EMD Serono, the biopharmaceutical business of Merck (NYSE: MRK) KGaA, Darmstadt, Germany in the US and Canada, and Pfizer Inc. (NYSE: PFE) today announced that the US Food and Drug Administration (FDA) has approved BAVENCIO® (avelumab) Injection 20 mg/mL, for intravenous use, for the treatment of adults and pediatric patients 12 years and older with metastatic Merkel cell carcinoma (mMCC). This indication is approved under accelerated approval based on tumor response and duration of response. Continued approval for this indication may be contingent upon verification and description of clinical benefit in confirmatory trials.1 BAVENCIO was developed, reviewed and approved through the FDA’s Breakthrough Therapy Designation and Priority Review programs.
BAVENCIO, a human anti-PD-L1 antibody, is the first FDA-approved therapy for patients with mMCC.2 Metastatic MCC is a rare and aggressive skin cancer, with fewer than half of patients surviving more than one year and fewer than 20% surviving beyond five years.3
“At the heart of this FDA approval is our drive to make a meaningful difference for patients with hard-to-treat cancers like metastatic Merkel cell carcinoma,” said Belén Garijo, CEO Healthcare and Member of the Executive Board of Merck KGaA, Darmstadt, Germany. “BAVENCIO’s journey has included years of hard work – from the scientists who discovered this molecule in our labs, to our alliance with Pfizer and to the study participants and investigators worldwide. We are grateful to all who have made it possible for us to bring this important new treatment option to patients.”
“Today is a significant milestone for people fighting metastatic Merkel cell carcinoma, who until now have not had any options beyond chemotherapy,” said Albert Bourla, Group President, Pfizer Innovative Health. “This approval demonstrates the power of collaboration to accelerate meaningful new choices for cancer patients.”
“Merkel cell carcinoma is rarer than some of the more well-known skin cancers, however, it’s very aggressive and the proportion of people who die from MCC is much higher than that of people with melanoma,” said Deborah S. Sarnoff, MD, President of the Skin Cancer Foundation. “With this approval, I believe there is new hope for people and their families touched by this rare form of skin cancer.”
The efficacy and safety of BAVENCIO was demonstrated in the JAVELIN Merkel 200 trial, an open-label, single-arm, multi-center study conducted in 88 patients with histologically confirmed metastatic MCC whose disease had progressed on or after chemotherapy administered for distant metastatic disease. Sixty-five percent of patients were reported to have had one prior anti-cancer therapy for metastatic MCC and 35% had two or more prior therapies. The major efficacy outcome measures were confirmed overall response rate (ORR) according to Response Evaluation Criteria in Solid Tumors (RECIST) v1.1 as assessed by a blinded independent central review committee (IRC) and IRC-assessed duration of response.
The overall response rate (ORR) was 33% (95% confidence interval [CI]: 23.3–43.8%).1 Eleven percent of patients experienced a complete response (95% CI: 6.6-19.9%) and 22% of patients experienced a partial response (95% CI: 13.5-31.7%). Tumor responses were durable, with 86% of responses lasting for at least six months (n=25).1 Forty-five percent of responses lasted at least 12 months (n=13).1 Duration of response ranged from 2.8 to over 23.3 months.
The warnings and precautions for BAVENCIO include immune-mediated adverse reactions (such as pneumonitis, hepatitis, colitis, endocrinopathies, nephritis and renal dysfunction, and other adverse reactions), infusion-related reactions and embryo-fetal toxicity. The most common adverse reactions (reported in at least 20% of patients) included fatigue (50%), musculoskeletal pain (32%), diarrhea (23%), nausea (22%), infusion-related reactions (22%), rash (22%), decreased appetite (20%) and peripheral edema (20%).1 For more information, please see Important Safety Information for BAVENCIO below.
BAVENCIO is designed to potentially engage both the adaptive and innate immune systems. By binding to PD-L1, BAVENCIO is thought to prevent tumor cells from using PD-L1 for protection against white blood cells, such as T-cells, exposing them to anti-tumor responses.1 BAVENCIO has been shown to induce antibody-dependent cell-mediated cytotoxicity (ADCC) in vitro.
The battle over Obamacare is causing a rift not only on Capitol Hill, but within the business community as well.
Two influential lobbying groups are throwing their weight behind the American Health Care Act, the House Republican bill that would repeal and replace Obamacare.
The U.S. Chamber of Commerce this week sent an urgent letter to lawmakers pushing for passage. The chamber represents some of the nation’s biggest companies and warned that it plans to track the vote and let its members know who opposed it.
Small businesses have also been vocal supporters. The National Federation of Independent Business called passing the legislation a “necessary first step.” The NFIB has led the charge against President Barack Obama’s health-care law, fighting the government all the way to the Supreme Court over its expansion of Medicaid and the provision requiring all Americans to carry insurance or pay a penalty.
The court upheld the law. But since President Donald Trump’s election, NFIB said, the prospect of repealing Obamacare has sent small businesses optimism skyrocketing.
“The American Health Care Act would repeal the most punishing elements of Obamacare, including the massive tax increases and mandates that have increased costs, limited choices, and smothered job creation,” the group said in a statement.
Businesses in opposition
On the other side are many companies in the health-care industry itself, which could be forced to shoulder more costs if federal funding for Medicaid is reduced. The American Hospital Association raised concerns about the millions of people who could lose coverage under the bill. The American Medical Association, which represents doctors, voiced similar objections. The Congressional Budget Office estimates that 24 million Americans would become uninsured over the next decade under the House plan.
“We physicians often see patients at their most vulnerable, from the first time they set eyes on a newborn child to the last time they squeeze a dying loved one’s hand,” the AMA said. “We don’t want to see any of our patients, now insured, exposed to the financial and medical uncertainties that would come with losing that coverage.”
One group of unlikely bedfellows has a specific complaint about the bill. The Alliance to Fight the 40 is a coalition of businesses and unions that have pushed for repealing the so-called Cadillac tax of 40 percent on the most generous employer health benefit plans. Members include health insurers such as Cigna and Blue Cross Blue Shield, large corporations such as CBS and Procter & Gamble and labor groups like the United Brotherhood of Carpenters and Joiners of America.
The alliance successfully lobbied to delay the effective date of the tax to 2020 under current law. The House bill would push that back to 2026 — a partial victory for the group. Still, the bill fully repeals other Obamacare taxes that pay for coverage provisions, making the Cadillac tax an even more important revenue source over time.
House Republican leaders abruptly postponed a planned vote on the GOP health care bill Thursday as they struggled to find sufficient support to pass it. GOP lawmakers have been told procedural votes on the bill will still be held tonight and that a full vote on the measure could take place Friday.
The move to delay the vote came after House conservatives said there was no deal struck on the bill following a meeting with President Donald Trump at the White House Thursday. According to the NBC vote count, GOP leaders were still at least eight votes short of winning enough backing for passage.
Rep. Mark Meadows R.-N.C., chairman of the conservative House Freedom Caucus, told reporters that there was no deal after the meeting, but added he was still hopeful one can be struck.
“I am very hopeful we can find a way to yes,” Meadows said.
Rep. Tom Cole R.-Okla., a supporter of the health care bill, said the move away from a Thursday night vote “certainly makes a lot of sense.”
“You reach a certain point in the day, and even if there were an agreement, you’d have to call the conference together, explain the deal, between the deal there might be a discussion, there might be last-minute changes or tweaks, I don’t think you want to do this late at night,” Cole said.
White House spokesperson Sarah Huckabee Sanders said the delay was procedural and that debate will start Thursday evening with a vote on the bill Friday.
House leaders and various Republican factions have worked in recent days to find a deal on the American Health Care Act, supported by House Speaker Paul Ryan, that would appease enough moderates and conservatives to win enough backing to get the legislation passed.
There are currently 30 Republicans who say they will not vote for the Trump-backed legislation.
Ryan huddled with moderate Republicans Wednesday night for two-and-a-half hours over pizza and snacks to hash out a way to move forward. But as rank-and-file members filed out, many taking a back way to avoid the press, they revealed little amid indications the negotiations had not gone well.
Rep. Charlie Dent, R-Penn., released a statement after the meeting announcing that he’d vote “no.”
“I believe this bill, in its current form, will lead to the loss of coverage and make insurance unaffordable for too many Americans, particularly for low-to-moderate income and older individuals,” Dent said.
The opposition helped push NBC’s tally of Republicans against or leaning against the bill to 30 — higher than it was two days ago.
The tenor of the negotiations changed Wednesday evening after the White House, responsible for negotiating with the conservatives while Ryan was tasked with the moderates, told critical members that they’d consider their demands. Those demands include removing the Essential Health Benefits, an Obamacare provision that requires insurance plans cover a minimum number of services, including maternity care, emergency room care, hospitalization, mental health care and more.
“It is our leadership team that has set an arbitrary deadline — we are happy to keep working with the White House and the leadership team but we don’t think the arbitrary deadline of (Thursday) really means anything,” said Rep. Justin Amash, R-Mich., who is voting against the bill unless desired changes are made.
Advanced Accelerator Applications’ NETSPOT has managed to demonstrate superior efficacy compared to Octreoscan.
Advanced Accelerator Applications has been aggressively expanding its network of licensed radiopharmacies.
NETSPOT reimbursement in USA will become effective from January 01, 2017. This will be a strong revenue driver for the company.
There are significant entry barriers for peers to enter the molecular nuclear medicine market.
Product contamination and excessive radiation exposure continue to be major risks for molecular nuclear medicines.
Advanced Accelerator Applications (NASDAQ:AAAP) is a leader in the European molecular nuclear medicine or MNM segment. Since last few years, the company has been steadily increasing its presence in USA. Advanced Accelerator Applications offers positron emission tomography or PET and single-photon emission computed tomography or SPECT products which are used to diagnose conditions in areas such as neurology, oncology, cardiology, infectious diseases, and inflammation. This radiopharmaceutical company currently markets seven diagnostic products in the European market and recently launched one of its products in USA.
Besides these commercialized diagnostic drug kits, Advanced Accelerator Applications also boasts of six investigational candidates in its research pipeline. The company is also moving closer to launching its first MNM therapy, Lutathera, for neuroendocrine tumor or NET patients both in USA and European Union. In 2015, Advanced Accelerator Applications posted revenues close to €88.6 million. The company reported a compounded average growth rate of 29.5% in its revenues from 2012 to 2015. With Advanced Accelerator Applications launching multiple products across geographies and securing reimbursement, these revenue numbers are expected to rise significantly in 2016 and 2017.
In this article, I will present my rationale for considering Advanced Accelerator Applications as a solid buy opportunity in 2017. I believe that solid ramp up of NETSPOT in USA can prove to be a significant growth opportunity for the company in 2017.
NETSPOT is all set to become a preferred diagnostic drug kit for NET patients
On June 01, 2016, U.S. Food and Drug Administration or FDA approved Advanced Accelerator Applications’ NETSPOT, a kit used by the local radiopharmacy to reconstitute an injection, which uses radioactive diagnostic agent, Gallium Ga 68 dotatate. Since GA 68 is a positron emitter, it is used in PET scan to locate somatostatin receptor positive NETs in the pancreas, lungs, stomach, and other organs in the body. Post detection of these NETs, the malignant or benign nature of these tumors is confirmed with histopathology or other methods. NETSPOT is a first-in-class drug and was approved by the FDA within record 23 months after the company’s first pre-IND meeting with the agency.
Before we take a plunge in understanding the characteristics of NETSPOT, it makes sense to understand the market opportunity available for Advanced Accelerator Applications in MNM segment. Today, the global MNM market, which involves diagnostics and therapeutics, is worth more than $4.0 billion. Further, in the next 15 years, this segment is expected to rise at a CAGR of 30%, a rate significantly more than that witnessed in other therapeutic segments. In 2030, global MNM market is expected to be worth $25 billion.
Currently, molecular nuclear diagnostics or MND account for 90% of the total MNM market. These statistics highlight the scope of opportunity available for NETSPOT and Advanced Accelerator Applications in the MNM segment.
It is also important to note that these MNDs are used extensively across multiple indications. Oncology, cardiology, and other indications account for around 65%, 33%, and 2%, of the MNM usage, respectively.
There are many reasons why NETSPOT can fast become a preferred choice as a NET diagnostic agent.
NETSPOT has managed to demonstrate superior efficacy as compared to the previously approved diagnostic product, Mallinckrodt Pharmaceuticals (NYSE:MNK) Octreoscan diagnostic kit by pinpointing 30% more lesions in patients suffering with somatostatin receptor positive NET.
Since NETSPOT has 100 times higher affinity to somatostatin receptor as compared to Octreoscan, it is expected to result in improved accuracy for NET patients. This gives a solid tool to physicians to detect malignant NET cases in earlier stage of the disease.
This projection seems to be verified by real life statistics. Around 71% of the patients scanned using NETSPOT diagnostic agent found an improvement in their disease management. This is because NETSPOT can be used not only for detecting tumors but also for understanding the efficacy of somatostatin receptor-mediated therapies in NET patients.
NETSPOT has shown much better results with a lower effective dose as compared to that of Octreoscan. This reduces overall radiation exposure for the patients, a very important factor while considering the safety profile of radiopharmaceuticals.
Advanced Accelerator Applications is actively developing distributor network for NETSPOT in USA
Molecular Nuclear Medicine based PET products have a low shelf life of 10 hours. Advanced Accelerator Applications has entered into partnerships with Cardinal Health (NYSE:CAH) and Zevacor Pharma to create a network of radio pharmacies in USA for distribution of NETSPOT. At the end of September 2016, the company was supplying 80 patient-ready doses of the drug on a monthly basis. By end of February 2017, this number has increased to more than 400 monthly doses.
On September 28, 2016, the National Radiation Commission provided guidance about licensing Gallium 68 generators, a device which is used to extract this positron emitter gallium isotope from decaying gemanium-68 source. This has paved the way for the adoption of this diagnostic kit by multiple radiopharmacies in USA, as it will allow more number of GA 68 generators to be used in the country.
Demand for NETSPOT has picked up since June 2016. In 2016, NETSPOT earned approximately $1.6 million in revenues for Advanced Accelerator Applications.
NETSPOT has managed to secure reimbursement from all eight major and many other private health insurers in USA
Advanced Accelerator Applications has managed to negotiate reimbursement for NETSPOT from all major healthcare payers in USA, effective from January 01, 2017. The subsequent expanded access will prove to be a major growth driver for NETSPOT in 2017.
For Q3 2016 and Q4 2016, the diagnostic drug received positive coverage from all eight Medicare Administrative contractors. In December 2016, NETSPOT was granted the Transitional Pass-Through Status under an “A-code” by Centers for Medicare & Medicaid Services or CMS, effective January 01, 2017. This transitional pass-through payment status can be applicable for two years and is used for medical devices which do not fit existing categories of devices.
NETSPOT has been welcomed by the payer community mainly on account of greater ease of use in hospitals. Unlike competitors which may require up to 48 hours protocol, NETSPOT diagnostic process requires only 2 hours. The subsequent drop in number of examinations that a patient has to undergo has helped save cost and time of hospitals. Higher NETSPOT throughput has also helped to reduce cost per examination for patients as compared to that required with Octreoscan.
Further, NETSPOT also requires lesser materials as compared to Octreoscan, another reason why payers are bound to be happy with this new diagnostic kit.
On March 01, 2017, it was announced that NETSPOT was included by National Comprehensive Cancer Network or NCCN in its guidelines for evaluation of NET. This can prove to be a major milestone for the product as it will help boost confidence of both physician and payer community in the clinical profile of the drug.
In 2017, Advanced Accelerator Applications is also anticipating Society of Nuclear Medicine and Molecular Imaging to include NETSPOT in its Appropriate Use Criteria.
I expect NETSPOT to earn revenues close to $26.2 million from the U.S. market in 2017. My projection is based on two different uses for NETSPOT. The first one is to locate lesions in NET patients. The incidence of NET patients in USA is 18,320. Since NETSPOT has already been included in NCCN guidelines for evaluation of NET and also included in coverage by all major government and private health payers, I have assumed that at least 25% of these NET patients will be prescribed NETSPOT PET scan in 2017.
While the list price of the imaging agent is very high, I have found effective price of each dose by dividing total revenues earned by the product in 2016 to total doses sold. In 2016, NETSPOT earned $1.6 million in revenues through the sale of 485 doses. Hence, effective price per dose of NETSPOT was around $3298. Considering the same price in 2017, NETSPOT may earn approximately $15.1 million in revenues for this indication.
NETSPOT can also be used to study the effect of therapy on NET patient. In USA, there are around 111,300 patients suffering with NET. Since it may take some time for the imaging agent to penetrate this segment, I have assumed that a very modest 3% of the NET patients will opt for NETSPOT PET scan as post-therapy evaluation measure. NETSPOT can thus earn around $11.0 million from this label in 2017.
Advanced Accelerator Applications has also launched SomaKit TOC in Europe
Netspot is known as SomaKit TOC in Europe. It was approved by the European Commission on December 15, 2016. Since Advanced Accelerator Applications has a strong presence in European markets, it will be much easier for the diagnostic kit to expand its presence.
However, investors should keep in mind that securing reimbursement in all the European markets can be a time-consuming process. Further, since pricing is mainly controlled by the government, it generally lands up significantly lower than the market rate that is charged in USA. Hence, I have conservatively assumed that SomaKit TOC’s revenue contribution in 2017 will be around $2.5 million, much lower than the projected NETSPOT’s revenues from USA.
Combining NETSPOT and SomaKit TOC’s revenues, I expect this Gallium 68 DOTATATE imaging agent is to report revenues close to $28.5 million in 2017.
Advanced Accelerator Applications also has multiple other PET products in its portfolio
Besides NETSPOT, Advanced Accelerator Applications has four additional PET products approved in various countries in the world. Two of these products are mainly focused on NET patients.
In November 2016, the company received marketing authorization for two of its PET products, Dopaview and AAACholine. Dopaview is approved for diagnosing Parkinson’s disease and also to differentiate between symptoms of Parkinson’s disease and those of essential tremor. Dopaview is also used in diagnosing NET, thyroid cancer, and gliomas. AAACholine is approved for locating tumors in prostate cancer patients.
And there are significant entry barriers for peers to enter MNM segment.
Advanced Accelerator Applications has already developed 16 sites for PET products and two sites for SPECT products across the world. The company also has one enriched water production site. These manufacturing capabilities can enable the company to enjoy sustainable edge over its peers in the MNM segment.
A niche is capable of offering high returns for longer period of time, mainly if there are significant entry barriers for peers. MNM is such a niche area in the pharmaceuticals industry. To become an MNM player, companies would need to hire the right talent, build costly manufacturing capabilities, prepare facilities to prevent product contamination and risk events to personnel, and develop distribution capabilities across radiopharmacies. Besides, regulatory authorities play a much stricter role in case of MNM drugs due to the added risk of radiation exposure to members handling these products as well as for patients.
An additional entry barrier for peers competing with Advanced Accelerator Applications will be the orphan drug status enjoyed by Netspot in USA, which will confer a marketing exclusivity of seven years for this product. Besides, DopaView has also been granted a 10-year marketing exclusivity in Switzerland.
At the end of October 2016, Advanced Accelerator Applications had cash worth around €220 million on its balance sheet. This was obtained by considering the €172 million equity offering completed by the company in October 2016. Considering annualized cash burn rate of €15 million, which involves both operating expenses as well as capital expenditures required in MNM segment, the company has sufficient cash to operate independently for few years. Since a significant capex is required to enter the MNM segment, it may prove difficult for peers to rapidly expand in this market.
But there are significant risks faced by Advanced Accelerator Applications
With PET products having a shelf life of only 10 hours, there is a significant risk of wastage and contamination for these products. If this contamination is detected after administering the drug to patients, it can result in even more serious consequences from product recalls to brand erosion.
In case of improper radiation exposure to patients and personnel working at the company or at radio-pharmacies, Advanced Accelerator Applications may also have to face a number of litigations.
Hence, while I am confident of the company’s upside potential, investors should be aware that business model of Advanced Accelerator Applications exposes it to greater regulatory and legal risk as compared to majority of other pharmaceutical companies.
While not cheap, Advanced Accelerator Applications offers a compelling investment opportunity in 2017
Advanced Accelerator Applications managed to report revenues close to €81.3 million or $87.21 million in the first nine months of 2016. I believe that the company will cross the $100 million mark in 2016, and report revenues close to $105.0 million for full year 2016. In 2017, NETSPOT, Dopaview, and AAAcholine may together contribute around $35.0 million to Advanced Accelerator Applications’ revenues, taking it close to $140 million.
Advanced Accelerator Applications is currently trading at price-to-sales or P/S multiple of 13.7x. This multiple is based on the company’s projected revenues for 2016. The company is definitely not trading cheap. However, considering that the P/S multiple does not change significantly in 2017, the target price for Advanced Accelerator Applications can come close to $49. This will imply a return on investment as high as 30% in 2017. The assumption of more or less same P/S multiple is rather conservative. There is a high possibility for the multiple to rise even higher, if the company posts double digit revenue growth as well as improving earnings per share numbers in 2016.
Advanced Accelerator Applications is also expected to become a profitable company by 2018, mainly due to increasing use of its PET imaging products. Further, in 2017, the company’s investigational NET therapy, Lutathera, may be approved in USA and Europe. Lutathera may also prove to be a robust revenue driver for Advanced Accelerator Applications in 2018.
Xenon Pharmaceuticals Inc (NASDAQ:XENE) – Equities researchers at Jefferies Group issued their Q1 2017 earnings estimates for Xenon Pharmaceuticals in a research report issued on Monday. Jefferies Group analyst B. Abrahams expects that the firm will earn ($0.34) per share for the quarter. Jefferies Group has a “Buy” rating and a $13.00 price target on the stock. Jefferies Group also issued estimates for Xenon Pharmaceuticals’ Q2 2017 earnings at ($0.35) EPS, Q3 2017 earnings at ($0.37) EPS, Q4 2017 earnings at $0.25 EPS, FY2017 earnings at ($0.77) EPS, FY2018 earnings at $0.67 EPS, FY2019 earnings at ($1.43) EPS, FY2020 earnings at $1.97 EPS and FY2021 earnings at $4.35 EPS.
BASF announced it has reached a non-exclusive, worldwide licensing agreement with the Broad Institute for CRISPR/Cas9 genome editing in ag-bio and industrial applications.
“We are eager to see the new ways it will augment our research and improve multiple products for agriculture as well as numerous industrial applications,” Peter Eckes, president of BASF bioscience research, said in a statement.
It’s the Broad’s second ag-bio licensing deal for CRISPR/Cas9, following the September 2016 agreement with Monsanto.
Sanofi is in talks to buy Flexion Therapeutics, a Boston-area biotech with its lead product now awaiting FDA approval, for more than $1 billion in cash, according to a source close to the deal.
Flexion’s board has voted to accept Sanofi’s non-binding offer, with a price in the “mid-30s” per share, the source said. Flexion stock closed Wednesday at $19.68.
Flexion’s knee injection for osteoarthritis, Zilretta, would fit right in with Sanofi’s biosurgery division, which markets its own osteoarthritis injectable, Synvisc. And some of Flexion’s staffers know that product well; marketing VP Mark Fraga and medical affairs VP Scott Kelley, M.D., jumped to Flexion last year from jobs handling Synvisc at Sanofi.
Accepted for review in December, Zilretta could win FDA approval in October.
Sanofi refused to comment on the potential deal. Flexion spokesman Scott Young said he “can’t comment on market speculation or rumors.”
“We’re pursuing an independent strategy to commercialize our lead product Zilretta,” Young said Thursday.
The talks are ongoing and the transaction may not come to fruition, the source said. But if due diligence goes well and a binding offer is accepted, the cash deal could close quickly, giving Sanofi’s Genzyme unit several months to gear up for the Zilretta launch.
Zilretta is a sustained-release corticosteroid first up for approval for use in the knee. Analysts have suggested it could bring in $500 million to $600 million in peak sales, and perhaps hit blockbuster status if it wins indications for use in other joints.
Synvisc works differently; it’s a hyaluronon-based injection designed to supplement the natural fluid in the knee. It brought in €408 million for Sanofi in 2016, with €313 million of that in the U.S.
Sanofi has been deal-shopping as its diabetes franchise slows, eyeing companies with price tags in the bolt-on range—as Flexion would be—as well as bigger targets. It’s had some trouble bringing those bigger deals across the finish line, however; it lost out to Pfizer on the cancer biotech Medivation last summer and to Johnson & Johnson in its attempt to snap up Swiss-based Actelion late last year.