Biotechnical Currency

Protein Biomarkers part I: Fact versus Fiction

2008-03-26T14:58:00.000-07:00

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?

2008-01-28T21:08:00.000-08:00

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

2008-01-08T12:27:00.000-08:00

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 dimeriza tion 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 change s 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

2007-12-15T15:50:00.002-08:00

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

2007-12-12T13:46:00.000-08:00

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

2007-11-13T09:52:00.001-08:00

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

2007-10-04T10:15:00.000-07:00

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

Biologics Biopharmaceuticals and Protein Therapeutics Part I: The state of the Sector

2007-09-24T09:23:00.000-07:00

Before moving on to the next series of articles, I'd like to invest some effort into researching and demystifying the convoluted topic of protein based therapeutics. Indicative of this sector is the somewhat interchangeable nomenclature. Protein therapeutics (e.g. antibodies, insulin, erythropoiten) can also be referred to as biopharmaceuticals, (which can also include nucleic acids). Biopharmaceuticals in turn are often described as biologics, a term which encompasses any medicinal product derived or constructed from living tissues or cells.

Anyone interested in the biotechnology or the pharmaceutical sector is sure to understand the ongoing hype surrounding biologics. Bristol Meyers Squibb's recent purchase of Adnexus for $430 million is the most recent example. Last month Pfizer announced that it is breaking ground on a $50 million biologics facility and simultaneously paid out $30 million to use Xoma's (XOMA) bacterial cell expression technology, aiming to have 20 per cent of its pipeline product portfolio in this sector by 2009. Merck shelled out $400 million for Glycofi last year, in attempt to catch up with the big pharma early adopters of biologics (eg. Roche, J&J, GSK, Astrazenca). Needless to say that examples of vigorous froth in the biologic arena are easy to come by.

For an in depth understanding of the state of the pharmaceutical corporations, I highly recommend the recent report published by Price Waterhouse Coopers: Pharma 2020: The vision. In short, R&D expenditures have risen steadily while the amount of new molecular entities (NMEs) approved have slumped. Only a minority of Pharma companies earn a substantial income from new products, and a majority of the leading firms stand to lose anywhere up to 40% of total revenue due to patent expiries. Contrasted with the fact that there are in fact growing national and global opportunities for the healthcare and medicine industries, the bottom line amounts to big pharma shifting into crisis mode.

The above scenario, currently playing out in slow motion, serves as a kind of vindication for the biotechnology field, which since its beginnings in the early 80s has generally employed comparatively more nimble, scientifically driven approach to medicine. The business model of innovating biomolecule therapeutics and treating smaller markets of unmet medical needs was originally dismissed by big pharma in favor of a small molecule blockbuster approach. In the past few years however, as niche market drug discovery has become increasingly necessary, unmet disease therapeutics have proven valuable both monetarily and strategically. In addition, biomolecules have become blockbusters themselves, accounting for nearly one quarter of this year's total pharmaceutical market sales growth. This apparent role reversal, and the stong market projections for protein therapeutics are no doubt the reason behind the recent biotechnology wave of mergers and acquisitions.

Unfortunately, the biotechnology drugmakers will have little time to rest on their laurels. Until now, these companies have not had to worry about competition from generic manufacturers for a number of reasons. Simply put, proteins are larger and more complex by orders of magnitude, and producing these biotherapeutics requires living organisms and detailed purification protocols. Likewise, proving that two biological macromolecules are identical in structure and efficacy without performing the actual clinical trials is no small feat. Ultimately the Hatch-Waxman Act, which regulates generic pharmaceuticals, breaks down. In a few months however, its all about to change, the new regulatory legislation is currently in congress and generics firms are eagerly anticipating the go-ahead for biologic follow-ons in the US market.

Ok that pretty much brings us up to speed with the state of things. In part II, I'd like use this background knowledge of the protein therapeutics industry to evaluate opportunities of technology and in the market.

Interview with Helicos COO Steve Lombardi

2007-09-17T15:56:00.000-07:00

Following my Helicos part III post last month, I was contacted by Mr. Lombardi's office in regard to setting up a conference call with the Executive Vice President in order to answer my remaining questions concerning the Heliscope technology, and also to talk more about the future of Helicos. Needless to say I was delighted at this opportunity, and what follows is the transcript of our conversation.

Background on Steve Lombardi :

Helicos Executive Vice President and Chief Operating Officer

Mr. Lombardi joined Helicos in June 2006. He has over 27 years of commercial biotechnology experience, as a researcher and in various business management and executive positions. Prior to joining Helicos, he was Senior Vice President at Affymetrix, serving in executive positions in Corporate Development, Product Development and Research and Corporate Marketing. Before Affymetrix, Mr. Lombardi worked for 16 years at Applied Biosystems in various business roles, first as a marketing manager and later as a senior executive.

From 1989 to 1998, Mr. Lombardi led the formation of the company's DNA sequencing and genetic analysis business, the products of which formed the technological basis of the worldwide Human Genome Project. He was also involved in the formation of Celera within the broader Applera corporate structure. Prior to joining Applied Biosystems, Mr. Lombardi spent 8+ years as a nucleic acids chemist focused on the development of novel approaches to DNA synthesis. He earned his BA in Biology from Merrimack College.

SL: As a startup technology doing first generation of a first generation of a disruptive technology like single molecule sequencing, there’s a huge amount of IP that a company like us can accumulate and as such want to hold that very close to our vest for patenting reasons but also for not giving competitors a sense of what you’re really trying to do, so you’re absolutely right in what you’ve said but we’re just in the process of going commercial and you’ll start to see more and more from us. We just went live with our new website that is still a bit shallow in content but you’ll see a lot more from us as we begin to roll out the commercial launch.

AW: Ok that’s great and like I say I’m sure this has got to be a very active and exciting time for all you guys involved with Helicos. It definitely seems to be ramping up as you’ve just described

SL: Yeah it’s a fun time.

AW: So as you may or may not know I’m actually in the structural biology department here at NYU and so I have a vested interest in single molecule technologies and research. Many of us structural biologists try to keep up to date with single molecule technology and that’s part of the driving reason why I wrote my review, but so let me just jump into some questions I had first and get those out of the way.

AW: So I wrote my review of the technology behind the HeliScope using Dr Quake’s original PNAS paper along with the patents and all the other publicly available information but there are still a number of questions that I iterated in my article concerning the tSMS technology. Do you mind if I try to clarify some of those technical aspects of the HeliScope with you?

SL: Not at all and that’s one of the things that I wanted to do was to help clarify that for you.

AW: In the PNAS paper the Quake group was able to achieve the resolution and sensitivity needed by combining TIRM and FRET does the HeliScope still use both of these methods?

SL: The HeliScope still uses what’s called TIRF, “total internal reflection fluorescence”, but we’ve moved away from FRET. We found we didn’t need that modality; by using the right dyes we are able to get signal to noise with the TIRF system and single dyes. What we’ve learned is that with TIRF and enough light, and we put a lot of laser flux into the system, we can get substantial signal. However, the whole key here is controlling noise. First of all, TIRF optically reduces the noise substantially. Additionally, one of our founding scientists is Tim Harris, who was at Bell labs for many years back in Princeton; he was the first researcher to publish a paper on detection of single DNA molecules on a surface. He’s got a lot of experience and brought a knowledge base that has allowed us to build a flow cell surface that is incredibly low noise in itself, but is very washable

AW: Ok that was going to be my next question, so does it require excess washing steps to remove nonspecifically bound nucleotides?

SL: Oh yes, a majority of our cycle time is washing. We have a spec for florescent background, but consider the density we’re talking about. We have one DNA molecule per square micron. That means high density with regards to information content, but it’s very low density at the molecular level. One of the neat things about this technology is that, because detecting single molecules is not the problem, the advantage is that at every step in the process, we are detecting the emission of a single fluorescent dye. So during 30 cycles of single base addition, whether at step 1, or step 120, the signal to noise is constant because we’re always measuring a binary event; is the dye present or not? The huge advantage against the amplified, or think of them as “ensemble technologies”, is that even though you lose yield in a single molecule approach, you literally lose the signal in an ensemble approach. In the ensemble approach, you may start with for instance one million molecules but then over time you get degradation of the signal, you get less and less molecules reporting.

AW: That’s really amazing, by also cutting out FRET you guys have really done away, I’m sure, with a lot of logistical issues of using it.

SL: Absolutely. The other thing we don’t have to deal with are the phasing issues. You get a lot of signal in an ensemble approach, but you also generate signal coming from the phased fluorophores, the nucleotides at n-1, n-2, n-3…. that are generating noise. Many cycle chemistries like DNA synthesis or protein sequencing run into these phasing and yield problems. We are measuring binary events, starting at one molecule per square micron but having 3 billion strands down on our system, even a 10% yield of molecules reporting out to readable, alignable lengths, that’s still 300 million strands at 25 bases, or 7.5 billion strands per run.

AW: That really has clarified a lot up for me. So let me move on and ask you another question. How does the HeliScope deal with long homopolymer regions?

SL: So you accurately described what we announced at Marco Island earlier this year. We have invented unique molecules, whose composition is still proprietary because we believe that there’s a huge amount of intellectual property in this, called virtual terminators. The other sequencing by synthesis technology out there that uses a polymerase and a fluorescent nucleotide instead of the pyrophosphatase approach, the Solexa technology, have a 3’ blocked nucleotide.

AW: Yes I read about that, you can cap it but then there are other issues with uncapping.

SL: Bingo, so what we have done is to create what’s called a virtual terminator that adds no time to the cycle and kinetically inhibits the addition of the second base.

AW: So that’s what I thought, after reading the patent it seemed like it was largely done through kinetic means which has a lot of benefits especially because even if an incorporation is not made it doesn’t necessarily matter for the HeliScope system.

SL: Exactly, because we can take advantage of the fact that each strand grows asynchronously. You can’t have any asynchrony in an ensemble approach, so you have to drive all your kinetics to 100%. We don’t have that problem so we can take advantage of kinetics with these virtual terminators to adjust the incorporation of the first base and the second base such that in the cycle time that we use, we have virtually no second base addition. We are still doing research as to how far we can go with the homopolymer regions and I can’t say where we are right now, but were making very good progress towards performance that its really exciting.

AW: I’m sure, it’s good to know that at least some of my assumptions were correct.

SL: I want to give somebody credit here, and its Bill Efcavitch who is our senior VP of R&D. I’ve worked with Bill for 21 years and known him for 27. I was a nucleic acid chemist in my previous life, and was an early customer of ABI in their DNA synthesis business. Bill came from Marv Caruthers lab at University of Colorado where they invented the phosphoramidite chemistry. He moved as a post doc from Colorado to ABI and brought that chemistry with him. I just want to give Bill some credit, he’s been part of the inventorship of phosphoramidites and the whole line of chemistry that ABI put out, their dye terminator chemistry, their big-dye chemistry and now in a sense is the father of virtual terminators. The guy is an absolute genius at bringing together chemistry and automation and has literally been involved in every major analytical molecular biology success story scientifically since 1980. We have the right guy doing this.

AW: Yeah I think that’s really in keeping with what seems like the quality of people at Helicos working there and running the show. I wrote in my article that the whole company seems chalk full of pretty remarkable people

SL: It’s a pretty hard thing not to join this company, I moved back here from California after 30 years

AW: That says enough.

AW: Let me move on here, you really tied up some loose ends for me in terms of the technology, I’d like to continue asking you about the performance of the HeliScope system, is there any way you can give us some updated statistics?

SL: What we’ve been saying in the public domain is that we’ve had two production prototype HeliScopes running since around the first of the year; we call them mules, because they are the place where we do all our testing. We’re also doing all of our systems integration, so one is always running and generating results while we’re putting new parts on the other doing the integration testing. During the IPO period we brought these prototypes up, and were confident enough with the performance we saw from them right after the IPO that we began the build of the commercial HeliScope. The instruments we will be shipping are on the factory floor today, and will be put through a very rigorous verification and validation program. People have been asking us why we haven’t been doing beta, which is a program you tend to do with existing technologies and if you’re doing the next version of something already in production. My experience, and Bill’s, with ABI for 25 years, is that with something as new as this, what we want to do is sort of a beta on the factory floor. Where a company normally builds, tests, ships and then installs knowing that the tests, either on the factory or at the install, correlate to good customer needs, in our current case we’re still figuring out what those parameters are. Along with this testing, we are bringing in-house customers who are going to be part of the CTS program. We have our service people learning about the instrument by helping to build it. We’ve also got field application scientists who are learning how the instrument works and who’ll support the instrument in the field. Our goal is to ship product by the end of the year; where we will send units to those customers and confirm performance with the same tests that were done on the manufacturing floor, but now in their production labs.

AW: So you’d say it’s safe to say that any numbers that have been bandied about concerning throughput at this point are still in the rumor phase.

SL: Well we’ve quoted 25MB/hour for sequencing applications and 90MB/hour for our gene expression application, and but those are ballpark numbers. We haven’t set commercial specs yet because we are still in the process of doing the validation and verification. We wouldn’t have started the commercial build if we had we not seen performance off the prototypes that gave us confidence that we could get near those specs. I can’t give you definitive numbers on this but we would have not have started the build if we were not confident in the system.

AW: Ok and those numbers were talking about, obviously accuracy is paramount.

SL: Absolutely, so the difference between the 25 and the 90 is to get to accuracy. For gene expression applications where you can use tags, you can use compressed sequence space and can deal with errors in an orderly manner, we can run the instrument at 90MB/hour. For sequencing applications where you don’t have that control, what we can do is again take advantage of the single molecule approach and do something that we call multi-pass sequencing. This single molecule advantage comes from the nature of biochemical errors in single-molecule mode, and what we’re finding is that those errors are stochastic. For example, let’s say that I have the same base represented one hundred times on one hundred different molecules positioned at different positions on the flowcell, generated that way because we use a prep process that stochastically fragments a genome. The error rate of that base is the aggregate of those signals. Let’s say we do a run and create a table of errors. What we can then do with single molecule is really neat; after the run, we can literally melt off the strand that we synthesized, and resequence the same templates all over again so that we have two independent measurements. By comparing the tables of each run, we find that the errors are chance events, so that you get the same error rate in the aggregate, but the odds that the same base on the same strand will generate an error is infinitesimally small. What you can do then is take the square of the error of both runs to increase accuracy. So what were doing is again taking advantage of single molecules and of the fact that we’re starting with 3 billion strands to do a dual pass run. We literally do two sequencing runs to get accuracies that are good enough.

SL: Now the issue of why we need to do this dual pass is that if we look at the errors that occur, the insertion error rates and substitution error rates are infinitesimally small, but what looks to be deletion errors are high. These deletion errors are in fact dark base additions; there are some proportion of molecules in the virtual terminator formulation that are dark. The base that’s added isn’t detected through signal and we’re pretty sure that we know what the problem is. We think we can solve this through process development because as you know were still dealing with research pilot-grade manufacturing. We think as we move through to full production, we will get development to a highly repeatable process of these molecules and we will be able to control quality to get that dark base addition down to a point where single pass accuracies will be sufficient. The result will be that we’re all of a sudden at 90MB/hour for single pass sequencing, and we think were currently going to be industry best at 25MB/hour.

AW: Yeah 90MB/hour at acceptable accuracy is definitely I think twice or four times better than the other industry leaders.

AW: And the other key thing about your issue of sensitivity is that the error rate on base one and the error rate on base 30 are exactly the same. If you look at the error rate on the ensemble methods, this rate increases as a function of length.

AW: In academia at least the highest fidelity polymerase misincorporates one in every million bases.

SL: There was a report in GenomeWeb last year that we corroborated that we have a relationship with Floyd Romesberg at Scripps about protein evolution so one of the things that we are looking at is new polymerases via protein evolution.

AW: That’s a pretty exciting area of research as well.

SL: Another thing we’ve been able to do is attract an unbelievable Scientific Advisory Board. Most companies would be happy to have one of the people that we’ve got. There are experts across so many different disciplines interested enough in our technology to be involved in the SAB, and this gives the whole team a huge advantage because they can utilize people like Steve Chu who himself won a Nobel prize for single molecule work.

AW: Yeah he gave a talk here not too long ago, “optical tweezers” mindblowing stuff.

SL: The guy is just amazing, and we’re starting to round out the SAB on the application side. We have Victor Velculescu from Johns Hopkins and we have Eugene Meyers, a bioinformatician previously at Celera now at Janelia Farms.

AW: I couldn’t agree more concerning the SAB of Helicos, I actually wrote about how impressive it was.

AW: Let me just finish up with a couple of quick questions, what about cost of the HeliScope system, any ballpark figure?

SL: We haven’t set price yet, it will be more expensive than anything out there, but what we’ve been saying is that there’s two key reasons why. One is our system configuration; we provide with the HeliScope a not-inexpensive image processing tower that in near-real-time converts the raw data to base calls, reliable bases, so that at the end of the run, you have the ability to just port that data to your bioinformatics engines. Some of the other technologies at the end of their runs have raw data and require the customer to provide the compute facility to do the image processing, so it’s an apples and oranges comparison with the HeliScope because the tower is not an insignificant part of the cost; we’re talking about terabytes of data that need to be processed and stored. The second reason is more strategic, this is classic Bill Efcavitch and I think a testament to the smarts of the board. They looked very closely at this market at the outset and concluded that this market is a long term play and $1000 genome performance is going to be the real inflection point in the marketplace. So what Bill did was to design an instrument with headroom in imaging capacity. 3 billion strands is today’s density but we have licensed technology from Steve Quake where we can potentially increase the density of that by a factor of four. That’s 12 billion strands that we would be able to look at, and the instrument has build into it this imaging capacity. Think of it as headroom; an instrument that will get people to the $1000 genome. From a marketing perspective, we believe we can look at a customer and say this instrument will get you there. How you will improve performance and how you will get decreases in cost is by buying the next kit that will have in it the better flow cells, the more dense flow cells, the better chemistry cycles that use less reagent and have more stability to them. Through that process we really believe in the future that we can give people $1000 genome performance. That’s important not only for sequencing but for things like digital gene expression, genomic signature sequencing, apps like methylation. To me the really exciting thing about this from a marketing guy’s perspective is any time Bill makes an improvement in the assay, any customers’ application benefits from it because the assay is agnostic to the application.

AW: Yeah I think it’s elegant business planning to build a higher quality and expandable machine rather than something that may be outdated in 5 years.

SL: It gives the customer confidence that an instrument will last because it’s not a cheap investment and it also gives us the ability not to have to turn around and make a continued investment in engineering, we will continue to do maintenance engineering and make the thing better and cheaper but we don’t have to build another instrument for a while. So what we’ve done with our R&D expenses, and you saw this right after the IPO, is that we’ve started a CSO office to do genomic collaborations; we’ve hired Patrice Milos from Pfizer. She was their head of pharmacogenomics and executive director of their whole molecular profiling at Pfizer development. She’s building a world class genomics team to do collaborations with customers. So Bill focuses on making the assay cheaper and what Patrice will continue the effort to work with customers to build all the applications and publish good science with them on the HeliScope.

AW: Right, publishing good science is always key.

AW: That’s actually really exciting, that’s much more than I expected, an expandable machine. One last question which is more of a business question. From a medical standpoint, the area of human resequencing is presumed to have a much larger therapeutic interest than de novo sequencing in terms of where the market share is. Is this the market that Helicos is specifically focusing on this type of an application or more broad de novo and resequencing efforts?

SL: The whole focus of this company from day one was not to be a replacement for ABI sequencers. The goal of this company was to enable, through the price performance and the simplicity of the workflow that you’ve described, an ability to let people ask new and more important questions of the genome. So we believe that we can create value by growing the market, not just replacing the current sequencing marketplace, and in doing so, medical resequencing is a huge opportunity, but it’s not the only opportunity. There are people incredibly interested in looking at whole genome methylation studies, making quantitative measurements of the genome, not just quantitative measurements of the transcriptome; applications like copy number variations, ChIP sequencing and measuring the amount of a transcription factor binding to DNA. These measurements are all very important and we fundamentally believe we’ve got the best technology when you get to quantitative apps because we do so little to the sample in prepping that we don’t perturb what is digitally in that cell. We’ve found a tremendous interest from people beyond the genome centers, they’re mostly in the academic health centers and people doing translational research. The fact that you can do single molecule measurements, and you don’t have to build a genome centers’ worth of infrastructure causes something to resonate when they realize that the patients DNA could be sitting on the HeliScope and being measured. It resonates and we’re getting tremendous interest about it and finding market segments within this life science area that no other technology can get to. A lot of these competing companies are saying “we’re going to find every ABI sequencer and replace it”. That’s not what we want to do, we want to add value to the marketplace because there are places where there is lots of money, lots of samples, and lots of known genome annotations but still we think there will be new genome annotation and people will do genomics and genetics in new ways which will grow the market. And that’s our whole idea.

AW: That was a great response and in your response I came up with some thoughts of how the single molecule technology could be applied to epigenetics and such. I couldn’t agree more that it’s a really exciting prospect.

SL: Cancer stem cell research is a hot area; people are figuring out how to purify them, but quantitative measurements of those stem cells to understand the functional genomics of how regulate themselves is hugely important and we’ve got people looking to us to collaborate; they look at single molecule measurements and they look at the ability to do these digital experiments on sequence and quantitation and say “this could be the answer.”

AW: That’s really great to hear that. That’s it for all the questions I have, are there any other important facts or events that you’d like interested parties to be aware of?

SL: I just wanted to clarify the sensitivity issues with you, I wanted to reemphasize the issues around homopolymer stuff and then I wanted to explain the accuracy a little further. Those were the key questions that you asked me, I didn’t have anything beyond that given the scope of what you’ve written about us to date. But I hope that you’ll be interested in us and help keep the community aware of who we are and what we are doing.

Helicos Part III

2007-08-16T06:53:00.001-07:00

This is the third in a series about Helicos Biosciences, a next generation sequencing startup

Helicos Part I
Helicos Part II

Helicos Financials:

Raised in IPO: 48.6 million
Q2 Burn Rate Ending June 30 2007: 8 million
6 month Burn Rate Ending June 30 2007: 16.4 million
(18.1 million repaid in stock conversion)
Yearly Burn Rate 2006: 21.3 million
Total Assets June 30 2007: 68 million

The take home message from both the S-1 and the recent 10-k is that Helicos is burning money at an increasing rate. This however is to be expected from a company less than one year from their initial product launch, and from an investor's viewpoint nothing in the publicly available financials throws up any red flags. I am also assuming that the 18 million payout for preferred stock conversion pertains to a number of venture investors getting a return out of the IPO fund. Also keep in mind that the 48 million raised during the IPO was far less than the original 80 million that management was hoping for. Naturally anyone looking to invest in HLCS in the quarter following the launch of the Heliscope will have to take a much harder look at the financials, but for our purposes I think its safe to say that the numbers seem to be on track relatively speaking.

Helicos: to Buy or Not?
What a ride this analysis has been. To recap, everyone agrees that next generation sequencing is going to change the world of healthcare as we know it. Naturally therefore, the field of NGS is highly competitive, and the players include some of the biggest and baddest, as well as a lot more little guys in the wings hoping either to get a foothold in the market, or to get bought out for some of those ridiculous sums we talked about earlier. Any way that you look at it this field is a frothing pool of speculation.

Enter Helicos, a technological startup intellectually founded at CalTech by the now head of the Stanford Bioengineering Department and an HHMI investigator Stephen Quake. Backed by Flagship Ventures who, if you aren't already aware, are a very well connected firm out of Cambridge. In fact, Stanley Lapidus leaves Flagship to become the CEO of Helicos. In addition, the Helicos scientific advisory board reads like a who's who in the sequencing and bioengineering field. These include, Leroy Hood, developer of automated Sanger sequencing instrumental to the human genome project, Steven Chu director of LBL and Nobel laureate, John Quackenbush, previously of TIGR, and Eugene Meyers, co-developer of BLAST, to name only a few.

On the surface, the concept of sequencing single DNA molecules is enticing to any biotechnical investor for a multitute of reasons. Not least of which are that the words "single molecule" are white hot at the moment in both acedemia and in industry, not to mention that the whole concept smacks of "nanotechnology" another concept on the tips of everybody's tongues. I will readily admit that "true single molecule sequencing" was precisely what piqued my interest in researching Helicos in the first place.

Under the surface, the technology seems feasible, in other words I have no doubt that it actually works. How well it works on the other hand, is another matter. Helicos is keeping entirely mum about what I believe to be their achilles heel ... accuracy. Now that we are armed with an in depth understanding of the fundamentals of the technologies it becomes plain to see that the error rate of any single molecule system is going to be higher than those methods which use a PCR step to make millions of identical copies and essentially increase the signal available to detect millions-fold. Furthermore accuracy is so important in this field because the major market, that of human resequencing for disease or genetic anomalies, must be 99.9% accurate for reasons which need no explanation. I think that it also goes without saying that 1000MB per day is of no use if the accuracy is 97% and you have to do sequences in triplicate. It is perfectly possible that the Heliscope does provide an accuracy comparable to the other NGS systems, however as an investor I would be more comforted to see Helicos release this information along side their 1000MB/day claims.

So Helicos is talking a big game but holding their cards close. Adding to these mixed signals, the company is absolutely stacked with some of the biggest names in the field. They have also been awarded a handsome grant from the NHGRI which further inspires confidence. Yet, when so much is at stake battling for supremacy in this truly revolutionary field the skeptic in me remembers the last time genomic hype was at its peak. In this, I feel that some sort of academic coup is not entirely out of the question. That being said, this particular academic coup would have a very good chance of pulling off say, the backing of some very big name institutions.

The entire speculative business of evaluating biotechnical IPOs notwithstanding, I am inclined to jump on the bandwagon and buy myself a small stake in HLCS. Therefore should Helicos not commence shipments on an acceptable Heliscope "next generation sequencing system" that lives up to its expectations by say, the first quarter of 2008, I will indeed have egg on my face. However in this, I will also be in some very distinguished company.

Disclosure: I am long shares of HLCS

Helicos Part II

2007-07-25T15:02:00.000-07:00

This is the second in a series about Helicos Biosciences, a next generation sequencing startup

Helicos Part I

Having familiarized ourselves with the NGS market, we are better positioned to take a look at Helicos and evaluate their recent IPO

History

In 2003 professor Stephen Quake, then at California Institute of Technology, published a paper in the Proceedings of the National Acedemy of Sciences describing that sequence information could be obtained from a single strand of DNA without amplification. Quake's group was able to overcome the hurdle of resolving individual bases by using DNA polymerase in combination with fluorescent nucleotides to image sequential incorporations during synthesis. Furthermore, this paper demonstrated a breakthrough application of single molecule theory in the field of DNA sequencing.

Dr. Quake subsequently met with Noubar Afeyan and Stanley Lapidus, then CEO and Partner at Flagship Ventures respectively, and they agreed to found a company to develop and commercialize the single molecule sequencing technology. Professor Eric Lander, Director of the Broad institute, played some sort of advisory role during the founding stages of the company. The company was incorporated in May 2003 and was renamed Helicos BioSciences in November of the same year.

Besides launching an IPO, highlights of Helicos since its inception include receiving a $2 million grant from NHGRI. In addition they have assembled a rather strategic management team and a prototype collaboration with, among others, Dr. Leroy Hood of the Institute for Systems Biology. Finally, during the 2Q investor conference Mr. Lapidus stated that the company is on track for a product launch to take place later in 2007.

Helicos Heliscope

price : n/a

MB/run : n/a
run length : ~100MB/hr
MB/day : ~1000MB
Read length : ~25
Raw base accuracy : n/a

Technology:
The length of time between this blog entry and my last is largely due to the difficulties I encountered researching on the exact processes that the Heliscope employs to enable its "true Single Molecule Sequencing" (tSMS) technology. Needless to say that Helicos, despite the media fanfare, is playing their precise technology pretty close to the vest.

Using the original PNAS article, available patents, this chapter, (written by the two first authors on the PNAS paper for the Ohio U physics department) and some rumors, I will piece together what exactly we know about the Heliscope technology. Where applicable, I will add my suspicions to the best of my knowledge to fill in the gaps.

The Heliscope process in a nutshell is to shear the DNA and polyadenylate the fragments. These fragments, which also incorporate a dye molecule, are then attached randomly (via poly Ts) to the proprietary flowcell surface. Initial attachment locations are recorded via the dye molecule which is illuminated by laser excitation and recorded by a CCD camera connected to a microscope. After removing the dye, DNA polymerase and a dye-labeled nucleotide flow in and are then washed out. If the particular nucleotide-dye is complementary to any given fragment it will thus become incorporated into the growing strand. The camera will again mark the location of the fluorescence upon subsequent laser excitation. The dye molecule is then removed, washed away, and sequencing processes by repeatedly cycling through the four different nucleotides.

The benefits of sequencing single molecules of DNA are advantages of improved throughput and reduced cost. Compared to the other techniques discussed in my last entry, the Heliscope workflow is considerably less complicated, leading to shorter run times....there is no PCR, no beads, no microtiter plates etc. Of course this also equates to less reagents used, and conceivably, lower price per run.

However, the major challenge facing single molecule sequencing is that of sensitivity. Allow yourself to imagine the difference in signal intensity between a singly incorporated nucleotide on the Heliscope surface and the analgous millions of incorporated flourescent molecules on the Illumina system's flowcell surface. Therefore exploring how the Heliscope allegedly attains this sensitivity to the degree of six orders of magnitude over its competitors is essential to our assessment of the company.

In the field of single molecule imaging, the largest challenge is that of increasing both the resolution and sensitivity of a given signal past the limitations of the detecting instrument. This effort is primarily approached by increasing the signal to noise ratio. Given that the efficiency of the flourophores are maximal this is best accomplished by reducing the noise in the system. The Heliscope, apparently based on the method developed in Dr. Quake's laboratory, accomplishes this in two major ways. First, it uses a method called Total Internal Reflection Microscopy (TIRM) whereby only the flourophores within ~150nm of the flowcell surface are illuminated. This leads to a dramatic reduction of the noise from the bulk fluids. In addition, this method increases theoretical speed of readout as no scanning is involved. However, while TIRM reduces noise from objects in the solution far away from the surface, it does not reduce noise from surface bound impurities. In this manner, Dr. Quake's group overcame the second challenge of eliminating non-specifically bound surface dye molecules using a method known as Flourescent Resonant Energy Transfer (FRET). In this method, not one but actually two flourescent dyes are used. Requirements are that one dye, (Cy3) termed the donor, has an emission spectra that overlaps with absorption spectra of a second dye (Cy5), termed the acceptor. Thus when the donor molecule is within proximity to the acceptor, usually less than 10nm, and is excited at its specific excitation wavelength, it will transfer this energy to the acceptor dye which in turn becomes excited and emits a photon of lower energy. Consider it to be a kind of baton passing between the donor and the acceptor in a molecular relay race. The PNAS paper describes FRET being used by placing the donor molecule (Cy3) on the existing DNA strand and the acceptor (Cy5) on the incorporated nucleotide. In this manner, only the polymerase incorporated nucleotide-Cy5 molecules emit a signal while the non-specifically bound surface nucleotide-Cy5s remain dark because they are not within 10nm of the attached DNA containing a Cy3 donor. This combination of TIRM with FRET provide an unparalleled increase in the signal to noise ratio of single molecule detection and was indeed a groundbreaking application in DNA sequencing. Presumably this is the technology which makes the Heliscope possible, but how has Helicos improved, if at all, upon the technology?

Questions:
Three fundamental questions remain which I will endeavor to answer in turn. How does the Heliscope deal with long stretches of repeat nucleotides? Does the Heliscope still use FRET and where exactly is the donor? How is the dye molecule "removed" after each incorporation cycle?

To begin, an initial issue with this method of DNA sequencing was a problem with accurately sequencing large numbers of repeat nucleotides, so called homopolymer regions. The problem can be realized if one imagines that during a cycle of a given nucleotide say dGMP the instrument would need to be able to detect 1, 2, 3 or more simultaneous incorporations if the template has a string of cytosines. As the problems explained above with signal to noise concerned simply detecting the presence of a fluorescent molecule it can be understood that detecting the difference between one and two incorporations is possible, but higher orders are out of the question. After a period of uncertainty it seems that Helicos has solved this issue. The press release on Feb 9th 2007 states "The proprietary nucleotide analogs contained in these unique formulations control accurate base-by-base extension through chemical means." I assume that they refer to their patent issued on Jan 30 2007. This patent simply describes using a dye-conjugated nucleotide in conjunction with DNA polymerase kinetics in such a way that one or two (but statistically insignificant amounts of higher) nucleotides are incorporated per relatively short reaction cycle.

Does the Heliscope use FRET? I ask because on the website the "technology" shows one dye molecule only. The short answer is that I don't know for sure, but I'm pretty sure. The original PNAS paper was published in 2003 which wasn't that long ago and all the single molecule people I know are still using FRET for the unsurpassed resolution. Furthermore, page 12 of this presentation (by the chairman of research core facilities and technology at the Mayo clinic) shows FRET as part of the process and furthermore has the donor attached to the end of the polyadenylated tail. This makes additional sense in light of the rumored ~25bp read length because at 3.4nm per turn and 10.5 bases per turn, that puts about 30bp within the 10nm range of FRET acceptor absorbance. It should be noted that there has been discussion in the original paper, the patents, and elsewhere of putting the donor molecule on the DNA polymerase itself, an area of research that I have no doubt that Helicos is actively pursuing for its later generation sequencers.

Finally, is the acceptor molecule removed and if so, how? On this topic I am unable to find any definitive information. Traditionally, the acceptor molecule is photobleached after detection using specific laser illumination at its absorbance. This leaves the donor molecule relatively unharmed, and capable of donating to another fresh acceptor. One drawback to this technique however, is that the acceptor molecule is not removed and therefore successive incorporations are compromised via steric interactions. In addition, successive photobleaching of the acceptor molecules will eventually also bleach the donor. Perhaps Helicos has developed a more robust donor, and an uncompromising acceptor, in this anything is possible. Alternatively, in the single molecule literature there are many examples of cleavable dyes, either chemically or photocleavable. That the dye is in fact cleaved off and removed seems indicated on the Helicos website, but I am not confident about the specific details of those slides. Certainly cleaving and removing the dye is the preferred method in this instance and if Helicos does not yet employ this method I am sure it is another development for future machines.

Phew! I hope you are still with me after all that. There is no doubt that it has been a challenge to disentangle the methodology from the hype regarding Helicos. However, the benefit is that we get to make an assessment based on quite a bit of science, long before S&P even touches it. At this point I still have some misgivings regarding whether or not the Heliscope will live up to expectations, but we will address these issues next time, as well as go over the financials.

Disclosure: I am long shares of HLCS

Helicos Part I

2007-07-09T16:29:00.000-07:00

Helicos Biosciences part I (a.k.a Next Generation Sequencing overview)

Helicos Biosciences Corporation aims to commercialize a novel platform for “next generation” genomics. Their first product, the Heliscope, is designed to enable ultra-high-throughput genetic analysis based on the direct sequencing of single molecules of DNA and RNA.

Background
Before we begin an in depth look at Helicos some background in sequencing is necessary. To begin, I am going to assume that the reader knows what sequencing is. More importantly, we can agree that as the price of personal genomics drops to a reasonable cost the impact on human biology and modern medicine will be changed profoundly. In essence, the hype of the sequencing of the human genome is finally coming to fruition as the cost of individual sequencing approaches the $1000 mark. In addition, for those who may have been napping I will recap the sequencing news from the last 12 months. Next generation sequencing companies are ostensibly getting snatched up by larger pharmaceuticals. In May 2006 Agencourt Personal Genomics was bought for $120million by Applied Biosystems, then in November Illumina purchased Solexa for a whopping $600million, and finally Roche payed $155million for 454 life sciences in March of 2007. What the three acquired companies have in common is that they employ technologies known as “next generation” sequencing. In other words, they have developed technologies that vastly increase the speed and breadth of DNA sequencing over the traditional Sanger method.

Next Generation Sequencing (NGS)
Sanger sequencing is the gold standard for very large projects. Unfortunately it does require a large infrastructure. The current state-of the-art, the Applied Biosystems 3730 xl Genetic Analyzer has an average read length of 1000bp and can generate a maximum 2.1Mbp (2,100,000) of sequence per day. This machine is priced at ~$400,000, and estimated cost for sequencing a human genome using the 3730 xl is $24M.

Most importantly, sequencing a human genome on this machine with six-fold coverage (~18 GB) would take 18 years. Because of this, large scale sequencing efforts have been carried out by genome centers which employ many machines running in parallel.

The goal of developing Next Generation Sequencing is to develop technologies that can produce a complete human genome in a reasonable time-frame, by using a single sequencing machine for $100,000 and eventually $1000. Lets have a look at the three top currently marketed products and methods.

Illumina/Solexa 1G genome analyzer
Solexa was the first out of the gate to provide a technology capable of generating a $100000 genome with their 1G analyzer which began shipping in the second quarter of 2006. Having just celebrated their 75 order placement, this puts Illumina firmly in front with the first mover advantage in the NGS market.

price:~$400000

MB/run: ~1GB
Run Length: ~2-3 days
MB/day: ~500MB
Read Length: ~25bp
Raw Base Accuracy:99.99%

Technology:
Genomic DNA is first sheared into small fragments and adapters are ligated onto both ends of the sequence. The DNA is then added to the flow cell whereby the ends bind to the proprietary surface on the inside of the channels. The free adapters of these fragments form bridges to the complementary nearby attached primers Next during a process known as solid phase amplification the fragments are thermocycled in the presence of nucleotides and polymerase and the bridges become double stranded. After denaturation, repeated cycles of this process give rise to random dense clusters of homogeneous DNA fragments containing millions of copies.

Solexa sequencing uses four proprietary, different colored, fluorescently-labeled modified nucleotides to sequence the above clusters present on the flow cell surface. Clusters are first referenced via laser excitation of the flourophores and their individual locations are captured via a CCD detector. In subsequent cycles progressive bases are sequenced as nucleotides are added, the entire slide is excited and scanned for individual colored incorporations, and then the flourescence is removed for the next base to repeat the cycle. In this manner each cluster on a slide is sequenced in a massively parallel manner.

Applied Biosystems SOLiD (Supported Oligo Ligation Detection)
Applied Biosystems, the current leader in sequencing has their own product now on the market. ABI's current NGS platform the SOLiD system. The shipping of initial units began in June 2007.

Price: $600,000 which includes the instrument, a computing cluster, a high capacity data storage centre and ancillary equipment for upfront sample preparation.

MB/Run:~1GB
Run Length:~2-3days
MB/day: ~500MB for mate pair samples (genome resequencing)
Read Length: up to 35bp
Raw Base Accuracy: 99.94%

Technology:
The technology works by first amplifying DNA fragments using a water in oil emulsion polymerase chain reaction (PCR) technique that amplifies the DNA onto polystyrene beads. When the emulsion is broken the beads float to the top of the sample and are then placed on an array. Sequencing primers are then added along with a mixture of four different fluorescently labelled oligo probes. The oligo probes are eight bases long and bind specifically to the fifth base in the sequence to determine which of the four bases (A, T, C or G) it is. After washing and reading the fluorescence signal from the first base, a ligase is added, not a polymerase as in standard Sanger sequencing. The ligase cleaves the oligo probe between the fifth and sixth bases, removing the fluorescent dye from the strand of amplified DNA.

The whole process is repeated using a different sequence primer, until all of the intervening positions in the sequence are imaged. The process allows the simultaneous reading of millions of DNA fragments in a 'massively parallel' manner. This 'sequence-by-ligation' technique also allows the use of probes that encode for two bases rather than just one allowing error recognition by signal mismatching, leading to increased base determination accuracy.

Roche/454 Life Sciences Genome Sequencer FLX
Roche Diagnostics began distribution of the GS FLX in November 2007. The FLX system incorporates a number of technological advances over the original GS 20 launched by 454 Life Sciences in October 2005.

Price: ~$500000. (Academic Price?)

MB/run:~100MB
Run Length:7.5hours
MB/day:~300
Read Length: ~250bases/read (depending on the organism)
Raw Base Accuracy: 99.5%

Technology:
Like the 1G analyzer, the GS FLX also uses a methodology of sequencing by synthesis (rather than ligation) specifically known as pyrosequencing. DNA fragments 300-500bp in length are ligated by two short adaptors, which provide primers for both amplification and sequencing of the fragment as well as a biotin tag that immobilises it onto a streptavidin-coated bead.

A subsequent emulsion PCR step gives rise to beads with millions of copies of each DNA fragment attached. These beads are then deposited in 454's PicoTiterPlate device by centrifugation. The PicoTiterPlate wells are 44um and therefore fit only one bead apeice. In addition, each well has an optical fibre attached to its base, which form an array leading to a CCD camera.

The fluidics sub-system allows nucleotides to be pumped in, in a fixed order. During the nucleotide flow each of the beads is sequenced in parallel, with the polymerase extending the sequencing strand only if the nucleotide is complimentary to the template strand. The addition of one (or more) nucleotides results in a sequential pyrophosphate reaction with sulfurylase and luciferase producing a light signal, which is recorded by the instrument's camera.

Overview Conculsion:
I have been wanting to take a hard look at the next generation sequencing market for a little while now, and after the initial research needed for a background in Helicos I am very glad that I put in the effort to research it thoroughly. The implications involved with this technology are undoubtedly going to be groundbreaking from all areas of research right through to the clinic, and as an investor and scienist I believe it will pay to know who the players in the market are.

In summation, the sequencing market is extremely hot, and very competitive. However there may be room for multiple instruments which have different advantages depending on the application. For many applications, such as sequencing of everyday plasmids, the above technologies' read lengths are unacceptable. (Assembling 30 contigs to check the sequence of a 700bp gene is just not convenient ). In this manner, I dont expect the trusty 3730XL to be disappearing anytime soon.

Next time I'll get into Helicos and see what technology they have to throw into this frothing mix, for better or for worse.

Disclosure: I am long shares of HLCS

NeurogesX Part III

2007-06-13T10:51:00.001-07:00

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

2007-06-13T10:47:00.000-07:00

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 regionalanesthesia (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

2007-06-13T10:38:00.004-07:00

NeurogesX part I

NeurogesX

Website: http://neurogesx.com

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 producelesions in the central (e.g., stroke, spinal cord injury, multiplesclerosis [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

About Biotechnical Currency

2007-06-06T16:29:00.000-07:00

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.