Buyside analysts don't publish ratings and target prices for the public: Nearly all their notes, analyses and projections are top secret. However, in this interview with The Life Sciences Report, Wasatch Advisors' Jill Wahleithner breaks that tacit rule. Wahleithner, a former big pharma scientist, identifies three unusual biotechs with advanced therapeutic technology platforms that could turn the tide against conditions that have plagued humankind for eons, and the potential returns on investment matches the potential to completely and radically change the practice of medicine forever.
The Life Sciences Report: Back in the mid-1990s, you were a scientist at Novo Nordisk (NVO) , where you worked to find potential industrial enzymes. You understand the research and discovery phase of biotechnology quite well. Now, as a buyside analyst, you follow emerging companies with very sophisticated technologies, including immunology-focused platforms. How do you evaluate these platforms? Do you go to peer-reviewed literature as you look at emerging technologies?
Jill Wahleithner: All the time. I have online access to an academic journal library. It is the first place I go when I start looking into a company. I pull out the relevant publications so that I can understand the science, understand the pathways, and see what has happened in the past.
TLSR: Most investors outside of institutions have little idea how to evaluate the technology and how to assess intellectual property (IP). You have your name on at least two patents, so you understand this process. How do you evaluate IP?
JW: I will pull up patents if I think if they're relevant. There are times when I want to understand where a company is positioned with respect to the future of a particular product, so I read the patents. When you work for a pharmaceutical company as a bench scientist, part of your job is to bring forward ideas that you think could be part of the company's patent pool. When you become the source of these ideas, you must learn how to think about patents—what a patent means and what exactly is patentable. That being said, I also recognize that my reading of a patent is not the same as what the courts might read, so there's always a risk.
TLSR: A couple of decades ago, when I began speaking with analysts and CEOs of biotechnology companies, I would frequently hear the term "bulletproof" as it relates to biotech patents. I hardly ever hear that term anymore. Is that my imagination?
JW: I think that's very insightful. Some patents that people considered to be bulletproof have been overturned. The U.S. Supreme Court definitely has impacted what is patentable and what is not patentable. I think there is more hesitation to be confident about what you are protected against.
TLSR: You review the science of emerging biotech companies for portfolio managers (PMs) at Wasatch Advisors. What are the PMs focused on? I know you write reports for them, but when you are in a face-to-face conference discussing early-stage names, what is the bottom-line judgment the PM wants to hear from you?
JW: It really depends upon the portfolio manager. Some of them have a deep interest in the space, and they want to understand what's happening with the science. Others, not so much. It comes down to one thing. My job is to go back to the science and help PMs understand why a compound in development is relevant, where it fits in the medical community and what would happen if they did invest.
TLSR: You have a tremendous interest in immunotherapies and immune prophylaxis. You're also very interested in genetically modified cellular technologies. Have we crossed into a new realm of harnessing and modifying the genome to leverage cellular and humoral immune responses?
JW: I think we've built a bridge, and we're just now starting to walk across. The question is: How solid is the bridge? I see a lot of potential. I see so many promising ideas out there, but there have been a lot of failures. These failures have allowed companies to fine-tune their processes, and to come up with novel methods that incorporate the knowledge learned from the failures. In the next two to three years, we are going to see whether we really can fix diseases by driving the body to do the repairs, instead of adding products into the body to handle the symptoms of disease.
TLSR: Your answer implies that genetic disease may be curable with some of these technologies. If platforms can be developed such that functional cures can be accomplished—let's say for HIV/AIDS—does that necessarily mean that you can cross over to another disease indication and effect the same kind of result with that platform?
JW: Possibly. It depends upon the disease. Given the basic technology of editing the genome, once it has been proven as safe, there are many ways to use that tool. What we're seeing from Sangamo BioSciences Inc. (SGMO) right now, with its genome-editing HIV data, is that there have not been any long-term repercussions that raise questions about safety. This means you can go into diseases where existing treatments are not necessarily optimal. You don't have to worry about possibly killing the patient with the Sangamo approach because we know, from trials with its HIV product SB-728-T, that you don't have the downstream long-term safety events seen with some of the initial gene therapy technologies.
TLSR: Is Sangamo a company that you're currently positive on?
JW: Yes, it is. It's a company that I really like. I see a lot of potential. Its scientists are phenomenal. They think deeply about the products and how to develop these tools. In the next two years, we should see several products come to the clinic where, for the first time, the human body will be used to enable "functional cures." It will be interesting to see how those "cures" do.
TLSR: What milestones should investors be looking for at Sangamo?
JW: I would look for Phase 2 data from the HIV program with SB-728-T, and whether that gets partnered. At this point, the company has generated enough data that if a larger pharma is interested, a partnership will happen. I would also look at Sangamo's in vivoprotein replacement therapy products, which are just hitting the clinic. We should get some Phase 1 data from some of those in the next year, and that will tell us whether these tools meet their promise.
TLSR: Which protein replacement products are you referring to?
JW: The first one I think will be for beta thalassemia major with SB-BCLmR-HSPC. There will also be some data for lysosomal storage diseases, as well as for Huntington's disease and for the hemophilias. We're going to see multiple products hitting the clinic in the next year. Depending upon the product, different routes are being used to enable protein production in the body.
TLSR: We're talking pretty much about monogenic (single gene-related) diseases here. Do you foresee this platform extending to polygenic diseases, since most diseases, by far, are polygenic?
JW: I could see where it might have some functionality in specific cancers. I don't know about diseases like diabetes or heart disease. These are a lot more complicated, and it depends upon how the science evolves in identifying the causative agents and whether those agents can be impacted by altering the genome.
TLSR: Would you speak to another name?
JW: Inovio Pharmaceuticals Inc. (INO) has spent years developing a DNA-based vaccine platform. Its first product and lead candidate, VGX-3100, is for cervical intraepithelial neoplasia, a precancerous condition resulting from infection with the human papillomavirus (HPV). VGX-3100 is a synthetic, circular DNA molecule that acts like a virus. It comes into the body enabled by electroporation, an electrical shock applied to the skin with the injection. It hooks onto the cell surface and injects its DNA into the cell, which is what a virus does in vector-guided gene therapy. It then takes over the cellular translation or protein synthesis machinery, and directs the production of antigens, which are proteins, just as they were encoded in the plasmid. It allows the body to attack four proteins found on HPV virions. The idea of using DNA, which is simple to make and cost-effective, to drive the body's natural immune response is just fascinating.
TLSR: The dangers of gene therapy have been written up in the general press, as well as the scientific literature. Inovio CEO Joseph Kim told me that one of the things about vector (viral)-based delivery of genetic material is that patients could develop an allergy to the virus itself. He believes this is one of the major advantages of Inovio's plasmid delivery of genes into cells.
JW: That's exactly right, and it's why you can't do repeat treatments when you're using gene therapy products that are delivered by a virus. Patients develop antibodies that could cause a violent immune response on readministration of the vector. There are a lot of advantages to the plasmid delivery system. The injected plasmid just disappears with time because, unlike a virus, it's not able to replicate. It doesn't leave a footprint behind that might cause long-term safety issues. Inovio is capitalizing on the fact that the virus stimulates an immune response that could be dangerous for the patient, and its delivery system does not.
With safety established, the company announced last July that its 150-patient, Phase 2 trial met its primary endpoint. VGX-3100 induced regression of cervical intraepithelial neoplasia, and it cleared the virus from the cervical tissue. Now we have both safety and proof of concept.
TLSR: Back in September 2013, Roche Holding AG (RHHBY) made a deal to pay Inovio an upfront $10 million ($10M) for the rights to two therapeutic immunizations, INO-5150 for prostate cancer and INO-1800 for chronic hepatitis B (HBV). Roche returned rights to Inovio for the prostate cancer program. Can you comment on that?
JW: The INO-1800/HBV program is still intact with Roche, and it should be hitting the clinic this year. As for the prostate cancer program with INO-5150, Roche has had some failures in its oncology space, where it once had a huge lead relative to the rest of the world. That lead has flipped a bit, so Roche has gone back and looked at its portfolio. I think that after some failures in prostate cancer, like with Dendreon Corp.'s (DNDN) Provenge (sipuleucel-T), there are some questions about how effective immune therapies will be in prostate cancer. That's part of why Roche made its decision. Returning the rights to INO-5150 was more about Roche's own business models than about the promise of Inovio's technology.
TLSR: Since you brought it up, let's address Dendreon. The company is in bankruptcy, and its assets are in the process of being acquired by Valeant Pharmaceuticals International Inc. (VRX) (VRX:CA) . The development of Provenge was an amazing scientific achievement, but it is an autologous therapy, meaning that it's not an off-the-shelf product. A patient's own cells must be processed and returned to the patient. What did we learn from that? Is this something that investors in Sangamo might be concerned about since its lead candidates are autologous, genetically modified cells?
JW: It's true that Sangamo has an autologous model, but Dendreon's Provenge problem went beyond just the production issues. There was some skepticism about the clinical trial results that flowed down into the product's uptake by clinicians. Production was definitely expensive, but Provenge also has to be administered in three different treatments from three different white blood cell harvests and three different processings. That's a lot of work. With Sangamo's platform, you have a one-time process. Right there, you've cut the cost down. Sangamo also has done a lot of work to produce a messenger RNA-driven process, which will help with cost. If anything, Sangamo has learned from the failures of Dendreon and will, I think, be able to work around some of the cost issues.
TLSR: Was there another company on your list?
JW: Of the three companies I'm talking about today, Argos Therapeutics Inc.'s (ARGS) program is probably closest to Dendreon's platform. It has a vaccine that uses RNA from a cancerous tumor to direct an immune response. What caught my eye about its trial results with AGS-003, in metastatic renal cell carcinoma (mRCC), is that every piece of immune data aligned with what Argos expected. The therapy is generating memory T cells, and the number of T cells that it generates is directly correlated to the response of the patient. We saw more than a doubling in overall survival in these patients, which is quite an increase. These data were stronger than we've seen previously with vaccine companies. In addition, Argos is developing an automated manufacturing platform, which will greatly reduce the cost and address some of the problems that Dendreon ran into.
TLSR: Argos has an HIV program as well. The company's shares lost a third of their value on Jan. 9, when its Phase 2 trial in HIV failed to meets its primary endpoint. I should note that the stock has recovered quite well since then. But what was your take on that event?
JW: First, that program is fully funded by the National Institutes of Health, and while the company is involved in this study, it is not spending its own funds to develop that product. The next thing I would say is that when Argos took that hit in January, the trading volume was not that high relative to the number of shares outstanding. Usually that means somebody is taking advantage of press release results instead of an event that impacts the company long term.
TLSR: It sounds like you are positive on Argos. Is that right?
JW: I do like the company. I think it has an interesting technology.
TLSR: What about catalysts or milestones that Argos investors might look for?
JW: We should hear about the final patient being enrolled in its Phase 3 mRCC trial. Interim data will follow within several months of that enrollment completion. The interim data will just be the data and safety monitoring board (DSMB) reviewing safety and looking for futility. Bad news would take the stock down, but good safety news probably won't affect the stock much.
TLSR: Thank you, Jill.
Jill Wahleithner worked as a research scientist in both industry and academia for 10 years before moving to the financial industry as a biotech consultant. Since 2004, she has focused on reviewing the science of emerging biotechs for equity investment firms. In 2006, she signed an exclusive contract with Wasatch Advisors, and in 2014 transitioned to a full-time employee of Wasatch, where she helps company portfolio managers navigate the complex world of biotech.
Source: George S. Mack of The Life Sciences Report
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1) George S. Mack conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report, The Life Sciences Report and The Mining Report, and he provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
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