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3 Small Biotech Stocks Being Run by Proven Winners

By Todd Campbell – Jul 17, 2017 at 1:00AM

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The C-suites at Aurinia Pharmaceuticals, Axovant Sciences, and Esperion Therapeutics are packed with executives who have previously developed drugs and gone on to sell their companies.

Great leaders are important in any industry, but perhaps they're even more valuable in biotech, where any number of clinical-stage and regulatory obstacles can derail drug research and send share prices reeling. For that reason, investing in biotech stocks such as Aurinia Pharmaceuticals (AUPH 6.29%), Axovant Sciences (AXGT -3.01%), and Esperion Therapeutics (ESPR 6.85%) -- all of which are run by proven leaders -- could be savvy.

If it worked once, why not try it again?

Aurinia Pharmaceuticals' C-suite is packed with ex-Aspreva Pharmaceuticals executives who know a thing or two about lupus nephritis (LN).

A business person points at a lit up light bulb among a row of unlit light bulbs.


Aspreva Pharmaceuticals is the company behind CellCept, one of the most common drugs used to help control LN flares. In 2008, Galencia spent $915 million, a 34% premium to Aspreva's average share price over the preceding 90 days, to acquire Aspreva to get its hands on CellCept.

Today, these executives, including Aspreva's founder and former CEO, Richard Glickman, are hard at work at Aurinia Pharmaceuticals developing voclosporin, a drug that can be used with CellCept in LN treatment.

Earlier this year, data from a phase 2 trial of voclosporin showed that they might succeed in reshaping this indication yet again. In trials, adding voclosporin to CellCept resulted in a complete remission rate of 49%. In the CellCept monotherapy arm of the study, the rate was only 24%. A doubling of the rate is important, because controlling LN early reduces the likelihood that LN patients will end up with end-stage renal failure requiring dialysis.

A phase 3 study that could confirm its phase 2 findings is already under way, with a completion date of 2020. If the trial's a success, Glickman and his crew estimate voclosporin's market opportunity could be $1 billion in the United States alone. Given that this company's market cap is only $530 million, betting that this management team will succeed again could be profit-friendly.

Tackling the toughest disease of all -- a second time

One of the most shocking clinical trial statistics out there is that 99% of Alzheimer's disease clinical trials have been a failure. Labs are littered with once-promising Alzheimer's disease approaches that have proved to be duds.

Yet that's not stopping the folks at Axovant Sciences from setting their sights on tackling Alzheimer's disease. The company has a phase 3 trial under way in the indication, and results are expected soon.

While the odds are stacked against it, Axovant Sciences' management is one big reason investors might not want to bet on a failure. Its chief development officer is Lawrence Friedhoff, who beat the odds once before, when he developed Aricept, one the globe's most commonly used Alzheimer's disease drugs.

Axovant Sciences' CEO also boasts a been-there-done-that resume. Before joining the company earlier this year, David Hung was CEO of Medivation, a company that developed the multibillion-dollar blockbuster prostate cancer drug Xtandi, and that was later sold to Pfizer last year for $14 billion.

The drug the two are developing at Axovant Sciences is RVT-101, which they bought from GlaxoSmithKline's dustbin for only $10 million (plus potential milestones and royalties). Management thinks that pairing up RVT-101 -- or intepirdine, as it's now called -- with Aricept can deliver a one-two punch to the disease. Intepirdine boosts acetycholine, a neurotransmitter that sends signals between nerve cells, while Aricept helps prevent acetycholine from being broken down by the body.

In mid-state studies, the two-drug combination statistically improved patient performance on tests, and the phase 3 study is designed identically to this mid-stage trial. There's no guarantee that steps management's taken will turn intepirdine into a winner, but it seems to me that it's leveraged its experience to design a trial with the best shot at success.

Given the sheer size of the Alzheimer's disease population and the massive unmet need for new drugs, overcoming the odds could be a boon to investors.

The person behind Lipitor takes another aim at cholesterol

Statins are used to control bad cholesterol levels in patients at risk of heart disease and stroke. They're the most widely prescribed class of drugs in the world, and of them, there's none that's prescribed more often than generic Lipitor.

Before Lipitor lost its patent protection, it was the best-selling medicine on the planet, with sales of $13 billion per year. The drug wasn't the first statin to make it to market, but it has been the biggest commercial success.

So what does this have to do with Esperion Therapeutics? Well, Lipitor's development was headed up by Roger Newton, who's now the CEO at Esperion Therapeutics. Newton not only spearheaded Lipitor, but he also founded another cholesterol-drug company, also called Esperion, that he sold to Pfizer for $1.3 billion in 2003.

Today, Newton's team is developing bempedoic acid, a drug that controls cholesterol production upstream of statins. Because bempedoic acid has a different mechanism of action than statins do, its ongoing phase 3 study is evaluating its use in combination with statins. Other studies are also evaluating its use with the blockbuster cholesterol-drug Zetia and with a new class of cholesterol drugs known as PCSK9 inhibitors.

In phase 2 trials, pairing bempedoic acid up with statins reduced bad cholesterol by an additional 20%. Results from Esperion Therapeutics' phase 3 study are expected next year, and if they're good, Newton may strike it rich in this indication yet again. Given his track record already, I'm not betting against him.  

Todd Campbell owns shares of Esperion Therapeutics and Pfizer. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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