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dr. Garren report on genaera

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Atherogenics, Genaera, Pfizer, Genentech, And MedImmune


I spent most of last week at the JP Morgan healthcare conference-it was a great meeting, the mood was definitely upbeat, and rooms were packed even for some not so interesting companies. There were a number of companies that had impressive presentations and I will detail some of these in future alerts. One company that is particularly interesting is Atherogenics (AGIX). I recently bought some of this for my own account in the mid $17 range. I will write about this company for subscribers shortly but in essence it is a play on the results of an upcoming Phase II study using an oral antioxidant agent to reverse coronary artery disease. Results will be available later this year. The market is huge and a recent short-term Phase II trial showed a significant increase in lumen volume -almost as good as the Esperion data using an IV infusion of an HDL molecule. The upcoming second Phase II results will be a binary event for AGIX.

I have recently sent out an alert to subscribers about Genaera and I thought I would update BioSpace readers as to my current thinking. I think what I said still holds true even thought the stock just went up over 10% today.

GENR is a small cap company (market cap $217 million as of 1/20/04) with a lead antiangiogenesis product in trials for cancer and the wet form of age related macular degeneration (AMD). This company even in an expensive market still looks relatively cheap. AMD is a big market with no really good therapy. Visudyne is currently approved for a subset of patients but as a therapy it is not a spectacular success. Two competing products are in late stage trials-Macugen from Pfizer/ Eyetech and Lucentis from Genentech. The recent one year data from Macugen is also less than spectacular and may have to do with dosing problems and the fact that the drug is just not that good. Lucentis may be a better drug but the one year data is not in yet. Both drugs have to be given by direct injection into the back of the eye. The problems with that approach include infections and bleeding. I haven't talked to any retinal specialist who is excited about doing multiple vitreous injections. This approach might be more viable if you could get by with one or two injections but AMD is a chronic disease and will need chronic therapy. The initial Phase I/II data from GENR was from a single institution in Mexico. The trial was run by a very well respected retinal specialist using all modern endpoints. What impressed me was not only the early results but the efficacy at 4 months. Patients were reading better, retinal angiograms looked better and the drug appears safe. The data looks as good as the early trials for both Lucentis and Macugen. The really important aspect is that the GENR drug, squalamine, can be given by an injection into an arm vein (peripheral vein). This eliminates all the potential complications of direct injections into the eye. You also get the benefit of treating both eyes with one injection. Safety should not be a big issue especially short-term since the company is using the same drug in cancer trials at much higher doses with no complications.

The stock has not traded up much probably because of a lack of news flow and because they are perceived as being so much further behind in the development cycle when compared to Lucentis and Macugen. I think that is short-sighted. The company is negotiating with the FDA on a Phase II protocol and trials could start by mid-year. I think there is also a possibility they could do a lucrative partnership this year. Based on the kind of deal Eyetech did with Pfizer around the drug Macugen, you would have to say this company is very undervalued. Management is smart and I think up to the job. The company also has other assets. Their interleukin-9 (IL-9) patent estate has value and their partner MedImmune has filed an IND for a Phase I study in asthma using a humanized IL-9 antibody (PDLI license). GENR will receive a modest early milestone and if the drug is approved high single digit to low double digit royalties. There is good genetic and animal data (IL-9 knockout) to suggest that this cytokine is an important growth factor for mast cells and plays an important role in asthma and bronchospasm. Squalamine also has upside in the cancer market and is currently in trials for lung cancer (NSCLC) and metastatic prostate cancer. The company also has technology that may be important in the area of cystic fibrosis (CF) but development will depend on further funding from the CF foundation. There may some interest from big Pharma if patents issue on the protein and gene target of LOMUCIN (their CF drug). This target could be of interest for other indications as well.

The company's financials show only a modest amount of cash-as of the last report on 9/30 they had about $8 million cash and they raised another $8 million in November of '03. However this could be enough to get them through a Phase II trial and to a partnership. However there will likely be more rounds and dilution. I like this company because of the importance of the AMD market and the lack of any satisfactory therapies. Also big pharma has shown a willingness to make huge deals in this area.

Dew,

A lot of good drugs were thrown in the trash bin because of QTC elongation.

The guys on the oxgn board are taking a big chance thinking there is a work around.

I don't care if it was disclosed or not.

I bet the guy from duquense capital doesn't know about it.