Expert Financial Analysis and Reporting

Investment Thesis

This report is intended to highlight the potential for four current products and one in development for the treatment of hereditary angioedema (HAE), a rapidly growing market. The HAE market is in an early and dynamic period of growth that should last for the next several years. I project that the US market will increase from $204 million in 2010 to $588 million in 2015. I will deal with the in-depth investment outlook for the companies involved in HAE in subsequent reports because there are other aspects of their business that have to be analyzed in order to form an investment opinion. However, I can make some general statements on the products and the companies behind them. Dyax’s (DYAX) Kalbitor has been disappointing. It has contrary to earlier expectations not performed well in head to head competition with CSL Behring’s Berinert. The pending launch of Firazyr further weakens the potential for Kalbitor and investment outlook for Dyax for whom Kalbitor is an important contributor.

 

1. I think that Cinryze is the dominant commercial product in the category and has excellent growth potential. Because it is the main driver of ViroPharma’s (VPHM) earnings, this gives the promise of strong growth for VPHM for the next few years.
2. Shire’s (SHPGY) Firazyr has excellent prospects for growth, but in the strong portfolio of products marketed by Shire (SHPGY), it is only modestly important to the company.
3. Berinert is marketed by the German company CSL Behring that I do not track. It is off to a strong start and has good growth prospects.
4. Santarus (SNTS) is developing Rhucin and could have it on the market in 2014. Rhucin should be a meaningful contributor to Santarus in the 2014 to 2000 period. The company believes that it can reach $200 million of peak sales, but this looks ambitious to me.

 

Orphan Diseases Can Be Significant Commercially Opportunities

The pharmaceutical industry for many years ignored orphan diseases because they affect few people, but the industry has come to view them as major business opportunities. Orphan diseases are classified in the US as afflicting less than 200,000 people and in the European Union as having fewer than five cases per 10,000 population. The NIH classifies 7,000 disorders as orphan diseases and estimates that 25 million patients suffer from these diseases so that in the aggregate the opportunity is huge. Drug development for orphan diseases is one of the major investment trends in the world pharmaceutical industry.

Even though patient populations addressed for individual diseases are small, much higher prices realized per patient treated can lead to meaningful commercial opportunities. For example, Genzyme’s Ceredase for Gaucher’s disease achieved peak sales of $1.2 billion in 2008 while treating only 5,700 patients, an average price realization of over $200,000 per patient. Cinryze for hereditary angioedema, which is a major focus of this report, costs around $300,000 per annum; I project its 2011 sales to be $245 million from the treatment of 825 patients.

In addition to price, there is usually more of an opportunity for longer periods of exclusivity with orphan drugs than with small molecules. Drugs designated as orphan are guaranteed seven years of marketing exclusivity in the US and ten in Europe. Moreover, in many cases the products are produced by technologies that are difficult to genericize.

Hereditary Angioedema; an Attractive Orphan Disease

Hereditary angioedema is an orphan disease that is estimated to affect between 6,000 and 30,000 individuals in the US with the most common estimate being 10,000. It is characterized by a widening of blood vessels resulting in fluid leakage and swelling in tissues (angioedema). The cause is an inherited genetic mutation that results in a deficiency of the C1 esterase inhibitor enzyme. The role of this enzyme is to inhibit a protein called kallikrein which in turn causes the release of bradykynin. Bradykynin acts on the bradykynin 2 receptor on cells in the walls of blood vessels. Excessive levels of bradykinin can cause blood vessels to widen and to open spaces between cells in the blood vessel walls.

HAE is an incurable disease in which attacks occur at unpredictable times. Swelling occurs at different locations. The mucosa of the lips, tongue and abdomen are most frequently affected. Swelling in the face can be grotesque and embarrassing.Levels of bradykinin in tissues rise rapidly during an HAE attack. If untreated, edema develops over 2 to 24 hours and it takes two to five days for the edema fluid to be resorbed. Attacks may begin at one location and move to another. An individual HAE patient may experience more than one attack a week to less than one attack per year. Attacks can be uncomfortable and disruptive at best or severely painful, disabling and potentially life-threatening at worst.

Abdominal attacks and laryngeal attacks are particularly dangerous. Abdominal attacks are often misdiagnosed as bowel obstructions or appendicitis and can result in inappropriate surgical intervention. Swelling of the mouth, tongue and pharynx can progress to laryngeal attacks which block the airways. Laryngeal attacks represent only 2% of all HAE attacks, but if they are not treated, they are estimated to be fatal in 30% of cases. About 50% of HAE patients will experience at least one laryngeal attack in their lifetime.

There are a variety of causes that trigger attacks or they may occur spontaneously. Triggers include psychological stress; localized trauma, including medical and dental and surgical procedures; fever; menses and pregnancy; as well as treatment with ACE inhibitors which block the metabolism of bradykinin and estrogens which can decrease the production of C1 inhibitor.

Because of its rarity, hereditary angioedema is often misdiagnosed by physicians who do not recognize the symptoms. This can lead to misdiagnosis as an allergic reaction or an acute abdominal event like appendicitis or bowel obstruction. This leads to prescribing drugs that are ineffective against HAE such as antihistamines, epinephrine and steroids, or unnecessary exploratory abdominal surgery. In an emergency room setting in which there is no HAE treatment specialist, effective intervention is delayed due to triage procedures, completing tests and conferring with other physicians. Even though an HAE patient may understand perfectly that they are having an attack and know the medicine necessary to treat it (they might even have the medicine with them) emergency room personnel are reluctant to treat based on input from the patient and use of a drug not prescribed by them.

HAE attacks can have a profound impact on patients’ lives. In a survey presented at an FDA advisory committee meeting, 457 HAE patients were asked to report the impact of their most recent HAE attack. About 50% of patients missed work, school, or leisure time as a result of the attack. Patients also reported missed educational and career opportunities, depression, and poor quality of life. Swelling in the face can lead to a grotesque appearance that causes people to avoid contact with other people.

Products Marketed for Hereditary Angioedema in the US

HAE can be treated prophylactically to prevent attacks or acutely to treat an attack in progress. Even with prophylaxis, acute attacks still occur and must be treated.

There are two options for prophylactically treating HAE. Androgenic (male) steroids like Danazol (danocrine) have been used for many years to treat HAE. It is estimated that 600 to 800 mg of Danazol given daily can reduce the number of HAE attacks by 90% and 100 to 400 mg can reduce attacks by 50%. Cinryze was approved in 2008 as the first alternative to androgens, which are effective, but have a broad range of troublesome side effects.

In treating acute attacks, patients need rapid onset of symptom relief and quick resolution of symptoms allowing for a return to normal life. Early treatment is very important in reducing the severity of symptoms. Self-administration of drugs can reduce the time to symptom relief to an hour or so, but if the patient has to have the drug administered by a health care professional, relief can be delayed by a few hours. There have been three new products approved within the last three years to treat acute attacks: (1) Berinert like Cinryze is a C1 inhibitor replacement, (2) Kalbitor is a kallikrein antagonist and (3) Firazyr is an inhibitor of the bradykinin receptor. Rhucin is a C1 inhibitor replacement that is in development for acute attacks.

Cinryze is the only product approved for prophylaxis. It is intended to be used twice a week and this leads to much greater revenue per patient than acute therapy which typically might be used once a month. Cinryze can cost around $300,000 per year while acute therapies can cost around $80,000. Firazyr competes with Berinert and Kalbitor in the acute treatment market. I view the efficacy of these three drugs as similar. However, Firazyr is the only drug that can be administered with a single subcutaneous injection by the patient. Kalbitor has to be given by a health care professional and Berinert requires an intravenous infusion. This should afford a significant commercial advantage to Firazyr.

Projections for the HAE Market

I have tried to weigh numerous factors to come up with a model as to how the US market for HAE products may develop. Because of the fluidity of the market, I can only offer my best guesses. Here are some of the key issues and uncertainties:

1. Cinryze will remain the only branded drug in the prophylaxis segment of the market through the next four years and probably longer.
2. Throughout the initial launch of Cinryze, there has been very little switching from androgens that have long been used for prophylaxis. This could change. Just look at the NFL football players and professional wrestlers who have used androgens to enhance performance and the side effects that some have suffered. While androgens are effective and cheap, the price paid in terms of side effects may lead physicians to switch patients to Cinryze.
3. Payors have not raised any meaningful objections on the $300,000 annual price tag of Cinryze, probably because its sales have been below their radar screens. This could change as Cinryze sales are closing in on $300 million. Managed care might set up requirements for prophylaxis such as requiring a certain number of attacks per month before approving prophylactic therapy. It may use this and other tactics to try to switch patients to cheaper acute therapy.
4. Firazyr seems to have a very important and differentiated commercial advantage with its subcutaneous dosage form that can be self-administered by the patient. Cinryze, Berinert and Rhucin must be given by intravenous infusion and Kalbitor can be sub-cutaneously injected, but only by a medical professional.
5. About 60% of the usage of Cinryze is self-administered in the home even though it requires an intravenous infusion as do Berinert and Rhucin. This may partially offset the self-administration advantage of Firazyr.
6. Firazyr has an issue with pain on injection as almost all patients experience painful and injection site reactions. This could partially negate the substantial advantage afforded by subcutaneous self –injection. How these will balance out is difficult to judge.
7. I see the black box warning of anaphylaxis in Kalbitor’s label and the requirement that it be given by a health care professional as major disadvantages for the drug.
8. Santarus’ Rhucin is the fifth product to come to market and will be at a competitive disadvantage in terms of ability to spend on promotion and physician/patient education.
9. It is unclear how much importance physicians and patients will place on having an alternative with the transgenically manufactured Rhucin to blood based products like Berinert and Cinryze. Rhucin doesn’t carry the small but very troubling risk of transference of viruses and other infectious agents.
10. As a transgenic product in comparison to blood based products, Rhucin may have a cost of goods advantage that could allow it to compete on a price basis against Berinert and Cinryze.
11. Each of these drugs is also being studied in other indications such as treating acute kidney transplant rejections mediated by antibodies and angioedema resulting from the use of the anti-hypertensive ACE inhibitors. This isn’t in our projections.

A Breakdown of the US Hereditary Angioedema Market By Patients
Patients Treated	2009	2010	2011	2012	2013	2014	2015
Prophylaxis
Androgens	2,272	2,338	2,408	2,408	2,309	2,163	1,955
Cinryze	295	590	825	1,073	1,308	1,482	1,550
Sub-total	2,567	2,928	3,233	3,481	3,618	3,645	3,505
Acute
Berinert	0	370	675	800	925	1,050	1,175
Kalbitor	0	184	325	375	375	350	325
Firazyr	0	0	75	500	750	1,000	1,200
Rhucin	0	0	0	0	15	150	325
Sub-total	0	554	1,075	1,675	2,065	2,550	3,025
Total Pateints Treated	2,567	3,482	4,308	5,156	5,683	6,195	6,530
Untreated	2,233	1,818	3,192	3,344	3,317	3,105	2,970
Total Diagnosed	4,800	5,300	7,500	8,500	9,000	9,300	9,500
Undiagnosed	5,200	4,900	2,904	2,112	1,824	1,741	1,762
Prevalence	10,000	10,200	10,404	10,612	10,824	11,041	11,262
US Sales of Key Products Used to Treat Hereditary Angioedema ($millions)
	2009	2010	2011	2012	2013	2014	2015
Prophylaxis Market
Androgens	$1	$1	$1	$1	$1	$1	$1
Cinryze	$97	$177	$245	$319	$389	$440	$460
Sub-total	$98	$178	$246	$320	$371	$424	$450
Acute Market
Berinert	$0	$18	$32	$38	$44	$50	$56
Kalbitor	$0	$9	$20	$35	$41	$41	$38
Firazyr	$0	$0	$4	$28	$42	$55	$66
Rhucin	$0	$0	$0	$0	$0	$10	$22
Sub-total	$0	$26	$56	$101	$127	$156	$182
Total Market	$98	$204	$303	$416	$487	$554	$588

The table below shows my estimates for patient and sales trends for the five products in this market. These numbers give the impression of more precision than is actually the case.

Cinryze (C1 esterase inhibitor, human)

Cinryze is a human C1 esterase inhibitor given as a replacement for patients who because of a genetic mutation lack this enzyme. It is a blood based product derived from large pools of plasma obtained from human blood donations. It is pasteurized and filtered to remove bloodborn viruses and other infectious diseases.

The pivotal trial which led to approval was a crossover study involving only 24 patients in which 12 received the drug for 12 weeks and 12 received placebo. Then the patients receiving drug were crossed over to placebo and the patients given placebo were crossed over to drug. Cinryze reduced the mean number of attacks from 12.7 on placebo (one per week) to 6.1 (one every two weeks). Cinryze is approved for prophylaxis against HAE attacks, but not for acute attacks.

Its most common side effects are upper respiratory tract infection, sinusitis, rash and headache .Because Cinryze is made from human blood, it may carry a risk of transmitting infectious agents such as viruses, and, theoretically, the Creutzfeldt-Jakob agent. Hypersensitivity reactions may occur. Epinephrine should be immediately available to treat any acute hypersensitivity reactions

Physicians generally consider prophylaxis for patients who suffer two or more attacks per month. Danazol is often looked at as the first option since it is effective and cheap. Cinryze is given to patients who don’t respond or can’t tolerate the side effects of danazol therapy. Perhaps 20% of patients that are currently being treated are on Cinryze. It is also used off-label to treat acute breakthrough attacks.

Cinryze is currently available as a ten minute intravenous infusion given twice a week although the company is working to develop a subcutaneous dosage form. It is shipped directly to the home and about 60% of patients are administered Cinryze at home through self-administration, administration by a relative or administration by a home health care service. Other patients are treated at health care facilities. Cinryze can be stored in a refrigerator or at room temperature. It is a lyophized powder that is supplied in vials and is reconstituted with saline. It needs to be protected from light. After reconstitution, it should be administered at room temperature within three hours of reconstitution.

Kalbitor (ecallantide)

Kalbitor inhibits kallikrein which results in less production of bradykinin and is the only approved drug that works through this mechanism of action. It is indicated for treatment of acute HAE attacks in patients 16 and older and is generally used for patients who suffer less than one attack every four to six weeks.

Its approval was based on two phase III trials. The first trial was in 72 patients in which the primary endpoint was time to symptom improvement at four hours in comparison to placebo. The median time to symptom improvement was 149 minutes for Kalbitor versus more than four hours for placebo (p value =0.021). The FDA requested a second phase III confirmatory trial which enrolled 96 patients and used a primary endpoint of patient reported assessment of symptoms at four hours in comparison to placebo. The endpoint was reached with a p value of 0.01.

In looking at the 255 patients who participated in the entire clinical program, anaphylaxis occurred in ten patients (3.9%). Although this did not block approval, the FDA required a black box warning alerting physicians and patients of this potentially dangerous side effect. In addition, it required that administration be done by a healthcare professional with appropriate medical support trained to manage anaphylaxis and hereditary angioedema because of the similarity of the symptoms. Other adverse reactions occurring in ≥3% of Kalbitor-treated patients and were headache, nausea, diarrhea, fever, injection site reactions, and nasopharyngitis. Adverse reactions indicative of hypersensitivity included pruritus (5.1%), rash (3.1%), and urticaria (2.0%).

Kalbitor is administered in three separate subcutaneous (just under the skin) injections in the abdomen, thigh, or upper arm. If an attack persists, an additional dose of 30 mg may be administered within a 24 hour period. Kalbitor should be kept refrigerated and if removed should be stored below 86°F and used within 14 days. Dyax is working on formulations that would require only one injection. It is also trying to create data that would result in the black box warning being removed, but this is a tough thing to do.

Firazyr (icatibant)

Firazyr is a peptide consisting of ten amino acids that is a selective and specific antagonist of bradykinin B2 receptors. This is also a unique mode of action relative to the other products. It has been approved by the both the FDA and European Commission for the symptomatic treatment of acute attacks of hereditary angioedema in adults with C1-esterase inhibitor deficiency.

Firazyr is injected subcutaneously in the abdomen with one injection and the FDA is allowing this product to be self-administered. This gives the product an extremely important advantage in the acute treatment market over Kalbitor which must be administered by a health care professional and to a lesser extent versus Berinert which requires setup followed by a ten minute IV infusion. With Firazyr, the patient can carry the drug anywhere and inject quickly when an attack occurs. This can save precious time in effectively treating an attack.

Because of the small number of patients involved and lack of head to head comparisons, it is difficult to judge how Kalbitor, Berinert and Firazyr compare. Generally, experts consider them equally effective. Shire conducted three phase III trials for Firazyr. The FAST-2 trial was a 74 patient trial in Europe and Israel that compared Firazyr to tranexamic acid (used in the EU but not the US for treating HAE). The primary endpoint was median time to onset of symptom relief which was 2 hours for Firazyr versus 12 hours for tranexamic acid (p<0.001). FAST-1 was a phase III trial involving Firazyr against placebo which missed its primary endpoint of median time to onset. Firazyr showed onset at 2.5 hours while the placebo response was unexpectedly good at 4.6 hours (p= 0.131). The FDA requested a third phase III trial called FAST-3 that showed median onset of relief for Firazyr of 2.0 hours versus 19.8 hours (p<0.001). Based on the confirmation from FAST-3, the FDA approved the drug.

Most patients respond to a single dose of Firazyr. If response is inadequate or if symptoms recur, up to 2 additional doses may be administered within a 24 hour period at intervals of at least 6 hours. Because laryngeal attacks may be fatal, patients with laryngeal symptoms should administer Firazyr and immediately seek medical attention.

The most commonly reported adverse reactions were injection site reactions, which occurred in almost all patients (97%) in clinical trials. These most frequently included redness and swelling. Other common adverse reactions reported in at least 1% of patients included fever, transaminase increase, dizziness, and rash.  

Berinert (C1 esterase inhibitor, human)

Berinert like Cinryze is plasma derived human C1 esterase inhibitor prepared from large pools of human plasma obtained from blood donations. It has been approved and used in Europe for many years and has a strong efficacy and safety record. It was approved in October of 2009 in the US and launched in February of 2010. It is indicated for the treatment of acute abdominal or facial angioedema attacks. It must be given within 5 hours of an attack by slow intravenous infusion. Unlike Cinryze, it is not approved for prophylaxis.

It is supplied as a lyophized powder that can be stored at room temperature and is reconstituted with saline solution for infusion at room temperature. It doesn’t require refrigeration and can be stored up to 30 months.

Severe hypersensitive reactions can occur with Firazyr’s use which look like symptoms of angioedema, but require different medications to control. The most serious adverse reaction in clinical trials was recurrence and an increase in the intensity of pain associated with HAE which occurred in 11% of patients. Other common adverse reactions that occurred in more than 4% of patients were headache, abdominal pain, nausea, muscle spasm, pain, diarrhea and vomiting. Berinert like Cinryze is made from human plasma and may potentially contain infectious agents, such as viruses and the Creutzfeldt-Jakob disease (CJD) agent .Hypersensitivity reactions may occur. Epinephrine should be immediately available to treat any acute severe hypersensitivity reactions following discontinuation of administration.

Rhucin (recombinant C1 esterase inhibitor)

Rhucin is a C1 inhibitor that is transgenically produced in the milk of rabbits in contrast to Cinryze and Berinert that are derived from human blood. It was approved in Europe in October of 2010 and licensed to Santarus for the US market in September of 2010. Santarus and Pharming are finalizing discussions with the FDA on the Phase III protocol to support the submission of a biologic license application. The companies continue to expect that a Phase III study will be completed by the third quarter of 2012. If all goes well, Rhucin could reach the US market in early 2014.

Rhucin may be the first non-blood based C1 inhibitor on the market. Rhucin is being developed for acute use. It is infused in a vein over a five minute period. No more than two infusions can be given in a 24 hour period. Santarus points to examples in other drug categories in which a recombinant product ended up taking a majority of market share from long established blood-based products. It bypasses potential constraints of human blood supply limitations including plasma donor restrictions and avoids potential viral and other disease transmission risk.

A potential disadvantage is that the product can not be given to people with allergies to rabbits. Patients will have to be tested for this. There also might be required periodic tests to see if rabbit antibodies are raised with long term dosing.

Tagged as Dyax Corp. + Categorized as Company Reports