Hope Springs Eternal In Biotech @ Seeking Alpha (KERX)

Keryx Biopharmaceuticals, Inc. (NASDAQ: KERX) is focused on the acquisition, development and commercialization of medically important pharmaceutical products for the treatment of renal disease. Keryx is developing ZerenexTM (ferric citrate), an oral, ferric iron-based compound that has the capacity to bind to phosphate and form non-absorbable complexes. The Phase 3 clinical program of ZerenexTM for the treatment of hyperphosphatemia (elevated phosphate levels) in patients with end-stage renal disease is being conducted pursuant to a Special Protocol Assessment (SPA) agreement with the FDA. Keryx is headquartered in New York City. 

At Seeking Alpha, contributor Michael J. Ray writes that while it is true that hope is not the best strategy when it comes to investing, "there is one sector that does embrace hope as an investing component and that sector is speculative biotech." He argues that it is patients' hope for a cure that "highlight[s] unmet medical need, which in turn brings investors and researchers to the scene."

He points to Keryx's Perifosine as an example in which "the hope[s] of both investors and patients were dashed, and the stock price quickly declined." But he goes on to say that,

"Both KERX and BPAX are not completely out the game though. Each has other products in the pipeline, but their most touted opportunities came up empty. But this article is about hope, and hope is said to spring eternal."

He goes on to discuss 3 companies "keeping hope alive" for both patients and investors alike: Osiris Therapeutics (OSIR), Advanced Cell Technology Inc. (ACTC.OB), and Galena Biopharma, Inc. (GALE).

Read the full article at SeekingAlpha.com. 

DD Education: Which Cell Therapy companies present the best value? Part 2

We developed an analysis using public filings and annualizing the most recent quarters as of 12/31/11. As such, the accuracy is subjective to our proprietary algorithm, and this list is not mean to be all comprehensive.

We conclude that ex leaders Dendreon and MesoBlast make the space very inexpensive. The sample below represents just over $500 million in market cap for eight of the selected public companies (ex DNDN and MSB). These companies have 3 - PIII trials, 5 PII trials and several P1 trials (based on these crude metrics).

We conclude that is worth investors time to understand among these companies in terms of what they are doing and the associated probabilities of success of their trials. Recent data peaks from the Cardiology space suggests that Baxter (BAX) and their CD34 cell type may be very viable. NeoStem has a very similar approach. The retrenchment in MesoBlast shares since that company presented data at AHA in November is of concern. Cytori, Aastrom, Athersys all have active programs in cardiology while Athersys lead program is partnered with Pfizer for Ulcerative Colitis and Aastrom is entering a Phase 3 trial in CLI.

By price ($), Osiris, MesoBlast, and Dendreon are the highest $ priced stocks:

But that starts to change as we migrate to market cap:

And if we eliminate Mesoblast and Dendreon we get a better picture of the rest of the field:

And that picture changes as we adjust for debt and cash: (enterprise value). In all fairness here, we know that NeoStem with $20-$30 million in value from their China generic company, could be the cheapest name and others are / will raise capital but ex China, Athersys is the “cheapest name”.

Looking at R&D spending: IMUC, Prima and NeoStem are among the most efficient but in fairness one must adjust for the fact that Aastrom is embarking on a pivotal trial versus Prima just starting their P3 and NeoStem their P2.

Revenues: Here we have excluded NeoStem’s $65 million from China which means PCT (Cell Therapy CMO) is running at close to $10 million in annual revenues (currently).

Which Cell Therapy companies present the best value?

In the wake of a robust season of financings, and low valuations we revisit the basic questions in the cell therapy space, updating our tables for year end reported financials. Our numbers are forward looking and subjective to our proprietary algorithm, and this list is not mean to be all comprehensive.

Dendreon and MesoBlast remain the market leaders, but the best values by far are in the micro-cap space with names like Aastrom and PluriStem funded with strong balance sheets.

The sample below represents just over $875 million in market cap for eight of the selected public companies (ex DNDN and MSB). These companies have 3 - PIII trials, 5 PII trials and several P1 trials (based on these crude metrics).

We conclude that is worth investors time to understand among these companies in terms of what they are doing and the associated probabilities of success of their trials.

By price ($), Osiris, MesoBlast, and Dendreon are the highest $ priced stocks: 

By Price ($), Osiris , MesoBlast and Dendreon are the highest $ price:

But that starts to change as we migrate to market cap:

And if we eliminate Mesoblast and Dendreon we get a better picture of the rest of the field:

And that picture changes as we adjust for debt and cash (enterprise value):

Looking at R&D spend gives us an idea of who is spending what on clinical programs:

Osiris ($OSIR): Prochymal widely exepcted to Fail in Canada (Lazrad Report)

Osiris (NASDAQ: OSIR): Lazard analyst lowers the rating to sell this morning and declared that rejection of Prochymal in Canada is likely.

The summary of the analysts note follows:

• We (analayst at Lazard) expect a negative decision by Health Canada to significantly impact shares; Chondrogen development stalls. We expect to see a near-term decision rejecting the approval of Prochymal by Health Canada, based on its failure to reach the primary endpoint in two Phase III trials and its first-in-class status as an experimental stem cell therapy. As such, we believe this will increase the regulatory hurdle for approval. In addition we anticipate negative results from the ongoing confirmatory GvHD trial, and believe that, at the very least, interpretation of efficacy data will be muddled by the enrollment pause, elimination of one dosing arm, clinical site restriction, and statistical repowering. Recall, OSIR is in discussions with Sanofi/Genzyme on the abrupt termination of the Prochymal collaboration. Regarding Chondrogen, management indicated that clinical development has been put on hold pending an internal decision on the program.
• Recently OSIR reported 4Q EPS of $0.15, above our $0.07 estimate - delta due to lower operating expenses vs. our forecast. Revenue of $11.0 M was slightly above our $10.9 M estimate, while operating expenses of $5.7 M were lower than our projection of $8.3 M. We introduce our 2012 quarterly estimates and slightly increase our revenue outlook based on OSIR’s biosurgery business, while decreasing our operating expense estimates based on prudent cost management. We continue to anticipate a ramp-up in expenses to fund ongoing clinical trials and expansion of the company’s commercial infrastructure. With regards to revenue, we note that the $130M upfront payment received from the Genzyme collaboration will be fully amortized in 2012, and we do not model additional partnership funding or milestone payments for Prochymal. Given the company’s current cash position of $47M, we delay our expectation for an equity raise until 2013 (from our previous 2012 expectation). However, we still expect OSIR will need additional funds to complete the ongoing GvHD trial and fund development in other indications.
• Maintain SELL rating and $2 price target. Our 12-month price target of $2 is based on cash per share as of 4Q13, inclusive of an equity raise. We value OSIR based on cash, as we do not believe its main value driver (Prochymal) will ever receive approval or generate sales. Risks include positive data on Prochymal or Grafix, which could drive the shares higher.

Daily Dose Conclusion: Osiris appears to be backing away from systemic use of allogenenic cells and focusing more on local adminastration (burns, bone healing), "pharmaco-surgery" platform. We would be on the sidelines for now.

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Osiris (OSIR): Follow-Up comments from News that Sanofi has walked Away from Osiris

Osiris Therapeutics (NASDAQ: OSIR): It has now been learned that corporate partner Genzyme/Sanofi not only discontinued Prochymal's development but didn’t even formally notified Osiris. They found out the same way we did ! OSIR is saying that these "public statements" effectively terminate the agreement" giving all rights for Prochymal back to Osiris. So Osiris gets 100% of Prochymal back but does anybody want it now?

The next event for investors to watch will be Prochymal’s Canadian filing for GvHD in 1H12 (expected to be negative) and as such this could trigger further decline in the shares. Recall that Prochymal failed to reach its primary endpoints in two Phase 3 trials.

Daily Dose Conclusion: Sanofi decision is not totally unexpected but is disappointing as the hope has been that a "big-pharma" would support prochymal. While negative for the space over-all (cell therapy) we see this as both an issue specific to Osiris and to Prochymal and to the disease, GvHD which has been riddled with failures. Osiris lacks few drivers to the upside, with risk to the downside.

Osiris (OSIR): Look's Like Sanofi (acquired Genzyme) is saying No to Prochymal

News is swirling on Osiris Therapeutics (NASDAQ: OSIR) that Sanofi (SNA) in the post Genzyme (GENZ) acquisition will discontinue Prochymal for GvHD. Prochymal is a mesenchymal cell (MSC) that is allogeneic. Similar to what Athersys (ATHX) is developing with multi-stem. Osiris has struggled with GvHD and even Biodefense company Soligenix (SNGX), just reverse split 20:1, saw Orbec, a locally acting steroid that had every indication of success fail when the pivotal trial was halted for futility. In Biotech land we often say that the "graveyard is full of companies who tried to develop xxx for yyy indication", in this case its GvHD.

We would advise investors to try to understand the following when evaluating a new cell therapy:

What is it? What we mean is "what is the active ingredient". An allogeneic MSC means a lot of things, it’s a heterogeneous cell population, and as such, just not that well defined, so from a starting point, other than saying there is a paracrine effect where the cells act like cellular Advil, it’s a tough climb to say, what is it ?

Next - What does it do exactly ? or What is the Biological Mechanism of Action (MOA) and as such, what is the clinical effect that will be measured in the trial ? How closely related are they ? Again, these are critical elements that the FDA will look for beyond, I squirt it in, and it works. Don't forget dose, homing, and integration.

Thus far developers of cell therapy seem to be struggling with these questions with a few exceptions. Baxter (BAX) and NeoStem (NBS) stand out, with a highly defined cell product (CD34+/CXCR4) cells for Preservation of Heart function. Islet BioSciences stands out with their porcine islet cells (pig) for diabetes.

Daily Dose Conclusion: OSIR has approx. $50 mln in cash as of Sept. 2011 against a $160 mln market cap. Prochymal is still being developed for a number of other indications from Crohn's disease, Type 1 diabetes and Cardiovascular indications. With that said, we need to do more analysis to understand the probabilities of success in these areas given the questions (what is it, MOA, clinical effect) that we raise above.