Monday, July 17, 2006
Abraxis BioScience: A SPARC for Explosive Growth?
Abraxis BioScience, Inc. (ABBI-$21.45) provides a unique opportunity for investment in a biopharmaceutical company revolutionizing cancer therapy with its proprietary nanotechnology platform. Abaxis’ nanoparticle albumin-bound, or nab technology, exploits the natural properties of a human protein, albumin, for drug delivery. For example, by wrapping albumin around active drug and creating particles of approximately 130 nanometers, the Company has found a way to eliminate the need for solvents and deliver higher concentrations of (tumor-targeting) chemotherapy without the solvent-related toxicities compared with solvent-based taxanes.
Angiogenesis inhibitors (drugs that prevent the growth of new blood vessels), antisense therapy (genetic code blockers that turn off oncogenes), and tyrosine kinase enzyme inhibitors (inhibiting or slowing the division of targeted cancer cells)—three in a number of promising cancer therapies. Tumors, however, have adapted several mechanisms to meet their increasing need for nutrients.
Tumors are known to naturally "feed" by taking in and retaining albumin-bound nutrients. It has recently been discovered that tumors secrete a specialized protein called SPARC (Secreted Protein Acidic and Rich in Cysteine) into the tumor's interstitium that acts as a highly charged receptor. The SPARC protein specifically binds albumin-bound nutrients and concentrates them within the tumor's interstitium to prevent nutrients from diffusing outside the tumor cell.
Abraxis’ nanoparticle drug therapy exploits tumor vascular biology by delivering (concentrated) albumin-bound cytotoxic drugs preferentially to all tumors (secreting the SPARC protein) as a nutrient.
In January 2005, Abraxis received approval to market a first-in-class "protein-bound particle" drug. ABRAXANE, consisting only of albumin-bound paclitaxel nanoparticles (and free of toxic solvents), is indicated for the treatment of breast cancer after failure of combination chemotherapy for metastatic disease or relapse within 6 months of adjuvant chemotherapy.
Paclitaxel (originally derived from the bark of the Pacific Yew tree in the early 1960s) is known for its ability to produce hypersensitivity reactions, and these may occur in 20%-to-40% of patients. The drug has limited aqueous solubility and is commercially available as TAXOL as a non-aqueous concentrate containing the solvent, Cremophor EL (itself a mixture of hydrogenated castor oils) and ethanol as a co-solvent. Cremophor EL is believed to be responsible for producing much of the hypersensitivity reactions.
Toxicities associated with taxane-based chemotherapy include nausea and vomiting, severe myelosuppression, prolonged peripheral neuropathy, myalgias, and severe edema.
ABRAXANE is an important therapeutic breakthrough, since it addresses the toxicities associated with solvents in taxane-based chemotherapy. Additionally, since severe anaphylactic reactions are rare, pre-treatment with corticosteroids and antihistamines can be minimized.
Permitting more frequent dosing improves rapid and higher bioavailability of paclitaxel compared to Cremophor-paclitaxel (Taxol) formulations, this next-generation taxane is able to deliver 50% more drug to the tumor site.
As of December 31, 2005, Abraxis had active patient enrollment in ten clinical studies with ABRAXANE for breast cancer, including monotherapy in first-line metastatic breast cancer, in combination with Herceptin in HER 2 positive patients; in combination with Roche Labs’ Xeloda (Capecitabine) or with with Navelbin in first-line metastatic breast cancer; and, in weekly dosing in neoadjuvant breast cancer.
The Company has embarked upon an aggressive and comprehensive clinical development plan (investigator-initiated studies) to maximize the commercial potential of ABRAXANE. As of December 31, 2005, the drug is undergoing numerous other clinical studies in various stages of testing and development to determine its effectiveness against other cancers, including ovarian (6); prostate (5); G.I., pancreatic, head and neck, and cervical (15), and (12) non-small cell lung cancer (the most common form of lung cancer, accounting for approximately 87 percent of all lung cancer cases).
In addition to further investigation with ABRAXANE, the Company has developed an extensive pipeline that includes other promising drug candidates in oncology (thirteen compounds in phase 1 or 2 clinical trials) and a cardiovascular portfolio.
Approximately 800,000 procedures of coronary artery stenting are performed in the United States alone every year. Prospective studies of Interventional procedures have been plagued by Restenosis (in up to 50% of patients) due to the formation of endothelial tissue overgrowth at the lesion site. As opposed to bare metal, drug-eluting stents that are covered with a medicine that is slowly dispersed [were initially hailed by the medical community] as the curative in suppressing the restenosis reaction. (Sirolimus and paclitaxel are the two drugs used in coatings which are currently FDA approved in the United States). However, attention has been recently focused on—sometimes fatal—late thrombotic complications related to drug eluting stents that are being reported in increasing numbers (after discontinuation of concomitant oral platelet therapy).
Abraxis is developing the technology for potential use in cardiology where nab paclitaxel has been shown to significantly reduce coronary artery restenosis. According to corporate, the Company has initiated phase 2 clinical trials in patients with coronary artery disease with single dose therapy (COROXANE) following balloon angioplasty and stenting and is hopeful that clinical findings will corroborate the positive preclinical data.
Peripheral artery disease of the lower extremities is common in older adults with significant morbidity. Similar to coronary artery disease, this disorder is typically caused by thickening of the blood vessel wall that limits blood flow to the legs, particularly due to narrowing or closure of the superficial femoral artery. Currently the standard treatment is angioplasty alone. Surgical placement of bare metal stents or tubes within the blood vessel has had limited success, most often due to the tube breaking. Phase 2 studies are focusing on the use of COROXANE along with angioplasty of the affected blood vessel.
Abraxis also has numerous discovery product candidates for various indications such as anesthesia, oncology and transplantation. The Company believes the application of its nab technology will serve as the platform for the development of numerous drugs for the treatment of life-threatening diseases.
Drug delivery remains a challenge in the management of cancer. Until recently, approaches focused on technologies such as liposomes to overcome the poor solubility of cytotoxics and monoclonal antibodies to target cytotoxic agents to cancer cells. In our opinion, Abraxis’ approach of facilitating the desired cellular entry by harnessing protein transduction domains (PTDs), heralds an exciting new approach in drug delivery technology.
According to analysts, the market value of worldwide cancer drug delivery technologies has been estimated at $7.5 billion rising to $18.4 billion by the year 2010 and $38.5 billion by the year 2015 (albeit the market value of drug delivery technologies and the anticancer drugs are difficult to separate).
Additionally, driven by this explosion in novel therapeutic options, the chemotherapy market (valued around US$42 billion) is currently the fastest growing in the pharmaceutical industry.
Taxanes are one of the most widely used chemotherapy agents, with an estimated current use by approximately 325,000 patients in the United States alone and an estimated current worldwide market size approaching $2.0 billion.
ABRAXANE is well positioned to capture a large slice of the chemo pie. Other than in Japan, Abraxis owns the global rights to ABRAXANE.
Launched in February 2005 (by a novice sales force with no published FDA-approved data at the time of launch & a confusing new insurance re-imbursement environment), ABRAXANE still achieved 2005 net sales of $133.7 million in the 11 months following its launch for its initial indication in the treatment of metastatic breast cancer.
On April 26, 2006, the Company entered into a Co-Promotion Agreement with AstraZeneca. Under the Agreement, both companies will co-promote ABRAXANE in the United States for a term of five and one-half years beginning July 1, 2006. AstraZeneca will provide sales representatives to support Abraxane and will fund half of the promotional and advertising program
Abraxis management forecasts that net sales of ABRAXANE will be in excess of $200 million in FY 2006—and could rise to $500 million within three years (just for the breast cancer indication)! [Ed. note. internal reports show that 68 out of 75 or 91% of physicians surveyed anticipate increasing their ABRAXANE usage in the coming months.]
In our opinion, the nab tumor targeting technology has been validated by the successful launch of ABRAXANE and the drug represents the future of Abraxis. This product has all the hallmarks of a blockbuster and could drive the Company’s topline growth for years to come.
Abraxis believes it can apply its nab tumor targeting technology to numerous chemotherapy agents. By exploiting the abnormal vascular growth (angiogenesis) and the overexpression of albumin-binding proteins (gp60 and SPARC) in advanced tumor cells and by overcoming water insolubility of many active chemotherapy agents, corporate believes that its technology may revolutionize the delivery of chemotherapy agents to cancer patients.
Next up for clinical investigation, the 10Q Detective sees Sanofi-Aventis Pharmaceutical’s dominant chemotherapy agent, Taxotere (docetaxel).
At the June 2006, American Society of Clinical Oncology (ASCO) meeting, the Company presented a pre-clinical study (Poster #5438; Title: Enhanced efficacy and safety of nanoparticle albumin-bound nab-docetaxel versus Taxotere) applied nab technology to docetaxel and in pre-clinical models of colon cancer compared nab-docetaxel with Taxotere (docetaxel injection). The study suggested that nab-docetaxel showed significantly greater antitumor activity against colon tumor versus Taxotere stents used to treat obstructed coronary arteries, as it is believed that sirolimus-eluting stents (marketed by Cordis as the Cypher stent) are less likely to cause restonosis, too. The anti-thrombin inhibitor rapamycin is currently under review by Abraxis—as nab rapamycin.
In addition to its oncology line (ABRAXANE & injectibles), Abraxis also profitably markets a line of generic anti-infectives and critical care products, which contributed $52.8 million and $45.3 million, respectively, to total net sales of $143.7 million for the first quarter ended March 31, 2006.
Together with a number of anti-infective (injectibles) with ANDAs In the FDA product pipeline are generic Arixtra (an anticoagulant called Fondaparinux—derived from heparin—that is given subcutaneously daily) and Lovenox (Enoxaparin, which is a low molecular weight heparin)—both of which are have big commercial opportunities for preventing blood clots and of deep vein thrombosis.
The Company, however, is not without its share of controversies. On November 27, 2005, the Company was borne out of a merger between privately held American BioScience (ABI), a drug-delivery development company, and publicly-traded American Pharmaceutical Partners (APP), a specialty pharmaceutical company that manufactured and sold injectable pharmaceutical products.
Based on American Pharmaceutical's Nov. 28 closing price of $39.25 per share, the combined entities’ share price has fallen 45.35%, with the primary concerns being (1) the dilutive effect that the transaction will have on minority shareholders and (ii) the fact that the merger is expected to be dilutive to EPS over the next five years, too.
Approximately 134.1 million shares of APP were issued to ABI shareholders in connection with the merger, substantially diluting the percentage ownership interests of current APP stockholders.
Dr. Soon-Shiong, CEO and Executive Chairman, of APP, was also the President, CEO, and a Director of ABI (and the controlling stockholder of APP with approximately 98.9% of the outstanding shares of ABI). Following the merger, Dr. Soon-Shiong and his affiliated entities beneficially owned 83.3% of the outstanding shares of Abraxis.
What also concerns, the 10Q Detective, is that Dr. Soon-Shiong has a “Martha Stewart” complex. For example, despite knocking down more than $825,000 in salary & bonus last year, the Company provided Dr. Soon-Shiong with the use of a car and a trained security driver, security systems for his residences, and 24 hour personal and family protection services at his office and residences and on other appropriate occasions. The aggregate costs to Abraxis (stockholders) for providing these systems and services in 2005 was $355,151—more than nine-fold the cost that $85.1 billion titan, Genentech (DNA-$80.75) spent on protective services for its CEO and Chairman, Arthur D. Levinson, Ph.D. [Ed. note. Perchance Dr. Soon-Shiong is fearful that the People’s Republic of China is looking to kidnap him for his Company’s nab technology!]
Nonetheless, the Common Stock price of Abraxis is such a screaming BUY—we do not mind looking askance at this piggish display.
Goldman Sachs calculated the enterprise value of Abraxis based on indications of net present value of free cash flow from the beginning of December 2005 through the end of 2030 (plus indications of net present value of terminal values for Abraxis). Indications of net present value of free cash flows used discount rates of 14 percent Terminal values in the year 2030 were based on perpetuity growth rates ranging from 0% to 4%. These terminal values were then discounted to calculate implied indications of present values using discount rates at 14 percent. Just for existing ABRANE indications (worldwide), milestone payments based on existing agreements, and the Company’s existing (injectible) Generic business’ (less corporate expenses & R&D), Abraxis’ total enterprise value was calculated to be $9.93 billion—or $62.53 per share!
In the opinion of the 10Q Detective, Goldman Sachs’ analysis though accurate—discounts the remarkable (global) growth potential of Abraxis’ deep product development pipeline that leverages the revolutionary technology built-on the company's nab platform. Additionally, we believe that the Company is well positioned to fund the R&D necessary to fuel this long-term value by capitalizing on the strong financial position of its hospital-based portfolio of injectables business. BUY.
Entities affiliated with Dr. Soon-Shiong own a significant percentage of Abraxis’ Common Stock and could exercise significant influence over matters requiring stockholder approval, regardless of the wishes of other stockholders. As of May 8, 2006, entities affiliated with the chief executive officer owned approximately 84.2% of Abraxis’ Common Stock. Accordingly, they have the ability to significantly influence all matters requiring stockholder approval, including the election and removal of directors and approval of significant corporate transactions such as mergers, consolidations and sales of assets. Additionally, this significant concentration of stock ownership may adversely affect the market for and trading price of the Company’s Common Stock if investors perceive that conflicts of interest may exist or arise.
The success of ABRAXANE in the Phase III trial for metastatic breast cancer may not be representative of the future clinical trial results for ABRAXANE with respect to other clinical indications. The results from clinical, pre-clinical studies and early clinical trials conducted to date may not be predictive of results to be obtained in later clinical trials, including those ongoing at present. Further, the commencement and completion of clinical trials may be delayed by many factors that are beyond our control, including slower than anticipated patient enrollment and unforeseen adverse events.
Clinical and regulatory risks—if Abraxis is unable to develop and commercialize new products, the Company’s financial condition will deteriorate. Profit margins for a pharmaceutical product generally decline as new competitors enter the market. As a result, future corporate success will depend on the Company’s ability to commercialize the product candidates currently in development (as well as developing new products in a timely and cost-effective manner). Additionally, failure to receive the necessary regulatory approvals of ABRAXANE in Europe and other global markets would have a similar deleterious effect on the Company’s future financial condition (and the calculated enterprise value).
Technological obsolescence--given recent advances in combinatorial chemistry, high throughput screening approaches being used are identifying potential Cremophor EL-free paclitaxel formulations that replace Cremophor with other excipients or excipient combinations (while retaining ethanol as a co-solvent). The Company anticipates that future net sales of ABRAXANE will represent a higher percentage of aggregate sales ($30.1 million in sales in the 1Q:06, represented approximately 20.9% of total net sales) in coming years. However, a number of pharmaceutical companies are working to develop alternative formulations of paclitaxel and other cancer drugs and therapies, any of which may compete directly or indirectly with ABRAXANE and which might adversely affect the commercial success of ABRAXANE.