma companies of its size, having three drug candidates in late-stage clinical development or currently on the market.
Dyloject, the company’s proprietary formulation of the non-steroidal anti-inflammatory drug diclofenac, was approved in late 2007 in Europe for treatment of post-surgical pain. A U.S.-based phase III trial with Dyloject reported positive results at the end of 2007. Javelin is expecting results from a second phase III trial of Dyloject in the U.S. in 2008, with filing in the U.S. to follow. The firm projects that peak annual sales of Dyloject could exceed $250 million worldwide.
Rylomine, the firm’s second product candidate, is an intranasal morphine formulation that has completed one phase III study and is currently in a second. Finally, Javelin’s third candidate, PMI-150, is an intranasal ketamine formulation aimed initially at treatment of pain in emergency and military settings, with a view to expanding the market into civilian applications in the near-term. Javelin was informed by the FDA that phase III trials for PMI-150 would not be necessary, therefore the company is advancing with a view to submitting an NDA for PMI-150 in 2008.
As such, Javelin could have three drugs on the market within the next 24 months, with an overall market opportunity of more than $800 million in peak annual sales worldwide. The firm currently trades at a $180 million market cap, reflecting an overall disillusionment with the pain-management sector. However, unlike many other firms, Javelin has demonstrated an ability to perform clinical trials that are successful and obtain regulatory approval for its products. We believe that this firm possesses rare potential and that its pipeline could represent a favorable asset for a prospective acquirer.
We derive our 12-month price target of $10 per share based on analysis of comparable pain companies. Such firms are valued at $500 million. We believe that in the next 12 months, Javelin’s valuation could reach a 25% premium to the average valuation of its peers, given its advanced pipeline and launch of its lead drug Dyloject in Europe. We factor in $12 million in cash at end-2008, including a cash burn of approximately $45 million in 2008, and divide the total by the 53 million shares outstanding at end-2008.
One of our top picks for 2008, BioMS Medical is a biopharmaceutical firm developing a novel tolerizing therapy for the treatment of multiple sclerosis. Based in Canada, the firm is currently conducting the only pivotal-stage program in secondary progressive multiple sclerosis, the more severe form of the disease.
The firm is the only entity to hold patents on the use of the actual MBP peptide antigen itself as a tolerizing vaccine. This means that they are the only people able to utilize the actual protein-based sequence of MBP that has been linked to mediation of autoreactivity against myelin as a tolerizing therapy. BioMS’s lead drug candidate, MBP8298, was recently partnered with Eli Lilly for a significant upfront payment of $87 million and an overall agreement value of approximately $500 million in development and sales-related milestones, in addition to a stepped double-digit royalty rate on net sales of the drug.
The molecule is administered via intravenous injection once every six months—a significant advantage in dosing frequency and convenience over other therapies such as Bayhill Therapeutics’ approach, which is intramuscular (and therefore painful) and must be given every two to four weeks. Currently marketed drugs for multiple sclerosis are similarly onerous to administer—the beta interferons must be injected weekly or multiple times per week—while Tysabri is a once-monthly infusion therapy.
In 2006, BioMS published data from a small phase II study, showing that administration of MBP8298 could delay advance of symptoms in secondary-progressive MS patients by up to five years. MBP8298 is currently in three separate studies: the MAESTRO-01 trial being conducted outside the U.S. has enrolled 550 patients (scheduled to report interim data in mid-2008); the MAESTRO-03 study, currently enrolling patients in the U.S.; and a 215-patient trial in relapsing-remitting MS patients being conducted in Eastern Europe (slated to report results in August 2008). All these trials are double-blind, placebo-controlled, and randomized. They are using typical approval-caliber endpoints, such as measurement of disease progression, relapse rate, risk of relapse, and MRI-based parameters.
It is our view that BioMS represents the best of the bunch in terms of firms developing tolerizing therapies. It is also the only firm targeting secondary-progressive MS, which is a completely unmet medical need representing nearly half the total MS population. This could translate into peak sales potential of more than $3 billion in our view. The firm currently trades at only three-times cash—a market cap of $336 million.
The deal with Eli Lilly clearly validated large pharma’s confidence in the MBP8298 candidate and the soundness of BioMS Medical’s clinical approach. With several upcoming value-creating milestones and a significant body of data supporting the rationale behind MBP8298, we feel that BioMS is one of the most compelling stories in the multiple-sclerosis arena and the small-cap biotech sector in general.
We derive our 12-month price target of C$9 per share based on an enterprise value calculation. The rNPV of the lead drug, MBP8298, yields a value per share of US$8, converted into Canadian dollars using the current exchange rate. We add the total cash at end-2008 (C$88 million), which includes a C$37 million cash burn in 2008, and divide by 101 million shares outstanding at end-2008 to derive a target price.
Novelos’ lead molecule, NOV-002, is in phase III clinical development to treat non-small-cell lung cancer (NSCLC). NOV-002 is approved in Russia and has been used successfully in thousands of cancer patients. The Russian findings have been partially corroborated in a U.S. phase I/II trial. NOV-002 is currently in phase II development for treatment of advanced ovarian cancer and in the neoadjuvant setting for early-stage breast cancer, in conjunction with chemotherapy. Glutathione, the active ingredient in NOV-002, has been studied in relation to cancer for over 50 years, with nearly 10,000 scientific publications having been generated to date. Novelos may have found the right variant and formulation of glutathione, which could significantly impact cancer therapy. The company also has a second pipeline molecule based on glutathione, which is designated NOV-205 and is being developed to treat hepatitis-C infections.
The firm is positioned for an eventful start to 2008, with phase II results expected for NOV-002 in both ovarian cancer (advanced-stage) and breast cancer (neo-adjuvant setting). Furthermore, Novelos is slated to close enrollment in the phase III lung-cancer study by the end of the first quarter of 2008. We believe that the scientific evidence supporting the anti-cancer activity of NOV-002 indicates a significant likelihood that the firm’s phase III lung-cancer study will be positive. This trial is designed along the same lines as the pivotal study that achieved approval for Avastin (bevacizumab), the monoclonal anti-angiogenesis antibody drug marketed by Genentech (NYSE: DNA, Market Outperform), in NSCLC. Further, the trial protocol is under a special protocol assessment from the FDA. This represents an acknowledgment by the regulatory agency that a positive outcome in the study would typically be considered sufficient for approval of NOV-002 in lung cancer. Novelos’ head of regulatory affairs, M. Taylor Burtis, is a former Genentech executive and spent several years working at the FDA, providing Novelos with significant advantages in knowledge of the agency and experience in clinical development. Dr. Chris Pazoles, the firm’s head of R&D, has a big pharma pedigree, including stints at Pfizer (NYSE: PFE, Not Rated) and Abbott Laboratories (NYSE: ABT, Not Rated).
Because NOV-002 could be used in conjunction with existing chemotherapeutic regimens, enhancing their efficacy while simultaneously improving patient tolerance of these medications, the market opportunity is vast. NOV-002 could achieve peak worldwide sales in excess of $1 billion in lung cancer alone, with approval potentially in early 2010. Novelos currently trades at a market cap of $60 million.
We derive our 12-month price target of $3.25 per share by adding the rNPV of the firm’s lead drug candidate, NOV-002, to the projected cash position of $6 million for Novelos Therapeutics at the end of 2008, to obtain a total enterprise value of approximately $205 million, divided by the projected 63 million total shares outstanding at the end of 2008. The projected cash position assumes a cash burn of $16 million during 2008.
Sequenom aims to become a leader in non-invasive prenatal diagnostics (NIPDs). The unborn fetus may be at risk for over 900 different disorders, some of which can be fatal or cause permanent disability. The current market for prenatal diagnostics is $1.5 billion globally, and the $600 million in U.S. sales of genetic material-based NIPDs could grow to $2 billion by 2016. Sequenom’s peak royalty-based revenue from such tests could approach $200 million. The firm has exclusively licensed intellectual-property rights on non-invasive prenatal genetic tests.
Sequenom’s advantage comes from its unique ability to couple a leading position in NIPDs using maternal blood with a high-throughput DNA detection and analysis-platform technology—the MassARRAY system. Sequenom has developed a sensitive, accurate, high-throughput platform for studying gene expression, gene regulation, and genotyping. The firm launched its first prenatal non-invasive diagnostic test, for Rhesus-D incompatibility, with its partner Lenetix (Private) in late 2007.
In our view, the combination of Sequenom’s expertise in fine mapping and nucleic-acid analysis with its unique intellectual-property portfolio on detection of fetal genetic material in maternal blood creates a clear leader in the field of NIPDs. The domain of fetal screening is desperately seeking alternatives to amniocentesis (which, although accurate, carries a 1% to 2% risk of miscarriage) and non-invasive protein-based tests, which are neither sensitive nor specific enough. Sequenom could have three major non-invasive tests enter the market over the course of the next 18 to 24 months. Furthermore, the FDA has recently issued a clarification of its draft guidance on in vitro diagnostic multivariate assays, in which Sequenom’s proposed tests were specifically named as not requiring additional regulatory scrutiny and the conductance of randomized, prospectively designed clinical trials. In our estimation, the solid progress made by Sequenom in developing its non-invasive fetal diagnostic tests, coupled with the favorable regulatory environment and continued growth in the MassARRAY business, make this a highly attractive name to own.
We derive our 12-month price target of $13.50 per share by adding the comparables-derived valuations of Sequenom’s analytics and diagnostics businesses (total value: approximately $700 million) and then calculating the total firm value by adding the projected cash of $67 million at end-2008, which includes a cash burn of $13 million during 2008. We then divide the total firm value amount by the 57 million projected shares outstanding at end-2008, which yields a price target of $13.50 per share.
WaferGen BioSystems is an emerging molecular analytics company engaged in the development, manufacture and sale of laboratory analytical systems for gene expression, genotyping, and stem-cell research. The firm possesses two main platform technologies: SmartChip, WaferGen’s flagship product platform, is the first gene expression and genotyping platform that combines the high-throughput capacity and cost efficiencies of microarrays with the sensitivity and accuracy of real-time PCR (quantitative PCR “on a chip”); and SmartSlide, a fluidics-integrated micro-incubation system to facilitate stem-cell research and cultivation of various cell types in vitro under a wide range of experimental conditions, launched in October 2006.
The firm’s SmartChip platform is envisaged to allow scientists to achieve greater sensitivity and accuracy in gene expression than with present methods, allowing identification of the full spectrum of expressed genes (rather than only a portion thereof), with the added ability to discriminate small changes in expression. Analyzing the whole genome utilizing currently available real-time PCR technology would take weeks or months. In comparison, the goal for the SmartChip platform is to be able to quantitatively analyze the whole genome in as short as a single day. The current developmental design of the SmartChip system utilizes semi-conductor, optical, and ink-jet printing technologies and novel, customized chemistries ready-built into the content-ready chip.
Overall growth for the market is forecast at a compound annual growth rate of 10% to 16%, and global revenue is estimated to reach $5 billion by 2012. WaferGen intends to generate revenue from the sale of both instruments and a recurring revenue stream from sale of consumables, in a manner similar to the “razor and razor blade” business model. Positive alpha and beta test results could facilitate the launch of the SmartChip in 2010. This estimate assumes that the SmartChip platform would potentially supplant current quantitative real-time PCR platforms, such as the TaqMan system sold by Applied Biosystems (NYSE: ABI, Not Rated). Further, we assume that certain microarray users would transition to the SmartChip system because of its envisaged greater sensitivity and reliability, particularly with respect to rarely expressed genes. The SmartChip platform could cost approximately $150,000 and be sold at an average gross margin of 55% to 60%. Further, annual consumables sales for a typical SmartChip user could average $50,000 and provide a sustainable revenue stream for WaferGen. Peak global annual sales could reach $820 million in 2015.
Given the significant benefits that could be provided by the WaferGen technology over existing systems for gene-expression analysis, the company could become a viable acquisition target once development of the SmartChip reaches a more advanced stage. Recent acquisitions in the molecular analytics field, including that of NimbleGen by Roche (OTC BB: RHHBY.PK, Not Rated) in 2007, Solexa by Illumina (NASDAQ: ILMN, Not Rated) in 2006, and Rosetta Inpharmatics by Merck (NYSE: MRK, Not Rated) in 2001, ascribed an average value of $500 million to the target company. WaferGen could be the focus of such a transaction within the next 24 months.
We derive our 12-month price target of $7 per share by adding the value per share to WaferGen from the SmartChip platform to the projected cash position of $17 million at end-2008, which includes a $5 million cash burn over the next 12 months. This gives a total enterprise value of approximately $240 million, which we then divide by the projected 34 million shares outstanding at end-2008.
By
Elemer Piros, Ph.D.
Senior Analyst
Raghuram Selvaraju, Ph.D.
Associate Analyst
James J. Tong, M.D., Ph.D.
Associate Analyst
Disclosures
Rodman & Renshaw, LLC. (the “Firm”) is a member of FINRA and SIPC and a registered U.S. Broker-Dealer.
ANALYST CERTIFICATION: I, Elemer Piros, hereby certify that the views expressed in this research report accurately reflect my personal views about the Rated Companies in the Report and its (their) securities.
None of the research analysts, or the research analyst’s household, has a financial interest in the securities of the Rated Companies in the Report (including, without limitation, any option, right, warrant, future, long or short position).
As of January 31, 2008, neither the Firm nor its affiliates beneficially own 1% or more of any class of common equity securities of the Rated Companies in the Report.
Elemer Piros owns shares in Sequenom.
Neither the research analyst nor the Firm has any material conflict of interest with the Rated Companies in the Report, of which the research analyst knows or has reason to know at the time of publication of this research report.
The research analyst principally responsible for preparation of the report does not receive compensation that is based upon any specific investment banking services or transaction but is compensated based on factors including total revenue and profitability of the Firm, a substantial portion of which is derived from investment banking services.
Except for Novelos Therapeutics Inc., Sequenom Inc. and Wafer Gen Bio-Systems Inc., the Firm or its affiliates did not receive compensation from the Rated Companies in the Report for investment banking services within twelve months before, but intends to seek compensation from the Rated Companies in the Report for investment banking services within three months, following publication of the research report.-
Neither the research analyst nor any member of the research analyst’s household nor the Firm serves as an officer, director or advisory board member of the Rated Companies in the Report.
Except for BioMs Medical Corp., the Firm makes a market in the common shares of the Rated Companies in the Report.
Any opinions expressed herein are statements of our judgment as of the date of publication and are subject to change without notice.
Reproduction without written permission is prohibited. The closing prices of securities mentioned in this report are as of February 22, 2008. Additional information is available to clients upon written request.
Readers are advised that this analysis report is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy. The information contained herein is based on sources, which we believe to be reliable but is not guaranteed by us as being accurate and does not purport to be a complete statement or summary of the available data. Past performance is no guarantee of future results.
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