Monday, January 28, 2008

Targanta Therapeutics Part III : To Buy or Not?

Targanta Therapeutics Financials:

IPO Date: 10/9/2007
Raised in IPO: $58million
Lead Underwriter: Credit Suisse
Burn Rate: $52.2million
(nine months ended 08/30/07)
Cash: ~$49million

Targanta expects to file a NDA for oritivancin in the first quarter of 2008. Even still this is cutting it a bit close, as at the current burn rate I would expect them to run out of cash sometime in March. In addition, the press release stated that most of the increase in spending was related to R&D expenditures for their lead candidate. I feel that this burn rate is unacceptable, especially for a therapeutic supposedly to have met phase III primary endpoints 5 years ago. From the prospectus, Targanta has purportedly been rigoriously performing in vitro potency tests, but literature searches don't reveal much in the way of the fruits of these labors. At any rate, it doesn't seem the money is going to executive compensation.

Oritavancin History
Oritavancin was originally discovered in the mid 90s by Eli Lilly research laboratories. In 2001, Lilly licensed the glycopeptide antibiotic to Intermune who subsequently finished the phase III studies, but delayed filing the NDA in 2004 because of adverse side effects including injection site phlebitis. In 2005, Intermune divested itself of oritavancin, citing a business focus on pulmonary and hepatology therapies, by selling the worldwide ownership rights to Targanta.

Targanta has apparently negotiated an undisclosed, but signifigantly lower, royalty rate with Lilly. They have already paid out $1 million and may owe up to $35 million more in regulatory and sales milestones. As of April 15, Targanta had paid $4 million of the $9 million in cash and $17.5 million of the $25 million in convertible debt it owes to InterMune.

Targanta FDA Interactions
From the prospectus:
When we acquired the world-wide rights to oritavancin in 2005, we developed and implemented a comprehensive strategy to gain a better understanding of injection-site phlebitis. We concluded that the risk of phlebitis was no higher with oritavancin than with equally potent doses of vancomycin. We first presented the data from our effort to characterize the risk of phlebitis to the FDA at a meeting on July 20, 2006. At our FDA meeting on January 31, 2007, the FDA agreed to remove the clinical hold on oritavancin.
In addition, the two phase III trials have both been non-inferiority designs compared with vancomycin. Targanta has cited multiple communications in which the FDA has confirmed that this design would be acceptable for the desired cSSSI NDA indication, despite the fact that the required delta (cure rate difference) is now 10% and the 2003 trials were conducted using the previous accepted delta of 15%. Approval of the NDA however is strongly contingent upon information describing the benefits of oritavancin (over vancomycin).

Targanta To Buy or Not?
Theravance has been spotlighted significantly over Targanta mainly because of the upcoming February 27 FDA review concerning the telavancin NDA. In October, Theravance recieved a letter from the FDA requesting additional information prior to approval consideration. As such, investors aren't particularily bullish on THRX and as of writing this article short interest stands around 8%.

Targanta appears to be timing its proceedings around telavancin, which makes sense in one regard as the FDA has been described as fickle with respect to antibiotic approvals, and management is probably waiting to see how telavancin gets treated by the regulatory bodies. On the other hand, its pretty clear that Targanta doesnt have the finances to perform many more clinical trials (or experiments of any kind for that matter) so its unclear which recourse they might take if the FDA comes down hard on glycopeptides.

In evaluating TARG, I think its safe to say that the market timing is very favorable. I have been interested speculative portfolio exposure to infectious disease biotech niche markets, and this fits that bill perfectly. From a scientific perspective, I think that oritavancin, and indeed telavancin are sound, not necessarily groundbreaking new methods of bactericidal activity but improvements on vancomycin without a doubt. That vancomycin retains 80% market share is a testament to the potential utility of antibiotics which are vancomycin 2.0. It is from the management perspective, where I draw some hesitation on Targanta. It is clear from the FDA correspondence that clincal data and supplementary science is going to make or break this NDA, and while I can see the astronomical burn rate what I cant find is the scientific results. Because of this opacity, we need to trust that the money spent in the last five years has gone to building a mountain of evidence to throw at the FDA. I would be suprised to find $100million had been spent elsewhere, nevertheless this remains the weak point in the investor thesis.

I am going to go ahead take a favorable stance on both Targanta and Theravance. This is based on the thesis outlined in both part I and part II. There is a frightening medical need for new antibiotic therapies, and the science of telavancin and oritavancin is very sound (see the chart in part II). I'm not sure what effect approval, or disapproval of telavancin will have on TARG, but if we assume it to be sympathetic, the play would be to wait until the end of next month to move on Targanta. For those in an extremely speculative mood, based on the differential science one could double-dip this market and playing both THRX and TARG immediately. Otherwise, for my father-in-law, or anyone else who would like exposure to stocks benefiting from potential 'superbug' outbreaks, I greatly favor the daptomycin (Cubicin made by CBST) play, proper timing withstanding.

Thanks for reading.
Disclosure Statement: I have no position in any of the stocks mentioned above.

Tuesday, January 8, 2008

Targanta Therapeutics Part II : Oritavancin

Last time I covered the state of antibiotic resistant microorganisms, namely Staphylococcus aureus and its Methicillin-resistant brethren (MRSA). Hopefully it is now abundantly clear why microbiologists, infectious disease specialists, and even congress are becoming increasingly concerned with the lack of alternative antibiotic options.

Competition in the cSSSI market

Targanta's lead product is Oritavancin, a novel intravenous antibiotic, for the treatment of serious gram-positive bacterial infections, including complicated skin and skin structure infections (cSSSI), and bacteremia. Antibiotics designed to treat serious infections caused by resistant gram-positive bacteria accounted for approximately $945 million in U.S. sales in 2006 (up from $284 million in 2002). The predominant treatment for resistant gram-positive bacteria is vancomycin, which currently accounts for approximately 85% of courses of therapy in the United States for antibiotic-resistant gram-positive pathogens. Two other antibiotics comprise the majority of remaining sales in the resistant gram-positive market: linezolid (Zyvox®, Pfizer $782 million in 2006) ; and daptomycin (Cubicin®, Cubist $190 million in 2006).

Importantly, competition for supplemental cSSSI treatments is heating up. Theravance's telavancin NDA is set to be reviewed by the end of next month. Arpida's iclaptrim passed phaseIII trials in july of last year and has already presumably filed the NDA. In addition, J&J, Pfizer and Wyeth, among others, all have next-generation antibiotic candidates still in the clinical trial phase.

Therefore to discern whether oritivancin has any kind of competitive advantage, we are going to have to hit the scientific data pretty hard. Let's get started.

Oritavanicin: Mechanism of Action

Most gram positive bacteria are surrounded by a peptidoglycan layer composed of a cross-linked polymeric network made from a monomeric unit. This cell wall is generally essential to the viability of the microorganism by providing both structure and protection. The glycopeptide class of antibiotics, of which vancomycin and oritavanicin are included, inhibit synthesis of this cell wall effectively by tightly binding to the peptidoglycan monomer and halting the crosslinking process. This in turn leads to the collapse of the cell wall by shifting the dynamic equilibrium towards de-assembly, which precipitates cell lysis and bacterial death.

Specifically, atomic resolution structures have shown that glycopeptide antibiotics bind to the D-Ala-D-Ala fragment of the peptidoglycan monomer. The antibiotic heptapeptide backbone adopts a rigid conformation forming a carboxylate binding pocket to bind the D-amino acids via a series of hydrogen bonds. Different glycopeptides have different affinities based on their structure, and there is also a general trend of dimerization correlation with affinity. Moreover, greater antibacterial activity has been shown for those compounds which are able to anchor to the plasma membrane through the use of a hydrophobic side chain. Oritavancin is a derivative of a strongly dimerized glycopeptide which can also anchor to the plasma membrane via an alkyl side chain.

In enterococci bacterium, the development of vancomycin resistance (VRE) arose as a result of the bacterium reorganizing its peptioglycan precursor compostion to a D-Ala-D-Lac. This alteration requires 5 genes (vanA) and deprives vancomycin of a single hydrogen bond, enough to bestow resistance. The mechanism of community acquired S. aureus resistance is less well understood, but it is believed to result in part from increased cell wall synthesis and overproduction of antibiotic binding proteins, in this manner vancomycin is potentially unable to either diffuse through the thickened wall or inhibit all the available PG precursors, or both. Finally, laboratory findings have discovered the enterococci vanA gene cluster transferred into a clinical isolate of MRSA, giving rise to highly resistant VRSA.

Competition Assessment
Now armed with some mechanism of action, we can compare oritavancin with MRSA and VRSA indicated therapies currently on the market, as well as the other directly competing glycopeptide antibiotics.

Linezolid (Zyvox®) is an oxazolidinone compound approved by the FDA in 2000. This antibiotic inhibits bacterial protein synthesis by binding to the 50S ribosomal subunit, and covers all important Gram-positive pathogens. Linezolid can be administered either intravenously or orally with 100% bioavailability, and has been approved to treat community acquired and nosocomial pneumonia, cSSSI, MRSA and VRE. Due its broad coverage of bacterial pathogens, and its availability in oral form, it is not suprising that Linezolid will continue to be a popular treatment in the first line of defense against antibiotic resistant infections. However, as with other antibiotics, popularity is often a curse, and reports as early as 2001 have described resistance to Linezolid amongst MRSA and VRE. In this manner, I would expect future prescription of Linezolid to increase linearly while the corresponding reports of resistance to follow a more exponential curve.

Daptomycin (Cubicin®) is a nonribosomal lipopeptide antibiotic. It's proposed mechanism of action is an intriguing process by which Ca2+ dependent conformational changes allow the lipopeptide to insert into the bacterial membrane causing lipid disruptions and membrane leakage, destroying the membrane potential. The FDA approved daptomycin in 2003 for use in patients with cSSSIs, and subsequently approved its use for endocarditis and bacteremia indications in 2006. In vitro, daptomycin is active against S. aureus (including MRSA and VRSA) and VRE. Resistance to daptomycin is rare but has been reported, potentially owing in VRSA to a thickened cell wall which limits the antibiotic's ability to reach the cell membrane. In addition, daptomycin has failed to meet non-inferiority criteria for community acquired pneumonia due to interactions with pulmonary surfactants.

Telavancin is a glycopeptide derived from vancomycin. As such it also inhibits cell-wall biosynthesis by binding to late-stage cell-wall precursors. However, telavancin contains an additional lipophilic (decylaminoethyl) side chain attached to the vancosamine sugar, as well as a hydrophilic ([phosphonomethyl]aminomethyl) group on the 4′ position of amino acid 7. The addition of the lipophilic decylaminoethyl substituent to the molecule classifies this agent as a lipoglycopeptide, and is speculated to cause the observed effect of disruption of the bacterial membrane functional integrity. The spectrum of activity for telavancin is similar to that of vancomycin, but is characterized by a minimum inhibitory concentration (MIC) that is generally two to eight times lower for most organisms tested including VRSA and VRE.

Enough Space in the Market?
From the above I think that its clear that there is certainly enough difference between linezolid, daptomycin and the glycopeptide class of antibiotics to warrant FDA approval of Theravance's telavancin. This becomes even more of reasonable possiblity when we consider part I, and the shrinking arsenal of available approved treatments in light of new evolving resistant strains. From this standpoint telavancin (and oritavancin) would become updates to the most widely prescribed vancomycin. But is there enough difference between telavancin and oritavancin to make a call on Targanta?

If your still with me this is where we can be glad we did our homework. Oritivancin, because its strongly dimerized, has the edge on organisms with the D-Ala-D-Lac mutation that steals a hydrogen bond from the other glycopeptide antibiotics. This includes vancomycin resistant enterococcus (VRE) and strains of VRSA arising from the vanA gene cluster transfer. This point has been difficult to cite definitively, due to the copious studies both in vitro and in vivo and performed using differing methods which make direct comparison difficult. However, in this article the literature has been distilled into exactly the table we are looking for.

I think it goes without saying that the data is not exactly crystal clear. However, as predicted Oritavancin does have a very favorable profile with regards to the VRE strains. Unfortunately the literature is very imprecise when it comes to direct comparisons of efficacy with regards to VRSA strains. I assume that this is because full-blown VRSA is rare and most strains are in fact stronger or weaker VISA members.

In conclusion, the business of antibiotics must be evaluated on slightly different grounds from other therapeutics. This is because the pathology itself is constantly evolving, giving rise to an unusual situation whereby a therapeutic effectiveness begins to decrease in proportion to its popularity. In this regard, differences in mechanism of action are equally if not more important in an antibiotic's evaluation than the particular in vitro MIC numbers.

Next time, we'll cover the licensing aspects of oritivancin (its passed through a few hands) as well as Targanta's financial situation to hopefully come to some sort of a conclusion.