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Undue Pressure on Trius Creates an Entrance Point

Shares of Trius Therapeutics (TSRX) took a 7% dive on Wednesday, creating an entrance opportunity for those not yet involved, as the unsubstantiated rumors that caused the sell-off haven’t changed the fundamentals at Trius. Sources have indicated to PropThink that the weakness is a result of an institutional investor, Ayer Capital, closing its doors and therefore winding down its funds, including a position in TSRX. We’ve been hearing that Ayer was unwinding for some time, so this means one of two things: 1) The rumor is true, and at some point the selling pressure will stop, and TSRX will snap back; or 2) The Ayer chatter is simply a rumor, and yet again, the selling is unwarranted and TSRX will, again, snap back (recall that in December of 2012 the company went through a similar spell). It’s a great situation for traders who time the bottom, or those with a long-term investing horizon; as we’ve outlined before, Trius’ promising antibiotic asset, tedizolid, is backed by a strong balance sheet, and the company has options in how it moves forward with its commercialization strategy. Tedizolid just completed Phase III testing for the treatment of acute bacterial skin and skin structure infections (ABSSSI), and we expect a New Drug Application for ABSSSI to be filed in the second half of 2013. It’s closest comparator and current headlining competition in the segment, Zyvox (linezolid) by Pfizer (PFE), did $640M domestically in 2011, and $1.3B worldwide. Thus, we believe that Trius’ $305M market capitalization — an enterprise value of just $225M — fails to capture the full tedizolid opportunity. It’s all about label expansion, and following FDA approval of tedizolid, the company intends to evaluate the drug in pneumonia and possibly bacteremia (systemic infection), which would meaningfully expand the drug’s market opportunity.

PropThink contributors Jason Napodano and Dr. Aafia Chaudhry laid out the full bull thesis in December of last year, and they see fair value for TSRX at $12. Clearly there’s upside to be captured, and while Napodano doesn’t necessarily expect Trius to partner tedizolid in the U.S., we think there’s good reason for Pfizer to be eyeing tedizolid — and Trius as a whole. Pfizer’s Zyvox (linezolid) goes off patent in two years (three years in the EU), and now that tidezolid has demonstrated non-inferiority in ABSSSI and a better dosing profile, it makes a compelling asset through which Pfizer might cannibalize Zyvox sales in the indication. Both drugs are oxazolidinones, de-risking tidezolid as a potential treatment for lung infections (where Zyvox already has labeling), and tedizolid has a differentiated dosing profile (once daily for 6 days, vs. linezolid’s twice daily for 10 days).

Note that there’s already a natural link to the large pharmaceutical company: Craig Thompson, Trius’ Chief Commercial Officer, formerly led Pfizer’s Zyvox commercialization efforts as VP of marketing for Pfizer’s specialty care unit. And, CEO Jeffrey Stein, Ph.D, sold his former anti-infectives company, Quorex Pharmaceuticals, to Pfizer in 2005. We wouldn’t be holding TSRX on the basis of an acquisition alone, but the possibility offers a nice backdrop to the strong fundamental story at Trius.

Again, we believe that the weakness in TSRX is only temporary, a result of either Ayer’s wind-down or rumors of such. As we’ve said before, TSRX is undervalued. A break below the 50D MA at $6.36, just below Wednesday’s closing price, may send the stock as low as its 200D MA at $5.63, in which case TSRX is at fire-sale prices. The next expected catalyst for Trius is a European partnership announcement; tedizolid is already partnered with Bayer in the Asia-Pacific region.

Keryx, Zerenex, and IP Protection: A PropThink Conference Call

On April 11, PropThink hosted an Interview and Q&A (via conference call) for PropThink subscribers with Dr. Scott Chambers, a leading patent attorney and former staff at the USPTO. The conference call centered around Keryx Biopharmaceuticals (KERX) and its lead drug candidate, Zerenex, which has come under scrutiny as questions have arisen about the drug’s existing intellectual property. Through this call, Dr. Chambers explained in detail his findings having looked at Zerenex’s existing patent estate, particularly in relation to Zerenex obtaining a Patent Term Extension and the strength of the drug’s overall IP. To read PropThink’s previous coverage of Keryx Biopharmaceuticals, click here.

David: Welcome to PropThink’s first Expert Call. We’re here to go over the intellectual property position on Zerenex. As most of you know, Zerenex is Keryx Biopharmaceutical’s product candidate designed to bind phosphate in patients with end-stage renal disease, with the dual benefit of sparing the use of IV iron and Epogen in patients undergoing dialysis. I’m David Moskowitz, equity analyst and advisor to PropThink, and I’m pleased to have with me today Dr. Scott Chambers, our intellectual property expert for the call. Dr Chambers has headed the intellectual property practice at Patton Boggs’ and has served at the US Patent and Trade office as Assistant Solicitor. The use of PropThink’s research and analysis is at your own risk. Investors should do their diligence before making any investment decisions with respect to securities covered in this call, As disclosed in our previous articles, PropThink has taken a long position in Keryx. PropThink LLC is not registered as an investment advisor, and to the best of our knowledge and belief, all information on this call is accurate and reliable. Also I mentioned that Dr Chambers was a paid consultant by PropThink, and he was paid to conduct his own independent due diligence on the subject matter of today’s call. Our conversation with Dr Chambers will be split into two parts: one focused on the potential patent term extension for Zerenex, and the other on the longer term patent protection on the drug. We’ll give participants a chance to ask Dr. Chambers a few questions during the call.

So with that, we’re going to get started. Scott, welcome to the call, thanks for joining us.

Scott: Thank you David.

David: Alright, just to get started, could you please go over your background for the benefit of the participants?

Scott: Sure. First I’d like to say that the primary purpose of the call as I see it is to highlights certain facts relevant of the discussion of Keryx’s patent portfolio. Neither I, nor my firm, can or do predict the outcome of any patent term extension decisions by the US Patent and Trademark Office or of the FDA, nor can this copy be relied upon by any third party as a substitute for any independent due diligence on potential patent term extensions by Keryx, or for due diligence on their patent portfolio. I’m not an FDA lawyer and I will not  be addressing NCE status, but I’ve been hired by PropThink to explain certain issues regarding the Hatch-Waxman Act. In terms of my background, I have a doctorate in Life Sciences. I was a senior staff fellow at the NIH. After being offered a faculty position at a Research Institution, I decided to leave research and was offered a position at Patent and Trademark Office as a Patent examiner in the life sciences area. Shortly after taking that position, the Patent and Trademark Offices, or the PTO, offered me a chance to go to a law school, which I accepted. After finishing law school, I was offered a clerkship at the Court of Appeals for the Federal Circuit for Judge Rader who’s now Chief Judge Rader. So Federal Circuit is the court that all patent cases go to, and it’s also the court who’s precedent  the Patent and Trademark Office must follow. When I was ready to leave the Federal Circuit, PTO made me an offer I couldn’t refuse. They indicated that if I’d come back to the solicitor’s office, they would let me take any case I wanted to the District Court or Federal Circuit and I took that offer and so then the next five years any chemical, biotechnology, or medical device case that was appealed from the agency was either argued by me or I was addressing it in the briefing. Now while an Associate Solicitor, part of my portfolio was working with the FDA and handling issues that arose from patent term extensions under the Hatch-Waxman Act. I am now on private practice as the Head of the IP section at Patton Boggs. My work involves a good deal of litigation, due diligence, counselling, and some Patton prosecution. I put in a number of hours in due diligence looking at the portfolio for Keryx Biopharmaceuticals, and I’ve reviewed the case law that would be pertinent in this area and I’m able to answer some of the questions.

David: Okay great, thanks. So wanted to ask you a little bit about due diligence on the IP package on Zerenex which you just talked about. And also just to start the call, what is your overall opinion on the strength of the drug’s patent protection?

Scott: I think that Keryx has a number of patents in their portfolio that protect different aspects. I would advise a client that it looks like it’s been well done in terms of garnering protection. It’s got protection for the method of use, as well as for the important forms that would be able to be used in that particular area and from what I’ve seen, I’m pretty happy with what they’ve done.

I would advise the client that there’s a high probability that, in my view, this would be able to be maintained and keep a generic competitor off the market.

David: Can you briefly review the key Zerenex patents that we’re gonna talk about today?

Scott: Well Keryx has a number of different patents that address ferric citrate. Keryx’s ferric citrate is named — my understanding, is named Zerenex, and it’s used for dialysis patients or pre-dialysis patients and patents give a range of protections. The earliest one I’m aware of is the 706 patent which is a method of used patent to control phosphate retention. Other patent forms or other patents address forms of ferric citrate is the dissolution or dissolution profile that would permit better patient compliance and efficacy such as the 423 patent and the 298 patent and the 647 patent, which address surface area and size. The patent also in their portfolio address methods of manufacturing, it’s my understanding that they’ve had some unexpectedly good result from the testing of the drug and that they have applied for protection for some of those aspects.

David: So let’s focus on that 706 patent that you said the earlier patent. That patent is considered to be very strong even by the skeptics on the intellectual property; however the patent is set to expire in 2017. So is this the patent that you would choose for Keryx to apply for patent term extension should the company do that, and what are the benefits of this patent term extension?

Scott: This patent has not been extended under the Hatch-Waxman Act and so it is a  patent that, given the requirements, would appear to be able to be extended. This is one that is a strong patent because under the FDA, the FDA is going to tell a drug provider how something is going to be used. This patent — the use of this particular drug. So this would seem to be a strong patent to extend.

David: Okay and so would this be the one out of the portfolio that you’d choose? And again, what is the benefit of getting patent term extension on this particular patent?

Scott: I would definitely advise the client that this is the one that they would want to extend. The patent term extension can be — they can be for up to five years, and they can be anything that would end up giving 14 years or less of patent protection. Some of the other patents that are in play may well give more than 14 years, and so I would definitely think that this would be the one that they would want to extend. Patent term extension would preclude a generic from producing the same component or the same product and using that product or getting regulatory — marketing actually, that particular product in the United States.

David: Alright, so given your experience at the Patent and Trade Office, can you just step back for a moment and walk us through the process of a patent term extension review?

Scott: Sure. What happens is that within 60 days of approval, the patent applicant has ask to move forward and ask the Patent and Trademark Office for an extension of the patent term. Section 156 of title 35 gives the requirements. I think the most important requirement is 15685, which says “the permission of commercial marketing or use of the product after such regulatory review period is the first permitted commercial marketing under the provisions of law under which such regulatory review period occurred.” What would happen is that the applicant would apply for this, the Patent and Trademark Office would review the application for patent term extension, decide if it met the formal requirements, and then they would send it over to the FDA because the FDA has certain records, such as when approval was granted and the length of the regulatory review. The FDA would respond to the Patent and Trademark Office and then the Patent and Trademark Office, before they would grant a certificate, would send back and separately ask the FDA to make a determination of how long the regulatory  review period should be.

The FDA at that point will indicate to the Patent and Trademark Office, and they will also publish the length of time they believe the extension should go for in the Federal Register, allowing anyone who has any questions to come forward; and from there, they would — if no one comes forward, they would then, the Patent and Trademark Office would issue a certificate of extension.

David: Ok. In your opinion, how long could this patent be extended? It’s set to expire in 2017. If this patent term extension was granted, how many years extra would it be granted

Scott: Well, it would not be susceptible to that the 14-year bar that I mentioned earlier. It would be extendable for up to five years, and it’s my understanding that the regulatory review period has lasted far longer than five years so there’s a good chance to get the maximum.

David: So going from 2017 to 2022 is possible?

Scott: Yes.

David: Alright, so let’s get into the arguments that are being made against Keryx’s ability to get patent term extension. So Zerenex is a simple compound; it’s  ferric citrate, pretty easy to make, and the first argument made against the patent term extension involves a compound called ferric ammonium citrate. A paid service that reviews intellectual property issued a report stating that Zerenex may be ineligible for patent term extension because ferric ammonium citrate was approved by the FDA and closely resembles to Zerenex. As a former patent examiner that evaluated patent term extensions, what are your thoughts on this argument?

Scott: I don’t agree with the argument. I mean, ferric ammonium citrate is an entirely different chemical from a ferric citrate. The Hatch-Waxman patent term extension provisions are very specific. and the fact that perhaps one group might believe that ferric ammonium citrate somehow resembles ferric citrate issn’t really relevant. Instead, the precise wording of the statue is relevant and under case law that is binding on the Patent and Trademark Office, the terms “product” and “active ingredient” have been construed in the past. I would also like to say that while ferric citrate may appear to be a simple compound, in fact, some the patents that are issued in the portfolio, or some of the patents that are in the portfolio, talk about a different way — an un-obvious way — of making that particular product so that it can be used in this pharmaceutical method.

David: Okay, so you’re saying that the ferric citrate that Keryx has is somewhat different or substantially different than simple ferric citrate that exists elsewhere?

Charles: It would be different than what you would normally find in a bottle in the laboratory.

David: So going back to the statutes of patent term extension. Are there case precedents on drug salts — so I guess the ferric ammonium citrate and ferric citrate are two salts — and so the argument being made about these compounds being similar is about being drug salts. So are there case precedents on drug salts and prior patent term extension decisions that address this ferric ammonium citrate argument?

Scott: Yes I think that there are at least three cases that are very important to looking at this. The earliest one is the Glaxo V. Quigg case, and that’s from 1990. And in that particular case, the Federal Circuit reversed the PTO’s decision not to grant a patent term extension. The Federal Circuit pointed out quite clearly that the term “product” in the patent term extension statute is not synonymous with “new chemical entity or NCE” that the Patent and Trademark had attempted to argue. That was binding precedent on the Patent and Trademark Office. And then there was some question in the later case — the Pfizer versus Dr Reddy — case whether the Glaxo case was good law. That was subsequently challenged by the Patent and Trademark Office in the Photocure case, which was relatively recent, and in the Photocure case, the Federal Circuit pointed out that there was no problem with the construction found in Dr. Reddy and that found in Glaxo, and it also found that the patent term extension was proper in the Photocure case. In the Photocure case, there was a salt that was trying to get an extension, and another salt had been already approved and was already in use. In the Glaxo case, it was, a salt had been used and approved for use, but the one they were trying to get the patent term extension on was an ester. So in fact, these seem to be on point with what we’re talking about now.   

David: Okay, just to review that: the GSK and the Photocure case, and the Pfizer versus Dr Reddy cases that you mentioned, are you saying that they support patent term extension for Zerenex?

Scott: Well certainly the Glaxo case and the Photocure case would seem to support granting an extension. The Pfizer versus Dr Reddy case would seem to be irrelevant to the case, to the issue.

David: And based on your interaction with the Patent and Trade Office, can you talk about a little bit about your interaction with the Patent and Trade Office? Do you think the reviewers there have a heightened awareness with these cases when it comes to request for patent term extension for drug salts by Zerenex?

Scott: Yes, having been in the agency, I can assure you that the agency is very sensitive when they’ve gotten reversed; they’re very sensitive to making sure they get the statute right; and when the court has gone out of its way to set the precedent and indicate that their interpretation was wrong, the Patent and Trademark Office is very quick to appreciate that and to move in the direction of getting it right. They would be definitely considering these cases when they were looking at the patent term extension, and generally speaking, it’s the view point of the agency to grant a patent term extension when that patent satisfies the requirements of 156 — title 35 156A.

David: Okay, excellent. So let’s go into the other argument of Zerenex for obtaining patent term extension. This one involves older versions of ferric citrate that were once allowed by the FDA to be sold. When these formulation were removed from the market by the FDA due to new safety and efficacy regulations in the 1962 Kefauver Harris Amendment, and afterwards these products were pulled from the market. The FDA actually took them off the market. And since those new rules and regulations come out, no ferric citrate formulations have been approved under the new rules. So again, what are your thoughts here? There are these older versions of ferric citrate,  they were allowed by the FDA, we think they were food additives; does that worry you in terms of Zerenex being eligible for patent term extension?

Scott: That certainly something that you’d want to consider, but remember under 156, the patent term is going to be granted unless the same product was approved under the same section of the Food, Drug and Cosmetic Act. These items that you’re describing, I don’t believe that they have been approved under the section that this product would be moving under, and if they are, they’re certainly not out there now. I don’t think I would be too — I would certainly give this some thought, I don’t think that this is gonna be controlling.

David: So it’s basically if these formulations were approved under the same section. Now, given that these safety and efficacy regulations came out after these drugs were approved or allowed by the FDA and no formulations have been approved since, would you think that they were approved under the same section, or is that unlikely?

Scott: Certainly there would be an argument either way, but my belief is that these were not approved under the same section, otherwise they’d still be for sale.

David: And there’s another point by the skeptics. A brand called Ferriseltz which is actually a brand of ferric ammonium citrate was rejected for patent term extension, and there are some that think this is a risk for Zerenex getting patent term extension. However in this case, there were two ferric ammonium citrate formulations already approved under the new safety and efficacy regulations before the company with Ferriseltz applied for patent term extension. So what are your thoughts about this precedent, what does it suggest for Zerenex and potential for patent term extension?

Scott: I don’t see how that has actual bearing on the question before us. This is an entirely different salt. Two salts, or at least one salt was already approved, and they came in with request for an extension on the identical salt. And looking at section 156’s requirements, I would see that that would not be something that would be approved, but I don’t see that it has any bearing on whether ferric citrate, an entirely different salt that has not previously been approved, would be extended.

David: Okay, so I’m just gonna ask you: if you’re back on the Patent and Trademark Office, you’re evaluating Zerenex for PTE, patent term extension, are you worried about ferric ammonium citrate, are you worried about these other former compounds that were out there? Would you grant patent term extension on this compound?

Scott: I’m not worried that the ferric ammonium citrate would present a problem, given the record that I’ve seen; I don’t see a problem with getting an extension on ferric citrate. If I was at the Patent and Trademark Office I would advise the Commissioner, which is now the Director, that patent term extension should be granted.

David: What is the orientation of the Patent and Trade Office in terms of burden of proof: Which direction is it? Do you have to prove that it deserves patent term extension, or the other way around?

Scott: Well you certainly have to prove that it satisfies 156A. You have to come in when you ask for the extension, you will say that it satisfied these five criteria. And at that point, the burden would shift to the Patent and Trademark Office to show why you didn’t really satisfy those. So I would say that once you’ve put in your patent term extension request, it becomes the burden of, going forward, the Patent and Trademark Office to show a reason why you shouldn’t get it.

David: Excellent. Let’s move on beyond 706 patents and the potential of patent term extension. Let’s talk briefly about the company’s other long-term Zerenex patents. So there are four patents that protect Zerenex to 2024, and they’re based on intrinsic dissolution rates and surface area claims. The company claims that the 2024 family of patents, these four patents, protect Zerenex API — that’s the active pharmaceutical ingredient — it’s kind the powder you have before you compress the tablets. So Scott can you give your opinion on these patents and whether or not you think they’ll be effective in keeping generics off the market through the mid-2024 timeframe?

Scott: Well, yes I can. Looking at these patents, they go to whether or not you can produce the particular form that has these unusual results in the test trials. If you cannot come up with a way to obtain these unusual results then you’re going to have trouble getting on the market because you’re also going to develop problems with compliance. iIn the case of a pill that you have to take many times a day or multiple times. You’ll have compliance issues, even if you’re able to take this and even if you satisfy the compliance, it may not work the same because it’s going to have different surface area and dissolution profiles in the body and the generic may well have to do additional testing to show that this would end up decreasing the amount of phosphate in the system. And what I like about these other patents that are out there is that if you are looking at it from an enforcement standpoint — that is a Paragraph IV litigation or something going to that type of, keeping a generic off the market, then yo find that there’s a much easier proof of infringement, because it’s pretty easy to show how one of these things are, how a component would infringe a particular patent if the patent is going to the dissolution rate.

David: So it’s the dissolution rate, it’s the specifics of that and the specifics of the surface area…

Scott: The surface area seems to have an effect on how this would be used by the body or the results that the body would provide would come from the use of it, so absolutely.

David: Turning to another point here. In clinical trials for IV irons, oral irons were used in these trials as control groups. And in these trials, no orals irons have ever shown a meaningful change in the iron stores like Zerenex; and these would be changes in TSAT and ferritin, and also hemoglobin levels. So does that have any bearing on the defense of Zerenex’s intellectual property?

Scott: Yes, it well could. When you are in litigation, or when somebody is challenging intellectual property, they can say that something is obvious in view of what was done in the past. When you have something that has unexpected properties and  has satisfied, perhaps, a long-felt need, those are indicia of non-obviousness. so that even if someone were able to somehow craft an argument that, “Gee, this is obvious in view of some study that was done at an earlier date,” they would have difficulty showing that that rendered the compositions or the methods of use obvious in view of the fact that you have these unexpected result.

David: Okay. So just back to the dissolution and surface area patents. Besides the fact that they really distinctly carve out what this product does, and the metrics that another product has to achieve, what else do you like about them from a defense stand point?

Scott: I think that they work hand in hand, that they shore up each other, and so  the dissolution rate is connected to the surface area. But if you found some other way to get a dissolution rate that was not within the claimed subject matter, you’d still have to worry about whether or not this dissolution rate was do to surface area, the effect of surface area, and vice versa. So, they go hand in hand in helping to protect the product.

David: So what I’m getting to is, in addition to these dissolution rates and surface area patents and working around them, how does that dovetail in with the effects of the drug? Would a generic company actually have prove the effects of their drug as well? Would the generic company have to run trials?

Scott: In order to show that something is bioequivalent at the FDA, it’s my understanding that they must show that it has a very similar effect. It would be very hard for something to have a similar effect if it had a different dissolution rate or different surface area. It would make it a little more difficult, and the FDA may well require more testing or more evidence.

David: Okay. Just quickly moving to the longer term potential patents here, Keryx’s phase three trials for Zerenex showed unanticipated effects for the drug, in particular Zerenex has enabled a 52 percent reduction in the need for IV iron, in dialysis patients, and also a 27 percent reduction in the need for erythropoietin stimulating agents, or ESA’s, in dialysis patients. Really nobody expected thes results to be this dramatic, the stock actually tripled on these results. So I guess the question is: are these results patentable, and how strong are these kinds of patents?

Scott: Well, I wouldn’t say that the results per say are patentable, but what the results indicate is that there may well be something that’s novel and non-obvious within what they’re testing. So that points to something that’s patentable. Now I haven’t seen these results, other than the description that you’ve given, and I haven’t seen any application. It’s my understanding that they may well have provisionals or non-provisionals already on file, but the important thing to keep in mind is that if something has not been done before,  that is if it’s not anticipated, then it could still be attacked for being obvious. And when you have such unexpected results, that makes it less likely that someone would be able to prove that the particular composition or the method of use was actually obvious. I mean, when you have some unanticipated results that’s an indicia of non-obviousness. In addition this sort of points to what I had mentioned before: a long felt need, which is another aspect of a non-obviousness. So I think that that would make it likely that you would be able to find some sort of intellectual property involved in that that you could get protection with.

David: As an attorney, assuming that there was a case where you were advising Keryx, are you excited about these unanticipated results? If you were advising a company that got results like this, is this good to cross your desk?

Scott: Absolutely, it makes the job of prosecuting a patent and getting intellectual property protection that much easier, because examiners, once they see unexpected results, they have a different viewpoint as to whether or not something would be obvious. So this makes it easier to obtain intellectual property protection, but also it allows the attorneys that are doing the prosecution to review exactly what was done and how it was done, and look for other aspects of protection that might not have been appreciated before.

Sometimes being the first to get to a point, and being the first to see something, is a key element of getting the patent protection.

David: These results are fairly recent; I’m assuming the company’s filed provisionals as you’ve mentioned. So how long would patents on these unanticipated results, or the prospect of Zerenex resulting in unanticipated effects, how long could those patents protect the drug?

Scott: Well the way that the patent is set up right now is that you file for a provisional application, and then typically one year later you file for the non-provisional. So that first year, plus the non-provisional, gives you 20 years from its filing date. So you can have protection that would reach out 21 years from that initial filing date. And you get your protection as soon as the patent is issued, up until that particular end of the term.

David: So just wrapping up. So you’re overall impression on the patent portfolio. How long do you think Zerenex can be an exclusive product in the US? How confident are you in the whole overall IP package here?

Scott: Looking at the particular patents that I’ve seen that have been issued, it looks like they go out to 2024 and periods like that. If we have something coming from these unexpected results that would be patentable for the same use or for a similar use, that could stretch it out for another 21 years from when they first filed for the patent. I’m not aware of any particular dates that they filed, so I can’t say anything about those new patent,s but I would say that we’re going out to the 2024-2026 time period. Some of the patents that have been issued have what are called patent term adjustments, which are time added due to regulatory review lost at the Patent and Trademark Office. Sometimes those particular extensions for time lost at the Patent and Trademark Office can be compromised by terminal disclaimers or something like that. Now I have not looked at that particular issue other than to note that some of them have already been given patent term extensions that would extend the term.

David: Just to clarify that. So you’re saying that the some of the patents that you reviewed, the Patent and Trade Office has already issued extensions?

Scott: Well they’ve already issued extensions for time lost for review that went on the Patent and Trademark Office. If the Patent and Trademark Office is not putting the patent out there and moving it along at a fast enough rate, you can get an extension that is added to the term of the patent just for time lost at the Patent Office. That’s different and distinct from the time lost during regulatory review which the patent term extension covers.

David: But that doesn’t impact the regulatory review lost application or it depends –

Scott: That’s a totally separate statutory right.

David: Okay. So I do wanna open up the call for questions from the audience. I wanna give them a little bit of time to pick your brain, but once again before we wrap up. again your overall impression on the strength of the intellectual property portfolio here. If you’re advising a client, what can you tell them? If one of your clients is looking to acquire the company or partner with Keryx, what’s your advice?

Scott: Looking at the whole portfolio, I’d say based on the work I’ve done and seen, I’m comfortable that this portfolio would do a good job of deterring generics. I would advise the client that I believe there’s a high degree of probability that they would be able to get a patent term extension under Hatch- Waxman on it.

David: Okay, great. Thank you.

Operator: We do have a question from Kyle Steinhauser from DaVita.

Kyle: Thank you Dr Chambers. Just wanted to see if you had a moment to comment on what your view might be on any Paragraph IV challenges for Zerenex. Assuming patent extension, do you think there’s a high likelihood that we would see significant Paragraph IV challenges?

Scott: I think whether or not there’s an extension, it would not surprise me to find Paragraph IV challenges. Generally, generics benefit so much from that 180-day exclusivity that they will cook up any kind of argument that something is not obvious, that something is not patentable; so it would surprise me if there were not Paragraph IV challenges. It’s simply too valuable to not have that kind of challenge.

Kyle: Alright, thank you.

Operator: And at this time, there are no guests in the question queue.

David: Thanks for the question, we appreciate it. And of course, I would like to thank Dr. Chambers for his contribution on the call. I would also like to thank all the participants for your interest. Remember, that subscriptions are what helps PropThink run and fund calls like these, and we do plan to do more expert calls. So if you haven’t signed up for a trial (Free sign up here) or monthly subscription, now would be a good time to do so. I’ll just say have a profitable day, and we’ll speak with you on the next call.

Can ResMed Grow Enough To Support Its Premium Valuation? An Interview with 3B Exec Reveals a Rapidly Changing Market

The CPAP (Continuous Positive Airway Pressure) equipment market is about to enter a pivotal time. The Centers for Medicare and Medicaid (CMS) instituted a round of “competitive bidding”, which effectively cuts reimbursement for CPAP treatment (products and services), late last year. It’s the second round of Medicare cuts, the first of which lowered average Medicare reimbursement rates on CPAP equipment by 34%, and the latest round will lower reimbursement rates by another 47%. The changes have clear implications for the providers of products and services for CPAP therapy, and the trend is likely to cause Durable Medical Equipment suppliers (DMEs) to pressure manufacturers of CPAP equipment for concessions. The new reimbursement level goes effective in July, but in advance of this change, DMEs have been seeking alternatives to branded CPAP equipment from leading manufacturers like ResMed (RMD) in order to reduce costs to provide CPAP carePaykel and to preserve their profits. One such “off-brand” company is 3B Medical, which is indicating that the trend has significantly increased their CPAP equipment supply business.

ResMed (RMD) is the leading manufacturer of airflow generator equipment based on CPAP therapy, which is designed to deliver pressurized air through a nasal mask to prevent collapse of the upper airway during sleep; it’s a treatment for patients with sleep apnea. ResMed has been a long-time focus for PropThink, as we believe the stock is significantly overvalued and due for a major correction as the true impact of these rate cuts are felt. You can read more about ResMed and why we consider it a short in our previous report.

PropThink manager David Moskowitz sat down with Susan Craig, Sales Manager at 3B Medical, a private CPAP manufacturer that recently began marketing their CPAP line in the U.S. Moskowitz asked Craig about the broader CPAP market and why she believes that 3B can differentiate itself in the space as a provider of unbranded, less expensive CPAP equipment vs. the three major competitors in the US: Resmed, Fisher Paykel, and Philips Respironics. With reimbursement pressure from Medicare, Craig believes that Durable Medical Equipment (DME) and Home Medical Equipment (HME) suppliers are looking for less expensive alternatives to the branded products that currently dominate the market. 3B’s equipment is 30-40% less expensive, and Craig believes that the products compare equally in quality. The incentives for DME’s and HME’s to sell lower-cost items is there, and now it’s a matter of time to see who steps in to satisfy the changing market dynamic.

(For clarification, Durable Medical Equipment suppliers receive prescriptions for CPAP or other medical equipment from physicians and fill the order with products like 3B’s or ResMed’s. A Home Medical Equipment supplier serves the same purpose.)

David: Welcome to PropThink’s conference call series. Today, we’re going to focus on the Continuous Positive Airway Pressure (CPAP) equipment market. We’re very privileged to have a member of 3B Medical with us. 3B Medical is a supplier to the CPAP equipment market, and we have Susan Craig with us, sales manager for 3B.

Susan, welcome to the call.

Susan: Thank you so much, David.

David: Thanks again for coming and sharing your expertise with us. Let’s jump right in to the market with 3B Medical itself. Tell us a little bit about your company and when you entered the CPAP supply market.

Susan: Actually, 3B Medical is the North American arm of BMC Medical Company, which was founded in China in 1996. Our CPAP devices have been present in about 120 countries around the world for the past seven or eight years. We launched the product here in the United States in September of 2012, so we’re fairly new here in North America.

David: Great, and for our viewers, we should mention that 3B Medical is getting a lot of attention out there with analysts and investors as an emerging competitor in the CPAP market. Susan, could you talk about the CPAP equipment industry and give us a brief overview of the other players that are out there in the market?

Susan: I see the other three key players as being Philips Respironics, ResMed (RMD) and Fisher Paykel. All of them have done a really good job and they all have very high quality products. Entering the market at this point, I think we have a high quality product, as well as a good price point. That’s where we’re going to have an edge. But all of them have developed great sales teams that are well-known in the market. They’re known as the big three, and we’re not planning to dethrone any of those.

David: You’re relatively new to the US market, entering in September 2012. What’s the opportunity for a new entry like 3B?

Susan: It’s really terrific. You and I previously spoke about Medicare reimbursement and that’s where we’re getting some PR, some interest as well from the DME’s [Durable Medical Equipment suppliers] that are trying to remain financially viable while providing a good product for their patients. I think that’s where we come in, and we’re a natural fit.

David: Tell us a little bit more of that so that our viewers can really understand  this change. What’s the change in the marketplace that presents the opportunity for 3B?

Susan: Well, there are several things changing. Round one and round two competitive bidding with Medicare reimbursements has provided an opportunity for somebody like 3B to come in. The round one bids were a test, and Medicare saw that they reduced their cost by about 30%. I mean, that’s huge. That’s when round two came in. They thought that they were basically going to mirror the results of round one. It kind of threw everybody in to a loop because the cuts have gone much deeper than expected.

With somebody selling a high-priced CPAP, the DME’s aren’t going to be able to support that because the cuts are so deep. They’re going to have to find ways to stay in business. That’s where we come in once again.

David: You’ve mentioned the quality of the product and you’ve mentioned your lower price points; so I imagine that that’s driving business now. How are things going so far? Can you tell us a little about whether or not you’re gaining traction?

Susan: They’re going excellent. We’ve doubled our sales every 90 days since we launched in September, so I see that as a really good sign. We are very, very busy.

David: Let’s bring in some discussion on the leading competitor out there, ResMed, for a bit. What has been the secret of their success? I mean they’re a leader. Is it their products or is there something else that’s driving market share?

Susan: Well, they have done an excellent job of branding their products, and they do have good products. Their sales reps have done a really good job for the company, whatever their mission is: working with the sleep labs and the physicians, encouraging them to write prescriptions for their products. They’ve done a better job, I think, than anybody else in the industry in doing that. They have developed relationships with the doctors, with the sleep labs, and those are the ones that are going to write prescriptions and drive you to the DME to buy a ResMed product.

David: So for the CPAP products, are there really big differences from a patient preference standpoint?

Susan: There’s not a huge difference. The 3B products compare very favorably with ResMed, Respironics and Fisher Paykel. We have the RESmart, our registered trademarked CPAP line. This is a very advanced technology. It tracks the patient’s respiratory conditions. We have what’s called RESlex that makes the sleep therapy more comfortable by reducing the pressure of exhalation and returns to the therapeutic pressure. We’ve got some software developed in our systems that provides a very comfortable situation for the patient. We have the RESlex in on our base models. I don’t think there is base model out there from ResMed or Respironics that can compete.

David: So these products are mostly comparable. What about from the price standpoint, how do you guys compare to the branded products?

Susan: We are well below the branded products actually. We come in 30% or 40% below the branded CPAP products.

David: That sounds substantially less expensive. I want to just talk about the masks for a minute. There’s been a new CMS rule that limits when masks used for sleep apnea patients can be replaced. [Mask replacement is a key revenue driver for CPAP manufacturers (think razor/razorblades), and CMS has provided stricter replacement protocols] Has that slowed the growth of mask replacement to your knowledge?

Susan: Probably a little bit. Patients used to replace their masks on kind of a schedule, like an auto-ship type situation. The Medicare changes have negated that opportunity. Now, the DME has to make contact with the patient to find out whether or not they need a replacement. So, yes of course, that has added a little bit to it, but you know, I’m sure the DMEs have figured out a good way to work with that in order to have it work for everybody.

David: I do have a question about the customer. Who is the customer? Is it the physician or is it the Durable Medical Equipment supplier? Who is the actual buyer in the market place?

Susan: That’s a good question because I think that’s kind of in flux too. Reimbursements have created a different scenario there. If the doctors are writing prescriptions for the branded product, I think they’re going to get a little push back from the DME’s and HME’s because they’re not going to be able to stay in business if they are going to be filling these orders with branded CPAP products. I think they’re going to be looking more – in order to stay economically and financially viable as a business — they’re going to have to push back a little bit on that. So, I think that’s in flux.

David: It sounds like ResMed has been successful due to the heavy marketing of its branded products. So are they targeting physicians or DME’s when they do their marketing?

Susan: I think they have the reputation for marketing to the physicians and the sleep technicians in the sleep labs as well. So, that’s going to be difficult for them.

David: So there’s an opportunity to be talking to the DME’s, that’s what I’m hearing, because now they have the cost pressures from the Medicare cuts and now they are likely to push back on the doctors who are prescribing the expensive branded CPAP products; is that fair?

Susan: Yes, absolutely. I would agree with that.

David: Let’s talk about branded versus the unbranded CPAP equipment in the market. What really gets the DME’s to use other products besides the branded products, like ResMed products?

Susan: I think that with their patient in mind, I would imagine that they are looking for a high-quality product at a price point that will keep their business intact, you know financially viable. I think a lot of times it does come down to price. Again that’s where 3B comes in with the unbranded product.

David: So, this is the unbranded segment. And by that, we mean what?

Susan: The unbranded segment, we’re talking about generic brands like 3B. Not ResMed or Respironics – not the big three or big four. Branded means that they’re writing a branded script, they are writing specifically for a ResMed product or a Respironics product. Unbranded, of course, means that you can go out in the market and use any brand, like a 3B product to fill the order. The DME has a patient come in, and they can say, “Okay, show me your CPAP prescription,” and then they choose which product to use. Just like generic medications. Probably about 45% of the market is branded. And for the CPAP mask components, it’s a little bit higher, about 65% of the market is branded.

David: When it comes to the unbranded again, it’s really an economic decision on the part of the DME. They obviously have an incentive to use the lower-priced products so they can make a higher profit, right?

Susan: That’s right, or even to stay financially viable with the Medicare reimbursements being slashed.

David: Do you happen to know, of the unbranded segment, approximately how much share ResMed or Respironics has? In other words, that portion of the market where DME’s could fill a prescription with either a branded or an unbranded product.

Susan: My educated guess would be that about 80% would be the big players like ResMed and Respironics. They have about 80% of the unbranded market.

David: Interesting. That sounds like a lot of share that could go to unbranded suppliers like 3B if price is really a driver?

Susan: Oh, yes.

David: Back to the Medicare reimbursement cut that we talked about before. As you mentioned, round one was about a 30% cut, which geographically, was only for a small part of the country, maybe 10 or 20%? I think this next cut, round two, affects about 80% of Medicare territories. Is that right?

Susan: Right. So round one was kind of a test, and they had such good results that they thought that they could create a similar scenario in round two. It’s kind of turned everybody off because I believe some of the DME’s put in really competitive bids on the low end. It’s creating a stir in the market place. And it’s creating an opportunity for companies like 3B.

David: So, round two, which is now a much larger geography, and is also a much higher cut — 47%. Now, when it comes to reimbursement, there’s Medicare and then there’s private health insurance companies. It’s strange but in this market, private health reimbursement has actually traditionally been lower than Medicare. Now with Medicare coming down, do you think that the private health insurers are going to try and lower their cost further and get down below the new Medicare rates again?

Susan: I would imagine they’ll make a slight adjustment. I don’t know if that will be drastic but that’s just my feel for it.

David: But the bottom line is, reimbursement is coming down and putting more pressure on the DME’s.

Susan: That’s exactly right.

David: So what are the DME’s doing about this?

Susan: Well, they’re going to have to be clever and creative and look for alternatives — other more attractive prices such as the 3B products. With our products, they can still keep themselves financially viable and their doors open. They can only cut back so many places. The DME also has to provide a good CPAP device in order to make a patient compliant. There’s a lot of hand-holding that goes on. You have to have the whole patient care system, services and equipment all adjusted properly. You have to make sure that they’re using it.

If you want to get medical reimbursement, [patients] have to comply with the usage of it. You can’t buy the machine and put it in your closet. It has to be used. It’s not like somebody else can use it or you can turn it on and leave it on your bedside table. You have to use it, which is to your health benefit. That’s the biggest problem with the CPAP, is to get patients to be compliant.

To answer your question, the DME’s can’t cut back on their hand-holding and their respiratory therapists. They have to find other ways to cut back, and one of the ways they can is by not having to spend so much on the CPAP device in the first place; to find an alternative to some of the bigger brands.

David: Are you having a lot of dialogues with DME’s about this? What’s the level of urgency that they’re coming to you?

Susan: Some are wanting to order yesterday. It varies. We have people that want to start using our devices tomorrow and exclusively. We’re getting very positive feedback.

David: Now, I understand there’s kind of a distinction between the smaller DME’s, which have a lot of trouble absorbing the reimbursement cuts and costs, and then the larger national DME’s. Are you getting calls from both sides of the industry?

Susan: Yes, we are.

David: Could you say they have a pretty good level of urgency to get started with new products?

Susan: Yes, some of them have already.

David: Let’s move to the branded side of the market. As you said, 65% of masks and 45% of the CPAP air generators are branded products. First of all, let’s talk about the physician referral. The bigger companies, Respironics and ResMed, market to the physicians. The physicians write a branded script that goes to the DME, which is called the physician referral. How important is that to the DME?

Susan: It’s very important because it’s a referral source. It sends people to their DME to fill their prescriptions. Their relationships with the doctors in the sleep labs is very important, but in order for [the DME’s] to stay financially viable, they’re going to have to communicate with the physicians that they can’t stay in business if they’re writing branded prescriptions. I think they’re going to have to have some dialogue, because the bottom line is that they want to provide the best for their patient but they also want to be in business. The physicians need to have a place for their patients to fill their prescriptions. So, it’s all a revolving circle. Everybody has to keep healthy, so they have to determine how they can all help each other maintain a healthy economic situation.

David: Do you think 3B and other smaller companies will see a pretty dramatic shift in the marketplace in terms of share, or do you think the big suppliers have to do something about price? How do you see this playing out?

Susan: Well, I think there are lots of different variables involved. Sleep Apnea is just becoming more prevalent as far as its diagnosis goes; there’s a lot of room for growth. Sleep Apnea affects every aspect of your health. So, if you look at it that way, I mean the room for growth, we really don’t know where it is. Probably 40% of us have Sleep Apnea. I think that the market itself can grow by leaps and bounds. I think there is room for the big three and also for somebody like 3B to come in and create a market share for themselves. I think that the market is going to grow exponentially and that gives us an opportunity, too.

David: Yeah, it does. But I also want to point out that Medicare is clearly focused on this, coming in and changing the way masks are replaced and running the competitive bidding process on the reimbursement. It seems that Medicare is somewhat worried about this line item in their budget.

Susan: Right. And there probably was room for some correction there, too. The mask is a great example because people don’t need replacement of nasal pillows every five minutes or every 30 days. Taking a good look at something is very good for the competitive market. The bottom line is you want your patient to be healthy and you want them to be served well. I think it’s kind of nice that Medicare can step back and take a good look at things in the marketplace and see what’s going. It shakes everybody and makes you more aware of what needs to be attended to, like checks and balances.

David: Right. So, the premium products we’ll call them, about what percent of the market do you think that share looks like three or four years out?

Susan: I think they’ll maintain a good share of the market, but I think with new companies like our own here in North America, we’re going to see a little bit of the distribution of the market changing. I hope so, for our sake because this is what we’re counting on.

David: Are you surprised that you are already getting significant calls from the DME’s so far in advance of the actual reimbursement change? Can you just remind us when the actual date of the reimbursement change is?

Susan: The change is in June. I’m not really surprised, because if they want to stay financially viable, you’re going to look for a way to do that. You can just Google these days and come up with CPAP equipment alternatives, and you go, “Oh, my gosh. There’s 3B. Who are they?” No, we’re not surprised at all, because we have penetrated market areas and are available out there.

David: It’s been a great ramp for you guys. Can you talk about what is the typical replacement cycle for a mask and what has the industry been doing previously that caused Medicare to look at this?

Susan: Basically, it’s a 30-day replacement on the pillows, on the different mask parts, and I think on the headband as well. Right now, the one that I’m the most familiar with is our Willow mask — it’s a nasal pillow system. Our full-face mask and our partial-face mask actually are in the works at the moment and going through the FDA process. So, I’m more familiar with the replacement of our parts for the Willow nasal mask. People like to replace this every 30 to 45 days.

Now, replacement of course has to be precedented by actual wearing out of these parts. They’re made of a silicon product, so they don’t wear out as quickly as one would think. They were being reimbursed at the rate of about a new one every 30 days. As Medicare found out, that really isn’t necessary. You purchase a mask, you have to replace it, and they’re not terribly expensive. But still, that is an income stream that’s now kind of been taken away. Every dollar adds up as you know, so we have to figure out how to address that.

David: I think for ResMed that was the fastest growing component of their business. We’ll see how these new rules affect that. So wrapping up here, Susan, longer-term, as a company, where is 3B in a couple years from now?

Susan: 3B/BMC, we’d like to be number four in sleep globally within five years.

David: Well great. Thank you for speaking with us Susan.

Susan: Thank you so much, David. Thank you for your interest in 3B.

Again, read PropThink’s coverage of the CPAP space and ResMed in our previous report. We believe ResMed is overvalued as its core business is coming under strong pressure.

What You Need to Know About Titan’s Advisory Panel Vote: An Interview with Analyst Jason Napodano

The FDA’s Psychopharmacologic Advisory Committee will review Titan Pharmaceuticals’ (TTNP) Probuphine on Thursday the 21st, making a recommendation for or against the approval of the implant as a maintenance treatment for opioid dependence in adult patients. Probuphine has a $280M opportunity in the U.S. alone, says analyst and PropThink contributor Jason Napodano, and with a partner already on board for commercialization, Titan is an attractive opportunity. The run-up in TTNP has already been profitable for PropThink’s readers (up 200% since October), and now, it comes down to the FDA. Napodano spoke with PropThink Editor Jake King about Probuphine, the market, and the risks coming into this week’s vote and subsequent approval decision at the end of April.

For  more details on Titan Pharmaceuticals and Probuphine, including a breakdown of the market and Probuphine’s differentiation, click here. And, for more on Titan’s partnership with Braeburn, click here.

PropThink is an intelligence service that delivers long and short trading ideas to investors in the healthcare and life sciences sectors. Our focus is on identifying and analyzing technically-complicated companies and equities that are grossly over or under-valued. Right now, we’re offering investors 30 days of free access to our premium intelligence service, designed to empower individual investors by providing actionable, timely, and accurate research on companies and investment opportunities in the healthcare sector.

ARIAD Building an Oncology Business Around Discovery, Development, and Commercialization

In an exclusive PropThink interview with ARIAD Pharmaceuticals (NASDAQ:ARIA), CEO Harvey J. Berger discusses the company’s lead product, ponatinib, a potential treatment  for intolerant Chronic Myeloid Leukemia (CML) which was submitted in full to the FDA for regulatory review in late September. Berger explains that CML is an enormous market opportunity – upwards of $5 billion – and that ponatinib has shown promising results as an important treatment option. He discusses timeframes for an ongoing Phase III head-to-head trial of ponatinib against Novartis’ (NYSE:NVS) Gleevec, one of the primary CML treatments on the market, and says that ponatinib is the first BCR-ABL inhibitor that blocks all mutations and resistances in the protein. That trial, he says, may set the stage for ponatinib to become a therapy for newly-diagnosed patients, and compete with drugs like Gleevec and Tasigna, both from Novartis, and Bristol-Myers Squibb’s (NYSE:BMY) Sprycel.

The interview also includes discussion of AP26113, ARIAD’s early-stage drug for Non Small-Cell Lung Cancer (NSCLC). While existing treatments such as Pfizer’s (NYSE:PFE) Xalkori ultimately fail at some point during treatment, Berger believes AP26113 will overcome those resistances and shortcomings. The drug’s first clinical data was released in September, and Berger discusses the next step in development, a pivotal trial for the treatment. He also mentions the company’s ambitious plan for product commercialization and the events that have driven ARIAD to become a $4 billion company.

Sickle Cell Drug Finding New Opportunity at ADVENTRX Pharmaceuticals

With Orphan Drug status and a largely-unmet medical need for its primary indication, ADVENTRX Pharmaceuticals (AMEX:ANX) expects its lead candidate, ANX-188, to be the company’s most important asset in the next few years. CEO Brian Culley believes the development-stage drug has the potential to reach a large segment of the Sickle Cell population in the U.S., driven by improved clinical development and proprietary manufacturing methods.

In an exclusive interview with PropThink, Culley discusses the mechanism of action for this novel drug, which had been in development for a number of years before ADVENTRX acquired it, but never moved beyond clinical trials. Culley says that the drug hasn’t yet demonstrated its full capabilities, and an upcoming Phase III trial at ADVENTRX, expected to initiate by year’s-end, will improve on older testing strategies. Discussing the development history of ANX-188, he says, “It was very interesting to us to see that in a study that was underpowered and really not optimally designed, they still very nearly reached the threshold of success which is needed for FDA approval.” With better financial backing and advanced manufacturing methods, Culley believes ANX-188 will move to the market with a strong IP portfolio to protect it. The only FDA approved drug for treating Sickle Cell Anemia, hydroxyurea, is sold by Bristol-Myers Squibb (NYSE:BMY) as Hydrea and Droxia.

The discussion touches on the company’s other pipeline products and ADVENTRX’s financial position. Culley also discusses expanding indications for ANX-188, and explains how recent hires at the company bring valuable clinical and regulatory expertise to this development-stage biotech.

Ventrus CEO: VEN-307 is Ideal for a Small Company to Launch

Ventrus Biosciences (NASDAQ:VTUS) believes it has hit the “trifecta of anal fissure endpoints” with its lead candidate VEN-307. In a 465 patient Phase III trial, CEO Russel Ellison says the company saw results, “that really haven’t been shown in a single multi-center anal fissure trial before. We showed a significant improvement in pain on defecation, average daily pain, and healing, which has almost never been shown.”

In this PropThink interview, Ellison explains the benefits of the Diltiazem cream over other topical and oral alternatives. With an improved tolerability profile, well-known active ingredient, and a cost-effective sales strategy, Ventrus expects VEN-307 to be a cash-flow generating drug quickly. The company plans to initiate a second Phase III trial in order to verify earlier data, thereby improving the odds of approval, and in the interview discusses upcoming catalysts as well as the company’s recent meeting with the FDA. The company is beginning an extensive market study for VEN-307, and Ellison reveals timeframes for that, as well as the expectations for what Ventrus believes is a significant, untapped market. The interview includes discussion of Ventrus’ guidance for cash use and the company’s second product, VEN-308.

Spectrum CEO Encourages a Big Picture View of the Company, Expects Long-Term Expansion

As the second-most prevalent cancer in the U.S. and 3rd leading cause of death, colorectal cancer and its treatment present a major market for Spectrum Pharmaceuticals’ (NASDAQ:SPPI) oncology drug, Fusilev, says CEO and President Rajesh Shrotriya. In an exclusive interview with PropThink, Shrotriya details the future prospects for this $220M drug, which has been growing rapidly in the last year and a half. He also responds to concerns about competition from generic leucovorin and alleged Fusilev price cuts, explaining that Fusilev pricing has actually been on the rise this year and that J-Code reimbursements are an important facet of the drug’s salability. The discussion includes Spectrum’s recent acquisition of Allos Therapeutics and oncology agent Folotyn, which have in turn resulted in overall cost-savings for Spectrum and its new subsidiary, as well as increased revenues as the company added the third product to its marketed oncology franchise.

Shrotriya expects Spectrum’s franchise to grow in the long-term based on its broad pipeline: “We have about ten oncology drugs in development. None of these drugs are in test tubes or in mice. All of these drugs are in clinical trials, and I’m very proud to say that four drugs are in the latest stages of clinical testing.”

The conversation includes details of SPPI’s $100M share buyback program, its recent COO hire – who previously worked for Amgen (NASDAQ:AMGN) – as well as some upcoming catalysts.  Shrotriya discusses the company’s balance sheet and his ambitious three-year goal to grow the company’s market cap to $5 billion.

 

China-centric SciClone is Creating Growth, Driven by Operating Efficiencies and New Product Licensing

Clinical trials and in-house drug development are expensive and time-consuming aspects of the biotechnology industry, but are nevertheless fixtures of standard business development. SciClone Pharmaceuticals (NASDAQ:SCLN), however, has created a unique work-around through its partnership and acquisition-based business strategy. Three years ago SciClone, which is based in the U.S,, eliminated its in-house development program and began selling only partnered and in-licensed products as a China-focused pharmaceutical.

In this PropThink exclusive video, SciClone’s CEO Friedhelm Blobel discusses the company’s flagship product, Zadaxin, and how widely-anticipated government price cuts are likely to affect revenue much less than investors may fear. The company has been actively working to lower the costs of goods, essentially slashing the price of the Active Pharmaceutical Ingredient in Zadaxin by more than 50%. Blobel says, “We will, even after this price renewal, have a better – or about the same – gross margin that we have enjoyed for the first ten years with this drug.” The discussion also includes the effects of intellectual property in China and growth expectations for the Chinese market. Blobel expounds the details of SciClone’s partnership agreements with companies like Baxter International (NYSE:BAX), Pfizer (NYSE:PFE) and Sanofi (NYSE:SNY). Chinese traditional medicine  greatly affects drug sales in China, and Blobel says it makes up as much as 20% of the market. He explains how SciClone’s strong cash position and continuing revenue growth contribute to the company’s future plans and gives investors an idea of what the future may hold for this profit-generating pharmaceutical company.

You can see our coverage of SciClone Pharmaceuticals, in which we advise a Long position, by clicking here.

 

Abaxis: Cash Resources Will Allow Us To Scale Our Medical Business

Abaxis (NASDAQ:ABAX) CEO Clint Severson discusses opportunities for growth and comments on the Federal Trade Commission’s (FTC) investigation into Idexx Laboratories’ (NASDAQ:IDXX) non-compete agreement with national distributors, in an exclusive video interview with PropThink.

Severson explains how Abaxis is scaling their business on the heel of a record quarter; Abaxis reported growth in both their top and bottom line in the most recent fiscal period. The interview features thought-provoking dialogue that explores the core fundamentals of the diagnostic products business.

Rigel’s Fostamatinib and the Future of Rheumatoid Arthritis Therapy

Discussing Rigel Pharmaceutical’s (NASDAQ:RIGL) immunomodulatory Rheumatoid Arthritis (RA) treatment, CEO Jim Gower says it has the potential to replace TNF inhibitors as the standard-of-care, with earlier results, broader efficacy, and dramatic improvement in bone destruction – a hallmark of the disease.“The Pfizer (NYSE:PFE) drug [tofacitinib] and our drug, Fostamatinib, both work in the same week of therapy, they have differentiated mechanisms, they’re both oral, so they make a lot more sense in terms of where you turn in the early [RA] treatment. Of the TNF inhibitors, which are in the fourth, and beginning to be fifth generation, it’s hard to find any that have been introduced early that haven’t been at least a billion dollar product.”

In an exclusive interview with PropThink.com, Gower discusses the future of Fostamatinib – partnered with Astrazeneca (NYSE:AZN) – and promising pipeline asthma treatment R343, as well as Rigel’s financial situation and catalysts for the company in the next year.

PROLOR Biotech: We'll Partner Our hGH Product At An Inflection Point

Scientists at Washington University in St. Louis, Missouri were studying two hormones -  human Chorionic Gonadotropin (hCG) and Luteinizing Hormone (LH) – when they made a discovery that explained why hCG remains longer in the body than LH, notwithstanding their near-identical nature. What these Scientists discovered, says PROLOR Biotech (NYSEAMEX:PBTH) President Shai Novik, is a small sequence that they called ‘Carboxyl Terminal Peptide’, or CTP, attached to the end of the longer lasting hormone, hCG.

Today, CTP is the technology that underlies PROLOR’s lead product candidate – longer-acting human growth hormone (hGH), which is in Phase II clinical development for both children and adults. Novik says the company expects to launch a Phase III study of the compound in adults later this year and would expect top-line results roughly one year later – around the same time as results from the ongoing Phase II study of the same compound in children. The same CTP technology PROLOR is developing in hGH has already been validated, Novik contends, as Merck (NYSE:MRK) received EU approval for ELONVA®, a longer-acting version of follicle stimulating hormone (FSH), in 2010. ELONVA® is based on the same CTP technology. As it happens, the pharmaceutical giant has rights to use CTP in four proteins with all other rights belonging to PROLOR.

As the company’s hGH product approaches registration studies, PROLOR intends on partnering a product that would contend for a $3 Billion a year market. “Our strategy would probably be to partner with a large company that has a significant presence in that market – at least for distribution”, answers Novik on the question of strategy. According to analysts, any of the large pharmaceutical companies currently offering a daily hGH injection could express interest in a once-weekly alternative. Names to watch in this segment include Pfizer (NYSE:PFE), Novo Nordisk (NYSE:NVO), Merck, Novartis (NYSE:NVS), Roche-Genentech (OTCQB:RHHBY), and Eli Lilly (LLY). Some reports have even gone as far as saying that PROLOR could be a takeover target because of overwhelming interest in the company’s hGH product-candidate alone.

Interview with Array BioPharma CEO: Vast Pipeline, Robust Partnerships, and 2012 Catalysts

Ron Squarer, Chief Executive of Array BioPharma (NASDAQ: ARRY), sits down with PropThink.com to discuss the company’s pipeline, positioning, and commercialization strategies. Squarer says robust partnerships are representative of the quality of Array’s science; the company has 14 compounds under development with 10 in Phase II studies. He goes on to talk about moving three products into late-stage trials and the importance of strategic partners in AstraZeneca (NYSE: AZN), Novartis (NYSE: NVS), Roche (OTCQX: RHHBY) and Amgen (NASDAQ: AMGN). Array plans on partnering more of its products according to Squarer, who says the company has historically been able to negotiate deals with large upfront, milestone, and royalty payments. Array BioPharma’s Chief Executive also provides insight into some of the catalysts for this year and some moving forward.

Cynosure Prepared for Growth After Recession, says CEO

In an exclusive video interview with PropThink.com, Cynosure (NASDAQ: CYNO) President and CEO Michael Davin discusses Cynosure’s expanding position in the global market as a provider of light-based medical treatments and the strategic shifts that allowed Cynosure to weather the last few years of worldwide economic recession. Even as competitors fell apart, says Davin, Cynosure continued to innovate: “We spent at the same level [on R&D] as we did during the high times [...] we have $77 million in cash, no debt, and last year we acquired two companies and also acquired a distribution relationship.” He explains how the company made major cuts to operating expenses in 2009 and 2010, resulting in top-line revenue growth of 35% in 2011 – more than any other company in their industry, including public names like Syneron Medical (NASDAQ:  ELOS), Palomar Medical (NASDAQ: PMTI), Solta Medical (NASDAQ: SLTM) or Cutera (NASDAQ: CUTR).

Mesoblast Interview: The Best Adult Stem Cell Technology In The World?

Mesoblast (ASX: MSB) (OTC:MEOBF) CEO Silviu Itesu speaks on his company’s adult stem cell technology, particularly mesenchymal precursor cells, and the low-cost manufacturing capabilities that the technology implies. Itesu discusses development compound Revascor for use in congestive heart failure and details the latest Phase II results. In 60 patients the drug saw no adverse events and a 0% event rate (hospital visits, mortality) compared to 20% in a control group; the company is planning to initiate a 1500-patient Phase III study in the coming few months. The trials are funded entirely by Teva (NYSE: TEVA), says Itesu, but the company’s financial situation would allow for a few years of ‘solo’ operation.

Itesu briefly compares Mesoblast’s production strategies to those of Dendreon’s (NASDAQ: DNDN) Provenge, and explains how Mesoblast’s production will be significantly less expensive. The conversation also covers two more pipeline products, a Type-2 diabetes treatment and an intervertebral disc treatment, both of which have shown promising results in Phase II studies.

Interview: Atrium Reducing Debt After Significant Growth Period

Atrium Innovations’ (TSX:ATB) (PINK:ATBIF) President and CEO Pierre Fitzgibbon discusses the company’s vertical integration, explaining that it allows for more control in tighter regulatory situations. Regulations, he says, ultimately benefit the company: “I look at growth in the U.S. being 5-7% [in 2012], however with heightened regulation we’re going see the weeding out of some marginal players.” After an impressive year of 25% growth, Fitzgibbon says the company is taking 2012 to pay down debt incurred from earlier acquisitions. He also discusses the company’s sales trends by segment; three factors that will increase expansion in the next few years; and provides guidance on growth rates for 2012.

 

AVEO: Longer PFS And Remarkable Safety Profile Will Differentiate Our Kidney Cancer Drug

In an exclusive video interview with PropThink.com, Michael Bailey, Chief Commercial Officer of AVEO Pharmaceuticals (NASDAQ:AVEO), explains the benefits of AVEO’s Phase III drug candidate Tivozanib in renal cell carcinoma, citing lower toxicity than existing drugs and extended progression-free survival (PFS). Bailey also discusses the company’s current partnerships with Astellas Pharma (OTC:ALPMY) and Biogen Idec (NASDAQ:BIIB) in developing two of their three pipeline compounds and talks about AVEO’s filing expectations for Q3 2012 and strategy entering the next year of commercialization.

Ablynx CEO Dr. Edwin Moses Video Interview: How We Built a 25-Compound Pipeline

In an exclusive video interview with PropThink.com, Ablynx (EBR:ABLX)(OTC:ABLYF) CEO Dr. Edwin Moses discusses the company’s platform Nanobody technology – 1/10th the size of traditional anti-bodies – and the broad indications in which their compounds may prove beneficial. Ablynx has created a unique development and production strategy that relies on partnership agreements – Merck Serono (NYSE:MRK), Novartis (NYSE:NVS) – for commercialization of their products. The company has raised more than €200M in equity financing and over €160M through partnership milestones and royalties, but has no commercial arm of their own.

Dr. Moses says the company has one orphan drug that they may take through commercialization alone – a first – and 25 projects in various stages of pipeline development. He discusses the importance of intellectual property for Ablynx and the company’s promising Phase I pulmonary product that he believes may be a first of its kind.

Thrombogenics CEO Discusses Product Pipeline Ahead of Catalyts, FDA Review

In an exclusive interview with PropThink.com, Thrombogenics (EBR:THR)(OTC:TBGNF) CEO Patrik De Haes discusses the company’s pending FDA and EMA approvals of ocriplasmin, a treatment for symptomatic vitreomacular adhesion. Current procedures in the 500,000 patient market require a week-long recovery period in which the patient remains immobilized face-down. Ocriplasmin, says De Haes, is an outpatient treatment that requires one injection and no recovery time. Not only is it faster, but De Haes says the injection may cost as little as €2000, a fraction of current $10,000 options in the U.S. He expects a late summer advisory meeting and commercialization in the U.S. and Europe – with a helping hand from partner Alcon, a division of Novartis (NYSE:NVS) – in Q1 of 2013.

De Haes also discusses results from studies of Thrombogenics’ pipeline drug TB-402, a post-surgery anticoagulant that has shown increased efficacy and similar safety to Xarelto by Bayer (OTC:BAYRY), and Lovenox by Sanofi (NYSE:SNY).

 

Ambu’s Single-Use Products Supplant High-Cost Traditional Technology

Ambu (CPH:AMBU-B) President and CEO Lars Marcher discusses Ambu’s global sales position and growth strategy in an exclusive interview with PropThink.com. According to Marcher, Ambu is adapting traditionally high-cost reusable healthcare technology into significantly cheaper single-use products, which Marcher says is the future of healthcare. A new fiber optic scope, for instance, will cost about $200; the capital requirements and cost-of-ownership for providers are significantly lower than the $60,000 price tag on currently available products from companies like Olympus (OTC:OCPNY), and 3M (NYSE:MMM) in the case of patient-monitoring electrodes.

Marcher discusses revenues for their three product segments – anesthesia, patient monitoring and diagnostics, and emergency training supplies – and explains the company’s largest growth segment, as well as impressive regional growth expectations in emerging markets. Marcher also explains why the Danish company is less concerned with European market instability than many competitors and companies based in the EU.