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Evizon Phase III Program On Track

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Genaera has taken the conservative approach of running two identical, parallel Phase III trials. The first trial began enrollment in June and we expect the second trial to begin enrollment in Q4:05.



Official Title: A Phase 3, Multicenter, Randomized, Double-Masked, Controlled Study of Squalamine Lactate (MSI-1256F) for Injection for the Treatment of Subfoveal Choroidal Neovascularization Associated with Age-Related Macular Degeneration

Enrollment could range from 350-700 depending on the efficacy in Study 209 (data could be available Q1:06)
Completion of enrollment should take roughly a year, or around mid-06.
The primary endpoint is visual acuity defined by the percent of patients without vision loss of greater than or equal to 15 letters (ETDRS) at 104 weeks in the study eye compared to baseline; secondary endpoint is visual acuity at 52 and 104 weeks in the fellow eye compared to baseline in the subgroup of subjects whose fellow eye is affected with wet AMD


Ultimately, each of these two-year trials will:

Be run internationally
Include patients of all subclasses (predominantly classic, minimally classic and occult)
Include the use of photodynamic therapy (PDT) at the discretion of the investigator


Each dose group (20mg and 40mg) will be considered separately versus placebo for statistical purposes. Although the company has not provided any details of its statistical plan, we assume that each of the two dose groups would require a more stringent p value than the typical p 0.05 in order to accommodate the two separate analyses.


The only major difference between these two international trials is that one will be run predominantly in North America and the other will be run predominantly outside of North America.

The company has negotiated an adaptive trial design with the FDA in that the enrollment may be adjusted based on the treatment response and overall phase II results. Indeed, without placebo-controlled efficacy results, it is impossible to properly power a Phase III trial. Thus, when data is available from the ongoing Study 208 and Study 209, Genaera will be able to more accurately predict the expected treatment effect in the Phase III study population and make a final size determination for the Phase III trials.



Additional Data Upcoming at AAO
Genaera is expected to present additional data from its Phase II Study 208 at the American Academy of Ophthalmology Meeting (AAO), October 15-18 in Chicago. We expect data to be broken out into the different study arms (control, 10mg, 20mg, and 40mg). All patients received concurrent Visudyne treatment in the study eye. Study eye data will be presented and fellow eye data may also be presented. The non-study eye data may be particularly interesting because in many cases the non-study eye will not receive Visudyne. Since Evizon treats both eyes at the same time with its IV administration, there should also be a benefit in the non-study eye with Evizon, providing a potential first look at placebo controlled results. However, any analysis of non-study eye results will be complicated because inclusion and exclusion criteria are based solely on the study eye.



As a reminder, Genaera presented early interim data from Study 208 at ARVO this year. A blended analysis of interim 9-week data from Study 208 showed that in the study eye, Evizon + PDT had a +1.3 letter change versus -0.9 for PDT alone. In the fellow eye, Evizon + PDT had a -1.9 letter change vs. -4.0 for PDT alone. We believe this data is promising and supports previous data, but the complicating factor of a pooled analysis and the modest improvement over placebo originally limited the positive impact of these results. In our view, the data presented was somewhat confounded by the inclusion of all 3 dose groups in one combined analysis. Indeed, we know from Study 207 that the 10mg dose is fairly ineffective, 20mg slightly more effective, and the 40mg is most effective, so the combined analysis in our view includes at least 1/3 to 2/3 of sub-optimally dosed patients.



Interim Analysis of Study 208







Source: Company reports



Clear Regulatory Path
We believe that Genaera has lowered risk and built value in its Evizon program by establishing the best possible relationship with FDA.



In January 2005, the FDA selected Evizon for participation in the Continuous Marketing Application (CMA) Pilot 2 program. Each division of the FDA could select one investigational drug for inclusion in this program, which is designed to test whether more frequent and collaborative discussions between companies and the agency increased the success rate for innovative new products. The inclusion of Evizon in this program signals its novelty and potential importance to the agency, and provides potential partners with a clear understanding the Genaera has a well established relationship with the FDA.


In June 2005, Genaera announced it was granted a Special Protocol Assessment (SPA) from the FDA for the design of its Phase III program. An SPA is a written agreement with the agency that the Phase III trials if successful, are sufficient for regulatory approval. Obtaining an SPA often introduces delays in initiating the Phase III program, but it significantly reduces the risk that the trial design will be a stumbling block for future regulatory approval. The SPA also provides a potential partner with the assurance that the Phase III trials meet regulatory standards.
Continue to Expect Lucrative Partner in 2006
The large projected size the AMD market is validated by the extremely large investment Pfizer made to acquire marketing rights to Eyetech's Macugen ($100 million up front, $645 million in milestones, plus royalties and co-marketing in the U.S.). Novartis also paid top-dollar for ex-US rights to Genentech's Lucentis ($40 million upfront with additional milestones and royalties). Allergan will also pay up to $41 million ($6 million upfront in cash and an equity investment) to Entremed for rights to Panzem, a preclinical small molecular candidate for AMD.



In the wake of extremely positive data from Genentech's Lucentis, many investors have completely discounted all other competition in AMD. It is our view that Evizon can be become a multi-hundred million dollar product from only a small share of the market, given its convenient route of administration and ability to treat both eyes.



Indeed, we believe that the major players in ophthalmology and other potential competitors are not likely to concede the entire billion-dollar market to Genentech just yet. Even though Evizon is two or more years from the market, it is the most advanced systemic treatment in development and should therefore still command a high price with partners. We note that Alnylam and partner Merck recently announced they suspended development of ALN-VEG01, an anti-VEGF preclinical candidate that was expected to enter Phase I trials for AMD in H2:05. We believe that pharmaceutical companies will prefer to in-license later-stage, differentiated drugs rather than look for new earlier-stage anti-VEGF approaches. Other companies with an ophthalmology presence that could be interested include Novartis, Allergan, Ista Pharmaceuticals, and Inspire Pharmaceuticals.








Lomucin program
Genaera announced the initiation of a pivotal Phase II trial for Lomucin in cystic fibrosis. The trial will include 200 patients in a multi-center, randomized (1:1), double-blind, placebo-controlled study to assess the safety and efficacy of Lomucin on pulmonary function and related functions. Lomucin will be administered 3x daily for 52 weeks. The trial is powered to show a difference between the two different groups although ultimately, Genaera will likely need to run a second pivotal trial. This The company expects enrollment to take about a year and with a year of treatment, data could be available in H2:07. trial may serve as a good proof of concept study and could lead to a potential partnership.




Signs of Modest Efficacy in Smaller Phase II trial
Early Phase II data suggests that Lomucin has modest therapeutic benefit in a short-term trial. In October 2003, Genaera released partially positive top-line data from a randomized, double-blind Phase II study conducted in Ireland in 55 patients (age 12 years or more) with cystic fibrosis. Patients were treated with 740 mg of Lomucin three times daily for four weeks (n=36), or placebo (n=19). When compared with placebo, patients receiving Lomucin demonstrated modest improvements in breathing as measured by FEV1 (forced expiratory volume in one second) and FVC (forced vital capacity). However, there were no differences in residual volume measures and pulmonary symptoms. There were 4 withdrawals (2 from diarrhea and abdominal pain for Lomucin and 2 from placebo) and no serious adverse events. This trial was also funded by the Cystic Fibrosis Foundation.






Background on Lomucin Program

Early genomic work at Genaera lead to the discovery and publication in December 2001 of an important therapeutic target called hCLCA1, a chloride channel that regulates mucus production, potentially providing therapeutic benefit in treating cystic fibrosis and other respiratory diseases. Lomucin is an oral drug with modest hCLCA1 inhibitory activity. Lomucin is the most advanced drug in this new class of mucoregulators.


Genaera is building a significant patent estate around hCLCA1 and its inhibitors. It was awarded a patent on hCLCA1 inhibitors in May 2004, entitled "Mucin Synthesis Inhibitors"(#6,737,427). We believe Lomucin and the intellectual property associated with the target are assets that Genaera could monetize through a partnership. Alternatively, with its new funding and cooperation with Cystic Fibrosis Foundation Therapeutics, Genaera could choose to develop this drug itself.


Lomucin (talniflumate) belongs to a class of pain relievers called non-steroidal anti-inflammatory drugs, similar to ibuprofen (the active ingredient in Advil). Lomucin has been marketed in South America for its NSAID activity for approximately 20 years. It was discovered, developed and marketed by Laboratories Bago of Buenos Aires, Argentina, the leading independent pharmaceutical company in South America. The effects of talniflumate in blocking hCLCA1 and mucus overproduction were discovered by Genaera scientists and are subjects of issued patents in the United States. Genaera has an exclusive agreement with Laboratories Bago to develop and commercialize Lomucin as a new chemical entity and mucoregulator drug in all major pharmaceutical markets including the United States, Europe, and Japan.



The initial Phase II trial of Lomucin was conducted in Ireland with $1.7M in funding from Cystic Fibrosis Foundation Therapeutics. The larger pivotal Phase II trial is also conducted in Ireland with up to $2.35M in matching funding from the Cystic Fibrosis Foundation.



Valuation

Our $7 price target is 30x our 2010 EPS estimate of $0.87, discounted at 40%. We chose 2010 as our target year because it is the forecast third year of Evizon sales, and therefore represents more normalized earnings than earlier years. Our P/E is in-line with current forward multiples for the group, and we chose a very high discount rate to reflect the remaining clinical, regulatory, and commercial risks.

Price Target Impediment

Our valuation is dependent on additional positive proof of concept data and a lucrative partnership. If either of these events does not occur, our target may be impeded.

Company Description
Genaera was founded in 1987 and is currently focused on anti-angiogenesis and respiratory diseases. The Company's lead product candidate, Evison (squalamine) is in advanced clinical studies for the treatment of age-related macular degeneration (AMD).



Required Disclosures

Explanation of RBC Capital Markets Rating System