With the SPDR S&P Biotech Index up 52% over the trailing 12-month period, it's evident that investment dollars are willingly flowing into the biotech sector. Keeping that in mind, let's have a look at some of the rulings, studies, and companies that made waves in the sector last week.
Biotech hot potato
Collaborations are a key strategy small and underfunded biotech companies use to advance their lead compounds. However, when those compounds fail to deliver in clinical studies you can sometimes witness the large biotech and pharmaceutical companies behind these studies playing "hot potato" with these compounds. This week witnessed two such instances.
On Tuesday evening Endocyte (NASDAQ:ECYT) announced that Merck was cutting its losses on cancer drug hopeful vintafolide and returning all worldwide licensing and development rights to Endocyte. This decision by Merck comes after a phase 3 study (the PROCEED trial) involving vintafolide for platinum-resistant ovarian cancer was recommended to be stopped by the data safety monitoring board after vintafolide failed to demonstrate efficacy toward a pre-defined progression-free survival target. Endocyte is now going to wait for updated overall survival data from its phase 2b TARGET trial in non-small cell lung cancer patients to gauge whether or not it will continue to develop vintafolide. While this dip could easily represent a decent buying opportunity for investors since Endocyte has plenty of cash in its coffers (for now at least), you should also keep in mind that Endocyte just lost a funding partner that had a very experienced sales staff, and that's an intangible factor that is difficult to value.
Then, in a case of deja vu, Merrimack Pharmaceuticals (NASDAQ:MACK) announced on Thursday evening that Sanofi was returning development and licensing rights for MM-121 after it demonstrated no statistical benefits in a midstage treatment-resistant or refractory-advanced ovarian cancer trial of which the results were released in October. Sanofi will still cover MM-121's clinical costs for the next six months, but after that Merrimack will be on its own. Additional data released the same night from a study involving triple-negative breast cancer patients showed that the combination of paclitaxel and MM-121 actually delivered a lower pCR rate and significantly higher adverse events than the control arm. In other words, Sanofi appears to have made a smart move in cutting its losses and returning this hot potato back to Merrimack.
Another "almost" deal
Merger and acquisition activity remains heated in the health-care sector with word emerging late in the week that on May 30 AbbVie (NYSE:ABBV) approached Irish-based global biopharmaceutical company Shire (NASDAQ:SHPG) with a $46 billion offer, or a 23% premium to the previous day's close. AbbVie believed the cost synergies of combining, as well as Shire's diverse pipeline, would help it cope with Humira's eventual patent losses in a few years. Humira is currently the best-selling drug in the world with sales of more than $10 billion, annually.
The real draw, though, is Shire's Irish address, which would have allowed AbbVie to relocate its headquarters overseas to take advantage of a corporate marginal tax rate that caps out at 12.5%, compared with the current top-end rate in the U.S. of 40%! The difference could have been hundreds of millions in savings for AbbVie. Ultimately, Shire's board of directors rejected the deal, as it believes the long-term strategy to double revenue from $10 billion in 2013 to $20 billion by 2020 will reward shareholders more than accepting a $46 billion offer from AbbVie. This may not be the last we hear of this takeover chatter with Shire, but I certainly wouldn't suggest chasing it any higher.
A coveted designation
On Wednesday, clinical-stage biopharmaceutical Insmed (NASDAQ:INSM) brightened up shareholders' day with an 8-K filing to the Securities and Exchange Commission which noted that it had been granted the breakthrough therapy designation from the Food and Drug Administration for its inhaled treatment-resistant nontuberculous mycobacterial lung infection drug Arikayce. The breakthrough designation may allow Insmed to file for a new drug approval for Arikayce without having to run a costly and time-consuming phase 3 study, and could also gain it a priority review. I for one am still not sold on the investigational inhaled drug as it failed to meet its primary endpoint in phase 2 studies and demonstrated more adverse events than the control arm. Insmed is a company I'd want to watch from the sidelines only.
Shareholders in GW Pharmaceuticals (NASDAQ:GWPH), a unique biopharmaceutical company using cannabinoids to effect biologic pathway change, had a great week after the company announced physician reports from 27 children and young adults taking epidiolex for treatment-resistant epilepsy on Tuesday. The results showed a mean overall reduction in seizures from baseline of 44% during the 12-week course, with 41% of all patients seeing a 70% or greater reduction in seizures, and 15% of patients completing the 12-week course seizure-free. Furthermore, with 80% of all adverse events considered mild-to-moderate and no patients needing to withdraw from the study, it would appear epidiolex is safe and tolerable. Understand that GW still has a long way to go with the development of this drug, but it was another solid step in the right direction. On the whole, however, I believe GW's valuation given the underperformance of Sativex is enough to give even the riskiest investors a bout of vertigo.
Finally, clinical-stage biopharmaceutical bluebird bio (NASDAQ:BLUE) added 56% on the week after releasing encouraging data over the weekend for the first two patients in its HGB-205 study utilizing LentiGlobin as a treatment beta-thalassemia major. As bluebird noted, both patients have been transfusion-free since day 10 and 12, respectively, which is incredible considering that beta-thalassemia major patients require regular blood transfusions. Further, no drug-related adverse events were noted in either patients, which is also incredible given that gene-altering drugs often come with notable side effects. While this is a great start for bluebird and LentiGlobin, it also just represents a handful of patients. Once we have data on its expanded 15 patient study then it might be time to break out the champagne. Until then, I'd suggest keeping your excitement contained.