It's that time again. From Labor Day through the New Year, analysts jet off to conferences across the U.S. and Europe to hear data they've been waiting on for years. Michael King, managing director and senior biotechnology analyst at JMP Securities, has been at this game for almost two decades, and he has a firm grip on how data releases about molecules and their targets will affect the biotech stocks in his coverage. In this interview with The Life Sciences Report, King also names four growth companies making important advances in hematologic cancers. Just in time.
The Life Sciences Report: You will be doing a lot of traveling between now and the end of this year. Tell me about that. Where are you going?
Michael King: We're going to a lot of different places. The end of the year is high season for the scientific conferences. We are looking at everything from infectious disease at the Interscience Conference on Antimicrobial Agents and Chemotherapy [ICAAC] conference to breast cancer at the American Society of Clinical Oncology [ASCO] breast cancer symposium. There's "the Liver Meeting," for the American Association for the Study of Liver Diseases, the American College of Rheumatology conference and the American Heart Association scientific sessions. Of course, we can't forget the American Society of Hematology [ASH] meeting and the San Antonio Breast Cancer Symposium. There is also theEuropean Society of Medical Oncology [ESMO] meeting at the end of September. [See a list of upcoming conferences.]
TLSR: Mike, you've written about the halo effect of conferences. We are now almost two years into a bull market in biotech, and I wonder if you expect to see that halo effect further energize biotech shares.
MK: There is, as you say, an afterglow that typically follows a conference. We hope that kicks in from a number of these meetings.
TLSR: Where will the most significant halo effects come from?
MK: The conferences with the ability to have profound effects across a great swath of their sectors include the Liver Meeting, the infectious disease meeting and the ASH and ESMO conferences. They all are important, but ASH and the Liver Meeting are going to have the largest impacts.
TLSR: The impact of the Liver Meeting is going to be primarily on hepatitis C virus [HCV] treatments, I'm thinking. Is that what you are counting on as the market mover?
MK: Correct. Yes.
TLSR: What about the ICAAC meeting?
MK: ICAAC is not as impactful as it used to be, but recently there has been renewed interest in antibiotics because of deals announced on July 30-the acquisitions of Optimer Pharmaceuticals Inc. (OPTR) and Trius Therapeutics Inc. (TSRX) by Cubist Pharmaceuticals Inc. (CBST). There has also been new interest in the space because some recent U.S. Food and Drug Administration [FDA] steps have made everybody's life a little bit easier in the antibiotic world-it has made selected approvals for specific use. I don't follow the antibiotics; my colleagues do. But there is nothing like an FDA tailwind to get investors interested in a space, and that rebounds positively on the antibiotics.
TLSR: We've had a tremendous amount of interest in hematologic disease over the past couple of years. Do you suppose the ASH meeting is going to be a major market mover?
MK: Yes. This year we're going to see a number of publications from a number of companies, from large to small cap. Our coverage list includes Ariad Pharmaceuticals Inc. (ARIA), Celgene Corp. (CELG) and Pharmacyclics Inc. (PCYC). One that will be very interesting is Epizyme Inc. (EPZM), which we have picked up since you and I last spoke in January. It came public in April with a lot of fanfare. Everyone will be looking to see if its leukemia drug, EPZ-5676, which received orphan designation on Aug. 16 from the FDA, proves its mettle.
TLSR: I'm wondering about the two strong constituencies who attend these conferences. The first group consists of academic and corporate investigators. The second are the investors, who you represent on the sellside. There will be a lot of buyside analysts from the big asset management firms there, too. How do you see them interact? Are the investigators always guarded in how they talk?
MK: I would say the investors are usually not shy about letting you know how they feel about the data they've seen, while the investigators are often, as you point out, guarded or more balanced. . .or perhaps have a more measured view of things. The investigators are put out in front of the investors to offer perspective. At ASCO earlier this year, Dr. Jorge Cortes from the University of Texas MD Anderson Cancer Center spoke on behalf of Ariad's Iclusig [ponatinib] for chronic myeloid leukemia [CML]. Dr. Eunice Wang from Memorial Sloan Kettering Cancer Institute spoke at ASH last year about Pharmacyclics' ibrutinib for another hematologic cancer, chronic lymphocytic leukemia [CLL]. The investigators play a key role in shaping the perspective and opinion of both the buyside and the sellside. Sometimes investors are more positive on data than investigators are, and vice versa. They often are at odds with one another.
TLSR: Mike, your large biopharma, Celgene, will be represented at ASH, and you will also see smaller-cap companies represented there. Do you see these companies watching their potential competitors' presentations?
MK: Sure. Absolutely. A company like Celgene might have 100 people in the room. These are the scientists down in the trenches. You don't know who they are because they're not people you recognize-and some of these lecture halls, as you might imagine, are mammoth. I often sit down in the front because I don't want to miss anything, and usually the front section is packed with my sellside competition or some of my buyside clients. Everyone else usually hangs back. It's not always easy to find people to ask questions of, and that's why you have investor meetings at these scientific conferences. You might talk to some investigators and be able to ask them about their competition.
TLSR: Mike, let's talk about some companies. Earlier you mentioned Epizyme, which became a public company in the spring. Would you like to expand on that comment?
MK: Yes. Epizyme is in epigenetics, an area that I really like. Epigenetics is the targeting of the modulators of gene expression. They inhibit DNA methyltransferase, which prevents methylation of cytosine, one of the four bases making up the DNA molecule. Those methyl groups keep genes that should be expressing proteins silent.
Dacogen, SGI-110 and Celgene's Vidaza try to get a tumor to re-express genes that have been aberrantly silenced because the cell has become cancerous. Ordinarily, a cell will upregulate a gene that will kill that cell when it detects some kind of DNA damage. But that gene may have been silenced by the cancer and therefore the cell cannot kill itself. Along comes Dacogen, Vidaza or SGI-110, which unsilences the gene through hypomethylation, and the tumor cell then blows up and dies. This mechanism has not been as widely explored as other targeted agents designed to interrupt the cell signaling and growth factor pathways.
TLSR: What about Epizyme's platform? How does it differ from the hypomethylation mechanism of Dacogen, SGI-110 or Vidaza?
MK: Epizyme has worked to inhibit what's known as histone methyltransferases [HMTs], which are enzymes that put methyl markings on the amino acids that make up the histone entities around which DNA strands wrap themselves. Those markers can regulate genes.
If you look at Epizyme's two programs, EPZ-5676 and EPZ-6438, you'll see two drugs targeting specific mutations in those proteins. The kind of response rates that we would expect to see are more in line with the targeted agents that hit tyrosine kinases, like Pharmacyclics' ibrutinib or Ariad's Iclusig, which hit the genetic mutation in chronic myeloid leukemia that knocks out signaling pathways.
What we like about Epizyme is not only its significant first-mover advantage but also, like Ariad and Pharmacyclics before it, the company is targeting a hematologic [heme] malignancy where there is high unmet need. As with other heme malignancies, you don't have to dig tissue from the lung, colon, breast or prostate to see response. You can look in the blood to see if the myeloblast counts are going down, or look at the bone marrow to see if the blast counts are going in the right direction. With blood cancers, you can more easily determine if the drug is hitting its target.
In the case of EPZ-5676, Epizyme is working in mixed lineage leukemia [MLL]. In the case of EPZ-6438, the target is non-Hodgkin's lymphoma [NHL], where you can go into the blood or the lymph nodes to see if the therapy is hitting its target and having an effect. Both programs are very exciting. EPZ-5676 is further ahead, but EPZ-6438 has the much larger market opportunity.
TLSR: What are we looking to hear about Epizyme at ASH in early December?
MK: It plans to have data from the initial cohort of patients treated with EPZ-5676. It won't be a very big number, rather a handful of patients with the MLL mutation; patients who we hope and expect will manifest a significant therapeutic benefit, as we've seen with other targeted agents in liquid tumors.
TLSR: What would be a significant response rate?
MK: That could mean 50% response-or upward of that.
TLSR: You said that these HMTs target mutated genes. The rap on epigenetic inhibitors has been that they act globally throughout the whole genome. This sounds like a more specific targeting process.
MK: That's correct.
TLSR: Can you talk about another company today?
MK: I continue to be excited about Celgene, which has positioned itself perfectly for the long term with its immunomodulator franchise, but has also wisely put big bets down in the epigenetic space. It partnered with Epizyme on DOT1L, the HMT that EPZ-5676 is targeting in MLL. Celgene has the ex-U.S. rights to the DOT1L program.
Celgene is also exploring oral Vidaza, which is being looked at as an immune-priming strategy for solid tumors like breast and lung cancer. It could make tumors more susceptible to immune inhibition, as well as to chemotherapy, thus improving response rates, duration of response and overall survival-the ultimate outcome. We'll start to see this emerge over the next few years. ASH is always a big meeting for Celgene, and we want to be positioned in front of ASH 2013. We could see investors holding Celgene shares for another five years or so.
TLSR: What is the current value driver for Celgene? What do you tell an investor who asks what will move these shares over the next 52 weeks? Is it data on apremilast for autoimmune disease?
MK: It's a great question, because there are tons of ways to win. One value driver will be additional data on Revlimid [lenalidomide]. Another will be sales data on Pomalyst [pomalidomide], which was approved in early February for refractory multiple myeloma. Another will be the apremilast data, which will be heard at the American College of Rheumatology meeting. Another will be the approval of Abraxane [paclitaxel protein-bound particles] in pancreatic cancer, expected this month. Bang, bang, bang: There is a never-ending parade of value drivers for the stock.
TLSR: Celgene had a market value of $29B one year ago. Today, it has doubled.
MK: Yes, and I would say Celgene is on its way to $100B over the next two to three years. Remember, before Genentech got bought out by Roche Holding AG (RHHBY) for $90B+, it achieved an $80B+ market cap on three monoclonal antibodies: Rituxan [rituximab], Avastin [bevacizumab] and Herceptin [trastuzumab]. All great products, but all Genentech had were rights to U.S. gross margins that were in the 85% range, versus Celgene, which is getting phenomenal margins-in the 95-96% range. Genentech had a full tax rate because it didn't have any way to distribute its income, while Celgene has done so cleverly by domiciling in Switzerland. Its tax rate is in the mid- to high teens. I have no problem projecting a future market cap for Celgene that pushes that $100B mark. And that's before all its assets kick in.
TLSR: You mentioned Pharmacyclics. We could see approval of ibrutinib for CLL before December. Does that remain the growth story here?
MK: I continue to be excited about Pharmacyclics and yes, this story is being driven by ibrutinib. The breadth of activity and, importantly, the tolerability of ibrutinib are such that we think it has the potential to be the single biggest-selling drug in heme/onc. That's saying a lot, considering that the comparator is Celgene's myeloma drug, Revlimid.
But the activity we've seen with ibrutinib in CLL, in NHL, potentially in myeloma, mantle cell lymphoma, Waldenström's macroglobulinemia, etc., means that we are looking at a drug that can not only produce profound benefit for patients, but also carry a premium price. That's because there's tolerability-ibrutinib can be given to patients for a number of years. That's a recipe, if you will, for very big numbers. Think about why Avastin is such a great drug commercially. It's because it has multiple indications on its label, it's given for a relatively long period of time and it combines well with a lot of other drugs. Avastin is bringing in $6B+/year in revenue and growing. I could see something very similar taking place with ibrutinib.
TLSR: Mike, it's been a great pleasure speaking with you, as always.
MK: Likewise, George. Thank you much.
This interview was conducted by George S. Mack of The Life Sciences Report and can be read in its entirety here.
Michael G. King Jr is a managing director and senior biotechnology analyst at JMP Securities. King comes to JMP from Rodman & Renshaw LLC, where he was managing director and senior biotechnology analyst. He has more than 17 years of experience as a leading biotechnology equity research analyst, consistently ranking at the top of Institutional Investor magazine's annual sellside research survey, in addition to being named that publication's "Home Run Hitter" in 2000. King also served as senior vice president of corporate development and communication at ZIOPHARM Oncology Inc. Prior to joining ZIOPHARM, King was a managing director and senior biotechnology analyst at Wedbush Securities. He holds a bachelor's degree in finance from Baruch College.
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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. (More...)
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