Is Idera's Sell-Off Premature?

Stock in Idera Pharmaceuticals (NASDAQ: IDRA  ) tanked this week when Celgene announced that the FDA approved Otezla (apremilast) for psoriatic arthritis, a major competitor of Idera's Phase II candidate, IMO-8400. Both drugs face a crowded marketplace for psoriasis therapies including methotrexate and half a dozen biologics like Amgen (NASDAQ: AMGN  ) and Pfizer's (NYSE: PFE  ) etanercept (Enbrel).

Otezla and IMO-8400 are both small molecule drugs, and investors may assume that with a strong head start and the advantage of being orally dosed, Otezla will mop up the market opportunity leaving nothing left for Idera's latecomer. And Phase II data, due any time now, could completely tank the stock, if it turns out to be unfavorable. But those assumptions are shortsighted considering the clinical trial history and market opportunity in psoriasis.

Currently available therapies for psoriasis include a raft of options including topical steroids, topical retinoids, vitamin D derivatives, immune suppressants, and the newly available class of TNF-α inhibiting biologics like Enbrel. In spite of the numerous options, however, therapy is often unsatisfactory, and chronic psoriasis is considered incurable. As well, the available therapies tend to have serious side effects. Methotrexate, cyclosporine, and the oral retinoids carry frightening risks like renal impairment and myelosuppression.

TNF-α inhibitors carry some risks, as well, such as infection. Enbrel's label notes risks of cancer, demyelinating diseases, congestive heart failure, and blood disorders. So although the market is crowded, there is room for improvement in terms of both safety and efficacy.

Assessing treatment success in psoriasis
Clinical trials for plaque psoriasis use an instrument known as the PASI (Psoriasis Area and Severity Index) score to assess efficacy of the drug. It's a composite of redness, thickness, and scaling of psoriasis over several regions of the body.

Celgene's Phase III clinical trial of Otezla showed a 75 percent improvement in PASI score (PASI-75) in 33 percent of patients with 16 weeks of treatment. That was a solid hit on the target endpoint for the trial and supported the company's application for approval of the drug.

However, there's plenty of room for improvement on a 33 percent PASI-75 score. For example, Enbrel rates 47 to 50 percent and AbbVie's Humira scores 71 percent.

Idera is currently awaiting Phase II results for IMO-8400, but in a previous Phase II trial reported in 2012, 12 out of 25 patients had PASI score improvements of 35 to 90 percent after four weeks of treatment, while none of the four patients in the placebo group showed improvement. The trial actually missed its primary endpoint of change in epidermal thickness, but the secondary PASI endpoint data was strong. It is important, of course, to keep in mind that this was a very small, and early, study -- so we should be cautious about drawing too many firm conclusions from it.

Pay attention to safety
With a passel of therapy options available for psoriasis, and efficacy essentially a trial-and-error exercise for any individual patient, safety becomes a key differentiator in the marketplace. Physicians will try safer, less expensive therapies before more expensive, riskier therapies.

Celgene's safety results for Otezla were very strong, with over 96 percent of patients in the study making it through without serious adverse events. Among those who had adverse events, the most common were diarrhea and nausea.

Celgene has issued guidance of up to $2 billion for Otezla, with a wholesale price of $22,500, less than Enbrel, which had about $8.3 billion in annual sales in 2013. Enbrel's figures are not directly comparable to potential sales for Otezla or IMO-8400 because Enbrel is also approved for rheumatoid arthritis, but it's clear that a billion dollar market potential exists for a psoriasis drug that can show clear superiority in terms of safety and efficacy.

Idera still in the game?
Investors have unloaded Idera stock heavily in the past week, based on the approval of Otezla and in the context of an overall correction in biotech stocks. However, the Idera story has not changed. Otezla has been on the horizon for years, and its approval is no surprise. Although there is risk that the trial will not show good results, I think that the market is undervaluing Idera at the moment, and the stock may have some potential if its safety and efficacy looks better than Celgene's newly approved product.

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