Why Pfizer Investors Should Watch Quark This Summer

Pfizer (NYSE: PFE  ) may learn whether it has a potential challenger to Novartis' (NYSE: NVS  ) and Roche's (NASDAQOTH: RHHBY  ) Lucentis and Regeneron (NASDAQ: REGN  ) and Bayer's (NASDAQOTH: BAYRY  ) Eylea soon. Its development partner, Quark Pharmaceuticals, is expected to complete its phase 2b study of PF-655 in diabetic macular edema patients this summer.

Investors likely aren't pricing in much value from PF-655 given its tepid showing in previous mid stage trials forced a restructuring of Pfizer's deal with Quark, and the initiation of a phase 2b study that is expected to be completed in May. But investors may want to pay attention to the trial's outcome given PF-655 targets the same indication as blockbuster drugs Lucentis and Eylea.

A bit of background
Quark developed PF-655 using technology licensed from U.K. based RNAi company Silence Therapeutics, and U.S. RNAi drug developer Alnylam. Those two companies, along with Isis, Arrowhead, and Tekmira, possess critical RNAi intellectual property that can be used to either up or down-regulate gene expression, increasing or decreasing, for example, protein production that may cause or worsen disease.

Quark licensed PF-655 rights to Pfizer in 2006, and trials on PF-655 have been conducted in both age-related macular degeneration, or AMD, and diabetic macular edema, or DME. In 2010, the companies halted their phase 2 DME study early when they realized outcomes, while better than laser therapy, weren't any better than those experienced by patients taking Lucentis.

However, patients receiving the 3 mg dose in the trial did enjoy better outcomes than those receiving a 1 mg dose, so Quark -- unwilling to shelve the compound -- lobbied Pfizer to conduct a second phase 2 trial studying the 3 mg dose of PF-655 in DME.

Since Pfizer was facing R&D pressures tied to patent expiration, Pfizer reworked its deal to shift the costs of this second phase 2 trial solely to Quark. In exchange, Pfizer agreed to pay Quark higher milestones and royalty payments if the drug succeeds. That amendment effectively gives Pfizer a call option on PF-655, allowing it to advance the drug into phase 3 if Quark's phase 2b trial pans out.

A new approach
PF-655 uses short-interfering RNA, or siRNA, to target the stress-response protein RTP801. That protein influences mTOR, a cell producing gene, which in turn influences VEGF, a protein responsible for building new red blood cells. VEGF is the main target of Novartis' Lucentis' and Regeneron's Eylea, and it's over-expression is associated with DME.

Quark hopes that by targeting the process earlier than Lucentis and Eylea, it may be able to more effectively reduce the cell leakage tied to abnormally high pressure levels in the macula that causes patients to lose their vision.

In case Quark is wrong, and PF-655 isn't more successful than Lucentis on its own, the company also included an arm in the soon-to-finish phase 2b study that evaluates the drug as co-therapy used alongside Lucentis. In the previously halted phase 2 study, PF-655 was only compared to laser therapy.

That gives PF-655 an opportunity as either a stand-alone treatment, or as a complementary therapy if the monotherapy arm comes up short. Either way, results would likely still need to outperform Eylea, which has quickly won market share from Lucentis in age-related macular degeneration, and could begin challenging Lucentis for share in the DME indication later this year.

Fool-worthy final thoughts
While the phase 2 trial was halted early, it wasn't a failure. PF-655's safety profile was solid, and patients treated with the 3 mg dose did see vision improve by 9.1 letters on a standard eye chart. That was better than the 3.2 letter improvement recorded by patients receiving laser therapy.

We'll have to wait and see if the phase 2b data is robust enough to prompt Pfizer into exercising its right to advance PF-655 into phase 3. If Pfizer determines results are strong enough to challenge Novartis and Regeneron, it may find itself on the hook for up to $700 million worth of eventual milestones across all the PF-655's indications. That suggests Pfizer will only exercise its rights if it's quite confident PF-655 can win market share, making the phase 2b results important to watch. 

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