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Platform Technologies Promise Big Payoffs: Juan Sanchez
Source: George S. Mack of The Life Sciences Report (2/10/12)
Platform technologies promise big payoffs because they offer the prospect of nearly unlimited assets that might be developed to combat disease, but they make investors very nervous because of their propensity to burn cash in a hurry. In this exclusive interview with The Life Sciences Report, Ladenburg Thalmann & Co. Vice President and Senior Analyst Juan Sanchez makes his case for a few companies that could produce numerous products from their technology-rich pipelines.
The Life Sciences Report: Have any of the proposals from the U.S. Food and Drug Administration's (FDA) Critical Path Initiative begun to collapse timeframes or make drug development more efficient and less capital-intensive?
Juan Sanchez: When the FDA's Critical Path Initiative first came out in 2004, it made a lot of sense. Back then, there were conversations on Wall Street about different parties and the FDA working together. That led to unique collaborations and kind of a different culture. But I'm not sure you can quantify the success of an initiative like that because you are, after all, at the mercy of biology as well as higher regulatory standards. The FDA is still approving 22-30 new drugs every year, and I think it was 30 new ones in 2011. The fact that this continues to be the case when clinical trials are becoming so much more complicated and so much more difficult, and when the low-hanging fruit of drugable targets has already been taken, tells us something important when a decent number of new approvals are still coming out. Just keeping up with the pace means something is working. However, I am not sure if this relative success can be attributed to the Critical Path Initiative. There are a lot of headwinds, and I'm not sure what the right measure of success is.
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TLSR: Juan, you follow some companies with platform technologies, which are supposed to yield lots of products. From what you are seeing, do the platforms eat up capital? Do you see some of these as expensive science projects, or do you see them as prolific creators of value?
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JS: Wall Street interest for platform technologies has been up and down throughout the years. With the sequencing of the human genome in the late '90s and early 2000s, everyone was going for platforms. Then they fell out of favor and fewer companies were attractive to investors. But recently there has been a second wave of understanding that platforms may have some real value. They do take a lot of money to operate. I believe platform technology companies need to have one or two projects perceived as promising early on. Otherwise the cost of capital to operate these companies could escalate, making it difficult to sustain infrastructure. However, even if a single platform seems very robust, I do believe the probability of having two successes out of that platform is low.
TLSR: Can you give me an example of a platform company?
JS: I follow Micromet Inc. (MITI:NASDAQ), which is a good platform story now being acquired by Amgen Inc. (AMGN:NASDAQ) for $1.16 billion (B). It wasn't a cheap company to run. It costs almost $100 million (M)/year just to run the business, but it has a really promising first product in MT103 (blinatumomab) for acute lymphoblastic leukemia, which is now in pivotal phase 3 trials. However, MT102 (adecatumumab) has been driving most of the valuation. Companies may also need to validate their platform technologies through some corporate collaborations. Without collaborations for earlier-stage programs, few investors are going to assign you much value for the platform technology. The Micromet is a good example of an important lead product combined with a plethora of earlier stage corporate collaborations. In fact, the hands-on experience that Amgen had with Micromet's technology could have been a definitive factor for the proposed acquisition. That tells you that Micromet's positioning was good, but in reality who knows if this platform technology is going to generate more than one product. I'm highly confident that the first program, MT103, is likely to be successful. But, time will tell if other products follow.
TLSR: Neurobiology has not been developed to the level of oncology or cardiovascular disease or even autoimmune disease. Are we beginning to see a sharper focus now on central nervous system (CNS) disease?
JS: Big pharma is not investing in central nervous system (CNS) disease as much as before. Some companies are walking away. That said, we have seen a lot of new CNS science over the last 15-20 years. New targets and approaches that were proposed in the '90s for depression and schizophrenia, for example, are now being evaluated in phase 2 clinical trials. Groups are now working on better ways to design and run clinical trials and on validating biomarkers so we can become smarter in developing CNS drugs. That is very encouraging. But, it is difficult to predict when that is going to result in the successful development of better drugs.
TLSR: You also follow companies focused on infectious disease, for instance Optimer Pharmaceuticals Inc. (OPTR:NASDAQ) with its newly approved product Dificid (fidaxomicin) for Clostridium difficile infection (CDI). But I'm wondering if there's enough incentive to develop antibiotics for new or old indications.
JS: There haven't been too many recent approvals in the space. But Dificid approved in May 2011 and Teflaro (ceftaroline fosamil) (Forest Laboratories Inc. (FRX:NYSE)) approved in October 2010 are important examples. There has been some stagnation in the development of antibiotics for a couple of reasons. One is that a lot of good antibiotics went generic, and there is not the willingness of payers and hospitals to pay for the expensive ones. Therefore, incentives for companies to compete in this space with poorly differentiated products do not exist. In addition, there was a period of regulatory uncertainty for indications such as community acquired pneumonia and acute bacterial skin and skin-structure infections. Recent draft guidance by the FDA on how to design clinical trials for these indications is reinvigorating investment. Finally, the two major drivers/incentives to develop antibiotics are the unavoidable obsolescence of existing ones due to resistance, and the second is the availability of novel antibiotic platforms, which we are now beginning to see.
TLSR: Juan, are you a little bit disappointed in the uptake of Dificid?
JS: No, on the contrary the launch was better than expected. We'll see what happens this year. Generally it's tough to start selling a premium-priced new drug, especially when you partially depend on hospitals, as in this case. But Optimer has taken very robust commercial measures for a strong launch.
