In the previous article, I discussed the pharmaceutical industry’s race after approved drugs and late stage agents with proof of concept in humans. I mentioned Rigel’s (RIGL) lead drug, R788, as a likely target for collaboration due to its impressive activity, the huge addressable market and the fact it is an oral drug. For the past year, Rigel’s management has been consistently and rigorously claiming it will have a partnership in place during the first quarter of 2009. Although the company has had more than one opportunity to change this forecast, it stuck by its original statement. For example, when new safety data got published last year and worried investors sent the stock down 50% in two trading sessions, many believed that the imminent deal was not going to materialize. To their surprise, Rigel reassured investors the time frame for a partnership remains intact, explaining that none of the recently published data was actually new to potential partners. Then, Rigel appeared in countless investor conferences, the last of which was only last month, promising investors a licensing deal is forthcoming.
Last week, the company announced it no longer expects to have a deal by the end of March. Instead, it intends to wait until it has results from two ongoing trials, due this summer. Deciding to wait until more data is available makes a lot of sense, providing the data is good. Typically, the further a drug gets in clinical development, the higher its value in the eyes of potential partners. The problem is not the decision itself, but its timing, as this kind of decision could have been made long ago. So what led Rigel’s management to suddenly change its mind after a year of expectations build up?
During last week’s conference call, Rigel mentioned several factors that played a role in the decision. First was the opportunity to get a more lucrative deal, if the data from the larger trials is as good as that of the previous one. Another factor was the better than expected enrollment rate, resulting in earlier data read out from the trials. Lastly, Rigel claims that several potential partners had indicated they prefer to wait for the new data before signing a deal. Some of these partners were described as “very large pharmas” by the company’s CEO, Jim Gower, during the call.
When asked about the terms of the deal, Gower admitted that as they got closer to signing a deal, the deal terms became less attractive, because partners preferred waiting for the updated data this summer. To me, this looks like the only reasonable excuse, as Rigel and potential partners were always aware of the ongoing trials, and truthfully, having data a couple of months earlier does not seem that dramatic. Apparently, Rigel simply did not get the deal it was hoping for.
The field of drug development is anything but expected, and in many cases, things do not turn out as planned. Rigel’s decision is understandable, as it may eventually lead to a better deal for R788. Investors must also realize that with the higher reward comes a higher risk level, and if the data is not as good as expected, R788’s value may plunge.
Financially, the deal is not urgent, as the company has enough cash to support its activity through the second quarter if 2010, almost a year after expected data from the two ongoing trials. But even if Rigel made the right decision, it certainly made all the possible mistakes on the way with respect to managing investors’ expectations. In this area, Rigel’s management could learn something from Seattle Genetics’ (SGEN) management team.
Seattle Genetics has three clinically validated drug candidates: dacetuzumab (SGN-40), SGN-35 and lintuzumab (SGN-33). All three might produce “registrational-quality” data in 2010, so the company could have as much as three approved drugs by early 2012. Dacetuzumab, has already been licensed out to Genentech in 2007, leaving the two other drugs as potential targets for licensing activity. SGN-35, Seattle Genetics’ lead antibody-drug conjugate represents the smallest market opportunity among the three, however, it also represents the highest likelihood for approval.
SGN-35
SGN-35 demonstrated remarkable activity in heavily pretreated Hodgkin’s lymphoma patients. Last month at the ASH meeting, investigators presented positive data from a dose escalation phase I study. The data included 41 Hodgkin’s lymphoma patients, 15 (36.6%) of whom had an objective response, including 7 complete responses. In the three highest cohorts, SGN-35’s activity was even more impressive, with a response rate of 50%. This data is in line with data presented at previous conferences, as described in this article. Importantly, responses were quite durable and even patients who did not have an objective response derived great benefit from SGN-35. The median progression free survival was about 6 months for all patients, 83% of whom experienced tumor shrinkage.
Based on these promising results, Seattle Genetics decided to initiate a registrational trial in Hodgkin’s lymphoma patients who are refractory or relapsed to standard first line treatments. Since there are no approved therapies for this setting, this trial is SGN-35’s fastest route to market. Last month, Seattle Genetics announced it had received a SPA for a pivotal trial, in which SGN-35 will be evaluated in refractory or relapsed Hodgkin’s lymphoma patients. Due to the highly unmet medical need and the small patient population (3000 patients in the U.S. annually), the trial will be a small (100 patients) single arm study, with objective response rate as the primary endpoint. The design is typical for pivotal trials for niche indications, just like the study Allos (ALTH) conducted for its drug, PDX, in another rare form of blood cancer. Seattle Genetics plans to launch a trial in another rare lymphoma, ALCL.
The company estimates the immediate market opportunity of SGN-35 to be $300-$400 million in the United States and Europe. I find these estimates over-optimistic, based on durability of response and the prevalence of the diseases, but SGN-35 could easily reach peak sales of $250, if the phase I results are replicated in the registration trial. A potential partner might be interested in expanding SGN-35’s use into first line treatment in addition to its potential utility for autoimmune diseases, which could substantially increase the potential market for the drug.
Lintuzumab
Seattle Genetics’ second licensing candidate seems to be even more promising from a commercial point of view. Similarly to SGN-35, lintuzumab addresses an indication with very limited treatment options and consequently very high demand for new drugs – Acute myeloid leukemia (AML) in patients 60 years of age and older. SGN-33 is currently in a randomized phase II trial for the treatment of elderly AML patients.
