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"Weighing up the biotech risks
Duncan Stewart
Financial Post
Thursday, April 15, 2004
Biotech investing is risky. The firms can have no revenue and seek approval based on a limited series of clinical trials. The rewards from a successful treatment can be enormous: Canadian stocks Conjuchem and TLC The Laser Center are up 3700% and 780%, respectively, in the past year, just on hopes of successful treatments.
I think that the chances of success for each company are substantially different. The data from both sets of clinical trials look encouraging, but I believe that there exists an additional source of risk for TLC that is much less severe for Conjuchem.
Investors in the health-care sector have always known that different disease indications have different risk profiles, but in a research comment published last Wednesday, Philippa Flint, of RBC Capital Markets, attempted a more systematic look at clinical trial risk. She stated that drugs for diseases where there are "clearly defined clinical endpoints and regulators familiar with other compounds that have been successful in clinical trials" have a lower risk profile. But a new treatment that is the first in class or with unclear endpoints is much riskier. Although her report did not explicitly mention it as a factor, I believe that clinical trials where either the disease or the mechanisms of action of the drug are not well understood also are much riskier.
Conjuchem is testing a more durable version of GLP-1 (Glucagon-like Peptide) in Type II diabetes. Scientists have long understood how GLP-1 fits into the insulin pathway and how it could control blood sugar levels with minimal risk of hypoglycemia. But the naked peptide is broken down in the bloodstream far too rapidly to be a useful therapy. For Conjuchem to get FDA approval, it has to go through the usual clinical trial hoops. But diabetes is a well-studied disease, with many alternative treatments having been submitted to the regulators over past decades. The endpoints are clear. Further, there are a host of markers that allow drug developers to monitor how effective its drug is. One can measure blood sugar levels upon waking or after a specified meal, or even better, blood marker HbA1c is a reliable indicator of average blood glucose levels over the last 90 days.
When Conjuchem came out with interim data Monday, it was able to demonstrate that its drug was able to reduce average glucose levels, body weight and HbA1c levels, all with high statistical significance. Since the drug has only been administered for a month, and it is a three-month trial, an optimist could hope the cuts would get better over the course of the trial.
Many bad things could still happen but, based on the data and the markers we have seen so far, an investor could have a fairly high level of confidence that the longer trial data will continue to be positive, that it will lead to a Phase III trial and then to an FDA approval. There are no guarantees, but the clinical risk is as low as it gets.
While TLC is mainly known for its laser eye correction business, much of the recent run up in price has come from the potential to treat dry Age-Related Macular Degeneration (AMD) using a proprietary blood filtering technology. Dry AMD is the leading cause of blindness in the elderly but there is no treatment available today. While scientists know that the disease is always accompanied by deposits on the retina called drusen, the precise mechanism of action is not understood.
The TLC treatment removes various compounds from the blood (some of which are found in drusen) and although the substances build up again, it is hoped that the temporarily lower levels cause the ongoing deterioration of vision to slow, halt or even reverse. Small-scale trials have proven encouraging. But I believe the clinical risk is fairly high. The FDA has never approved a treatment for dry AMD, so TLC will be blazing a path. While plasma levels of various compounds can be measured, there is no clear scientific link between those levels and the progression of the disease ... there are no markers to indicate probability of success for dry AMD. TLC's treatment will either work, or it won't. If it does the stock will keep going up, but if not, the risk to investors is significant.
Conjuchem and TLC are targeting potential gold mines of large and growing markets and are running good FDA clinical trial programs. But at the end of the day, TLC investors are taking a bigger risk.
Duncan Stewart is a partner and fund manager at Tera Capital Corp. and may hold positions in the companies named.
© National Post 2004"
