Expert Financial Analysis and Reporting

Overview of This Week's Report

This week I published a major report on Alimera Sciences and pSivida which led to my recommendation of pSivida. I also comment on Neuralstem's press release on a rat study modeling the use of NSI-566 neural stem cells in an acute spinal cord injury which showed some encouraging data. The lead investigator of the Neuralstem phase I ALS trial using the NSI-566 cells, Eva Feldman, has gone public with her enthusiasm for the results in this trial and I highlight this as well. I also checked in with Discovery Laboratories to try to determine when Surfaxin might be launched.

I spent a day at the Marcum MicroCap Conference in New York and this led to updates on ImmunoCellular Therapeutics and Northwest Biotherapeutics, two companies I have been actively involved with. I have also provided brief comments on Durect and Ohr Pharmaceuticals based on presentations I saw at Marcum. I have not previously written on these companies and offer no opinion on the stocks at this time.

I have just completed an extensive report on Alimera and pSivida. I am recommending pSivida, but have taken a wait and see position on Alimera. The key to my recommendation of pSivida is that there is a reasonable chance that Iluvien will be approved on its PDUFA date of October 17, 2013. There is considerable uncertainty/ skepticism in the investment community that Iluvien will be approved and this creates an asymmetric investment opportunity with pSivida. See my report.

I continue to recommend Neuralstem. It issued a press release on May 28 summarizing results in a rat model of acute spinal cord injury using its NSI-566 neural stem cells. Before everyone jumps out of their seat to question why I bother to comment on animal studies, let me say that I understand that trials in animals cannot be taken as predictive in man. However, I think that this study does give some interesting and encouraging insights into the biological activity of NSI-566.

This was an acute study which means that the rats were treated shortly after their spines were deliberately severed. This is not to be confused with a chronic injury in which the trauma occurred some time ago (months or years) and the injury has been stabilized. Using NSI-566, Neuralstem is starting a phase I human trial in chronic spinal cord patients in 2Q, 2013 and the Korean company CI Cheil Jadang is doing a trial in acute spinal injury that will begin in 2H, 2013. It is much more difficult to recruit acute spinal cord injury patients because their injury must occur close to a center enrolled in a trial and the patient must be treated immediately after the injury. This recruitment issue was the principal reason that the Geron (GERN) acute spinal cord injury trial was halted. Chronic cases have had their spines stabilized and can be transported long distances for treatment and time is not of the essence. Recruitment is much easier.

The rats' spinal cords were severed in the lumbar region and they were transplanted with NSI-566 three days later. An important aspect of this trial was the severance of the spine as opposed to crushing. Past studies with a crush model have shown that the rat spine can sometimes regenerate on its own. This can be misleading as what might be interpreted as a treatment effect might actually have occurred from natural regeneration. The author's concluded that the transplanted cells were safe and the treated rats showed improvement in the paw placement, reduction in muscle spasticity and injury-cavity filling effect by grafted cells.

In a severed spinal cord, the communication from neurons above the site of an injury and those below is severed. This rat model suggests that NSI-566 was able to bridge this gap and restore communication. This is of course the Holy Grail sought for treating spinal cord injuries. This by no means proves that the cells will work similarly in humans, but let's hope that it does.

Eva Feldman, the lead investigator on the ALS trial has become proactive in discussing the results of that trial. This follows a year or so in which there was little new information released. I reported on the update that she gave at a conference in Bucharest Romania on the trial in my recent blog.

She will be the keynote speaker at the Canadian Neurological Sciences Federation meeting on June 12-14, 2013. I am not sure that she will specifically address the ALS trial, but there is a reasonable possibility that she might. This would be her first public presentation in a North American setting.

Dr. Feldman recently gave an interview that was the basis of an article in Bioscience Technology. Her enthusiasm is evident.

Ms. Powers is new on the biotech conference speaking circuit. In my past dealings her while doing research on NWBO, I have come to respect her knowledge of the science and her business acumen. I think this is becoming apparent to others as she makes more presentations.

Much of her speech was her standard presentation. However, she embellished on DC Vax Direct during her speech. This product has sprung out of nowhere, but has the potential to capture investors' interest as much as DC Vax-L. A phase I/II trial of DC Vax Direct will start in 2Q, 2013. Past experience with products using a similar concept to DC Vax Direct, i.e. introducing autologously derived dendritic cells not pre-loaded with antigens directly into inoperable tumors, have produced disappointing results. Dendritic cells in the body go through a maturation process in which they differentiate from monocyte precursors through various stages of maturation until they become mature dendritic cells. During the maturation process, immature dendritic cells pick up antigens from the tumor (in the case of cancer). They then migrate to the lymph nodes and differentiate into mature dendritic cells that are capable of displaying the antigens to other cells of the immune system.

Northwest believes that it understands the reasons for past failures. It believes that the key to efficacy is identifying at what point the immature dendritic cells are most capable of both taking up antigens and displaying them. The cells in DC Vax Direct are partially mature dendritic cells somewhere in the maturation stage between monocytes (which are obtained in a blood draw) and mature dendritic cells. The Company believes that prior development efforts used cells that were either too immature or too mature. It believes that it has identified a dendritic cell maturation stage that will work. This requires both precision and control of the manufacturing process in order to consistently replicate this batch after batch. The Company has issued patents that address this technology.

DC Vax Direct will begin a multi-center phase I/II trial in 2Q, 2013. This is an open label trial and efficacy will be measured in terms of tumor regression (shrinkage or elimination) that is expected to occur fairly rapidly (within a month or two following administration) if regression is going to occur. Since the trial is not blinded, the Company can release data from this trial in any way that it determines -even on a patient by patient basis. This may mean that there could be some meaningful, if anecdotal, data released in 2H, 2013

This is a phase I/II trial which will begin with a phase I component that will escalate the dose of DC Vax Direct. For most oncology drugs, phase I is intended to determine the maximum tolerable dose that can be given before unacceptable, dose limiting side effects occur. If DC Vax Direct is comparable to the three other dendritic cell therapies- Dendreon's (DNDN) Provenge, ImmunoCellular's ICT-107 and Northwest's DC Vax-L, it will have very modest side effects so that the evaluation of different dose levels will be mainly focused on determining therapeutic efficacy rather than the maximum tolerated dose.

The primary goal of phase I will be to determine the correct number of cells to administer. Dosing will start at 2 million cells per dose and will subsequently be escalated to 6 million and ultimately 15 million cells. In conventional drugs, there is usually an increase in efficacy with increased dose, but this may or may not be the case with immune therapies. In the case of DC Vax-L, doses of 1 million, 5 million and 10 million cells were tested. Efficacy resembled half of a bell shaped curve in which the 1 and 5 million doses were about equally effective and efficacy actually decreased at 10 million cells. There are several views about why this may be the case, including that administration of larger numbers of cells all at once creates a crowding effect in the area of the injection site, which interferes with optimal functioning of the cells.

The cornerstone of curative cancer treatment is surgical excision of the primary tumor often followed by radiation or drug therapy. Phase I will enroll patients having a number of different types of inoperable solid tumors (these are desperate patients) and will go through cohorts of about six patients each. Most of these patients will be ones whose cancers have metastasized to the point that surgical excision is not feasible or is thought to be futile. These patients will be given escalating doses of cells going from 2 million to 6 million and then 15 million. The treatment regimen calls for treatment on day 0, week 1, week 2, week 16 and potentially week 32 depending on the tumor response. The Company believes results in most patients will be seen by week 8 or 16.

The Company has indicated that it is aiming to enroll at least a minimum number of patients for each of four cancers, plus an additional group of patients with miscellaneous diverse cancers. So, the trial will aim to treat six patients with liver cancer, six with melanoma, six with pancreatic cancer, and twelve with colon cancer plus six miscellaneous. There will be two key variables in the trial, the number of cells received by the patients and the type of cancer they have. The dose of dendritic cells given for each cancer will have a degree of randomness.

The phase II stage of the trial will proceed as soon as the Phase I stage is done - the Company does not have to go back to FDA to start phase II. The Phase II stage as now planned will focus on 24 patients with colon cancer who will be given the most effective dose as determined in phase I. The endpoint of the trial will be tumor regression which has been the most frequent basis upon which accelerated product approvals have been given by FDA. The injection of cells is image-guided directly into a lesion of the cancer. Bear in mind that these tumors are inoperable so that they may have widely metastasized throughout the body, including to the brain. The injection can be given at sites of primary tumors or at metastases or both. There will be two valuable observations that can be made at the end of the trial. One will give a glimpse into or perhaps proof of principal as to whether DC Vax Direct works in various solid tumors. The other will be a meaningful amount of data in 36 colon cancer patients that could be the basis for a phase III trial design.

The Company believes that it will see some initial patient results on an ongoing basis in Q3 and Q4 of this year from the phase I component of the trial and could have results for the phase II component by 2Q, 2014. Enrollment of patients with inoperable tumors is expected to be relatively rapid. Indeed, the Company says that it has been flooded with patient and physician requests to participate in the phase I stage. They anticipate rapid enrollment and tumor shrinkage could be seen a month or two after treatment begins.

The Company is very excited about results seen in pre-clinical mouse studies, but there have been no studies as of yet in humans. Based on past experience, investors are very cautious or even cynical about extrapolating animal data into humans. As the Company readily acknowledges, curing cancer in mice has been much easier than curing cancer in men. Skeptics and even optimists will ask why the experience with DC Vax Direct could be different.

The pre-clinical studies were done in mice which were injected with tumor cells to cause cancers. When treated with DC Vax Direct, very consistent and impressive performance was seen across multiple tumor types; 80% to 100% of the animals in the various test groups eradicated all of the tumors in their body. These included large tumors relative to body weight. After these mice were successfully treated, 60 days later they were re-injected with tumor cells and interestingly the cancers did not re-establish which suggests that there was immune memory. If human results approach what was seen in pre-clinical, it would be extremely encouraging.

The opioid analgesic oxycodone is marketed by Purdue Pharmaceuticals (a privately owned firm) in an extended release formulation called OxyContin ER; it has current sales of over $3 billion. Abuse of OxyContin ER is a major health concern. Durect developed Remoxy as an abuse resistant formulation of oxycodone. It was then licensed to Pain Therapeutics (PAIN) which sub-licensed it to King Pharmaceuticals which was subsequently acquired by Pfizer (PFE). Currently Pfizer is responsible for Remoxy's clinical development and commercialization.

So far, the FDA has refused to approve generics for OxyContin ER so that if this continues and Remoxy is approved, these would be the only two oxycodone products on the market. This represents a major commercial opportunity for Durect as it is entitled to receive a royalty on Remoxy sales that escalates from 6.5% of sales up to 11.5% as sales increase. Management has indicated that Remoxy sales of $200 million would result in a royalty rate of 6.5% and royalties of about $13 million. At Remoxy sales of $600 million, the royalty rate would be 7.5% and the royalty would be about $45 million. Achievement of $600 million of Remoxy sales would seem achievable and the resultant $45 million royalty, assuming a 35% tax rate, amounts to about $0.30 per share for Durect. The Company feels that patents on Remoxy could prevent generic competition until 2031.

Remoxy received a Complete Response Letter in June 2011 and Pfizer has been working on a response. Following a meeting with the FDA, Pfizer gave an update on the regulatory status of Remoxy on May 10 that resulted in Durect's stock price dropping nearly 50% from about $1.60 to the current price of $0.83. Pfizer said that it received written guidance from the FDA that additional clinical trials would be needed to address the CRL. PFE said "Based on this guidance, we are considering our options with respect to Remoxy. If we elect to continue development of Remoxy, we would not expect to submit a response to the complete response letter before mid-2015."

Mr. Hogan added some additional perspective. He said that the additional trial required would likely be a bioequivalence trial that could be conducted in 80 to 90 patients, not a new phase III trial. Pfizer tweaked the formulation of Remoxy in order to improve its drug properties and the FDA wants to see evidence that the new formulation is bioequivalent to the one used in phase III trials. He also said that Pfizer was speaking to Pain Therapeutics and Durect about changing the terms of the contract on Remoxy. I read this as Pfizer will continue to develop Remoxy if PAIN and DRRX will accept a lower royalty.

If the parties don't agree, Remoxy would be returned to PAIN, which has indicated that it would conduct the bioequivalence study, which is estimated to cost about $15 million. The bottom line on this is that there does seem to be a clear path forward for Remoxy. I think this is a win for Durect whether Pfizer continues to develop Remoxy or PAIN takes over development. There now seems to be a clear path forward to approval in 2015. Of course, there is uncertainty as to whether the bridging study will be successful.

This could be an interesting opportunity for long term and patient investors. I am not actively recommending the stock, but I do intend to do more work on the Company

Ohr is a small, virtual company that was founded in 2008. It acquired squalamine from Genera Pharmaceuticals, which was developing the drug as an intravenously administered product for the treatment of wet AMD (age related macular degeneration); wet AMD is the number one cause of blindness in adults over 60. The introduction of the anti-VEGF monoclonal antibody Lucentis by Genentech for wet AMD has been a major success. It is projected to have US sales of $1.6 billion in 2013. Eylea, a similar product developed by Regeneron (REGN) was recently introduced and the Company is guiding for US sales of about $1.3 billion in 2013.

Squalamine inhibits VEGF as well as other growth factors. Genera started a phase II trial involving 250 patients, but as the trial was being conducted, the anti-VEGF drug Avastin and then Lucentis (a derivative of Avastin) emerged as effective therapies that could be administered with between 8 and 12 intravitreal injections per year. Squalamine requires 40 minute infusions once a week for four weeks and ophthalmologists are not geared for IV administration. This was a major factor in the decision by Genera to halt development.

Ohr licensed the product and developed an eye drop dosage form. The reason for developing an eye drop is that the like the brain, there is a barrier that blocks or impedes delivery of a drug from the blood to the retina. This makes it difficult to achieve effective drug levels using a systemic dosage form of a drug. The goal of the eye drop formulation is to deliver effective amounts of squalamine through the vitreous fluid to the retina. Ohr has done testing in rabbit eyes which is the standard animal model for ophthalmology drugs. These studies have suggested that therapeutically significant amounts of squalamine may be deliverable to the back of the eye.

Ohr is now conducting a 120 patient trial in which squalamine plus Lucentis is compared to Lucentis alone. All patients will receive an initial injection of Lucentis prior to randomization and then be evaluated monthly for their need for further Lucentis injections using protocol defined retreatment criteria. The goal is to show that this can reduce the number of Lucentis injections. The pharmaceutical industry is aggressively pursuing formulations that can reduce the number of intravitreal injections required each year for anti-VEGF products.

The commercial importance of reduced injections is well documented by the inroads that Regeneron's anti-VEGF drug Eylea has made against Lucentis by reducing the number of injections per year by two to three. If Ohr's eye drop formulation of squalamine in combination with Lucentis can produce equivalent therapeutic results while reducing the number of annual injections, it could have significant commercial potential. Each injection of Lucentis costs about $2,000, requires an office visit and an injection in the eye. Reducing the number of injections by just one per year is probably enough to be clinically meaningful and commercially successful

The clinical trial began in November of 2012 and is scheduled to conclude in March of 2014. I do not have an opinion as to whether this trial will succeed. However, the work that I have done in ophthalmology has taught me that delivering drugs to the back of the eye is a daunting challenge. My checks with industry and physician contacts produced a near unanimous skepticism that this eyedrop formulation of squalamine will be effective.

The Company continues to anticipate an interim look at the phase II trial of ICT-107 to be conducted in 2Q, 2013. The Data Monitoring Committee or DMC that is responsible for monitoring the trial to detect any safety issues will conduct this review when 32 deaths occur in the 124 patient trial-roughly 82 patients on ICT-107 plus standard of care versus 32 on standard of care. The Company will be blinded to the data.

Some investors have suggested that the results for ICT-107 at this interim look may show that ICT-107 is statistically, significantly better than standard of care and that this will lead the DMC to recommend that the trial be stopped and result in approval by the FDA. Mr. Gengos has consistently said that he expects that the DMC will find that there are no safety issues and will recommend that the trial continue. He has given no suggestion that the trial might be halted for efficacy. The endpoint of the trial and the final readout will be made when 64 deaths occur in the trial; these topline results are expected in 4Q, 2013

The Company is going into clinical trials with two new dendritic cell vaccines. ICT-140 is based on loading dendritic cells with seven cancer antigens specific to ovarian cancer. IMUC will begin a phase IIa trial in 2H, 2013. ICT-121 is a third product that uses just one antigen that IMUC believes is specific to cancer stem cells, An investigator-sponsored phase I trial for ICT-121 in patients with recurrent glioblastoma to be conducted by Cedars-Sinai Medical Center will start before the end of the second quarter.

I see dendritic cancer vaccines as having the potential to be a major advance in cancer therapy and ImmunoCellular is a leading company. I view IMUC as an asymmetric opportunity.

I checked in with the Company for an update on when Surfaxin might be given the go-ahead to begin marketing. The situation with Surfaxin is a little different from a Complete Response Letter in which the FDA notifies a company that it is not approving a product and lists the reasons. In this case, DSCO notified the FDA that it was tightening specifications on a quality assurance issue. It was not the usual case that the FDA found faults with the NDA and issued a CRL. With a CRL, the Company responds to the CRL by resubmitting the NDA. If the FDA accepts the resubmission, a PDUFA date is then established.

This is technically a prior approval supplement. Recall that Surfaxin was approved in March of 2012. This latest delay was the result of a decision by Discovery to tighten specifications on a quality control assay. See my report.

This resubmission is different from responding to a CRL and there is nothing in the regulations that says that the FDA to accept the resubmission or issue notice on how long it will take to review the resubmission. Based on conversations with the FDA, the Company's guidance suggests approval to go ahead with the launch of Surfaxin in October.

Tagged as ALIM, Alimera, ALS, CUR, Discovery Laboratories Inc., DRRX, DSCO, Durect, ImmunoCellular, IMUC, Neuralstem, Inc., Northwest Biotherapeutics Inc., NWBO, Ohr Pharmaceuticals, OHRP, PSDV, pSivida + Categorized as Smith On Stocks Blog