Biotech Buzz Post No. 13 - ARDM

Aradigm has secured a major partner, in Grifols, for its inhaled ciprofloxacin. The product is going to Phase III after good Phase II data.

Aradigm (ARDM.OB) – Breathtaking opportunity

“A business succeeds not because it is long established or because it is big but because there are men and women who live it, sleep it, dream it, and build great future plans for it” – J. Willard Marriott (1900-1985), founder of the Marriott hotel chain.


Hello from West 39th Street in New York, from whence I’ll be blogging for the next few days as a guest of J. Willard. One of the things I love about biotech is how a drug or medical device developer can be more or less ignored by mainstream investors for a long period of time, trading at a not-very-respectable market capitalisation (and sometimes even over-the-counter as we saw with Advanced Cell last week), and then along comes another much larger and established company that, seeing the strategic value of what the smaller company has to offer, takes everyone by surprise by paying what seems like an outrageously high price to access to the relevant products or technology. A classic example of that happened in 1995 when Genentech began a collaboration with a small San Diego-based antibody drug developer called IDEC Pharmaceuticals. IDEC had done its IPO during the 1991 biotech boom at $US15 per share, but by March 1995 its stock was down to under US$2 per share. IDEC’s lead antibody was IDEC-C2B8, for the treatment of non-Hodgkin’s lymphoma. The drug had completed Phase II with good results but IDEC had only US$22m in cash so it couldn’t fund Phase III. Consequently in early March 1995 IDEC was capitalised on Nasdaq at only US$46m. Then along came Genentech and agreed to a US$57m funding package to complete the Phase III work. By the time IDEC-C2B8 had gained FDA approval two and a half years later, ahead of its launch as Rituxan, IDEC stock had risen nine-fold. Today Rituxan is one of the world’s biggest selling drugs with US$6.9bn in global sales in 2012. Meanwhile IDEC’s successor company, Biogen Idec, is the world’s 34th largest pharma company with a market capitalisation of US$53.5bn. That’s right, billion. Not all of those billions were the result of Rituxan but that drug provided an excellent start. Investors who bought IDEC in March 1995 have now made over 360 times their money. By contrast the Nasdaq Biotechnology Index has only increased a mere 18-fold, from 119 then to 2,105 points now.

In the light of that model recovery story, let’s take a look at Aradigm (OTCBB: ARDM), a pulmonary drug delivery company from the Bay Area. No two biotech stories are the same but Aradigm has, shall we say, certain parallels to the IDEC of two decades ago. Aradigm’s market capitalisation back on 20 May was around US$25m. Its lead product, an inhaled antibiotic called Pulmaquin, has completed Phase IIb with strong numbers. In May 2013 Aradigm was able to announce that Pulmaquin had been licensed to the Spanish plasma products company major Grifols (MCE: GRF), in a deal where the Spaniards, whose market cap is around US$5bn, agreed to take it into Phase III and spend US$65m on clinical development. And Aradigm’s current CEO, Igor Gonda, is, like IDEC’s William Rastetter in 1995, an ex-Genentech man.

Aradigm came to my attention because Igor Gonda is an old friend who has lived a couple of times in Australia. Igor hails from what used to be called Czechoslovakia. In 1968 he was taking advantage of Prague Spring to study chemistry in England, at the University of Leeds, when he got the call from his family that the Soviets had decided, somewhat peremptorily, to call off Dubček’s experiment in running a free country. Igor stayed at Leeds and never went back. He was in academic chemistry for a long time, and that included a stint at the University of Sydney, but by the early 1990s he had discovered the Dark Side, going to work for Genentech in South San Francisco as a senior member of the development team that gave us Pulmozyme, an inhaled enzyme for the treatment of cystic fibrosis the FDA approved in 1993. I first met Igor during his second Australian assignment, where from 2001 to 2006 he was CEO of Acrux (ASX: ACR), a Melbourne-based transdermal drug delivery company. Acrux had developed a transdermal spray to deliver various drugs, and clinical data was starting to come in. My first meeting with Igor was memorable not just because he has a noticeable Eastern European accent but because of what we were talking about. This was around 2005, in the days when transdermal testererone delivery for women was still regarded as future blockbuster territory. It’s well known that raising the level of circulating testosterone in women boosts their libido, and the only reason we have yet to see this would-be ‘Viagra for women’ approved is the cardiovascular risks (click here). In 2005 Acrux had been working with Susan Davis at Melbourne’s Monash University to show, in a Phase IIb study, that libido would go up in premenopausal women using Acrux’s spray-on testosterone formulation. I asked how efficacy had been measured. Well, said Igor enthusiastically, that’s simple. The test subjects had to keep a diary and record in it every sexual thought and act they engaged in. It didn’t matter whether the activity was hetero or not. The investigators could still score the diaries using reliable methodologies that P&G had helped develop in their efforts to bring such a patch to market. I joked that I’d be interested in being an investigator in this study, if that was at all possible. It occurred to me years later that Igor et. al. could have been sitting on an early draft of 50 Shades of Grey and that in those diaries he could have had a highly profitable product without ever having to go to the FDA. Indeed, the profits would be obscene. If you want to see how good the testosterone product could have been, check out Davis et. al.’s study of P&G’s Intrinsa patch in post-menopausal women.  The 2008 New England Journal of Medicine paper isn’t exactly E.L. James but nonetheless makes for interesting reading (click here).

Igor didn’t get to see Acrux reach its payday before he returned to California in 2006 to become CEO of Aradigm. However the payday did come, and only three years later, when Acrux read out Phase III data for Axiron, a testosterone spray for hypogonadal men, demonstrating that the product worked well in normalising testosterone levels in the treated patients. That data prompted Eli Lilly in 2010 to license Axiron for US$50m upfront payment, plus US$87m on FDA approval and US$195m in sales milestones. Axiron launched in the US in 2011 and it’s the main reason why Acrux is currently capitalised at A$519m. I give Igor credit for helping Acrux get ready for that success. Seven years later and Igor would argue that his second stint at Aradigm – he previously ran R&D there in the late 1990s and early 2000s – has set up that company for similar success to Acrux.

Aradigm is being built on a better way to deliver the antibiotic ciprofloxacin to people with bronchiectasis, a rare respiratory disorder. Bronchiectasis is what happens when chronic inflammation damages the lung’s bronchi and bronchioles, impairing lung function. Just like people with cystic fibrosis or COPD, that is, Chronic Obstructive Pulmonary Disorder, people with bronchiectasis – and there may be 100,000-120,000 of them in America – are more susceptible to lung infections than healthy patients, and such infections can result in damaging lung inflammation. One of the baddest bugs attacking them is Pseudomonas aeruginosa, but that Gram-negative bacterium can be dispatched fairly easily by ciprofloxacin, one of the last great antibiotics to be brought to the market (in 1987, by Bayer – its US exclusivity ended in 2004). At the moment there are oral and injectable versions of ciprofloxacin. Aradigm hopes that its Pulmaquin product, now moving into Phase III, can become the first inhalation version of ciprofloxacin. Pulmaquin has Orphan Drug status for its use in bronchiectasis, and approval would make it the first ever product indicated for this disease.

The reason inhalable ciprofloxacin would be desirable is that you can quickly deliver the active to the site where it is actually needed instead of relying on the slower and less efficient gut and/or bloodstream routes. Currently there are inhaled antibiotics out there for patients with lung disorders, although not specifically indicated for bronchiectasis – TOBI, from Novartis (delivering tobramycin), and Cayston, from Gilead (delivering aztreonam). The trouble with these formulations is that they have to be delivered more than once a day (twice daily for TOBI, three times daily for Cayston) because the half-life in the lungs is short. Aradigm has been able to develop Pulmaquin as a once-daily product by wrapping most of the ciprofloxacin dose in liposomes, leaving just a little in an aqueous solution. The liposomes ensure controlled release of drug for better efficacy.

The Phase IIb data suggests that Pulmaquin works very well as a once-daily product. In top-line data from the 42-patient ORBIT-2 trial available in late 2010 Pulmaquin reduced P. aeruginosa in the sputum of bronchiectasis patients (unlike the testosterone in women trial, this trial had a significant ‘yuck’ factor) by 4.2 logs from baseline (ie almost 16,000-fold) over 28 days versus only 0.1 log for the controls (p=0.004). The number of patients needing supplemental antibiotics was more than halved in the treated patients, with statistical significance, while the number of days until first pulmonary exacerbation was more than 50% higher for the treated patients, again with a low p value. A related product called Lipoquin had just used liposomal delivery, and this was also tested in bronchiectasis patients in a Phase IIb trial called ORBIT-1, but the data from ORBIT-2 was slightly better, presumably because having some drug in aqueous solution lets the formulation go to work faster. The ORBIT trial data encouraged Aradigm to try to go to Phase III with Pulmaquin, under an IND which cleared in March 2012.

Now enter Grifols. On 21 May 2013 the Spanish company took exclusive, worldwide licenses over both Pulmaquin and Lipoquin for all severe respiratory diseases, in return for providing US$65m in funding for upcoming bronchiectasis Phase IIIs, as well as US$25m in development milestones payable to Aradigm. The American company will receive tiered royalties on worldwide sales. Grifols also agreed to take a US$26m equity stake worth 35% of the company, at the same time as various third party investors also took another  US$15m in new stock. The deal closed in late August. Aradigm thinks this is a pretty important development. Grifols isn’t quite a household name like Genentech but it is the No. 3 player in the global plasma products market alongside Baxter, the world’s 21st largest pharma company, and CSL, the 27th. Grifols itself sits at No. 39 of the list of the world’s largest pharma companies with US$3bn in sales. A key attraction for Grifols to do this deal was the perceived fit between Pulmaquin and Grifols’s Prolastin C, an Alpha-1 proteinase inhibitor for the treatment of Alpha-1 antitrypsin deficiency. If you have that kind of deficiency you have inherited COPD. With Pulmaquin, Grifols would have effectively have a new product that could take market share away from CSL and Baxter, in addition to all the upside in treating patients with bronchiectasis as well as (later on) COPD and cystic fibrosis.

Investors have liked the Grifols deal, re-rating Aradigm back to its current US$114m market capitalisation. The attraction of the deal for Aradigm shareholders is that the company became amply funded to complete Phase III for its lead product and it will now have cash to develop its next products and technologies. This will likely involve more work Aradigm’s AERx nebuliser. AERx is potentially a big step forward in pulmonary drug delivery because its latest iteration is a hand-held device considerably smaller than today’s nebulisers that can deliver drugs in a fine mist in just one or two breaths rather than in the 15 minutes or so currently required. It may not have the market reach of monoclonal antibodies, but there’s a lot of drugs out there that could benefit from new or improved pulmonary delivery formulations.

Stuart Roberts, Australian Life Sciences consultant, with global focus
Nisi Dominus Frustra

+61 (0)447 247 909

sroberts2164@gmail.com

Twitter @Biotech_buzz

About Stuart Roberts. I started as an equities analyst at the Sydney-based Southern Cross Equities in April 2001, focused on the Life Sciences sector from February 2002. Southern Cross Equities was acquired by Bell Financial Group (ASX: BFG) in 2008 and I continued at Bell Potter Securities until June 2013. Over the twelve years to 2013 I built a reputation as one of Australia's leading biotech analysts. I am currently consulting to the Australian biotech industry. Before joining Southern Cross Equities I wrote for The Intelligent Investor, probably the most readable investment publication in Australia. I have a Masters Degree in Finance from Finsia. My hobbies are jazz, cinema, US politics and reading patent applications filed by biotechnology and medical device companies.

Previous Australian Biotechnology Buzz posts:
Advanced Cell Technology (OTCBB: ACTC), 4 September 2013
Aradigm (OTCBB: ARDM), 8 September 2013
Cellular Dyamics (Nasdaq: ICEL), 3 September 2013
ImmunoCellular Therapeutics (NYSE MKT: IMUC), 27 August 2013
Immunomedics (Nasdaq: IMMU), 21 August 2013
Inovio Pharmaceuticals (NYSE MKT: INO), 24 August 2013
Merrimack Pharmcaceuticals (Nasdaq: MACK), 26 August 2013
Oncolytics Biotech (Nasdaq: ONCY),  22 August 2013
Pharmacyclics (Nasdaq: PCYC), 2 September 2013
Regulus Therapeutics (Nasdaq: RGLS), 23 August 2013
Sunshine Heart (Nasdaq: SSH), 28 August 2013
Synta Pharmaceuticals (Nasdaq: SNTA), 1 September 2013
Verastem (Nasdaq: VSTM), 5 September 2013

Disclaimer. This is commentary, not investment research. If you buy the stock of any biotech company in Australia, the US or wherever you need to do your own homework, and I mean, do your own homework. I'm not responsible if you lose money.