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What’s next for Jazz Pharmaceuticals?

April 10, 2017

Vyxeos (CPX-351) has shown stark improvement for patients with AML.

JAZZ has moved along to the final stages of development.

Consider the cost-benefit of CPX-351 before considering an investment at this point.

 

Coming hot off its latest acquisitions, Jazz Pharmaceuticals (NASDAQ:JAZZ) seems poised to make an impact on the treatment of acute myeloid leukemia, with a decision from the FDA likely to come in 2017. Should this kick off your radar?

The background

AML is an aggressive, highly difficult-to-treat form of leukemia, which is currently managed with high-dose chemotherapy and stem cell transplantation, if the patient can handle it. In fact, a large number of patients are unable to tolerate “induction” chemotherapy, which is the intense first-round of chemo that is designed to put the leukemia into remission, before giving a stem cell transplant with the intent of both rescuing the immune system (which is one of the first systems to go with high-dose chemotherapy) and inducing an immune response against any residual leukemia cells.

But patients over the age of 60 are often at risk of serious complications or death from induction regimens. Thus, clinicians have to rely on suboptimal regimens with the goal of getting the disease somewhat under control. The prognosis is not good for these so-called “high-risk” patients, and new treatment options are desperately needed.

The news

For years, the hematology community has heard rumblings of this new agent coming out of Japan called CPX-351. This is a mixture of two forms of chemotherapy, daunorubicin and cytarabine, encapsulated in liposomes.

Such formulations can be an excellent way of delivering long-term, slow-released chemotherapy, improving on the pharmacodynamics and pharmacokinetics substantially and requiring less overall exposure of each agent to achieve a therapeutic effect.

CPX-351 was developed by Celator Pharmaceuticals before being acquired by JAZZ in 2016 for $1.5 billion, a 16-fold increase on the market cap of Celator from late February 2016.

On April 3, 2017, JAZZ announced that it has completed the rolling NDA submission with the FDA, meaning it is now in the final stages before a decision about its regulatory approval. The submission is based on several clinical trials assessing the safety and efficacy of CPX-351, but perhaps the most important is the study presented last year at ASCO. Here, elderly patients were randomized to CPX-351 or “7+3,” a cytarabine/anthracycline chemotherapy regimen that has been standard of care for several years.

In this study, CPX-351 improved complete remission rates significantly, and it also led to a 31% improvement in median overall survival (9.56 months vs. 5.95 months, HR 0.69). This improvement in efficacy did not come at the cost of increased toxicity; the adverse event profiles were similar between the two agents. The conclusion of this study was strong: “CPX-351 should become the standard of care for older patients with secondary AML.”

I’ll take it!

The latest results seen for CPX-351 were at last year’s ASH meeting, where patients with high-risk AML were enrolled in a non-comparative Phase 2 study. The two doses of CPX-351 (both below the pre-determined maximally tolerated dose) both led to clinical benefit, with a manageable tolerability profile.

The outlook

As CPX-351 appears poised to represent a new standard of care and replace 7+3 for high-risk patients with AML, the JAZZ move is looking increasingly shrewd. AML has an incidence of approximately 20,000 cases in the United States, with over half of those cases occurring in patients over the age of 60. As a way of projecting potential price, we can look to a case study of irinotecan, which costs $2080 per dose. Recently approved liposomal irinotecan costs an estimated $4860 per dose.

A crude calculation of the cost of 7+3, based on an Australian study, puts the price of 7+3 at around $1860 per cycle of 7+3. Assuming a conservative 100% premium, we may be able to expect CPX-351 to cost around $3700 per dose, or $11,100 for three cycles.

This means that a rough ballpark of the total market size for CPX-351 stands to be a maximum of $111 million per year, which is a conservative estimate since not all patients will receive CPX-351. It also does not take into account the various benefits of having received orphan and breakthrough designations.

Given its current P/E of 25, this would represent an appreciation in total company valuation of around $2.5 billion, of which around $700 million is already baked in since the announcement of the rolling NDA submission.

Conclusions

JAZZ has a pretty significant step forward in AML in very late-stage development. If it gets approval for CPX-351, it should quickly supplant 7+3 as the standard therapy for high-risk patients, and there are no other significant competitors in that space.

It is worth noting that not all patients are appropriate candidates for CPX-351. It is unknown at this time whether patients with FLT-3 mutations, which make up a large segment of AML patients, will benefit. Also, the increased cost of CPX-351 will surely create friction, and the cost-benefit for insurers may not be well known. More study will need to be done to see if the increased cost is worth the efficacy.

Personally, I’m inclined to believe that higher drug prices are not the big problem associated with the current healthcare climate, as inpatient costs make up more than half the total outlay for these chemotherapy regimens. Unfortunately, many do not see it that way, focusing on the pharmaceutical companies. This creates a risk moving forward in turbulent political waters.

But JAZZ is moving along with gusto in AML, and it appears at this point that its acquisition of Celator was wise.

http://bit.ly/2pm3o9J

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