Matt Dolan

As a senior research analyst focused on medical technology: (devices and diagnostics) with ROTH Capital Partners, Matt Dolan’s investment views have been cited by a “Who’s Who” of publications on Wall Street. Prior to joining Roth in 2003, Mr. Dolan, a graduate of Northwestern University, formed a trading group at the Chicago Board of Trade and Chicago Board Options Exchange where he analyzed position risk and traded equities and fixed income products. He has also served as an analyst at a healthcare- focused hedge fund. In this exclusive interview with BioTuesdays.com, he shares his insights for an industry rebounding from the financial meltdown as well as themes ranging from taxation, reimbursement, consolidation and the impact of austerity measures in Europe.

Let’s start with ROTH’s focus on healthcare.

Principally, our focus is on small-cap equities across the board, with healthcare playing an increasing role over the past several years. I look at both our Annual Growth Stock Conference and deal flow as key metrics. Our conference last year had about 420 companies presenting, and roughly a third of those were healthcare-related. We’ve brought on board a number of professionals both on the research side and banking side over the past three-plus years, which has helped build our exposure and focus in the healthcare space. And that has obviously led to more transactions and more of our business coming from that sector.

What’s the state of the medical devices sector?

We’ve had a few years of a shaky underlying market in terms of device procedure volume and hospital spending.  Volumes of procedures in offices and hospitals now appear to be relatively stable, if not improving to a small degree. On the hospital spending side, the credit crunch impacted companies that sell capital equipment, but that has started to turn around as well.

The biggest concerns in the near term are Europe and the implications of austerity measures on budgets for capital equipment and the impact those measures might have on patients and procedure volumes. Stateside, going into 2013, the medical device tax, health care reform and reimbursement could be huge swing factors for the sector.

How would you characterize the industry’s relationship with the FDA?

Venture capital investment into medical devices has been down dramatically over the past few years, and I think a lot of that has to do with regulatory uncertainty of not having a clear and predictable path to the market in the U.S. This has forced a lot of companies to dry up and be acquired for lower than historical values. Other companies are taking their technologies overseas to vet them clinically with the intention of then selling them to bigger companies to forge through the FDA’s regulatory process.

So from our perspective on small-cap companies, the regulatory environment is one factor that we expect will continue to drive a more general trend toward increased consolidation in the space in the next three to five years. The large cap players need to find ways to grow sales and earnings per share in that period of time, and we expect smaller medical device players will provide innovative technologies to generate underlying growth for the industry. The value metrics around recent acquisitions have begun to tick up over the past few quarters, and overall volume and transaction size have also gone up, both of which, we believe, are early indicators of this broader trend.

What about device safety issues and the FDA?

We’ve seen a lot more device recalls and a lot fewer approvals from the FDA in recent years. A while back, there was a product that was approved based on falsified information, and that really spurred the latest discussion about safety. But there hasn’t been any indication that the safety of medical devices has deteriorated in any way. I think we have turned the corner toward improvements in the US regulatory process for medical devices with the hope of a more predictable pathway for industry, albeit at the cost of greater resources required.

Give me your take on tax reform.

The medical device tax, which is embedded in President Obama’s healthcare reform plan, is a 2.3% charge on revenues of medical device manufacturers selling product in the U.S. According to the legislation, the tax is slated to go into effect in 2013. If we assume it goes ahead as stated, it would be a notable weight on the profit and loss statements of all device companies, especially smaller players. If we go back to Sarbanes-Oxley and the expenses that were required for companies to remain in compliance, I think we can draw a number of parallels to the medical device tax. Taking 2.3% of the revenue of some small-cap players would have a disproportionate impact on operating income of smaller companies. According to surveys we’ve run, resources that could be invested in sales and marketing or research and development are now likely to be reallocated into the device excise tax. A lot of the companies that we’ve polled have indicated they would like to pass the tax on in terms of price hikes to hospitals, but given the backdrop of pressure on procedures and hospital budgets, I don’t think that’s necessarily a positive for the progress of the industry in terms of growth and margin improvements next year and in the long term.

On the other hand, I feel that this is yet one additional pressure point that will lead to further consolidation in the industry, which should ultimately favor smaller innovators.

Any new developments on the reimbursement issue?

As always, reimbursement continues to be another challenge that is impeding investment in the space. The dynamics of the reimbursement discussion are changing, and the key factor now is cost effectiveness. A device now has to be able to, not only produce better results, but also save the system money. In the past, a lot of devices were approved just because they worked better regardless of the cost.

Patient necessity is also becoming a bigger factor on the reimbursement side. Through this last recession in the U.S., we saw patients who had chest pain, for example, forgo medical care due to financial constraints. Combine that with the fact that a lot of reimbursement programs have higher deductibles and higher co-pays, there’s now a much greater consumer element in healthcare than we’ve seen in prior years. All of these variables point to a similar theme: medical device companies will need a more comprehensive sales argument for the efficacy, safety and cost effectiveness of their products.

How does the debt crisis in Europe affect the industry?

Any impact?

Europe is a bit of a different animal in terms of reimbursement. The cost effectiveness argument that’s shaping up in the U.S. is really the state of affairs in Europe. We’ve seen pockets of softness for medical devices in areas of Europe that have been hit by austerity measures. In some of the countries that are having major credit issues, we’ve seen signs of incremental weakness over the past four months. The biggest question mark for a lot of corporate outlooks in 2012 is how does what happens in Europe affect purchases of medical equipment by hospitals.

What are your views on industry consolidation?

For the small- and mid-cap medical device sector, the biggest theme that is derived from all of these variables is the consolidation idea. And the question comes down to who needs whom more. I think the larger players are facing the same pressures as the small-cap players. A lot of innovative technologies are coming from the smaller side of the equation. And I think the large-cap guys have to find a way to grow their earnings per share going forward. We’ve seen a lot of buybacks, which will help the number, but they’re also going to have to find a way to grow the top line, and I think that will be achieved through strategic acquisitions. So, thematically, the small players offer that capability to larger companies, and that’s ultimately why we will likely see a much consolidated industry in the next three to five years.

Let’s talks about some of your top picks in the sector.

Align Technology's Invisalign

A company we cover in the dental space is Align Technology (NASDAQ:ALGN). It makes a product called Invisalign, which straightens teeth with a series of removable, virtually invisible aligners. Invisalign generates sales of around $500 million a year and the company runs a virtual monopoly in the space. That’s given them a lot of runway to build their brand and the value of Invisalign. In the second half of 2011, Align grew volumes in excess of 20%, which is hard to find in the small- and mid-size medical device space with a comparable revenue base. Profit margins exceed 20% as well. Align is a story that offers growth and, more importantly, earnings power over the next few years. Cash balances are healthy at over $3 a share.

Conceptus’ flagship Essure® system product

Another company we cover is Conceptus (NASDAQ:CPTS), which we upgraded last fall. It has a lot of the variables going for it that we’ve already discussed. Conceptus provides a minimally invasive means of blocking fallopian tubes to provide permanent birth control for women, compared with major tubal ligation surgery. Most Conceptus procedures are performed in the physician office setting, which allows patients to get back to their normal lives relatively quickly. Reimbursement is in place, which is quite profitable to the physician. It’s a high-margin, recurring business, with mid-80% gross margins, and ultimately could be a strategic acquisition candidate over the next couple of years. The company appointed a new CEO in December and, along with a return to positive growth in 2012, could start to get noticed by investors this year.

Natus' ALGO® 5

We also like Natus Medical (NASDAQ:BABY). One of its differentiating products is a test for newborn hearing, which is done nearly 100% of the time in the U.S. and is a growing trend around the world. The ability to detect hearing impairment early significantly improves a person’s communication later in life and eases the burden on medical resources, thereby offering a cost effectiveness argument. So, it’s a very compelling product from that standpoint and has a pretty substantial growth opportunity outside of the U.S. Natus maintains single-digit organic growth, and management has shown a solid propensity to execute on acquisitions that are accretive immediately.

Anything you like in the micro-cap space?

TearLab Osmolarity System

We recently initiated coverage on TearLab (NASDAQ:TEAR) as one of our micro-cap medical device ideas. The company has developed an osmolarity diagnostic for Dry Eye Disease in the physician office setting. In December and January, TearLab received a positive code decision from Medicare and its CLIA waiver from the FDA, which we think is a transformative event. We have covered a lot of diagnostic companies that sell into the physician office setting and therefore understand the impact these developments could have on a company’s commercial success. We expect these two milestones will really open the gate for the company to start placing a lot of its systems out in the field and allow revenue to scale up in a significant way in the next few years.

This interview has been condensed and edited.

Closely held enGene of Vancouver is working on a financing of up to $20 million with venture capital funds to conduct the first two phases of human clinical trials of its intestinal immunotherapy platform to treat ulcerative colitis, a major subtype of Inflammatory Bowel Disease (IBD).

Dr. Anthony Cheung

“We have built significant momentum for the financing in the last two months, and our goal is to put a term sheet in place during the first half of 2012,” interim CEO and co-founder Dr. Anthony Cheung says in an exclusive interview with BioTuesdays.com.

“enGene is working with a number of potential lead institutional investors with deep experience in gastroenterological diseases on a strategy involving a total raise of $20 million, which would suffice to carry us through to completion of a relatively large Phase 2A trial,” he adds.

The company’s plans call for the completion, within 28 months of the closing of the financing, of an initial safety and proof-of-clinical efficacy in a dose escalating, single-dose Phase 1/2A trial for its lead EG-10 product in patients with active ulcerative colitis. This will be followed by a multiple-dose escalating Phase 2A clinical trial within 44 months after the financing is in place.

“Given the novelty of our therapy, which involves delivery of genetic material to patients, clinical testing must be conducted in diseased patients rather than healthy volunteers,” Dr. Cheung points out. “This offers us the opportunity to look for therapeutic effects of our drug even in the first-in-man Phase 1 trial.”

enGene’s EG-10 localizes the delivery of human IL-10 protein to diseased tissue in the intestine via administration of DNA-containing nano­particles to the colon. IL-10 is a naturally occurring protein in the body with a well-established role in suppressing inflammation and promoting immune tolerance.  Previous large-scale clinical trials conducted by Schering-Plough demonstrated promising therapeutic efficacy in humans with IBD, using low doses of injectable recombinant IL-10 protein. However, its effectiveness was limited by excessive systemic adverse drug effects at higher doses.  The short half-life of recombinant IL-10 in the bloodstream is also a significant limiting factor for its clinical success.

Therapeutic efficacy of EG-10 in IBD mouse models

EG-10 is designed to address these limitations specifically.  The company has proven in animal models that EG-10 effectively concentrates IL-10 proteins in the intestine, while limiting wider, systemic protein drug distribution, which greatly improves the safety and efficacy of IL-10.  Moreover, therapeutic efficacy of EG-10 has been demonstrated in multiple animal models of IBD.

IBD is a chronic and debilitating disease affecting over 1.6 million people in North America and over four million worldwide. The disease is sub-categorized into ulcerative colitis and Crohn’s disease; both are chronic conditions requiring lifelong treatment. Global annual sales of biologic drugs to treat IBD totaled $4 billion in 2010 and are forecast to reach $5.6 billion by 2019.

enGene’s initial human studies will be conducted in Canada with several world class clinical investigators in the field of IBD at the Robarts Clinical Trials at the University of Western Ontario and at the University of Alberta. Clinical testing beyond Phase 2A will likely incorporate U.S. and European clinical sites, according to Dr. Cheung.

Last week, enGene established a clinical advisory board, consisting of several world-leading clinical investigators in the field of IBD:  Drs. Brian Feagan of Robarts, Richard Fedorak of the University of Alberta, Geert D’Haens of the University of Amsterdam and Scott Plevy of the University of North Carolina.

The intestine is the largest immune organ in the body, where over 70% of the body’s immune cells are found. “Recent groundbreaking research has revealed that critical immune cells, which control certain autoimmune diseases, including IBD, Type 1 diabetes, multiple sclerosis, celiac disease and rheumatoid arthritis, are regulated in the intestine,” Dr. Cheung said.  He adds that IL-10 also has been shown to be a “crucial suppressor of these culprit immune cells in the intestine.”

enGene's technology offers multiple opportunities

This new research provides a strong rationale for enGene to develop its EG-10 product into a mucosal immunotherapy platform.  The company intends to modify EG-10 to target other immune disorders, such as Crohn’s disease, Type 1 diabetes, and celiac disease, once safety and pharmacodynamics are established in the Phase 1/2A clinical trial for ulcerative colitis.

“However, the money we’re raising now will only be used to advance the development of EG-10 for ulcerative colitis,” he says.

The company already has demonstrated that gut-localized delivery of IL-10 resulted in changes in overall intestinal and systemic immunity, which ultimately led to significant therapeutic improvement in several animal models of autoimmune diseases, including IBD and Type 1 diabetes.

“We are the only company in the world that has the proven capability to effectively deliver DNA to the gut mucosa,” Dr. Cheung contends.  “With the increasing appreciation that the intestine controls the pathogenesis of multiple autoimmune diseases, enGene’s robust nucleic acid delivery system optimized for the intestinal tract offers a new therapeutic approach to deal with various diseases of the immune system,” he adds.

“Our proprietary technology is comprised of extremely small particles carrying a therapeutic nucleotide—either DNA or siRNA—which we encase in a proprietary formulation consisting of a biocompatible polymer called chitosan.  These nanoparticles are designed to protect the payload and facilitate efficient uptake by mucosal cells,” Dr Cheung explains.

enGene’s technology is covered by a family of over 30 issued and filed patents. The company is also developing a formulation for oral delivery of its products to augment its current delivery technology.

enGene was originally founded to develop a way of systemically delivering insulin from the gut. “Through that process, we became experts at delivering genes to gut cells,” Dr. Cheung says. The company has advanced its EG-02 candidate as a meal-regulated insulin replacement therapy through dosing studies in large animal models and is now in partnership discussions that could produce a deal later this year, he adds.

The company also has adapted its formulation chemistry for the delivery of small-interfering RNA (siRNA) to mucosal tissues, such as the lung, uterus and gut, and has established a partnership with a large pharma­ceutical company to use its formulation to deliver siRNA.

“We’re not putting a lot of financial investment into this area at this point,” Dr. Cheung says. “But what we bring to the table for our partner is a great deal of know-how and intellectual property about how to formulate nanoparticles for delivering siRNA to various mucosal tissues. Our partner is screening the formulation in animal models, and in six to seven months, if the data are promising, there could be a significant partnership deal for enGene.”

Dr. William W. Howard likes to say there’s a lesson to be learned in how closely held Alitair Pharmaceuticals has spent the first couple years of its existence developing a portfolio of respiratory therapeutics and a drug safety technology: make some money first and then go out and get investors.

Dr. William W. Howard

“We’ve been able to develop an operational pharmaceutical company without any outside investors,” the Alitair CEO says in an exclusive interview with BioTuesdays.com. “There are very few companies out there that have done it our way.”

Conventional wisdom for biotech startups has focused on using other people’s money to develop a risky new molecule. But that model has become decidedly more difficult as venture capitalists have lost their appetite to back startups in recent years.

Not that Alitair didn’t try to raise money in its infancy. But the financial meltdown in late 2008 and early 2009 derailed those plans. “So, I got into business the old-fashioned way; we got customers and they gave us money,” Dr. Howard recalls.

Specifically, Alitair signed a partnership deal with a private global billion-dollar pharmaceutical company to license out two of Alitair’s prescription cough candidates. It nailed down a combination of upfront payments and development milestones totaling about $3 million and is in line to receive royalties on product sales that could range from $4 million to $8 million a year.

Now that the Morristown, N.J.-based company has built value through its initial licensing deal, it is ready to move to the next stage. “We have an offer on the table now for about $10 million in funding,” he says, adding that “we think we’re pretty close.”

Alitair’s initial need for capital is for a human proof-of-concept study of its overdose reduction technology (ODR), which is designed to function as a passive safety system that limits the amount of drug released in the body irrespective of the quantity ingested.

Unintentional drug overdose deaths by major type of drug, United States, 1999-2007

“ODR is a field we think we are pioneering,” Dr. Howard says. “Overdose is fundamentally different than drug abuse. There are several technologies to deter drug abuse, but no technology exists for overdose reduction, except behavioral programs which are ineffective. Our approach is intrinsic to the formulation of the drug. In other words, if you take too many tablets, we will still protect you from overdosing on the drug.”

Unintentional prescription drug overdoses result in more than one million emergency room visits annually in the U.S., at an estimated cost of $4 billion a year. Moreover, 15,000 deaths a year result from unintentional prescription drug overdose, which is twice as many deaths that are caused by illegal drug abuse.

He figures Alitair should be able to move directly into a human pilot study, because the “ingredients we use to make well known drugs safer are also well known. We need about $2 million and one year to develop a formulation that we can test in humans.”

In earlier lab experiments, Alitair’s ODR technology demonstrated an ability to regulate drug release so that therapeutic amounts were released quickly, but higher doses were released much more slowly. This would allow a normal dose to work effectively but protect a patient if a higher dose were taken.

Alitair’s ODR technology

“If this works out in a human being, it would be virtually impossible to kill yourself with a drug formulation,” Dr. Howard contends.

Alitair’s strategy would be to license out its platform ODR technology to manufacturers of: opioids such as Vicodin, OxyContin and Tramadol; anti-depressants such as Prozac, Celexa and Lexapro; and tranquilizers such as Xanax and Valium. This would create new brand-name drugs that would require efficacy testing but would also extend the franchise of these drugs.

Dr. Howards figures the revenue potential for just one product incorporating ODR could approach $500 million within three years. “ODR would compete in a sizeable market with little or no innovation,” he adds.

Alitair, formerly known as the Cough Co., is an outgrowth of Adams Respiratory Therapeutics, which developed Mucinex, an FDA-approved non-drowsy formula that loosens mucus that causes chest and nasal congestion and also works as a cough suppressant. Adams was acquired in 2008 by Britain’s Reckitt Benckiser Group for about $2.3 billion.

“Alitair wouldn’t be where it is today if it hadn’t been for our experience at Adams,” says Dr. Howard, who was senior VP of new products and business development at Adams. “The products we’re working on now are a stepping stone from our previous success at Adams.” Alitair’s management team also includes other former executives from Adams.

Dr. Howard says the FDA has forced over 1,000 prescription cough products off the market in the last four years, because they were not FDA-approved. This represents about 50% of the prescription cough products market. “This creates an unparalleled marketing opportunity for Alitair,” he adds.

Prescriptions have fallen due to hydrocodone product removals

For example, a leading codeine product, codeine with promethazine, was ordered by FDA to add a Black Box warning due to death by overdose, and a leading hydrocodone brand, Tussionex, was the subject of a Public Health Alert, following a death by overdose. Not surprisingly, prescriptions have fallen because of hydrocodone product removals.

Alitair is developing twice-a-day cough formulations, which improve safety due to more accurate dosing. Most of the products on the market are four-times-a-day liquid formulations. Moreover, there are no twice-a-day products in the codeine market and no long-acting codeine or hydrocodone products with a nasal decongestant.

While two of Alitair’s products – a combination hydrocodone product and a combination codeine product – have already been partnered, the company is using that knowledge to develop a 12-hour single ingredient hydrocodone or codeine product.

Dr. Howard figures Alitair needs about $2 million and two years to develop and get its single ingredient cough products to market. “They’re not blockbusters and could generate annual revenues of $50 million to $75 million each,” he says, noting that the company can either license them out or commercialize them itself.

“Our ODR technology grew out of our work with codeine and hydrocodone, which are narcotics and if [they’re] not used properly, you can die from them,” he adds.

Asked whether Alitair has any plans to go public, Dr. Howard says his goal is to sell the company down the road. “Going public is highly overrated. The downside is that if your product fails, you really have problems, because your stock isn’t worth anything and you don’t have control of the company anymore. That’s life lesson number two: going public is not a goal.”

Novadaq Technologies (TSX:NDQ), a maker of real-time fluorescence imaging products for the operating room, reached a significant milestone earlier this month when it named MAQUET Cardiovascular as the exclusive distributor of its CO2 Heart Laser system in the U.S.

Dr. Arun Menawat

“We have now completed our strategic agenda of partnering each one of our first four surgical applications with a market-leading company,” CEO Dr. Arun Menawat says in an exclusive interview with BioTuesdays.com, pointing out that the laser system will be sold by the industry’s largest specialized cardiac surgery sales force.

“Eight out of 10 cardiac procedures in the U.S. use at least one of MAQUET’s products, so it has the best relationships, not only with cardiac surgeons, but also with technicians that help out in the process,” he says. “This multiple-level relationship drove us to MAQUET.”

The CO2 Heart Laser is used for transmyocardial revascularization (TMR), a surgical procedure used to improve blood flow to areas of the heart that are not amenable to other revascularization methods, such as stents. During TMR, the laser is used to create small channels in heart muscle in order to improve blood flow. While the procedure is often performed in conjunction with coronary bypass surgery, it is also used for stand-alone interventions on patients with unresolved angina.

“There is more potential for TMR today compared to a few years ago,” Dr. Menawat says. “Stents have taken care of many cardiac patients these days, but there is a growing population that can’t benefit from a stent, and this is the target patient population for TMR.”

Novadaq’s core technology platform is SPY Imaging. It provides anatomic and physiologic images of perfusion in tissues, blood flow in vessels, tumor margins and lymphatics during open and minimally invasive surgical procedures.

In addition to MAQUET, Novadaq has signed partnerships with Intuitive Surgical, LifeCell and Kinetic Concepts.

Intuitive Surgical is integrating SPY into its da Vinci Surgical Robotic System, targeting urology, gynecology, GI and other robotic procedures. The integrated system received FDA approval in February 2011 and was launched in July.

LifeCell’s SPY Elite System, launched in February 2011, is designed for breast reconstructive, gastrointestinal, and head and neck surgery.

And last November, Novadaq announced an agreement with Kinetic Concepts to further develop the SPY imaging platform for applications in vascular surgery and wound care for the U.S and certain foreign markets.

JMP Securities analyst J.T. Haresco, who initiated coverage of Novadaq last December, figures there are 1.5 million procedures that can be performed using SPY technology, “which translates into an annual market opportunity of $2.3 billion”, excluding international or hardware sales.

He rates Novadaq as “market outperform”, with the 12-month price target of $7. The stock closed at $5.00 on Friday.

“Clinical data produced to date shows consistent reduction in re-operations and costs associated with the use of SPY technology,” Mr. Haresco writes, adding that the company’s string of partnerships “validate the technology while providing revenue.”

Intuitive's groundbreaking da Vinci surgical robot

According to Dr. Menawat, since Intuitive and LifeCell launched their SPY products, “our results have been coming together very nicely every quarter”, with Intuitive and LifeCell placing more than 100 devices per quarter in hospitals. He adds, “So in terms of our installed base, this is a phenomenal rate.”

New and older installations include Stanford Hospital, MD Anderson Cancer Center, Johns Hopkins Hospital, Duke University Hospital, University of North Carolina, UCLA Head & Neck, Montefiore Medical Center and Mayo Methodist Hospital.

LifeCell's Spy Elite System

Combined shipments of fluorescence imaging systems in the third quarter last year exceeded the company’s expectations by reaching a total of 165, Dr. Menawat says, leading to a 20% increase in revenue to $4.2 million from $3.5 million in the second quarter of 2011. “While we believe it is still too early to accurately predict longer-term system shipment trends, we are delighted by this initial surge in demand,” he added.

He figures MAQUET will launch the CO2 Heart Laser in the current quarter, while Kinetic Concepts will be ready to commercialize the wound care product in the third quarter of this year.

“2012 looks like a very pivotal year for us,” he adds. “The key next steps are watching the continued growth through the first two partnerships and the initiation of the second two partnerships as the year progresses. Investors should expect revenues will continue to grow. Entering 2013, we expect to have one of the industry’s largest installed bases in our space.”

MAQUET is planning for a sales team of 60-plus reps to market the heart laser, including five Novadaq sales reps, which have been transferred to MAQUET. “2011 was a pretty good year for us in the TMR business,” Dr. Menawat says. “We created the right marketing message with a small sales team that really worked, and now, we’re turning over our team of five reps to MAQUET. So, MAQUET initially doesn’t have to create the marketing message; all it has to do is get the product to the mass market.”

Transmyocardial Revascularization

Novadaq now has about 200 heart lasers installed in the U.S., doing 2,000 to 3,000 procedures a year. He figures that prior to the MAQUET deal, the CO2 Heart Laser was used in about 10% of cardiac surgery patients who could benefit from the therapy.

“What often happens is the device gets used only when a sale rep reminds the surgeon to use it,” Dr. Menawat says. “With MAQUET now representing the product, there will be a large group of sales reps in hospitals detailing the Heart Laser along with other products, and we think the MAQUET people should be able to both expand the user base and grow utilization of currently installed systems.”

MAQUET is a subsidiary of Sweden’s Getinge AB group of companies. The MAQUET brand represents the group’s Medical Systems business division. In 2010, MAQUET generated nearly half of the group’s annual revenue of 2.3 billion Euros, employing 5,100 people in 36 international sales and service organizations, as well as a network of more than 250 sales representatives.

With four partnerships already in its pocket, Novadaq’s next step is commercializing its PINPOINT endoscope system, which combines high-definition visible light imaging plus SPY fluorescence in a single system for minimally invasive surgery. The device, which is FDA-approved, is currently being evaluated in post-marketing studies at four hospitals for a number of clinical applications, including colorectal surgery.

PINPOINT may assist physicians performing colonoscopy by more effectively: Identifying polypoid and non-polypoid lesions in the colon; delineating cancerous margins; and confirming the presence/absence of synchronous lesions

Clinical data are expected this summer, and Novadaq hopes to launch PINPOINT with its own sales team in the third quarter of this year, initially targeting minimally invasive GI surgery. The company figures there are about 500,000 endoscopic procedures done annually that could use the PINPOINT product.

“Because PINPOINT will be a combination of capital sales and recurring revenue, we’ll probably start with a sales team of five to 10 and grow the team in regional terms as revenue grows,” Dr. Menawat says, pointing out that 50 to 100 sales reps will probably represent the ultimate size of the team.

Novadaq also hopes to parlay its own sales team off its four partnerships.

“That’s the beauty of our strategy,” he contends. “We’ll know which hospitals already will have SPY technology when we launch PINPOINT. So, when we speak to minimally invasive surgeons, we’ll be able to advance our arguments about PINIPOINT in the context that the hospital administration and other surgeons already are aware of the benefits of SPY. At a time when it’s difficult to get new technology into a hospital, that synergy will be huge.”

Cynapsus Therapeutics (TSX-V:CTH) is set to release human proof-of-concept data of its sublingual thin film-strip as a treatment for motor fluctuations, or episodes of immobility, in patients with Parkinson’s disease.

Anthony Giovinazzo

“This will represent an important de-risking event for the project,” CEO Anthony Giovinazzo says in an exclusive interview with BioTuesdays.com, referring to the company’s APL-130277 sublingual thin film strip, which is similar to a Listerine strip and utilizes FDA-approved apomorphine in a new delivery system. Apomorphine is a dopamine agonist, not a narcotic.

He says, “This is the first time that a formulation of this drug has been tested on a convenient film-strip to determine its pharmacokinetic profile”, explaining that this is the amount of drug achieved in the bloodstream in a specific period of time.

Apomorphine

Apomorphine, available as a branded injection called Apokyn in the U.S. and ApoGo in Europe, is not available in Canada, but is the current standard of care for episodes of motor fluctuations in Parkinson’s disease. The drug is generally limited to patients who experience severe symptoms of freezing-up, because side-effects, such as irritation, scarring and infection, can be significant. In addition, the inconvenience of the administration of a syringe injection is also significant.

Mr. Giovinazzo says there are a number of reasons that the Cynapsus sublingual strip is an attractive opportunity:

• Since apomorphine is an approved drug in the U.S., Europe and several other countries, with known efficacy and safety as an acute rescue therapy, the APL-130277 project is relatively low-risk.
• The use of a thin film-strip is simpler and safer for Parkinson’s patients to administer, compared with self-injection, which often isn’t a viable option because of immobility and tremors.
• The reduced side-effects of a thin film-strip would expand the market to a much broader segment of Parkinson’s patients who experience these “Off” (freezing) episodes at least once a day or more and who normally don’t use the injection because of the associated side-effects, inconvenience and social stigma.
• And if the company can demonstrate bioequivalence of APL-130277, compared with Apokyn, it can qualify to pursue a shorter development timeline, using the FDA’s 505b(2) regulatory pathway.

“The fact of the matter is that for the past 10 to 15 years, around 10 companies have tried to reformulate apomorphine into a different delivery mechanism and have either failed or shelved their projects, because they couldn’t get close enough to a successful opportunity,” Mr. Giovinazzo says.

Formulations Comparison

Companies have tried a tablet that dissolves in the mouth, nasal drops, patches on the arm, rectal suppositories and inhalation. Among the problems were an inability to get enough of the drug into the bloodstream fast enough and tissue irritation, he points out.

“What’s attractive to us is that we’ve had the benefit of looking at all these other attempts, all of their problems and some of the data that has been published, and we were able to come up with this thin film-strip approach that resolves all of these issues and more,” he contends. He further states, “Unless somebody comes up with a way of curing Parkinson’s, our approach is going to have a much lower competitive base associated with it.”

If the latest human proof-of-concept data match successful preclinical results in the rabbit model, Cynapsus plans to file an IND with the FDA in April or May to conduct a bioequivalence study in the U.S. this summer.

Mr. Giovinazzo says the buccal cavity of the rabbit is almost identical to that of man, with the same type of tissue, the same type of absorption into the bloodstream and the same thickness of tissue, making it an appropriate comparison model.

T-max

In June, results of preclinical testing of APL-130277 in rabbits demonstrated a T-max, or the time to maximum drug load in the bloodstream, of 14 minutes, making it nearly identical to Apokyn’s T-max of 10 to 60 minutes, with a median of 20 minutes. “These results are important as they support our premise that APL-130277 thin film-strips provide efficacious serum levels that match closely the FDA criteria for a 505(b)2 submission,” he adds.

The planned bioequivalence study, which could start this summer, will be conducted with 24 healthy volunteers to determine if the pharmacokinetic impact of the film-strip is within a range of 80% to 125% of what is produced by taking Apokyn by injection.

“Time and concentration of drug in the bloodstream as well as the safety profile, compared with the injected drug, are the parameters that the FDA will compare to the human injection data for bioequivalence,” he contends.

A successful bioequivalence study would allow Cynapsus to proceed to a final safety study, comparing APL-130277 to Apokyn. Because apomorphine is an FDA-approved drug, no efficacy study is required. The safety study would enroll around 120 Parkinson’s patients, likely beginning at the start of 2013, with a final report released in the fall of that year.

“We’ve met with [the] FDA and confirmed the potential use of certain data for the shorter 505(b)2 bioequivalence clinical and regulatory pathway that could lead to a new drug application by early 2014,” Mr. Giovinazzo says.

But submitting an NDA for marketing approval is not part of Cynapsus’ strategy at the moment.

“Our strategy is to develop a rapport with a number of pharmaceutical companies over the next two years as we meet our de-risking events – the bioequivalence study, the FDA meeting after the study and the safety study,” he says, adding that six U.S. and international pharmaceutical companies already have entered into confidentiality agreements with Cynapsus.

“We believe that by the end of the data set for the safety study, one or more of the Pharma companies will step forward and indicate a clear interest in signing some sort of relationship with us,” Mr. Giovinazzo adds. “The Pharma partner would prepare and file the NDA and begin the commercialization process.”

In addition to its clinical program, Cynapsus has surveyed HMOs and neurologists about reimbursement and the unmet medical need of APL-130277.

Two famous Parkinson's patients

A global survey by an independent research firm of 500 neurologists and movement disorder specialists, who manage some 62,000 Parkinson’s patients, found that a majority believes a “less invasive, sublingual formulation of apomorphine would be very useful in the treatment of a significant proportion of patients with motor fluctuations, versus a needle injection,” according to Mr. Giovinazzo.

That would ultimately create a far larger market than currently exists for apomorphine, which had worldwide sales of about $37 million in 2010.

Based on the survey, Cynapsus has developed conservative market assumptions of pricing and daily usage which suggest that peak annual sales of a sublingual strip could range from $350 million to $1 billion on a worldwide basis across mild, moderate and severe patients.

Cynapsus also has conducted a survey of 11 large U.S. HMOs and insurers, finding strong support for reimbursement at rates comparable to the injection therapy and a willingness to accept a price premium, assuming the existence of additional benefits such as reduced use of levodopa, the gold standard in Parkinson’s therapy. It is believed that overuse of levodopa, which has a wearing-off effect and requires more drug over time, can exacerbate the frequency and length of freezing episodes.

“The HMO and insurer survey provides another valuable source of evidence that if the clinical development of the product is successful, the market size and pricing will create substantial value for the company,” writes Steve Lux, an analyst with Noverra Research. He also writes, “The availability of third party surveys and the resulting data continue to de-risk the market and pricing elements of the business and provide greater visibility for early-stage investors.”

Dear Readers,

2012 is Going to be the Best Year Yet

Wow!  What an interesting year 2011 turned out to be.

The BioTuesdays.com team – Len, Maria, Jen, Suh, Shelly, Greg and I – would like to wish you all a safe and happy holiday season.  We are taking a short break to spend time with family and friends. But, we will be back in full swing with our next Tuesday Feature on January 10.

Regards,

Steve Kilmer

p.s. If any of you are planning to attend the upcoming JP Morgan Healthcare Conference and would like to connect there, please let me know (stephen@biotuesdays.com).

After 15 years of research and clinical testing, Northwest Biotherapeutics (OTCBB:NWBO) is nearing an inflection point in its development of an immunotherapeutic cancer vaccine.

Linda Powers

“We are entering the home stretch in testing our lead program for the most lethal form of brain cancer, which should reach its primary endpoint in the neighborhood of 18 months,” CEO Linda Powers says in an exclusive interview with BioTuesdays.com.

She states, “Pioneering a first-in-class drug in this category has been a long process, and we can say that the nature of our company has shifted from being more scientific-oriented to focused on operations and execution.”

Northwest’s platform technology is DCVax, which uses a patient’s own dendritic cells to marshal the immune system against cancer. The dendritic cells are extracted from a patient through a blood draw, loaded with antigens or biomarkers from the patient’s own tumor tissue to create a personalized vaccine, and injected under the patient’s skin in the upper arm like a flu shot to initiate an immune response against cancer cells.

DCVax-L is Northwest’s lead program for brain cancer. It also has developed a vaccine for prostate cancer and another vaccine, DCVax-Direct, for injection directly into tumors that are considered to be inoperable.

Ms. Powers says DCVax-L potentially could be used to treat any solid tumor as long as tumor tissue is being surgically removed. She says, “The surgeon simply has to drop the cancer tissue into one of our kits rather than a waste container in the operating room.”

The tumor from surgery is shipped to a manufacturing facility, as are blood cells, in order to prepare DCVax-L, which is shipped frozen to a doctor for injection into the patient. DCVax-L is usually manufactured in sufficient quantities for treatment for up to three years.

Northwest is current conducting a Phase 2 clinical trial with DCVax-L in 240 newly diagnosed glioblastoma brain cancer patients. It expects to complete patient recruitment during the fall of 2012 and reach the primary endpoint of progression-free survival within three to six months after that.

“We chose progression-free survival in order to have a crossover arm so that every patient who enters the trial will get access to the vaccine,” Ms. Powers says. “Some patients will get the vaccine right away, and some will get assigned randomly to a placebo control group, where they will initially receive standard of care plus a placebo.  The patients in the placebo control group will be allowed to cross over and receive the DCVax-L vaccine when they have recurrence of the tumor. That’s a very big deal for patients, who might drop out of the trial if they suspect they have been assigned to the placebo control group and will not get any opportunity to receive the DCVax-L treatment. We’ve worked out a clinical trial design so that when patients cross over, the trial remains blinded and we are able to continue collecting data in overall survival, which is a secondary endpoint in the trial.”

The Phase 2 study also has been designed and powered to serve as a pivotal trial. “If we have extraordinary results again like we had in the two Phase 1/2 trials, we would petition regulators for accelerated approval,” she says, adding that while this is not the standard regulatory pathway, there are multiple precedents when results are compelling. “So, we’ve been careful to do everything as though it were a Phase 3 trial.”

Newly diagnosed GBM brain cancer patients

Northwest chalked up impressive survival rates in early testing with DCVax-L in newly diagnosed glioblastoma brain cancer patients. Median time to tumor recurrence with patients receiving DCVax-L was two years, compared with 6.9 months for the standard of care, while median overall survival was three years, compared with 14.6 months for the standard of care.

“Nothing like a median survival of three years has ever been seen with glioblastoma,” Ms. Powers contends, adding that “to have one third of our patients alive at four years and 27% alive at six years is unheard of.” That compares with standard of care, which represents everything that medicine today can throw at brain cancer, including surgery, radiation and chemotherapy, resulting in less than 3% of patients still alive at five years.

“So, we had ten times the percentage of patients alive at the five-year mark, compared with the bleak results with everything medicine can do for these patients today,” she points out.

“Also, very importantly, our vaccine is not a toxic product,” she adds. She further states, “Patients don’t have nausea and vomiting, they don’t suffer such fatigue that they have to quit work, and their hair doesn’t fall out. We have none of that, because our vaccine is not a poison, and it’s not a targeted therapy that is blocking some normal function in tissue. All we’re doing is restoring the immune system to its normal natural functioning.”

Northwest also used DCVax-L in a small Phase 1 trial for metastatic ovarian cancer several years ago and achieved encouraging results.

Last May, Northwest teamed up with Germany’s Fraunhofer Institute for Cell Therapy and Immunology for the production of DCVax-L for clinical trials and compassionate use cases in Europe. Fraunhofer also will assist Northwest with regulatory requirements and select and initiate connections with leading clinical centers. As a result, Northwest is now eligible for certain German government grants of up to about $4 million.

“What’s significant in the relationship with Fraunhofer is that it gives us key advantages that we would traditionally get from a Pharma partnering but without having to sell out our program,” she says, adding “Those advantages include infrastructure, large scale, credibility and clout with medical centers and regulators—and access to funding.”

Northwest is taking a different approach with its prostate cancer vaccine. The FDA has cleared Northwest to begin a Phase 3 clinical study with 612 non-metastatic hormone independent prostate cancer patients. But Ms. Powers says a “go-ahead” depends on partnering, because the cost of the prostate trial will be several times greater than the cost of the brain cancer trial.

“We have been approached by several parties, and we think that the partnering track is attractive,” she says. “But at the moment, we really have our hands full with the brain cancer program. We are recruiting at 21 sites across the U.S. and are in the process of adding sites and a compassionate use program in Europe. Ninety percent of management’s attention is focused on the lead program for now, which we’re doing ourselves with an experienced contract research organization that has managed a number of oncology trials through to registration,” she adds.

The DCVax-Prostate vaccine contains a patient’s dendritic cells similar to DCVax-L, but instead of biomarkers from the patient’s tumor tissue, it includes a recombinant antigen for prostate cancer. That’s because late-stage prostate cancer cells are not in one place but have spread around. “And the research community has found a very good tumor-associated antigen, which is expressed in all prostate cancer tissue,” Ms. Powers adds.

Northwest previously posted impressive Phase 1/2 clinical results with DCVax-Prostate, increasing median survival to more than 54 months in treated patients without metastasis, which was well beyond the end of the trial, compared with 36 months for the natural course of the disease. In addition, the vaccine extended the median time to metastases to 59 weeks from 28 to 34 weeks under the natural course of the disease. There is no FDA-approved treatment for non-metastatic hormone independent prostate cancer patients.

Hormone independent (late stage) prostate cancer - Group A: Patients with no metastases

In the group of prostate cancer patients with metastases, there was an increase in median overall survival to 38.7 months with DCVax-Prostate, compared with 18.9 months for standard of care. Patients in this group had a six- times greater chance of being alive at 36 months, compared with patients treated with the standard of care.

The 38.7 months of median survival with DCVax-Prostate also surpassed the 25.9 months of survival posted by Dendreon’s Provenge vaccine, which was approved by the FDA for prostate cancer last year. Three-year overall survival of patients treated with DCVax-Prostate was 64% versus Provenge’s 33%. “Ours was a Phase 1/2 trial while Dendreon’s was a Phase 3,” Ms. Powers notes, adding, “So, now we have to replicate our results to confirm them.”

Last week, Zacks Investment Research initiated coverage of Northwest with an “outperform” rating and a 12-month price target of $1.50. The stock closed at 39 cents on Friday.

Analyst Grant Zeng writes that Northwest’s DCVax technology holds “competitive advantages” compared with Dendreon’s Provenge and other competitors, including low cost of manufacturing, ease of administration, high concentration of activated dendritic cells and lesser side effects.

“Both DCVax-L and DCVax-Prostate have the potential to become blockbusters if approved,” he predicts.

Another important advantage for DCVax is its low cost. Since the approval of Provenge last year, sales have not lived up to expectations because of its high price and concerns about reimbursement. Provenge is priced at $93,000 for one month of treatment while DCVax would be priced in the range of $37,000 a year for up to 3 years of treatments, Ms. Powers says.

DCVax’s price also would be substantially below the price range of most antibody drugs and targeted drugs for cancer, which are typically priced at $60,000 to $80,000 a year, and can easily exceed $100,000. These drugs also carry significant side effects and often only extend survival for as little as ten weeks, she adds.

The key to the substantial pricing advantage is Northwest’s proprietary batch manufacturing process, together with its cryopreservation technology for frozen storage of the finished vaccine, she contends, adding that the company spent a decade developing and improving its manufacturing and cryopreservation processes.

Northwest also has established a deep pipeline. Ms. Powers says the DCVax-Direct technology can target almost any solid tumor, adding, “we have FDA approval to proceed with Phase 1 trials in multiple other cancers.”

Northwest Biotherapeutics' Pipeline

Earlier this month, the company cleaned up its balance sheet, eliminating $31 million of liabilities and leaving $2.3 million of trade payables for the clinical trials and $13 million of notes, mostly with long-term supporters of the company. “This has greatly changed and improved our situation and will help us finance the brain cancer study on better terms with a wider range of investor options,” Ms. Powers predicts.

Bottom line: As well as its two promising late-stage immunotherapy candidates, Northwest has been making progress in recent months in terms of its clinical trials, business development and strengthening of the balance sheet.

During the past six months, TearLab (NASDAQ:TEAR;TSX:TLB) has initiated a series of social media campaigns as part of an innovative strategy to increase the awareness of dry eye disease (DED) with both patients and doctors.

Elias Vamvakas

The program is also designed to demonstrate how its diagnostic test for dry eye can change the paradigm of dry eye management in the doctor’s practice by developing a new practice model, which not only benefits patients, but also creates a new revenue center.

“We are ecstatic with the initial results of our social media strategy,” CEO Elias Vamvakas says in an exclusive interview with BioTuesdays.com. “As far as we can tell, we are the first to coordinate and maximize as many elements on the web: the company, the doctor, the patient and the medical community, all in an effort to improve care for dry eye patients.”

TearLab has developed the first point-of-care device that quantitatively measures a patient’s tear osmolarity to diagnose the severity of DED, which can have a dramatic impact on a patient’s ophthalmologic health and quality of life. Essentially, osmolarity gives doctors a meaningful measure of the health and stability of the tear film, an important element in stabilizing and fine tuning quality of vision.

For patients complaining of burning and irritated eyes, blurred vision and/or excessive tearing, the TearLab test is a fast (less than 60 seconds) and efficient (50 nanoliters of fluid) way to test tear osmolarity for both the diagnosis of dry eye disease and the measurement of response to therapy.

Tear film stability is critical in a number of clinical settings. Beyond general health, the stability of one’s tear film is critical for patients having cataract surgery, laser vision correction and glaucoma treatment. It’s even critical in contact lens fitting as 50% of contact lens wearers develop contact lens-induced dry eye (CLIDE) within five years of wearing lenses.

Currently, the main test for dry eye is the Schirmer test. This test involves placing a strip of filter paper over part of the eye (conjunctival sac) for up to five minutes. Less than the normal amount of wetting, on repeated examinations, indicates decreased tear production. Unfortunately, this test misses detecting many patients with dry eyes.

Prior to the arrival of TearLab’s Osmolarity Test, eye doctors lacked a meaningful diagnostic tool for DED, which affects some 30 million people in the U.S. alone. “The result was that eye doctors didn’t consider it to be a real disease,” Mr. Vamvakas recalls. “As the outcome of having long-term dry eye is rarely a serious sight-threatening issue, dry eye has often been treated as a nuisance or inconvenience. Typically, clinicians suggested patients take a variety of eye drops until they found one that worked on their symptoms.”

That was the biggest challenge Mr. Vamvakas faced in trying to get the TearLab device into the market.

“The first thing we had to do was convince doctors that TearLab could be a valuable part of their practice. A quantitative measure for the disease would allow both doctors and patients to understand both the disease and treatment efficacy to a much better extent. It was also important for them to understand that DED presented a tremendous practice growth opportunity  in an environment where practice revenues were constantly being impacted from reduced levels of reimbursement and companies like Wal-Mart or online providers [are] continuing to take market share of  glasses, contact lenses and over the counter therapies,” he recalls.

The other major challenge was finding a way to connect patient experiences and their desire to deal with their condition in a way that doctors could understand the real impact to their quality of life.

“So, we decided to go at this completely differently and build an online community using social media,” Mr. Vamvakas remembers. “By enabling communication between patients and doctors, we felt that doctors would understand how important treating dry eye properly is to their patients and the profound impact they would have to their care. In addition, by putting together tools for patients to seek out doctors who were experts in this area, it would become obvious that doctors, who weren’t focused in this area, would lose out on a great opportunity.”

ADEC

Mr. Vamvakas’ marketing strategy took flight in June, when TearLab launched its Accredited Dry Eye Center (ADEC) program to help doctors establish a practice for high quality dry eye care using advanced ophthalmic diagnostic techniques and treatments.

TearLab’s social media group headed by Tracy Puckett, TearLab’s VP of Marketing, now works with ADEC participants to modernize their websites for social media, promoting direct consumer interaction on Facebook, Twitter, LinkedIn and other blog sites, including TearLab’s AllAboutDryEye.com. That website was launched at the end of August to educate patients, provide them the ability to communicate with doctors and ultimately drive them to doctors who are committed and focused on treating DED.

“The strategy is to have AllAboutDryEye.com be the focus of the social media marketing strategy and raise the website and associated linked websites on search engines to the top of the page, ultimately converting interest in the site’s content into a desire to find an expert dry eye doctor,” Mr. Vamvakas points out.

He says, “By having websites dominate Google searches [and having] thousands of fans on Facebook, LinkedIn, Twitter and YouTube would be equivalent of spending millions of advertising dollars in traditional print and radio media, all for the benefit of local ADEC doctors and their communities. Together, we can accomplish what no one individual can accomplish on their own.”

The key to the strategy’s success is interlinking authoritative sites, web links and online references. “The effect of interlinking all of the major website properties managed by TearLab, including TearLab.com, TheDryEyeReview.com and AllAboutDryEye.com, with thousands of doctors’ websites would very powerful,” he contends. He adds, “This online presence would not only serve to raise search engine ratings nationally but, in most cases, catapult individual doctors’ websites to the top in their individual markets.”

Ms. Puckett says 67 medical practices have already enrolled in the ADEC program, giving them access to all of the company’s marketing resources. AllAboutDryEye.com has 77 regular users, including subscribers to its forum and blog, and 276 likes on Facebook.

“That may not sound like a lot, but it’s a fantastic early result for a site that has been up for only two months,” she points out. According to Ms. Puckett, the website also averages two questions a week for a TearLab virtual doctor, which shows “people are interacting with us.”

TearLab’s website for professionals, TheDryEyeReview.com, has 2,650 subscribers comprised of doctors who receive an email alert with each new posting in order to “keep the conversation going about DED,” Ms. Puckett adds.

Mr. Vamvakas, a co-founder and the CEO of TLC Laser Vision until 2004, says he was attracted to the dry eye sector, because 30% of people who visit an eye doctor complain of dry eye symptoms, and there were very few ways of diagnosing the disease.

The only FDA-approved drug for DED is Allergan’s Restatis, with annual sales of around $500 million. In addition, there are some two dozen DED drugs working their way through clinical trials.

Restasis, however, can take up to six months to show it works, stings the eye when administered and is an expensive medication, resulting in a high dropout rate. “If there was an objective test to show patients that Restasis is working, they’d stick with it. It’s like cholesterol. You don’t feel any different taking a pill, but if your blood test shows your cholesterol went down, you’re happy staying on the medication,” Mr. Vamvakas adds.

TearLab Osmolarity: What's your number?

“So, I looked at it as a perfect storm; it’s a huge disease, there was no diagnostic out there, and there are many potential treatments coming down the road,” he says. “What I hadn’t counted on was the fact that doctors were reluctant to treat the disease.”

But the tide is turning.

Osmolarity testing for DED is now making impressive inroads with U.S. eye doctors. For example, an article entitled “Tear Osmolarity in the Diagnosis and Management of Dry Eye Disease”, which appeared in the May 2011 issue of the prestigious American Journal of Ophthalmology, ranks as the second most frequently downloaded AJO article (on Science Direct) published from January to August this year.

http://www.youtube.com/watch?v=nokjwx2RtTg

In initiating coverage of TearLab last week, analyst Matt Dolan of Roth Capital Partners writes that, based on conversations with clinicians, “tear osmolarity is becoming increasingly accepted as an important metric in evaluating DED patients, with some suggesting it should be standard of care.”

Mr. Vamvakas, in a presentation at the Piper Jaffray Healthcare Conference last week, estimated that the potential U.S. market for routine osmolarity examinations is $1.8 billion a year. That’s based on 50,000 ophthalmologists and optometrists seeing an average of six dry eye patients a day and testing both eyes with a $12 per treatment card for the TearLab osmolarity device.

——————————————————————————————————————————————————

Editor’s note: Yesterday, TearLab announced receipt of a communication from the FDA indicating that, based on a supervisory review of the Company’s appeal, the Agency has granted its petition for a waiver under CLlA for its osmolarity test.  The waiver will be issued after TearLab submits labeling acceptable to the Agency. Mr. Vamvakas said in a statement that a CLIA-waiver will now allow the osmolarity test to start growing to its potential.

——————————————————————————————————————————————————

Bottom line: Mr. Vamvakas states, “Our objective is to make TearLab, the device, a valuable tool for doctors and to make TearLab, the corporation, a valuable partner for doctors to build their practice and increase their revenue.”

What a difference a year makes.

Dr. Robert Gundel

In 2010, Amorfix Life Sciences (TSX:AMF) pulled the plug on its lead blood test to detect the human variant of Creutzfeldt-Jakob disease, thereby halving its stock price and prompting a management shakeup.

Today, Amorfix has built an innovative, early-stage product pipeline, including diagnostics and therapeutics for neurodegenerative diseases and cancer. It also has established key strategic partnerships with Biogen-Idec, Pan-Provincial Vaccine Enterprise (PREVENT) and Helix BioPharma to bring its products forward with little or no expense to Amorfix.

“We are no longer a one-trick pony, relying on a single hope to bring in revenue for the company,” CEO Dr. Robert Gundel says in an exclusive interview with BioTuesdays.com. He adds, “Our strategy is to continue to develop a broad and balanced product pipeline with a focus on disease management through strategic alliances and partnerships. And there is more collaboration to come.”

Amorfix's product pipeline

For example, Amorfix’s pipeline for amyotrophic lateral sclerosis (ALS) includes a diagnostic measuring misfolded superoxide dismutase 1 (SOD1) protein in blood, an antibody therapeutic that recognizes only misfolded SOD1 and not native SOD1, and a vaccine using proprietary disease specific epitopes (DSEs) identified with its ProMIS discovery technology.

SOD1 is known as a “Jekyll and Hyde” protein. When the protein is folded normally and doing what it’s supposed to, it acts as an anti-oxidant and is normally protective of neurons. When SOD1 is misfolded, it has the opposite effect, becoming an oxidant and causing the death of neurons. “And that’s what we think is responsible for symptoms and eventually the death of patients who have ALS,” Dr. Gundel says.

Amorfix’s therapeutic specialty is misfolded protein diseases, which represent some of the most disabling and least treatable neurodegenerative conditions, such as Alzheimer’s, Parkinson’s and ALS, as well as cancer. In recent years, misfolded proteins have become an important concept in these diseases, Dr. Gundel points out.

Protein folding is a cellular process by which strings of amino acids are formed into a specific three-dimensional structure to carry out a specific function. For example, if the insulin protein is not folded correctly, it will not bind to the insulin receptor on pancreas cells and facilitate glucose uptake.

If the cellular processes can’t reshape a misfolded protein into its proper structure, chaperone proteins transport the misfolded protein to the lysosome, where the protein will be destroyed. In misfolded protein diseases such as cancer, however, chaperone cells become overwhelmed by the vast number of misfolded proteins they have to deal with, resulting in misfolded proteins escaping the correction or destruction process. Depending on the type of protein, they can stay inside the cell, be expressed on the cell surface or secreted out of the cell where it then can facilitate disease.

“We are only interested in proteins that are either expressed on the cell surface or secreted proteins, because those are the misfolded proteins that we can target with our monoclonal antibody therapeutics,” Dr. Gundel adds.

Amorfix’s competitive advantage rests with its Epitope Protection and ProMIS technologies. ProMIS is a computer-based algorithm that uses thermodynamics to specifically identify the amino acid sequence in a protein where misfolding will occur. These DSEs are used to develop monoclonal antibodies, which will bind only to those epitopes on disease cells.

PROMIS: An algorithm for predicting regions of proteins which are thermodynamically most likely to unfold

“That’s the entire basis of our ability to selectively target tumor cells as opposed to normal cells,” he contends.  He adds, “This represents a totally new approach to developing targeted therapeutics.  This is an exciting time for Amorfix, as we are developing products using cutting edge science and technology.”

Dr. Gundel is hoping to complete a ProMIS platform technology deal with Big Pharma by the end of the first quarter of 2012.

The Epitope Protection technology allows Amorfix to identify and measure very small quantities of misfolded proteins that are present in large samples of normally structured proteins. “The ability to identify and measure a target is very important in diagnostics,” he says, adding, “no one else in the world has access to these technologies.”

Dr. Gundel says Amorfix is generating less than $200,000 a year from an Alzheimer’s A-4 assay that it provides as a service to pharmaceutical companies and academic researchers to facilitate preclinical studies. “What we haven’t done is applied any resources to actively market the test, and our marketing has been either been through publications, word-of-mouth or international meetings that we attend,” he notes.

The company is now in negotiations to license the A-4 technology to a major European-based contract research organization that has an established market in preclinical studies in return for a certain percentage of net sales. Dr. Gundel wants to sign a deal by the end of 2011. “What we’re hoping is that in a couple of years, we will be generating revenue of $2 million to $3 million a year from the test, which will cover our burn rate,” he predicts.

Elevated Ab Levels in AD Patients

The A-4 test measures “aggregated a-beta,” which is the building block of plaque formation in the brain of Alzheimer’s patients. “The advantage that our test offers is that we can quantitatively measure aggregated a-beta either in the brain, cerebral spinal fluid or in the blood of the animal models of Alzheimer’s disease in a fraction of the time, compared with what most companies are doing now,” he claims. He further claims, “That’s our selling point. You can do five times as much work in the same period of time and get a much more accurate quantitative measure as opposed to subjective histology.”

The A-4 test in animals has paved the way for the development of a human test that could represent an unmet market of $2 billion to $3 billion annually, he figures. There is no good diagnostic for Alzheimer’s; the only way now to definitively diagnose Alzheimer’s is post-mortem. “Our test is designed to measure elevated levels of aggregated a-beta in Alzheimer’s disease and patients with mild cognitive impairment, the first stage of dementia, using cerebral spinal fluid,” he contends.

Amorfix is pursuing a multi-pronged strategy to develop the diagnostic. Dr. Gundel says that initially, the company plans to partner with either Big Pharma or a contract research organization “or both if we go with non-exclusive rights for the assay technology to pursue a rapid path to market and generate revenue as quickly as possible.”

That would allow the diagnostic assay to be used to facilitate enrollment of patients into clinical trials as well as track the efficacy of experimental treatments during the trial.  Any clinical laboratory in the U.S. that is certified under the Clinical Laboratory Improvement Amendments (CLIA) can do the work as part of a clinical trial, he adds.

Dr. Gundel figures the market for more effective recruitment of Alzheimer’s disease patients for clinical trials alone could reach $150 million a year, citing almost 900 clinical trials now under way for Alzheimer’s disease, with forecasts indicating no let-up in sight.

The company and its partner then would conduct clinical trials to satisfy FDA requirements for approval of the diagnostic for routine use by neurologists to accurately diagnose Alzheimer’s disease patients.

“The real attraction with our assay is that it works for early-stage patients with mild cognitive impairment,” he says, adding, “initial data we have suggests that we can identify patients at the very early stages of Alzheimer’s disease.  This is hugely important. This is exactly the type of patient one wants to enroll into clinical trials, because it’s the best chance you have of actually affecting the disease, since late-stage disease is very difficult to show any pharmacological effect with treatment.”

In addition, patients identified with early-stage disease have the best chance of therapeutic benefit from existing treatments and procedures, he adds.

The company hopes to complete cerebral spinal fluid sample validation by the end of the year and partner the test by the end of the second quarter of 2012.

Two weeks ago, Amorfix announced plans to develop a diagnostic blood test for ALS based on preliminary data that misfolded SOD1 can be measured in the blood of ALS patients. “This latest project completes our strategy to develop a product portfolio for specific disease management that includes a diagnostic and therapeutic,” Dr. Gundel says, referring to ongoing alliances with Biogen-Idec and PREVENT to develop an antibody and vaccine, respectively.

In cancer, Amorfix has three active programs in early development, including a misfolded prion protein for multiple cancers; a misfolded CD 38 for multiple myeloma and chronic lymphocytic leukemia; and a misfolded Fas receptor also for multiple cancers.

Dr. Gundel says there are many reasons that cause cancer cells to have misfolded proteins expressed on the cell surface. He adds, “Our ProMIS technology enables the identification of DSEs preferentially expressed on cancer cells and represents an entirely new and promising approach for targeted therapeutic intervention.”

Bottom line: While Amorfix continues to build a balanced product pipeline, 2012 is shaping up as a busy year for strategic alliances to generate value quickly for shareholders.

Leo Ehrlich

Cellceutix (OTCBB:CTIX) of Beverly, Mass. believes it has found the Holy Grail in cancer research: a compound that activates a tumor suppressor protein known as p53, long regarded as possibly holding the key to future cancer therapies.

“Our Kevetrin drug reactivates p53 to its normal function of dictating whether to fix the cell or kill the cell,” CEO Leo Ehrlich says in an exclusive interview with BioTuesdays.com. “This has been one of the Holy Grails in cancer research.”

p53 often has been described as the “guardian angel of the human genome” because of its crucial role in regulating the cell cycle and controlling cell mutations. Pharma has spent hundreds of millions of dollars researching ways to reactivate p53, without success. A major stumbling block has been damage to DNA.

Basing his observation on studies of human solid tumors in animals, Mr. Ehrlich says that Kevetrin does not damage DNA and affects both wild type and p53.  Wild type refers to the normally functioning gene product, whereas mutant refers to the mutated form of the gene product where normal function is abrogated.

By activating wild type p53, tumor regression is expected because wild type p53 acts a functional transcriptional factor for tumor suppression. Wild type p53 can also function as tumor suppressor by stabilizing the p53 protein levels.  Thus wild type p53 acts in both a transcriptional dependent and independent manner for tumor suppression.

Many tumors have mutations in p53; the majority of mutant p53 are defective in suppressing tumor growth because of the defect in transcription.  Therefore, drugs which activate p53 in a transcriptional dependent manner are ineffective in mutant p53 tumors.  However, Kevetrin stabilizes the mutant p53, allowing mutant p53 to induce tumor suppression in non-transcriptional dependent manner.

Kevetrin's proposed MOA

Kevetrin addresses one of Pharma’s largest markets: drug-resistant cancers. “When we tested Kevetrin against drug resistant cancer lines on animals using human xenograft tumors, we were able to shrink the tumor,” he points out. He further states, “We are not dealing with just another cancer drug. We have indications that it is effective against drug-resistant cancers, which is a multi-billion-dollar market. Most new cancer drugs are variations of existing cancer drugs, but we have a completely new and novel compound.”

In 2009, the American Association of Cancer Research recognized Kevetrin as one of the “Frontiers” in cancer research because of its promising potency and low toxicity.

Extensive preclinical research on Kevetrin has resulted in a compilation of data showing a wide therapeutic index through the re-activation of p53 and no development of drug resistance.  Research has shown Kevetrin to outperform current chemotherapies in testing against multiple cancer lines, including breast, lung, head and neck, colon, prostate and pancreatic cancers and leukemia, Mr. Ehrlich notes.

Kevetrin Efficacy

Asked why the company’s preclinical data makes him optimistic that the drug will work in humans, Mr. Ehrlich says a common trait of a successful drug is that it works across the board against many different cancer types. He says, “What we’ve consistently found with Kevetrin is that in every human cancer line that we’ve tested in animals, the drug has always been effective. That gives us a very high level of confidence that this will make it through.”

Cellceutix is also counting on its chief scientific officer, Dr. Krishna Menon, who developed Kevetrin. From 1995 to 2001, he was Group Leader, Cancer In Vivo Research and Clinical Development, for Eli Lilly, where he played a key role in the selection and preclinical development of Gemzar and Alimta, two blockbuster cancer drugs. In 1999, Lilly honored Dr. Menon with the President’s Recognition Award, the most prestigious award at Eli Lilly.

Earlier this month, Cellceutix filed an IND with the FDA for a Phase 1 clinical trial to test Kevetrin against a variety of different cancer types in patients with advanced-stage cancers.  Primary endpoints for the study will be safety, tolerable dosing levels and establishing the dose for a future Phase 2 clinical trial.  The IND also includes a provision to study the efficacy of Kevetrin in the patients.

“We’ve already had a lot of interest from Big Pharma,” Mr. Ehrlich commented. He adds, “Even before we filed the IND, some of largest biotechs in the world contacted us, wanting to be apprised of what’s happening during the clinical trial.  As the Phase 1 progresses, we expect the interest to continue to escalate.”

The Phase 1 trial, which should begin early in 2012, is set to take place at Dana-Farber/Harvard Cancer Institute and its partner hospitals, including Beth Israel Deaconess Medical Center. “I can’t express well enough how difficult the process was to enlist Harvard and how prestigious it is to have the clinical trial done there,” Mr. Ehrlich says and adds, “I think this sets us apart from even mid-size biotech companies.”

If testing is successful, Mr. Ehrlich figures the market potential for Kevetrin in treating drug-resistant cancers alone would be well north of $5 billion a year.  Other cancers could easily represent an additional $5 billion annually, he adds.

In more than 50% of all human cancers, he says p53 is limited in its anti-tumor activities by mutations in the protein itself. Currently, there are more than 10 million people with tumors that contain inactivated p53, while a similar number of patients have tumors where the p53 pathway has been partially silenced by inactivation of other signalling components, he notes.

In addition to Kevetrin, Cellceutix is developing two experimental drugs to treat autism and psoriasis.

Preclinical studies have shown that administration of the autism compound, KM-391, significantly decreased plasticity of the brain and increased serotonin levels in all three regions of the brain: cerebral cortex, hippocampus, and caudate nucleus, from very low levels, as seen with 5, 7-Dihydroxytryptamine (5, 7-DHT)-induced autism, to normal levels, as observed in placebo-treated control without the neurotoxin 5, 7-DHT.

“These results support KM-391 as a possible therapeutic agent in the treatment of autism in patients,” Mr. Ehrlich contends. “If we can deal with the core issues of autism and not just the symptoms of the disease, it would be a major breakthrough and offer hope to families and patients who suffer from autism.”

Results from a third animal study showed KM-391 was a possible therapeutic agent in the treatment of autism in patients

He says Cellceutix is working on a possible collaboration to develop the autism compound and has a memorandum of understanding with one of the largest companies in India. He says, “If we proceed—we’re not sure if this is the path we want to take—the deal would require our partner to do all the preclinical work, including cGMP manufacturing, toxicology and pharmacology in compliance with U.S. IND requirements, beginning in the first quarter next year.” The company expects to update shareholders shortly on this development.

Regarding psoriasis, the KM-133 compound has completed preclinical testing, showing strong activity in vitro and in vivo, and efficacy in xenograft models. “We believe the compound is ready for human clinical studies,” he says.

Cellceutix is planning to arrange a meeting with the FDA for guidance to proceed with clinical testing of its KM-133 compound under 505(b)(2) regulations. “In our case, the active moiety of the compound is already an approved drug in another indication, not psoriasis,” Mr. Ehrlich says. “So, we will ask the FDA if we can immediately go into Phase 2/3,” he adds.

On top of that, the company has been invited by the National Institute of Dermatology of a major Asian country to conduct the Phase 2/3 study there. “It would be a less expensive way to proceed, but we haven’t determined if that’s the right path to take,” he adds.

Bottom line: with three active projects in cancer, autism and psoriasis, Cellceutix’s risk/reward opportunity may be as good as, or better than, any in the industry.