Protein Biomarkers part I: Fact versus Fiction

Preface to Biomarkers

Its difficult to know where to begin when discussing the nascent biotechnological sector known as Biomarkers. I think therefore it may be helpful for the uninitiated to give the term some context and definition. In its simplest definition, a biomarker is any substance which is used as an indicator of a biologic, or phenotypic state. Under this definition, biomarkers are used every day when physicians listen to a patient lungs, take blood pressure, perform standard blood titers to measure hematocrit levels or white blood cell counts, during urine tests for drug metabolites or diabetes and so on. Biomarkers can be DNA, such as the gene which signifies Huntington's disease or any other genetic disorder, or RNA in expression profiles. Also of note, the concept of biomarkers is a cornerstone of the larger topics of personalized medicine and preventive medicine.

This being said, the term biomarkers has been expicitly defined by the National Institutes of Health

A characteristic that is objectively measured and evaluated as an indicator of normal biological processes, pathogenic processes or pharmalogical responses to a therapeutic intervention

Therefore the term biomarker can be applied accurately in reference to individual genotypes. The most notable success in this area has been the selection of HER2 positive breast cancer patients during the acceleration of Roche's Herceptin through the clinical trial process. The power of DNA gene profiling, such as is done with microarray chips and/or genomic sequencing projects is enormous and ongoing. However, correlating DNA "biomarkers" (a.k.a. genes) to diseases is nothing particularily new and in this author's opinion is simply a semantic repackaging of efforts that began in the genomics era. In contrast, protein specific biomarker concepts are just now beginning to evolve, are grasped much less readily by the general public and are more easily leveraged with scientific knowledge. Therefore, keeping the broader definition in mind, the rest of the article will focus specifically on protein biomarkers and technologies.

The Promise of Biomarkers
Any scientist worth their salt will quickly find themselves inundated with conditional modifiers when writing about biomarkers. This is because the hype surrounding the field is historically paralleled only by the hype surrounding the sequencing of the human genome. Astute observers will also note that the excitement around biomarkers is justified in many ways by the same arguments used previously for the genomics bubble, which has of yet not exactly lived up to investors' expectations. Therefore it is convenient here to include a section describing what I will euphemize as the promise of biomarkers, in this way I hope to make plain that while scientifically exciting, the biomarker field is very much hypothetical from an investor standpoint.

Organic life, for the most part is comprised entirely of proteins. It is important to remember that in the human organism, roughly 21,000 genes encode at least one million different proteins. Theoretically speaking, every disease state imaginable will be able to be detected by either foreign or aberrant proteins, or abnormal protein levels. (The same can not be said for genes). Identification and characterization of any protein entity which can designate disease activity will result in a "bio"marker. Clinical detection of these protein signals can then in turn be used to monitor and gauge specific aspects of a given disease. Furthermore, any number of effective biomarkers may be used together in a panel to create a diagnostic "fingerprint" of the pathology in a single sample.

Biomarkers are an Intermediary between treatment and disease

These protein indicators have an incredible potential value in the understanding of the mechanism of disease progression. In addition, as more individual patients are screened using biomarker panels, different pathology "fingerprints" will likely divide many of the known disease categories into subtypes, with the result of much more medically descriptive diagnoses. This knowledge, and the ability to select between subtypes, can also allow the healthcare industry to expedite successful therapeutic development by selecting clinical subjects with those subtypes more responsive to a given treatment. At the same time, a decrease in negative incidents in the marketplace will be possible, if prescribing physicians have an analogous yardstick for pathology subtype treatment options. If these reasons aren't enough to get excited about the the prospect of biomarkers, the detection and identification of such proteins can also lead to preventative treatments, potential drug targets, diagnostic tools, and surrogate endpoints for clinical trials.

Protein Biomakers can gauge disease subtype and progression. This will allow therapeutic developers to:

• Diagnose patients earlier and more accurately
  
• Perform more directed clinical trials
• Assess disease state primary endpoints with confidence
• Decrease unresponsive or adversely affected patients in the marketplace
• Potentially discover new therapeutic targets
  

In essence, the nascent field of biomarker discovery can be described as disease pathway research. A validated biomarker is simply an identified protein constituent which is affected in some way by a pathological state. Some might point out that in fact, this has been the modus operandi of great many academic biomedical researchers for decades, and therefore the notion of "biomarkers" is more of a new buzzword than a research concept. This may be true with regards to academia. However insofar as the drug development and pharmaceutical industry is concerned, seeing real value in disease pathway illumination has only recently gained traction.

The Business of Serendipity
Everybody has a pet theory as to the causes of Big Pharma's lack of R&D productivity, and mine goes something like this. Until relatively recently, drug developers' business strategy relied on a blockbuster model as the goal, and academically validated targets as the starting line. They each made huge libraries of small molecule pharmacophores and screened the same targets. Eventually corporate risk aversion manifested itself in me-too therapeutics and huge marketing sales forces. The point here is that it wasn't (and perhaps still isn't) seen as scientifically or financially feasible for these companies to screen for novel effected proteins along distant and undiscovered disease pathway branches.

However, summarizing the recent prevailing expert opinions; so long as the pharmaceutical industry leaves the deepening of disease understanding to academia, the inevitable result will continue to be the same big pharma corporations screening the same published targets with most likely the same pharmacophore libraries (or more recently recombinant protein, or RNA libraries). This lack of scientific competitive advantage is one reason behind the recent trend of niche market focus in the pharmaceutical industry. Moreover, the revelation that disease understanding has intrinsic value via potential biomarker discovery, in addition to proprietary target identification, has cemented this strategy of intellectual capital at least amongst the pundits.

The fact that success in biological discovery most often proceeds by serendipity is probably only surprising to non-scientists. Nevertheless, investors need to weigh risks, and business plans necessarily must project return on investment. Therefore, short of cutting as broad a swath as NIH funding, the pharmaceutical industry needs to increase exposure to proprietary understanding of disease in a way amenable to statistical evaluation. Nothing fits this bill more perfectly than proteomics.

Proteomics
I assume that a number of my readers will be nonplussed to discover that the major thesis laid out at this point is that protein biomarker discovery is tantamount to proteomics. However the major objective in on my part has been to simply to disentangle the fact from the fiction and the jargon from the investment opportunities. To this end, I believe this quote sums up the recent proteomics history fairly well.

The age of proteomics has been announced in the mid 1990’s and since then a tremendous rush of proteome gold miners started grounding the claims. There were people claiming to (i) analyze the whole proteome, (ii) determine the interactome, (iii) determine the global phosphoproteome , (iv) determine the secretome, (v) and many more. Such buzzwords give the impression that with some mass spectrometers, computers, and algorithms we have the Holy Grail in our hand and will soon be able to elucidate the biology.
Now 10 years later, quite a number of studies are published every week dealing with high-throughput proteomics experiments. Very often, in such studies, the technical limitations are addressed or long lists of qualitatively identified proteins are reported, only.

So -- in fact, proteomics as a science and as a sector remains only in its infancy in terms of technological development necessary to elucidate the dazzlingly complex interactions of proteins necessary for biomarker discovery. However due to the somewhat dire situation of the drug discovery industry described above, coupled with the potential of protein biomarkers, there is little doubt that these nascent technologies have recently benefitted, and will continue to receive substantial investments in the coming years.

I'd like to break part I off here and let this article stand as a review to bring the unindoctrinated protein biomarker investor up to speed. In part II I plan to cover the vision of interplay between biomarkers and therapeutics and finally get down to which protein biomarker technologies I see as the most promising areas for investment.

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 (08/30/07)

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.

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:
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:
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:
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.

Targanta Therapeutics Part I : Antimicrobial Resistance

Targanta Therapeutics (TARG) filed for an IPO in early October 2007. They are a biopharmaceutical company focused on the development and commercialization of innovative antibiotics for serious infections. Their important therapeutic in development is oritavancin, a novel semi-synthetic glycopeptide antibiotic, for the treatment of serious gram-positive bacterial infections. In order to properly evaluate the current market for serious bacterial infections we first need to brush up on antibiotic resistant microbial pathogens. Let's get started.

Antimicrobial Resistance

In the early 1970s, physicians were finally forced to abandon their belief that, given the vast array of effective antimicrobial agents, virtually all bacterial infections were treatable. Their optimism was shaken by the emergence of resistance to multiple antibiotics among such pathogens as Staphylococcus aureus, Streptococcus pneumoniae, Pseudomonas aeruginosa, and Mycobacterium tuberculosis. The evolution of increasingly antimicrobial-resistant bacterial species stems from a multitude of factors that includes the widespread and sometimes inappropriate use of antimicrobials, the extensive use of these agents as growth enhancers in animal feed, and, with the increase in regional and international travel, the relative ease with which antimicrobial-resistant bacteria cross geographic barriers.

Staphylococcus aureus is perhaps the pathogen of greatest concern. S. aureus is a gram-positive bacterium that colonises the skin and is present in about 25–30% of healthy people. This species has high intrinsic virulence, acquiring antibiotic resistance either by gene mutation or horizontal transfer from another bacterium. S. aureus is the primary cause of lower respiratory tract and surgical site infections, and is also the leading cause of hospital-acquired bacteremia, pneumonia, and cardiovascular infections.

As rapidly as new antibiotics are introduced, staphylococci have developed efficient mechanisms to neutralize them. Resistance to penicillin appeared soon after it was introduced into clinical practice in the 1940s. The effect was initially confined to a small number of hospitalized patients, but resistance spread as use of penicillin increased, first to other hospitals and then into the community. By the late 1960s, >80% of community- and hospital-acquired S. aureus isolates were resistant to penicillin.

The evolution of resistance which first emerges in hospitals and is then spread to the community, is an established pattern that recurs with each new wave of antimicrobial resistance. Methicillin, introduced in 1961, was the first of the semisynthetic penicillinase-resistant penicillins. Its introduction was rapidly followed by reports of methicillin-resistant isolates. Recent information suggests that the evolution and spread of methicillin-resistant S. aureus (MRSA) seems to be following a wavelike emergence pattern similar to that of penicillin. First detected in hospitals in the 1960s methicillin resistance is now increasingly recognized in the community.

Glycopeptide antibiotics are used as a last resort.
Vancomycin is a glycopeptide antibiotic originally developed by Eli Lilly for penicillin-resistant staphylococci and fastracked by the FDA in 1958. Vancomycin and other subsequently developed glycopeptide antibiotics have never been used as first line treatment for S. aureus infections largely because of the development of methicillin and relevant analogs, and because they must be administered intravenously. However, with steadily rising MRSA cases the use of vancomycin and other glycopeptides as a last resort against these resistant infections has become increasingly widespread. Not suprisingly therefore, in 1996 the first reports of vancomycin intermediate S aureus (VISA) began to come from around the globe. Since then a number of reports of fully resistant (VRSA) strains have been reported. Furthermore, these strains tend to be multidrug resistant (including teicoplanin, another glycopeptide) against a large number of currently available antibiotics, compromising treatment options. At the moment, as there are no formal recommendations regarding treatment, identified strains of VISA or VRSA must be submitted to laboratory screenings to determine a potential antibiotic regimen.

So that brings us up to speed on the state of the perpetual war between Humans and Microbes. Certainly this is a reasonably hot topic right now due to recent news reports of MRSA outbreaks amongst the community. It is important to remember that before the discovery and widespread use of penicillin, bacterial infections were by far the biggest cause of early 20th century mortalities, and microbes like S. Aureus are constantly using the power of darwinian evolution to discover a method to reclaim that title. Furthermore antibiotics have largely been overlooked by the bigger pharmaceutical firms despite volumes of increased molecular understanding of these organisms coming out of academia. This is changing quickly however, so next time we'll look at the other competitors who are developing and marketing novel antibiotics. We'll and cover Targanta's number one candidate Oritavancin and how it measures up to the science. Stay tuned.

The BioNext Technology Review

I have spent the past couple of months working with some colleagues on a new concept which we have named BioNext Technology Review. The purpose of this site is essentially an outlet for bioscience academics to write technological analysis of the sort that I do here. It is similar to other blog aggregators except with an emphasis on the technology behind bio-business. Also essential to this concept are the BioNext Forums which exist for those interested in biotechnology to discuss ideas, news, and educate each other. As far as I know there are no online forums for this. As BioNext is just about completely set up, I will be able to concentrate on writing research articles once more and will probably continue to cross-post my BTR articles here. I would like to extend an invitation for anyone interested to join up with our forums, and if so inclined, contribute to the BioNext website along with wherever else you are currently posting. See you there.

Biolex: a preview

What if a slow-to-launch company could now be public?

Biolex Therapeutics is a clinical-stage biopharmaceutical company who filed for an IPO in August 2007. I wrote the following article shortly thereafter, expecting an imminent pricing. Interestingly, aside from some phase II results on their lead therapeutic candidate there hasn't been much in the way of information concerning either the company or the expected IPO date. Furthermore, the Biolex website has been curiously "under construction" since shortly after their S-1 filing. Regardless of whether Biolex plans to stay private, is talking to potential acquirers, or just dragging their feet and waiting for better market timing, I decided to post my research anyway because it was a good time learning the story.

The intriguing aspect of Biolex is that they employ a proprietary and very novel protein expression system (the LEX system), enabling the production of biologic candidates otherwise difficult to make through traditional commercial means. The LEX system utilizes the aquatic plant Lemna, known commonly as duckweed, as an expression host to produce these difficult proteins.

I decided to look in to Biolex for a multitude of reasons, not least of which because I personally spend most of my own waking hours expressing and purifying difficult proteins. However pursuing this analysis quickly opened up a Pandora's box of necessary prior research. This research has been absolutely indispensable to understanding Biolex in a proper context and will be needed ultimately to make any kind of a educated financial judgment, should IPO follow through. In any event however, I can guarantee that comprehension of Biolex story will prove to be highly a enriching experience to those interested in the zeitgeist of multi-disciplinary biotechnology. Lets get started at as logical place as any, the duckweed itself.

The Duckweeds: A Valuable Plant for Biomanufacturing ?

Lemna, commonly called duckweed is one 4 genera in the monocotyledonous family Lemnaceae, which grow floating in still or slow-moving fresh water around the globe. This family are also the smallest known and most morphologically reduced flowering plants. For those interested in an intimate understanding of the family I can recommend any number of the duckweed fansites or information pages. For the sake of brevity however, I will sum up those aspects of the genus which make it an amenable organism for production of recombinant proteins and biologics.

• Lemna can be proliferated in an aqueous medium cheaply and clonally, and doubling times are 20-24hours.
  
• The plants can tolerate a broad pH range and a number of organic buffers and protein stabilizing coupounds. (MES, MOPS, EDTA,PVP)
• Duckweed cells can be processed easily as they contain no lignin (woody material), and can be homogenized readily by commercially available methods.
  
• Lemna species, among others are amenable to genetic manipulation, reliable and relatively expedient methods can generate transgenic lines in 6 weeks or less.
  
• Lemna cells are eukaryotic, and have glycosylation machinery.

Those interested in the nuts and bolts of plant genetic engineering will be unsurprised to discover that tranformation and creation of stable transgenic duckweed lines is performed in a more or less classical manner, using Agrobacterium tumefaciens and plating the recombinant callus on appropiate media with growth hormone and selection antibiotic.

It is also important to mention that plants in general all share some advantages as organisms for biopharmaceutical production. The most obvious is that transfer of human viruses and other contaminations is effectively impossible, either from the outside environment to the culture or from the culture to the biologic itself. This is not only beneficial from a cGMP perspective, but it also cuts orders of magnitude off the cost of production. Plant based expression systems are also easily scalable and have a potential of far less capital and operating costs than even existing bacterial systems. Finally not only are all plants and mosses able to glycosylate their proteins, there has been initial success with actual secretion of the therapeutic protein of interest into the media from either the root system (rhizosecretion) or directly from moss protoplasts, eliminating the need for homogenization and greatly simplifying the purification procedure.

The major challenges facing the usage of plants to produce biopharmaceuticals are largely twofold. The first is that there are major structural differences between plant and mammalian n-linked glycans. Therefore proteins glycosylated by the endogenous plant machinery elict an immunogenic response in humans when administered parenterally. This problem has been overcome somewhat in transgenic tobacco expression systems by engineering the plants to produce human galactosyltransferase. Alternatively this problem has been addressed in the moss expression system Physcomitrella patens by knocking out the genes encoding for the plant specific sugar transferases (developed commerically by Greenovation). Biolex themselves followed a similar concept by using RNAi to inhibit two undesirable endogenous Lemna sugar transferases, giving rise to a single species of non-immunogenic glycosylated antibody that performed better in vitro than those produced in CHO cells.

The second challenge facing those in the business of producing biologics in plant based systems is that of public opinion. In 2001, the Prodigene incident, where corn genetically modified to produce trypsin acidentally cross-pollenated a nearby field in Iowa, caused a public outcry and eventually sunk the company. This, and numerous other debacles concerning GM food crops have fueled the fire of public concerns to which the demise of several biotech business models of plant-made products (PMPs) can be attributed. Because of this, the current front runners of biotech PMP manufacturing are sidestepping this hot-button issue by using highly contained, non-food plants such as tobacco, moss, or duckweed. In this manner, it would seem Biolex has chosen a less controversial organism which is propigated under easily controlled, and highly contained conditions.

So far so good. Biolex has a proprietary method of making their therapeutic proteins, which as has been mentioned elsewhere on this blog, is a very good strategy indeed for potential acquisition or competition. I'll leave the analysis here for the time being, and in the case of a IPO pricing, I'll continue on with Biolex's lead therapeutics, patent positioning, partnerships and financials.

Biologics Biopharmaceuticals and Protein Therapeutics Part II: Biomanufacturing

In part I, I covered the state of the protein therapeutic sector. Based on that background I would further the analysis by identifying a couple of key technology areas that I believe to present great opportunity for investors interested in biologics. The first is the production of protein therapeutics or biomanufacturing.

Biomanufacturing:
Traditional small molecule pharmaceuticals are synthesized via highly reproducible chemical processes. The resultant compound is patented based on its atomic structure rather than its manufacturing process because of the fidelity of these reactions and also because determination of the purity and composition of such small molecules is routine.

In contrast, protein therapeutics are on average 100-1000 times larger than small molecules and logarithmically more complex. They are produced in recombinant organisms, usually bacterial, yeast, or mammalian cells, and the protein is purified to homogeneity via biochemical methods. These methods are often lengthy protocols of which any or all of the process can be proprietary. In addition, the utilization of living organisms as miniature factories results in an inevitable heterogeneity in the manufactured therapeutic. The final product can be effected by minute alterations in protocol, and stringent attention must be paid to the necessities and behavior of the co-opted organism.

The bottom line is that not only are protein therapeutics themselves overwhelmingly more complicated than traditional pharmaceuticals, the degree of randomness and consequent difficulty involved in their production is many orders of magnitude higher than the analogous small-molecule synthetic chemistry manufacturing methods.

Given the complexity and heterogeneity described above, its no surprise that in the early years of biologics the philosophy that "process defines product" governed regulatory actions. The result was that the FDA required a single biotechnology company to to obtain a Product License Application (PLA), and an Establishment License Application (ELA), in addition to performing pivotal phase 3 trials using the same facility used for final commercial production. Fortunately for the Biotech industry, this was replaced with a single Biologics License Application (BLA) through the FDA Modernization Act (FDAMA) in 1997, and companies were also permitted to change, or more importantly, outsource their manufacturing process so long as the resultant therapeutic was shown to be comparable.

Early biologics such as Amgen's recombinant erythropoiten and Genetech's human growth hormone suffered from a supply deficit even as they proved to be commercial successes. However, it was Immunex's (acquired by Amgen) Enbrel, released in 1998 as a treatment for rheumatoid arthritis, that would become the prime example of a biologics manufacturing shortage. Supply rapidly outstripped demand leading to patient waiting lists and shortfalls that continued until the end of 2002. This event opened the doors for competing biologics like Centocor's (acquired by J&J) Remicade, which did have enough manufacturing capacity, and may have ultimately may have cost Enbrel's makers more than $200 million in lost revenue.

These above events gave birth to a boom in the industry of Biologic Contract Manufacturing Organiztions (CMOs) almost overnight. Building a new biopharmaceutical plant costs hundreds of millions of dollars and can take up to 5 years, many biotechnology companies are reluctant to make that kind of investment to support a therapeutic candidate still in clinical trials. Business vacuums don't exist for long, and in only a couple of years the concern over biopharmaceutical manufacturing capacity had died down considerably. However, CMOs are here to stay and their growth outlook is generally accepted as favorable. Big pharma and larger biotechnology companies are building their own facilities for biologic manufacture, or even adopting a shared-capacity strategy. Meanwhile, smaller biotechnology firms, especially those with only a few candidate therapeutics will continue to rely on CMO's facilities and expertise as they focus resources on product development and establish a proof of concept in clinical trials.

Just as CMOs are considered by the biotechnology industry as being a bright side of biologic manufacturing, their close relative, generic biologics manufacturers represent the dark side. These off-patent versions of protein therapeutics, dubbed biogenerics, biosimilars or follow-on-biologics are already a reality in Europe and elsewhere, and they are on the horizon in the United States. This is the current hot topic of debate surrounding biologics, and although arguments can be made on either side as to how long it will take for either the US legislation to pass or for the developing nations to bring their cGMP facilities up to speed, most will agree that biogenerics and outsourcing are only a matter of time.

With respect to the biogenerics market, I consider the business of evaluating either domestic legislative or foreign compliance risks particularly volatile. The above retrospective does however, firmly illustrate the overwhelming market pressures in the biotechnology industry as a whole to not only discover new protein therapeutics and biologics, but also to produce them on a industrial scale in an increasingly more cost-effictive manner. This thesis is restated in a recent article written by the senior VP of technical operations at Wyeth.

To get a glimpse of what the future may hold for the biopharmaceutical industry, one need only look back to the transformation that took place in semiconductor manufacturing. Similar to the biotechnology industry, the technology for semiconductor manufacturing was initially highly specialized and expensive. Competitive pressures and the need for large-scale production required the construction of large plants, at costs that were prohibitive for most industry companies. The investment in such large plants led to a compromise in the ability to rapidly respond to new technological advances. To better respond to markets and compete with lower cost operations in Asia, semiconductor companies began to form consortia to share capacity and hire contract manufacturers. As in the biotechnology industry today, shared capacity in semiconductor manufacturing was only possible through the standardization of processes and technology. Technology standardization became more firmly established as the small number of companies, which held the dominant intellectual property required for the design and manufacture of state-of-the-art semiconductors, became the industry leaders.

Although there are many obvious differences in producing protein therapeutics versus microprocessors, the most notable is that protein production is not easily standardized. In this regard each protein product will have a customized process to some degree.Yet I believe the comparison to be apt in terms of market opportunity. Just as Intel benefits whether Microsoft or Google become popular, developers of technologies which can successfully and generally reduce the cost of protein production should stand to gain handsomely regardless of any of the above market uncertainties.

The bottom line is that those technologies which can facilitate the production of biologics more economically will equate to a competitive edge in an industry beset on all sides by an imperative to reduce manufacturing costs.

In this manner I also hope to be able to predict the long term valuations of companies supporting the biomanufacturing industry. Applied to medium and large cap stocks, I would expect Invitrogen (IVGN) to post better than expected earnings tomorrow. In a likewise manner I expect Thermo Fisher (TMO), GE Healthcare (GE) and BD biosciences (BDX) to continue to outperform in their life sciences departments into the forseeable future. Pall (PLL) and Millipore corporations (MIL) have had nasty tax problems and poor Q2 performance respectively, but the above thesis predicts that their product technologies will continue to show strong value and also present a long term investment opportunity. Internationally, Cobra Biomanufacturing (LSE:CBF.L) and Sartorius AG (XETRA:SRT.DE) among others, meet the criteria outlined above.

Looking forward, the above investment thesis will be one of the factors directing my micro and small-cap research. The endeavor has turned out to be challenging especially due to the fact that many of the technologies are still in venture capital stages. Furthermore, those technologies that do meet the above criteria are often rapidly bought by larger-cap companies. I am very doubtful that the cost of biologic production will diminish overnight with a single technology. Therefore this thesis will continue to be an integral theme in biologics industry research, and further revisited upon all potential biopharmaceutical product candidates.



Disclosure: I am long shares of TMO