This fall, presidential candidate Hillary Clinton once again proposed price caps on out-of-pocket payments for pharmaceuticals. Liana Moussatos of Wedbush Securities has followed the price-cap discussion since the 1990s, and says the issue is more political than real. Given that, she tells The Life Sciences Report about some up-and-coming companies with products she believes are likely to make big improvements in the health of patients and the wallets of investors.
The Life Sciences Report: Presidential candidate Hillary Clinton recently proposed a $250 monthly cap on out-of-pocket prescription drug costs to stop price gouging by drug developers. Can you tell us about the overall drug pricing environment and what precipitated Clinton's plan?
Liana Moussatos: I'm not an expert on Clinton's plan specifically. But when Turing Pharmaceuticals LLC's CEO dramatically increased the price of a drug that had been on the market for a long time, the current political discussion about drug pricing was triggered. [Editor's Note: Capping drug prices has been addressed by other politicians as well.]
Drug pricing has been a recurring political issue. It was an issue for Hillary Clinton when she was First Lady in the 1990s. I'm sure she feels sorry for the elderly on fixed incomes who have difficulty paying out-of-pocket expenses for their drugs, but in the healthcare system overall, drug costs make up only about 10% of total patient expenses. The biggest costs are hospital stays.
I think drug pricing is more of a political issue during a campaign than a real issue, except for those people on fixed incomes and in similar situations.
TLSR: Do you think any plan to cap the costs of drugs will pass Congress?
LM: No. I remember when this was brought up in the 1990s, and I've followed the debate since then. It usually occurs during election campaigns. Someone may even write a bill, but it seems to die quietly in committee.
TLSR: Even though you think price caps are a political issue tied to election cycles, can you comment on what they might portend for the pharmaceutical industry if passed?
LM: If the government acts to reduce the profits from a drug, the pharmaceutical industry couldn't help but reduce innovation. That reduces the ability of pharmaceutical companies to develop new drugs, which is a very expensive process.
When Hillary Clinton recently proposed the $250 cap, some said it made sense for the patients who use the drugs to pay for innovation. Others countered that the cost of innovation should be borne by society through taxes and other mechanisms, with patients paying only a bit more than those who don't use the drug.
A more serious attack is coming from the Trans-Pacific Partnership. One of its proposals would shorten protections for intellectual property (IP). That proposal was aimed primarily at the United States. For pharmaceuticals, this would reduce innovation by reducing the period of exclusivity, thereby enabling generics and biosimilars to enter the market earlier.
The underlying problem is that drug development is extremely expensive, and has become more so since the FDA began regulating efficacy in addition to safety in the 1960s. Because efficacy is now regulated, the costs of clinical trials have shot up, thereby increasing the price of drug development and, therefore, the prices of the drugs themselves.
A simpler way to reduce drug prices is to reduce development costs. For example, if the FDA used a general statistical hurdle of a 0.1 p-value instead of 0.05, the size of trials could be smaller. In the statistics world, a p-value of 0.1 is considered statistically significant. A p-value of 0.05 shows that the effect of the drug has only a 5% chance of having been caused by other factors. A drug with a p-value of 0.1 has a 10% chance that the effects were generated by factors other than the drug. A p-value of 0.05 is more rigorous, but it also makes conducting a trial a lot more expensive.
TLSR: Do you have any thoughts regarding comparative effectiveness legislation?
LM: Requirements that a new drug must be better than what's already out there, and must be differentiated, promotes innovation and decreases the number of "me-too" drugs.
TLSR: You follow several small- and micro-cap companies that address unmet needs. Would you care to tell us about some of them?
LM: Vitae Pharmaceuticals Inc. (VTAE) has a drug discovery platform called Contour. I'm not an expert in structure-based design, but having followed this company for a few years, I have the sense that it's always looking at the chemistry literature for cutting-edge breakthroughs in structure-based drug design that can be incorporated into its program. Vitae doesn't get lazy with what it already has. Instead, it's always improving.
The company is working on an autoimmune drug, VTP-43742, potentially for psoriasis. The early data looks promising, and we expect to see the first human efficacy data in Q1/16. Vitae has other drug candidates addressing other diseases that are currently in preclinical development and are likely to enter the clinic in 2016.
Because Vitae discovers its own drugs, it has ideal composition-of-matter IP coupled with long patent life, so the company won't owe large percent royalties to anyone. That's one good thing. Another is that it has some cash. The company also has a great management team with big pharma experience.
TLSR: Is there another company you'd like to talk about?
LM: Regulus Therapeutics LLC (RGLS) was founded by Alnylam Pharmaceuticals Inc. (ALNY) and Isis Pharmaceuticals Inc. (ISIS). Combining these two companies' technologies made a big difference in the therapeutics industry by creating a new generation of microRNA therapeutics.
In October 2014, Regulus Therapeutics released the first clinical data for its microRNA platform, RG-101, which targets microRNAs linked to disease. RG-101 is being developed as a treatment for hepatitis C virus (HCV), which is a crowded space. Big pharma has cured HCV with a two- to three-month treatment regimen involving a bunch of pills. One year ago, Regulus conducted a single ascending dose Phase 1 study in which a single injection produced a durable cure in about 30% of HCV patients with different genotypes. For RG-101 to be commercially viable, the goal is to move that cure rate to 90–100%, given the hurdle that Gilead Sciences Inc. (GILD), AbbVie Inc. (ABBV) and other big pharmas have created.
Regulus' ~30% cure rate with a single injection was impressive, and caused the stock to rock, but it has since pulled back. Regulus is conducting a combo Phase 2 trial with Gilead's Harvoni (ledipasvir/sofosbuvir), Janssen's (a subsidiary of Johnson & Johnson (JNJ)) Olysio (simeprevir) and Bristol-Myers Squibb Co.'s (BMY) Daklinza (daclatasvir). We expect to see data in Q1/16. The goal is to reduce the viral load below the limit of quantification within 28 days. The trial is designed so patients get an injection of RG-101, take the pills for 28 days, and then get another shot of RG-101. Then patients are followed to determine the percentage that are cured. Remember, most of these drugs must be taken for three months. This regimen has the potential to shorten treatment to one month, with only two shots of RG-101 and one month of daily pills.
TLSR: How about another company?
LM: The FDA approved Relypsa Inc.'s (RLYP) Veltassa (patiromer), a polymer drug to reduce excess potassium in the body, on Oct. 21. The stock crashed the following day because the Veltassa label includes a box warning. Normally, a box warning means there are severe toxicities, and the FDA uses the box to tell doctors which patients shouldn't get the drug or whether extra treatment is required.
In Veltassa's case, the box warning mentions a theoretical concern. There were no serious safety issues in the clinical trials, and no drug-to-drug interactions observed in the clinical trials. There was, however, an in vitro test that showed Veltassa bound to12 of the 28 drugs it was tested with. Because of that, the FDA issued a box warning advising patients not to take other medications within six hours of taking Veltassa. When Relypsa asked doctors about the percentage of patients who take drugs that must be administered once per day, twice per day or three or more times per day, doctors said 95% or more have once- or twice-per-day regimens. That's easy to work around with a six-hour window. If it's once per day, then a patient can take patiromer in the afternoon.
But that warning drove the stock down. From what I understand, the FDA chose the "plus or minus six-hour" timeframe for all medications taken with Veltassa just to make administration simpler.
There are investors who like a competitor, ZS Pharma's (ZSPH) ZS-9. ZS Pharma is being acquired by AstraZeneca. ZS-9 also is being developed for hyperkalemia, and is about six months behind patiromer. It is a zirconium salt that works quickly—in as little as an hour—and could have a place in the acute market. However, I believe it has some safety issues, especially with later-stage patients, because it exchanges potassium for sodium. Most hyperkalemia patients restrict salt intake, so studies are showing a little edema.
However, ZS Pharma appears to have worked around that to enable long-term dosing. But because everyday dosing raises sodium levels, it could become a problem longer term. We don't see that issue with Veltassa. The number one side effect of Veltassa is constipation. ZS Pharma investors have pointed out that they don't expect ZS-9 to have drug-to-drug interactions because none were seen during clinical trials, so right now, the Street thinks ZS-9 will not have a box label. However, Relypsa also did not see drug-to-drug interactions in its clinical trials, and the FDA required an in vitro test that led to the boxed warning.
As a proxy to these potassium binders, I'm looking at phosphate binders as a more established market, with the same doctors and patients. Phosphate binders usually are used in dialysis patients in the last stage of chronic kidney disease, whereas hyperkalemia drugs are being developed for pre-dialysis patients. All phosphate binders have many drug-to-drug interactions, and they all have various amounts of time—either before or after taking the binder—that patients must wait when taking multiple drugs. It can be complicated.
I think the Relypsa stock crash was triggered by a big misunderstanding by investors, especially in the context of the phosphate binders. It's clear that the vast majority of nephrologists prescribe phosphate binders, and they're well aware of drug separation times and drug-to-drug interactions because all the phosphate binders have these restrictions. Therefore, this isn't new to physicians. It was only new to the Street, and the competition made a big deal out of it.
I think Relypsa is misunderstood and worth a lot more than people think. Right now is a great opportunity to buy.
TLSR: Relypsa's Veltassa uses the polymer as the medicine, rather than to change the properties of the medication. Is that a benefit?
LM: Sure. But it's not the first drug to do this. Sanofi SA (SNY)/Genzyme launched a polymer as a phosphate binder called Renagel (sevelamer) more than 10 years ago. It dominates its market. About 88% of all prescriptions for phosphate binders are Renagel (or Renvela, which uses the same polymer), and the metals comprise only 12–13% of the prescribed phosphate binders. The metals—especially aluminum—are thought to have toxicity issues. Sanofi was able to counterdetail the metals because of those toxicities, saying a polymer is a lot safer than metals.
TLSR: Are there any other small- or micro-cap companies you'd like to discuss?
LM: Carbylan Therapeutics Inc. (CBYL) is interesting. It's developing a single injection for joint pain caused by osteoarthritis (OA), combining a steroid with a viscosupplement, hyaluronic acid.
Right now, patients are injected with either a steroid or hyaluronic acid, or have two injections to achieve the combination. Steroids work quickly but do not last very long. The viscosupplements take a long time to reduce pain from OA, but once they start working the results last a long time. The combination results in quick-acting, long-lasting pain relief in a single injection.
The Carbylan product, Hydros-TA, is in Phase 3 trials now and is expected to generate its first Phase 3 data in Q1/16. In Phase 2, the therapy worked quickly and appeared to last 26 weeks, so it looks very promising. Carbylan is remaining quiet at least until the Phase 3 data is released. With millions of injections every year, not just for sports medicine but for obesity (because of the weight pressure on the joints), this could be a big market. Currently, the company is just under the radar.
TLSR: Is it a buy?
TLSR: A final question about pharmaceutical pricing. What do you see with regard to the issue in the next four to five years?
LM: Every time pharmaceutical price caps are brought up or a bill is introduced in Congress it seems to die in committee. I've seen that happen over and over again. That suggests to me that the pharmaceutical lobby is really strong, but it doesn't make a public issue of price caps. If the government started controlling prices in the U.S., it would definitely reduce innovation. We would not get the great new drugs that we've been getting for years now.
Pharmaceutical companies are not government agencies. They have to be profitable. The drugs that make it to market have to make up for all the failed drugs. Yes, those drugs are expensive. Much of that blame lies with the FDA. A simple fix, like changing the p-values from 0.05 to 0.1—even selectively—would significantly reduce the number of patients required in clinical trials, which would significantly reduce the costs of clinical trials. Because the costs are reduced, that could translate into reduced drug costs while still maintaining high quality.
TLSR: Liana, thank you very much.
Liana Moussatos is currently a managing director at Wedbush Securities and joined Wedbush as a senior research analyst from Pacific Growth Equities. Previously, she was director and portfolio manager of the UBS Global Biotech Funds for almost five years at UBS Global Asset Management. Moussatos also was with Bristol-Myers Squibb, where she was a manager in University and Government Licensing, External Science and Technology. She also worked with Sloan-Kettering Cancer Institute in the Office of Industrial Affairs, and with the National Cancer Institute in the Office of Technology Development. Moussatos received a bachelor's degree in entomology and a master's degree in zoology and biochemistry from Clemson University. She also earned a Ph.D. in plant pathology from the University of California, Davis, and completed a postdoctoral research fellowship in cellular and molecular physiology at the Yale School of Medicine.
Source: Gail Dutton of The Life Sciences Report
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