Esperion – Positive read-through from Repatha
Shares of Esperion (ESPR) doubled within two weeks after Amgen (AMGN) announced positive CVOT (cardiovascular outcomes trial) outcome for Repatha, Amgen’s PCSK9 antibody. Although this news will make the lipid-lowering field more competitive for Esperion, it also validates the LDL hypothesis and removes some regulatory risk around Esperion’s LDL-lowering pill, bempedoic acid (ETC-1002).
Until now, investors assumed Esperion will need to have CVOT data in order to file for approval but now the likelihood of FDA approval based on positive LDL readout in 2019 is much higher. Beyond regulatory uncertainties, investors’ primary concern revolves around whether an oral drug with a 25% LDL reduction has room in a market dominated by generic oral drugs (statins, Zetia) on the one hand, and branded highly effective (50%-60% LDL reduction) PCSK9 antibodies on the other.
Despite the relatively modest LDL effect, I believe there is a significant market for a drug like bempedoic acid. Its profile (25% LDL reduction, oral, no muscle-related side effects) can address a major clinical need in patients who cannot achieve desirable LDL levels (due to dose-limiting side effects or lack of efficacy) with approved oral agents. For many of these patients, a cheap oral agent with a milder LDL effect is more suitable than monthly injections of PCSK9 inhibitors, which will probably be preferred in more severe patients (very high LDL levels, high risk for cardiovascular events etc.).
Market opportunity for 2nd/3rd line oral therapy is illustrated by Merck’s (MRK) Zetia and Vytorin (Zetia + statin), which generated peak sales of over $4B combined. Bempedoic acid appears more efficacious than Zetia and in contrast to Zetia, has a statin-like effect on CRP levels. In a market with no branded oral agents, Esperion could easily gain market share by formulating bempedoic acid with a statin, Zetia or both to reach 50-70% LDL reductions.
My primary concern with owning Esperion in 2017 is the lack of meaningful positive catalysts for the remainder of the year. With P3 data expected only in mid-2018, meaningful data updates for Esperion can only be negative/neutral: PCSK9 actual CVOT results which may not live up to expectations and new safety signals with bempedoic acid that may force Esperion to terminate the program. An acquisition remains the only meaningful upside catalyst.
Even if Esperion gets bought during 2017, timing and price are hard to predict, but for me this is a good enough reason to own the stock given the scarcity value and sales potential of bempedoic acid ($1B under conservative assumptions). Even a sales multiple of 3 results in a x5 upside over current market cap of $564M.
Trevena – P3 readout next month
The next big catalyst in my portfolio is Trevena’s (TRVN) P3 data next month. The company will report results from two post-surgical pain studies and hopes to demonstrate that its drug (oliceridine) can alleviate post-surgical pain as effectively as opioids but with fewer side effects and complications.
Opioid-related side effects are a major issue in hospitalized patients, especially in certain risk populations. Although life-threatening events are uncommon, opioids have tolerability issues that can be dose-limiting and may lead to increased hospitalization stay and cost. In order to take market share dominated by established generic opioids, Trevena has to address those issues to an extent that will justify oliceridine’s relatively high cost.
I am cautiously optimistic about the P3 readout based on previous data which demonstrated similar efficacy with better tolerability or superior efficacy with similar tolerability depending on oliceridine’s dose. However, it is important to note that the drug’s efficacy/safety profile was not always a homerun across all metrics and doses. Assuming the drug is as efficacious as opioids, investors will focus on its safety profile, especially on opioids’ hallmark side effects (nausea, vomiting, constipation) and the more dangerous respiratory failure, which is potentially life-threatening.
On paper Trevena is targeting a huge market with more than 10 million relevant operations in the US annually but given the complexity and variability (different procedures, different hospitals, different guidelines etc.) and the lack of a benchmark, market penetration is hard to estimate. In the post-surgical pain setting, efficacy is a pre-requisite but it does not guarantee broad use of oliceridine in hospitals, where additional factors (cost, personnel, risk of complications and bureaucracy) are equally important. Therefore, Trevena’s study is unlikely to have a black or white outcome (unless the trial fails completely).
I am still struggling with assessing oliceridine ‘s market opportunity. The closest comparator I could find is Pacira’s (PCRX) Exparel, which is also used to treat (in this case, prevent) post-surgical pain. Exparel is an analgesic which is administered locally to the site of surgery and is currently approved for various types of surgeries. Although Exparel is not a direct competitor to opioids, one of its strongest selling points is the opportunity to reduce systemic opioid use by local pain control. In that sense, Exparel is used to minimize utilization of systemic painkillers like oliceridine.
Exparel generated US sales of $276M in 2016, which may provide a benchmark for the market opportunity in post-surgical pain. It is important to note that Exparel’s penetration is still quite limited, partly due to its less than stellar efficacy. Using it as a benchmark, oliceridine has a realistic market potential of $500-600M assuming a differentiated clinical profile and a modest market share.
Exelixis – Questionable risk/reward for 2017
“What are the arguments of not selling EXEL now?” was a question asked by one of my readers. Following the 100% jump in just over three months, that question is getting tougher and tougher to answer. The recent deal with Takeda for Japan rights implies an acquisition is not on the table, so focus now shifts to Exelixis’ ability to generate sales that could justify a market cap of $6.6B.
Exelixis has three growth drivers:
1 – Renal cancer (RCC) opportunity – Cabometyx is the most effective agent in RCC and could generate $600M in the US alone without any label expansions. Exelixis has a shot at getting 1st line approval based on a P2 study (CABOSUN) which demonstrated superiority over Sutent (current standard of care). Approval in 1st line could push US sales to ~$1B even when assuming PD-1 regimens become the dominant treatment option.
2 – Opportunity beyond RCC – Cabometyx is being evaluated in multiple clinical trials including a P3 in liver cancer (data in 2017) and combination studies with PD-1 inhibitors in GU cancers.
3 – Cotellic (partnered with Roche) – Exelixis has co-promotion rights in the US to the drug, which is expected to be in three pivotal trials this year based on preliminary intriguing efficacy signals.
While these drivers have the potential to drive shares higher in the long run, my sense is that the risk/reward in 2017 is becoming unfavorable. Exelixis is entering 2017 with very high sales expectations in RCC which might make it challenging to generate positive surprises. 1st line approval may come towards the end of 2017 but data need to be analyzed and verified by an independent review before the package is submitted to the FDA, which is another risk.
On the label expansion front, the liver cancer data is the most impactful catalyst but risk is high as it was based on a single arm P2 and the P3 was not stopped for efficacy at an interim analysis despite its large size. The PD-1 combination studies continue to generate intriguing data, especially in bladder cancer but results are hard to interpret and will not translate into revenues anytime soon. Lastly, Cotellic may become an important drug for Exelixis eventually but P3 results are 2-3 years away.
ArQule – Internal pipeline making progress in niche indications
On Friday, ArQule (ARQL) reported the failure of tivantinib in liver cancer. The stock was down only 18%, as expectations had already been very low. The company now plans to focus its resources on three proprietary programs (ARQ087, ARQ092, ARQ531), which in my opinion don’t get enough recognition from the market, evidenced by a market cap of $85M.
ARQ087 (FGFR inhibitor) and ARQ092 (Akt inhibitor) target well validated pathways which have already been explored with limited success. I like these programs despite the high risk because they employ a creative development strategy and potentially clinically differentiated molecules (based on cross trial comparisons). The initial markets ArQule is pursuing with each compound are small ($50M-$200M each) but the timelines may be quick and the impact on ArQule’s valuation could be significant.
ARQ087 – With ARQ087, ArQule is going after intrahepatic cholangiocarcinoma (iCCA) with FGFR2 mutations, an underserved niche indication representing ~1500 cases in developed countries (>2nd line metastatic patients). According to a recent update, ARQ087 led to a response rate of 24% (6/25) in FGFR2+ iCCA. The majority of patients experienced some tumor shrinkage and 3 of the 6 responders stayed on treatment for 40+ weeks (3 responses still ongoing). PFS appears to be ~6 months, which compares favorably with previous reports in the literature.
Based on regulatory feedback, ArQule plans to start a pivotal single-arm P2 in 2017. Depending on recruitment rate, the trial may report data within 18 months of initiation and serve as a basis for accelerated approval.
ARQ087 is clearly active in FGFR2+ iCCA but efficacy does not appear spectacular, especially compared to other rare fusion mutations (ALK, ROS, Trk). In addition, although response rate and PFS appear better than historical data in iCCA , there is limited knowledge on the natural history of patients with FGFR2 mutations which may confer better prognosis. Still, if the pivotal study corroborates a ~20% confirmed response rate and a response durability of 5-6 months, ARQ087 has a reasonable chance of approval given the unmet need and rarity of the tumor.
ARQ087’s biggest competitive threat is from Incyte’s FGFR inhibitor INCB54828, which is in a 100-patient P2 trial in cholangiocarcinoma including FGFR2+ tumors. The trial started recruiting in October 2016 and may have data (as well as a decision to advance to pivotal trials) during 2017.
ARQ092 – ARQ092 started as an oncology program but is now shifting to rare diseases characterized by activation of the PI3K/Akt pathway. The first of these is Proteus Syndrome, an ultra-rare indication characterized by outgrowth of skin, bone and other tissues (best known as the elephant man syndrome). Proteus Syndrome is caused by an activating mutation in Akt1, making it an ideal indication for an Akt inhibitor.
To date, ArQule treated 5 adult patients in collaboration with the NIH with plans to increase the dose and recruit younger patients in 2017. While efficacy is challenging to assess (ARQ 092 is the first disease modifying treatment for the disease), biopsies demonstrated a 50% reduction in Akt signaling in 4 patients.
ArQule is expanding ARQ092 to additional rare indications characterized by PI3K/Akt over- activation (PROS) and expects to treat patients in 2017. The addressable patient population is hard to assess given the different indications and mutations (not all may be relevant for ARQ 092) but it can range from several hundreds to several thousands in developed countries. Assuming an annual cost of $200k-$300k per patient, the commercial opportunity in Proteus and PROS is $100M-$200M.
I am adding a second position in Trevena as I expect a positive P3 readout which will hopefully be well received by investors. I am also adding another position in ArQule based on the potential of its two lead programs to generate data and market recognition. I am selling Exelixis at a 410% profit ahead of its quarterly earnings next week for the reasons discussed above.
Portfolio holdings – Feb 20th, 2017