Wednesday, June 13, 2007

NeurogesX Part III

NeurogesX part III

NeurogesX financial details (2006):

Burn Rate: $30million

Liquid Assets: $14million

IPO price: $11.00

Raised in IPO: $44million

Fortunately in the case of Neurogesx we are looking at a company completing two secondary phase 3 trials so we don’t have to speculate too much about either the chances of their lead product, NGX-4010, being tolerated or effective. In addition this makes the financials a little easier to read as it’s relatively safe to assume that they will be able to get some revenue should the FDA fast track their NDA application expected to file in 2008.

As of December 31, 2006, Neurogesx has a deficit accumulated during the development stage of $127.5 million, and they further believe there is enough working capital to meet their obligations through the first half of 2007. Management plans to continue to finance the company’s operations with a combination of equity issuances, debt arrangements and revenues from collaborations with pharmaceutical companies, technology licenses and, in the longer term, product sales and royalties. In reference to the IPO, the S-1 states that Neurogesx plans to spend $40million from the net proceeds to fund R&D. This roughly breaks down into $25million to finish off NGX-4010 clinical and regulatory program for PHN and HIV-DSP, $10million for NGX-4010 development for PDN program and the remaining $5million for a new opioid analgesic product candidate. Looking at the above numbers it’s easy to guess that NGSX didn’t raise as much as expected during their initial public offering of 4 million shares. The shares were offered at $11 (after being reduced from $13) and closed down at $10.25 on the first day. Given the small amount of working capital, this indicates that even if Neurogesx continues to operate at their 2006 levels they won’t even have enough for two years. If this isn’t a problem it certainly is cutting it closer than I’m sure the management would have liked. Regardless, as was covered in the last post NGSX plans to file their MAA with the EMEA this year, and should this be successful they would theoretically have the funds necessary to take NGX-4010 to the U.S. market at least for PHN and HIV-DSP.

Neurogesx final thoughts.

I saw NGSX recently described on seeking alpha as a “broken” IPO presumably because the stock has been hovering around the $8 range since the initial $11 price. Since it’s not really all that rare in the biotech to see a drop in price the week following the IPO, I’m not really sure I would describe Neurogesx as “broken”. That being said it is possible to draw some logical conclusions as to why the stock has fallen. First of all, understanding the product NGX-4010, while actually straightforward, was a convoluted process in terms of gathering together previous studies and intellectual property. Combine this with the fact that there is no publicly available analysis of NGSX and very little “buzz” on the trade sites or blogosphere. The result of this marginally unexciting IPO is probably a cursory glance at the financials, which to say the least, are less than optimal. Therefore from a financial standpoint investing in NGSX should give one some apprehension. However, from a market and science perspective this is a company holding the intellectual property license on a topical transdermal patch with high concentration of a natural compound for two underserved medical conditions. Because of this, even without two successful phase 3 trials I would give NGX-4010 a much better chance of FDA approval than any small molecule or biologic. It’s because NGX-4010 so relatively close to being a product that I firmly believe that the ~$8 share price is moderately undervalued. That being said, I feel it would be less than prudent to bank on NGX-4010 being approved for PDN stateside, (however generously that would effect the market cap) due to the reasons explained previously. Personally I can’t think of a reason high concentration capsaicin should work some neuropathies and not others, but I’m in the business of investing my money and not gambling on unknowns. In summation, the largest risk involved with what I have just described as a bargain share price for a company with post-phase 3 treatments is going to come down to the financials. We all like a little wiggle room should things take longer than expected and I don’t feel that Neurogesx is leaving themselves that much. Conversely, I would be surprised that a company this close to the goal would ever be allowed fall short.

Disclosure: I have no position in NGSX

NeurogesX Part II

NeurogesX part II

Last time I covered the therapeutic market area of neuropathic pain, which is Neurogesx’ major area of focus. This time I’ll be doing the due diligence on their first product candidate NGX-4010, and it’s safe to say that the entire company rests with the fate of this therapeutic. NGX-4010 is a non-narcotic analgesic formulated in a topical (transdermal) patch containing an 8% concentration of synthetic capsaicin. Capsaicin is released from the patch and absorbed into the skin without significant absorption into the bloodstream. The chemical capsaicin is popularly known as the compound which gives hot chili peppers their spicy properties and natural concentrations range from 0.1% to 1% w/w. Chemically known as trans-8-methyl-N-vanillyl-6-nonenamide, it is a highly selective agonist for the transient receptor potential vanilloid receptor 1 (TRPV1). TRPV1 is a ligand-gated, nonselective, cation channel preferentially expressed in nociceptive sensory nerves. TRPV1 responds to noxious stimuli, including capsaicin, heat, and extracellular acidification, and integrates simultaneous exposures to these stimuli.

Low doses of capsaicin cream have long been used successfully for relief of neuropathic pain. However the first published study to use high doses (5-10%) in combination with regional anesthesia (to numb the normal burning sensation accompanying such high dose) was published in 1998 from UCSF. This study showed that at these levels of capsaicin, 90% of patients (N=10) were relieved from neuropathic pain from 1 to 18 weeks. Interestingly, in 1996, prior to the publication three of the authors of the study patented the use of high percentage capsaicin with the Regents of the University of California as an assignee on the patent. Subsequently, the first author on the above study, Dr Wendye Robbins, was issued another patent in 1997 (again UC Regents were the assignee) whereby local anesthetic was administered through the use of a transdermal patch containing the high concentration of capsaicin. Dr. Robbins founded Neurogesx in 2000, licensing the patents from the University of California. That pretty much brings us up to speed on the intellectual property with one final important caveat. The first patent outlining the use of high concentration capsaicin was issued to three authors, and two of the three were not UCSF faculty and so did not assign their patent rights to the University of California. In fact, Anesiva, a company focused on the development and commercialization of treatments for pain, including injection or infiltration of a capsaicin derivative for post-surgical pain, osteoarthritis or interdigital neuroma, has licensed from one of the non-assigning inventors the right to use the technology under the method patent.

So Neurogesx has the worldwide exclusive license for a high concentration capsaicin transdermal patch. The use of high-concentration capsaicin itself is not exactly in the public domain but neither does NGSX have exclusive worldwide rights. Therefore, it goes without saying any investment in Neurogesx is banking on the utility of the transdermal patch method of capsaicin delivery. As it turns out the only current alternatives to a transdermal patches are a topical creams which of course have the drawback of wildly inaccurate dosing (FDA wont approve) and injection such as Anesiva is developing for post surgical pain.

Now that we’ve covered the therapeutic market and the intellectual property let’s move on to the pipeline. NGX-4010 has completed two phase 3 clinical trials that have met their primary endpoints, one in PHN and one in HIV-DSP. The results demonstrated that a single 30 or 60 minute application of NGX-4010, depending on the indication, may provide at least 12 weeks of clinically-meaningful pain relief. Neurogesx expects to file a marketing authorization application in Europe for NGX-4010 in 2007 based upon existing clinical trial data, and if the safety and efficacy of NGX-4010 are confirmed by two ongoing pivotal Phase 3 clinical trials, they intend to file a new drug application in the United States in 2008. Furthermore NGX-4010 is currently in phase 2 clinical trials for PDN.

Relatively speaking, I feel that the Neurogesx story is fairly straightforward for a biotech company. First, the therapeutic market is underserved in terms of an easily administered, but long lasting, transdermal patch. Secondly, the intellectual property situation is not ideal but NGSX has 30% of the license for high-concentration capsaicin and a monopoly on the patch delivery. Finally we are looking at a late stage development pharmaceutical which needs secondary phase 3 studies before filing the NDA. That being said, the elephant in the room here is the indication for PDN which is acknowledged in the S-1. By far the biggest opportunity in a therapeutic for neuropathic pain exists for this disorder. Apparently Neurogesx plans to file the broad label authorization for NGX-4010 MAA in Europe in 2007, and use the proceeds from the European market to fund the ongoing trials for PDN domestically. The nuances of this approach are probably known only to the management and the underwriters, but I will try to read between the lines considering the information publicly available on the clinical trials. It seems that patients with PDN were involved in the original Phase I/II tolerability studies of NGX-4010. These patients reported a 32% decrease in pain, but for some reason the PDN clinical program has been halted awaiting the IPO filing. I read this as there being complications with the performance of NGX-4010 in the original phase 2a trial, perhaps the longevity of relief seen with PHN was not paralleled in the PDN case, but anything is possible. At any rate I feel Neurogesx is playing the PDN indication fairly close to the vest, and this must be noted because as mentioned above this is clearly the lions share of the peripheral neuropathy market.

Next time I’ll wrap up with the Neurogesx financial situation and put it all together for a final verdict.

Disclosure: I have no position in NGSX

NeurogesX Part I

NeurogesX part I



IPO date: 05/02/2007

Market Cap : $101million

Shares Outstanding : 12.49mln

Float: 10.23mln

To be fairly certain, Neurogesx (NGSX) probably isn’t going to make the next blockbuster therapeutic. Neither will they likely generate the kind of buzz with their products as say, Provenge. On the other hand we’ve all recently seen the kind of damage that too much hype can cause and I therefore feel that NGSX deserves some attention if only because both the science and business model are relatively straightforward. Neurogesx states that they are a biopharmaceutical company focused on developing and commercializing novel pain management therapies. More specifically, their main niche involves the area of neuropathic pain. Let’s take a closer look at the details and prevalence of this affliction, focusing specifically on the treatments NGSX has in the pipeline.

Neuropathic pain is caused by diseases or trauma that produce lesions in the central (e.g., stroke, spinal cord injury, multiple sclerosis [MS]) or peripheral (e.g., surgery, diabetic neuropathy, herpes zoster) nervous system Unlike physiologic pain, which serves to warn and protect individuals from possible or actual injury, neuropathic pain serves no useful purpose. Peripheral neuropathy (neural damage in the extremities) is the most common which mainly affects the feet and legs. The most recent studies suggest that more than two million adults in the U.S. suffer from In this disorder, factors such as age, illness, stress or medications can reactivate an otherwise dormant chickenpox virus (varicella-zoster), causing shingles (herpes zoster). The virus travels along nerve fibers, causing pain. When the virus reaches the skin, it produces a rash and blisters. These cases of shingles usually heal within a month, however in roughly 20% of cases the patient continues to feel pain long after the rash and blisters heal. This pain is known as postherpetic neuralgia.

Neuropathic pain is among the most common of the pain syndromes afflicting HIV-infected individuals. It is thought that nearly one third of people with HIV/AIDS experience some peripheral nerve damage caused either by the virus itself, by certain drugs used in the treatment of HIV/AIDS, or by secondary complications from the disease. These symptoms are collectively referred to as Painful HIV-Associated Neuropathy (HIV-DSP).

Almost 16 million Americans had diabetes in 2005. Of these 60-70% of diabetics have mild to severe forms of nervous system damage. While the first sign of diabetic neuropathy is usually numbness, Painful diabetic neuropathy (PDN) often manifests in the form of a burning or other painful sensation most commonly in the feet and lower extremeties.

It should be noted that over the counter analgesics such as acetaminophen and non-steroidal anti inflammatory drugs have not been shown to be highly effective in the treatment of neuropathic pain. The treatments that are available for the above conditions are largely similar and the common underlying mechanism of action is reduction of neuronal hyperexcitability. Topically, Capsaicin creams derived from natural chili pepper plants have long been known to provide temporary relief. Similarly, Lidocaine (topical local anesthetic) patches are also effective for pain management. Both of these treatments last between 4 and 12 hours however, and require multiple applications per day. Both tricyclic antidepressants and serotonin reuptake inhibitors are used to treat neuropathic pain, it should be noted that while generally SSRIs are safer for use in the general population, they have less consistent effects than the TCA class. Finally, anticonvulsants such as phenytoin (Dilantin), carbamazepine (Tegretol) and gabapentin (Neurontin) are frequently prescribed for neuropathic pain and have been shown to be effective in double-blind placebo controlled studies. Some caveats to the anticonvulsant class of medications include a relatively notorious list of adverse side-effects and unpredictable response to the treatment.

In summary, after some in-depth research I would conclude that the therapeutic focus on neuropathic pain does in fact constitute an area of unmet medical needs. The major diseases which cause the neuropathies above; herpes zoster, HIV and above all diabetes are ubiquitous illnesses which I wouldn’t predict to be disappearing or even lessening in the foreseeable future. Furthermore, treatment for these neuropathies (with the exception of topical agents), largely revolve around the secondary analgesic effects of neurological pharmacologics which in some cases may be beneficial if the patient is already depressed. Nevertheless, it seems there is still plenty of room in the market for a more subtle topical treatment option such as Neurogesx has developed.

Next time, Neurogesx flagship product, the trans-capsaicin patch. I’ll also cover their clinical trial status and scientific patents protecting their quasi-novel approach to management of neuropathic pain disorders.

Disclosure: I have no position in NGSX

Wednesday, June 6, 2007

About Biotechnical Currency

Welcome to Biotechnical Currency. I am your host, Andrew Waight. Currently persuing a phD in Structural Biology at NYU Sackler Institute, my acedemic specialty is integral membrane protein structure and function. Previously I spent two years working at a small molecule drug discovery biotech startup in South San Francisco, and another couple prior to that at the Berkeley Structural Genomics project. I got my start in science as an undergraduate doing yeast genetics at the Salk institute and graduated UCSD.
Since working in the biotech birthplace of San Francisco, and being involved with a startup during its IPO, I have been interested in the nuts and bolts of evolving a life sciences concept into a company and taking it public. After starting my graduate work in New York I have since intensified this patricular extra curriculum and expanded into an appetite for general economics and consequently, finance. The general influence of New York I assume.
This website represents the technology and financial research that I perform for my own investment purposes. Furthermore the market news and views are the results of my obsession with current events. As a disclaimer I should emphasize that at under no circumstances should I be confused for a professional financial advisor or venture analyst. That being said I will gladly field any inquiries to the best of my abillities and especially welcome questions regarding biophysics of aliphatic macromolecules or detergents.