1. science
2. medicine
3. surgery

Alchemia
ACL.AX ACL AU
EQUITY RESEARCH
HEALTH CARE & PHARMACEUTICALS
Initiation report March 30, 2012
Rating
Starts at
ACL’s fondaparinux taking
share in the US – and EU
launch should occur in CY13
Buy
Target price
Starts at
AUD 0.77
Closing price
March 29, 2012
AUD 0.52
Potential upside
+48.1%
Anchor themes
The percentage of the
population in the older age
group in developed countries is
increasing. Improved longevity
and the aging population
demographic will likely lead to
growing demand for treatments
and surgeries, which leads to
increased need for anti-clotting
products, the target market for
generic fondaparinux.
Action: ACL – a drug development business, products on market
Alchemia’s lead drug, generic fondaparinux, a synthetic anticoagulant
mainly used for the prevention of deep vein thrombosis, was approved
and launched in July 2011 in the US by ACL’s marketing partner Dr
Reddy’s Laboratories. In addition, ACL is developing potential anti-cancer
products. The main product is HA-irinotecan which is currently in a pivotal
Phase III clinical trial that commenced recruitment in January 2012.
Catalyst: US fondaparinux market worth USD340mn
We believe the global market size for fondaparinux was cUSD570mn in
2011. ACL’s generic fondaparinux has built 11% share of FY12 YTD US
new prescriptions market as of January 2012 (seven months since
launch). We believe this trend can continue. ACL earns a 50% operating
profit share with Dr Reddy’s on US sales of fondaparinux. In addition, ACL
is well positioned to benefit from the progression of Dr Reddy’s marketing
applications for generic fondaparinux outside the United States, in our
view. ACL plans to file for approval in Europe early CY12. ACL will earn
royalties from Dr Reddy’s on ROW net sales of generic fondaparinux.
Nomura vs consensus
There is minimal consensus
data available.
Valuation: Initiate with a Buy rating, TP AUD0.77
Our AUD0.77 TP is based on the risk-weighted valuation of the company’s
product opportunities. In our view, ACL has: 1) a de-risked business
model as it has a product (generic fondaparinux) on market; and 2)
potential near-to-medium earnings upside surprise from entry to new
markets with this product. Finally, at the current share price, we believe
investors are getting a free option on any upside ACL may deliver if
successful in its anti-cancer projects. Buy.
30 Jun
Currency (AUD)
FY11
Actual
Revenue (mn)
FY12F
Old
New
FY13F
Old
New
FY14F
Old
New
0
3
19
26
Reported net profit (mn)
-13
-19
0
9
Normalised net profit (mn)
-13
-19
0
9
-7.02c
-7.99c
-0.11c
3.37c
Norm. EPS growth (%)
na
na
na
na
Norm. P/E (x)
na
EV/EBITDA (x)
na
Price/book (x)
5.2
N/A
7.1
N/A
7.2
N/A
6.3
Dividend yield (%)
na
N/A
na
N/A
na
N/A
4.7
Normalised EPS
ROE (%)
Net debt/equity (%)
N/A
na
N/A
na
na
N/A
123.4
15.4
8.8
-53.4
-97.4
-1.6
45.0
net cash
net cash
net cash
net cash
Source: Company data, Nomura estimates
Key company data: See page 2 for company data and detailed price/index chart.
See Appendix A-1 for analyst
certification, important
disclosures and the status of
non-US analysts.
Nomura | Alchemia
March 30, 2012
Key data on Alchemia
Income statement (AUDmn) Year-end 30 Jun
Revenue
Cost of goods sold
Gross profit
SG&A
Employee share expense
Operating profit
EBITDA
Depreciation
Amortisation
EBIT
Net interest expense
Associates & JCEs
Other income
Earnings before tax
Income tax
Net profit after tax
Minority interests
Other items
Preferred dividends
Normalised NPAT
Extraordinary items
Reported NPAT
Dividends
Transfer to reserves
Valuation and ratio analysis
FD normalised P/E (x)
FD normalised P/E at price target (x)
Reported P/E (x)
Dividend yield (%)
Price/cashflow (x)
Price/book (x)
EV/EBITDA (x)
EV/EBIT (x)
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin (%)
Effective tax rate (%)
Dividend payout (%)
Capex to sales (%)
Capex to depreciation (x)
ROE (%)
ROA (pretax %)
Growth (%)
Revenue
EBITDA
EBIT
Normalised EPS
Normalised FDEPS
Per share
Reported EPS (AUD)
Norm EPS (AUD)
Fully diluted norm EPS (AUD)
Book value per share (AUD)
DPS (AUD)
Relative performance chart (one year)
FY10
0
0
0
-10
FY11
0
-4
-4
-12
FY12F
3
0
3
-22
FY13F
19
0
19
-20
FY14F
26
0
26
-13
-10
-15
-19
-1
13
-8
0
-1
-10
1
-13
0
-1
-15
0
-17
0
-1
-19
0
1
0
-1
-1
0
15
0
-1
13
0
0
-9
0
-9
0
1
-14
0
-13
0
0
-19
0
-19
0
0
0
0
0
0
0
14
-4
9
0
-9
0
-9
0
-9
-13
0
-13
0
-13
-19
0
-19
0
-19
0
0
0
0
0
9
0
9
-7
3
na
na
na
na
na
3.0
na
na
na
na
na
na
na
na
na
0.0
-31.4
-32.1
na
na
na
na
na
5.2
na
na
na
na
na
na
na
na
na
0.0
-53.4
-57.5
na
na
na
na
na
7.1
na
na
100.0
-672.4
-739.0
-728.9
na
na
0.0
0.0
-97.4
-94.9
na
na
na
na
100.1
7.2
123.4
na
100.0
5.6
-3.3
-1.7
na
na
0.0
0.0
-1.6
-3.3
15.4
23.3
15.0
4.7
12.9
6.3
8.8
10.0
100.0
56.0
49.5
35.8
30.0
70.0
0.0
0.0
45.0
74.1
na
na
na
na
na
na
na
na
na
na
na
na
na
na
na
648.9
na
na
na
na
36.3
1,256.7
na
na
na
-4.98c
-4.98c
-4.98c
0.17
0.00
-7.02c
-7.02c
-7.02c
0.10
0.00
-7.99c
-7.99c
-7.75c
0.07
0.00
-0.11c
-0.11c
-0.11c
0.07
0.00
3.37c
3.37c
3.29c
0.08
0.02
Source: ThomsonReuters, Nomura research
(%)
1M
3M 12M
Absolute (AUD)
13.5 68.3 -26.3
Absolute (USD)
10.0 72.4 -25.1
Relative to index
Market cap (USDmn)
Estimated free float (%)
52-week range (AUD)
3-mth avg daily turnover
(USDmn)
Major shareholders (%)
11.4 62.6 -16.9
147.8
100.0
.86/.25
0.22
Orbis Investment
13.0
Management Ltd.
Phillip Capital Management
2.7
(Singapore) Ltd.
Source: Thomson Reuters, Nomura research
Notes
ACL looks set to continue to build
market share in the US
fondaparinux market
Source: Company data, Nomura estimates
2
Nomura | Alchemia
March 30, 2012
Cashflow (AUDmn) Year-end 30 Jun
EBITDA
Change in working capital
Other operating cashflow
Cashflow from operations
Capital expenditure
Free cashflow
Reduction in investments
Net acquisitions
Reduction in other LT assets
Addition in other LT liabilities
Adjustments
Cashflow after investing acts
Cash dividends
Equity issue
Debt issue
Convertible debt issue
Others
Cashflow from financial acts
Net cashflow
Beginning cash
Ending cash
Ending net debt
FY10
-8
-4
7
-6
FY11
-13
10
-8
-12
FY12F
-17
0
0
-17
FY13F
1
0
0
1
FY14F
15
0
-4
11
-6
-12
-17
1
11
0
0
0
0
0
-5
-11
0
15
0
9
-2
0
0
0
0
-18
0
20
0
0
1
0
0
0
0
11
-7
0
0
0
15
4
1
5
-5
0
0
-2
5
4
-4
0
20
2
4
6
-6
0
0
1
6
7
-7
0
-7
4
7
11
-11
FY10
5
FY11
4
FY12F
6
FY13F
7
FY14F
11
0
0
12
18
0
1
0
19
0
37
0
0
1
1
0
0
0
2
6
0
1
0
17
0
24
0
1
1
2
0
0
0
2
9
0
1
0
16
0
26
0
1
1
2
0
0
0
2
10
0
1
0
15
0
25
0
1
1
2
0
1
0
2
14
0
1
0
13
0
28
0
1
1
2
0
4
6
0
0
118
-90
4
6
0
0
118
-103
4
6
0
0
138
-122
4
6
0
0
138
-122
4
6
0
0
138
-119
4
32
37
4
19
24
4
20
26
4
20
25
4
22
28
12.02
na
3.60
na
4.81
na
5.09
na
6.80
na
na
net cash
na
net cash
na
net cash
net cash
net cash
net cash
net cash
na
na
na
na
na
0.0
34.3
na
47.6
na
na
na
7.6
na
na
na
6.7
na
na
na
Notes
We forecast revenue from
fondaparinux in FY12
Source: Company data, Nomura estimates
Balance sheet (AUDmn) As at 30 Jun
Cash & equivalents
Marketable securities
Accounts receivable
Inventories
Other current assets
Total current assets
LT investments
Fixed assets
Goodwill
Other intangible assets
Other LT assets
Total assets
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
Long-term debt
Convertible debt
Other LT liabilities
Total liabilities
Minority interest
Preferred stock
Common stock
Retained earnings
Proposed dividends
Other equity and reserves
Total shareholders' equity
Total equity & liabilities
Liquidity (x)
Current ratio
Interest cover
Leverage
Net debt/EBITDA (x)
Net debt/equity (%)
Activity (days)
Days receivable
Days inventory
Days payable
Cash cycle
Notes
ACL had net cash of USD23mn as at
31 December 2011
Source: Company data, Nomura estimates
3
Nomura | Alchemia
March 30, 2012
Contents
5
Executive summary
9
Valuing the opportunity for ACL
18
Fondaparinux – anti-clotting agent
38
HyACT – Targeting cancer
53
Appendix 1: How does the US Pharmacy system
work?
57
Appendix 2: the regulatory approval process in the
US
59
Appendix A-1
4
Nomura | Alchemia
March 30, 2012
Executive summary
Alchemia develops and commercialises pharmaceutical products for global markets,
using its proprietary technology to develop carbohydrate-based drugs.
Alchemia (ACL) is a drug discovery and development company. The company’s lead
drug, fondaparinux is a generic version of GlaxoSmithKline’s (GSK LN, GBP14, Neutral)
Arixtra, a synthetic anticoagulant mainly used for the prevention of deep vein thrombosis.
It was launched in July 2011 in the US by ACL’s marketing partner Dr Reddy’s
Laboratories (DRRD IN, INR1,706.5, Buy).
Based in Brisbane, Australia,
Alchemia is a small molecule
biopharmaceutical company
In addition, ACL is developing other potential products. ACL’s pipeline of assets is built
on two platform technologies: HyACT (targeted cancer delivery) and VAST (drug
discovery). The primary objective of the HyACT technology is to develop a new
generation of anti-cancer drugs which demonstrate better efficacy. The lead product from
the HyACT platform is HA-irinotecan, which is currently in a pivotal Phase III clinical trial
that commenced recruitment in January 2012. The company has plans to demerge the
oncology arm of ACL in the near future, allowing investors to have the option of investing
in either a stable cash-flow generating business based on revenues from fondaparinux,
or a business opportunity based on the potential revenue from a prospective HAirinotecan product.
ACL’s major product – fondaparinux
ACL’s major product is generic fondaparinux, a treatment for prevention of deep vein
thrombosis (DVT). In July 2011, ACL’s generic fondaparinux was approved by the US
Food and Drug Administration (FDA) for marketing as a treatment for DVT. ACL’s
worldwide licensee Dr Reddy’s Laboratories launched generic fondaparinux into the
market in July 2011, with potential distribution into another 142 countries. ACL earns a
50% operating profit share with Dr Reddy’s on US sales of fondaparinux and will earn
royalty payments on ROW sales.
ACL’s management have stated
that US fondaparinux sales
continue to grow
Arixtra, the branded version of fondaparinux, has been off patent since 2002 in the US,
meaning that the process originally developed for its manufacture has been open for
companies to use for nearly a decade. The lack of large numbers of generic competitors
is testament to the complexity of the original synthetic process used for fondaparinux.
Hence, we believe there are unlikely to be any other competitors entering the
fondaparinux market in the near term.
Catalysts that could move the stock
We believe there are a number of potential near-term catalysts for the stock, including
the growth of generic fondaparinux’s market share in the US market, which stood at 17%
of total prescriptions for the month of January 2012, according to IMS data. Should this
increase, this would imply a further confirmation of ACL’s growth potential. ACL
management has not provided guidance for fondaparinux-derived revenue for FY12F
(vs. Nomura at AUD2.6mn for FY12F).
Sector/strategic context
ACL hopes to develop further treatments using its patented manufacturing mechanisms
for developing carbohydrate-based drugs. Given the difficulty in entering this space
without requisite manufacturing capabilities, this is an attractive market segment, in our
view. In addition, ACL is in a Phase III clinical trial, testing its potentially improved
version of a common anti-cancer chemotherapeutic agent, irinotecan, for use in
colorectal cancer.
The company was listed on the
Australian Stock Exchange
(ASX) under the ticker ACL AU
in December 2003
Valuation methodology
We have valued the generic fondaparinux opportunity in line with our forecasts for
growth of the fondaparinux market in the US market, as well as potential entry into other
developed markets. In addition, we have valued other opportunities for ACL, namely:
HA-irinotecan. Our valuation can be seen in Figure 1.
5
Nomura | Alchemia
March 30, 2012
Fig. 1: ACL – valuation methodology
Product
Fondaparinux
ACL Oncology
Less R&D
Cash
Valuation
Probability (%)
Risk-weighted valuation
Valuation
(AUDps)
0.62
0.54
-0.21
0.02
0.97
79
0.77
Probability
(%)
100.0
61.2
Risk-weighted
valuation
0.62
0.33
-0.21
0.02
0.77
Source: Nomura estimates
Risks to our investment view
For ACL’s leading product, generic fondaparinux, there is still uncertainty around the
potential level of growth in most of its prospective markets. ACL’s rate of earnings growth
is dependent on the sales and marketing support provided by its partner Dr Reddy’s
Laboratories. Should ACL enter further clinical trials in new methods of drug delivery, we
note that early results give no real enough indication of a product’s true viability, and full
foresight on future market conditions is difficult to obtain.
In addition, there is still a good deal of uncertainty around the viability of ACL’s HAiriontecan in most of its prospective markets. Early clinical trials, although positive, give
no real enough indication of a product’s true viability and full foresight on future market
conditions is difficult to obtain. To date, all preclinical and Phase II trials have shown
indications for product viability. As it stands, there have been no significant adverse
effects or health issues and Phase II trials indicate a product with the potential for market
viability. Therefore, we believe this is an investment opportunity for investors with a
higher risk appetite.
Our investment case for ACL
Bull points
• Earning revenues from generic fondaparinux sales in the US – Dr Reddy’s
Laboratories launched generic fondaparinux in the United States in July 2011.
According to IMS data, ACL’s fondaparinux has generated sales of USD19.5mn for the
FY12F year to date to 31 January 2012. Under the terms of its agreement with Dr
Reddy’s Laboratories, ACL will receive 50% of operating profits from US sales of
generic fondaparinux indefinitely (after USD10mn in development costs have been
recouped by Dr Reddy’s).
ACL will receive 50% of
operating profits from US sales
of generic fondaparinux
• Potential revenues from generic fondaparinux sales outside the US – ACL is well
positioned to benefit from the progression of Dr Reddy’s marketing applications for
generic fondaparinux outside the United States, in our view. ACL plans to file for
approval in Europe early CY12, with the expectation of approval 12 months after filing.
ACL stands to receive a c10% royalty on worldwide net sales of generic fondaparinux
outside of North America.
• Patent protection – ACL has patent protection for its process for generic fondaparinux
until 2029 in various jurisdictions.
• Growing demand for DVT therapy in line with aging of population – Due to the
post-war baby boom, the percentage of the population in the older age group in
developed countries is increasing. Improved longevity and the aging population
demographic will likely lead to growing demand for treatments and surgeries, which
leads to increased need for anti-clotting products – the target market for generic
fondaparinux.
• Experienced global partner – ACL has a global licence agreement with Dr Reddy’s
Laboratories for generic fondaparinux. Dr. Reddy’s Laboratories is an integrated global
pharmaceutical company with brand presence established through 28 years of history.
Dr. Reddy’s Laboratories is headquartered in India, with annual sales of USD1.7bn and
products marketed in more than 10 countries. Importantly, Dr Reddy’s Laboratories has
considerable experience in marketing generics.
6
Nomura | Alchemia
March 30, 2012
• Cash balance –ACL had a cash balance of USD23mn as at 31 December 2011. It
employs 25 staff. ACL management has provided guidance for corporate costs of
AUD650,000 per month and phase III clinical trial costs of AUD1mn per month. This
implies a cash burn of AUD1.65mn per month. We have included this guidance in our
forecasts.
• Management – In terms of management, in our view the recent direction of the
company has been impressive. We believe the clinical team is of a high standard. In
our opinion, ACL has an impressive board of directors as well.
• Potential upside from other opportunities – ACL may deliver potential upside if
successful in its oncology and drug discovery platforms. It is currently recruiting for a
phase III clinical trial for HA-irinotecan in metastatic colorectal cancer, and a phase II
clinical trial for HA-irinotecan in Small Cell Lung Cancer (SCLC). ACL is in the process
of spinning out its oncology assets to create a new, listed specialty pharma company.
ACL’s timeline is shown in the following figure.
Fig. 2: ACL – stage of development
Trial stage
General time until cashflow
General probability of product getting to market
Industry standard cost of trials
Indications and stages of development
Cardiovascular
Fondaparinux (VTE)
HyACT Oncology
HA-Irinotecan (Colorectal)
HA-Irinotecan (SCLC)
HA-Doxorubicin
HA-5FU
VAST Drug Discovery Platform
Various targets
Preclinical Phase I
7 years+
5-7 years
c10%
13%
cUSD5m cUSD10m
Phase II
3-5 years
21%
cUSD20m
Phase III
1-2 years
61%
cUSD75m
Filed
On market
Partner
Dr Reddy's
Recruiting
Recruiting
Pharma Partners
Source: Nomura estimates, Tufts data
• Potentially large opportunity should HA-irinotecan trials be successful: we have
calculated the potential upside from a successful HA-irinotecan trial. This is shown in
the following figure. Our non-weighted valuation is AUD0.54 for the global opportunity
from HA-irinotecan sales. However, assuming greater market share in the US and
royalty gives upside to AUD1.27.
Fig. 3: HA-irinotecan valuation sensitivity: US market share and royalty assumptions
US peak market share (%)
Royalty (%)
$
0.54
15
20
25
30
35
40
45
15
0.20
0.27
0.34
0.40
0.47
0.54
0.61
25
0.27
0.36
0.45
0.54
0.63
0.71
0.80
35
0.33
0.43
0.54
0.65
0.76
0.87
0.98
45
0.38
0.50
0.63
0.75
0.88
1.00
1.13
55
0.42
0.57
0.71
0.85
0.99
1.13
1.27
Source: Nomura estimates
In addition, we note chemotherapies are widely used in the treatment of cancer, in which
the goal of treatment is to reduce the size of a tumour so that it can be completely
removed by surgery or other means, through late-stage cancer treatment. The use of
chemotherapies is limited by severe adverse effects that, in turn, limit their efficacy. It
may be possible to expand the use of HA-irinotecan into indications for which irinotecan
is currently not being used by demonstrating that HA-irinotecan has favourable efficacy
and safety characteristics compared to the current standard of care. We have not
included this in our forecasts. Finally, if ACL’s HA-irinotecan trial is successful, then the
HA platform technology may be able to be used in other anti-cancer agents, thus
presenting further opportunities for ACL.
If ACL’s HA-irinotecan trial is
successful, then the HA platform
technology may be able to be
used in other anti-cancer agents
7
Nomura | Alchemia
Bear points
• Dependence on partner - We note that ACL’s future earnings are dependent upon the
sales and marketing support of its products by its partner. There is no guarantee that its
partner will progress ACL’s products as its top priority in the future, or that its partner
are under the same management and/or ownership in the future.
March 30, 2012
We note the value of the
irinotecan market is declining,
due to the entry of lower-priced
generic products into this market
• Dependence on contract manufacturing – We note that ACL’s earnings from
fondaparinux are dependent upon the provision of product manufacturing by Dr
Reddy’s Laboratories.
• Single-product company – Until its oncology treatments are on the market, ACL is
essentially a single-product company from an earnings perspective.
• The value of the irinotecan market is declining at present – We note the global
irinotecan market value is declining, due to the entry of lower-priced generic products
into this market. That said, we note volume of product sold continues to increase, in line
with demand for this anti-cancer treatment. Hence, we believe there continues to be
solid demand for the irinotecan product. Should HA-irinotecan be successful, we
believe this product is likely to be a paradigm shift in irinotecan delivery. Hence, we
believe the HA-irinotecan is likely to be able to command a price premium compared to
other generic irinotecan products.
Planned changes to business structure
To best position the company for the future and to release value for shareholders,
management intends to change to ACL’s business structure in the coming months. ACL
proposes to demerge its wholly owned subsidiary Alchemia Oncology to create a standalone company containing all of the HyACT oncology assets including HA-irinotecan.
The proposal remains subject to further evaluation and market conditions.
ACL proposes to demerge its
wholly owned subsidiary ACL
Oncology to create a standalone company containing all of
the HyACT oncology assets
It is envisaged that this company will be separately listed on a public exchange, in
Australia, the US or both. ACL will begin planning and implementing the proposal as
soon as the current funding is completed. While other mechanisms will be explored, it is
currently anticipated that this transaction will involve a pro-rata distribution of shares to
existing shareholders. After this change, ACL would continue to be listed on the ASX,
with fondaparinux being the primary asset of the company. It is proposed that the
company focus on distributing the majority of profits arising from fondaparinux to
shareholders by way of dividends or return of capital, as appropriate.
8
Nomura | Alchemia
March 30, 2012
Valuing the opportunity for ACL
Our risk-weighted valuation for the ACL opportunities is AUD0.77 per share.
We enclose our ACL valuation assumptions below. We analyse the individual product
opportunities for ACL in the following sections of this report.
ACL receives 50% of operating
profits on US sales from Dr
Reddy’s Laboratories of generic
fondaparinux. ACL’s earnings in
FY12F and FY13F will be largely
determined by this revenue
Fig. 4: Valuation of the ACL opportunity
Product
Valuation
(AUDps)
0.62
0.54
-0.21
0.02
0.97
79
0.77
Fondaparinux
ACL Oncology
Less R&D
Cash
Valuation
Probability (%)
Risk-weighted valuation
Probability
(%)
100.0
61.2
Risk-weighted
valuation
0.62
0.33
-0.21
0.02
0.77
Source: Nomura estimates
The valuation of the opportunities for ACL can be seen graphically below.
Fig. 5: ACL– valuation of opportunities: risk-weighted valuation
ACL Oncology
35%
Fondaparinux
65%
Source: Nomura estimates
Financial summary for ACL
We enclose the major components of our valuation for ACL:
• Revenues: We forecast royalty payments from generic fondaparinux to commence in
FY12F. Our sales revenue forecasts for the company are shown below.
Fig. 6: ACL potential revenue streams
Revenue (AUDmn)
Fondaparinux
HyACT Oncology
VAST Drug Delivery Platform
Other
2010A
0.0
0.0
0.0
0.0
2011A
0.0
0.0
0.0
0.0
2012F
2.6
0.0
0.0
0.0
2013F
19.4
0.0
0.0
0.0
2014F
26.4
0.0
0.0
0.0
2015F
37.1
7.8
0.0
0.0
2016F
49.7
18.0
0.0
0.0
2017F
49.3
28.9
0.0
0.0
2018F
47.9
38.2
0.0
0.0
2019F
46.6
42.0
0.0
0.0
2020F
45.5
43.9
0.0
0.0
Sales revenue (AUDm)
Investor contributions
0.0
0.0
0.0
0.0
2.6
0.0
19.4
0.0
26.4
0.0
44.8
0.0
67.7
0.0
78.3
0.0
86.1
0.0
88.6
0.0
89.5
0.0
Grant revenue
Total revenue
0.0
0.0
0.0
0.0
0.0
2.6
0.0
19.4
0.0
26.4
0.0
44.8
0.0
67.7
0.0
78.3
0.0
86.1
0.0
88.6
0.0
89.5
Source: Nomura estimates
• Profit share from Dr Reddy’s Laboratories from US sales of generic fondaparinux
- ACL will receive a 50% share of operating profits from sales of fondaparinux in the
US, once Dr Reddy’s Laboratories has recouped USD10mn in development expenses.
ACL will receive a 50% share of
profits from sales of
fondaparinux in the US
• Royalty from Dr Reddy’s Laboratories on non-US sales of generic fondaparinux ACL will also receive a c.10% royalty on non-US net sales.
9
Nomura | Alchemia
March 30, 2012
• Other operating expenses – ACL has provided operating expenses guidance of
cAUD20mn for FY12F. This equates to a cash burn of AUD1.67mn per month. A
proportion of ongoing expense related to generic fondaparinux is reimbursed by Dr
Reddy’s Laboratories. A breakdown of potential expenses is shown in the table below.
Fig. 7: Potential expense breakdown
Expenses (AUDmn)
External R&D expenditure
SG&A expenses
Other expenses
Operating expenses
Cash burn per month
2010A
(3.1)
(5.2)
0.2
(8.1)
2011A
(6.9)
(2.5)
(0.4)
(9.8)
2012F
(15.0)
(4.0)
(1.0)
(20.0)
2013F
(13.0)
(4.2)
(1.1)
(18.3)
2014F
(6.0)
(4.4)
(1.2)
(11.6)
2015F
(6.1)
(4.6)
(1.3)
(12.1)
2016F
(6.2)
(4.9)
(1.5)
(12.5)
2017F
(6.3)
(5.1)
(1.6)
(13.0)
2018F
(3.0)
(5.4)
(1.8)
(10.1)
2019F
(4.4)
(5.6)
(1.9)
(12.0)
2020F
(4.5)
(5.9)
(2.1)
(12.5)
(0.7)
(0.8)
(1.7)
(1.5)
(1.0)
(1.0)
(1.0)
(1.1)
(0.8)
(1.0)
(1.0)
Source: Company data, Nomura estimates
• Research & development expenditure – we forecast AUD 12mn in R&D expenditure
for FY12F, and AUD 12mn for FY13F.
• Cash balance – ACL had a cash balance of AUD23mn as at 30 December 2011, after
a capital raising in 2HCY11.
• Payout ratio – ACL has flagged that it intends to distribute its surplus cash by paying a
dividend as it is able.
• Hedging – ACL is materially exposed to foreign exchange risk on the US dollar, since
all generic fondaparinux revenue received is denominated in USD. We understand that
ACL has a risk management policy in place which places limits on the amount of
unhedged revenues, but retains flexibility in timing when hedging to take advantage of
periods of AUD weakness.
We forecast net cash burn of
AUD 12mn for FY12F and AUD
12mn FY13F
• Exchange rate – We assume exchange rates in line with the Nomura house view. For
FY12F, the relevant exchange rates are: 1) AUD/USD – 1.02, 2) AUD/€ – 0.74; 3)
€/USD – 1.44. Our long-term rate for the AUD/USD exchange rate is 0.81.
• Deferred tax assets not recognized – Although recovery of the potential tax benefit is
uncertain, ACL has accrued AUD72mn in potential tax losses.
• Discount rate – We use a WACC of 13.05% to value ACL. Our assumptions include:
1) Equity beta – due to its derisked business model, ACL has a lower beta than most
other biotechnology companies. We assume that the company’s equity (and asset)
beta is 1.3; 2) Nominal long-run growth rate – given the potentially high growth rate of
this business, and in line with those of other high-growth companies in the market, we
assume a nominal long-run growth rate of 5% and a real long-run growth rate of 2.5%.
• DCF per share: On the basis of the above, the discounted cashflow valuation per
share for ACL’s opportunities is AUD1.56. The difference between our DCF valuation
and risk-weighted target price relates to the timeframe of each valuation approach. In
our risk-weighted valuation, we model the opportunities explicitly for 24 years, whereas
our DCF valuation is based on 10 years of explicit net cashflows, with the terminal
value calculated using year ten’s cashflow as an approximation for future cashflows.
However cashflow in year ten is likely to have a higher growth rate than that which we
forecast for years 11-24, as patents expire during that timeframe.
Fig. 8: DCF valuation sensitivity to WACC and terminal growth rate assumptions
Weighted Average Cost of Capital (WACC)
$1.56
11.05%
12.05%
13.05%
14.05%
15.05%
4.0%
1.94
1.67
1.45
1.28
1.14
Terminal
4.5%
2.04
1.74
1.50
1.32
1.17
Growth
5.0%
2.16
1.82
1.56
1.36
1.20
5.5%
2.30
1.91
1.63
1.41
1.24
6.0%
2.46
2.02
1.70
1.46
1.28
Rate
Source: Nomura estimates
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Nomura | Alchemia
March 30, 2012
Management
The management team has significant experience.
Fig. 9: ACL – senior management team
Pete Smith
Chief Executive
Officer
Pete Smith joined Alchemia in May 2006 and was appointed Head of Alchemia's Commercialisation and
Business Development Division. He was appointed to the role of CEO and Managing Director on 26 April
2007. During the past three years Pete has not served as a director of another listed company. Previously
Pete was CEO and Managing Director of Australian listed biotech Amrad Limited. He founded UK biotech
company Onyvax and was a top-rated pharmaceutical industry analyst at European Investment Banks
UBS and HSBC. Pete holds a PhD in Biochemistry and a MA from Cambridge University.
Charles Walker
Chief Financial
Officer
Charles was appointed in March 2011. He has a BSc. (Hons) in pharmacology from the University of
Bristol and a MBA from Warwick Business School in the UK. His career has mostly been spent in
investment banking working with international life sciences companies in a number of transactions
including mergers, acquisitions, initial public offerings and a range of innovative financings. Charles has
been directly involved in over 40 corporate transactions including 15 Initial Public Offerings. Prior to
banking, Charles worked in a pharmaceutical consultancy, a NASDAQ listed combinatorial chemistry
company and a US hedge fund.
Stephen Denaro
Company Secretary Stephen was appointed in February 2011 and has extensive experience in mergers and acquisitions,
business valuations, accountancy services, and income tax compliance gained from positions as
Company Secretary and Chief Financial Officer of various public companies, and with major chartered
accountancy firms in Australia and the United Kingdom. He provides Board and Company Secretarial
services for a number of start up technology and public companies. tephen has a Bachelor of Business in
Accountancy, Graduate Diploma in Applied Corporate Governance, and is a member of the Institute of
Chartered Accountants in Australia, and the Australian Institute of Company Directors.
Wim Meutermans
Vice President of
Discovery
Wim Meutermans joined Alchemia in April 2000 and is responsible for Alchemia’s early drug discovery
programs. He has worked for 15 years in the medicinal chemistry field, including 10 years in management
roles on both academic and industrial projects. He has published extensively with over 45 journal
publications and is co-inventor of 12 patents.
Wim obtained his PhD from the Katholieke Universiteit Leuven in Belgium.
Michael West
Vice President of
Intellectual Property
and Technology
Transfer
Michael joined Alchemia in 1997 after holding positions in academic research at University of Queensland
and in industry at GlaxoSmithKline. A registered Patent & Trade Mark attorney, Michael is responsible for
the management of the Alchemia group's intellectual property protection and strategy. In his technology
transfer capacity Michael manages the process development, scale-up and manufacturing of the
fondaparinux project. Michael has responsibility for relationship management with Alchemia’s
manufacturing partners and co-ordinates in-house and outsourced manufacturing.
Tracey Brown
Chief Scientific
Officer, Vice
President of
Oncology
Tracey joined Alchemia in 2006 as a result of the successful acquisition of Meditech. She is responsible
for the evaluation of lead compounds from both Alchemia’s discovery and HyACT programs where her
primary role is to take the potential therapeutics into both non-clinical and clinical development. Over the
last 28 years, Tracey has researched the biochemistry and therapeutic applications of carbohydrates,
where this experience culminated in the invention of the HyACT platform and the development of three
drugs from conception through to successful clinical evaluation. During her career, Tracey has gained
international experience in managing both academic and commercial scientific teams and as the Chief
Scientific Officer, Tracey directs Alchemia’s team at Monash University where she holds an adjunct
position as an Associate Professor in the Department of Biochemistry and Molecular Biology.
Source: Company data
In terms of management, in our view the recent direction of the company has been
impressive. We believe the clinical team is of a high standard. In our opinion, ACL has
an impressive board of directors as well.
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Nomura | Alchemia
March 30, 2012
Fig. 10: ACL – Board of Directors
Mel Bridges
Non-Executive
Chairman
Mel Bridges joined the Alchemia Board as Non-Executive Chairman in September 2003. Mel has over 30
years experience in the biotechnology and healthcare industries. He co-founded ASX listed companies
Panbio Limited and ImpediMed Limited. Mel is also the Chaiman of ImpediMed Limited and a nonexecutive director of Benitec Limited, Tissue Therapies Limited and Campbell Brothers Limited. Mel is a
Fellow of the Australian Institute of Company Directors. Mel is also a member of both Alchemia’s Audit and
Risk, and Remuneration Committees and is chairman of the Nomination Committee.
Pete Smith
Chief Executive
Officer
Pete Smith joined Alchemia in May 2006 and was appointed Head of Alchemia's Commercialisation and
Business Development Division. He was appointed to the role of CEO and Managing Director on 26 April
2007. During the past three years Pete has not served as a director of another listed company. Previously
Pete was CEO and Managing Director of Australian listed biotech Amrad Limited. He founded UK biotech
company Onyvax and was a top-rated pharmaceutical industry analyst at European Investment Banks UBS
and HSBC. Pete holds a PhD in Biochemistry and a MA from Cambridge University.
Nerolie Withnall
Non-Executive
Director
Nerolie Withnall joined the Board in October 2003. She is a former partner of Minter Ellison Lawyers. In
2001 she retired from the law after practising for more than 30 years in Sydney, Darwin and Brisbane.
Nerolie has also served as Chairman Designate for Campbell Brothers Ltd and as non-executive director
for PanAust Limited, Computershare Limited. She has also held the positions of Deputy President of the
Takeovers Panel, a member of the Corporations and Markets Advisory Committee (retiring in March 2010),
and a member of the Senate of the University of Queensland (retiring December 2009). Nerolie is
Chairman of Alchemia’s Audit and Risk Committee.
Tracie Ramsdale Non-Executive
Director
Tracie Ramsdale is one of the founders of Alchemia and led the Company’s development as its General
Manager and Chief Executive Officer from 1998 to 2007. Tracie joined the Alchemia Board in July 2003.
Tracie originally trained as a synthetic organic chemist, obtaining a Master of Pharmacy from the Victorian
College of Pharmacy in 1987 and a PhD in Biochemistry from the University of Queensland in 1994. Tracie
is a member of the Australian Advisory Council on Intellectual Property and a member of the Australian
Institute of Company Directors. Tracie is a member of Alchemia’s Remuneration Committee and Chairman
of Alchemia’s Scientific Advisory Board.
Source: Company data
Company description
Alchemia Ltd, founded in 1995, continues to develop large-scale custom contract
synthesis of novel or existing therapeutics for pharmaceutical applications.
The company’s lead drug, fondaparinux (a generic version of Arixtra, a synthetic
anticoagulant mainly used for the prevention of deep vein thrombosis), was approved
and launched in July 2011 in the U.S. by ACL’s marketing partner Dr Reddy’s
Laboratories.
Fondaparinux is a synthetic
anticoagulant mainly used for
the prevention of deep vein
thrombosis
In addition, ACL is developing other potential products. ACL’s pipeline of assets is built
on two platform technologies: HyACT (targeted cancer delivery) and VAST (drug
discovery). The primary objective of the HyACT technology is to develop a new
generation of anti-cancer drugs which demonstrates better efficacy. The lead product
from the HyACT platform is HA-irinotecan, which is currently in a pivotal Phase III clinical
trial that commenced recruitment in January 2012. The company plans to demerge the
oncology arm of ACL in the near future, allowing investors to have the option of investing
in either a stable cash-flow generating business based on revenues from fondaparinux;
or potentially a high-growth business based on potential revenues from a potential HAirinotecan product. The history of the company is shown below.
12
Nomura | Alchemia
March 30, 2012
Fig. 11: ACL – history of the company
1995-1999 Alchemia founded in Brisbane Australia in 1995. Begins venture capital raising, and develops proprietary carbohydrate technology,
filing for patent protection. Research facilities are established in 1998.
2000
Alchemia and The Dow Chemical Company (Dow) form a manufacturing alliance for the large-scale custom contract synthesis of
novel or existing therapeutics for pharmaceutical applications. Alchemia decides to pursue generic fondaparinux, which will target
the multi-billion dollar heparin drug market.
2003
Makes an Initial Public Offering in December, listing on the Australian Stock Exchange (ASX) under the symbol ACL.
2004
Process development of generic fondaparinux completed at Alchemia laboratories proving process can be taken to commercial
scale. Pilot scale production begins at Dow.
Alchemia forms a collaboration with the Pain Research Group at the University of Queensland to develop new generation opioidbased pain treatments.
Pilot cGMP manufacture of generic fondaparinux completed at Dow facilities
Alchemia acquires Melbourne based oncology company Meditech Research Limited, obtaining the cancer targeting HyACT drug
delivery platform and the Phase II product HA-irinotecan. Meditech renamed Alchemia Oncology, with research facilities remaining
in Melbourne.
2005
2006
2007
Alchemia forms a collaboration with the Belgian based drug discovery company Euroscreen s.a. to identify new drug candidates for
g-protein coupled receptors (GPCRs).
In April 2007 Alchemia announced it had signed Dr Reddy's Laboratories Limited (RDY US) as its marketing partner for generic
fondaparinux. Alchemia also transferred the manufacturing rights to generic fondaparinux from Dow to Dr Reddy's.
In May 2007 Alchemia reportedresults from the HA-irinotecan Phase II clinical trial. HA-irinotecan: 1) allowed more cycles of
irinotecan to be administered to cancer patients, 2) produced better disease control and 3) more than doubled progression free
survival.
2009
In February, ACL's manufacturing and marketing partner, Dr Reddy's, filed a drug master file (DMF) for generic fondaparinux with
the US FDA. In March the ANDA for fondaparinux was filed.
Completion of the VAST Diversity Scanning Library occurred in April 2009 with the successful completion of 15,000 compounds that
cover diversity space. Targeted marketing of drug discovery collaborations employing these compounds commenced in 2H09.
In June the Company agreed an Investigational New Drug application (IND) with US FDA for HA-Irinotecan. The FDA agreed to a
modified Phase lll study where only one trial, using progression free survival as a clinical end point, to be undertaken to obtain
market approval for HA-Irinotecan.
2010
The company successfully completed a 1 for 11 rights issue raising. Whilst the commencement of the single Phase III trial for HAIrinotecan will be the primary use of the proceeds, the other programs to which the funds will be applied include:1) Pre-clinical
research evaluating the effectiveness of the HyACT platform in targeting cancer stem cells: 2) Preparing for the Company’s filing for
approval of fondaparinux in the European markets; 3) Assessing the viability of delivering fondaparinux sodium in an oral dosage
form; and 4) The support for a physician initiated Phase I/IIa trial for HA-Irinotecan as a cancer stem cell targeted therapy in first line
treatment of extensive Small Cell Lung Cancer.
2011
In July, Dr Reddy's (RDY US) was notified by the FDA that approval had been granted for fondaparinux. Alchemia expects to
receive first revenues from sales of fonaparinux made by Dr Reddy's Laboratories in the first half 2012.
Source: Company data
What is a carbohydrate?
Carbohydrates are simple sugars having the empirical formula CnH2nOn, where n is >3,
suggesting that carbon atoms are in some way combined with water. They are also
called “hydrates of carbon.” Glucose is a common monosaccharide that, after oxidation,
forms carbon dioxide and water, providing energy source. The molecules of glucose may
link together to form a variety of other macromolecules. In comparison to dipeptide,
consisting of amino acid that can produce single dipeptide, the glucose molecules can
give rise to 11 different disaccharides. Moving to a larger-scale, 24 tetrapeptides can be
produced by 4 different amino acids; on the other hand, 4 different hexose
monosaccharides may potentially produce 35,560 unique tetrasaccharides. This
increases the difficulty in manufacturing of these molecules.
The complex nature of
carbohydrates means that
chemical production of pure and
structurally defined
oligosaccharides for biologicals
is challenging
The polysaccharides are formed by linkage of monosaccharide through O-glycosidic
linkages. Differences in the type, linkage patterns, molecular weight, and chain shapes
decide the carbohydrate’s physical properties.
Why are carbohydrates important in the body?
The cell surface consists of proteins, lipids and carbohydrates. The carbohydrates of
glycoproteins and glycolipids usually reach furthest from the surfaces of cells and
therefore are often involved in initial interactions with other cells and substrates. Thus,
carbohydrates play a key role in cellular interactions.
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Nomura | Alchemia
March 30, 2012
Carbohydrate polymers are promised candidates for drug development because they
play important roles in key recognition events with a variety of receptor proteins such as
lectins, enzymes, hormones, toxins, antibodies, bacteria and viruses. They are also
involved in numerous biological processes such as cell growth, recognition and
differentiation, cancer metastasis, inflammation, and bacterial and viral infection. These
specific interactions occur through glycoproteins, glycolipids, and polysaccharides found
on cell surfaces and through proteins with carbohydrate-binding domains, known as
endogenous lectins.
Why are carbohydrate-based drugs so difficult to manufacture?
The complex nature of carbohydrates means that chemical production of pure and
structurally defined oligosaccharides for biologicals is challenging. In addition,
carbohydrates are rapidly broken down in the bloodstream.
Unlike DNA and proteins, no technology has been developed to allow carbohydrates to
be “sequenced” using straightforward techniques. Instead, sugar structures must be
solved by a combination of chromatography and mass spectrometry, procedures that
have traditionally required considerable technical skill. Besides the complex multistep
analysis required for each sugar, scientists must also contend with the heterogeneity of
sugar structures within a sample.
Once a carbohydrate structure is
solved, duplicating the structure
artificially can also be a daunting
task
Once a carbohydrate structure is solved, duplicating the structure artificially can also be
a daunting task. Glycosylating proteins generate a diverse array of carbohydrate
structures, and it is difficult to control the production of a specific glycoprotein in vivo.
Until recently, organic chemistry was the most common approach for carbohydrate
synthesis in the lab, but the complexity of biologically relevant glycans pushes synthetic
chemistry to its limits. In addition, the synthesis of each structure had to be designed
from scratch, making this approach inappropriate for high-throughput drug design.
The digestive system excels at breaking down most naturally occurring carbohydrates,
and such drugs will likely have to be injected directly into the bloodstream. Glycosidases
in the blood can reduce a carbohydrate-based drug’s half-life to just a few minutes,
depending on its structure.
Hence, until recent years, little attention was given to these molecules, primarily because
they are so diverse and so much more difficult to study than, for example, proteins that
are directly encoded by genes. It is only fairly recently that carbohydrates have been
given more attention because of advances that have been made in their synthesis,
analysis and manipulation. Various carbohydrate-based drugs and diagnostics are
currently in use. These include:
• Heparin: Heparin is composed of a variably sulphated repeating disaccharide unit, with
an average of 2.5 sulphate molecules/disaccharide unit that makes it highly charged
polymer. Heparin is synthesized in mast cells as a proteoglycan component (molecular
weight 60–100 kDa) and is cleaved into nonuniform fractions by endoglycosidases
(molecular weight 5–25 kDa). This has been used for decades as an anti-clotting agent.
This has been beset with quality control issues, in part because it is a complex mixture
of high-molecular-weight molecules, isolated from natural sources that can obscure
contaminants such as over-sulphated chondroitin sulphate;
• Tamiflu (oseltamivir phosphate): This is a monosaccharide-based drug that is used
for treating influenza. It is believed to work by inhibiting viral neuraminidase that alters
virus particle aggregation and release;
• Aminoglycoside antibiotics: These are used to treat various infections by gram
negative bacteria, as they inhibit protein synthesis by binding to bacterial ribosomes;
and
• Acarbose: This is a glycosidase inhibitor that is used to treat type-2-diabetes by
regulating carbohydrate digestion, intestinal absorption and carbohydrate metabolism.
It has been shown to cause a significant decrease in plasma glucose in patients with
non-insulin dependent diabetes.
14
Nomura | Alchemia
March 30, 2012
Listed comparables
There are a number of listed drug companies which can be thought of as being
comparables to ACL. These include:
• Dr Reddy’s Laboratories – Dr. Reddy’s is an integrated global pharmaceutical
company with brand presence established through 28 years of history. Dr. Reddy’s is
headquartered in India, with annual sales of USD1.7bn and products marketed in more
than 10 countries.
• GlaxoSmithKline – GSK is one of the world's largest pharmaceutical and healthcare
companies. GSK employs over 97,000 people in over 100 countries. Around 12,500
people work in GSK’s research teams in the UK, US, Spain, Belgium and China. GSK
invested nearly GBP600mn in vaccines R&D in 2011 and has more than 1,600
scientists working on the development of new vaccines. Products sold by GSK include:
Seretide/Advair, Seroxat/Paxil, Augmentin and Cervarix.
• Apotex (APO, not rated) – Privately owned Apotex Inc. was founded in 1974, and is
the largest Canadian-owned pharmaceutical company. The worldwide sales of the
Apotex Group of companies exceed C$1bn per year. The company employs over 6,800
people in research, development, manufacturing and distribution facilities world-wide.
The company’s pharmaceuticals are exported to over 115 countries
• Starpharma Holdings (SPL AU, AUD1.75, Buy) – Starpharma’s underlying
technology is built around dendrimers – a type of synthetic polymer that is highly
regular in size and structure. Starpharma is commercialising products based on its
proprietary dendrimer technology. The company holds more than 100 granted
dendrimer patents covering a range of classes of this type of molecule. In terms of
pharmaceutical development, SPL’s lead dendrimer-based product is VivaGel, a gelbased formulation of a nano-pharmaceutical.
• Acrux (ACR AU, AUD3.99, Buy) – ACR develops and commercialises pharmaceutical
products for global markets, using its proprietary technology to administer medicines
through the skin. Its products are fast-drying sprays and liquids which are applied to the
skin, delivering the medicine transdermally into the bloodstream. Each product is
designed to be preferred by patients over current therapies. ACR’s expertise is in
transdermal drug-delivery systems. ACR’s major product is Axiron, a treatment for
hypogonadism (anti-clotting deficiency in men). In November 2010, Axiron was
approved by the US Food and Drug Administration (FDA) for marketing as a new anticlotting replacement therapy for hypogonadal men. Acrux’s worldwide licensee Eli Lilly
launched Axiron into the market in April 2011, with potential distribution into another
142 countries.
• Halozyme Therapeutics (HALO US, not rated) – Halozyme Therapeutics is a
biopharmaceutical company developing and commercializing products targeting the
extracellular matrix for the diabetes, oncology, dermatology and drug-delivery markets.
The company's product portfolio is primarily based on intellectual property covering the
family of human enzymes known as hyaluronidases and additional enzymes that affect
the extracellular matrix. Halozyme's Enhanze technology is a drug-delivery platform
designed to increase the absorption and dispersion of biologics.
ACR develops and
commercialises pharmaceutical
products for global markets,
using its proprietary technology
to administer medicines through
the skin
• Nektar Therapeutics (NKTR US, not rated) – Nektar Therapeutics is a clinical-stage
biopharmaceutical company developing a pipeline of drug candidates that utilise its
PEGylation and polymer conjugate technology platforms, which are designed to
improve the benefits of drugs for patients. Its product pipeline consists of drug
candidates across a number of therapeutic areas, including oncology, pain, antiinfectives, anti-viral and immunology. Nektar's research and development activities
involve small-molecule drugs, peptides and other potential biologic drug candidates. Its
drug candidates are designed to improve the pharmacokinetics, pharmacodynamics,
half-life, bioavailability, metabolism or distribution of drugs.
There are other comparables to ACL that specialise in carbohydrate-based drug
technology.
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Nomura | Alchemia
March 30, 2012
Fig. 12: Other comparables to ACL – focussing on carbohydrates
Abaron
BioSciences
Oncothyreon
GlycoDesign
Glycominds
GlycoTech
Progenics
Synthon
Chiragenics
Targeting glycosylation enzymes for a variety of novel therapies
Vaccines to halt metastatic cancers
Carbohydrate-processing inhibitors (CPIs) for the treatment of cancer, infection,
inflammation, and cardiovascular disease: GD39 in phase 2 for various
High-throughput study of complex carbohydrates, and commercializes
autoimmune and chronic inflammatory disease management tools and services
with a focus on the Multiple Sclerosis market
Using non-natural molecules to mimic carbohydrates
Biopharmaceutical company focused on therapeutics for patients suffering from
cancer and related conditions
Carbohydrate-based chiral chemistry technology
Source: Company data
Examination of patents
US and EU patents
ACL has a number of relevant patents relating to its carbohydrate technology. These
include the following.
A. Patent number: 8,114,970
Issue Date: February 14, 2012
This patent relates to the preparation of synthetic monosaccharides, for use in the
preparation of synthetic heparinoids. In February 2012, ACL was granted a new patent in
the US that further enhances the protection of the proprietary process used for the
manufacture of fondaparinux sodium, a drug used for the prevention and treatment of
venous blood clots (DVT). This broadly protects building blocks that are used in the ACL
process for manufacturing fondaparinux. The monosaccharide (single sugar) building
blocks enable the efficient synthesis of fondaparinux, which is a pentasaccharide (five
sugar) molecule. We believe this patent lasts until at least 2029.
B. Patent number: 8,093,227
Issue Date: January 1, 2012
This invention relates to monosaccharide compounds, methods for their preparation and
their use in producing combinatorial libraries of potentially biologically active mono- or
oligosaccharide compounds.
In February 2012, ACL was
granted a new patent in the US
C. Patent number: 7,541,445
Issue Date: June 2, 2009
This invention relates to preparation of synthetic monosaccharides, disaccharides,
trisaccharides, tetrasaccharides and pentasaccharides for use in the preparation of
synthetic heparinoids. This invention is directed to intermediates, and processes for the
chemical synthesis of AT-III binding heparin or heparinoid, pentasaccharides.
Who are Dr Reddy’s Laboratories?
Dr. Reddy’s is an integrated global pharmaceutical company with brand presence
established through 28 years of history. Dr. Reddy’s is headquartered in India, with annual
sales of USD1.7bn and products marketed in more than 10 countries. Importantly, Dr
Reddy’s Laboratories has high levels of experience in marketing generics.
In the view of the Nomura Dr Reddy’s analyst, Saion Mukherjee, Dr Reddy’s US
performance has been mixed so far. While there has been good traction in Prograf and
Prilosec OTC, there have been disappointments on lower market share in Lotrel, delay in
Arixtra approval and complete OTC switch of Allegra. With a substantial increase in the
quantum of patent expiries and certain product-specific opportunities, the US should
remain a key growth driver for Dr Reddy’s over the next two years, in our view.
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The company’s OTC business is recording strong growth on market share gain in
Prilosec and the launch of Allegra. The initial signs of the market build-out of Allegra
OTC are encouraging. As per Sanofi, within a few weeks of the launch, Allegra OTC has
outsold Zyrtec, which had annual sales of USD700mn. In 1Q CY11, Sanofi booked
revenues of USD120mn from the product. A part of the sales booked were on account of
inventory filling, and hence, sales in subsequent quarters should be a better
representation of the market. Our interaction with Dr Reddy’s suggests that initial rampup of the generic Allegra OTC is encouraging. We expect Dr Reddy’s to make up for the
loss in Rx sales, although margins will likely be lower. OTC sales should remain an
important component of Dr Reddy’s US sales. As per Perrigo, USD10bn worth of Rx
(prescription) drugs will transition to OTC over the next five years.
March 30, 2012
In our view, Dr Reddy’s US
performance has been a mixed
bag so far
We will be watching for ongoing growth in Dr Reddy’s US franchise.
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March 30, 2012
Fondaparinux – anti-clotting agent
ACL’s product, generic fondaparinux, has been launched in the United States as a
preventative agent for deep vein thrombosis (DVT). This market was worth more than
USD340mn in 2011.
How do we clot? The Clotting Cascade
Coagulation (or blood clotting) is an essential component of basic human functioning,
aimed at sealing off damaged vessels and tissues to prevent excessive bleeding and
also at trapping invading microbes in the blood stream. The clotting cascade describes
the process whereby proteins in the blood known as coagulation factors are activated in
a cascading sequence to form a clot over a damaged vessel.
ACL’s product, generic
fondaparinux, has been
launched in the United States as
a preventative agent for deep
vein thrombosis (DVT)
The cascade is a series of reactions in which a zymogen (inactive enzyme precursor) of
serine protease (enzymes that cut peptide bonds in proteins where there are specific
amino acids present) and its glycol-protein co-factor are activated to their active
components and then catalyse the next reaction in the process. This ultimately results in
the formation of the blood clot.
Fig. 13: The clotting cascade
INTRINSIC PATHWAY
Damaged Surface
Kininogen
Kallikrein
XII
EXTRINSIC PATHWAY
XIIa
Trauma
XI
XI a
IX
IXa
VIIa
VII
Tissue
factor
VIIIa
X
Xa
Trauma
X
Va
Prothrombin
(II)
FINAL COMMON PATHWAY
Fibrinogen
(I)
Thrombin
(IIa)
Fibrin
(Ia )
XIII a
Cross-linked
fibrin clot
Source: PubMed, Nomura research
This cascade effect is the secondary phase of haemostasis, a feedback model that
regulates clot formation in the body and dissolves the blot clot when the injury is
healed. At each stage of this coagulation cascade, feedback mechanisms regulate the
balance between active and inactive enzymes. The clotting cascade is initiated
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March 30, 2012
through two alternate pathways – the intrinsic and extrinsic, which converge at the
formation of Factor X.
The intrinsic pathway, also called the contact activation pathway, is the slower and less
frequent of the two. This pathway is catalysed by the presence of physical chemical
substances such as collagen, bacteria and circulating lipoproteins (fat proteins) in the
blood, or from contact between sub-endothelial connective tissues or negatively charged
surfaces that are exposed when a vessel or tissue is damaged. These incidences
stimulate the conversion of coagulation factor XII (the Hageman factor) into its active
form XIIa as well as the release of platelets in the bloodstream. Factor XIIa then causes
the catalysed activation of Factor XI to XIa in the bloodstream and then IX to their active
form IXa and finally to the activation of Factor X into Xa in the presence of Ca2+
(calcium) and phospholipids (a platelet membrane constituent).
Alternatively, the extrinsic pathway is a far more rapid process and is initiated by the
release of a tissue factor (Factor III – containing fibroblasts and leukocytes) at the site of
a traumatised vascular wall or extravascular tissue. This tissue factor stimulates the
conversion of Factor VII into its active form VIIa. This active form of Factor VII leads
directly to the activation of Factor Xa from its inactive form Factor X, and it is at this point
in the clotting cascade where the intrinsic and extrinsic pathways converge.
The final united common pathway of the clotting cascade results from the activation of
Factor Xa and involves the conversion of protein Prothombin to Thrombin, which is
responsible for activating fibrin (white fibres) from the plasma protein fibrinogen.
Fibrinogen stimulates the clumping of platelets (colourless bodies in the blood) which are
attracted to the site by the protein Thrombin. Strands of fibrin form a cross-linked mesh
that along with platelets block the damaged blood vessel and prevent further bleeding. If
the clot contains only platelets it is called a white thrombus, however when red blood
cells are also present it is deemed a red thrombus.
Vascular thrombosis is a
cardiovascular disease indicated
by the partial or total occlusion
of a blood vessel by a clot
containing blood cells and fibrin
What is thrombosis?
Vascular thrombosis is a cardiovascular disease indicated by the partial or total
occlusion of a blood vessel by a clot containing blood cells and fibrin. In arteries, it
results predominantly from platelet activation and leads to heart attack, angina or stroke,
whereas venous thrombosis results in inflammation and pulmonary emboli. The
coagulation of blood is the result of a cascade of events employing various enzymes
collectively known as activated blood-coagulation factors.
What is deep vein thrombosis (DVT)?
Deep vein thrombosis (DVT) is the formation of blood clots (thrombi) in the deep veins. It
commonly affects the deep leg veins (such as the calf veins, femoral vein, or popliteal
vein) or the deep veins of the pelvis. It is a potentially dangerous condition that can lead
to morbidity and mortality. The most important acute complication of DVT is pulmonary
embolism (PE), which can be fatal.
In DVT, thrombus formation preferentially starts in the valve pockets of the veins of the
calf and extends proximally. This is especially true for those that occur following surgery.
Though most thrombi begin intraoperatively, some start a few days, weeks, or months
after surgery. Hence, prevention of DVT is important to decrease morbidity and mortality.
Epidemiology and causation of DVT
DVT is a major and a common preventable cause of death worldwide. It spontaneously
affects approximately 0.1% of persons per year. The overall average age- and sexadjusted annual incidence of venous thromboembolism (VTE) is 117 per 100,000 (DVT,
48 per 100,000; PE, 69 per 100,000), with higher age-adjusted rates among males than
females (130 vs 110 per 100,000, respectively). VTE occurs in an estimated 900,000
people per year in the major European countries alone, according to Bayer (BAYN DE,
EUR52.24, Neutral).
The approximate risk for DVT following general surgery procedures is 15-40%. It nearly
doubles after hip or knee replacement surgery or hip fracture surgery (40-60%). Without
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March 30, 2012
prophylaxis, fatal PE occurs in 0.2-0.9% of patients undergoing elective general surgery,
0.1-2.0% of those undergoing elective hip replacement and up to 2.5-7.5% of those
undergoing surgery for hip fracture. Though regarded mainly as a surgical complication,
most symptomatic VTE events and fatal PE occur in medical patients.
In adults, the clinical conditions that predispose to VTE are increasing age, cancer and
its treatment, prolonged immobility, stroke or paralysis, previous VTE, congestive heart
failure, acute infection, pregnancy, dehydration, hormonal treatment, varicose veins, long
air travel, acute inflammatory bowel disease, rheumatological disease, and nephrotic
syndrome.
VTE occurs in an estimated
900,000 people per year in the
major European countries alone
Oral contraceptive pills, especially those that contain third-generation progestins
increase the risk of VTE. Risk of DVT associated with long-duration air travel is called
economy class syndrome. Its prevalence is 3-12% in a long-haul flight, with stasis,
hypoxia, and dehydration being pathophysiological changes that increase the risk.
How is DVT diagnosed?
Venous ultrasonography is the investigation of choice in patients stratified as DVT likely.
It is noninvasive, safe, available, and relatively inexpensive. There are three types of
venous ultrasonography: compression ultrasound (B-mode imaging only), duplex
ultrasound (B-mode imaging and Doppler waveform analysis), and color Doppler imaging
alone. In duplex ultrasonography, blood flow in normal vein is spontaneous, phasic with
respiration, and can be augmented by manual pressure. In color flow sonography,
pulsed Doppler signal is used to produce images. Compression ultrasound is typically
performed on the proximal deep veins, specifically the common femoral, femoral, and
popliteal veins, whereas a combination of duplex ultrasound and color duplex is more
often used to investigate the calf and iliac veins.
What are the potential treatments to prevent DVT?
There are a number of potential treatments to prevent DVT
Mechanical
Mechanical methods of prophylaxis against DVT include:
• Intermittent pneumatic compression (IPC) device,
• Graduated compression stocking (GCS), and
• Venous foot pump.
Intermittent pneumatic compression enhances blood flow in the deep veins of the leg,
preventing venous stasis and hence preventing venous thrombosis. Scientific studies
have shown that these mechanical methods reduce postoperative venous thrombosis. A
Cochrane review showed a reduction of VTE by about 50% with the use of graduated
compression stockings. Other mechanical means in both medical and surgical patients
include ambulation and exercises involving foot extension.
The duration of
thromboprophylaxis depends on
the level of risk of VTE
Pharmacological
Pharmacological treatments include:
• Unfractionated heparin (UFH) – Studies have shown that the incidence of all DVTs,
proximal DVT, and all PE including fatal PE has been reduced by low-dose UFH;
• Low-molecular-weight heparins (LMWH) – These can be given once or twice daily
without laboratory monitoring. Other advantages are predictability, dose-dependent
plasma levels, a long half-life, less bleeding for a given antithrombotic effect, and a
lower incidence of heparin-induced thrombocytopenia than with UFH;
• Fondaparinux – This is a synthetic pentasaccharide which has been approved for
prophylaxis of DVT. It is an indirect selective inhibitor of factor Xa which binds to
antithrombin with high affinity in a reversible manner. Heparin-induced
thrombocytopenia has not been reported with fondaparinux as it does not interact with
platelet function and aggregation, and has a predictable response. Monitoring of
prothrombin time or partial thromboplastin time is also not required. In summary, it has
an equal or better effectiveness than currently available agents, a low bleeding risk, no
need for laboratory monitoring, and once daily administration;
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March 30, 2012
• Oral direct selective thrombin inhibitors – Dabigatran is an oral univalent direct
thrombin inhibitor. Dabigatran etexilate is the prodrug of dabigatran. It is rapidly
absorbed from the gastrointestinal tract with a bioavailability of 5-6%; and
• Factor Xa inhibitors – Rivaroxaban is a potent and selective oral factor Xa inhibitor. It
has a rapid onset of action, a high bioavailability (80%), and a half-life of 4 to 12 hours.
oral rivaroxaban is as effective in preventing recurrence of symptomatic VTE as the
current standard therapy of injectable LMWH, enoxaparin, or fondaparinux.
All are effective pharmacological agents for prophylaxis of DVT. The duration of
thromboprophylaxis depends on the level of risk of VTE. For patients undergoing total
hip replacement or hip fracture surgery, prolonged thromboprophylaxis beyond 10 days
and up to 35 days is recommended especially for patients who are considered to be at
high risk for VTE, while in patients admitted with acute medical illness
thromboprophylaxis should be continued until discharge for the majority of the patients.
Pharmacological prevention of DVT in detail – products in the
US market
We examine methods pharmacological prevention of DVT in more detail below. All
agents are effective pharmacological agents for prophylaxis of DVT.
A. Heparin
Heparin, a powerful anticoagulant, has been used since the late 1930s in the treatment
of thrombosis. In its original implementation, tolerance problems were noted, and so
reduced dosage was suggested to reduce bleeding and improve efficacy. In the early
1970s, clinical trials did indeed indicate acceptable tolerance was obtainable whilst still
preserving antithrombotic activity.
Unfractionated heparin (UFH) is
primarily used as an
anticoagulant for both
therapeutic and surgical
indications
Fig. 14: Heparin vs. Low Molecular Weight Heparin vs. Fondaparinux
Source
Structure
Targets
Pharmacologic Effect
Administration
HIT Response
Unfractionated Heparin
LMWH
Fondaparinux
Animal
Animal
Synthetic
Heterogeneous
Heterogeneous
Homogeneous
Multiple
Multiple
Single (factor Xa)
Activity expressed as IU (anti-Xa = anti- Activity expressed as IU (anti-Xa > anti- Activity expressed gravimetrically as
IIa)
IIa)
μg or μmol
Intravenously or two to three times One to two times daily subcutaneously
Once daily subcutaneously
daily, subcutaneously
Nil
~80% crossreactivity with heparin- No crossreactivity with HIT antibodies
induced thrombocytopenia (HIT)
antibodies
Bioavailability
Half-life
Mode of Excretion
Antidote
Variable
Dose-dependent ~1–1.5 hours (IV)
Reticuloendothelial, urinary
Protamine sulfate
High
~4 hours
Urinary
Protamine sulfate (partial
neutralization)
High
~17 hours
Urinary
None
Source: PubMed, Nomura research
Unfractionated heparin (UFH) is primarily used as an anticoagulant for both therapeutic
and surgical indications, and is usually derived from either bovine lung or porcine
mucosa. Amongst the modern uses of unfractionated heparin are the management of
unstable angina, as an adjunct to chemotherapy and anti-inflammatory treatment, and as
a modulation agent for growth factors and treatment of haemodynamic disorders. The
most common sensitivity to UFH is Heparin-induced thrombocytopenia and thrombosis
syndrome (HITTS).
The HITTS syndrome
Thrombocytopenia is a known complication of the administration of heparin that occurs in
approximately 5-30% of cases. The pathophysiology of HITTS remains controversial;
however, most investigators agree that an immune mechanism is most plausible. In
HITTS, thrombosis occurs in both the arterial and venous circulation, with significant
morbidity and mortality. Complications include deep venous thrombosis, pulmonary
embolus, stroke, myocardial infarction, chronic venous insufficiency, extremity ischemia,
gangrene, and death.
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March 30, 2012
This market has been genericised. We believe supply for the US heparin market is
saturated with over 41 different products (153 various strengths) manufactured by 25
different companies. According to IMS data, annual sales of generic heparin in the US
market amounted to over USD290mn for 2011.
B. Low Molecular Weight Heparins
In the late 1980s, the development of low molecular weight heparins (LMWHs) led to
improvements in antithrombotic therapy. LMWHs are derived from UFH by such
processes as chemical degradation, enzymatic depolymerisation and gamma-radiation
cleavage.
Fig. 15: Types of LMWHs
LMWH name
Bemiparin
Certoparin
Dalteparin
Enoxaparin
Nadroparin
Parnaparin
Reviparin
Tinzaparin
Average molecular weight (daltons)
3600
5400
6000
4500
4300
5000
4400
6500
Ratio anti-Xa/anti-IIa activity
9.7
2.4
2.5
3.9
3.3
2.3
4.2
1.6
Source: PubMed, Nomura research
Of particular interest is the fact that their relative effects on platelets are minimal
compared to heparin, providing an immediate advantage when treating plateletcompromised patients.
Fig. 16: Advantages of low-molecular-weight heparin over unfractionated heparin
Greater bioavailability
Predictability and dose-dependent plasma level
Less risk of bleeding
Lower incidence of heparin-induced thrombocytopenia
Lower risk of heparin-induced osteoporosis
No need for laboratory monitoring
Can be safely administered in outpatient
Duration of anticoagulant effect is longer, permitting once- or twice-daily administration
Source: PubMed, Nomura research
The degree of depolymerisation of UFH can be controlled to obtain LMWH of different
lengths. Dosage requirements for the treatment of deep vein thrombosis (DVT) are
significantly reduced when employing LMWH as opposed to UFH, although in general
the efficacy of both therapeutics seems to be comparable. In addition, LMWH can be
effective as an alternative therapeutic for patients who have developed a sensitivity to
UFH.
There has also recently been a great deal of concern in the use of LMWH due to the
perceived potential for cross-species viral contamination as a result of the animal source
of the parent UFH. One way of avoiding the possibility of cross-species contamination, is
to prepare heparins by chemical synthesis. This method provides the opportunity to
develop second generation heparins or heparinoids that can be tailored to target
particular biological events in the blood coagulation cascade.
The major LMWH is Enoxaparin.
The major LMWH is Enoxaparin
Enoxaparin
In 1993, the US FDA approved a low molecular weight heparin called Enoxaparin, which
is marketed under the trade name Lovenox, among others. We believe the US market for
Enoxaparin is at its apex, as has been characterised by the launch of strong generic
competition coupled with the substantial share losses of the market leader, Lovenox.
Lovenox, which is manufactured by Sanofi [SAN FP, EUR57.54, Neutral], had annual
sales of USD2.3bn for 2010 in the US alone.
Enoxaparin is derived from the
intestinal mucosa of pigs.
In July 2010, Sandoz launched its generic version of Enoxaparin, followed by others in
October 2011. Collectively the generic enoxaparin products have garnered annual sales
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of USD1.5bn in 2011, meanwhile branded Lovenox sales have shrunk by USD1.2bn to
USD1.1bn in 2011.
Currently there are five different products (35 various strengths), manufactured by five
different companies on market. According to IMS data, annual sales of Enoxaparin in the
US market amounted to USD2.6bn for 2011.
C. Fondaparinux – injectable Xa inhibitor
In 2001, the US FDA approved fondaparinux, which is marketed under the trade name
Arixtra. Arixtra commercialised its product a year after its patent expired in 2002.
Marketed by GlaxoSmithKline, Arixtra had annual global sales of GBP301mn for 2010.
The antithrombotic activity of fondaparinux sodium is the result of antithrombin III (ATIII)mediated selective inhibition of Factor Xa. By selectively binding to ATIII, fondaparinux
sodium potentiates (about 300 times) the innate neutralization of Factor Xa by ATIII.
Neutralization of Factor Xa interrupts the blood coagulation cascade and thus inhibits
thrombin formation and thrombus development. Fondaparinux sodium does not
inactivate thrombin (activated Factor II) and has no known effect on platelet function. At
the recommended dose, fondaparinux sodium does not affect fibrinolytic activity or
bleeding time.
The antithrombotic activity of
fondaparinux sodium is the
result of antithrombin III (ATIII)mediated selective inhibition of
Factor Xa
In July 2011, a generic version developed by ACL and marketed by Dr. Reddy's
Laboratories was launched, followed by an authorised generic from Apotex the next
month (August 2011).
Collectively the generic fondaparinux products have garnered sales of USD78mn in
2011; meanwhile Arixta sales shrunk by USD70mn to USD259mn in 2011. Currently
there are three different products (12 various strengths), distributed by three different
companies in the US market. According to IMS data, annual sales of fondaparinux in the
US market amounted to USD337mn for 2011.
Currently there are 3 different
products distributed by 3
different companies in the US
market
Recent studies suggest benefits of fondaparinux over enoxaparin
Using OASIS-5 population data, a recent study showed that fondaparinux was a more
cost-effective antithrombotic agent than enoxaparin in ACS, both in the short and in the
long term.
In addition, another recent study showed fondaparinux can offer substantial economical
savings in patients with low or moderate risk ACS when compared to enoxaparin. This
favourable effect is not only due to the lower price of fondaparinux, but also to the
decrease of costly haemorrhagic complications during hospitalisation. The different
scenarios showed that mean savings reached between 51% and 61% of total hospital
costs.
D. Oral factor Xa inhibitors – New anticoagulants
Dabigatran etexilate is a direct thrombin inhibitor that reversibly inhibits the active site of
thrombin, which is a central player in the coagulation cascade converting fibrinogen to
fibrin. Rivaroxaban, apixaban and edoxaban are all factor Xa inhibitors, which bind
reversibly to the active site of factor Xa.
The bioavailability of dabigatran etexilate is much lower than that of the other three
agents, so a higher dose of this agent is required. All four agents are given as a fixed
dose, and their anticoagulant effects are so predictable that they do not require routine
coagulation monitoring. In total knee or hip replacement, dabigatran etexilate,
rivaroxaban and edoxaban are all administered once daily, while apixaban is
administered twice daily.
In July 2011, the US FDA approved Rivaroxaban, which is marketed under the trade
name Xarelto to reduce the risk of blood clots, DVT and PE following knee or hip
replacement surgery. Rivaroxaban is a potent and selective oral factor Xa inhibitor. It has
a rapid onset of action, a high bioavailability (80%), and a half-life of 4 to 12 hours.
Xarelto is marketed in the US by Janssen Pharmaceuticals Inc (owned by Johnson &
Johnson [JNJ US, not rated]). In 2011, Xarelto had USD17mn in sales.
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March 30, 2012
Rivaroxaban studies
There have been a number of studies of rivaroxaban. Xarelto is already marketed in
Europe and Canada for the treatment of DVT and the secondary prevention of VTE:
• Einstein-DVT: this was conducted to assess the efficacy and safety of oral rivaroxaban
versus an injectable low molecular weight heparin followed by a vitamin K antagonist
(warfarin). Bayer reported positive data from the Einstein-DVT and Einstein-Extension
studies.
• Einstein-PE: The recently-released rivaroxaban Einstein-PE Phase III study met its
primary efficacy outcome, showing that rivaroxaban was non-inferior to standard
therapy in the treatment of pulmonary embolism with or without DVT and secondary
prevention of venous thromboembolism. The findings with respect to the primary safety
outcome; the combination of major and non-major clinically relevant bleeding were
similar in both treatment arms. With regard to major bleeding, rivaroxaban
demonstrated superiority versus standard therapy.
In addition, Bristol-Myers (BMY US, not rated) and Pfizer (PFE US, not rated) are
awaiting FDA approval to launch its drug Eliquis in the US. Eliquis is currently approved
and available in Europe to prevent certain blood clots after hip- or knee-replacement
procedures; although the companies are seeking FDA approval for its use in relation to
the prevention of strokes in people with a heart-rhythm disorder called atrial fibrillation.
What is ACL’s generic fondaparinux?
ACL’s fondaparinux sodium injection is a Factor Xa inhibitor (anticoagulant) indicated for:
1) prophylaxis of deep vein thrombosis (DVT) in patients undergoing hip fracture surgery
(including extended prophylaxis), hip replacement surgery, knee replacement surgery, or
abdominal surgery; 2) treatment of DVT or acute pulmonary embolism (PE) when
administered in conjunction with warfarin. The doses come as single-dose, prefilled
syringes containing 2.5 mg, 5 mg, 7.5 mg, or 10 mg of fondaparinux. Dosing is as
follows:
Fondaparinux is indicated for:
1) prophylaxis of deep vein
thrombosis (DVT); and
2) treatment of DVT or acute
pulmonary embolism (PE)
• Prophylaxis of deep vein thrombosis: Fondaparinux sodium 2.5 mg is given
subcutaneously once daily after haemostasis has been established. The initial dose
should be given no earlier than 6 to 8 hours after surgery and continued for 5 to 9 days.
For patients undergoing hip fracture surgery, extended prophylaxis up to 24 additional
days is recommended. In the US, we believe Enoxaparin is not approved for use in
patients undergoing hip fracture surgery;
• Treatment of deep vein thrombosis and pulmonary embolism: Fondaparinux
sodium 5 mg (body weight <50 kg), 7.5 mg (50 to 100 kg), or 10 mg (>100 kg) is given
subcutaneously once daily. Treatment should continue for at least 5 days until the INR
(International Normalised Ratio) blood test of 2 to 3 is achieved with warfarin.
Market size
The US market for anti-clotting products is in a state of transition with the launch of some
generic versions of both enoxaparin and fondaparinux during the past 20 months.
According to IMS prescription and sales data, the annual sales for all products in the US
amounted to USD3.2bn in 2011. This contracted by 5.0% on the pcp due to the impact of
generic competition in enoxaparin.
Annual sales for all products in
the US amounted to USD3.2bn
in 2011
We use IMS to collate data on the US acute clotting and anti-cancer market.
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Fig. 17: Channels captured in IMS prescription and sales data
Channels captured in IMS sales data
Retail Channels
Non-Retail Channels
Chain Pharmacies
Non-Federal Hospitals
Mass Merchandisers
Clinics, Federal, HMOs
Independent Pharmacies
Long-Term Care
Foodstores with Pharmacies
Home Healthcare
Miscellaneous (Prisons, Universities, others)
Mail Service
Channels captured in IMS prescription data
Included
Excluded
Chain, Independent and Foodstore Pharmacies Dispensing Physicians
Discount Houses
Hospital Pharmacies,
Mass Merchandisers
Clinic Pharmacies
Mail Service Pharmacies
Closed Wall HMO’s
Long-Term Care
Home Healthcare
Source: IMS data, Nomura research
Like many other markets, the United States uses National Prescription Data from IMS to
track performance and market share. IMS is a provider of information services for the
healthcare industry, covering markets in more than 100 countries around the world.
Product substitutability – what are the current indications for enoxaparin vs.
fondaparinux?
Fondaparinux is currently not indicated for patients who require a percutaneous
Coronary Intervention (PCI – coronary angiogram) as a treatment for cardiac disease:
A. Orthopaedic surgery – fondaparinux indicated
A meta-analysis of four studies (EPHESUS, PENTATHLON 2000, PENTHIFRA and
PENTAMAKS) comparing enoxaparin and fondaparinux was performed. Overall, 7344
patients undergoing major orthopaedic surgery of the lower limbs were randomized into
the four phase III studies:
There was a significantly higher
rate of catheter-related
thrombosis in the fondaparinux
arm in patients who underwent
cardiac catheterization with or
without PCI
Fondaparinux reduced the incidence of VTE by day 11 from 13.7% in the enoxaparintreated group to 6.8%, an odds reduction of 55.2%; for proximal DVT, fondaparinux led
to an odds reduction of 57.4%.
The incidences of fatal and non-fatal pulmonary embolism up to day 49 were low (< 1%)
and did not differ between the two groups.
Safety analysis showed that there were more adjudicated episodes of major bleeding in
the fondaparinux group (2.7%) than in the enoxaparin group (1.7%). In both treatment
groups, major bleeding occurred mostly within the first five days after surgery. The
difference in major bleeding between the two treatment groups was mainly accounted for
by an excess of bleeding with a bleeding index of two or more. Minor bleeding events
occurred in 3.0% of patients in the fondaparinux group and in 2.7% in the enoxaparin
group.
B. Acute coronary Syndromes (Cardiac pain) – Fondaparinux efficacious
The OASIS 5 trial in non-ST-segment elevation acute coronary syndromes demonstrated
that the fondaparinux dose approved for prophylaxis of deep venous thrombosis is as
efficacious with respect to ischemic outcomes as therapeutic doses of enoxaparin;
fondaparinux, however, was associated with a substantial reduction in major bleeding at
9 days and mortality at 1 and 6 months.
C. Percutaneous Coronary Interventions– Fondaparinux not indicated
The OASIS studies evaluated the efficacy of fondaparinux versus enoxaparin in the
acute treatment of patients with unstable angina/non-ST-segment elevation myocardial
infarction, with regard to the incidence of death, myocardial infarction, and refractory
ischemia as well as safety as defined by the incidence of major bleeds. Fondaparinux
(2.5 mg once daily) was as effective as enoxaparin (1 mg/kg bid) for the primary
composite efficacy endpoint at 9 days (5.8% and 5.7%, respectively), but was associated
with a 48% reduction in major bleeding at 9 days (p < 0.001). This reduction in bleeding
is due to the dose and/or properties (i.e., absence of anti-factor IIa activity) of
fondaparinux as compared to low-molecular-weight heparin.
However, there was a
significantly higher rate of
catheter-related thrombosis in
the fondaparinux arm in patients
who underwent cardiac
catheterization with or without
PCI
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March 30, 2012
However, there was a significantly higher rate of catheter-related thrombosis in the
fondaparinux arm in patients who underwent cardiac catheterization with or without PCI
(1.3% versus 0.5%, P=0.001). This impacted negatively on the use of fondaparinux in
acute coronary syndrome patients requiring revascularization procedures.
Snapshot of the US market for the anti-clotting product in 2011
This is shown below.
Fig. 18: Snapshot of the US market for the anti-clotting product in 2011
Anti-clotting products
Heparin
Enoxaparin
Fondaparinux
Rivaroxaban
Brands
na
Lovenox
Arixtra
Xarelto
US launch date
1930's
1993
2003
2011
2011
Prescriptions
952,730
3,071,148
236,629
58,976
2011 Sales
(USDmn)
291
2,592
337
17
No of Generics No of Brands
41
0
4
1
2
1
0
1
Source: IMS, FDA, Nomura research
Approximately 80% of the US anti-clotting market consists of enoxaparin sales, which
amounted to USD2.6bn in 2011, according to IMS data. The next most important method
of therapy is fondaparinux at 10% of sales, closely followed by heparin at 9% of sales.
This is shown in the following chart.
Fig. 19: Composition of the US acute anti-clotting market by USD sales- 2011
Enoxaparin
80%
Fondaparinux
10%
Xa inhib.
1%
Heparin
9%
Source: IMS data, Nomura research
The following figure highlights the changing sales dynamics, by month, of anti-clotting
products in the US market. In the largest segment, the cannibalisation of Lovenox by
generic enoxaparin is clearly apparent. In 2011, sales of Lovenox declined by 54% on
pcp, after one full year’s impact of generic competition. Combined USD sales of
enoxaparin (both branded and generic) contracted by 5.7% on pcp in 2011. Meanwhile
prescription sales of enoxaparin (both branded and generic) increased by 6.0% on pcp in
2011. This highlights the 11% erosion in average prices caused by the generic
enoxaparin competitors in 2011.
Approximately 80% of the US
anti-clotting market consists of
enoxaparin sales
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March 30, 2012
Fig. 20: Monthly sales in US anti-clotting market
400
(USD mn)
350
Heparin
Lovenox
Enoxaparin
Arixtra
Fonda. - APO
Fonda. - ACL
Xarelto
300
250
200
150
100
50
0
Feb-09
Jun-09
Oct-09
Feb-10
Jun-10
Oct-10
Feb-11
Jun-11
Oct-11
APO – Apotex
Source: IMS, Nomura research
Fondaparinux in the US
In the fondaparinux segment, the cannibalisation of Arixtra sales by generic fondaparinux
was emerging in 2011. According to IMS data, sales of Arixtra declined by 21% on pcp,
after just six months impact of generic competition. The average price of Arixtra
increased by 12% on pcp, as GSK prepared for the potential market share loss with total
Arixtra prescriptions down 30% on pcp.
Combined USD sales of fondaparinux (both branded and generic) increased by 2.2% on
pcp in 2011, benefitting from an average price increase of 6.6% on pcp. Meanwhile total
prescription sales of fondaparinux (both branded and generic) decreased by 4.1% on
pcp in 2011. We believe this may suggest some price sensitivity and product
substitutability in the anti-clotting market.
The market is historically split
between the US and Rest of
World (ROW) in the proportion
60;40
In the Heparin segment, annual total prescription sales of Heparin (all generic) increased
by 4.1% on pcp in 2011. Heparin sales declined by 11.6% on pcp, according to IMS
data. This was driven by strong decline in the average price of Heparin which fell by 15%
on pcp. This leads to the following US market shares of branded and generic anti clotting
products.
Fig. 21: US acute anti-clotting market share - 2011 (USD terms) – by brand
Enoxaparin
47%
Fonda. - APO
2%
Fonda. - ACL
0%
Heparin
9%
Arixtra
8%
Xarelto
1%
Lovenox
33%
APO – Apotex
Source: IMS data, Nomura research
The market is historically split between the US and Rest of World (ROW) in the
proportion 60:40. This is seen in the following figure, where in 2010 (pre-generic entry),
the US comprised c60% of the global fondaparinux market.
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Fig. 22: US acute anti-clotting market – 2011 (USD3.2bn)
3,000
(USDmn)
Fig. 23: Global Fondaparinux market – 2010 (USD0.48bn)
EU
33%
2,592
2,500
2,000
Emerging
Markets
3%
1,500
1,000
337
291
500
17
US
59%
0
Heparin
Enoxaparin Fondaparinux
Xa inhib.
Source: IMS data, Nomura research
ROW
5%
Source: GSK data, Nomura research
The dominant product, Lovenox, has shown a decline in sales over the past three years.
Fig. 24: US acute anti-clotting market (USDmn) – 2009 to 2011
300,000,000
(USD Sales)
250,000,000
200,000,000
150,000,000
100,000,000
50,000,000
0
Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11
Arixtra
Heparin
Enoxaparin
Lovenox
Fonda. - APO
Xarelto
Fonda. - ACL
Source: Dr Reddy’s, Nomura research
What have been Arixtra’s sales been since 2004?
In September 2004, for a cash consideration of GBP297mn, GSK acquired Fraxiparine,
Fraxodi and Arixtra and related assets including a manufacturing facility from Sanofi.
Since then Arixtra’s CAGR until 2010 has been 75%. This is shown in the following
figure.
We note that 2011 Arixtra sales declined on pcp due to the release of Apotex’s generic
fondaparinux product entering the US market.
Arixtra’s CAGR until 2010 has
been 75%
Fig. 25: Sales of GSK’s Arixtra (branded fondaparinux) – 2004 to 2010
350
(GBPmn)
300
250
200
150
100
50
0
2004A
2005A
US
2006A
EU
2007A
2008A
2009A
Emerging Markets
2010A
ROW
2011A
Source: GSK data, Nomura research
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How have ACL’s sales gone in the US market?
ACL’s generic fondaparinux was launched in July 2011 with its marketing partner Dr
Reddy’s. Year to date FY12, according to IMS, ACL’s generic fondaparinux has market
share of 10% of the market by revenue, and 9% share of total prescriptions.
Overall – ACL’s fondaparinux has had a solid start, needs to continue to grow
There are three producers of fondaparinux in the US market, including ACL’s generic
fondaparinux. The largest supplier is GlaxoSmithKline with its branded product Arixtra.
This product was commercialised a year after its patent expired in 2002. Despite this, it
had eight years of exclusivity due to the difficulty for generics to replicate the drug
synthesis. In August 2011, another generic version developed by Apotex was launched,
a month after ACL’s product.
Fig. 26: US Fondaparinux market – 2011 sales (USDmn)
Anti-clotting products
Arixtra
Generic Fondaparinux
Generic Fondaparinux
Manufacturer
GSK
Alchemia (ACL)
Apotex (APO)
US launch date
2003
Jul-11
Aug-11
2011
Prescriptions
173,945
8,775
53,909
Avg price
(USD)
1,492
1,571
1,187
2011 Sales
(USDmn)
259
14
64
Share (%)
76.9
4.1
19.0
Source: IMS data, Nomura research
Apotex’s product is an authorised generic; as we understand, it has not filed an ANDA.
That said, it is not listed on the FDA’s authorised generic database. Authorised generics
are prescription drugs produced by brand pharmaceutical companies and marketed
under a private label, at generic prices. Authorized generics compete with generic
products in that they are identical to their brand counterpart in both active and inactive
ingredients; whereas according to the U.S. Food and Drug Administration's Office of
Generic Drugs, generic drugs are required to contain only the identical active ingredients
as the brand.
Year to date FY12, according to
IMS, ACL’s generic
fondaparinux has market share
of 10% of the market by
revenue, and 9% share of total
prescriptions
The branded fondaparinux, Arixtra, had the largest market share of the fondaparinux
segment of the US anti-clotting market in USD in 2011. This is seen in the following figure.
Fig. 27: US Fondaparinux market share by USD sales – 2011
Fondaparinux ACL
4%
Arixtra
77%
Fondaparinux APO
19%
Source: IMS data, Nomura research
Like many other markets, the United States uses National Prescription Data from IMS to
track performance and market share. IMS is a provider of information services for the
healthcare industry, covering markets in more than 100 countries around the world.
There are different types of prescription data, two of which are most relevant to generic
fondaparinux.
In 2011, the US Fondaparinux
market was worth USD337mn
A. Monthly new prescriptions
New to Brand Prescriptions (NBRx or NTBRx) measures prescriptions written for
patients commenced on a product for the first time, including new therapy starts and
switches from other products. In the early stages of a product’s life, NBRx is the most
important measure, since it isolates instances in which a physician and patient make a
treatment decision and a choice between product alternatives. NBRx is therefore a
leading early indicator of likely sales performance.
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March 30, 2012
Fig. 28: US Fondaparinux market – monthly new prescriptions (2009-2011)
(Monthly new
16,000
'scrips)
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Feb-09 Jun-09 Oct-09
Arixtra
Feb-10
Jun-10
Oct-10
Fondaparinux - APO
Feb-11
Jun-11
Oct-11
Fondaparinux - ACL
Total
Source: IMS data, Nomura research
Up to end-July 2011, Arixtra’s average for new prescriptions was over 12,200 per month.
Since the entry of generic competition, its monthly average has dropped to
approximately 3,600 per month. Apotex’s generic version of Fondaparinux has gained
the greatest proportion of Arixtra’s forgone share at c5,500 per month since its launch.
This compares with ACL’s Fondaparinux which has a six month average of 1,200 per
month. We note in January 2012 ACL’s fondaparinux’s monthly new prescriptions
surpassed that of Arixtra. This is seen in the following figure.
Apotex’s generic fondaparinux
and ACL’s generic fondaparinux
have both grown strongly in
terms of new monthly
prescriptions since launch
Fig. 29: US Fondaparinux market – monthly new prescriptions (2011)
14,000
(Monthly new
'scrips)
12,000
10,000
8,000
6,000
4,000
2,000
0
Jan-11
May-11
Arixtra
Fondaparinux - APO
Sep-11
Jan-12
Fondaparinux - ACL
Source: IMS data, Nomura research
This leads to the share of FY12 year to date new prescriptions as seen in the following
figure. Despite only being launched in August 2011, Apotex’s generic fondaparinux
already has a 48% share of new prescriptions for the FY12 year to date, thereby
eclipsing Arixtra, which has lost its monopoly and currently has 41% of the new
prescriptions for the FY12 year to date. ACL’s generic fondaparinux has 11% market
share of the new prescriptions for the FY12 year to date.
Fig. 30: US Fondaparinux market share – monthly new prescriptions (FY12 YTD)
Fonda. - APO
48%
Fonda. - ACL
11%
Arixtra
41%
Source: IMS data, Nomura research
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However, if we look at the trend in prescription data, we see that ACL’s generic version
of fondaparinux has 22% share of the monthly new prescriptions market as of January
2012. This compares to no market share as of June 2011. We believe this trend can
continue.
Fig. 31: US Fondaparinux market share – monthly new
prescriptions (as of June 2011)
Despite only being launched in
July 2011, ACL’s generic
fondaparinux already has a 22%
share of new prescriptions
Fig. 32: US Fondaparinux market share – monthly new
prescriptions (as of January 2012)
Fonda. ACL
22%
Arixtra
100%
Fonda. APO
59%
Arixtra
19%
Source: IMS data, Nomura research
Source: IMS data, Nomura research
B. Total prescriptions
Total Prescriptions (TRx) is the sum of NBRx and Continuation on Brand prescriptions
(CBRx). CBRx measures patients’ continuation on a product, from both new and refilled
prescriptions. In the longer term, TRx is important, since this provides measurement of
the total market share for a product. Both Apotex and ACL’s generic fondaparinux
products have grown strongly in terms of total monthly prescriptions since launch, driven
by solid growth in new monthly prescriptions. This is shown in the following figure.
Fig. 33: US Fondaparinux market – monthly total prescriptions (2009-2011)
25,000
(Monthly total
'scrips)
20,000
15,000
10,000
5,000
0
Feb-09
Jun-09
Arixtra
Oct-09
Feb-10
Jun-10
Fondaparinux - APO
Oct-10
Feb-11
Jun-11
Fondaparinux - ACL
Oct-11
Total
Source: IMS data, Nomura research
Whilst sales growth of both generic fondaparinux products in total prescriptions was
strong in the last six months of 2011, ACL’s growth has not been as rapid as Apotex’s
growth. Apotex’s fondaparinux currently has a higher market share than Arixtra.
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Fig. 34: US Fondaparinux market – monthly total prescriptions (2011)
(Monthly total
25,000
'scrips)
20,000
15,000
10,000
5,000
0
Jan-11
May-11
Arixtra
Fondaparinux - APO
Sep-11
Jan-12
Fondaparinux - ACL
Source: IMS data, Nomura research
After launch, a new entrants’ share of TRx should lag behind its share of NBRx. Over
time, the share of TRx should grow and approximate the share of NBRx as the
continuing treatment prescriptions accumulate.
ACL’s generic fondaparinux
already has a 9% share of total
prescriptions
This leads to the 2012 YTD share of monthly total prescriptions as seen in the following
figure. Apotex’s generic fondaparinux has the largest market share of the US
fondaparinux market at 50%, despite being launched in August 2011. ACL’s generic
fondaparinux already has a 9% share of total prescriptions.
Fig. 35: US Fondaparinux market share – monthly total prescriptions (FY12 YTD)
Fonda. - APO
50%
Fonda. - ACL
9%
Arixtra
41%
Source: IMS data, Nomura research
However, if we look at the trend in prescription data, we see that generic fondaparinux
has built to 17% share of the monthly total prescriptions market as of January 2012. This
compares to no market share as of June 2011. We believe this trend can continue.
Fig. 36: US Fondaparinux market share – monthly total
prescriptions (as of June 2011)
Fig. 37: US Fondaparinux market share – monthly total
prescriptions (as of January 2012)
Fonda. ACL
17%
Arixtra
100%
Fonda. APO
64%
Source: IMS data, Nomura research
Arixtra
19%
Source: IMS data, Nomura research
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March 30, 2012
C. What is generic fondaparinux’s price point?
On IMS data, which we acknowledge is not comprehensive, we note that generic
fondaparinux currently has a lower price point than the branded proposition in the
market. Whilst we note that the IMS data is not comprehensive, we believe it does give
some insight into trends in pricing.
Fig. 38: US Fondaparinux market – average price per prescription (FY12 YTD)
2,500
(USD)
2,150
2,000
Average
1,500
1,490
1,178
1,000
500
0
Arixtra
Fondaparinux - APO
Fondaparinux - ACL
Note price per prescription is for 10 vials of product
Source: IMS data, Nomura research
As can be seen in the preceding figure, Arixtra’s average price for the FY12 year to date
is USD2,150 (based on IMS data). This is 83% higher than Apotex’s average price of
USD1,178. ACL’s average price of USD1,490 is 7% below the market average price. We
believe the pricing for generic products is generally accepted to be below the market
average for a number of reasons:
• Rapid market share gains: Manufacturers of the generic products are keen to build
market share quickly to generate an adequate return on their investment before price
erosion becomes too great.
ACL’s average price is
USD1,490 is 7% below the
market average price
• GPOs: In the US, fondaparinux is sold into the hospital pharmacies through the Group
Purchasing Organisations, or GPOs, and that is a very concentrated market. We believe
about seven or eight GPO's cover about 85% of all hospital purchases, including drugs.
These GPOs generally require discounts in order to stock a new product.
As can be seen below, Apotex’s generic fondaparinux price based on IMS data has been
the lowest of the new entrants. Not surprisingly, it has garnered a higher market share
than the other new entrant. ACL’s generic fondaparinux price has increased closer to
Arixtra’s average price.
Fig. 39: US Fondaparinux market – new entrant pricing (2011)
3,000
(USD avg prices)
2,500
2,000
1,500
1,000
500
0
Jan-11
Arixtra
May-11
Fondaparinux - APO
Sep-11
Jan-12
Fondaparinux - ACL
Source: IMS data, Nomura research
In 2011, we note that Arixtra’s average price increased by 30% on pcp, in anticipation of
the entry of the generic competition. In 2010, Arixtra’s average price was USD1,336.
Therefore, Apotex’s generic fondaparinux average price has undercut Arixtra’s by 12%.
Moreover, ACL’s average price is c11% above Apotex’s price as of January 2012,
according to IMS data.
We would expect average prices
to increase going forward, and
hence profit share for ACL
should also increase
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March 30, 2012
Fig. 40: US Fondaparinux market – new entrant pricing (2009-2011)
3,000
(USD avg prices)
2,500
2,000
1,500
1,000
500
0
Feb-09
Jun-09
Oct-09
Arixtra
Feb-10
Jun-10
Oct-10
Fondaparinux - APO
Feb-11
Jun-11
Oct-11
Fondaparinux - ACL
Source: IMS data, Nomura research
We would expect average prices to increase going forward, and hence profit share for
ACL should also increase. We explore the profit share relationship between ACL and Dr
Reddy’s in more detail further in this note.
D. How does this translate into revenues and total market share?
The strong growth of Apotex’s generic fondaparinux in new and total prescriptions since
its launch in August 2011 has seen it overtake Arixtra in terms of having the highest
monthly revenues since October 2011.
Fig. 41: US Fondaparinux market – Monthly revenues (2009-2011) (USD)
40
(USD mn)
35
30
25
20
15
10
5
0
Feb-09
Jun-09
Oct-09
Arixtra
Feb-10
Jun-10
Oct-10
Fondaparinux - APO
Feb-11
Jun-11
Fondaparinux - ACL
Oct-11
Total
Source: IMS data, Nomura research
ACL’s generic fondaparinux currently has the smallest share of revenues in the US
Fondaparinux market. We expect the market share of prescriptions and revenue to grow.
As the market increasingly genericises then we believe market shares will converge.
As the market increasingly
genericises, we believe market
shares will converge
Fig. 42: US Fondaparinux market – Monthly revenues (2011) (USD)
40
(USD mn)
35
30
25
20
15
10
5
0
Jan-11
May-11
Arixtra
Fondaparinux - APO
Sep-11
Jan-12
Fondaparinux - ACL
Source: IMS data, Nomura research
This leads to the following revenue shares for the US Fondaparinux market for FY12
YTD. As we expected given the length of time it has been in the market, the branded
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Nomura | Alchemia
March 30, 2012
product Arixtra has dominant market share at 51%, followed by Apotex’s generic product
with 39% and ACL’s generic product with 10%.
Fig. 43: US Fondaparinux market share (FY12 YTD)
Fonda. APO
39%
Fig. 44: US Fondaparinux market revenues (FY12 YTD)
120
100
(USDmn)
98
76
80
60
40
Arixtra
51%
Fonda. ACL
10%
19
20
0
Arixtra
Source: IMS data, Nomura research
Fonda. - APO
Fonda. - ACL
Source: IMS data, Nomura research
However, if we look at the trend in market share by monthly revenue, we see that
Apotex’s generic fondaparinux has 46% share of monthly revenue as of January 2012
and ACL’s generic fondaparinux has 22% share of monthly revenue as of January 2012.
This compares to no market share in June 2011. We believe this trend can continue.
Fig. 45: US Fondaparinux market – total market share by
revenues (June 2011)
Fig. 46: US Fondaparinux market – total market share by
revenues (January 2012)
Fonda. ACL
22%
Arixtra
100%
Fonda. APO
46%
Arixtra
32%
Source: IMS data, Nomura research
Source: IMS data, Nomura research
What has been the issue with ACL’s fondaparinux growth in the US market?
We note that near-growth in the US of ACL’s fondaparinux has been below that of
Apotex’s fondaparinux. We believe this is for a number of reasons.
Dr Reddy’s initially targeting the US retail space
According to ACL management, half of Arixtra sold in the US is sold in the retail
segment. We believe patients tend to buy the drug, then take it home with them postsurgery, or they buy the drug at the pharmacy to be administered while they are in
hospital. Hence, there is a small group of sales people who are talking to the larger
potential contracts to buy the generic drug.
According to ACL management, the retail segment of the US fondaparinux market (nonhospital) is known to be relatively higher priced and profitable compared with the nonretail (hospital) segment, and Dr Reddy’s has achieved a dollar market share of over
30% in the retail segment as of February 2012. According to ACL management, the
dollar value of the retail market for fondaparinux has remained at USD240m through
2011, maintained by an increase in prescription numbers after the introduction of lower
price generics.
We believe Dr Reddy's traditional strength is actually in the solid dosage (pill) area. This
is addressed by retail pharmacies. That said, the company has a presence in hospitals,
as solid dosage forms are used in hospitals. We believe Dr Reddy's has attempted to
address the retail segment first, but will be moving more into the hospital space.
Half of Arixtra sold in the US is
sold in the retail segment
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March 30, 2012
Manufacturing
We believe producing at scale is a key challenge in making fondaparinux. ACL
management has stated that in going from a hundred gram scale to kilogram scale with
fondaparinux that there were issues in terms of different impurity profiles that ACL had to
deal with either through purification or preventing their formation. Hence, fondaparinux is
a very complex molecule to manufacture.
ACL management have stated that they have raw API that is ready for purification. They
have also previously stated that at the moment the bottleneck is in the purification steps
but more capacity has been added. ACL management have stated that there is a threemonth cycle from advanced intermediates through to finished material. We believe that
should these stated bottlenecks be addressed in the near future, then there would be
more product on market, for both the retail and hospital channel.
Going forward, we will be watching for these issues to be resolved, which should lead to
an increase in market share for ACL in the total fondaparinux market.
What are the other potential fondaparinux products in the market?
These include:
• Apicore: Privately owned Apicore filed a US drug master file (DMF) in July 2010 to the
US FDA. We are unaware as to whether Apicore has subsequently filed an Abbreviated
New Drug Application (ANDA); and
• Reliable Biopharmaceutical: Private-equity owned Reliable Biopharmaceutical filed a
US drug master file (DMF) in July 2011 to the US FDA. We are unaware as to whether
Reliable Biopharmaceutical has subsequently filed an Abbreviated New Drug
Application (ANDA). ACL management have stated that they believe Reliable also filed
a patent on an improved step in fondaparinux synthesis.
A Drug Master File is the paperwork required if an Active Pharmaceutical Ingredient
(API) is to be used in a product in the US. The FDA requires a manufacturing process
and the analysis of the final drug substance in the Drug Master File before an ANDA can
be filed. The amount of material that is filed in a DMF allows the company to
manufacture batches at ten times that scale. If the batches are above that ten-fold
increase in manufacturing capacity in the batch, then the company would have to submit
more data and amend the DMF.
We are unaware as to whether
Apicore or Reliable
Biopharmaceutical has filed an
Abbreviated New Drug
Application (ANDA)
We believe a filing for an ANDA approval would likely be the start of a 2-3 year approval
process, in line with the timeline that ACL went through.
Where else will ACL sell its product?
ACL is well positioned to benefit from the progression of Dr Reddy’s Laboratories’
marketing applications for generic fondaparinux outside United States. Dr Reddy’s has a
right of first refusal to market generic fondaparinux in Europe once data exclusivity
expires in 2012. It is expected filing for approval in Europe will be in 2012.
What is the nature of the licensing agreement with Dr Reddy’s
Laboratories?
Under the terms of its agreement with Dr Reddy’s Laboratories, ACL will receive 50% of
operating profits from US sales of generic fondaparinux indefinitely. Dr Reddy’s
manufactures the fondaparinux product.
We believe ACL’s revenue is calculated on the annual operating profits on US sales at
the end of each quarter. ACL is likely to be informed of the actual amount of each
subsequent quarter in line with when Dr Reddy’s releases its financial accounts. ACL
management have stated publically that the company will be paid quarterly in arrears.
Hence, ACL will likely have a P&L profit a quarter before it books cash flow.
Dr Reddy’s manufactures the
fondaparinux product
In the following figure we illustrate our assumptions regarding the USD value of ex-US
generic fondaparinux sales.
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March 30, 2012
Fig. 47: Forecast global sales of generic fondaparinux
200
100
(%)
(USDmn)
80
60
150
40
100
20
50
(20)
0
(40)
0
(60)
2012F 2014F 2016F 2018F 2020F 2022F 2024F 2026F 2028F 2030F 2032F 2034F
Fondaparinux market revenue (LHS)
Growth (RHS)
Source: Nomura estimates
What does it mean for ACL?
Our generic fondaparinux earnings assumptions are based on the global deal with Dr
Reddy’s.
• Current size of the market: We believe the size of the US market in FY12F will be
USD324mn. We assume EU sales for generic fondaparinux from 2HFY13. We forecast
price declines of 5% per annum;
We believe ACL’s market share
is likely to increase to 30% over
the next 4 years
• Market for ACL’s fondaparinux in the US market: We take our data from the IMS in
terms of current market share. We believe ACL’s market share is likely to increase to
30% over the next four years.
Fig. 48: Forecast growth in operating profit
70
(USDmn)
(%)
70%
60
60%
50
50%
40
40%
30
30%
20
20%
10
10%
0
0%
2012F
2013F
2014F
2015F
2016F
2017F
2018F
2019F
Fondaparinux operating profit in US market (USDmn) (LHS)
Fondaparinux operating profit margin in US market (%) (RHS)
Source: Nomura estimates
• Market share in the EU: We assume ACL’s generic fondaparinux will achieve 19.6%
market share of total scripts in FY14F. We assume its peak market share is 30% in the
EU and 30% in ROW.
• Pricing: We assume the average price per script will be USD1,642 in FY12F. This is
forecast to decline by 5% per annum;
• Potential market size: Based on the variables cited above, we estimate the potential
market size for the product at USD172mn by FY16F, five full years post launch. This
equates to 35% of the forecast value of the global fondaparinux market, assuming the
fondaparinux market grows at a future CAGR of -3%;
• Peak sales: We believe peak sales will occur in 2017.
• Royalty: We assume ACL receives a 50% share of operating profit, based on net sales
for generic fondaparinux.
• Valuation of the opportunity: Hence, we have developed a NPV of AUD0.62 per
share for ACL’s generic fondaparinux opportunity.
We have developed a NPV of
AUD0.62 per share for ACL’s
generic fondaparinux
opportunity
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March 30, 2012
HyACT – Targeting cancer
Colorectal cancer (CRC) is one of the most prevalent cancers worldwide and remains a
leading cause of mortality. ACL is developing a targeted anti-cancer therapy.
Global incidence
Colorectal cancer is the third most common cancer in men (in 2008, 663 000 cases,
10.0% of the total) and the second in women (in 2008, 571 000 cases, 9.4% of the total)
worldwide. Almost 60% of the cases occur in developed regions. Incidence rates vary
ten-fold in both sexes worldwide, the highest rates being estimated in Australia/New
Zealand and Western Europe, the lowest in Africa (except Southern Africa) and SouthCentral Asia, and are intermediate in Latin America. Incidence rates are substantially
higher in men than in women (overall sex ratio of the ASRs 1.4:1).
CRC is the third most common
cancer in men and women and
the second-leading cause of
cancer-related death in the
United States
Fig. 49: World estimated colorectal cancer Incidence, all ages: both sexes (2008A)
Estimated numbers (thousands)
Men
Cases Deaths
World
More developed regions
Less developed regions
United States of America
China
India
European Union (EU-27)
663
389
274
79
125
20
182
320
165
154
24
61
14
80
5-year
prev.
1765
1141
624
245
289
27
507
Women
Cases Deaths
571
338
232
74
95
16
151
288
154
134
26
48
11
68
5-year
prev.
1495
968
526
227
219
21
417
Both sexes
Cases Deaths 5-year
prev.
1234
608
3260
727
319
2109
506
288
1150
153
50
472
220
109
508
36
25
48
333
148
924
Source: Globocan database, Nomura research
Global incidence
About 608 000 deaths from colorectal cancer occurred worldwide in 2008, accounting for
8% of all cancer deaths, making it the fourth most common cause of death from cancer.
As observed for incidence, mortality rates are lower in women than in men, except in the
Caribbean. There is less variability in mortality rates worldwide (six-fold in men, five-fold
in women), with the highest mortality rates in both sexes estimated in Central and
Eastern Europe (20.1 per 100,000 for male in 2008, 12.2 per 100,000 for female in
2008), and the lowest in Middle Africa (3.5 and 2.7, respectively).
US incidence
CRC is the third most common cancer in men and women and the second-leading cause
of cancer-related death in the United States, with an estimated 103,170 newly diagnosed
colon cancer cases and 51,960 colon and rectal cancer deaths in CY12 (estimated).
Incidence has been declining in the US, as latest data shows.
Fig. 50: Incidence of Colorectal cancer, US
155
(000s)
(%)
6
150
4
145
2
140
0
135
-2
-4
130
1999A
2000A 2001A 2002A
Incidence (LHS)
2003A
2004A 2005A 2006A
% growth on pcp (RHS)
2007A
Source: CDC data, Nomura research
The lifetime risk of developing the disease is as high as 6% in the American population.
The lifetime risk of colorectal cancer in the US is c5%, with the incidence in the
population over 75 years at about 40 to 50 per 100,000 persons. This is compared to an
incidence of 15 to 20 per 100,000 in persons 60–65 years. In the US, the annual
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incidence of colon cancer is decreasing slowly, likely in part due to the US’s screening
effort and possibly to related lifestyle changes.
Aetiology of CRC
Colorectal tumours arise through a multistep progression involving cellular mutation,
which leads to activation of oncogenes (cancer-causing genes) coupled with the
inactivation through mutation of tumour suppressor genes. This leads to the
development of a non-malignant tumour, which then progresses to a malignant cancer.
In essence, there is a transition from normal colonic mucosa via polyp formation, with
consequent progression to colon cancer. Data from observational studies estimate this
time span to be 10 to 15 years, although it may be much more rapid in some hereditary
polyposis syndromes. Some individuals may go directly from normal appearing colonic
mucosa to cancer. This type of transition had traditionally been associated with certain
hereditary/familial syndromes. Adenomas or premalignant lesions are completely curable
via endoscopic removal. However, even those patients diagnosed with early
asymptomatic disease are more likely to have localized or at least regional cancer which
has an excellent five-year survival rate (>90%).
Diagnosis of CRC
To diagnose colorectal cancer, the following tests are usually performed:
• Physical exam and history: An exam of the body to check general signs of health,
including checking for signs of disease, such as lumps or anything else that seems
unusual. A history of the patient’s health habits and past illnesses and treatments will
also be taken.
The lifetime risk of developing
CRC is as high as 6% in the
American population
• Digital rectal exam: An exam of the rectum. The doctor or nurse inserts a lubricated,
gloved finger into the rectum to feel for lumps or anything else that seems unusual.
• Faecal occult blood test: A test to check stool (solid waste) for blood that can only be
seen with a microscope. Small samples of stool are placed on special cards and
returned to the doctor or laboratory for testing.
• Barium enema: A series of x-rays of the lower gastrointestinal tract. A liquid that
contains barium (a silver-white metallic compound) is put into the rectum. The barium
coats the lower gastrointestinal tract and x-rays are taken. This procedure is also called
a lower GI series.
• Sigmoidoscopy: A procedure to look inside the rectum and sigmoid (lower) colon for
polyps (small pieces of bulging tissue), abnormal areas, or cancer. A sigmoidoscope is
inserted through the rectum into the sigmoid colon. A sigmoidoscope is a thin, tube-like
instrument with a light and a lens for viewing. It may also have a tool to remove polyps
or tissue samples, which are checked under a microscope for signs of cancer.
• Colonoscopy: A procedure to look inside the rectum and colon for polyps, abnormal
areas, or cancer. A colonoscope is inserted through the rectum into the colon. A
colonoscope is a thin, tube-like instrument with a light and a lens for viewing. It may
also have a tool to remove polyps or tissue samples, which are checked under a
microscope for signs of cancer.
• Biopsy: The removal of cells or tissues so they can be viewed under a microscope by
a pathologist to check for signs of cancer.
• Virtual colonoscopy: A procedure that uses a series of x-rays called computed
tomography to make a series of pictures of the colon. A computer puts the pictures
together to create detailed images that may show polyps and anything else that seems
unusual on the inside surface of the colon. This test is also called colonography or CT
colonography.
Doctors describe colorectal cancer by the following stages:
• Stage 0: The cancer is found only in the innermost lining of the colon or rectum.
Carcinoma in situ is another name for Stage 0 colorectal cancer;
• Stage I: The tumour has grown into the inner wall of the colon or rectum. The tumour
has not grown through the wall;
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• Stage II: The tumour extends more deeply into or through the wall of the colon or
rectum. It may have invaded nearby tissue, but cancer cells have not spread to the
lymph nodes;
• Stage III: The cancer has spread to nearby lymph nodes, but not to other parts of the
body;
• Stage IV: The cancer has spread to other parts of the body, such as the liver or lungs.
• Recurrence: This is cancer that has been treated and has returned after a period of
time when the cancer could not be detected. The disease may return in the colon or
rectum, or in another part of the body.
Treatment of colon cancer
Surgery
Surgery is the primary form of treatment and results in cure in approximately 50% of the
patients. Standard treatment for patients with colon cancer has been open surgical
resection of the primary and regional lymph nodes for localized disease. Surgery is
curative in 25% to 40% of highly selected patients who develop resectable metastases in
the liver and lung.
Chemotherapy is used
depending upon the stage of the
colorectal cancer
Adjuvant Chemotherapy
Chemotherapy is used, depending upon the stage of the cancer:
• Stage II: The potential value of adjuvant chemotherapy for patients with stage II colon
cancer is controversial.
• Stage III: For Stage III CRC, adjuvant chemotherapy is used. oxaliplatin, leucovorin,
and fluorouracil [5-FU]) or versions of this are used. For instance, in the FOLFOX4
regimen, oxaliplatin; leucovorin, and 5-FU are used.
• Stage IV: In Stage IV and Recurrent Colon Cancer, adjuvant chemotherapy is used.
This includes folic acid, 5-FU, irinotecan, Capecitabine and Oxalipatin. For instance, the
FOLFIRI regimen (folic acid, 5-FU, and irinotecan) includes irinotecan, leucovorin, and
5-FU. All in all, there are seven currently active and approved drugs for patients with
metastatic colorectal cancer in the US. These include 5-FU, Capecitabine, irinotecan,
Oxaliplatin, Bevacizumab, Cetuximab and Panitumumab.
Cancer stem cells
Recently, research has focused on the theory that CRC is driven by transformed cancer
stem cells (i.e. early-stage cancer cells). Cancer specialists now possess a variety of
drugs capable of inducing tumour responses in patients with CRC. However, advanced
colorectal tumours (which comprise a large number of cancer stem cells) are often
resistant to these therapies. Hence, treatments that preferentially target cancer stem
cells may serve as potential targets in developing novel therapeutics specifically
targeting CRC stem cells and hold promise for curative approaches to patients with
advanced CRC. CD44 is thought to be a marker of cancer stem cells, so targeting this
may target cancer stem cells, and well as more differentiated cancer cells. ACL’s HAIriontecan preferentially targets CD44.
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The potential opportunity – HA/irinotecan
What is CD44?
In many cancers of epithelial origin there is an up-regulation of CD44, a receptor that
binds hyaluronic acid (hyaluronan or HA). In other cancers, HA in the tumour matrix is
over-expressed. Both CD44 on cancer cells and HA in the matrix have been targets for
anti-cancer therapy.
Even though CD44 is expressed
in normal epithelial cells and HA
is part of the matrix of normal
tissues, selective targeting to
cancer is possible
Fig. 51: Clinical trials of antibody anti-CD44 conjugates
Antibody
Drug
Injection Method
U36
Re-186
Single intravenous
BIWA 4
Tc-99m
Single intravenous
BIWA 4
Re-186
Dose escalation
BIWA 4
Re-186
Single intravenous
BIWA 4
Mertansine
Dose escalation
BIWA 4
Mertansine
Dose escalation
BIWA 4
Mertansine
Dose escalation
Cancer Type
Head and Neck Squamous Cell
Carcinoma
Head and Neck Squamous Cell
Carcinoma
Head and Neck Squamous Cell
Carcinoma
Early Stage Breast Cancer
Effect
Stable disease in 5 of 9 patients, mild myelotoxicity
Head and Neck Squamous Cell
Carcinoma
Head and Neck Squamous Cell
Carcinoma
CD44v6 Positive Metastatic Breast
Cancer
Tumor targeting
Stable disease in 3 of 6 patients, limiting
myelotoxicity
Moderate tumor identification, no correlation with
CD44v6 expression
Moderate disease stabilization, skin toxicity
Low interpatient pharmacokinetic variability, skin
toxicity
Stable disease in 12 of 24 patients, dose limiting
toxicity
Source: PubMed, Nomura research
Even though CD44 is expressed in normal epithelial cells and HA is part of the matrix of
normal tissues, selective targeting to cancer is possible. This is because macromolecular
carriers predominantly connect and deliver their payload into the tumour and not normal
tissue; thus CD44-HA targeted carriers administered intravenously localize preferentially
into tumours. In summary, several intrinsic characteristics of HA highlighted its potential
as a drug delivery vehicle:
• The nature of HA makes it a vehicle for the delivery of smaller molecules;
• There is up-regulation and activation of the HA receptor CD44 on malignant cancer
tissue. An active CD44 within the tumoural environment mediates HA internalisation and
• HA is non-immunogenic and considered by regulatory bodies as a biologically inert
compound.
Irinotecan is a standard therapy
for patients with metastatic
disease who have failed 5Fluorouracil (5-FU)-based
therapy
Hence, there is a potential opportunity to target the HA tumour matrix to provide a
sustained drug source within the tumour. There have been a number of Targeted Drugs
and Drug Carriers trials using HA.
Fig. 52: Targeted drugs and drug carriers in vitro
Carrier
LMW-HA
HMW-HA
HMW-HA
HMW-HA
HMW-HA
LMW-HA, HMW-HA
HMW-HA Fe2O3 Particle
HPMA Polymer, LMW-HA
Liposome HA Oligos
HMW-HA PLGA Particle
Drug
Paclitaxel
Butyrate
Paclitaxel
Paclitaxel
Carborane
siRNA
Peptide
Doxorubicin
Doxorubicin
Doxorubicin
Cancer targeted
mammary, colon, ovarian
mammary, liver, non-small cell lung
bladder, ovarian
ovarian
colorectal, mammary, ovarian, transitional cell
colon
alveolar squamous
mammary, colon, ovarian
melanoma
breast
Effect
Cytotoxicity, CD44 specific uptake
Inhibited proliferation, CD44 specific uptake
Cytotoxicity
Cytotoxicity
CD44 specific uptake
CD44 specific uptake, gene silencing
Peptide internalization
Cytotoxicity, CD44 specific uptake
Cytotoxicity, CD44 specific uptake
Cytotoxicity, CD44 specific uptake
Source: PubMed, Nomura research
What is irinotecan?
Iriontecan is a semisynthetic camptothecin derivative that works by inhibiting the
topoisomerase 1 enzyme, which is involved in cancer cell replication. irinotecan is a standard
therapy for patients with metastatic disease who have failed 5-Fluorouracil (5-FU)-based
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therapy. Single-agent irinotecan can be given according to a variety of schedules, including
350 mg/m2 every 3 weeks, which demonstrates similar efficacy to other alternatives.
Fig. 53: Current 1st line
chemotherapy treatments for
metastatic CRC
Contain
IR
13%
Fig. 54: Current 2nd line
chemotherapy treatments for
metastatic CRC
Fig. 55: Current 3rd line
chemotherapy treatments for
metastatic CRC
Other
27%
Contain
IR
30%
Contain
IR
73%
Other
87%
Other
70%
IR= irinotecan
IR= irinotecan
IR= irinotecan
Source: MEDACorp survey August 2010, Nomura
research
Source: MEDACorp survey August 2010, Nomura
research
Source: MEDACorp survey August 2010, Nomura
research
What is the HyACT therapy?
In an attempt to increase the benefit associated with irinotecan-based treatment and/or
to reduce the dose-limiting toxicity often associated with this therapy, irinotecan has
been formulated with the naturally ubiquitous polysaccharide, hyaluronan (HA), resulting
in ACL’s proprietary product (HA-irinotecan). This process is called HyACT.
This product utilises the physiochemical and biologic properties of HA as a
macromolecular carrier of drugs to solid tumours.
After intravenous administration, the HA-drug combination enters the tumour and
aggregates thereby forming a vascular microembolism within the tumour where the intratumoural drug depot persists, increasing drug accumulation and retention. The increased
intra-tumoural drug concentration enables the increased internalization of the anti-cancer
agent via a CD44-mediated mechanism, ultimately enhancing efficacy. A secondary
effect is the diversion of the drug from healthy tissue leading to a reduction in some
commonly observed treatment toxicities.
Phase II clinical trial in CRC
In Phase II, the primary endpoint was any late-form grade 3 or grade 4 diarrhoea at any
cycle during therapy, where sample size power calculations were based on an incidence
of 30% grade 3/4 diarrhoea in the control arm (based on literature estimates) versus 5%
in the HA-irinotecan arm (based on an incidence of 8% in the phase I study). Late-form
diarrhoea was considered to be >24 h post drug infusion. Progression-free survival was
considered as progressive disease on radiological assessment or death from any cause.
PFS was determined for each patient as the number of days from Day 1, Cycle 1 (D1C1)
to the date of progression. Survival for each patient was defined as the number of days
from the date of D1C1 to the date of death. For patients alive at study follow-up, the time
was from the date of D1C1 to the date of the last follow-up assessment.
After intravenous administration,
the HA-drug combination enters
the tumour and aggregates
thereby forming a vascular
microembolism within the
tumour where the intra-tumoural
drug depot persists, increasing
drug accumulation and retention
Results of the Phase II clinical trial
This study failed to meet its primary end-point due to the lack of a significant difference
between the study treatment groups. This is because, compared to the grade 3 or 4
diarrhoea levels reported in the literature (16–41%), this study presented a low overall
incidence of late-form diarrhoea. Due to improved methods of treating gastrointestinal
toxicities, the best comparator study is the recently completed EPIC trial where 16% of
patients who received irinotecan according to the same schedule (350 mg/m2 q3w)
experienced grade 3 or 4 diarrhoea. This percentage is very similar to the incidence
observed in the HA-irinotecan arm. However, the median progression-free survival was
5.2 months for HA-irinotecan patients compared with 2.4 months for those receiving
irinotecan alone (P = 0.02). When adjusted for 12 baseline prognostic factors, the
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March 30, 2012
difference remained significant (P = 0.01). The median time to treatment failure was 4.0
versus 1.8 months (P = 0.01) months, again favouring HA-irinotecan-treated patients.
There was no statistically significant difference in median overall survival of HAirinotecan (10.1 months) versus irinotecan-treated (8.0 months) patients (P = 0.2).
Phase III trial in CRC
Following the Phase II trial, it was decided to progress to a Phase III clinical trial. The
trial design was a randomised (1:1) double-blind treatment trial regimen. The primary
completion date is January 2014. There will be monitoring to 18 months postrandomization for 390 patients. Progression Free Survival (PFS) over 20 months is the
primary endpoint. ACL management have stated that they expect data to be available
after 350 events (disease progression or patient death). This is estimated to be in
3QCY13.
In Phase II, median progressionfree survival was 5.2 months for
HA-Irinotecan patients
compared with 2.4 months for
those receiving irinotecan alone
(P = 0.02)
Patients are eligible if they had metastatic CRC, and were 2nd/3rd line irinotecan naïve.
The trial centres are Australia, Bulgaria, Poland, Serbia, Russia, Ukraine and the United
Kingdom. The dosing regimen is:
1. Active Comparator arm
• A. irinotecan (180 mg/m2) or HA-irinotecan (180 mg/m2), IV, over 90 minutes, day 1 (in
patients > 75 years of age, the irinotecan and HA-irinotecan dose in must be reduced to
150 mg/m2);
• B. Leucovorin, 400 mg/m2, or levoleucovorin, 200 mg/m2, IV over 90 minutes with
irinotecan.
• C. 5-fluorouracil (5-FU), 400 mg/m2 IV bolus day 1, then 1200 mg/m2/day x 2 days
(total 2400 mg/m2 over 46-48 hours) continuous infusion.
• D. Repeat every 2 weeks for 8 months.
2. Experimental arm
• A. HA-irinotecan (irinotecan 180 mg/m2), IV, over 90 minutes, day 1 (in patients > 75
years of age, the irinotecan dose in must be reduced to 150 mg/m2).
• B. Leucovorin, 400 mg/m2, or levoleucovorin, 200 mg/m2, IV over 90 minutes with
irinotecan.
• 5-FU, 400 mg/m2 IV bolus day 1, then 1200 mg/m2/day x 2 days (total 2400 mg/m2
over 46-48 hours) continuous infusion.
• C. Repeat every two weeks
• D. 8 months of treatment
In addition, management has stated that both the US FDA and EMA have agreed that
Progression Free Survival may be acceptable endpoint for approval. Finally, should this
trial be successful, ACL will attempt to receive regulatory approval via a 505(b)(2)
process.
Investigator-sponsored Phase II Study of HA-irinotecan in Small Cell Lung Cancer
(SCLC)
This is a randomized, 40 patient study to investigate treatment naïve patients with
extensive SCLC. The treatment arms are: 1) HA-irinotecan and carboplatin; versus 2)
irinotecan and carboplatin. The primary endpoints are safety and cancer stem cell
burden, whilst the secondary endpoints are progressive-free survival at six months,
objective response rate, quality of life, and survival. There will be measurement of cancer
stem cells during and on completion of therapy and enumeration of circulating tumour
cells.
ACL Oncology patents
ACL has a number of patents in this area.
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Fig. 56: ACL Oncology patent families
Name
AU00/00004 Enhanced Efficacy: Use of HA/chemotherapeutics for
overcoming cellular resistance
Date
Priority Date: 13
January 1999
Granted
Granted in Australia, New Zealand, Europe,
Taiwan, China, Canada, Japan; National phase in
USA
AU01/00849 Pre-sensitising: Composition comprising prior administration
of HA
Priority Date: 14
July 2000
Granted in Australia, New Zealand, United
Kingdom, Canada; National phase in China, USA
(3 applications)
AU/02/01160 Improved Therapeutics: Composition comprising high dose of
HA/chemotherapeutic
AU04/01383 Modulation of HA synthase: Modulation of HA synthesis
Priority Date: 27
August 2001
Priority Date: 10
October 2003
Priority Date: 27
July 2005
Granted in Australia, Canada; National phase in
USA
Granted in Australia, New Zealand, China and
USA(x2); National phase in Canada, Europe
National phase in Australia, Canada, China,
Europe, India, Japan, USA
AU2006/001293 Therapeutic compositions and methods of treatment:
Antibody formulations of HyACT
Priority Date: 7
September 2005
Granted in Eurasia, Israel; National phase in
Australia, Canada, China, Europe, India, Japan,
USA, Indonesia, Brazil, Mexico, Malaysia
AU2007/000359 Method of treatment: HAS II
Priority Date: 31
March 2006
National phase in Australia, Canada, China,
Europe, India, Japan, USA
AU2006/001059 Therapeutic Protocols Using Hyaluronan (Glucuronide):
Compositions comprising HA and methods for reducing toxicity or enhance
efficacy of agents
Source: Company data, Nomura research
We note that the composition comprising high dose of HA/chemotherapeutic is still at the
national phase in the US. Should it be approved, then it is likely that the patent protection
would last for 20 years post patent approval, in our view.
The US – progressing the HA-irinotecan opportunity through
a 505(b)(2) process
ACL plans to progress the HA-irinotecan opportunity via a 505(b)(2) process in the US.
This is how generic fondaparinux was approved. The 505(b)(2) application is one of
three established types of new drug application (NDA). The 505(b)(2) regulatory pathway
is defined in The Federal Food Drug and Cosmetics Act as an NDA containing
investigations of safety and effectiveness that are being relied upon for approval and
were not conducted by or for the applicant, and for which the applicant has not obtained
a right of reference.
These applications differ from the typical NDA, in that they allow a sponsor to rely, at
least in part, on the FDA’s findings of safety and/or effectiveness for a previously
approved drug. Section 505(b)(2) was added with the goal of avoiding unnecessary
duplication of preclinical and certain human studies.
The 505(b)(2) application is one
of three established types of
new drug application (NDA)
However, the sponsor must still provide any additional preclinical or clinical data
necessary to ensure that differences from the reference drug do not compromise safety
and effectiveness. The 505(b)(2) NDA also differs from an abbreviated NDA (ANDA),
which is an application containing information to demonstrate that the proposed product
is identical to a previously approved product. Identity is proven in an ANDA simply
through chemistry and bioequivalence data, without the need for preclinical and clinical
trials assessing safety and efficacy.
In a sense, a 505(b)(2) application can be thought of as a hybrid that contains more data
than an ANDA, but less data than an NDA. The 505(b)(2) approval route can be utilized
for a wide range of products, especially for those that represent a limited change from a
previously approved drug. The following are examples of changes to approved drugs
which would be appropriate to submit as 505(b)(2) applications:
• Changes in dosage form, strength, route of administration, formulation, dosing regimen,
or indication;
• A new combination product where the active ingredients have been previously
approved;
• Change to an active ingredient (e.g., different salt, ester complex, chelate, etc);
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Nomura | Alchemia
March 30, 2012
• New molecular entity when studies have been conducted by other sponsors and
published information is pertinent to the application (e.g., a pro-drug or active
metabolite of an approved drug);
• Change from an indication that requires a prescription to an over-the-counter indication;
• Change to an OTC monograph drug (e.g., non-monograph indication, new dosage
form);
• Drugs with naturally derived or recombinant (ie, biological) active ingredients where
additional limited clinical data is necessary to show the ingredient is the same as the
ingredient in the reference drug.
Why go down this route?
There are important potential commercial benefits to employing a 505(b)(2) regulatory
strategy. As previously stated, this approval route was designed to encourage innovation
and to eliminate costly and time-consuming duplicative clinical studies. For some
products, the reference drug can be relied upon for essentially all safety and efficacy
information (nonclinical and clinical), with only a small amount of new work required to
establish comparability to the reference drug. The 505(b)(2) applicant may qualify for
three or five years of market exclusivity, depending on the extent of the change to the
previously approved drug and the type of clinical data included in the NDA. A 505(b)(2)
application may also be eligible for orphan drug or paediatric exclusivity.
What are the challenges for a 505(b)(2) application?
There are, however, some regulatory challenges that are unique to 505(b)(2)
applications. Unlike an NDA, wherein the sponsor owns all the data necessary for
approval (or has obtained the right to reference), the filing or approval of a 505(b)(2)
application may be delayed due to patent or exclusivity protection on the reference drug.
Sponsors filing 505(b)(2) applications must include patent certifications in their
applications and must also provide notice of certain patient certifications to the NDA and
patent holders of the reference drug. A major challenge with 505(b)(2) applications is
determining what additional information is needed to support the proposed change of the
previously approved drug. This will usually be a case-by-case determination. FDA
guidance documents and discussions with regulatory professionals experienced in the
505(b)(2) approval route, as well as the involved FDA review division, are helpful in
understanding what data is necessary and adequate.
A major challenge with 505(b)(2)
applications is determining what
additional information is needed
to support the proposed change
of the previously approved drug
Rates of approval of 505(b)(2) applications
In 2007, for the first time, FDA’s new drug division approved more 505(b)(2) drugs than
those submitted via other NDA applications. In 2006 and 2007, the percentage of
505(b)(2) drug approvals went from 20 to 43%, respectively, and this is expected to
increase.
Fig. 57: Number of 505(b)(2) NDAs approved each year
40
35
30
25
20
15
10
5
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Source: US FDA, Nomura research
Of 115 505(b)(2) applications seen in 2008/9, there are some patterns to note regarding
types of applications approved:
• Applications approved with no human or animal studies – c10% of these were
approved with no human or animal studies.
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• Applications approved with only pharmacokinetic studies – c13% of these were
approved with only pharmacokinetic studies. In all of these cases, there was sufficient
published literature about the active ingredients and often also dosage forms involved.
The reference-listed drugs were often of relatively recent approval, so the FDA could
consider them as meeting current standards for safety and efficacy.
The more data that is submitted,
the better
• Applications approved with one well-controlled clinical trial – c10% of the
applications were approved with one well-controlled clinical trial, including several
topical treatments that were approved based on one bioequivalence trial with a clinical
endpoint.
• Applications approved with multiple well-controlled clinical trials – the remaining
c50% approved had between 2 and 22 clinical trials submitted in their applications,
between zero and 25 pharmacokinetic studies.
Hence, the more data that is submitted, the better.
The market opportunity in irinotecan
In order to assess the potential opportunity for ACL from irinotecan, we use IMS data
from the US. Like many other markets, the United States uses National Prescription Data
from IMS to track performance and market share. IMS is a provider of information
services for the healthcare industry, covering markets in more than 100 countries around
the world. We believe the US is c60% of the total irinotecan market.
History of irinotecan on the market
The original drug was developed by Yakult Honsha (2267 JT, not rated). This was sold to
Pfizer on September 30, 2004. At this time, Pfizer completed the acquisition of the then
branded Camptosar (irinotecan), from Sanofi for USD525mn. Peak sales of Camptosar
occurred in 2007, and have declined since.
Fig. 58: Pfizer’s Camptosar (branded irinotecan) sales
1200
(US$mn)
(%)
1000
US patent expiry
800
EU patent expiry
600
400
200
0
2003A
2004A
2005A
2006A
PFE Irinotecan sales (LHS)
2007A
2008A
2009A
100
80
60
40
20
0
-20
-40
-60
-80
2010A
% growth on pcp (RHS)
PFE = Pfizer
Source: Company data
We note that:
• PFE lost US patent exclusivity for Camptosar in February 2008; and
• PFE lost EU patent exclusivity for Camptosar in July 2009.
Snapshot of the US market for irinotecan in 2011
In 2011, according to IMS prescription and sales data, the annual sales for all irinotecans
in the US amounted to USD32mn in 2011. This contracted by c4% on the pcp due to the
impact of generic competition. This is shown below.
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Fig. 59: US sales of irinotecan
60,000,000
(%)
(US$)
50,000,000
0
-5
-10
40,000,000
-15
-20
30,000,000
-25
20,000,000
-30
-35
10,000,000
-40
0
-45
2009
Sales (LHS)
2010
2011
% change on pcp (RHS)
Source: IMS data, Nomura research
Approximately 42% of the US irinotecan market consists of APP (owned by Fresenius
[FRE GR, EUR77.08, Buy]) sales, which amounted to cUSD13mn in 2011, according to
IMS data. The next highest seller is from PFE at 31% of sales in 2011, followed by
Hospira (HSP US, not rated) at 14% of sales. This is shown in the following chart.
Fig. 60: US irinotecan market share by USD sales – 2011
Sandoz
10%
Hospira
14%
Fig. 61: US irinotecan market share by total scripts – 2011
Sandoz
35.7%
Teva
3%
Teva
1.4%
Pfizer
6.1%
APP
21.7%
APP
42%
Pfizer
31%
Hospira
31.7%
Source: IMS data, Nomura research
Greenstone
3.3%
Source: IMS data, Nomura research
This leads to the US irinotecan market by USD sales below. We note that Sandoz’s and
Hospira’s irinotecan has higher numbers of total prescriptions compared to revenues,
implying their product has a lower price. We explore this in more detail below.
Approximately 42% of the US
irinotecan market consists of
APP
Fig. 62: US irinotecan market by USD sales – 2009-2011
7,000,000
(USD)
(%)
10
6,000,000
0
5,000,000
-10
4,000,000
-20
3,000,000
-30
2,000,000
-40
1,000,000
-50
0
Feb-09
Jul-09
Dec-09
Sales (LHS)
May-10
Oct-10
Mar-11
Aug-11
-60
Jan-12
% change on pcp (RHS)
Source: IMS data, Nomura research
The following figure highlights the changing sales dynamics by month of irinotecan in the
US market. At present both APP and PFE have similar market share. This leads to the
following US market shares of branded and generic irinotecan products.
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Fig. 63: Change in US market shares - branded and generic irinotecan products
3,000,000
(USD)
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
Feb-09
Jul-09
Pfizer
Greenstone
Watson
Dec-09
May-10
Actavis
Hospira
West Ward
Oct-10
Mar-11
APP
Sandoz
Aug-11
Jan-12
Bedford Labs
Teva
Source: IMS data, Nomura research
According to APP, the global irinotecan market has historically split between the US and
Rest of World (ROW) in the approximate proportions of 60:40. This implies that the
global irinotecan market was cUSD57mn in 2011.
Fig. 64: Global irinotecan market – 2011 (USD57mn)
According to APP, the global
irinotecan market has historically
split between the US and Rest
of World (ROW) in the
approximate proportions of
60:40
ROW
43%
US
57%
Source: IMS data, Nomura research
Total prescriptions
Total Prescriptions (TRx) is the sum of NBRx and Continuation on Brand prescriptions
(CBRx). CBRx measures patients’ continuation on a product, from both new and refilled
prescriptions. In the longer term, TRx is important, since this provides measurement of
the total market share for a product. In 2010 and 2011, there has been solid growth in
new monthly prescriptions. This is despite a decrease in total value of the market,
implying the dollar value per prescription has declined. This is shown in the following
figure.
Fig. 65: US irinotecan market by TRx – 2009-2011
4,400
(TRx)
(%)
16
4,200
14
4,000
12
10
3,800
8
3,600
6
3,400
4
3,200
2
3,000
0
2009
TRx (LHS)
2010
2011
% change on pcp (RHS)
Source: IMS data, Nomura research
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This is seen on month on month basis below.
Hospira currently has the
highest market share of total
prescriptions in the US market
Fig. 66: US irinotecan market by TRx – 2009-2011 (monthly)
500
(%)
(TRx)
80
60
400
40
300
20
200
0
100
-20
0
Feb-09
Jul-09
Dec-09
TRx (LHS)
May-10
Oct-10
Mar-11
Aug-11
% change on pcp (RHS)
-40
Jan-12
Source: IMS data, Nomura research
The market share of the total prescriptions are shown below. Hospira currently has the
highest market share of total prescriptions in the US market.
Fig. 67: US irinotecan market by TRx
250
(TRx)
200
150
100
50
0
Feb-09 Jun-09 Oct-09
Pfizer
Greenstone
Watson
Feb-10 Jun-10
Actavis
Hospira
West Ward
Oct-10 Feb-11
APP
Sandoz
Jun-11
Oct-11
Bedford Labs
Teva
Source: IMS data, Nomura research
What is generic irinotecan’s current price point?
On IMS data, which we acknowledge is not comprehensive, we note that generic
irinotecan currently has a lower price point than the branded proposition in the market.
We also note the extreme variability in pricing in this market. Whilst we note that the IMS
data is not comprehensive, we believe it does give some insight into trends in pricing.
We note the extreme variability
in pricing in this market
Fig. 68: US irinotecan market – average price per prescription (CY11)
140,000
(USD)
120,000
100,000
80,000
60,000
40,000
Pfizer
APP
Hospira
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
0
Jan-11
20,000
Sandoz
Source: IMS data, Nomura research
Nomura viewpoint
We note the global irinotecan market value is declining, due to the entry of lower-priced
generic products into this market. That said, we note volume of product sold continues to
increase, in line with demand for this anti-cancer treatment. Hence, we believe there
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continues to be solid demand for the irinotecan product. Should HA-irinotecan be
successful, we believe this product is likely to be a paradigm shift in irinotecan delivery.
Hence, we believe the HA-irinotecan is likely to be able to command a price premium
compared to other generic irinotecan products. We explore this in more detail below.
Can HA-irinotecan command a price premium?
At its essence, HA-irinotecan is a potential way to change the biological activity of a
commonly used anti-cancer drug. We explain this in more detail below.
HA-irinotecan’s opportunity may be similar to that of Abraxane’s in paclitaxel
Approved in the US market in 2005, Abraxane, a super-generic version of paclitaxel
quickly commanded a price premium in the paclitaxel market. We believe this may be
possible for HA-irinotecan.
What is Abraxane?
Abraxane combines a different anticancer drug paclitaxel with albumin, a naturally
occurring human blood protein. Its proposed mechanism of delivery is thought to be by
targeting a previously unrecognized tumour-activated, albumin-specific biologic pathway.
The drug won FDA approval in January 2005 for the treatment of breast cancer after
failure of combination chemotherapy for metastatic disease or relapse within six months
of adjuvant chemotherapy. Sales have been strong since approval.
Fig. 69: Sales of Abraxane
400
(%)
(USDmn)
350
100
80
300
60
250
200
40
150
20
100
0
50
(20)
0
2005A
2006A
2007A
Sales (LHS)
2008A
2009A
2010A
Growth on pcp (RHS)
2011F
Source: Company data, Nomura research
We believe it is important to note that:
• Abraxane commanded a significant price premium: this was compared to standard
paclitaxel. This is seen in the following chart. Indeed the price increase paid for
Abraxane was 2,700% of the previous generic paclitaxel price, and 320% of the
previous branded paclitaxel price.
Fig. 70: Average price of versions of paclitaxel – US market 2002-2005A
6,000
(Ave. price
USD/dose)
Abraxane
released - price
increases
5,000
4,000
3,000
2,000
1,000
Branded
Paclitaxel
Paclitaxel
genericises - price
declines
0
2002
2003
2005
Source: Company data, Nomura research
• Insurers paid for a lower side-effect profile: in 2005, insurers reimbursed this price
because of the decreased side-effect profile and the potential for an enhanced
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mechanism of action of Abraxane over generic paclitaxel. We believe one of the major
implications of this is that HA-irinotecan may also be able to charge a significant price
premium should it demonstrate: 1) a decreased side-effect profile; and 2) an enhanced
mechanism of action (which HA-irinotecan has already demonstrated in Phase II trials).
Despite this level of pricing increase, Abraxane has built market share to close to 50% of
the paclitaxel market at present. This is seen in the following figure.
Fig. 71: Market share of Abraxane as a % of total paclitaxel market
100%
80%
60%
40%
20%
0%
2005A
2006A
2007A
2008A
2009A
Abraxane
Others
2010A
2011F
Source: Company data, Nomura research
Nomura viewpoint
Hence, we assume a significant level of price premium in developing of price assumption
for ACL’s HA-irinotecan, and we use IMS data for potential volume of prescriptions in the
US market.
In addition, we note chemotherapies are widely used in the treatment of cancer, in which
the goal of treatment is to reduce the size of a tumour so that it can be completely
removed by surgery or other means, through late-stage cancer treatment. The use of
chemotherapies is limited by severe adverse effects that, in turn, limit their efficacy. It
may be possible to expand the use of HA-irinotecan into indications for which irinotecan
is currently not being used by demonstrating that HA-irinotecan has favourable efficacy
and safety characteristics compared to the current standard of care. We have not
included this in our forecasts.
Comparable in irinotecan – Merrimack Pharmaceuticals
US-based, unlisted Merrimack Pharmaceuticals is developing a variant irinotecan.
Merrimack is a biopharmaceutical company discovering, developing and preparing to
commercialise medicines consisting of novel therapeutics paired with companion
diagnostics. Merrimack has four programs in clinical development, the most advanced of
which (MM-398) has enter a pivotal Phase III clinical trial in 1QCY12.
MM-398 is a nanotherapeutic encapsulation of the irinotecan molecule. Merrimack’s
nanotherapeutics consist of lipidic particles, which are enclosed spheres of lipid
membranes, and are designed to encapsulate active drug payloads. MM-398 achieved
its primary efficacy endpoints in Phase II clinical trials in pancreatic and gastric cancer. In
the recently completed open label, single arm Phase II clinical trial of MM-398 as a
monotherapy in 40 metastatic pancreatic cancer patients who had previously failed
treatment with gemcitabine, patients treated with MM-398 achieved median overall
survival of 22.4 weeks. Additionally, 20% of the patients in this Phase II trial survived for
more than one year, and a disease control rate was observed, meaning patients
exhibited stable disease or partial or complete response to treatment.
EU and Asian rights to MM-398 sold in 2011
In May 2011, Merrimack Pharmaceuticals, Inc. and the holders of the EU and Asian
rights to MM-398, unlisted PharmaEngine, announced the signing of an agreement
under which Merrimack acquired the rights to develop and commercialize MM-398 in
Europe and Asia. Under the terms of the agreement, Merrimack and PharmaEngine will
collaborate on the development of MM-398. PharmaEngine will receive an upfront
payment of USD10mn and is eligible to receive up to an additional USD210mn upon
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achievement of certain development, regulatory and sales milestones as well as tiered
royalties on sales of MM-398 in Europe and Asia. We believe this gives a useful
reference of what the size of EU and Asian markets for HA-irinotecan might be.
Valuing the opportunity
We have evaluated ACL’s HA-irinotecan opportunity. There are a number of variables in
this analysis. These include:
• Sales: We believe the market size of the global generic irinotecan market will be
USD64mn in 2014. Notwithstanding this, we forecast that ACL will be able to command
a significant price premium;
The risk-weighted NPV for
ACL’s HA-Irinotecan opportunity
is AUD0.33 per share
Fig. 72: Forecast sales for ACL’s HA-irinotecan
180
160
140
120
100
80
60
40
20
0
100
(%)
(USDmn)
80
60
40
20
0
(20
2012F 2014F 2016F 2018F 2020F 2022F 2024F 2026F 2028F 2030F 2032F 2034F
HA - Irinotecan revenue (LHS)
Growth (RHS)
Source: Nomura research
Number of injections: We assume that 16 treatments would be required to treat the
colorectal cancer in line with the HA-irinotecan Phase III clinical trial;
• Reimbursement: We assume a treatment cost per injection of USD2,000. ACL’s
closest comparable is Abraxane, which was reimbursed at USD4,000 per treatment
when it was released onto the market in 2005, so we believe our assumption is not
unreasonable. We assume this price will decline 5% per year;
• Timeline for getting to market: We assume the HA-irinotecan opportunity will get to
market in FY16 in the EU, and in FY15 in the US;
• Penetration rate: We forecast a FY16F penetration rate of 7.1% in the US. This
increases by 6.5% per annum for 10 years;
• Market share: We have assumed peak market share of 25% in US by 2018.
• Royalties: We believe ACL will license this product. As a result of this potential deal,
we believe that ACL will earn a royalty rate between 25-40% on net sales of the
product by its partner. We have used 30% in calculating our forecasts.
Fig. 73: HA-irinotecan valuation sensitivity: US market share and royalty assumptions
US peak market share (%)
Royalty (%)
$
0.54
15
20
25
30
35
40
45
15
0.20
0.27
0.34
0.40
0.47
0.54
0.61
25
0.27
0.36
0.45
0.54
0.63
0.71
0.80
35
0.33
0.43
0.54
0.65
0.76
0.87
0.98
45
0.38
0.50
0.63
0.75
0.88
1.00
1.13
55
0.42
0.57
0.71
0.85
0.99
1.13
1.27
Source: Nomura research
• Valuation of the opportunity: Hence, the risk-weighted NPV for ACL’s HA-irinotecan
opportunity is AUD0.33 per share. We have calculated the potential upside from a
successful HA-irinotecan trial. Our non-weighted valuation is AUD0.54 for the global
opportunity from HA-irinotecan sales. However, assuming greater market share in the
US and royalty gives upside to AUD1.27.
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Appendix 1: How does the US Pharmacy
system work?
This is a very complex subject. We focus on Pharmacy Benefit Managers (PBM) in this
section. The first PBMs were created by managed care organizations in the 1980s to
apply managed care principles, such as provider networks and patient co-pays, to the
drug benefit portion of health care plans. Through rapid growth in the 1990s, “PBMs
emerged as the national standard for the administration of prescription drug insurance in
the United States” as described by the Federal Trade Commission.
The three largest PBMs manage drug benefits for over 200mn Americans – 95% of
Americans with prescription drug coverage. Today’s PBMs manage all aspects of a
prescription drug benefit plan, including creating formularies of preferred medicines,
negotiating with drug manufacturers for discounts and rebates, negotiating with
pharmacies to establish retail networks for dispensing drugs, and establishing automated
processes for determining (often called “adjudicating”) coverage eligibility at the point of
sale. Each of the four largest PBMs operates its own mail order pharmacy to fill
prescriptions directly.
The three largest PBMs manage
drug benefits for over 200mn
Americans – 95% of Americans
with prescription drug coverage
Typically, a PBM has the following functions:
• Process pharmacy claims – when one goes to a retail pharmacy, the pharmacist
enters the prescription and electronically submits it for adjudication. The claim is routed
to the PBM, where it is checked for eligibility and then to see if it pays (and what
copayment one owes);
PBMs manage all aspects of a
prescription drug benefit plan
• Set up pharmacy benefits – based on the plan selected by employer or payer, the
PBM codes what drugs are covered and the copayment structure);
• Administer rebates – since large pharma companies pay rebates for having their
drugs on formulary (a preferred drug list), a PBM manages negotiations and billing of
this. As described by the Federal Trade Commission: ’Pharmaceutical manufacturers
recognize that having their drugs listed on the formulary or in a preferred spot on the
formulary (as compared to competing drug products) will likely increase the drug
products’ sales. . . . [P]harmaceutical manufacturers use “formulary payments” to obtain
formulary status, and/or they use “market share payments” to encourage PBMs to
dispense their drugs. Both payments are often specified as a percentage of the drug’s
wholesale price (e.g., a percentage level of 10% means the manufacturer will pay the
PBM 10% of a measure of the drug’s wholesale price multiplied by the quantity
dispensed). Most industry members refer to these payments as “rebates,” and they
refer to the percentage level as the “rebate level.”’;
• Set up clinical programs – most PBMs have a clinical committee which evaluates
new drugs and looks at market data to help employers choose coverage options;
• Establish a retail pharmacy network – work with retailers to get them to agree to
discounts on drugs;
• Communicate with patients and physicians – monitor pharmacy claims data and
help find ways to save money or identify clinical issues about which to inform the
patient or physician;
• Provide cross-pharmacy data for drug-drug interactions – since many people use
more than one pharmacy for claims;
• Mail order and often specialty pharmacy – the drugs are shipped to patients.
The PBM’s clients are
employers who are self-insured,
government entities
The PBM’s clients are employers who are self-insured, government entities (i.e., state
employees, DoD), unions, TPAs (third party administrators), and managed care
companies.
The US payer environment is seen in the following figure.
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Fig. 74: US payer environment – a typical managed care network
Purchaser
(private of public)
Medical
Benefits
Premium
Managed Care
Organisations
(MCO)
Pharmaceutical
Company
Rebates
Pharmacy
Benefits
Pharmacy
Discounted Reimbursement
Pharmacy
Benefit
Manager (PBM)
Retail
Pharmacy
Discounted
Reimbursement
Hospital
Mail Order
Pharmacy
Physician
Specialty
Pharmacy
Patient
Co-pay or Coinsurance
Source: Managed Care Pharmacy Practice, Nomura research
Pricing for drugs in the US
The US government and other payers generally establish their payment for prescription
drugs through formulas that start with a benchmark price, some of which are proprietary
and, therefore, not publicly available. Government programmes have tried to mimic the
action of the private market by obtaining price concessions outside the distribution chain.
Definitions
There are a number of definitions for pricing schedules for drugs in the US:
• Average Manufacturer Price (AMP) — AMP is the average price paid to
manufacturers by wholesalers (after discounts) for a particular dosage form and
strength of a prescription drug distributed solely to the retail pharmacy class of trade. It
excludes sales to institutional purchasers and others that would get low prices, but
does reflect certain financial concessions, including discounts available to drug
purchasers. The AMP is not a published price. It is calculated by the manufacturer and
submitted to CMS quarterly.
• Average Sales Price (ASP) — The ASP, which was statutorily defined in the Medicare
Modernisation Act (2002), is the weighted average of a manufacturer’s sales prices for
a drug (or biological) for all purchasers, net of certain pricing adjustments, such as
discounts and rebates. It excludes sales that are exempt from inclusion in the
determination of best price and sales at prices that are deemed nominal by the
Secretary. As set forth by the US Medicare Modernisation Act (MMA), the ASP is
reported quarterly by drug manufacturers to CMS for certain outpatient drugs. The
federal government has the authority to audit these calculations submitted to CMS and,
in cases where a misrepresentation is found, civil monetary penalties may apply.
The ASP, which was statutorily
defined in the Medicare
Modernisation Act (2002), is the
weighted average of a
manufacturer’s sales prices for a
drug (or biological) for all
purchasers
• Average Wholesale Price (AWP) — AWP is the average list price that a manufacturer
suggests wholesalers charge pharmacies. This published price is purchased by
government entities, private insurance companies, and other purchasers and often
serves as the basis for prescription drug reimbursement. The AWP has often been
equated with a “sticker price” or “list price.”
• Best Price — This is the lowest price available from the manufacturer to any
purchaser, with some exceptions. The best price must reflect certain financial
concessions, such as discounts, that are available to drug purchasers. Prices charged
to certain governmental purchasers are not considered in the determination of the best
price.
• Estimated Acquisition Cost (EAC) — The EAC is a state’s best estimate of the price
generally paid by pharmacies. Most states use a drug’s AWP to calculate the drug’s
EAC.
Best price is the lowest price
available from the manufacturer
to any purchaser, with some
exceptions
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• Federal Ceiling Price (FCP) — The FCP is the maximum price that manufacturers can
charge VA, DOD, PHS, and Coast Guard for brand-name drugs.
• Federal Supply Schedule (FSS) — The FSS price, which is negotiated by the
Department of Veterans Affairs (VA), is the price available to direct federal purchasers
of prescription drugs, including the VA, the Department of Defence, and the Public
Health Service, among others. The FSS price is equal to or lower than the price given
to any of the drug manufacturers’ non-federal purchasers. Manufacturers must make
their brand-name drugs available at the FSS price in order to receive reimbursements
for drugs covered by Medicaid. The FSS prices are publicly available.
• Federal Upper Limit (FUL) — The FUL is the federal payment ceiling under Medicaid
that applies to drugs with three or more generic versions. The FUL is set at 150% of the
published price (in any of the published compendia of cost information for drugs) for the
least costly therapeutic equivalent that can be purchased by pharmacists in quantities
of 100 tablets or capsules.
• Maximum Allowable Cost (MAC) — State MAC programmes are prescription drug
cost management programmes that enable states to establish maximum
reimbursement amounts that they will pay for selected generic and multiple source
drugs. State MAC lists typically include more drugs than the FUL list and must have
payment limits that are no higher than the federal list. Private third-party payers, such
as PBMs, may also establish their own MACs.
• Retail Price — The retail price, or usual and customary price, is charged by retail
pharmacies to individuals without insurance, known as “cashpaying” customers.
• Wholesale Acquisition Cost (WAC) — The WAC is the manufacturer’s list price
charged to wholesalers or direct purchasers, not including prompt pay or other
discounts, rebates, or reductions in price, as reported in wholesale price guides or other
drug pricing publications.
Fig. 75: Illustration of relative drug prices used by select US government payers
FCP
$
FSS
Best Price
ASP
Increasing drug prices
AMP
AWP
$$$
Source: US Government Accountability Office, Nomura research
Explanation of drug pricing terms
One of the most widely used benchmark prices is the average wholesale price, or AWP.
Although not defined in law or regulation, AWP is intended to represent the average
price at which wholesalers sell drugs. AWP is based on information provided by drug
manufacturers, distributors, and other suppliers and sold by commercial publishers of
drug pricing data. It is not a price that is paid, nor is it an average of any set of prices.
Prescription drug payments by Medicaid are based on formulas established by each
state’s Medicaid programme. Most formulas start with AWP and then reduce it by a
certain percentage, typically in the range of 5-16% for brand-name drugs. Many states
vary their formulas, depending on whether the drug is generic or brand name. The
discount below AWP in state reimbursement formulas is intended to account for the fact
that the actual cost to pharmacies to acquire a drug may be well below this published
benchmark.
One of the most widely used
benchmark prices is the average
wholesale price, or AWP.
Although not defined in law or
regulation, AWP is intended to
represent the average price at
which wholesalers sell drugs
Although states develop their own reimbursement formulas, the federal government
contributes financially to state Medicaid programmes and thus exerts some control over
payment formulas by limiting the payment amounts it will match for specific drugs. These
“ceilings” differ for brand name and generic drugs. The maximum amount that the federal
government will match for brand-name drugs, or drugs with fewer than three generic
versions, is the lesser of two figures: a drug’s estimated acquisition cost (EAC), which is
a state’s best estimate of the price generally paid by pharmacies for the drug (often
based on AWP minus a certain percentage), or the pharmacy’s usual and customary
charge to the general public. The ceiling amount is usually the EAC. For drugs with at
least three therapeutically equivalent generic versions, the federal ceiling is known as the
federal upper limit (FUL), which is established and periodically revised by CMS. The FUL
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is intended to enable the federal government to realize savings from prices that are
driven by competition in the market. The FUL is set at 150% of the price listed in any of
the published compendia of drug cost information for the least costly therapeutically
equivalent drug that can be purchased by pharmacies.
Most states also have payment limits, known as maximum allowable cost limits (MACs)
that may control the price they will pay. States may use their MACs instead of the FUL,
provided they are not higher than the federal limit. States may also apply MACs to drugs
not subject to the federal limit. Approximately 40 states have developed MAC
programmes.
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Appendix 2: the regulatory approval
process in the US
What is marketing authorisation?
To market a drug or biological product in the United States, a prospective manufacturer
must provide adequate information to the FDA demonstrating that the product is safe
and effective for the conditions prescribed, recommended or suggested in the proposed
labelling for the product. This is known as a marketing authorisation. A marketing
authorisation document generally includes the results of:
• New drug application (ANDAs), abbreviated
• New drug applications (NDAs), or
• Biological license applications (BLAs)
NDAs
The New Drug Application (NDA) is the vehicle in the United States through which drug
sponsors formally propose that the FDA approve a new pharmaceutical for sale and
marketing. The goals of the NDA are to provide enough information to permit FDA
reviewers to establish the following:
• Is the drug safe and effective in its proposed use(s) when used as directed, and do the
benefits of the drug outweigh the risks?
• Is the drug’s proposed labelling (package insert) appropriate, and what should it
contain?
• Are the methods used in manufacturing (Good Manufacturing Practice, GMP) the drug
and the controls used to maintain the drug’s quality adequate to preserve the drug’s
identity, strength, quality, and purity?
• Comprehensive data to assess risk-benefit balance
• In general, randomized active and placebo-controlled trials required
• Phase IV: “Follow-up” studies of (dose-response), therapeutic use
Hence, the NDA will include evidence from clinical trials as well as evidence that the
drug can be manufactured and marketed safely. The legal requirement for approval is
"substantial" evidence of efficacy demonstrated through controlled clinical trials. Data for
the submission must come from rigorous clinical trials.
The trials are typically conducted in three phases:
• Phase 1: The drug is tested in a few healthy volunteers to determine if it is acutely
toxic.
The New Drug Application
(NDA) is the vehicle in the
United States through which
drug sponsors formally propose
that the FDA approve a new
pharmaceutical for sale and
marketing
• Phase 2: Various doses of the drug are tried to determine how much to give to patients.
• Phase 3: The drug is typically tested in double-blind, placebo controlled trials to
demonstrate that it works. Sponsors typically confer with FDA prior to starting these
trials to determine what data is needed, since these trials often involve hundreds of
patients and are very expensive.
• Phase 4: These are post-approval trials that are sometimes a condition attached by the
FDA to the approval.
The legal requirements for safety and efficacy have been interpreted as requiring
scientific evidence that the benefits of a drug outweigh the risks and that adequate
instructions exist for use.
An NDA is reviewed by a multidisciplinary team of physicians, statisticians, chemists,
pharmacologist/toxicologists, clinical pharmacologists, and microbiologists. The FDA has
six months to take an action on a priority application and 10 months for a standard
application. Most applications are either discussed with an FDA consultant or at a
meeting of the Oncologic Drugs Advisory Committee (ODAC).
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Common reasons for rejection of a NDA
This includes:
• Negative trials;
• Claims based on exploratory subgroup analysis;
• Non-inferiority (switch) but control arm not-established;
• A posteriori defined non-inferiority margins
• Marginal activity, safety issues;
• Lack of randomized control trial (RCT) – this is the most common reason for rejection;
and
• No dramatic activity
An open-label trial or open trial is a type of clinical trial in which both the researchers and
participants know which treatment is being administered. This contrasts with single-blind
and double-blind experimental designs, where participants are not aware of what
treatment they are receiving (researchers are also unaware in a double-blind trial).
Open-label trials may be appropriate for comparing two very similar treatments to
determine which is most effective.
Although prospective definition of response criteria is critical in any clinical trial,
independent confirmation of response by an expert review panel is perhaps more
important in the open-label, nonrandomized studies that frequently form the basis of New
Drug Applications.
An open-label trial or open trial
is a type of clinical trial in which
both the researchers and
participants know which
treatment is being administered
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Appendix A-1
Analyst Certification
We, Zara Lyons and David Stanton, hereby certify (1) that the views expressed in this Research report accurately reflect our
personal views about any or all of the subject securities or issuers referred to in this Research report, (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this
Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by
Nomura Securities International, Inc., Nomura International plc or any other Nomura Group company.
Issuer Specific Regulatory Disclosures
The term "Nomura Group Company" used herein refers to Nomura Holdings, Inc. or any affiliate or subsidiary of Nomura Holdings, Inc. Nomura
Group Companies involved in the production of Research are detailed in the disclaimer below.
Issuer name
Alchemia
Ticker
ACL AU
Price
AUD 0.52
Price date
29-Mar-2012
Stock rating
Buy
Sector rating
Not rated
Disclosures
Previous Rating
Issuer name
Alchemia
Alchemia (ACL AU)
Previous Rating
Not rated
Date of change
30-Mar-2012
AUD 0.52 (29-Mar-2012) Buy (Sector rating: Not rated)
Chart Not Available
Valuation Methodology Our AUD0.77 TP is based on the risk-weighted valuation of the company’s product opportunities. We
have valued the generic fondaparinux opportunity in line with our forecasts for the growth of the fondaparinux market in the US
market, as well as potential entry into other developed markets. In addition, we have valued other opportunities for ACL, namely
HA-Irinotecan.
Risks that may impede the achievement of the target price For ACL’s leading product, generic fondaparinux, there is still
uncertainty around the potential level of growth in most of its prospective markets. ACL’s rate of earnings growth is dependent
on the sales and marketing support provided by its partner Dr Reddy’s Laboratories. Should ACL enter further clinical trials in
new methods of drug delivery, we note that early results give no real enough indication of a product’s true viability, and full
foresight on future market conditions is difficult to obtain. For irinotecan, there is still a good deal of uncertainty around the
viability of ACL’s HA-iriontecan in most of its prospective markets. Early clinical trials, although positive, give no real enough
indication of a product’s true viability and full foresight on future market conditions is difficult to obtain. To date, all preclinical and
Phase II trials have shown indications for product viability. As it stands, there have been no significant adverse effects or health
issues and Phase II trials indicate a product with the potential for market viability. Therefore, we believe this is an investment
opportunity for investors with a higher risk appetite.
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Important Disclosures
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Distribution of ratings (US)
The distribution of all ratings published by Nomura US Equity Research is as follows:
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6% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 0% of companies with this
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As at 31 December 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Distribution of ratings (Global)
The distribution of all ratings published by Nomura Global Equity Research is as follows:
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43% have been assigned a Neutral rating which, for purposes of mandatory disclosures, is classified as a Hold rating; 45% of companies with
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10% have been assigned a Reduce rating which, for purposes of mandatory disclosures, are classified as a Sell rating; 21% of companies with
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As at 31 December 2011. *The Nomura Group as defined in the Disclaimer section at the end of this report.
Explanation of Nomura's equity research rating system in Europe, Middle East and Africa, US and Latin America
The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock.
Analysts may also indicate absolute upside to target price defined as (fair value - current price)/current price, subject to limited management
discretion. In most cases, the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate
valuation methodology such as discounted cash flow or multiple analysis, etc.
STOCKS
A rating of 'Buy', indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of 'Neutral',
indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of 'Reduce', indicates that
the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of 'Suspended', indicates that the rating, target
price and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances
including, but not limited to, when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company.
Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks
(accessible through the left hand side of the Nomura Disclosure web page: http://go.nomuranow.com/research/globalresearchportal);Global
Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia, unless otherwise stated in the valuation methodology.
SECTORS
A 'Bullish' stance, indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months. A 'Neutral' stance,
indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. A 'Bearish' stance, indicates that
the analyst expects the sector to underperform the Benchmark during the next 12 months.
Benchmarks are as follows: United States: S&P 500; Europe: Dow Jones STOXX 600; Global Emerging Markets (ex-Asia): MSCI Emerging
Markets ex-Asia.
Explanation of Nomura's equity research rating system in Japan and Asia ex-Japan
STOCKS
Stock recommendations are based on absolute valuation upside (downside), which is defined as (Target Price - Current Price) / Current Price,
subject to limited management discretion. In most cases, the Target Price will equal the analyst's 12-month intrinsic valuation of the stock,
based on an appropriate valuation methodology such as discounted cash flow, multiple analysis, etc.
A 'Buy' recommendation indicates that potential upside is 15% or more. A 'Neutral' recommendation indicates that potential upside is less than
15% or downside is less than 5%. A 'Reduce' recommendation indicates that potential downside is 5% or more. A rating of 'Suspended'
indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain
circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company.
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Securities and/or companies that are labelled as 'Not rated' or shown as 'No rating' are not in regular research coverage of the Nomura entity
identified in the top banner. Investors should not expect continuing or additional information from Nomura relating to such securities and/or
companies.
SECTORS
A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive
absolute recommendation. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks
under coverage is) a neutral absolute recommendation. A 'Bearish' rating means most stocks in the sector have (or the weighted average
recommendation of the stocks under coverage is) a negative absolute recommendation.
Target Price
A Target Price, if discussed, reflect in part the analyst's estimates for the company's earnings. The achievement of any target price may be
impeded by general market and macroeconomic trends, and by other risks related to the company or the market, and may not occur if the
company's earnings differ from estimates.
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