Tysabri and Lemtrada: Opexa's emerging competitors
Many investors forget that Biogen Idec (BIIB) and Elan initiated a global Phase III study, called ASCEND, to evaluate Tysabri as a treatment for SPMS in 2012. The theory behind targeting this indication is that Tysabri could lower chronic inflammation associated with disease progression in SPMS. While this could prove effective, it is possible that the relatively closed blood-brain-barrier (BBB) in SPMS patients will reduce the efficacy of Tysabri by decreasing its penetration. The primary endpoint of the study is a measurement of disability progression not related to relapses. This study is expected to be completed in December 2014, and if the primary endpoint is met without serious safety concerns, we expect the drug to receive regulatory approval. We have highlighted safety as a primary concern for Tysabri due to previous findings from the Phase III AFFIRM study, which found that in spite of reducing the relative risk of disability progression by 42-54%, Tysabri increases the risk of progressive multifocal leukoencephalopathy (PML). PML is a viral infection of the brain, which "usually leads to death or serious disability," according to Biogen's Tysabri web page. Thus, investigators will have to scrutinize the results of the ASCEND trial to determine whether the risk of PML associated with Tysabri outweighs its benefits in reducing the risk of disability progression. Ultimately, we believe that it is possible Tysabri could fall into the same boat as Novantrone and receive a black label warning if it ever gets approved for SPMS.
Another competing drug in the progressive MS space is Lemtrada owned by Genzyme, a Sanofi (SNY) company. Lemtrada is an immunosuppressor that targets the surface CD52 receptor on monocytes, B cells and T cells. Despite being the original treatment for SPMS, Lemtrada was found to be less effective in patients that have entered the neurodegenerative phase of MS due to the fact that patients in the more progressive phase continued to accrue disability. As a result, there is a serious concern that the drug itself is simply not adequate for progressive forms of MS. Case in point, the FDA recently rejected the NDA for Lemtrada, stating that additional research was required to determine whether the drug's benefits outweigh its serious safety risks. That research has since been completed, and on April 7, Genzyme announced that it would resubmit the NDA for Lemtrada. Again, investigators will heavily scrutinize this risk-benefit dynamic, and we suspect that the FDA could reject it for a second time if this drug is found not to be favorable for progressive MS patients.
While we are encouraged by Tcelna's outstanding safety profile and are confident that its sales potential is substantial, it is important to realize that if Lemtrada and Tysabri are approved, the potential market share for Tcelna could decline in the SPMS and RRMS space. However, the degree of which sales would decline is impossible to determine.
Risk overview
Investors should be aware that clinical-stage biopharmaceutical companies are high-risk investments. As we have already noted some of the more significant risks in earlier sections, investors should also be aware of the following:
•Proper execution: Given that there already has been extensive clinical research conducted on Tcelna, which has led to desirable findings, we have no reason to believe that management will execute poorly. However, due to a single clinical mishap, which occurred nearly seven years ago, we cannot exclude poor execution as a possibility. In particular, the disappointing results from the TERMS study (which we previously discussed) serves as a prime example of the risks associated with clinical-stage biopharmaceutical investments. Having said that, we believe that the risk of clinical shortcomings in the Abili-T trial has been reduced as a result of Opexa's success in granting Merck Serono an option to license Tcelna. Merck is one of the largest pharmaceutical companies in the world, and we perceive its interest in commercializing Tcelna as validation of the drug's safety and efficacy potential within itself.
•Given the current cash position of $23.6 million and a cash burn rate of approximately $1 million, we believe that Opexa has enough money to advance the ongoing Abili-T trial to Q4 2015. However, we expect that future clinical expenses will necessitate additional cash raises prior to this point. Therefore, the risk of shareholder dilution is real, and investors should be aware that Opexa's R&D will require more cash than what is currently on hand. In light of the conditions prior to earlier share offerings, also be aware that management is very strategic with their placements of common stock offerings. With that, a fascinating proverb comes to mind: "Pigs get fatter, hogs get slaughtered." In other words, do not be greedy. The advisable strategy is to take profits after a spike in share price so as to avoid becoming a victim of a similar situation to the one that occurred on August 7, 2013.
•Due to financial constraints, enrollment for the study was slower than expected. Investors should be aware that additional delays could ensue, as well as problems with the efficacy and/or safety of Tcelna. Ultimately, Tcelna is an experimental therapy. As with any experimental therapy, the risks above are real. In addition, if Opexa is unable to secure significant additional resources to continue funding the development of Tcelna, this could have an adverse impact on the ongoing Abili-T trial.
•With the license arrangement with Merck Serono, two risks arise. First, if Merck exercises its option to license Tcelna, Opexa would be completely reliant on Merck to conduct further clinical research and development of the drug, as well as commercialization (excluding Japan). If Merck fails to develop the product for whatever reason, Opexa would lack the funds to pursue development alone. The second risk is if Merck decides not to exercise the option to license Tcelna. If this occurs, Opexa would either have to pursue development of the drug alone (which would require drastic shareholder dilution), or the company would have to find another partner potentially under a less attractive arrangement. Neither option is ideal, and investors should realize that either outcome is certainly possible.
•The final risk is simple: Opexa is almost completely reliant on the success of Tcelna. The company has invested approximately $140 million in developing the drug with no tangible results (i.e. a commercialized product). As CFO Radhakrishnan also noted, Opexa has no marketed products, hence no revenue growth. Therefore, if anything goes wrong in the development of Tcelna, such as delays, inefficacy and/or safety problems and insufficient funds to sustain further clinical research, catastrophic shareholder depreciation could ensue.