Cowen Therapeutic Outlook March 2009

Therapeutic Categories Outlook
March 2009
Comprehensive Study
Conclusion: The $600B worldwide pharmaceutical industry is positioned to deliver low-single-digit growth supported by promising R&D pipelines. This comprehensive study forecasts trends in the major therapeutic drug categories through 2013. Each category is defined by therapeutic need, market size, growth outlook, major new compounds in development, and an assessment of individual company prospects. The companies predicted to lead in Market Share, Market Share Gain, Market Share Loss, Total Therapeutic Positions, and Leading Therapeutic Positions are detailed below.
Analysts
Cowen Pharmaceutical Research Team (617) 946-3700
Cowen Biotech Research Team (646) 562-1000
Cowen Med Tech Research Team (646) 562-1000
Please see addendum of this report for important disclosures.

www.cowen.com
Which Companies Will Lead Industry Through 2013?

Market Share Roche GlaxosmithKline Pfizer Sanofi-Aventis Market Share Gain Roche GlaxoSmithKline Amgen Abbott Genentech Market Share Loss Pfizer AstraZeneca Sanofi-Aventis Bristol-Myers Squibb Novartis Total Therapeutic Positions Novartis (12) Pfizer (11) Merck (9) Three companies tied with 8 each Leading Therapeutic Positions Eli Lilly (3) GlaxoSmithKline (3) Pfizer (3) Wyeth (3)
GLOBAL PHARMACEUTICAL INDUSTRY VALUATION PERSPECTIVE

Ticker LARGE CAP - US Abbott Laboratories AstraZeneca Amgen Bristol-Myers Squibb Eli Lilly Genentech GlaxoSmithKline Johnson & Johnson Merck Novartis Pfizer Schering-Plough Wyeth ABT AZN AMGN BMY LLY DNA GSK JNJ MRK NVS PFE SGP WYE 03/09/09 Rating Price close 1 $47 1 $31 1 48 2 20 2 30 1 92 2 28 1 48 2 22 1 35 2 13 2 21 2 42 2009E $3.71 5.15 4.70 1.90 4.15 3.80 3.34 4.83 3.25 3.85 1.90 1.80 3.75 2010E $4.17 5.15 5.10 2.20 4.40 4.35 3.34 5.33 3.30 4.35 2.00 1.70 3.50 P/E Ratios Relative Absolute 2009 2010 2009 2010 12.7 6.1 10.3 10.6 7.2 24.1 8.4 9.9 6.8 9.0 6.9 11.7 11.1 11.3 6.1 9.5 9.2 6.8 21.0 8.4 9.0 6.7 8.0 6.5 12.4 11.9 108% 52% 88% 91% 61% 205% 72% 84% 58% 77% 59% 100% 94% 122% 66% 102% 99% 73% 227% 91% 97% 73% 86% 71% 134% 128% 2008-13 CAGR +11% (1%) +9% (2%) +4% +11% +11% +6% +2% +2% (7%) +6% +6%
Pharmaceutical Sales Could Expand 3% Annually During 2008-13

Analysis of over 1,000 products from the product lines and pipelines of over 65 big-and mid-cap companies in the pharmaceutical and biotechnology industries suggests that drug sales from this group totaled $615B in 2008. We project that this universe will generate drug sales of $718B in 2013, implying 3% compound growth. Pfizer, Sanofi-Aventis, AstraZeneca and Roche dominated the worldwide market in 2008; Roche, GlaxoSmithKline, Pfizer and Sanofi-Aventis should be the leaders in 2013. Our analysis of therapeutic categories concludes that oncology/hematology, antibiotics/antivirals and cardiovascular should dominate the worldwide market through 2013.
Pharmaceutical Companies: Drug Sales As A Percentage Of The Total Market

2008
Other 43.2% ABT 2.7% BMY 2.9% WYE 2.9% LLY 3.1% JNJ 4.0% MRK 4.3% GSK 4.7% RHHBY 4.9% DNA$615B AMGN PFE SGP 2.4% 1.7% 6.8% 2.7% Other 43.8% BMY SGP 2.3% 2.7% AMGN 2.8% WYE 3.0% AZN 5.1% ABT 3.0% LLY 3.2% JNJ 3.7% MRK 4.0% AZN 4.1% PFE 4.9%
DNA 2.0%
2013P $718B
RHHBY 6.4%
SNY 5.6%
GSK 5.3%
SNY 4.8% NVS 4.1%
NVS 4.6%
Therapeutic Categories: Drug Sales As A Percentage Of The Total Market

2008
Other: 7.6% Osteoporosis 2.1% Dermatology 1.7% Cardiology 19.1% Other: 13.2% Cancer/Onc./Hem. 20.3% GI/Ulcer 2.2% Osteoporosis 2.6% Multiple Sclerosis 3.5% CNS 6.3%
2013P
Multiple Sclerosis 2.4% Epilepsy 3.0% Gastrointestinal/Ulcer 3.4%
Diabetes 5.5%
Arthritis/Inflammation 6.2%
Cancer/Onc./Hem. 17.5%
Antibiotics/Antivirals 16.2%
Respiratory 6.7% Respiratory 6.8%
Diabetes 8.3% CNS 10.3% Antibiotics/Antivirals 14.2% Arthritis/Inflammation 9.0%
Cardiology 11.7%
Table Of Contents
Alzheimers Disease ............................................................................45 Arthritis/Inflammation .......................................................................91 Bone Diseases ....................................................................................145 Cardiology ..........................................................................................193
Central Nervous System ...................................................................349 Dermatology ......................................................................................455 Diabetes..............................................................................................483 Epilepsy ..............................................................................................537 Gastrointestinal/Ulcer ......................................................................553 Infectious Disease .............................................................................591 Multiple Sclerosis ..............................................................................747 Obesity ...............................................................................................781 Oncology/Hematology ......................................................................815 Ophthalmology ..................................................................................965 Orphan Diseases .............................................................................1011 Pain Management ............................................................................1061
Respiratory.......................................................................................1117 Sleep Disorders................................................................................1189 Urinary Incontinence .......................................................................1219
THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Alzheimer's Disease Antibiotics/Antivirals 2008 2013P 2008 2013P $0 $0 $2,491 $2,273 0 0 0 0 0 0 830 0 0 541 0 815 0 10 0 0 0 0 1,959 $4,155 0 200 0 0 600 0 1,260 0 0 559 350 700 0 1,175 0 0 0 1,140 1,475 $7,459 0 2,281 0 3,796 360 0 45 0 10,394 2,109 5,639 2,047 0 3,974 2,756 3,620 3,027 4,506 6,045 $53,090 0 2,900 0 4,910 250 0 150 0 11,878 4,165 8,355 3,755 0 5,335 2,602 4,625 2,290 5,616 11,710 $70,814 Arthritis 2008 2013P $4,522 $8,590 3,598 0 0 441 0 0 0 0 0 3,748 377 837 0 3,096 0 0 2,118 2,606 1,691 $23,034 4,500 200 0 1,600 230 0 0 0 715 4,822 490 960 0 4,825 2,150 0 2,800 4,230 3,267 $39,379 Cardiology 2008 2013P $2,586 $3,685 0 6,963 0 7,633 301 0 249 0 1,882 90 6,930 8,140 0 17,076 271 8,901 2,802 1 7,533 $71,356 0 9,370 0 2,345 1,205 0 426 0 2,108 946 3,498 4,415 0 2,940 217 7,903 3,188 4 8,976 $51,225 CNS 2008 2013P $787 $476 0 5,232 0 2,315 8,227 0 2,342 0 2,803 5,020 793 1,346 0 3,349 0 0 508 4,159 1,778 $38,658 0 2,080 0 1,320 3,765 0 647 0 2,630 4,138 2,400 1,555 0 2,390 0 315 1,505 1,195 3,194 $27,610 Dermatology 2008 2013P $424 $1,472 0 0 43 0 0 0 0 70 0 278 0 152 0 0 0 275 376 1,160 3,668 $6,446 0 0 45 0 0 0 0 50 0 790 0 250 0 0 0 295 352 1,580 4,127 $8,961

Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Diabetes/Metabolic 2008 2013P $628 $443 0 0 0 99 3,419 0 0 0 1,363 0 1,749 43 5,637 310 0 3,776 0 0 3,497 $20,522 0 0 0 1,220 5,980 0 30 0 1,008 0 4,400 140 9,596 385 1,959 7,001 0 200 3,679 $36,040 Epilepsy 2008 2013P $1,364 $125 0 0 0 0 0 0 0 0 1,323 2,731 0 783 0 3,010 0 414 0 0 1,695 $11,321 0 0 0 0 0 0 0 0 393 466 0 500 0 4,375 0 452 0 0 1,545 $7,856 G.I./Ulcer Multiple Sclerosis 2008 2013P 2008 2013P $56 $0 $0 $0 0 6,344 0 0 10 0 0 0 217 1,158 5 10 0 0 0 0 0 889 4,089 $12,778 0 3,990 0 0 5 0 200 0 71 514 5 10 0 200 0 0 0 305 4,449 $9,750 0 0 2,625 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,156 $8,781 0 0 3,926 0 100 0 0 0 143 0 0 690 0 0 0 63 0 0 10,240 $15,162 Obesity 2008 2013P $193 $85 0 0 0 0 0 0 0 0 0 0 0 0 0 0 424 91 0 0 0 $707 0 0 0 0 0 0 0 0 0 0 0 0 0 200 285 0 0 0 350 $920

Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Onc./Hematology 2008 2013P $646 $793 11,089 4,994 5 1,819 2,875 0 0 8,160 709 3,426 339 8,211 0 2,551 9,730 4,387 1,369 1,124 4,116 $65,550 14,125 3,900 0 3,610 3,650 0 0 11,175 2,694 3,126 975 9,200 0 4,025 15,593 2,722 1,415 2,565 9,017 $88,584 Orphan Disease Ophthalmology 2008 2013P 2008 2013P $0 $0 $0 $0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 3,204 $3,204 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 6,241 $6,241 0 0 0 0 0 0 0 887 0 0 903 886 0 1,775 0 0 0 0 1,905 $6,356 0 0 0 0 0 0 0 1,290 0 0 570 1,350 0 1,360 0 0 0 0 2,850 $7,420 Osteoporosis Pain Management 2008 2013P 2008 2013P $0 $0 $0 $260 0 0 0 0 1,855 0 0 0 339 0 1,553 254 0 0 1,043 416 0 1,070 1,291 $7,820 1,400 0 0 0 2,700 0 0 0 1,143 0 600 650 0 525 819 412 0 1,865 1,030 $11,144 0 0 0 0 0 1,250 0 0 0 1,128 0 0 0 0 0 0 0 0 3,298 $5,676 0 100 0 0 200 1,685 0 0 0 1,186 0 0 0 400 0 0 0 0 5,255 $9,086 Respiratory 2008 2013P $105 $275 0 4,128 0 0 0 0 19 517 8,313 0 4,337 789 0 1,730 184 1,296 2,937 0 891 $25,247 0 4,940 0 0 200 0 160 775 12,384 0 1,200 1,740 0 2,595 263 796 3,205 200 520 $29,253

Abbott Amgen AstraZeneca Biogen Idec Bristol-Myers Squibb Eli Lilly Endo Forest Labs Genentech GlaxoSmithKline J&J Merck Novartis Novo Nordisk Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Other Total Sleep Disorders 2008 2013P $0 $0 0 0 0 0 0 0 0 0 14 0 0 0 0 0 0 1,044 0 0 980 $2,038 0 0 0 0 200 0 0 0 486 0 200 0 0 200 0 806 100 0 1,240 $3,232 Transplant Urinary Incont. 2008 2013P 2008 2013P $0 $0 $0 $0 0 0 0 0 0 0 0 0 0 0 0 956 0 0 1,737 0 0 376 1,553 $4,622 0 0 0 125 0 0 0 0 0 0 0 925 0 0 390 0 0 500 1,220 $3,160 0 0 0 0 25 0 0 0 101 43 0 201 0 1,239 0 0 0 0 713 $2,323 0 0 0 0 50 0 0 0 257 19 0 220 0 1,300 0 0 0 0 1,274 $3,120 Other 2008 2013P 2,907 3,587 0 1,659 1,425 1,581 2,115 0 18 897 1,668 4,396 3,541 2,620 2,061 3,803 14,201 10,493 3,432 1,887 189,112 $247,816 0 1,685 1,659 1,710 3,560 325 137 1,110 2,271 5,850 5,385 2,410 2,798 3,055 22,656 7,879 4,533 2,015 209,075 $281,700 Total Sales 2008 2013P $16,709 $21,894 14,687 31,601 4,098 17,684 19,187 1,250 3,502 10,531 29,128 24,668 26,166 28,090 7,699 41,923 30,346 34,711 16,569 17,778 238,765 $615,090 20,025 29,365 5,630 16,840 22,695 2,010 2,950 14,400 38,195 26,581 28,428 29,470 12,394 34,885 46,363 34,312 19,388 21,415 291,015 $718,253
Major Trends & Issues In Therapeutic Categories Through 2013

Alzheimers Disease
Acetylcholinesterase inhibitors are expected to remain the mainstay treatment option in the AD market for the next few years, despite limited effectiveness. Research in neurotransmitter-mediated treatments for AD, such as acetylcholinesterase inhibition and glutamate receptor blockade (Forests Namenda), is not expected to advance much beyond current knowledge. Next-generation drugs are focused on the underlying disease mechanisms, most notably immunotherapeutic approaches (monoclonal antibodies and vaccines targeted against beta-amyloid), gamma- and beta-secretase inhibition, beta-amyloid aggregation inhibition, tau aggregation inhibition, and microtubule stabilization. Wyeth/Elan, Elan/Transition Therapeutics, Eli Lilly, Pfizer, Prana, Novartis, Merck, Bristol-Myers Squibb, TauRx, and Allon have clinical programs targeting these mechanisms. Research on PPAR gamma agonists (led by studies of GlaxoSmithKlines Avandia) indicates that they may have some utility in AD. The AD therapeutic market could develop similarly to that of cardiovascular therapy, with prevention encompassing diagnostic monitoring of plasma beta-amyloid levels and prophylactic drug therapy, and treatment involving a cocktail of agents targeting different mechanisms. Our scatter plot shows that, through 2013, Wyeth/Elan should dominate this category, and Alzheimers drug sales will be a very important component of Forests, Wyeth/Elans and Pfizers growth.
Alzheimer's Disease
70% FRX % Of Company 2008-13 Sales Growth From Category 60%
50%
40%
30%
WYE/ELN
20%
LLY
PFE/EISAI PFE/MDVN
PFE
10%
AZN JNJ
NVS
0%
-10% $0.0 $0.2 $0.4 $0.6 $0.8 $1.0 $1.2 $1.4 2013 Sales Contributed By Company To Category ($ In B)
Arthritis/Inflammation
We anticipate steady growth for Amgen/Wyeths Enbrel and Abbotts Humira. These biologics are well entrenched in RA and do not appear to face significant near-term threats from new modalities. Bristol-Myers Squibbs Orencia, Biogen Idec/Genentech/Roches Rituxan, and Roches Actemra target RA patients refractory to anti-TNFs, a modest population estimated to be 10-15% of anti-TNF failures. Several new oral small molecule agents are in development (JAK2, JAK3, MEK, and SYK inhibitors; IL12 inhibitor; amd Adenosine A3 antagonist) and are viewed as interesting but early. The commercial opportunity for the Cox-2 inhibitor class has been substantially reduced post: (1) Mercks APPROVe (Vioxx), Pfizers APC (Celebrex), and pain studies in CABG patients (Bextra) that revealed cardiovascular safety signals, resulting in market removal of Vioxx and Bextra; (2) a black box warning for NSAIDs in the U.S. and Cox-2 selective drugs in the E.U.; and (3) a contraindication against use in high cardiovascular risk patients in the U.S. and EU. Celebrex now holds a monopoly position for Cox-2 selective drugs in the U.S. There are several late-stage agents in development for OA, some of which treat pain with potentially less AEs while others could have a disease modifying effect. In February, Takedas Uloric (febuxostat) was FDA approved for the treatment of hyperuricemia in gout patients. Meanwhile, pivtoal data from Savients pegloticase demonstrated profound efficacy in advanced, refractory gout patients but safety concerns such as infusion reactions, immunogenicity, and APTC and non-APTC cardiovascular events will need to be addressed by the FDA. SVNTs BLA has a PDUFA date of August 1, 2009. There are currently four drugs in Phase III development for SLE (renal or non renal disease). Consultants are not optimistic about Genentech/Biogen Idecs Rituxan or Bristol-Myer Squibbs Orencia in lupus nephritis or Zymogenetics/Merck Seronos atacicept in generalized lupus. GSK/Human Genome Sciences LymphoStat-B has a 50% chance of success based on its novel mechanism of action, composite primary endpoint, and open-label extension data. Our scatter plot shows that, through 2013, Abbott, JNJ, Amgen/Wyeth and Schering-Plough should lead the category.
80% % Of Company 2008-13 Sales Growth From Category ABT
60% JNJ WYE
40%
NVS 20% RHHBY 0% MRK
SGP AMGN
-20% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Contributed By Company To Category ($ In B)
Bone Diseases
Generic alendronate should continue to dominate the oral bisphosphonate market. Novartiss Reclast received approval in 2007 for the treatment of osteoporosis and is uniquely positioned with onceyearly intravenous dosing and is the only bisphosphonate to demonstrate a benefit on mortality, although this is likely a class effect. The overall market for bisphosphonates peaked at nearly $6B in 2007 but is expected to decline to less than $4B in 2013. SERM sales ($1.2B in 2008) are expected to grow given features differentiated from estrogens and potential in breast cancer prevention. Evista has no data supporting a reduction in non-vertebral fractures but its label for breast cancer prevention provides mild upside. Should Wyeths Viviant or Pfizers Fablyn be approved, the market will become more competitive. GTxs toremifene met its Phase III primary and secondary endpoints for the treatment of osteoporsis and other side effects in men receiving androgen deprivation therapy (ADT) for prostate cancer. However, side effects (e.g. QT prolongation, DVTs) associated with toremifene are likely to cause regulatory and commercial hurdles. Amgens denosumab (RANK ligand antibody) has been shown to be efficacious and safe in numerous Phase III osteoporosis trials including the pivotal FREEDOM study. Most consultants plan on using denosumab as the preferred second-line therapy after generic Fosamax. Mercks cathepsin-k inhibitor, MK-0822, which is in Phase III, should provide a novel mechanism but its impact on BMD is modest and skin toxicity raises concern. Our scatter plot (below) shows that, through 2013, Eli Lilly, Roche and Wyeth should dominate the osteoporosis/HRT segment.
Osteoporosis/HRT
90% % Of Company 2008-13 Sales Growth From Category NVS
70%
50%
30% WYE 10% SNY -10% RHHBY LLY
-30% MRK -50% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 2013 Sales Contributed By Company To Category ($ In B)
10
Cardiology
Cholesterol
The cholesterol market could decrease by 3% annually, with patent expirations offsetting boosts by revisions to U.S. guidelines and outcomes trials (IDEAL, TNT, REVERSAL, PROVE-IT, ASCOT-LLC, HPS) supporting aggressive LDL lowering in broader populations. HMG-CoA reductase inhibitors (statins) appear unchallengeable in cholesterol reduction for the foreseeable future. Additional outcomes trials (SEARCH, JUPITER) likely will support more aggressive lipid lowering goals in a broader range of patients. Lipitor should remain the top statin but the availability of generic simvastatin has resulted in increased therapeutic substitution and declining brand share. Merck/Schering-Ploughs Vytorin/Zetia have had sales clipped post the ENHANCE and SEAS data as new prescriptions are reserved for second-line therapy; this dynamic may not change until IMPROVE-IT reports in 2011+. AstraZenecas Crestor has gained momentum. Schering-Plough/Mercks Zetia has settled into a niche, albeit a sizable one. Sanofi-Aventis (AVE 5530) works by a similar mechanism but results have been sub-par. Interest persists in drugs that raise HDL cholesterol or alter the course of atherosclerosis despite the setback of Pfizers CETP inhibitor, torcetrapib. AstraZeneca/Abbotts Crestor/ABT-355 holds promise, but Pfizer recently stopped development of its HDL mimetics. Mercks Cordaptive (extended release niaspan + flushing inhibitor) was given a not approvable letter. Torcetrapib is dead but other CETP inhibitors from Merck, AstraZeneca, and Roche are moving forward slowly. GlaxoSmithKlines darapladibdarapladib (LpPLA2 inhibitor in Phase III) targets a novel marker of inflammation, but data have been mixed. The potential resurgence of the MTP inhibitors (Surface Logix) remains a wild card for triglyceride reduction but liver toxicity is an obstacle.
Hypertension
Angiotensin receptor blockers, or ARBs (Abbott, AstraZeneca/Takeda, Boehringer-Ingelheim/Astellas, Bristol-Myers Squibb, Merck, Novartis, Forest/Sankyo, King/Solvay), have become the most prescribed antihypertensive class, although sales will be clipped by Cozaar (MRK) generics in 2010. Novartis Diovan should maintain its leadership until it comes off patent in 2012 together with Avapro and Atacand/HCT. Novartis Exforge, a single-pill valsartan/amlodipine combination, is viewed as a Diovan franchise extension. Forest/Sankyos Benicar likely is the ARB with the most upside potential due, in part, to its low cost. ACE inhibitor sales are declining due to generics and competition from ARBs. Earlier than expected loss of the Altace (King) and Lotrel (benazapril/amlodipine; Novartis) patents has accelerated this decline. Calcium channel blockers (Sanofi-Aventis, Forest, Pfizer), which are also used in angina, will continue to decline due to generics. Medicines Companys intravenous Cleviprex (approved 09/08) will be a minor contributor to the class. Forests Nebivilol, a third-generation beta-blocker, has demonstrated interesting preclinical advantages over earlier-generation beta-blockers. Until these findings can be produced in clinical trials, its uptake will be challenged by generic Coreg and Toprol. Novartis Tekturna, a first-in-class direct renin inhibitor, provides physicians with the next advance in the treatment of hypertension and heart failure, but uptake has been slow as physicians await outcomes data. Merck/Actelion also have renin inhibition programs but Pfizer dropped its effort. Novartis plans a 2010 filing for a Diovan/NEP blocker fixed-dose combination, LCZ696.
11
Angina
CV Therapeutics Ranexa, a late sodium channel inhibitor, is the first new treatment approved for angina in over 10 years. However, its chronic refractory angina indication targets a modest market opportunity and the rollout has been lackluster. Despite missing in MERLIN, Ranexa has garnered additional indications, including HbA1c lowering and anti-arrhythmia.
Antiplatelets and Antithrombotics

Bristol-Myers Squibb/Sanofi-Aventis Plavix U.S. sales will decline beginning in 2011 due to the patent expiration; European non-AB rated generics are rolling out. Eli Lilly/Sankyos Effient (prasugrel) demonstrated a favorable risk-benefit profile in the majority of patients undergoing PCI, but bleeding concerns will limit its uptake outside this indication pending additional data. Reversible ADP inhibitors have theoretical advantages and disadvantages; AstraZeneca AZD6140s could be more potent than Plavix and its Phase III study, PLATO, will report in Q3:09. Thrombin receptor antagonists, including Schering-Ploughs TRA and Eisais E5555, have significant potential, with Scherings two Phase III trials underway. Oral factor Xa inhibitors may have efficacy and safety advantages over AstraZenecas Exanta and convenience advantages over Warfarin. JNJ/Bayers Xarelto (rivaroxaban) has been filed in the U.S., but Bristol/Pfizers apixaban filing is delayed beyond the original 2009 target. Boehringer Ingelheims Pradaxa/Rendix (dabigatran), the most advanced oral direct thrombin inhibitor, is approved in the E.U., and its pivotal 16K patient atrial fibrillation trial should report in 2009, significantly ahead of all competitors across classes. Schering-Plough/Millenniums Integrilin should maintain GPIIb/IIIa market share, bolstered by solid clinical data and a favorable cost profile. Eli Lilly/Johnson & Johnsons ReoPro sales likely will continue to decline. Medicines Companys Angiomax, an injectable direct thrombin inhibitor, failed to get approval for medically managed ACS and now is likely confined to PCI.
Arrhythmia
Sanofi-Aventis Multaq (dronedarone) is effective in reducing atrial fibrillation as well as in reducing mortality, as shown in the ATHENA results. ATHENA is the basis of its NDA filing that will go before an FDA panel in March 2008. Generic amiodarone (Wyeths Cordarone) likely will remain the efficacy gold standard. Selective voltage-dependent channel antagonists from Cardiome/Astellas (RSD1235) and AstraZeneca (AZD7009) could expand the anti-arrhythmic market given strong efficacy in atrial arrhythmia.
Congestive Heart Failure (CHF)

The CHF market is attractive post favorable studies of ACE inhibitors, beta blockers, and ARBs. However, Pfizers Inspra has been disappointing. GlaxoSmithKline has been unsuccessful in converting the Coreg market to its once-a-day version, Coreg CR. The beta blocker market now is largely generic, with Coreg and Toprol (AstraZeneca) both off patent.
Scatter Plot
Through 2013, AstraZeneca should lead the cardiovascular segment and this category is critical to the growth of AstraZeneca.
12
Cardiology
200% 150% 100% 50% 0% -50% -100% -150% -200% -250% -300% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Contribution By Company To Category ($ In B) PFE SNY NVS JNJ SGP ABT FRX AZN
% Of Company 2008-13 Sales Growth From Category
LLY
GSK
MRK
13
Central Nervous System

Selective serotonin reuptake inhibitors (GlaxoSmithKline, Forest Labs, and Pfizer) should continue to be the mainstay treatment for depression and anxiety despite concerns over suicidality, but sales of the class have declined due to generics. Dual-acting agents impacting both serotonin and norepinephrine (Eli Lilly, Wyeth) should continue to grow and gain prescription market share from the SSRIs, driven by Eli Lillys Cymbalta. The recent approval of Cymbalta for the treatment of fibromyalgia syndrome offers additional opportunities for SNRI growth. The introduction of Effexor XR generics in 2010 tempers sales growth. The potential of newer modalities in depression, such as NK antagonists, beta3-adrenoreceptor agonists, and CRF antagonists, remains unclear. Our consultants have become more positive on the outlook for triple reuptake inhibitors (serotonin, norepinephrine, and dopamine). Atypical agents should dominate the antipsychotic market through 2013, given good efficacy, reasonable safety and broad application. Once-daily stimulants should remain the gold standard for ADHD given solid efficacy and manageable side effects. The rollout of Shires Vyvanse (launched in July 2007) has been solid. Eli Lillys Strattera, the first non-scheduled agent for ADHD, gained rapid acceptance, but we project Strattera sales will decline through 2013 due to competition and its own adverse label warnings. The migraine market (Abbott, AstraZeneca, Endo, GlaxoSmithKline, Merck, and Pfizer) is unlikely to grow significantly over the next two years, as newer agents offer little differentiation. GlaxoSmithKline/Pozens Treximet (Imitrex plus naproxen) was approved in April 2008 and launched in May: early uptake has been slow. Mercks MK-0974 (Phase III; 2010 launch projected) looks very promising, offering a novel mechanism and potentially a cleaner safety profile compared to the triptans. New therapeutics to treat addiction and substance abuse are rolling out, led by Pfizers Chantix (smoking cessation) and Cephalon/Alkermes Vivitrol (alcohol dependence). Chantixs prospects have been significantly hampered by recent developments related to side effects of suicidal ideation and depression. Sanofi-Aventis dropped development of Dianicline (Phase III) for smoking cessation, indicating it wasnt adequately differentiated from Chantix, which has been an early success. Our scatter plot shows that JNJ and Eli Lilly will lead the CNS segment in 2013. GSK and Pfizer will continue to hold strong positions in the category. The CNS segment is a key component of growth for Merck. Patent expirations will hurt a number of companies, most notably Lilly and AstraZeneca.
14
CNS
80% MRK
40% SHPGY 0% PFE -40% NVS GSK
JNJ
-80%
WYE
-120%
BMY AZN
LLY
-160%
-200% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 2013 Sales Contributed By Company To Category ($ In B)
15
Dermatology
The psoriasis market is poised to double from $3B in 2007 to $6B in 2013 as the anti-TNFs gain ground. Enbrel remains the mainstay of therapy but will lose share in a growing market. Abbotts Humira, approved in January 2008 for psoriasis, presents the biggest threat to Enbrel given encouraging data from the REVEAL and CHAMPION studies. JNJs Ustekinumab will be another strong entrant into the psoriasis market in 2009. Taclonex is in the process of displacing Dovonex as the topical of choice. Allergans Tazorac should continue to be a useful niche therapy for plaque psoriasis. Antibiotics such as doxycycline and minocycline remain the mainstay of acne treatment. However, Medicis launch of Solodyn in 2006 showed that improvements to antibiotics could be well received and showed high pricing flexibility in the acne market. Solodyn scrips have flattened after its hectic launch and await a second wind. Additionally, several ANDA filers against Solodyn raise the possibility of a generic. Doryx continues to recover well with increased promotional spending, although it is also under similar pressure from generics. Topical therapies, particularly combination products such as Medicis Ziana, Steifels Duac and Sanofi-Aventis/Dermiks Benzaclin, should see steady growth as they begin to take patients away from retinoids and topical clindamycin. Rosacea, often misdiagnosed as acne vulgaris, is gradually getting visibility with the launch of Galderma/Collagenexs Oracea, a low-dose version of doxycycline. We estimate peak sales for Oracea of $120MM in 2013. Actinic keratosis is a $1B+ market dominated by procedures such as cryosurgery and in-house procedures. Graceways Aldara is the topical of choice when cryosurgery is not used. Long-term scarring and potential for localized irritation and pain during cryosurgery present opportunities for topical therapies. Novartis faces a declining presence in dermatology due to generic competition to Lamisil in onychomycosis (nail fungus) but nevertheless should maintain a presence in dermatology through Elidel, its treatment for atopic dermatitis. Astellas Protopic and Elidel should see limited growth given the black box warning in 2005 for potential cancer risk.
Dermatology
80%
60%
40%
Galderma JNJ
20% NVS 0% BIIB Dermik
ABT
WYE/AMGN
-20%
-40% $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 2013 Sales Contribution By Company To Category ($ In B)
16
Diabetes
Insulin will remain the cornerstone of treatment. Sales growth will be driven by increased penetration of insulin analogs, resulting in compound growth of 10% to $16B+ in 2013. Sanofi-Aventis Lantus appears poised to retain its position as the leading basal insulin. Eli Lillys Humalog and Novos Novalog split the short-acting market; new competitors have had very little impact. Oral DPP-IV inhibitors, which reduce the breakdown of GLP-1, are shaping up to be the next oral diabetes blockbusters. The rollout of Mercks Januvia (sitagliptin) has been strong and may be competitor free in the near term. While Novartis Galvus (vildagliptin) has been approved by the EMEA, it has been held up indefinitely in the U.S. by safety concerns. There are questions on both Takedas alogliptin (PDUFA: 6/26/09) and Bristol-Myers/AstraZenecs Onglyza (PDUFA: 4/30/09) safety profiles. Many other DPP-4 inhibitors are in clinical development. This class is benefiting from heightened safety concerns about glitazones. Eli Lilly/Amylins Byetta sales growth has slowed since the launch of MRKs Januvia and safety concerns surrounding drug-induced pancreatitis (2008 revenues +7% Y/Y). Data from a 300-patient Phase II/III trial of the once-weekly formulation of Byetta (Byetta LAR) were positive, and could support a FDA approval. Byetta LAR is expected to hit the U.S. market in 2010. Other GLP-1 analogs that look promising include Novo Nordisks liraglutide (could be launched in the U.S. in H2:09) and Roche/Ipsens BIM 51077 and Sanofi-Aventiss AVE0010 (both in Phase III development). Use of Avandia (GSK), a thioglitazone, has been significantly impacted by the findings of a potential increase in cardiovascular risk beyond heart failure. Takedas Actos appears to have a safer profile and is the benefactor of the switch away from Avandia. The discontinued commercialization of Pfizer/Nektars Exubera following a disappointing launch calls into question the size of the inhaled insulin market opportunity. Novo Nordisk/Aradigm and Eli Lilly/Alkermes dropped development of their inhaled insulins, but MannKind continues to pursue this opportunity. Our scatter plot shows that, through 2013, Novo Nordisk, Sanofi-Aventis, Eli Lilly, and Merck should dominate the diabetes segment and this category is critical to their growth.
17
Diabetes
150% 130% 110% 90% 70% 50% 30% 10% -10% -30% -50% -70% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 2013 Sales Contribution By Company To Category ($ In B) NVS PFE ABT LLY BMY MRK SNY
NVO
GSK
18
Epilepsy
Newer therapies have increased the effective seizure control rate to between 70 and 80%; 50-60% of adults will be seizure-free after using their first anticonvulsant. Patients with refractory epilepsy (approximately 40% of sufferers) often require treatment with multiple AEDs. Most anti-convulsant compounds are also efficacious for other CNS disorders, which has fueled growth for several products in the category - especially agents such as Pfizers Lyrica (pregabalin; neuropathic pain), and JNJs Topamax (topiramate; migraine, bi-polar disorder, obesity). However, due to numerous patent expirations, we forecast that anticonvulsant sales peaked in 2008. New agents from UCB (Keppra XR; approved in September 2008 and Vimpat; approved in October 2008); Eisai (Banzel; approved in November 2008 for Lennox-Gastaut syndrome) appear set to be niche therapies. GlaxoSmithKline/Valeants Retigabine (Phase III) and J&Js Corfyde (pending at FDA) look promising and are expected to be launched over the next 1-2 years. Generics have been a controversial topic for the epilepsy community, with many physicians believing that the variability of drug in the bloodstream could cause seizures. Therefore, despite being a highly genericized category, there is still opportunity for newer agents to gain ground in this community. Our scatter plot shows that, through 2013, the epilepsy category will be dominated by Pfizer, and will be a drag on growth for all the other major participants.
Epilepsy
50%
30% % Of Company 2008-13 Sales Growth From Category PFE 10%
-10% ABT
GSK NVS
-30%
-50%
-70%
-90%
-110% JNJ -130% $0.0 $0.3 $0.6 $0.9 $1.2 $1.5 $1.8 $2.1 $2.4 $2.7 $3.0 $3.3 $3.6 $3.9 $4.2 $4.5 2013 Sales Contributed By Company To Category ($ In B)
19
Gastrointestinal/Ulcer
Worldwide PPI sales should continue to decline in 2009, due to the limited introduction of generics to Protonix in 2008. The PPI market should decline further in 2010 following the introduction of generic Prevacid (November 2009) and Prevacid OTC. A potential at-risk launch of AstraZenecas Nexium in mid-2008 was averted via AstraZenecas settlement with Ranbaxy and should provide some respite to the class. Takedas Kapidex (TAK-390MR) looks like a promising new candidate for the class in 2009. PPI pricing pressure appears to be continuing in 2009 and brand products are losing out to generic omeprazole. Volume gains from Medicare Part D appear to have stabilized. J&Js Remicade should remain the leading treatment for moderate-to-severe Crohns disease but the recent approval of Abbotts injectible anti-TNF, Humira, presents a challenge. UCBs Cimzia, another injectable like Humira, was approved in April 2008 and should provide additional competition. Overall, injectable products are expected to take share away from Remicade and grow the market. Anti-IL-12 antibodies from Abbott and J&J are promising for Crohns. Other autoimmune-related GI disorders, such as ulcerative colitis, offer additional opportunities for growth. Shires Lialda (extended-release mesalamine), with its dosing convenience, presents better convenience over existing therapies and has taken share from P&Gs Asacol in the mild-to-moderate ulcerative colitis category. Generic competition to Salixs Colazal hit the 5-ASA market in 2008, but the category should rebound, largely driven by Lialda. Pentasa appears relatively unaffected by both the Lialda launch and Colazal generics due to its significant use in patients with Crohns Disease. Disorders of motility are becoming more widely recognized and understood. Takeda/Sucampos Amitiza, a novel chloride channel activator, is approved for treatment of chronic idiopathic constipation and IBS-c. Amitiza has benefitted from Novartis pullback of Zelnorm in March 2007. Our scatter plot shows that, through 2013, AstraZeneca will retain the largest sales base. The GI/ulcer category is expected to be a drag on most companies projected sales, but represents an emerging area for Sucampo and Takeda.
120% % Of Company 2008-13 Sales Growth From Category
SCMP
70%
20% ABT GSK WYE -30% JNJ
-80% AZN -130% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 2013 Sales Contributed By Company To Category ($ In B)
20
Infectious Disease
-
Quinolones (Bayer, Johnson & Johnson) and macrolides (Pfizer, Abbott) have been impacted by generics and we forecast a decline during 2009-13 due to patent expirations, side effects, and emerging resistance. A number of new anti-MRSA antibiotics are in late-stage development (Theravance, Pfizer, Targanta, Basilia, JNJ, Arpida, Forest); however, the hightened regulatory risks make it difficult to predict the timing of the drug approvals. Novel antivirals hold varying degrees of promise. HIV, hepatitis, and influenza offer large market opportunities for new drugs. Driven by an increase in new patient diagnoses and healthy price increases, the HIV market is poised to grow by 10-15% annually for the next several years. Mercks Isentress is in the midst of a strong launch, and we project sales will reach $1B in 2012. Protease inhibitors for chronic hepatitis C infection are the most advanced new drugs in development for this disease, led by Vertex/JNJs telaprevir. Pandemic flu is a wild card opportunity. A number of companies have thrown their hats in the ring, including GlaxoSmithKline, Sanofi-Aventis, Novartis, Solvay, Baxter, and AstraZeneca/MedImmune. Sanofi-Aventis leads the U.S. race with the 02:07 FDA approval of its A/Vietnam/1203/2004 flu vaccine and GSK leads the European race with the approval of Prepandrix. Novel vaccines present significant market opportunities. HPV vaccines, including Mercks Gardasil and GlaxoSmithKlines Cervarix, could achieve combined worldwide sales of $3.3B in 2013. Mercks ZostaVax has $1B potential. Mercks staphylococcal vaccine could demonstrate positive trends in its Phase II/III CABG study but, the possibility of success to market is low. Our scatter plot shows that, through 2013, GlaxoSmithKline should dominate this category with its broad antibacterial and antiviral pipeline. The antibiotic/antiviral category is a key contributor to the projected sales growth of many companies.
Antibiotics/Antivirals
140% % Of Company 2008-13 Sales Growth From Category BMY 120% NVS JNJ 100% GILD 80% MRK
60%
40% AZN 20% WYE PFE GSK
0%
LLY
RHHBY ABT
-20% $0.0 $3.0 $6.0 $9.0 $12.0 $15.0 2013 Sales Contributed By Company To Category ($ In B)
21
Multiple Sclerosis
Teva/Sanofi-Aventiss Copaxone ($2.3B, +32% Y/Y in 2008) became the #1 MS drug in 2008. Sales are growing rapidly, driven by the drugs tolerability and status as the only non-interferon-based DMARD. Copaxone should continue to gain market share in the wake of data from REGARD and BEYOND, two studies that support efficacy on par with that of beta interferons. In July, Momenta filed an ANDA for Copaxone but legal, manufacturing and regulatory issues should protect Copaxone from generics for the next five years. Biogen Idecs Avonex ($2.2B, +18% Y/Y in 2008) is no longer the best-selling MS drug, but remains the top-selling interferon. Avonex (interferon beta-1a) has performed reasonably well in the face of competition from higher dose interferons. Steady international market share and aggressive U.S. pricing support solid sales growth. Biogen Idec is developing PEG-Avonex (Phase III study to start in 2009) in an effort to reduce the frequency of dosing. Within the beta interferon class, Merck-Seronos Rebif (interferon beta-1a) has been the fastest-growing product on a unit basis. Sales in 2008 were $1.9B worldwide, with growth (+15% Y/Y) impacted by currency. Rebif has benefitted from the EVIDENCE trial which established superiority for high dose Rebif over Avonex through 12 months of therapy. Bayer (Berlex)/Novartiss AGs Betaseron (projected at $1.6B, +11% Y/Y in 2008) faces competition from Rebif, but a strong international sales base and higher U.S. pricing should support 5-10% sales growth. Novartis launched its own version of interferon beta-1b, called Extavia, in 2009. We expect Extavia to have minimal impact on the overall sales of the interferon beta 1b franchsie. Biogen Idec/Elans Tysabri ($814MM, +137% Y/Y in 2008), reintroduced in the U.S. in mid-2006, experienced a solid launch. However, the disclosure of five new cases of PML since mid-2008 has tempered sales growth. While we believe Tysabris benefits far outweigh its risks, the drugs market potential remains closely linked to its rate of association with PML. Merck-Serono/Tevas oral cladribine appears very efficacious based upon top-line data from the Phase III CLARITY trial. Novartiss FTY720 has been shown to be more potent that Avonex, but questions about tolerability persist. Other compounds such as Biogen Idecs BG-12, Genzymes Campath, Tevas laquinimod, Eli Lilly/BioMSs MBP8298, and Genentech/Biogens anti-CD20 antibodies, have demonstrated encouraging efficacy. However, all new drugs will need to establish a favorable long-term safety profile before they are embraced broadly by the MS community. Acordas fampridine may be the first approved adjunctive therapy for treating symptoms of MS. Consultants estimate that 5-20% of MS patients could be suitable for treatment. We model U.S. sales of $250MM in 2013. Our scatter plot shows that Biogen Idec, Teva, Merck-Serono, and Bayer should continue to dominate the MS market in 2013. This category is critical to the outlook for all four companies.
22
Multiple Sclerosis
100% 90% BIIB/ELN 80% 70% 60% Merck KGaA 50% 40% 30% 20% BAYER 10% 0% -10% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 2013 Sales Contributed By Company To Category ($ In B) TEVA
23
Obesity
The failure of the central cannabinoid (CB-1) receptor antagonists (Sanofi-Aventiss Rimonabant, Mercks Taranabant, Pfizers CP-945,598) due to CNS side effects was a significant setback to the growth outlook for the obesity therapeutic category and drug class. Arenas 5-HT2c agonist, lorcaserin, has demonstrated promising Phase II data and is in a broad Phase III program. A lack of a cardiac valve safety signal at twelve months in the Phase III BLOOM trial supports a clean valve profile. Vivus Qnexa (topiramate/phentermine) has demonstrated impressive weight loss (average of 25 lbs) in Phase II and is currently in Phase III development. Intellectual property concerns and tolerability questions are likely to remain an investor focus pending further clarity. Orexigens combinations of approved drugs have demonstrated potent weight loss, and are supported by a sound biologic rationale. Contraves Phase III program in mild-moderate obesity is fully enrolled, and Empatic recently entered a Phase IIb trial. A number of candidates exploiting various mechanisms (monoamine transmission, GLP-1 pathway, PTP1B receptor, melanin system, and others) are showing signs of promise in this tough-to-treat indication. Development efforts and strategies should continue to emerge in response to the increasing recognition of obesity as an epidemic. Our scatter plot shows that, through 2013, Roche/GSK will maintain the largest sales base in the category. Obesity represents an emerging therapeutic area for Pfizer, Vivus, and Arena, and is expected to be a drag on projected sales of Abbott.
Obesity
430% % Of Company 2008-13 Sales Growth From Category 380% 330% 280% 230% 180% 130% 80% 30% -20% -70% $0.00 $0.20 $0.40 $0.60 $0.80 2013 Sales Contribution By Company To Category ($ In B) ABT PFE ROCHE/GSK Arena
vvus
24
Oncology/Hematology
Targeted therapies are changing the landscape of cancer treatment and likely will be used in most cancer patients in 5-10 years. Monoclonal antibodies and oral tyrosine kinase inhibitors could reach $22B+ in sales in 2013. Rituxan, used widely for NHL and CLL, remains the worlds best selling cancer drug with sales in excess of $6B. Genentech/Roches Avastin (approved for use in colorectal, lung, and breast cancer, filed for kidney and brain cancer) has validated anti-angiogenesis as a therapeutic strategy. Key data on Avastin in adjuvant disease are anticipated in Q2:09. Sales of supportive care drugs for anemia (Amgens Aranesp, JNJs Procrit) have been decimated by safety issues, but the market for white blood cells support (Amgens Neupgen/Neulasta) is approaching $5B. Small molecule tyrosine kinase inhibitors, led by Novartis Gleevec, Genentech/OSIs Tarceva, Onyx/Bayers Nexavar and Pfizers Sutent, are important advances that eventually could be applicable to many cancers. Monoclonal antibodies including Genentech/Roches Avastin, Rituxan, Herceptin, Eli Lilly/Bristols Erbitux, and Amgens Vectibix have become another mainstay of treatment. More than 1,000 oncology/hematology products are in development, placing it among the two highest in terms of development activity of any category. Our scatter plot shows that Amgen, Genentech, Novartis and Roche are expected to dominate this category in 2013. This category is critical to the growth of Amgen, Celgene, Genentech, Novartis and Roche. Numerous companies have rapidly emerging portfolios.
Oncology/Hematology
110%
90%
BMY NVS DNA AMGN
70%
50% WYE 30% MRK GSK LLY
CELG RHHBY PFE
10% ABT -10% SGP JNJ
-30% AZN
-50%
-70% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 2013 Sales Contributed By Company To Category ($ In B)
25
Ophthalmology
Prostaglandins and related analogs (Pfizers Xalatan, Allergans Lumigan and Alcons Travatan) are expected to dominate the glaucoma market through 2011. Pfizers Xalatan/Xalcom franchise is expected to grow steadily through 2010, before being clipped by generics beginning in 2011. Mercks Cosopt/Trusopt franchises will lose share through 2011, due to generic competition beginning in 2008. Increasing sales of Allergans Lumigan could offset anticipated generic competition to the Alphagan/P franchise. Alcons Travatan franchise is expected to continue its steady share gains, bolsetered by the recent launch of Travatan Z. Genentechs Lucentis has rapidly emerged as the treatment of choice for wet AMD. Off-label use of intravitreous Avastin has declined with Lucentis launch and with a generous charitable assistance program to offset co-pays for Lucentis. The NIHs ongoing CATT trial is comparing Avastin and Lucentis head-to-head, and data from this trial (expected in 2010) are likely to dictate future market share of these two agents. Novartis licensed ex-U.S. rights to Lucentis, with European approval secured in Janaury 2007. Allergan/Inspires Restasis is expected to lead the dry-eye market through 2011, driven by good efficacy. The regulatory future of Inspire Pharmaceuticals Prolacria is uncertain. A number of other dry drugs are making their way through clinical development, including Novartis OPC-759 (rebamipide; Phase III) and Alcons 15-HETE (Phase III). Our scatter plot shows that Pfizer, Novartis and Allergan are expected to dominate the ophthalmology category in 2013. Alcon is an emerging participant.
Ophthalmology
80% 70% 60% 50% 40% 30% 20% 10% 0% -10% -20% $0.0 $0.5 MRK $1.0 $1.5 $2.0 $2.5 $3.0 2013 Sales Contributed By Company To Category ($ In B) ACL DNA NVS AGN
PFE
26
Ophthalmology
PFE
27
Orphan Diseases
Enzyme replacement therapies are the cornerstone of treatment of many orphan disorders, particularly the lysosomal storage diseases. We project that enzyme replacement therapies will reach $5.2B in 2013. Small molecules are expected to become a larger participant in the orphan disorder market. BioMarins Kuvan received FDA approval in December 2007, and other small molecules are in development at Genzyme (GENZ- 112638 for Gauchers) and Amicus (Amigal for Fabrys, Plicera for Gauchers, AT2220 for Pompes). Although historically an area of monopolies and little competition, a number of companies are developing second-generation products that could challenge the first entrants. Diseases in which competition could come in the next 5 years include Gaucher, Fabry, and Pompe. Our scatter plot shows that, through 2013, Genzyme should dominate this category. This category is critical to sales growth for Genzyme, BioMarin, Alexion and Shire.
Orphan Diseases
BMRN 100% ALXN
80%
60% SHPGY 40% GENZ
20%
0% ATLN -20% $0.00 $0.40 $0.80 $1.20 $1.60 $2.00 $2.40 $2.80 $3.20 $3.60 $4.00 2013 Sales Contributed By Company To Category ($ In B)
28
Pain Management
The FDA announced in early February 2009 that it plans to implement a Risk Evaluation and Mitigation Strategy (REMS) requirement for all extended opioid analgesics. We believe the REMS plan may drive prescribing of newer tamper-resistant extended release opioids. OxyContin (oxycodone ER) currently holds the leading total prescription share of the U.S. strong opioid market, with an estimated 23% total prescription share. With the re-branding of the oxycodone ER market following the removal of most of the generics in H1:2008, the pricing umbrella for the extended release oral opioid market has been raised. Endo/Penwests Opana ER, King/Ligands Avinza, and Kings Remoxy and Embeda should benefit. Several tamper-resistant formulations of oral opioid analgesics are being developed. The FDAs move to restrict prescribing of extended-release opioid analgesics should benefit tamper-resistant formulations from King, Pain Therapeutics, and Acura Pharmaceuticals. The first topical prescription NSAID patch, King/IBSAs Flector Patch (diclofenac), was launched in January 2008, and Endo/Novartis Voltaren Gel (diclofenac gel) was launched in April 2008. Zars Thermoprofen (Phase III), Nuvo Researchs Pennsaid (diclofenac cream; approvable at FDA), Cerimons topical diclofenac patch (Phase II/III), and King/IDEA AGs Diractin (ketoprofen gel; Phase III) are in latestage development. The transmucosal fentanyl market is becoming increasingly competitive. Cephalons Actiq is being clipped by generics, and Cephalons Fentora. BioDelivery Sciences Onsolis has completed Phase III trials. Schering-Plough/Organons Sugammadex (approved by EMEA, not-approvable at FDA), a novel modified gamma-cyclodextran, selective non-depolarizing neuromuscular blocker reversal agent, is the first novel agent for anesthesia in 20+ years. Pfizers Lyrica and Eli Lillys Cymbalta have found success in neuropathic pain and fibromyalgia syndrome, despite widespread availability of generics of Pfizers Neurontin (gabapentin). Our scatter plot shows that Endo, Purdue, and King will dominate the pain management category in 2013. While we project that pain management will remain a sales growth driver for Endo, Purdue and King, it is expected to be a drag on sales growth for JNJ and Cephalon.
29
Pain Management
120%
100%
KG
ENDP PURDUE
80%
60%
40%
CEPH
20%
0%
AZN
JNJ
30
Respiratory
Steroid/long-acting beta agonist combination inhalers (GlaxoSmithKline and AstraZeneca) should continue to dominate the asthma market, given their ability to control both asthma and COPD. Sales of GlaxoSmithKlines Advair could reach $8B+ in 2013, making it one of the most successful drugs ever. The FDAs label change for long-acting beta agonists (including Advair), emphasizing the increased risk of worsening bronchospasm (wheezing), should present only a modest negative. AstraZenecas Symbicort has gained only modest share thus far, given its undifferentiated profile. ScheringPlough/Novartis expect to file formoterol/mometasone (MMF258), a twice-daily combination, in 2009 but the filing for the once-daily combination, QMF149, is not expected until after 2012. Good effectiveness, ease of administration, and pediatric application should drive average leukotriene antagonist growth through 2011 but Mercks Singulair patent expiration in 2012 will clip growth. Singulair continues to expand its franchise through a label expansion in exercise-induced asthma in April 2007. However, the Claritin/Singulair combination filed in August 2007 received a non-approvable letter a year later. The FDAs response is not too surprising considering the modest efficacy benefit of this combination. Boehringer-Ingelheim/Pfizers Spiriva (once-daily anticholinergic, LAMA) has rapidly gained share for treating the symptoms of COPD, although GlaxoSmithKlines Advair seeks a prominent position here despite the non-approval for the 500/50mcg dose based on the TORCH data. On April 30th 2008, the FDA approved the 250/50mcg dose combination for reduction of exacerbations in patients with COPD and/or with emphysema. Combination use of Spiriva and Advair should allow both products to be successful as newer once-daily LAMAs are several years from market. The outlook for phosphodiesterase type 4 inhibitors is dim post GlaxoSmithKline dropping Ariflo. Non-sedating antihistamines dominate the allergy market in terms of units, but generic Allegra and Zyrtec, and OTC Claritin have clipped sales and pressured pricing. Sanofi/UCBs Xyzal seeks to reverse this trend. Inhaled steroids remain the most effective agents for allergic rhinitis, with Scherings Nasonex leading the market. Veramysts (GlaxoSmithKline) slightly broader label is not viewed as clinically meaningful and its launch has been tepid. New treatment options in pulmonary arterial hypertension, including Gileads Letairis, Actelions Tracleer, Pfizers Revatio, and infusional agents such as United Therapeutics Remodulin and GlaxoSmithKlines Flolan, have led to a clear improvement in survival and quality of life. Awareness of the disease is steadily improving. Letairis, Tracleer and Revatio are the preferred first-line therapies. Thelins (ENCY, acquired by PFE in June 08) future in the U.S. is unclear given three approvable letters, but it was approved in Europe in August 2006 and has been launched in many European countries, including the U.K., Ireland, Germany, Austria, France, Belgium, Holland and Spain. Pfizer plans to conduct a pivotal Phase 3 trial to support a U.S. registration. Our scatter plot shows that, through 2013, GlaxoSmithKline should dominate this category. This category is important to the growth of AstraZeneca and GlaxoSmithKline.
31
Respiratory
80% NVS 60% GSK AZN
40%
20% DNA RHHBY PFE -20% FRX SGP
0%
-40%
32
Sleep Disorders
Sanofi-Aventis Ambien franchise remains the U.S. branded market leader, but has been clipped significantly by the launch of generics to Ambien. Sanofi-Aventis continues to aggressively market Ambien CR. Generics of Ambien CR are expected to be launched in April 2009, further pressuring the Ambien franchise. Sepracors Lunesta enjoyed a strong rollout in 2006, but the launch of Ambien CR and Ambien generics has caused Lunestas prescription growth trajectory to plateau. We project a decline in Lunesta prescriptions in 2009-2013, due to Ambien CR generics. Several novel drugs targeting new mechanisms are making their way through clinical trials, including: Sanofi-Aventis Ciltyri (completed Phase III), Somaxons Silenor (NDA), Vandas Tasimelteon (Phase III), and Schering-Plough/Organons Esmirtazapine (Phase III). Our scatter plot shows that Sanofi-Aventis, Sepracor and Takeda should dominate the insomnia market in 2013 and that this is an emerging category for Takeda.
Insomnia
170% % Of Company 2008-13 Sales Growth From Category TDCHF
120%
70%
20%
-30% SNY -80%
-130%
-180% $0.0
SEPR $0.4 $0.8 $1.2 $1.6 $2.0
2013 Sales Contributed By Company To Category ($ In B)
33
Urinary Incontinence

The launch of Ditropan XL generics has affected the growth of the market for UI treatments in the U.S. Branded products for urge incontinence and overactive bladder, led by Pfizers Detrol LA, appear comparable in terms of effectiveness and side effects. Despite an improved side-effect profile and twice-weekly patch delivery, adoption of Watsons Oxytrol has been a disappointment due to application-site irritation. Watsons Oxybutynin topical gel could provide a modest boost to the Oxytrol franchise. Astellas/GlaxoSmithKline's Vesicare continues to grow while Novartis Enablex prescription growth has decelerated. Head-to-head comparison studies will be required to claim superiority. Allergans Sanctura may be differentiated based on a lower CNS side-effect profile, but twice-daily dosing and limited marketing support have been hurdles. A once-daily version, Sanctura XR, was launched in the U.S. in January 2008, and has the potential to significantly expand the franchise. Our scatter plot shows that, through 2013, Pfizer should dominate the incontinence market. This category is a key growth driver for Astellas/GlaxoSmithKline.
50%
30%
Astellas/GSK 10% WPI AGN JNJ LLY -10% NVS PFE
34
Leadership Of Important Categories A Key To Success

Abbott Laboratories
Arthritis and cardiology are critical to Abbotts sales growth. Antibiotics/antivirals, diabetes, epilepsy, GI/Ulcer and oncology will be a drag on sales growth through 2013.
100%
Abbott Sales Analysis
80% % Company Sales Growth From Category
Arthritis
60%
40%
20%
Cardiology Oncology Diabetes Antibiotics/Antivirals
0%
GI/Ulcer
-20%
Epilepsy
-40% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 2013 Sales Company Generates From Category ($ In B)
Amgen
Amgen should be a dominant player in the oncology/hematology and arthritis markets through 2013, and these categories account for nearly all of its sales growth.
Amgen Sales Analysis

90%
% Of Company Sales Growth From Category
70%
Oncology
50%
30%
Arthritis
10%
-10%
35
AstraZeneca
Respiratory and antibiotics/antivirals are critical to AstraZenecas sales growth. GI/Uulcer and oncology will be drags on sales growth through 2013.
AstraZeneca Sales Analysis
90% % Of Company Sales Growth From Category
40%
Antibiotics/Antivirals Alzheimer's
-10%
Respiratory
Pain Management
Oncology
-60%
-110% $0.0 $1.0 $2.0
GI/Ulcer
$3.0 $4.0 $5.0 $6.0 $7.0 $8.0 2013 Sales Company Generates From Category ($ In B)
Bristol-Myers Squibb
Bristol-Myers Squibb should be a dominant player in the antibiotics/antivirals and oncology markets through 2013. Arthritis and diabetes are emerging growth categories. CNS will be a drag on growth.
Bristol-Myers Squibb Sales Analysis

90%
Oncology
% Company Sales Growth From Category 70%
Arthritis
50%
Diabetes
30%
10%
-10%
CNS
-30%
-50% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Company Generates From Category ($ In B)
36
Eli Lilly
Eli Lilly should be a dominant player in the diabetes market through 2013, but the CNS category will be a drag on Lillys growth. Many other categories are modest contributors to modest drags.
Eli Lilly Sales Analysis
Diabetes
100%
% Company Sales Growth From Category
50%
0%
Osteoporosis/ HRT Oncology
Cardiology Antibiotics/Antivirals
-50%
-100%
-150%
-200% $0.0 $1.0 $2.0
CNS
$3.0 $4.0 $5.0 $6.0 $7.0 2013 Sales Company Generates From Category ($ In B)
Forest Laboratories
Cardiology and Alzheimers Disease are important emerging categories for Forest Laboratories, while respiratory is a drag.
Forest Laboratories Sales Analysis
200%
150% % Of Company Sales Growth From Category
Cardiology
100%
Alzheimer's Disease
50%
0%
Respiratory
-50%
-100%
-150%
-200% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 2013 Sales Company Generates From Category ($ In B)
37
Genentech
Genentech should be a dominant player in oncology through 2013. Ophthalmology and respiratory will be modest drags on growth.
Genentech Sales Analysis
90%
Oncology
50%
30%
10%
Ophthalmology Respiratory
-10%
-30% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 $11.0 $12.0 2013 Sales Company Generates From Category ($ In B)
GlaxoSmithKline
GlaxoSmithKline should be a dominant player in the oncology, antibiotics/anrivirals and respiratory markets through 2013, and these categories are critical to its sales growth. Cardiology, CNS, diabetes, epilepsy and GI/ulcer are drags on growth.
GlaxoSmithKline Sales Analysis
60% 50% % Company Sales Growth From Category
40%
Respiratory
30%
20%
Oncology Antibiotics/Antivirals
10%
0%
Cardiology CNS GI/Ulcer Diabetes Epilepsy
-10%
-20%
38
Johnson & Johnson

J&J should be a dominant player in the arthritis and antibiotics markets through 2013, and these categories are critical to growth. J&J will remain a leader in oncology and CNS, but these categories will be drags on growth.
Johnson & Johnson Sales Analysis
Cardiology
30%
Arthritis
Alzheimer's
-20%
Oncology GI/Ulcer CNS
-70%
-120% $0.0
Epilepsy
$1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 2013 Sales Company Generates From Category ($ In B)
Merck
Merck should be a dominant participant in the antibiotics/antivirals and diabetes markets through 2013. CNS is an emerging category. Cardiology will be a drag on growth.
Merck Sales Analysis
220%
Respiratory
120%
Diabetes CNS Oncology Ophthalmology Arthritis Osteoporosis/HRT
70%
20%
-30%
-80%
-130%
Cardiology
39
Novartis
Novartis should be a leader in oncology and antibiotics/antivirals through 2013, and these categories are critical to sales growth. Ten therapeutic categories range from modest contributors to drags on sales growth.
Novartis Sales Analysis
125% Antibiotics/Antivirals
75%
Respiratory
Oncology
Ophthalmology Osteoporosis/HRT 25% Alzheimer's CNS Diabetes Incontinence -25% Arthritis Transplantation
Epilepsy
-75%
Pfizer
Antibiotics is Pfizers largest therapeutic category. Many other categories range from being modest contributors to moderate drags, with cardiology being a substantial drag.
Pfizer Sales Analysis
40% Alzheimer's Oncology Epilepsy Antibiotics/Antivirals
Ophthalmology Diabetes -10% Urinary Incont. CNS Respiratory Arthritis
-60%
-110%
-160%
Cardiology -210% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 2013 Sales Company Generates From Category ($ In B)
40
Roche
Roche likely will dominate the oncology market through 2013, and this category is critical to sales growth. Five other therapeutic categories are modest contributors to modest drags on sales growth.
Roche Sales Analysis
50%
40% % Of Company Sales Growth From Category Oncology 30%
20% Arthritis 10% Respiratory
0%
Antibiotics/Antivirals Osteoporosis/HR
-10%
Transplatation
-20%
Sanofi-Aventis
Sanofi-Aventis should dominate diabetes and infectious disease through 2013, and these categories are critical to sales growth. Respiratory is an emerging category. Three other categories will be drags on growth.
Sanofi-Aventis Sales Analysis
240% Antibiotics/Antiviral
140%
Respiratory
Diabetes
40% Osteoporosis/HRT -60% Insomnia
-160%
-260% $0.0 Oncology $2.0 $4.0 $6.0
Cardiology $8.0 $10.0 $12.0
2013 Sales Company Generates From Category ($ In B)
41
Schering-Plough
Cardiology and arthritis are critical to Schering-Ploughs sales growth through 2013. Respiratory should be a modest contributor while antibiotics/antivirals and oncology likely will be drags on growth.
Schering-Plough Sales Analysis
50%
30%
Arthritis
20%
Cardiology
10%
Respiratory Oncology
0%
-10%
-20%
Wyeth
Wyeth should be a major player in the arthritis and antibiotics markets through 2013, but CNS, cardiology, GI/ulcer and transplant will be drags on sales growth. Oncology and osteoporosis/HRT are emerging categories for Wyeth.
Wyeth Sales Analysis
60%
40%
Oncology
Arthritis Antibiotics/Antivirals
20%
Osteoporosis/HRT Transplant Cardiology GI/Ulcer
0%
-20%
-40%
-60%
-80%
CNS
42
Therapeutic Category Position Comparison
Abbott Laboratories Amgen AstraZeneca Bristol-Myers Squibb Eli Lilly Forest Laboratories Genentech GlaxoSmithKline Johnson & Johnson Merck Novartis Pfizer Roche Sanofi-Aventis Schering-Plough Wyeth Total
Total 7 2 6 5 7 3 3 8 8 9 12 11 6 6 5 8 106
Upper Right 2 2 2 2 3 0 1 3 2 2 2 3 1 2 2 3 32
Quadrant Upper Left Lower Right 0 0 0 0 2 0 2 1 0 1 3 4 1 1 1 0 1 17 0 2 0 1 0 0 1 2 1 0 3 1 1 1 0 13
Lower Left 5 0 2 1 3 1 1 4 3 3 6 4 3 2 2 4 44
43
Largest Therapeutic Areas Enjoying Most Development Activity

Drug companies like to shoot at big development targets. Thus, it is not surprising that the largest categories in terms of sales (cardiovascular, infectious disease, central nervous system, oncology/hematology) also are enjoying the most new product development activity. We see little change in the relative rankings through 2013.
Pharmaceutical Therapeutic Categories
Number Of Products In Development Vs. 2008 Category Sales

300 275 250 225 200 175 150 125 100 75 50 25 0 0
Oncology/Hematology Central Nervous System
# of Products in Development
Diabetes Allergy/Asthma Arthritis/Inflammation Osteoporosis/HRT G.I./Ulcer Urinary Incontinence
Cardiovascular Infectious Disease
10
20
30
40
50
2008 $ Sales
60
70
80
90
100
Number Of Products In Development Vs. 2013 Category Sales

300 Oncology/Hematology 275 250 Central Nervous System 225 200 175 150 Diabetes 125 Cardiovascular Allergy/Asthma Infectious Disease 100 75 Osteoporosis/HRT Arthritis/Inflammation 50 G.I./Ulcer 25 Urinary Incontinence 0 0 10 20 30 40 50 60 70 80 90
2013 $ Sales
Pharmaceutical Therapeutic Categories
# of Products in Development
100
The most desirable quadrant of the above matrices appears to be the lower right, a segment characterized by huge dollar volume and relatively fewer development-stage products, potentially generating less competition. Only infectious disease resides in this segment. The least desirable quadrant of the above matrices would then be the upper left, where many products chase few dollars. The upper right (lots of dollars and products) and lower left (relatively fewer dollars and products) quadrants fall in between. Obviously, these conclusions represent an oversimplification of the complex drug development and sales dynamics within specific therapeutic categories, as differentiated new products can dominate competitive markets.
44
Alzheimers Disease
Alzheimers Disease
DEFINITION/ BACKDROP
Two Steps Forward, One Step Back in 2008

Alzheimers disease (AD) afflicts approximately 4-5MM people in the U.S. and approximately 15MM people worldwide. It is estimated that 10% of people aged 65 and older, and about 50% of people over 85, suffer from AD. Due to the anticipated rapid 12% 2008-13 CGR growth of the over-65 segment of the U.S. population (currently estimated to exceed 35MM people); the AD patient population is expected to increase rapidly. Direct medical and indirect costs associated with AD are high as families are forced to provide home care and/or pay for assisted living. In the U.S. alone, it is estimated that health care expenses and lost wages attributable to AD patients and caregivers total $80-100B annually. With life expectancy increasing throughout the world, AD is expected to become a global health care resource issue. It is not known what causes AD, but genetics and environmental factors appear to play a role. Researchers continue to work on elucidating the biological mechanisms of AD, paving the way for the development of new, novel therapies. Disease-modifying agents are progressing through later-stage clinical trials and have generated significant enthusiasm, as the commercialization of the first of these agents may only be 2-4 years away. Despite this enthusiasm, development progress with potentially disease-modifying agents has been slower than anticipated, evidenced by disappointing data for Elan/Wyeths bapineuzumab, Myriads Flurizan and simvastatin presented at the 2008 ICAD meeting. But Phase III trials for bapineuzumab, Lillys LY206430 and LY450139 and Pfizer/Medivations Dimebon, among others, will yield results in 2010.
Alzheimers Disease Category Market Share By $ Sales
2008
$4.2B
JNJ 13% JNJ 7%
2013P
Other 7%
$7.4B
FRX 18%
PARTICIPANTS
LLY 8% NVS 20% NVS 9% PFE/EISAI 47% FRX 20% PFE/MDVN 9% PFE/EISAI 10% PFE 17%
WYE/ELN 15%
45
Alzheimers Disease
Pfizer/Eisais Aricept dominated the U.S. Alzheimers disease market in 2008 with a 47% sales share, but is expected to be clipped by generics beginning in late 2010. JNJ/Shires Razadyne was clipped by generic competition in H2:2008; 2008 U.S. sales were $134MM (31%). Forest Laboratories may hold the top sales position in 2013, ahead of Namendas exclusivity expiration in April 2015. Wyeth/Elan are expected to move to the third position in 2013, assuming bapineuzumab reaches the market. Pfizer/Medivation are expected to take the fifth position, based on Dimebon. Eli Lilly and Novartis are emerging companies in the Alzheimers category. Acetylcholinesterase inhibitors are expected to remain the mainstay treatment option in the AD market for the next few years, despite limited effectiveness. Research in neurotransmitter-mediated treatments for AD, such as acetylcholinesterase inhibition and glutamate receptor blockade (Forests Namenda), is not expected to advance much beyond current knowledge. Next-generation drugs are focused on the underlying disease mechanisms, most notably immunotherapeutic approaches (monoclonal antibodies and vaccines targeted against beta-amyloid), gamma- and beta-secretase inhibition, beta-amyloid aggregation inhibition, tau aggregation inhibition, and microtubule stabilization. Wyeth/Elan, Elan/Transition Therapeutics, Eli Lilly, Pfizer, Prana, Novartis, Merck, Bristol-Myers Squibb, TauRx, and Allon have clinical programs targeting these mechanisms. Research on PPAR gamma agonists (led by studies of GlaxoSmithKlines Avandia) indicates that they may have some utility in AD. The AD therapeutic market could develop similarly to that of cardiovascular therapy, with prevention encompassing diagnostic monitoring of plasma beta-amyloid levels and prophylactic drug therapy, and treatment involving a cocktail of agents targeting different mechanisms. Our scatter plot shows that, through 2013, Wyeth/Elan should dominate this category, and Alzheimers drug sales will be a very important component of Forests, Wyeth/Elans and Eli Lillys growth.
Alzheimer's Disease
70% FRX % Of Company 2008-13 Sales Growth From Category 60%
50%
40%
30%
WYE/ELN
20%
MAJOR TRENDS &

ISSUES
LLY
PFE/EISAI PFE/MDVN
PFE
10%
AZN JNJ
NVS
0%
46
Alzheimers Disease
ALZHEIMER'S DISEASE U.S. MARKET DYNAMICS ($MM) 2007 U.S. Population 65 - 85 yrs old U.S. Population 85+ yrs old U.S. Alzheimer's Sufferers (MM) % Treated Patients Treated (MM) Total Rx's Growth Aricept (PFE/Eisai) Market Share Aricept Total Rx's (MM) Average Daily Cost Sales (MM) Namenda (FRX) Market Share Namenda Total Rx's (MM) Average Daily Cost Sales (MM) Razadyne/ER (JNJ/SHPGY) Market Share Razadyne Total Rx's (MM) Average Daily Cost Sales (MM) Exelon (NVS) Market Share Exelon Total Rx's (MM) Average Daily Cost Sales (MM) Bapineuzumab (WYE/ELN) Market Share Bapineuzumab Total Rx's (MM) Average Dose Cost Average Daily Cost Sales (MM) Dimebon (MDVN/PFE) Market Share Dimebon Total Rx's (MM) Average Daily Cost Sales (MM) LY206430 (LLY) Market Share LY206430 Total Rx's (MM) Average Daily Cost Sales (MM) ELND-005 (ELN/TTHI) Market Share ELND-005 Total Rx's (MM) Average Daily Cost Sales (MM) LY-450139 Total Rx's (MM) Average Daily Cost Sales (MM) Other Market Share Total Rx's (MM) Average Daily Cost Sales (MM) Generics Market Share Total Rx's (MM) Average Daily Cost Sales (MM) Total Market Sales (MM) $2,946 $3,304 +12% $3,410 +3% % Growth +33% Source: Company data; Cowen and Company estimates 9% 2.0 $0.50 $30 $3,435 +1% 50% 11.9 $0.70 $250 $2,195 -36% 37% 6.9 $0.60 $125 $2,385 +9% 32.0 5.3 4.7 29% 1.4 18.6 +6% 2008 32.6 5.5 4.8 31% 1.5 19.9 +7% 2009E 33.3 5.6 4.9 33% 1.6 19.8 -0% 2010E 34.0 5.8 5.0 36% 1.8 21.7 +9% 2011E 34.6 6.0 5.2 39% 2.0 23.9 +10% 9% 2.1 $6.25 $400 2012E 35.0 6.1 5.3 41% 2.2 18.6 -22% 3% 0.5 $6.25 $100 2013E 35.3 6.3 5.4 41% 2.2 21.5 +16% 1% 0.3 $6.25 $50 2014E 35.7 6.5 5.5 41% 2.2 27.1 +26% 0% 0.1 $6.25 $25 2015E 36.0 6.7 5.6 41% 2.3 32.0 +18% 0% 0.1 $6.25 $25 4% 1.4 $4.95 $800 1% 0.2 $6.30 $10 1% 0.3 $6.60 $50 CGR +1% +3% +2% +6% +7% Comments - Estimate 8 - 10% of population is afflicted - Estimate 40 - 50% of population is afflicted - Could be conservative - Penetration increases as newer agents become available; could be conserva - Market growth driven by demographics, improved therapies - Donepazil; acetylcholinesterase inhibitor; Pfizer/Eisai - Co-promoted by Eisai/Pfizer in U.S.; Eisai books 100% of sales - Assume generics in late November 2010
55% 54% 10.0 10.8 $5.58 $5.79 $1,675 $1,959 32% 6.2 $4.63 $865 6% 1.2 $5.39 $194 6% 1.2 $5.85 $212 34% 6.8 $4.54 $932 4% 0.7 $6.30 $134 8% 1.6 $6.00 $279
56% 48% 11.1 10.4 $6.15 $6.25 $2,050 $1,950
-46% -20% -2% -17% -31% -23% -22%
35% 34% 34% 46% 29% 14% 6.9 7.4 8.0 8.5 6.5 3.9 $4.95 $4.95 $4.95 $4.95 $4.95 $4.95 $1,020 $1,100 $1,190 $1,260 $1,320 $1,370 1% 0.2 $6.30 $40 8% 1.6 $6.15 $300 1% 0.2 $6.30 $35 8% 1.7 $6.30 $320 1% 0.1 $6.30 $25 7% 1.7 $6.45 $330 1% 0.1 $6.30 $20 5% 0.9 $6.60 $180 1% 0.2 $6.30 $15 2% 0.5 $6.60 $100 1% 0.2 $6.30 $10 1% 0.3 $6.60 $50
- Memantine; NMDA antagonist; Forest Labs; Q1:2004 launch

- Modest efficacy, but mild SE profile has driven combo use - Est. 60%+ of use is in combo with an acetylcholinesterase inhibitor Galantamine; acetylcholinesterase inhibitor; Shire/JNJ Also stimulates nicotinic receptors Efficacy and SE profile similar to Aricept Rapid-dissolve formulation carries franchise
- Rivastigmine; acetylcholinesterase inhibitor; Novartis - GI side effects have clipped use of oral formulation - Transdermal formulation launch in the U.S. and E.U. - Mild/moderate ApoE4(-) pts comprise 42-45% of treated patient pop'n - I.V. delivery - Assume every 3 mos. infusion - Currently in Phase III - Acts as a cholinesterase inhibitor and NMDA antagonist - Potential disease modification effect via MPTP blocker activity - 2010 NDA targeted - Anti-beta-amyloid antibody; mid-domain specific - Currently in Phase III - Assume every 3 mos. dosing - Prevents/reverses beta-amyloid aggregation - H2:2012 launch targeted - Previously known as AZD-103 - Gamma secretase inhibitor - 2013 launch targeted
3% 9% 8% 10% 0.6 1.9 2.3 3.3 $2,600 $2,704 $2,812 $2,925 $28.89 $30.04 $31.24 $32.50 $300 $1,100 $2,120 $3,255 4% 0.7 $6.30 $150 1% 0.3 $30.00 $250 8% 1.7 $6.30 $500 2% 0.5 $30.00 $500 5% 1.1 $9.00 $350 1% 0.4 $9.00 $421 1% 0.1 $25.00 $75 41% 8.8 $0.60 $175 $4,606 +93% 13% 3.5 $6.30 $725 3% 0.8 $30.00 $750 10% 2.8 $9.00 $750 13% 4.2 $6.30 $900 3% 1.1 $30.00 $1,000 12% 3.7 $9.00 $1,000
1% 2% 0.7 1.1 $9.00 $9.00 $882 $1,203 2% 0.5 $25.00 $350 45% 12.8 $0.65 $250 $7,282 +58% 3% 1.0 $25.00 $750 50% 16.7 $0.70 $350 $9,343 +28%
- Other antibodies in development
- Aricept generics in 2010, Exelon generics in 2012 +16% - Near-term growth driven by symptomatic agents; out-year growth driven by disease modifying agents; Aricept generics clip 2011 sale
47
Alzheimers Disease
Opportunities Abound In AD Market

DETAILED DISCUSSION
Exisiting Treatments Have Signficant Limitations

Currently available AD treatments provide only symptomatic relief, temporarily improving brain function in patients with mild-to-moderate disease. These drugs either improve the communication between neurons or maintain neuronal health. These symptomatic treatments include acetylcholinesterase inhibitors (Pfizer/Eisais Aricept, JNJ/Shires Razadyne ER, and Novartis Exelon) and glutaminergic modulators (Forests Namenda). Neurotransmitters, such as acetylcholine, are produced by neurons, aid in cell-to-cell communication, and stimulate brain activity. Neuronal cell injury and death in patients with AD leads to reduced neurotransmitter concentrations, resulting in a deterioration of brain function and the onset of AD. Acetylcholine is constantly being produced and degraded naturally in the brain. The enzyme responsible for the degradation of acetylcholine is acetylcholinesterase. Acetylcholinesterase inhibitors slow the degradation of acetylcholine thereby increasing effective concentrations of acetylcholine available in patients with AD. Treatment with acetylcholinesterase inhibitors temporarily preserves neuronal communication and function, but does not halt neuronal death. Typically, acetylcholinesterase inhibitors relieve some symptoms of AD and delay cognitive deterioration by only about six to twelve months. Glutamate is another neurotransmitter that plays a role in memory and cognition, signaling through the NMDA receptor. In AD patients, increased glutamate activity leads to sustained, low level activation of the NMDA receptor, which may impair neuronal function. Glutaminergic modulators block this sustained, low-level activation of the NMDA receptor without inhibiting the normal function of the receptor in memory and cognition, providing temporary symptomatic relief for AD patients. Glutaminergic modulators and acetylcholinesterase inhibitors are often used in combination with one another.
SYMPTOMATIC AGENTS FOR THE TREATMENT OF ALZHEIMERS DISEASE

Product Aricept (donepezil) Company Pfizer/Eisai Status Market Comments Acetylcholinesterase inhibitor; FDA approval in November 1996; indicated for mild-tosevere AD; once-a-day dosing, a favorable side-effect profile, and strong marketing make Aricept the acetylcholinesterase inhibitor of choice. Exelon (rivastigmine) Novartis Market Acetylcholinesterase inhibitor; FDA-approval in April 2000; indicated for mild-to-moderate AD; twice-daily dosing and side effects (primarily nausea, vomiting) clip use; transdermal patch (improved GI side effect profile) formulation under review at EMEA, launched in U.S. in Q3:2007. Razadyne ER (galantamine) JNJ/Shire Market Acetylcholinesterase inhibitor, also acts as a nicotinic receptor agonist; indicated for mild-to-moderate AD; IR formulation (2x daily) approved by FDA in February 2001; ER formulation (1x daily) launched May 2005; GI side effects have clipped use. Namenda (memantine) Forest Labs Market NMDA antagonist; launched in January 2004; indicated for moderate-to-severe AD; 1-2x daily dosing; majority (60%+) of use in combination with acetylcholinesterase inhibitors. FDA issued non-approvable letter for use in mild-to-moderate AD indication in July 2005, but used off-label. Cognex (tacrine) Sciele Market Acetylcholinesterase inhibitor; indicated for mild-to-moderate AD; approved by FDA in 1993; liver enzyme monitoring requirement limits use; <1% TRx share in U.S.
Source: Company reports; Cowen and Company
48
Alzheimers Disease
Beta-Amyloid Theory Gives Rise To Next-Generation Treatments

Researchers believe that the build-up of beta-amyloid in the brain may be the cause of Alzheimers disease. In fact, mutations in genes responsible for beta-amyloid production and leading to increased amyloid levels have been shown to cause early onset, familial AD. Additionally, plaques derived from beta-amyloid are one of the pathological hallmarks of AD. Beta-amyloid is derived from a larger protein called amyloid precursor protein (APP). Amyloid precursor protein is believed to play a role in synapse formation and cell-to-cell adhesion. Beta-amyloid is constantly being produced and cleared from the brain; plaques form when the rate of production exceeds the rate of clearance. Two protease enzymes (beta and gamma secretase) are responsible for the cleavage of APP and subsequent release of beta-amyloid. The resultant beta-amyloid peptide can be either 40 or 42 amino acids in length. The 40 amino acid beta-amyloid peptide is more soluble and aggregates less readily, while the 42 amino acid beta-amyloid peptide is believed to be primarily responsible for the plaques. Beta-amyloid plaques tend to form in many parts of the brain, including the hippocampus, amygdala and cerebral cortex. These are the areas of the brain responsible for memory, emotions and cognitive thinking, respectively. The build-up of beta-amyloid ultimately leads to neurodegeneration and dementia. It is not known which form of beta-amyloid is ultimately responsible for neurodegeneration but recent speculation centers on soluble oligomeric species. While the build-up of beta-amyloid has not been definitively shown to be the cause of sporadic AD, our consultants believe that the drugs targeting this mechanism are promising treatments for AD. Treatment strategies targeting beta-amyloid (directly and indirectly) include immunotherapy (monoclonal antibodies, therapeutic vaccines), secretase inhibitors (gamma and beta), and aggregation inhibitors.
TARGETING OF BETA-AMYLOID IN THE TREATMENT OF ALZHEIMERS DISEASE Secretase Amyloid Precursor Protein (APP) Secretase
Cleared From The Brain A-specific antibody
AD
A Deposits
A = beta amyloid peptide

Source: Adapted from www.elan.com;
Tau And Neurofibrillary Tangles Part Of The AD Mystery

Neurofibrillary tangles, the second pathological hallmark of AD, accumulate within the nerve cells in the brain of AD patients. These tangles have been shown to be composed of abnormally hyperphosphorylated versions of the protein tau. Tau is normally involved in microtubule assembly and stability. The role of neurofibrillary tangles (NFTs) in the pathogenesis of AD is not well understood; and it is unclear if NFTs are a cause or
49
Alzheimers Disease
consequence of AD. It is worth noting, however, that disease progression correlates better with NFT load than with amyloid plaque levels. Our consultants remain uncertain whether tau has potential as a therapeutic target although Merck has recently made a substantial strategic investment in this area. A small private pharmaceutical company, TauRx, has a small molecule tau aggregation inhibitor (Rember) in Phase II clinical development.
Genetics Play A Role In AD

There is significant evidence that certain genetic profiles lead to greater likelihood of developing AD. Mutations in the amyloid precursor protein (APP), presenilin 1, and presenilin 2 genes have all been linked with the familial form of AD. Familial AD represents only about 0-1% of all AD cases. Defects in these genes are believed to accelerate the processing of APP into Abeta-42. Alternatively, other genetic abnormalities do not definitively cause AD, but have been shown to be risk factors for developing the disease. The presence of the apolipoprotein E epsilon 4 allele (ApoE4) is believed to account for a majority of the genetic risk in patients who develop sporadic AD. The various types of ApoE act as cholesterol transporters in the brain - the ApoE4 variant is the least efficient type as far as reuse of membrane lipids and neuronal repair. ApoE also plays a role in beta-amyloid deposition, fibrillisation, and plaque formation. A recent, highly publicized report demonstrated that ApoE is necessary for efficient degradation of beta-amyloid and that ApoE2 is more efficient than ApoE3 which in turn is more efficient than ApoE4. Meta-analyses have shown that individuals who are homozygotes for ApoE4 are 15 times more likely to develop AD and individuals who are heterozygotes are three times more likely to develop the disease. Each copy of the ApoE4 allele is believed to speed the onset of Alzheimers disease by up to ten years.
New Diagnostics May Help Expand The Market

Currently, AD is primarily diagnosed by ruling out other potential disorders in patients who present with memory difficulties. This is accomplished via a battery of tests including blood sample analysis, MRI, and CT-scans. A number of novel AD diagnostic methods are in development, which may help physicians diagnose AD earlier and more accurately. Our consultants have highlighted Pittsburgh Compound B (PIB), an imaging agent that enables the visualization of beta-amyloid plaques via a positron emission tomography (PET) scan.
SAMPLE ALZHEIMERS DISEASE PET SCAN IMAGES
50
Alzheimers Disease
Originally developed at the University of Pittsburgh Medical Center, Pittsburgh Compound B (and similar agents from UCLA and the Mayo Clinic) is a significant advance in the diagnosis of AD, according to our consultants. Our consultants believe such agents will facilitate the diagnosis of AD and the development of disease-modifying drugs, as they believe these drugs are likely to prove most effective when patients are treated in the early stages of AD, before too much neuronal damage has been done. While Pittsburgh Compound B is not widely available, some of our consultants are already using it in their clinical practice. The commercial rights to PIB are owned by General Electric, a leading manufacturer of imaging equipment. Recognizing the sales potential of an AD diagnostic that allows for the early detection of disease, a number of companies have product development efforts in this area. In January 2007, Bayer Schering Pharma and Taisho Pharmaceutical announced a program to develop novel, non-invasive beta-amyloid targeted diagnostics that leverage technologies such as PET. Satoris (private) is developing a blood-based antibody array assay that could enable the early detection of AD and also distinguish an AD diagnosis from one of mild cognitive impairment. Other companies, such as Nymox and Applied Neurosolutions, are developing single analyte diagnostic tests.
Category Imaging Product PIB UCLA AD DIAGNOSTICS IN DEVELOPMENT Company GE Siemens Description Flurorescent thioflavin S derivative for PET imaging of amyloid plaques PET ligand that binds to both amyloid plaques and neurofibrillary tangles; partnered with Wyeth to be used in Wyeth's clinical programs MRI contrast agent, gadolinium based; specific for amyloid ExonHit blood based gene signature assay; relies on splicing mutations in immune cells of AD patients ApoE genotype analysis; ApoE4 plus dementia is indicative of AD 18 protein based plasma signature CSF measurements of total tau, phospho-tau and Abeta peptides. High levels of phosphotau and low levels of Abeta is diagnostic for AD Measures neural thread protein levels in urine. High levels diagnostic for AD. Measures phospoT231 on tau protein in CSF. High levels diagnostic for AD.
Mayo Gene Expression/Profiling EHT Dx21
ADMark, ApoE Fluid Analyte ADMark, CSF tau/Abeta
Athena Satoris Athena
ALZHEIMALERT APNS-CSFtau
Source: Company reports
Nymox Applied Neurosolutions
51
Alzheimers Disease
What Might The Future Treatment Paradigm For AD Look Like?

We believe the AD treatment market may develop similarly to the cardiovascular disease market over the next decade, as new tools are developed for the diagnosis, prevention, and treatment of AD. Disease prevention will likely encompass diagnostic monitoring of phospho-tau and beta-amyloid levels in blood, similar to cholesterol testing. Patients at high risk could be subject to monitoring of phosphor-tau and beta-amyloid levels in spinal fluid. Once a patients biomarker level is known, a risk/benefit assessment could determine which drug therapy, if any, should be initiated. For preventive therapy, a gamma-secretase modulator/notch-sparring inhibitor, beta-secretase inhibitor, or Abeta aggregation inhibitor could be used. For the treatment of active disease, a combination of agents might be used, including a beta-secretase inhibitor, a gamma-secretase modulator or notch sparring gamma-secretase inhibitor, a therapeutic vaccine or monoclonal antibody targeting beta-amyloid, an aggregation inhibitor, and/or an anti-oxidant.
HYPOTHETICAL AD MECHANISM / POTENTIAL TREATMENT TARGETS
Genetic Form "Familial" -- Missense Mutations In APP, PSI & PS2
Unknown "Sporadic" Disease Failure To Clear AB42
Altered Proteolysis of APP Potential Treatments Increased Production of AB42 Gamma Secretase Inhibitors Anti-Beta Amyloid Vaccine
Progressive Accumulation And Aggregration Of AB42 In Brain Interstitial Fluid
Deposition of Aggregrated AB42 As Diffuse Plaques
Aggregration of AB40 Onto Diffuse AB42 Plaques Accrual of Certain Plaque-Associated Proteins
Inflammatory Response: -- Microglial activation and cytokine release -- Astrocytosis and acute-phase protein release
NSAIDs, COXIBs, Glial Cell Modulators
Progressive neuritic injury within amyloid plaques and elswhere in the neuropil
NGF, Estrogen
Disruption of Neuronal Metabolic And Ionic Homeostasis; Oxidative Injury
MAO-B Inhibitors, Vitamin E
Altered Kinase/ Phosphatase Activities ---> Hyperphoshorylated Tau ---> PHF Formation
Tau based therapies
Widespread Neuronal/Neuritic Dysfunction and Death In Hippocampus and Cerebral Cortex Acetylcholinesterase Inhibitors Progressive Neurotransmitter Deficits
Dementia
Source: Nature, June 1999; Cowen and Company
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Alzheimers Disease
Acetylcholinesterase Inhibitors Are Current Standard Of Care

Despite marginal efficacy, acetylcholinesterase inhibitors remain the primary pharmacologic treatment for Alzheimers disease. Our clinical consultants prefer to start patients on an acetylcholinesterase inhibitor (typically Pfizers Aricept) as early as possible, assuming tolerability is not an issue. Our consultants estimate that 15-20% of their patients will respond well to an acetylcholinesterase inhibitor, but most patients are maintained on long-term therapy (>1 year) because the acetylcholinesterase inhibitors may slow cognitive decline and are well-tolerated. Our clinical consultants generally begin adjunctive treatment with Forests NMDA antagonist Namenda either when the patient progresses to the moderate stage of AD or if the patient and/or family request a more aggressive treatment regimen. They also will use Namenda in earlier-stage AD patients who do not tolerate or respond well to acetylcholinesterase inhibitors. Our clinical consultants point out that the early treatment efficacy observed with Namenda appears to be less than that achieved with acetylcholinesterase inhibitors, but adding Namenda to a treatment regimen does appear to slow the cognitive decline in patients with moderate-to-severe disease. An estimated 60%+ of Namenda patients are on combination therapy.
ALZHEIMER'S TREATMENT MARKET
60.0%
50.0%
40.0%
% Market Share
30.0%
20.0%
10.0%
0.0% Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09
Aricept Namenda Exelon Razadyne
Source: IMS Monthly Rx audit
Pfizer/Eisais Aricept Continues To Lead The Category

Pfizer/Eisai launched Aricept (donapezil) in the U.S. in 1997. Aricept is dosed once-daily and has a good side-effect profile, but only modest efficacy. In a 30-week pivotal Phase III study, 473 patients received Aricept 5 mg, 10 mg or placebo daily. After 24 weeks, the change in ADAS-cog scores for Aricept 5 and 10 mg were 2.8 and 3.1 units (on a 70-point scale), respectively. The changes were statistically significant compared to placebo, but the efficacy seen was relatively modest from a clinical perspective. In a 15-week pivotal Phase III study, patients also received Aricept 5, 10 mg or placebo. After 12 weeks, the change in ADAS-cog scores for Aricept 5 and 10 mg were 2.7 and 3.0 units, respectively. Given Aricepts modest efficacy, our consultants indicate the average duration of use is less than two years. As of January 2009, Aricept held a 55.3% total prescription share of the
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Alzheimers Disease
U.S. AD drug market. An orally disintegrating tablet (ODT) formulation of Aricept was launched in May 2005 and accounted for approximately 0.2% of the total Aricept prescriptions written in January 2009. We believe that Aricept will continue to be the acetylcholinesterase inhibitor of choice to treat AD, although its modest efficacy has prompted clinicians to try competitive acetylcholinesterase inhibitors. In October 2006, Eisai announced FDA approval of Aricept for the treatment of severe AD, making Aricept the first drug to receive approvals for the full spectrum (mild, moderate, and severe) of AD patients. Aricept enjoys broad marketing support, with Eisai targeting neurologists and Pfizer focusing on general practitioners. Eisai co-promotes the product in the U.S., Western Europe, and Japan. Eisai books 100% of the sales from these regions and pays Pfizer an undisclosed portion of the net profits. Pfizer promotes Aricept in other regions of the world and books 100% of sales from those regions. Teva is challenging the 4,895,841 composition-of-matter patent covering Aricept (donepazil) which expires in November, 2010. Eisai filed a patent infringement suit against Teva in December 2005. The 30 month stay on FDA approval expired in June 2008. We forecast Aricept sales of $2.05B in 2009, $1.95B in 2010, and $100MM in 2012, reflecting sales to the Eisai/Pfizer partnership and the launch of Aricept generics in the U.S. in late 2010.
U.S. PATENT COVERAGE FOR SELECT ALZHEIMERS DISEASE DRUGS
Drug Aricept (PFE/Eisai) U.S. Patent # 4,895,841 5,985,864 6,140,321 6,245,911 6,372,760 4,948,807 5,602,176 6,316,023 6,335,031 4,663,318 6,099,863 6,358,527 7,160,559 5,061,703 Expiration Date November 25, 2010 December 30, 2016 December 30, 2016 December 1, 2018 March 31, 2019 August 14, 2012 February 11, 2014 January 8, 2019 January 8, 2014 December 14, 2008 June 6, 2017 June 6, 2017 December 20, 2019 April 11, 2010 Comments - Composition-of-matter; includes ODT - Composition-of-matter; polymorphs - Production; polymorphs - Production; polymorphs - Formulation Composition-of-matter; Composition-of-matter; Composition-of-matter; Composition-of-matter; Method-of-use Formulation Formulation ER formulation patent capsule compounds for transdermal delivery compounds for transdermal delivery compounds for transdermal delivery
Exelon (NVS)
Razadyne/ER (JNJ/SHPGY)
Namenda (FRX)
- Method-of-use; expect patent term extension to Sept 2013
Sources: FDA Orange Book, USPTO website, Company reports
Transdermal Formulation Of Novartis Exelon Improves Tolerability

Novartis has marketed Exelon (rivastigmine) in Europe since late 1998 and in the U.S. since mid-2000. As of January 2009, Exelon (oral and transdermal) held an 8.4% total prescription share of the U.S. AD market, up from 6.8% in January 2008. Oral Exelons challenges include twice-daily dosing and nausea, although the latter is less problematic with careful titration. Exelon blocks 62% of acetylcholinesterase in the CNS when given at a 6 mg dose twice daily. It is 35% bioavailable, generates peak activity at 6 hours, and has 12-hour duration of activity. Among the 725 patients completing a Phase III study, 55% in a high-dose group showed statistically significant improvement in ADAS-cog from baseline, compared with 45% of placebo-treated patients. In another Phase III study (402 patients); moderate-to-marked improvement in ADAS-cog occurred in 43% of patients in the highdose group, 31.5% in the low-dose group, and 30% on placebo. Side effects include nausea, vomiting, diarrhea, anorexia, abdominal pain, weight loss, headache, dizziness and fatigue. Novartis developed a transdermal formulation of Exelon, the Exelon Patch, which has a significantly better tolerability profile versus the oral capsule formulation. The Exelon
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Alzheimers Disease
Patch was launched in the U.S. in August 2007 and was approved in the E.U. in September 2007 (multiple E.U. market rollouts ongoing). We estimate U.S. Exelon sales of $920MM (+12%) in 2009, $1B in 2012 and $200MM in 2015, clipped by Aricept generics in 2010, Exelon generics prior to the August 2012 patent expiration, and increasing competition with the potential launches of the disease-modifying antibodies (Wyeth/Elans bapineuzamab) and Lillys small molecule gamma-secretase inhibitor.
EXELON PATCH IMPROVES GI TOLERABILITY
JNJ/Shires Razadyne ER Hit By Generics

Johnson & Johnson launched Reminyl (galantamine) in the U.S. in May 2001 and in Europe in mid-2001. In April 2005, JNJ changed the galantamine brand name from Reminyl to Razadyne. Razadyne ER, a once-daily formulation of Razadyne, was launched in May 2005. Razadyne is differentiated by a dual mechanism of action: acetylcholinesterase inhibitor plus nicotinic receptor agonist. Our physician consultants are skeptical about the clinical benefits of this dual mechanism, but indicate that Razadyne may have less impact on sleep patterns than Aricept due to Razadynes shorter half-life. In a 965-patient Phase III trial, treatment with Razadyne ER demonstrated significant improvement in patients ADAS-cog score at six months. As of January 2009, Razadyne ER held less than a 1.0% total prescription share of the U.S. AD market, down from 2.8% in January 2008. Shire markets Razadyne ER in the U.K. In late August 2008 the U.S. District Court for the District of Deleware ruled in favor of Teva/Barrs challenge of patent 318, the key method-of-use patent protecting Razadyne. The judge also denied Janssens request for a Temporary Restraining Order, paving the way for RazadyneER generics. JNJ has appealed the ruling, but Teva launched its generic galantamine in October 2008. We estimate Razadyne ER U.S. sales of $40MM (-70%) in 2009, $35MM in 2010, and $15MM in 2013. The ex-US patent position for Razadyne ER extends through 2017. We estimate Razadyne ER international sales of $415MM in 2009 and $550MM in 2013.
Namenda MR Successful In Phase III

In February 2008, Forest released positive top-line results from the pivotal Phase III trial of Namenda MR, a once-daily formulation of Forests Namenda (memantine; moderate-tosevere Alzheimers disease). The 677-patient, placebo-controlled trial compared Namenda MR plus acetylcholinesterase inhibitor therapy to placebo plus acetylcholinesterase inhibitor therapy, a more challenging trial design. The 24-week trial in moderate-to-severe Alzheimers disease patients was conducted in Argentina, Chile, Mexico, and the U.S.
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Alzheimers Disease
Namenda MR is a 28mg, once-daily formulation of Namenda. The currently marketed formulation of Namenda is typically dosed twice-daily (10mg 2x/day or 5mg 2x/day). Namenda MR achieved a statistically significant benefit via both the cognition score (Severe Impairment Battery; p=0.001) and patient global score (CIBIC-plus; p=0.008), coprimary endpoints at 24 weeks. The statistical analysis plan used the pre-defined last observation carry forward (LOCF) method. Namenda MR appeared to be well-tolerated, an important factor given the higher dose. The most common side effects were dizziness, diarrhea, and headache (specific rates were not provided), which appears consistent with the label for the current formulation of Namenda. Namenda MR Should Extend Namenda Franchise Life Importantly, Forest had previously reached agreement with the FDA that this single pivotal trial will be sufficient for an NDA filing, assuming success. Since the current formulation of Namenda is expected to retain exclusivity until April 2015 following the five-year extension on the 703 patent, we believe Forest may hold the Namenda MR NDA submission until 2011-2012, in order to maximize the assumed 3-year Waxman-Hatch exclusivity period on Namenda MR, which begins upon FDA approval. Should a patent be granted on Namenda MR, Forest probably would file sooner to have the patent listed in the Orange Book as soon as possible. But if the only protection is assumed to be the Waxman-Hatch NDA exclusivity period (3 years minimum), Forest would try to time the approval/launch of Namenda MR to 2013-2014, to provide at least a year to convert the Namenda franchise to Namenda MR. The one-year conversion should be successful: our clinical consultants believe a once-daily formulation of Namenda does provide a meaningful clinical benefit, due to the higher effective dose and the fact that Namenda is most frequently administered in combination with once-daily acetylcholinesterase inhibitors. (The oncedaily Namenda formulation also enables Forest to pursue development of a single-tablet Namenda/Aricept combination, as the Aricept exclusivity expires in 2010.) The benefit of the launch timing strategy should be to effectively extend the majority of the Namenda franchise sales by two years, through at least H1:2017. In The Meantime, Use Of Namenda Continues To Increase Namenda (memantine) is a non-competitive N-methyl-D-aspartate (NMDA) antagonist that blocks glutamate from binding to the NMDA receptors. Studies have shown that excessive glutamate accumulation can injure and kill neurons. Namenda preserves neuronal function by reducing glutamate accumulation. While pre-clinical studies suggest that Namenda may have neuroprotective benefits in addition to its symptomatic benefits, our clinical consultants believe these benefits are unlikely to be seen in human studies. Given its differentiated mechanism of action and clean side-effect profile, Namenda is being used broadly in combination with acetylcholinesterase inhibitors; an estimated 60%+ of Namenda patients are on combo therapy. In January 2009, Namenda held a 33.9% total prescription share of the U.S. Alzheimers disease market. Namenda received a nonapprovable letter from the FDA for the mild Alzheimers indication, but off-label Namenda use in patients with mild-to-moderate AD is expanding nonetheless. Namenda is covered by approximately 95% of Medicare Part D prescription plans, and is protected by a U.S. patent which expires in April 2015, following the March 2009 issuance of a five-year patent term extension by the U.S. PTO. We estimate Namenda franchise sales of $955MM (+15%) in F2009, $1,040MM (+9%) in F2010, and $1,320MM in F2014,.
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Alzheimers Disease
Namenda Patent Has Been Challenged In January 2007, Forest announced that it and partner Merz filed patent litigation lawsuits in the U.S. District Court for the District of Delaware against multiple companies that filed paragraph IV certifications on the Namenda patent listed in the FDA Orange Book. That patent (#5,061,703) covers the use of memantine (Namenda) for the prevention and treatment of cerebral ischemis. The patent litigation filing triggered the Hatch-Waxman provision for a 30-month stay on generic approvals. However, because Waxman-Hatch provides for five years of market exclusivity for a new chemical entity (NCE), the 30-month stay on ANDA approvals will be added to the 5th year of the Waxman-Hatch exclusivity and therefore expires on April 16, 2011. Following a five-year patent term extension granted in March 2009, the 703 patent now expires in April 2015. Our legal consultants view the patent claims as solid and defensible, so we assume that Forest will successfully protect the Namenda exclusivity at least through April 2015. We project that Namenda MR will mitigate the generic erosion through F2016 and F2017.
NAMENDA - ESTIMATED PRESCRIPTION BUILDUP
NAMENDA U.S. PRESCRIPTION TRENDS NECESSARY TO ACHIEVE OUR ESTIMATES Apr F2008 Total Rx's (000) 495 Patient Retention Factor 68% Y/Y TRx Growth +17% New Patients (000) 151 M/M Growth -3% $4.00 Average Price/Day $59 $ per month ($MM) Y/Y Growth +27% Rx Sales Reported/Estimated Sales F2009E Total Rx's (000) 555 Patient Retention Factor 72% Y/Y TRx Growth +12% New Patients (000) 166 M/M Growth +4% Average Price/Day $4.40 $73 $ per month ($MM) Y/Y Growth +23% Rx Sales Reported/Estimated Sales May 524 73% +13% 163 +8% $4.00 $63 +22% Jun 510 67% +13% 157 -3% $4.00 $61 +22% $184 $192 554 69% +8% 162 -4% $4.40 $73 +19% $221 $219 Jul 536 73% +15% 161 +3% $4.00 $64 +25% Aug 548 71% +13% 167 +3% $4.00 $66 +22% Sep 512 66% +8% 152 -9% $4.00 $61 +17% $191 $193 575 71% +12% 167 +1% $4.40 $76 +24% $228 $246 Oct 568 78% +15% 170 +12% $4.28 $73 +29% Nov 541 67% +13% 160 -6% $4.28 $69 +27% Dec 548 72% +17% 158 -2% $4.28 $70 +32% $213 $219 615 77% +12% 180 +11% $4.40 $81 +15% $234 $241 Jan 570 73% +14% 173 +10% $4.40 $75 +32% Feb 528 64% +16% 161 -7% $4.40 $70 +35% Mar 537 71% +6% 160 -0% $4.40 $71 +23% $216 $226 Annual Adj. Sales Total Factor ($MM) 6,418 1,933 $804 $804 $830 +13% +10% 3.3% +3% $830 +27%
566 72% +8% 168 +1% $4.40 $75 +19%
578 74% +8% 170 +5% $4.40 $76 +19%
574 71% +5% 165 -3% $4.40 $76 +15%
594 73% +5% 175 +5% $4.40 $78 +7%
564 68% +4% 162 -8% $4.40 $74 +7%
Actual Estimates 612 599 605 68% 68% 70% +7% +13% +13% 192 182 186 +7% -5% +2% $4.55 $4.55 $4.55 $84 $82 $83 +11% +17% +17% $248 $249
6,991 2,077 $931 $931 $955
+9% +7% 2.6% +3% $955 +15%
Source: IMS; Cowen and Company estimates
ALZHEIMERS DISEASE DRUG PRICE COMPARISIONS ($ PER DOSE)

Aricept (PFE/Eisai) 5mg 10mg $5.79 $5.79 Aricept ODT (PFE/Eisai) 5mg 10mg $5.79 $5.79 Exelon (NVS) 1.5mg 3.0mg 4.5mg 6.0mg Patch $3.32 $3.32 $3.32 $3.32 $6.24 Razadyne (JNJ/SHPGY) 4mg 8mg 12mg $2.83 $2.83 $2.83 Razadyne ER (JNJ/SHPGY) 8mg 16mg 24mg $5.66 $5.66 $5.66 5mg 10mg Namenda (FRX) $2.61 $2.61
Source: https://pricerx.medispan.com reported wholesale acquisition cost (WAC), March 2009
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Alzheimers Disease
COMMONLY USED CLINICAL ENDPOINTS IN AD CLINICAL TRIALS

Clinical Measure 1.) AD Assessment Scalecognition (ADAS-cog) Description - Rates patients cognitive performance via 11 questions testing memory, orientation, language, and praxis; total possible score is 70, normal geriatric patients have scores of 0-1, maybe slightly higher; higher ADAS-cog scores correlate with more severe disease; patients with mild-to-moderate AD gain approximately 6-12 units per year.
2.) Clinician's Interview- Physicians assess patient improvement and include caregiver input; provides an overall assessment of patient Based Impression of Change - functioning, including behavior, psychiatric symptoms, cognition and activities of daily living; ratings include: no plus caregiver assessment change, markedly improved, moderately improved, minimally improved, minimally worse, moderately worse, (CBIC-plus) markedly worse. 3.) AD Cooperative Study Group - Activities of Daily Living (ADCS-ADL) 4.) Neuropsychiatric Inventory - Assesses basic activities, such as feeding, toileting, housework, shopping, taking meds, etc; one of three ratings assigned to performance of each task: independent, assistance required, or dependent.
- Evaluates 12 neuropsychiatric disturbances common in dementia: delusions, hallucinations, agitation, dysphoria, anxiety, apathy, irritability, euphoria, disinhibition, aberrant motor behavior, night-time behavior disturbances, and appetite and eating abnormalities; each is rated for severity (1 to 3) and level of distress caused (0 to 5).
5.) Mini Mental State Exam (MMSE)
- 30-point questionnaire test used to assess cognition; includes simple questions and problems in a number of areas: the time and place of the test, repeating lists of words, arithmetic, language use and comprehension, and copying a drawing; a score over 26 (out of 30) is effectively normal, 20-26 mild AD, 10-19 moderate AD, below 10 severe AD.
6.) Clinical Dementia Rating (CDR) scale: Sum of the Box score 7.) Neuropsychological Test Battery (NTB)
- 1-18 scale; physician assessment of patient global performance; lower scores are indicative of better patient performance; healthy patients typically have a score close to zero.
- Novel combination of 6 well-known, validated, cognitive tests, yielding 9 measures of patient performance: Wechsler Memory Scale visual immediate (score range, 018), Wechsler Memory Scale verbal immediate (score range, 024), Rey Auditory Verbal Learning Test (RAVLT) immediate (score range, 0105), Wechsler Memory Digit Span (score range, 024), Controlled Word Association Test (COWAT), Category Fluency Test (CFT), Wechsler Memory Scale visual delayed (score range, 06), Wechsler Memory Scale verbal delayed (score range, 08), and RAVLT delayed (score range, 030).18 The RAVLT delayed measure is composed of delayed recall and recognition performance components that are summed to yield a score ranging from 0 to 30.
Sources: www.minimental.com; American Family Physician June 1, 2002 issue; AD product labels; company reports
Next-Generation Treatments Now In Phase III

Our clinical consultants are enthusiastic that the first disease-modifying drug for AD could reach the market in 2-4 years. While the immunotherapeutic agents (monoclonal antibodies) may not be the first disease-modifying drugs to reach the market, our consultants believe that they are the most promising. They also predict that the existing symptomatic agents (acetylcholinesterase inhibitors, Namenda, etc.) will continue to be used in conjunction with the disease-modifying agents for their behavioral benefits.
Lessons Learned From AN-1792

Elan and Wyeths initial beta-amyloid immunotherapy was AN-1792, a therapeutic vaccine comprised of a synthetic form of the beta-amyloid (42 amino acid) peptide. AN-1792 was
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Alzheimers Disease
developed under a 50/50 development and commercialization partnership signed in April 2000 between Elan and Wyeth, which still covers most of Elans AD development work. Treatment with AN-1792 was expected to prevent and/or reverse the buildup of amyloid plaques by stimulating a beta-amyloid specific immune response. In August 2001, Elan and Wyeth initiated a 400-patient, two-year Phase IIa clinical trial for AN-1792. The trial was designed to include a 12-month treatment cycle, with AN-1792 infusions administered at 0, 1, 3, 6, 9, and 12 months. In February 2002, the study was terminated after just 23 of six planned doses were administered, due to a 6% incidence (18 cases) of meningoencephalitis, an inflammatory response in the brain to the peptide. Follow-up analyses of the partial Phase IIa trial results have helped shape the next generation of immunotherapeutics Elan and Wyeth are developing for the treatment of AD. Responder Analysis Shows Hints Of Efficacy A one-year follow-up analysis of the AN-1792 Phase IIa trial was presented at the June 2004 International Conference on Alzheimers disease. About 20% of the original patients enrolled generated an immune response equal to or exceeding a pre-determined minimal threshold (responders = IgG titer levels 1:2,200); of the 300 patients enrolled, 59 patients generated an immune response sufficient for follow-up analysis. These 59 patients demonstrated a statistically-significant reduction in the rate of functional memory decline relative to the patients on placebo at one-year, as measured by a neuropsychological test battery composite score (9 specific tests). The responders performed best on a specific verbal memory retention measure: the AN-1792 treatment group showed an improvement relative to baseline, while the placebo group showed a decline. However, the responders did not demonstrate a statistically significant improvement in any of the standard cognitive function scores (ADAS-cog, CIBIC-plus) relative to placebo: no positive or negative trends were observed. The selective benefits on the memory-based measures suggest AN-1792 and beta-amyloid may be more active in the hippocampus region of the brain where memory is controlled. The positive correlation between antibody response and memory scores was viewed as strong support for the hypothesis that removal of beta-amyloid plaques from the brain may lead to a cognitive benefit. But The MRI Results Were Confounding Patients who were treated with AN-1792 experienced a reduction in average brain mass and volume, as measured by MRI scans. Patients received MRI scans at the start and the conclusion of the study to measure changes in brain volume with the progression of Alzheimer's disease: research has shown that brain volume declines with Alzheimer's disease progression. The AN-1792 results countered that hypothesis: the AN-1792 responders showed, on average, a greater decline in brain volume than the placebo-treated patients, despite the fact that the AN-1792-treated patients showed a lower decline in memory function. The study investigators speculated that brain volume declined due to the clearance of the beta-amyloid plaques, but most experts believe that is unlikely. The two-year follow-up data muted the debate, as the brain volume declines in the AN-1792 respondents appeared to have resolved at two years. 4.5 Year Follow-Up Results Presented At ICPD At the June 2007 International Conference on the Prevention of Dementia, Elan presented 4.5 year follow-up results from the AN-1792 trial. The results included data on 159 patients: 129 patients treated with AN-1792 and 30 patients treated with placebo. Of the 129 patients treated with AN-1792, 25 were classified as responders and 17 patients had detectable anti-beta-amyloid antibody titers. Responders to the AN-1792 vaccine demonstrated a significantly (p=0.015) slower decline via the Disability Assessment for Dementia (DAD; quality of life measure) score versus those patients who had received
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Alzheimers Disease
placebo. The results also revealed a statistically significant (p<0.05) difference in favor of the patients treated with AN-1792 via the dependency scale, which assesses a patients dependency upon his/her caregiver, and subtests of the Neuropsychological Test Battery (NTB). Responders showed similar brain volume loss to that of placebo patients one year post the initiation of the study. 6-Year Follow-Up Of Phase I Results Presented At ICAD At the July 2008 International Conference on Alzheimers Disease, Dr. James Nicoll presented 6-year follow-up results from the AN-1792 Phase I trial. The findings of Dr. Nicoll and his colleagues, also published in the Lancet, have been controversial. The study highlighted 8 patients from the trial that underwent post-mortem histopathological evaluation. Six of the 8 patients had high antibody titers in response to the vaccination. The key findings were: Parenchymal Abeta load was decreased approximately 50% relative to matched AD controls. There was a large variability among the various subjects, but the degree of plaque load was roughly correlated to antibody titer levels. There were a number of features consistent with plaque removal including: o o o o The presence of plaque cores in the brain tissue Moth-eaten appearance of the remaining plaques Phagocytosed Abeta within the microglia Marked increase in cerebral amyloid angiopathy
Despite the lower plaque burden, there was no difference in tau levels as measured by BRAAK stage upon death. There was resolution of dystrophic neurites in areas where plaque had been removed. There were much higher levels of cerebral amyloid angiopathy in the cortex. The levels seemed to correlate with time post-dose with the implication that trafficking of Abeta was occurring as a function of time. There was no change in synaptic density in these patients versus matched controls. There was no change in microglia as measured by HLA staining, although CD68 staining indicated microglia levels may have been higher in the vaccinated patients. There was no change in survival time. This was a measure of the entire clinical cohort though, not just the patients that underwent histopathological characterization. Despite the evidence of plaque removal in these patients, seven of the eight patients died with end stage dementia (MMSE = 0). The eighth patient passed away shortly after the first vaccination (4 months). These results are obviously of interest for investigators pursuing anti-amyloid therapy. Dr. Nicoll offered several possible explanations for the data. They include: Plaques may be sufficient to initiate degeneration, but are not required for continuation of degeneration. The plaques may have been removed too late. indicates the timing of plaque removal. We dont have any data that
We dont know the role of non-plaque Abeta such as soluble oligomers.
Bapineuzumab Phase III Program Underway, Despite Mixed Phase II Data

In response to the AN-1792 safety issues, Elan and Wyeth developed a passive immunotherapy treatment approach using a monoclonal antibody. Bapineuzumab (AAB001) is a beta-amyloid specific monoclonal antibody currently in Phase III trials for the
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treatment of mild-to-moderate AD. Bapineuzumab is believed to prevent beta-amyloid aggregation and facilitate the clearing of beta-amyloid plaques from the brain via glial cells. Bapineuzumab is delivered via an intravenous infusion once every three months. Our consultants note that only a very small amount of bapineuzumab (<1%) penetrates the blood-brain barrier. Therefore, in addition to preventing and clearing beta-amyloid plaques from the brain, some physicians believe bapineuzumab works by sequestering soluble beta-amyloid in the peripheral circulation and preventing it from trafficking into the brain. Bapineuzumab is specific for the N-terminus of the beta-amyloid protein. Our consultants indicate that the N-terminus of the beta-amyloid protein was selected as the target because a majority of anti-beta-amyloid antibodies isolated from patients treated with AN-1792 were specific for this portion of the beta-amyloid molecule. Bapineuzumab Phase II Data Raise Several Questions Detailed bapineuzumab Phase II data were presented at the ICAD meetings in July 2008. Bapineuzumab failed to demonstrate statistically significant improvement in either of the primary efficacy endpoints, ADAS-cog and DAD, using a modified intent to treat (MITT) analysis. The observation that the rate of vasogenic edema was higher in carriers of the ApoE4 genetic allele and that the decline in placebo was non-linear for the various endpoints led to the decision to conduct a post-hoc sub-group analysis based on ApoE4 genotype. The results of this sub-group analysis were consistent with our expectations: the ApoE4(-) patients demonstrated good relative efficacy via ADAS-cog, NTB, CDR-sb and brain volume loss measures, while the ApoE4(+) patients did not show compelling evidence of efficacy. Overall, we came away from the bapineuzumab data presentation with lower confidence that bapineuzumab will achieve statistically significant efficacy in the Phase III trial for the ApoE4 non-carrier population. While the relative changes in ADAS-cog and NTB scores at 18 months (relative to placebo) and the reduction in brain volume loss in the ApoE4 noncarriers were impressive in the Phase II trial, the variability of the data, the lack of a doseresponse, and the unusually sharp ADAS-cog decline in the placebo group all erode the strength of the efficacy signal. Moreover, we saw no compelling efficacy signal in the ApoE4 carriers to provide evidence of success in the Phase III trial for this patient cohort. On the positive side, the vasogenic edema incidence (9.7%) was lower than anticipated and was not associated with any serious adverse events. Several important questions were raised by the bapineuzumab Phase II data presentation, which reduced confidence in bapineuzumabs odds of success in Phase III. Those questions include: 1. The 11-point mean ADAS-cog score decline for the ApoE4 non-carrier patients on placebo was higher than seen in other 18-month Alzheimers trials. Does this indicate that the relative efficacy observation was driven by a more rapidly declining placebo arm? 2. The various dose cohorts showed a highly variable response on all efficacy measures, and no evidence of a dose response. The 0.5mg/kg bapineuzumab dose generally showed greater efficacy than the 1.0mg/kg and the 2.0mg/kg doses. This raises questions concerning the variability of the data. 3. There was an imbalance in the baseline MMSE scores in the ApoE4 non-carrier group: might this account for the apparent efficacy in this sub-group? 4. The CSF phosphorylated tau measurements indicate a possible lowering effect on this biomarker, but there was no effect on total tau or Abeta levels. Could the confounding biomarker data indicate lack of activity?
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And The Risk Of Phase III Failure We came out of the data presentation with lower confidence in the Phase III outcome for the ApoE4 non-carriers, given the overall variability of the data and the factors noted above. However, we still believe bapineuzumab has better-then-even odds of becoming a drug, at least for the ApoE4 non-carrier patient population. What Were We Looking For, And What Did We See? 1. The relative efficacy curves: The most important indicators, according to our consultants, of bapineuzumabs efficacy signal are the graphs of drug-placebo differences in change from baseline scores on the four efficacy endpoints. These were provided for the ApoE4(-) sub-group. We were looking for evidence of early and sustained relative cognitive and functional improvement (relative to placebo). A widening of the gap between placebo and drug treatment could be evidence of disease modification. ADAS-cog did not show separation from placebo until 37 months, but from there the separation did expand. Both NTB and CDR-sb endpoints demonstrated widening of the drug treated vs. placebo gap over time. The DAD endpoint was more disappointing, only showing separation from placebo at the final measurement at 78 weeks. The mean decline from baseline in the placebo group for the ADAS-cog measurement was 11 points, a higher rate than seen in other 18-month AD clinical trails of similar patient populations. This raises the question of whether the positive treatment effects observed may be exaggerated by, or even caused by, an unusually steep ADAS-cog decline in the placebo group.
Source: ICAD data presention
2. Success on multiple endpoints: Evidence of statistically significant sustained efficacy on multiple endpoints would be supportive of a strong bapineuzumab efficacy signal.
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The tables below summarize the results using both the modified intent to treat (MITT) and completers analyses. The MITT is the full ITT patient population excluding those randomized patients who did not receive the first infusion, which excluded 2 patients from the bapineuzumab group and 3 patients from the placebo group. The MITT analyses include 122 bapineuzumab patients and 107 placebo patients. In the MITT analysis, ApoE4(-) patients on bapineuzumab achieved statistically significant efficacy in 3 out of 4 endpoints. The results of the DAD functional measure did not yield a statistically significant improvement for bapineuzumab over placebo. The completer analysis includes only those patients completing a full course of 6 infusions (92 bapineuzumab patients, 87 placebo patients). This analysis yields a more powerful benefit for bapineuzumab: bapineuzumab achieved statistically significant efficacy on 3 out of 4 endpoints for both the total population and the ApoE4(-) patients. However, the statistical robustness of the completers analysis is weaker, given the much smaller patient populations. The ApoE4 carrier group failed to achieve statistically significant efficacy in the completers analysis. Improvement Versus Placebo Using MITT Analysis
Total pop. MITT ADAS-cog vs placebo (p-value) NTB vs placebo (p-value) DAD vs placebo (p-value) CDR-sb vs placebo (p-value)
source: ICAD presentation
ApoE4(-) MITT 5.0 (0.026) 0.35 (0.01) 6.9 (>0.1) 1.5 (0.04)
ApoE4(+) MITT 0.9 (>0.1) 0.02 (>0.1) -1.2 (>0.1) -0.4 (>0.1)
2.3 (0.078) 0.13 (0.068) 1.7 (>0.1) 0.3 (>0.1)
Improvement Versus Placebo Using Completer Analysis

Total pop. completer ADAS-cog vs placebo (p-value) NTB vs placebo (p-value) DAD vs placebo (p-value) CDR-sb vs placebo (p-value)
source: ICAD presentation
ApoE4(-) completer 7.3 (0.003) 0.36 (0.01) 8.1 (>0.1) 1.7 (0.043)
ApoE4(+) completer 2.6 (>0.1) 0.05 (>0.1) 5.0 (>0.1) 0.1 (>0.1)
4.3 (0.003) 0.16 (0.045) 6.1 (0.041) 0.7 (>0.1)
Lack Of A Dose-Response Raises Concerns About The Phase III Trial While the pooled data were fairly compelling, the lack of a consistent dose response raises concerns about the variability of bapineuzumabs efficacy. The dose response data for the ApoE4(-) patients using the MITT analysis is shown in the table below. While the pooled data hit significance on 3 out of 4 endpoints, it appears that this effect may be driven by the lower bapineuzumab dose groups. The ongoing Phase III trial is designed to test bapineuzumab at 0.5mg/kg, 1.0mg/kg, and 2.0mg/kg in ApoE4 non-carriers, but the 1.0mg/kg dose appeared to have little efficacy on 3 of the 4 endpoints in the Phase II trial. Additionally, there was a baseline imbalance of 1.6 points in MMSE score for the ApoE4(-) cohort. The bapineuzumab-treated patients had a baseline MMSE score of 21.4 while the placebo group had a baseline MMSE score of 19.8. While of minor clinical relevance, this imbalance could skew the results.
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Source: ICAD presentation
3. Biomarkers: In the view of our clinicians, biomarkers may support a disease modification hypothesis, but the shapes of the relative efficacy curves are more important signals of efficacy. The biomarker data presented for bapineuzumab at ICAD were compelling in some cases while confounding in others. The reduction in brain volume loss relative to placebo in ApoE4 non-carriers is a strong signal of bioactivity and possibly disease modification. In the carrier group however, there was no change in brain volume loss and a statistically significant increase in ventricular volume (which would be a negative effect). The relevance of this result remains unclear. There appears to be a trend toward lowering CSF phosphorylated tau (p-tau), although the reduction did not reach statistical significance. Our consultants indicated that a significant reduction in p-tau would be powerful evidence of disease modification. On the other hand, there was no observed change in Abeta levels in the CSF, which was somewhat unexpected for a drug that is designed to target beta-amyloid.
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4. Safety signals. The safety results of the bapineuzumab Phase II trial were reassuring. The total number of vasogenic edema (VE) observations (12) was lower than we anticipated. Ten of the twelve were observed in the ApoE4(+) patients at the two highest doses. Six of the twelve VE patients were re-challenged with bapineuzumab without any further complications. One slight worry is that 6 of the 12 cases were described as symptomatic, with symptoms including confusion and gait disturbances, but these symptoms appear to be temporary. A few adverse event observations including anxiety, vomiting, paranoia, and gait disturbances, could be characterized as being centrally mediated.
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Bapineuzumab Phase III Program Underway

Based on an interim analysis of the Phase II data in May 2007, Elan and Wyeth decided to advance bapineuzumab into Phase III trials, and initiated patient enrollment in the U.S. portion of the trial in December 2007. Enrollment of the international Phase III trial was initiated in May 2008, but was temporarily halted in several countries following presentation of the Phase II results at ICAD. Enrollment for the international trial resumed in late 2008. Elan is running the U.S. Phase III program and Wyeth is responsible for the international Phase III program. As of late February 2009, enrollment of the ApoE4 carriers is complete for the US trial, but recruitment for the non-carriers continues. Assuming Phase III success, we estimate world-wide bapineuzumab sales of $480MM in 2012, $1.89B in 2013, and $5.03B in 2015. Phase III Trials Will Separate AD Patients By ApoE4 Genotype Based on the interim look at the Phase II trial, Elan and Wyeth designed the Phase III program to accommodate the differential efficacy and safety responses of ApoE4 carriers and non-carriers to bapineuzumab. The Phase II data presentation at ICAD confirmed this hypothesis. The presence of the ApoE4 allele significantly increases a patients betaamyloid plaque burden and therefore the chances of suffering from AD. In a clinical trial population, approximately 60% of Alzheimers disease patients are ApoE4 carriers, but in the general population, the prevalence of ApoE4 carriers is closer to 50%. In the bapineuzumab Phase II trial, vasogenic edema cases were far more prevalent in ApoE4 carriers, and bapineuzumabs efficacy in the ApoE4 carriers appeared to be diminished by the high plaque burden. The Phase III program will include four trials: placebo-controlled U.S. and international trials in ApoE4 non-carriers and placebo-controlled U.S. and international trials in ApoE4 carriers. Given the relatively favorable safety profile of bapineuzumab in the ApoE4 noncarriers, the two ApoE4 non-carrier trials will enroll 1,250 patients each and will test three different doses of bapineuzumab: 0.5mg/kg, 1.0mg/kg, and 2.0mg/kg. The two ApoE4 carrier trials will enroll 800 patients each and will test a single, lower dose of bapineuzumab (0.5mg/kg), as the safety issues appear to be dose-related. Our consultants
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indicate that Elan and Wyeth may add a lower bapineuzumab dose to the ApoE4 carrier trials based on the Phase II results. The bapineuzumab Phase III study design is outlined below. The FDA requires that Alzheimers drugs achieve statistically significant efficacy on both a cognitive measure and a functional measure. The co-primary endpoints for the Phase III studies have not been announced: Elan and Wyeth will measure multiple cognitive and functional scores, but have reached agreement with the FDA that the primary cognitive and functional endpoints can be specified following the complete analysis of the Phase II data. We assume the cognitive endpoint will be either ADAS-cog or NTB and the primary functional endpoint will be either DAD or CDR. The two ApoE4(-) trials each will enroll 1,250 patients in three dose groups plus placebo (2,500 patients total). We assume the dose groups will be split evenly at 313 patients per dose group, although the weighting may change based on the Phase II results. The two ApoE4(+) trials each will enroll 800 patients (1,600 patients total) in one dose group (0.5mg/kg.) plus placebo, at 400 patients per dose group.
BAPINEUZUMAB PHASE III PROGRAM
Total patients Study duration Dose groups/doses Patients/dose group Primary endpoints Secondary endpoints U.S. ApoE4(-) trial 1,250 18 months 4 (0.5, 1.0, 2.0mg/kg, placebo) 313 (ADAS-cog or NTB), (DAD or CDR) (ADAS-cog or NTB), (DAD or CDR) U.S. ApoE4(+) trial 800 18 months 2 (0.5mg/kg, placebo) 400 (ADAS-cog or NTB), (DAD or CDR) (ADAS-cog or NTB), (DAD or CDR) Int'll ApoE4(-) trial 1,250 18 months 4 (0.5, 1.0, 2.0mg/kg, placebo) 313 (ADAS-cog or NTB), (DAD or CDR) (ADAS-cog or NTB), (DAD or CDR) Int'l ApoE4(+) trial 800 18 months 2 (0.5mg/kg, placebo) 400 (ADAS-cog or NTB), (DAD or CDR) (ADAS-cog or NTB), (DAD or CDR)
Source: clinicaltrials.gov, Company reports
Bapineuzumab Phase III Trial Appeared Powered For Success The 55% effect size observed in the non-carriers on the ADAS-cog endpoint (6-point decline versus 11-point placebo decline) predicts success in Phase III from a purely statistical point of view. The fact that this effect size was observed with a post hoc stratification, the placebo decline was higher than expected, and there was no evidence of a dose-response lowers our conviction in the robustness of this response. We estimate that the Phase III trial is powered for statistical significance on ADAS-cog and DAD at a 44% relative effect size.
ESTD EFFECT SIZES REQUIRED FOR BAPINEUZUMAB TO ACHIEVE STATISTICAL SIGNIFICANCE IN PHASE III
Data Analysis Protocol ApoE4(-); individual dose groups ApoE4(-); individual dose groups ApoE4(-); dose groups pooled ApoE4(-); dose groups pooled ApoE4(+) ApoE4(+)
Source: Cowen and Company estimates
ADAS-cog mean = -6.5, SD = 8 Probability p<0.05 Rel. Effect Size ADAS-cog for both ADAS-cog and DAD 80% 35% 95% 44% 80% 95% 80% 95% 28% 36% 35% 39%
Rel. Effect Size DAD 35% 44% 28% 36% 35% 39%
Bapineuzumab Phase III Data Now Anticipated In Late-2010 The figure below indicates the bapineuzumab Phase III program timeline with estimated completion dates for the U.S. and international trials. We estimate that the best case U.S. NDA filing for bapineuzumab would be in H1:2011, based on 18-month efficacy and safety data. Therefore, U.S. approval and market launch might come in late 2011/early 2012. The international program is now running 6-9 months behind the U.S. program.
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Bapineuzumab Phase III Timeline

H1:2010 WW trials complete enrollment Q4:2010 6 month WW interim look H2:2011 WW study completion
June 2008 WW trials Initiate
2010 2008
December 2007 US trials Initiate
2011
2009
Q2:2009 US trials complete enrollment 12 month US interim look H1:2011 12 month WW interim look
Possible Registration
Vasogenic Edema Not Expected To Derail Bapineuzumab

An MRI flare signal, termed vasogenic edema, was observed in some patients treated with bapineuzumab during the Phase I and Phase II trials. In the Phase II trial, the total number of vasogenic edema (VE) observations (12) was lower than we anticipated. Ten of the twelve VE cases were observed in the ApoE4(+) patients at the two highest doses, which are not being used in ApoE4(+) patients in the Phase III trials. Six of the twelve VE patients were rechallenged with bapineuzumab without any further complications. The vasogenic edema appears to be transient, resolving after patients stopped taking bapineuzumab, and we believe that clinical events have been associated with vasogenic edema observations in only a handful (2-6) of cases. The cause of the vasogenic edema is unclear, and has been subject to considerable debate. One of our clinical consultants who has researched the vasogenic edema cases independently believes that the flares are indeed evidence of an inflammatory response, but that the duration of the response to bapineuzumab is sufficiently short that clinical sequelae are expected to be relatively rare and minor. Other experts have speculated that the MRI flares could be an artifact of bapineuzumabs efficacy, a result of beta-amyloid accumulation in the vasculature. Institutional Review Boards (IRBs) have evaluated the vasogenic edema events on a case by case basis, and have allowed some patients to re-initiate treatment after experiencing vasogenic edema. The FDA has observed data from the patients who experienced vasogenic edema, and has decided not to classify the cases as adverse events. Our consultants do not expect vasogenic edema to be a significant safety issue for bapineuzumab, although bapineuzumab initially could be contra-indicated in ApoE4 carriers. The large Phase III program should provide a more definitive assessment of the bapineuzumab safety profile. Subcutaneous Formulation May Reduce Vasogenic Edema Occurrences Elan and Wyeth are developing a subcutaneous formulation of bapineuzumab, which currently is in Phase II trials. Our consultants believe the more frequent dosing associated with the subcutaneous formulation could reduce peak antibody titer levels in treated patients and ultimately could lead to a reduction/elimination of the vasogenic edema seen in some patients post treatment with bapineuzumab. We anticipate data from this Phase II trial in 2010.
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AAB-002 Seeks To Improve Upon Bapineuzumabs Design AAB-002, Elan and Wyeths second-generation monoclonal antibody, also targets the Nterminus of the beta-amyloid protein. Our consultants indicate that Elan and Wyeth are pursuing the development of AAB-002 for two key reasons: (1) AAB-002 will serve as a back-up to the bapineuzumab program should unforeseen problems arise, and (2) Elan and Wyeth have made some modifications to AAB-002 seeking to improve upon the design of bapineuzumab. They believe AAB-002 may be designed to optimize the effect in the peripheral circulation. Pfizer Likely To Assume Wyeths Role In Collaboration Following Pfizers announcement of the proposed acquisition of Wyeth, Pfizer management described the Wyeth/Elan Alzheimers Disease drug development collaboration as complementary to Pfizers own internal Alzheimers programs. Pfizer also noted that it does not expect the FTC to require the divestiture of any of the development candidates in the Alzheimers pipelines. Each company has at least one monoclonal antibody against beta-amyloid in development (Elan/Wyeths bapineuzumab in Phase III and Pfizers PF-4360365 in Phase I), but the programs appear to have no other overlap. Pfizers Alzheimers pipeline is led by symptomatic therapies Aricept (marketed) and Dimebon (Phase III via a collaboration with Medivation); a RAGE inhibitor (Phase II via a collaboration with TransTech), and the beta-amyloid c-terminus monoclonal antibody (Phase I). The candidates included in the Elan/Wyeth collaboration are the beta-amyloid nterminus monoclonal antibody bapineuzumab (Phase III), the subcutaneous injection formulation of bapineuzumab (Phase II), AAB-002 (the follow-on to bapineuzumab, in preclinical development), and ACC-001 (active vaccine in Phase II testing). Because Pfizers antibody targets the opposite end of the beta-amyloid peptide from bapineuzumab, we and Pfizer management do not believe that the FTC will view the two antibodies as competitive. The unknown question concerns Pfizers willingness to fully fund the Alzheimers development programs, which include two large Phase III programs (bapineuzumab and Dimebon), three Phase II programs (the RAGE inhibitor, sub-Q bapineuzumab, and ACC001) and two earlier-stage programs (PFEs beta-amyloid monoclonal antibody and ELN/WYEs AAB-002). However, we believe the key Wyeth/Elan programs (bapineuzumab and bapineuzumab sub-Q) will receive full funding. The change of control provision in the collaboration allows Pfizer to assume Wyeths role and economics in the collaboration (Wyeth and Elan currently split development costs 50/50 and will split prospective revenues 50/50). Elan indicated that it is not interested in selling its half of the Alzheimers collaboration to Pfizer to raise cash. We also assume that Pfizer would not be interested in acquiring Elans share at this juncture, given the uncertainty surrounding the ongoing bapineuzumab Phase III trials.
LLY And PFE Antibodies Take A Slightly Different Approach

Because Wyeth/Elans Bapineuzumab targets the N-terminus of the beta-amyloid peptide, it is believed to both sequester beta-amyloid in the peripheral CNS and facilitate the clearance of beta-amyloid from the brain. Eli Lillys LY2062430 and Pfizers PF-04360365 target the mid-domain and the C-terminus of the beta-amyloid peptide, respectively. By virtue of the specific segment of the beta-amyloid peptide targeted, LY2062430 and PF69
Alzheimers Disease
04360365 are believed to act only by sequestering beta-amyloid in the peripheral CNS, and are not expected to act on the beta-amyloid plaques in the brain. Our consultants indicate that, based on the predicted mechanisms, Bapineuzumab has the potential for superior efficacy, but also carries a higher relative safety risk. Assuming LY2062430 meets its endpoints, we project a 2012 launch for LY2062430 and estimate sales of $250MM in 2012, $500MM in 2013, and $1000MM in 2015. We project a 2012 launch for PF-04360365 and estimate sales of $100MM in 2012. Phase II Data On LY2062430 Presented At ICAD Eli Lilly presented interim results from the Phase II trial of LY206430, its investigational anti-amyloid monoclonal antibody for the treatment of mild-to-moderate AD. LY206430 was shown to raise Abeta levels in the blood and CSF, which may be evidence of Abeta clearance from the brain. There were no reports of treatment-related brain inflammation, bleeding, or other side effects. This was a 12-week, randomized, placebo-controlled trial of 52 patients receiving either placebo, 100mg or 400mg doses of LY206430 once a week, or 100mg or 400mg doses once every 4 weeks. Additionally, 16 volunteers were given a single dose of either 100mg LY2062430 or placebo. All participants received MRI and CSF examinations. A sub-study of 24 patients and 13 volunteers underwent single photon emission tomography (SPECT) scanning using an experimental tracer to assess levels of amyloid plaque in the brain. In addition to the clean safety profile and Abeta increases in blood and CSF, the drug raised levels of two additional forms of Abeta in blood and CSF. These Abeta forms are thought to only be present in amyloid plaques. The trial did not show any effect on efficacy endpoints or plaque burden as measured by SPECT, but this is not surprising given the short duration of the trial. Lilly announced plans to commence Phase III trials for LY2062430 in 2009.
Summary Of Anti -A Antibodies Under Development

Eli Lillys LY2062430: Targets a.a. 13-28; active IgG1 Elan/Wyeth s Bapineuzumab : Targets a.a . 1 -5; active IgG1 A Pfizers PF-04360365 : Targets a.a. 35-40; inert IgG2
Elan/Wyeth Trying Again With An Active Vaccine

ACC-001 is Elan and Wyeths follow-on to AN-1792, a therapeutic peptide vaccine targeting beta-amyloid. AN-1792 used a longer peptide (compared to ACC-001), which was shown to contain a T-cell specific epitope. This T-cell epitope is believed to be the cause of the cellular immune response seen in patients treated with AN-1792, which may have caused the meningoencephalitis side effects. By excluding this epitope from the ACC-001 peptide, experts believe that ACC-001 may have a clean immunogenicity profile. The peptide utilized in the vaccine is seven amino acids long (versus the 42-amino acid peptide used in AN-1792) and resides within the N-terminus of the beta-amyloid protein. The peptide is directly conjugated to an APC polymer carrier, a well established delivery system that has been used in previous vaccine products. The Phase I study investigated the safety and immunogenicity of ACC-001 in patients with mild-to-moderate AD. The Phase I results have not been published to date, but we could see them later this year.
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Two Phase II trials of ACC-001 are ongoing. A 2-year, 56-patient trial was initiated in May 2007. The trial is testing three doses of ACC-001 (3, 10, and 30 micrograms) in combination with an adjuvant (QS-21; 50mg fixed dose). ACC-001 and the adjuvant are delivered via an intramuscular injection. The patients are being dosed on day one and at months 1, 3, 6, and 12. The trial is enrolling patients with mild-to-moderate AD. The patients in the placebo arm will receive the adjuvant only. A 2-year, 228-patient trial was initiated in November 2007. The trial is testing multiple doses (undisclosed) of ACC-001 (3-90 micrograms) with and without the QS-21 adjuvant. The patients are being dosed on day one and at months 1, 3, 6, and 12. The trial is enrolling patients with mild-to-moderate AD. Data from both trials may be released in 2010. ACC-001 Trial Suspended In April 2008, Restarted In June 2008 In April 2008, Elan and Wyeth announced the suspension of the ongoing Phase II trial of the active amyloid vaccine ACC-001 when a patient developed unexplained skin lesions. A lead researcher in the trial speculated that this was a case of vasculitis, an inflammation of blood vessels. In June 2008, Elan announced that the ACC-001 trial had resumed dosing, and that the skin lesions appeared to be unrelated to ACC-001. Nonetheless, the views of our clinical consultants and the suspension of the ACC-001 trial reduce our conviction in the safety of active Alzheimers immunotherapy.
Baxters Gammagard In Phase III Trials

Gammagard is an intravenous purified polyclonal human antibody solution currently indicated for the treatment of primary immunodeficiency disorders associated with defects in humoral immunity, including congenital X-linked agammaglobulinemia, common variable immunodeficiency, Wiskott-Aldrich syndrome, and severe combined immunodeficiencies. Gammagard contains natural antibodies specific for beta-amyloid. Baxter presented positive Phase I data on Gammagard at the July 2006 ICAD meetings. Eight patients with mild-to-moderate Alzheimers disease (AD) were treated for six-months in the open-label, dose-finding study. Subjects treated with either 0.4g/kg of Gammagard S/D every 2 weeks or 2g/kg of Gammagard every month remained stable or improved (vs. baseline) via MMSE at six-months. All subjects treated had significantly lower (vs. baseline) CSF levels of beta-amyloid. After six months, patients stopped Gammagard for three months, and returned to their pre-treatment cognitive state. After the washout period, patients resumed Gammagard treatment for an additional nine months. For the first three months, patients were treated with a 1g/kg dose of Gammagard every two weeks followed by 0.4g/kg of Gammagard every two weeks for the remaining six-months. MMSE scores were taken immediately after the washout period and every three months after. Patients remained on stable doses of their existing AD medications (acetylcholinesterase inhibitor and memantine) during the study. MMSE scores were stable for the first three months and trended upward in a majority of patients over the final six months. Gammagard Phase II Data Encouraging The Phase II results of Gammagard were presented in April 2008 at AAN and demonstrated encouraging evidence of disease modification. The open-label, Phase II trial enrolled 24 patients. The primary outcome measures were ADAS-cog and ADCS-CGIC. Eight patients received Gammagard Liquid, eight received Gammagard S/D (lower IgA content compared to Gammagard Liquid), and eight patients were treated with placebo. Doses of Gammagard ranged from 0.2g/kg every two weeks to 0.8 g/kg every month. At six months, patients on Gammagard averaged 1.52 points higher than placebo-treated patients on the ADCS-CGIC score, a result that achieved significance. Drug-treated patients averaged 2.91 points lower on ADAS-cog decline but this value did not reach significance on such a small number of patients. Secondary endpoints were levels of beta-amyloid antibodies in blood and CSF and levels of beta-amyloid in blood. Antibody levels increased in both CSF and
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blood and beta-amyloid levels were increased in blood, but the presenters did not provide quantification of these observations. An additional observational finding was that patients treated with Gammagard had improved brain metabolic function (16% higher vs. placebo) as measured by FDG-PET. Brain glucose metabolism usually progressively declines in Alzheimers patients and this observation, it could be argued, supports the notion that Gammagard is disease modifying. At ICAD in July 2008, the nine-month data from this ongoing open-label trial were presented: Gammagard achieved a statistically significant improvement on the ADAS-cog measure at nine months. Based on these positive Phase II results, Baxter decided to advance Gammagard into Phase III trials. In September 2007, Baxter signed an agreement with Halozyme to develop a subcutaneous formulation of Gammagard using Halozymes Enhanze technology. Cost, Supply Are Key Issues For Gammagard While the clinical data on Gammagard are limited, our consultants are modestly enthusiastic about its potential. However, they indicate product supply (it is derived from human plasma donors) and to a lesser extent cost, are key issues that would need to be overcome if Gammagard proves to be effective in Alzheimers disease. The recommended dose for Gammagard for its approved indication is 0.3-0.6g/kg every 3-4 weeks. The doses used in the 24-patient Phase II trial ranged from 0.2 g/kg every two weeks to 0.8 g/kg every month. The current price (AWP) for Gammagard Liquid is approximately $304 for 25ml (100mg/ml). If we look at the two dosing extremes: assuming an average patient weight of 72kg and a dose of 0.8g/kg/month, the annual cost for Gammagard would be approximately $84,000. Assuming an average patient weight of 72kg and a dose of 0.4g/kg/month, the annual cost for Gammagard would be approximately $42,000.
Mercks V950 Is In Phase I

Merck is developing a therapeutic peptide vaccine (V950) targeting beta-amyloid, similar to Wyeth/Elans ACC-001. Most companies have targeted monoclonal antibodies (passive vaccines) as an initial approach to an Alzheimers disease immunotherapy program for safety considerations: Merck is making an aggressive move to skip the monoclonal antibody step and move directly to an active vaccine.
Novartis/Cytos CAD 106 Is In Phase I

In May 2005, Novartis and Cytos Biotechnology AG received clearance from the Swedish Health Authority to begin Phase I studies of CAD 106. CAD 106 is a payload antibody. It is described as having two components: (1) the immunodrug carrier Qb coupled with; (2) a fragment of the beta-amyloid-protein. In pre-clinical animal studies, CAD 106 has been shown to block the formation of beta-amyloid plaques. The Phase I study is being conducted by Novartis and is expected to include 60 patients with mild-to-moderate Alzheimers disease and will investigate safety and tolerability as well as beta-amyloid specific antibody response. Initial results of the Phase I trial were presented at ICAD 2008: the antibody was well tolerated and produced a robust and specific antibody response. Based on these results, Novartis and Cytos are moving CAD 106 into Phase II. Novartis and Cytos have been collaborating since October 2001 to develop and commercialize products covering Cytos immunotherapeutic compounds targeting AD.
Medivations Dimebon Could Be The Winner From ICAD 2008

In September 2008, Medivation and Pfizer (PFE) announced an agreement to develop and commercialize Dimebon for both Alzheimers and Huntingtons Disease. Dimebon is an older compound being developed for the treatment of AD. Dimebon currently is being evaluated in a global Phase III program in patients with mild-to-moderate Alzheimers disease. Via the agreement, Medivation will receive an up-front cash payment of $225MM,
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payments of up to $500MM upon the attainment of development and regulatory milestones plus additional undisclosed commercial milestone payments. Pfizer and Medivation will split Dimebon pre-launch development/commercialization costs and operating profits 60/40 (Medivation gets 40%). Medivation and Pfizer will collaborate on the Phase III program in Alzheimers disease, Huntingtons disease development and regulatory filings in the United States. Medivation retains rights to co-promote Dimebon to specialty physicians in the U.S. Outside the U.S., Medivation will receive a tiered royalty on Dimebon sales. Dimebon was marketed in Russia for over twenty years as an oral antihistamine, but has never been sold in the U.S. Dimebon was approved by the Russian Ministry of Health in 1983 and is used to treat allergic rhinitis and allergic dermatitis. Russian scientists initially identified Dimebons potential in Alzheimers disease (AD) during a preclinical small molecule drug screening exercise. Dimebon stood out because it demonstrated preliminary efficacy and was already commercially available as an antihistaminergic agent. Dimebons exact mechanism in AD is unclear, but the drug may work as: (1) a cholinesterase inhibitor, albeit a relatively weak one; (2) an NMDA receptor antagonist; and/or (3) a mitochondrial permeability transition pore (MPTP) blocker. Positive results from a Russian Phase II trial of Dimebon were released in September 2006 (six-month data) and June 2007 (12-month data). The 12-month data were recently published in The Lancet (July 2008). Results of the 18-month follow on study were presented at ICAD in July. Because Dimebon had never been approved for use in either the U.S or Europe, Medivation was required to run Phase I safety trials of Dimebon in the U.S. before larger efficacy trials could be initiated. The requisite Phase I trials were completed in 2007. In January 2008, Medivation announced plans to advance Dimebon directly into U.S. Phase III trials for AD in Q2:2008; dosing was initiated in June 2008. The decision was made following an end-of-Phase II meeting with the FDA. During the meeting, the FDA informed Medivation that the already completed Russian Phase II trial could be used as one of the two required pivotal trials for final approval, as long as a significant proportion of the clinical sites for the confirmatory Phase III trial are located in the U.S. The target enrollment for the six-month Phase III trial is 525 patients with mild-to-moderate Alzheimers disease. The primary endpoints are ADAS-cog and CIBIC-plus. The Phase III program will have clinical sites in the U.S., the E.U., and South America. The trial will have three arms: (1) placebo; (2) 20mg of Dimebon 3x per day; and (3) 5mg of Dimebon 3x per day. The 20mg 3x per day dose was tested during the Russian Phase II trial. The lower dose was added to the Phase III trial design in an attempt to explore the minimum effective dose. Patients enrolled in the Phase III trial will not be allowed to be on other Alzheimers disease drugs (e.g. an acetylcholinesterase inhibitor and/or Namenda). Our consultants have indicated that not allowing background therapy could significantly slow the pace of enrollment in the trial, which may be a reason why management did not accelerate the 2010 NDA filing guidance post the announcement. It remains to be seen if the Pfizer collaboration will have a positive impact on enrollment and the subsequent development timeline. We are sticking with our previous timeline pending an enrollment update. 2011 NDA Filing Targeted For Dimebon Upon review of the Dimebon clinical development plan for Alzheimer's, Pfizer and Medivation have decided to initiate new Phase III trials and will delay the initial NDA filing until 2011, a year beyond our previous estimate. Management also noted that Pfizer does not plan to pursue a disease modification claim for Dimebon, at least for the initial NDA filing. New Phase III trials to be initiated in 2009 include two Phase III trials in moderateto-severe AD and a 12-month efficacy trial of Dimebon plus Aricept versus Aricept alone. We have pushed the Dimebon launch timing out a year, into 2012.
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Assuming clinical success, Medivation management anticipates filing for U.S. and E.U. regulatory approval of Dimebon in 2011, implying a potential 2012 worldwide launch. Following the announced collaboration with Pfizer, we now project worldwide Dimebon sales of $300MM in 2012 and $830MM in 2013. We project U.S. sales of $150MM in 2012, $500MM in 2013, and $900MM in 2015. Dimebon is covered by method-of-use patents in the U.S., Europe, and Hong Kong. The U.S. (U.S. patent #7,071,206; 6,353,015; and 6,187,785) and European patents expire in October 2016. Medivation management believes they will be able to successfully secure patent term extensions for Dimebon in the U.S. and Europe, which would extend Dimebons exclusivity period by up to an additional five years (October 2021). Reformulation of Dimebon in a once or twice-daily dosing formulation also could provide a franchise extension mechanism. 6- And 12-Month Results From Russian Phase II Study Were Positive In September 2006, Medivation announced positive top-line results from a six-month, placebo-controlled Russian Phase II trial of Dimebon. The trial enrolled a total of 183 patients with mild-to-moderate AD. Patients enrolled in the study were washed out of their current AD medication(s) for a period of six-days before being randomized to either the placebo or Dimebon treatment arm of the trial. Patients receiving Dimebon were dosed with 20mg of Dimebon three times daily (60mg/day). The primary endpoint of the trial was AD Assessment Scale-cognition (ADAS-cog). Secondary endpoints included Clinicians Interview-Based Impression of Changeplus caregiver assessment (CIBIC-plus), AD Cooperative Study Group-Activities of Daily Living (ADCS-ADL), Neuropsychiatric Inventory, and Mini Mental State Exam (MMSE) scores. Dimebon demonstrated statistically significant improvements (vs. placebo) for all five of the primary and secondary efficacy endpoints at six-months (results summarized in the table below). Furthermore, the magnitude of improvement versus baseline seen via ADAS-cog and CIBIC-plus were generally greater than those observed for currently-marketed drugs. Dimebon achieved a four point improvement in ADAS-cog at six-months, compared to the 2-3 point improvement seen with Aricept at six-months (Aricept label). The average improvement in CIBIC-plus seen with Dimebon at six-months was 0.6 units, and this compares favorably with the 0.35-0.39 unit improvement seen with Aricept over the same timeframe (Aricept label). The most common side effect seen in the Dimebon-treated group was dry mouth (13.5%), likely due to the antihistaminergic effects of the drug. The incidence of depressed mood was also significantly higher in the Dimebon-treated group compared to the placebo-treated group (13.5% vs. 5.3%); although a difference in depressed mood was not detected via the relevant questions in the NPI.
SUMMARY OF SIX-MONTH RESULTS FROM RUSSIAN PHASE II STUDY OF DIMEBON
Endpoint AD Assessment Scale-cognition (ADAS-cog) Clinician's Interview-Base Impression of Change - plus caregiver assessment (CIBIC-plus) AD Cooperative Study Group - Activities of Daily Living (ADCS-ADL) Neuropsychiatric Inventory (NPI) Mini Mental State Exam (MMSE)
Improvement 4.0 point 0.6 units 3.4 units 3.6 points 2.2 points
P-value (vs. placebo) p<0.0001 p<0.0001 p=0.002 p=0.006 p<0.0001
In June 2007, Medivation released the 12-month results from the Russian Phase II study at the Alzheimers Associations International Conference on Prevention of Dementia. The Russian study was originally a six-month trial that was extended for an additional six months. All patients who opted to participate in the six-month extension study remained in the same treatment group (Dimebon-treated or placebo) that they had been in during the
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original six-month trial. The patients, physicians, and others directly involved in the extension study remained blinded to the patients treatment during the extension phase. The 12-month results were analyzed using an observed case analysis methodology, as opposed to the last observation carried forward (LOCF) statistical methodology. LOCF was used for the six-month results. At 12 months, a statistically significant effect (vs. placebo) was seen via all five efficacy endpoints, including AD Assessment Scale-cognition (ADAS-cog; p<0.0001), Clinicians Interview-Based Impression of Changeplus caregiver assessment (CIBIC-plus; p=0.006), AD Cooperative Study Group-Activities of Daily Living (ADCS-ADL), Mini Mental State Exam (MMSE), and Neuropsychiatric Inventory (NPI). Compared to placebo, Dimebon achieved an aggregate benefit that was larger at 12 months than at six months, driven by improvement via the ADAS-cog (6.9 vs. 4.0 points; 12- vs. 6-months, respectively), ADCS-ADL (5.2 vs. 2.9 points), and CIBIC-plus (0.8 vs. 0.6 points) measures; however, only the ADAS-cog difference reached statistical significance (p=0.006). The primary endpoint for the study was ADAS-cog. At 12 months, the difference in ADAScog for the Dimebon-treated group versus the placebo group was 6.9 points, which is greater than the 4.0 point differential seen at six-months. Furthermore, at 12 months the Dimebon-treated group remained +1.2 points above its baseline ADAS-cog level. This result compares favorably to results seen in open-label extension studies of donepezil (Pfizers Aricept). In the open-label studies, donepezil-treated patients ADAS-cog scores declined below their original baseline levels at approximately nine months post the initiation of donepezil treatment. Patients treated with Dimebon also maintained a positive (+0.7 points) MMSE score at 12 months versus baseline. On average, patients CIBIC-plus scores at 12-months were the same as they had been at baseline, and patients ADCS-ADL and NPI scores at 12 months were below baseline levels. Dry mouth was seen in 18% of Dimebon-treated patients (up from 13.5% at six-months), compared to approximately a 1% incidence in the placebo treated group. The incidence of depressed mood/depression was 14.6% in the Dimebon-treated group versus 5.3% in the placebotreated arm.
SUMMARY OF 12-MONTH RESULTS FROM RUSSIAN PHASE II STUDY OF DIMEBON
SUMMARY 12-MONTH DATA FROM RUSSIAN PHASE II TRIAL OF DIMEBON Endpoint ADAS-cog CIBIC-plus ADCS-ADL MMSE NPI NS - not statistically significant SS - statistically significant NA - not available Patient # (n=120 patients w/ mild-tomoderate AD) ~60 ~60 p-value vs. placebo* p<0.0001 p=0.006 SS SS SS Difference vs. placebo 6.9 points 0.8 points 5.2 points NA NA p-value vs. baseline NS NS NS NS NS Change vs. baseline +1.2 points 0 points -0.3 points +0.7 points -0.7 points
Treatment Group Dimebon (60mg/day) Placebo

Dry Mouth Incidence 18% ~1%
Depression Incidence 14.6% 5.3%
Overall Drop Out Rate 31.5% 37.2%
* observed case analysis used
12-Month Data Characterized By Disease Severity A poster on the 12-month, pivotal Phase II data was presented by Dr. Rachelle Doody of Baylor College of Medicine at ICAD in July 2008. These data were the subject of a recent Lancet article. The data presented the efficacy curves by patient sub-type, mild or
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moderate. The mild AD patients demonstrated a significant response to drug treatment on ADAS-cog (5.4 point difference vs. placebo at 12 months, p = 0.0027) but failed to achieve significance in either ADCS-ADL or neuropsychiatric inventory (NPI). The lack of a robust placebo decline at 12 months across all of these measures in the mild population undoubtedly contributed to the modest efficacy results. In the moderate AD patient population, Dimebon achieved good efficacy across all endpoints: ADAS-cog: - 9.7 pts vs. placebo (p<0.0001), ADL: 9.1 pts vs. placebo (p = 0.0005), and NPI: 6.8 pts vs. placebo (p = 0.0073). Additionally, in most cases the drug-treated groups showed improvement versus baseline out to 39 weeks. This was also true for the mild patient population, but lack of decline in the placebo group complicates interpretation of the results in the mild AD subgroup. 18-Month Extension Trial Results Also Presented At ICAD 2008 In a 6-month, open-label extension portion to the 12-month Dimebon trial, patients that remained on drug in the open-label portion continued to demonstrate disease stabilization as measured by ADAS-cog and neuropsychiatric inventory (NPI). Significance could not be assigned without a placebo comparator, but levels settled just below baseline levels. The effect of switching the placebo group to drug appeared to support Dimebons efficacy. Patients appeared to stabilize once on drug, and patients NPI scores actually improved when switched to drug. Dimebon Mechanism Continues To Focus On Mitochondrial Function An oral presentation at ICAD 2008 highlighted Dimebons effect on mitochondrial function. Dimebons lack of activity versus most of the known cognitive targets was presented, but Dimebon is active in the sub micromolar range versus the 5HT6 receptor. It is unlikely however, that this activity can explain Dimebons clinical results. The presenter focused on two key sets of experiments that highlight Dimebons activity on mitochondrial function. First, Dimebon was effective at blocking ionomycin induced mitochondrial dysfunction in several assays. Second, Dimebon stimulated neurite outgrowth in cultured primary neurons and did so more impressively than the positive control BDNF. JC-1 staining in these primary neurons indicated increased mitochondrial function in the newly stimulated neurites. While these data begin to paint a picture of the types of effects Dimebon has in cell culture, the putative target of this drug remains a mystery.
Eli Lillys LY450139 Phase III Trials Enrolling

Eli Lilly is the first company to move a gamma-secretase inhibitor into Phase III clinical testing. A 1,500-patient Phase III trial testing two doses of LY450139 (100mg and 140 mg 1x/day) in patients with mild-to-moderate AD was initiated in March 2008. The primary endpoints will measure the rate of cognitive and functional decline over the duration of the study (~2 years). Lilly also will be looking at a number of secondary endpoints, including vMRI and PIB-PET. The study will utilize a staggered start design, whereby some of the patients who initially received placebo will be switched over to LY450139 at some point during the study, in order to demonstrate disease modification. Our clinical consultants believe that Lilly, and other companies looking to develop gamma secretase inhibitors, face a challenge in identifying small molecule inhibitors that are specific to gamma secretase without interfering with notch processing. Notch is a transmembrane protein that plays an important role in cell signaling. Non-specific interference with notch is believed to lead to unwanted side effects, including severe diarrhea. Lillys recent comments indicate that LY450139 may have a clean profile, although our clinical consultants are cautious regarding LY450139s safety. Assuming success, we project a 2013 launch for LY450139. We estimate LY450139 U.S. sales of $421MM in 2013, $882MM in 2014, and $1203MM in 2015.
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Elan/Transition Therapeutics ELND-005 Looks Promising

ELND-005 (formerly AZD-103; scyllo-inositol) has several characteristics that could position the product as a successful treatment for AD, including: (1) disease-modification potential via the targeting of beta-amyloid plaques; (2) oral bioavailability; (3) ability to cross the blood-brain-barrier; and (4) a clean safety profile, as it is derived from a naturally occurring compound. ELND-005 is a scyllo- stereoisomer of cyclohexanehexol or inositol (scyllo-inositol). Inositol (C6H12O6) is a member of a class of polyols known as sugar alcohols. Scyllo-inositol is present endogenously in humans at relatively low levels. Scyllo-inositol is made in minute quantities by certain cell types (astrocytes and microglia) in the brain. The production of scyllo-inositol is believed to increase modestly as part of the inflammatory response associated with AD: however, the amount is believed to be too small to have a therapeutic effect. In preclinical models, scyllo-inositol has been shown to inhibit beta-amyloid aggregation, accelerate the disassembly of beta-amyloid aggregates, and protect neurons against beta-amyloid-induced toxicity. The activity of scyllo-inositol has been shown to be superior to the activity seen with the other inositol stereoisomers tested.
ELND-005S MECHANISM OF ACTION
ELND-005 Phase II Trial Is Underway In August 2007, Transition Therapeutics announced the successful completion of multiple Phase I trials (110 patients total) of ELND-005, including single and multiple ascending dose studies. ELND-005 is administered orally and was dosed once-daily and twicedaily in Phase I. The specific doses have not been disclosed. ELND-005 has been shown to be orally bioavailable and readily crosses the blood-brain-barrier, presumably via the sodium myo-insositol transporter 1 (SMIT-1). ELND-005 was safe and well-tolerated. No dose limiting toxicities were observed. Our checks indicate Elan ran additional pharmacokinetic studies with ELND-005 and the results came back clean. Importantly, drug levels achieved in the CSF in Phase I were consistent with therapeutic levels achieved in preclinical models. The FDA has granted ELND-005 fast-track status. In late December 2007, Elan initiated a 340-patient Phase II trial of ELND-005. The placebocontrolled trial is expected to enroll 340 mild-to-moderate Alzheimers disease patients (MMSE scores of 16-26). The treatment period is 18 months. Three different doses of ELND005 will be tested: 250, 1,000, and 2,000mg bid. The endpoints used in Phase II are the standard Alzheimers disease endpoints, such as ADAS-cog. Elan/Transition plan on taking an interim look at the Phase II data and, similar to what Elan/Wyeth did with bapineuzumab, could advance ELND-005 into Phase III trials before the formal completion of the Phase II study. If the Phase II interim data looks promising, we expect a decision to
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advance ELND-005 in H2:2009 and a Phase III in early-stage Alzheimers patients to begin in H1:2010. Assuming a successful Phase III trial for ELND-005, we project a F2013 (H2:2012) launch for ELND-005 and estimate U.S. sales of $350MM in 2013, $750MM in 2014 and $1,000MM in 2015. We project peak world wide annual sales potential of $3.0B+.
BMS-708163, A Notch Sparring Gamma-Secretase Inhibitor

Phase I PK/PD results of Bristols new gamma secretase inhibitor, BMS-708163 were presented at ICAD in July 2008. The in vitro selectivity of the compound in cell culture was highlighted as 190-fold more active for APP processing versus notch cleavage. Unwanted notch cleavage leads to a number of serious AEs primarily in the lymphatic system and in the GI tract, which has thwarted the development of many of the early gamma secretase inhibitors. BMS-708163s selectivity in cell culture translated into an approximately 10fold in vivo selectivity for brain Abeta lowering (defined as the dose that leads to a 25% lowering of Abeta) versus untoward effects on spleen and GI cells in both dog and rats. Based on these promising preclinical results, a Phase I trial was conducted to assess the safety and tolerability of BMS-708163 while also establishing the pharmacokinetic and pharmacodynamic (PK/PD) relationship. The drug was well tolerated up to 100mg/day for 28 days and up to 200mg as a single dose. Importantly, both of these doses demonstrated significant reduction in CSF and plasma Abeta. In the single dose studies at 200mg, CSF Abeta was lowered by a maximum of approximately 40%. The PD effect tracked with drug exposure levels, establishing a strong PK/PD correlation. In the multi-dose portion of the trial, CSF Abeta was lowered by ~30% at 28 days. This measurement came at a point in the dose cycle that likely represented trough concentrations of drug. The drug was well tolerated through 28 days of dosing, with no treatment-related AEs reported. These data present a compelling profile for BMS-708163.
Wyeths Notch Sparring Gamma-Secretase Inhibitor GSI-953

Wyeth is also testing its notch selective gamma secretase inhibitor GSI-953 (begacestat) in a number of phase I trials assessing the safety, tolerability, pharmacokinetics, and pharacodynamics of the compound administered orally. GSI-953 is a thiophene sulfonamide analog that selectively inhibits the cleavage of APP while sparring Notch processing. In cell-free and cell-based assays, GSI-953 inhibits both Abeta 40 and Abeta 42 with an EC50 of 10 nM. While GSI-953 exhibits a more potent in vitro profile compared to first-generation gamma-secretase inhibitors DAPT and Eli Lillys LY450139, it has an improved Notch/APP EC50 ratio of 16.8 compared to LY450139 (Notch/APP EC50 ratio of 2.4). Tg2576 transgenic mice treated with GSI-953 showed a reduction of CSF and brain Abeta levels by 40-60% as well as a reversal of contextual-fear memory deficits. Preliminary human data from the phase I study indicate a dose-dependent reduction in plasma Abeta levels in the periphery for patients treated with begacestat. No indication of Abeta lowering in the brain has been reported to date for the phase I trial. Despite showing an improved Notch/APP EC50 window in vitro, it remains to be seen whether the second generation gamma-secretase inhibitors will demonstrate an improved therapeutic window in humans that can translate to improved tolerability and/or efficacy for the class.
Schering-Ploughs Early Alzheimers Disease Program

Schering-Plough is scheduled to begin first-in-human studies with beta-secretase and gamma-secretase inhibitors in 2009. The beta-secretase preclinical data appear promising as there is supportive beta-amyloid reduction in the CSF from primate studies. Additionally, the toxicity profile may be more favorable than the gamma-secretase inhibitors.
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Rember Is First Clinical Tau-Based Therapy

Rember is TauRxs tau anti-aggregation compound for the treatment of AD. Rember is a reformulated version of methylene blue, an old drug used to treat a variety of ailments including urinary tract infections, malaria and carbon monoxide poisoning among other things. Researchers have found that Rember helps de-aggregate neurofibrillary tangles (NFTs) made up of the microtubule associated protein tau. NFTs are one of the two pathological hallmarks of AD and, unlike amyloid, NFT load correlates with cognitive function. Phase II Trial Results Presented At ICAD 2008 The presentation at ICAD in July 2008 focused on the results of a Phase II study designed to evaluate the safety and efficacy of Rember. The trial had two phases: a 24-week, double-blind, randomized, dose-ranging parallel design trial of Rember monotherapy in 321 people with AD at 17 centers in the UK and Singapore, and a 60-week, blinded, active treatment extension. The doses investigated were 30, 60 and 100mg TID, administered via oral capsule. The control group received placebo for 24-weeks followed by a minimal efficacy dose for the extension phase (the 100mg group). The 100mg dose proved ineffective due to crosslinking with the gelatinous matrix of the capsule. Imaging results from SPECT and PET scans were collected at baseline and after 24 weeks. The results found that at 24 weeks, patients on the 60mg dose demonstrated an improvement versus placebo in moderate AD patients of 5.5 points on the ADAS-cog scale. The mild AD patients did not show a placebo decline, which prevented an efficacy analysis in this group. The mild AD patients did demonstrate positive effects on the SPECT-scan outcomes. Rember showed evidence of disease stabilization over 50 weeks in both mild and moderate patients. The overall effect size was considerable: a 6.8 unit improvement relative to a 7.8 unit decline in the control arm (p<0.0001). The 60mg dose of Rember produced a significantly larger effect size at 50 weeks than at 24 weeks (p=0.0014). A mixed slope analysis demonstrated an 81% reduction in long run rate of progression of decline over 50 weeks (p<0.0001), evidence of disease modification. Brain imaging using SPECT and PET supported clinical results. SPECT measures regional cerebral blood flow (rCBF). rCBF is closely correlated with brain activity. In the 60mg dose cohort, rCBF decline was eliminated relative to control subjects. The effect was greatest in the hippocampus and entorhinal cortex, regions that display the most sever tau pathology. These clinical results of Rember were impressive, although the number of moderate patients was low (n=17 in 60mg dose group). The placebo-blinding of the Rember trials have raised questions: Rember turns patients urine blue, so presumably patients, caregivers and physicians would be aware of who was on therapy versus those patients on placebo. We have been assured that patients were instructed not to discuss this with investigators that scored efficacy measures. The second question centers on the commercial viability of this common generic drug. TauRx holds patents related to the formulation of methylene blue for the treatment of AD. It remains to be seen if this would prevent physicians from prescribing readily available generic forms of the drug. Methylene blue is currently available as a solution or a powder but not in tablet or capsule form.
Allons AL-108 Targets Tau/Microtubule Dynamics

AL-108 is an octapeptide that has been shown, in pre-clinical models, to have broad neuroprotective effects. This is thought to be mediated by a microtubule stabilization mechanism. Tau dysfunction in neurons, a pathological hallmark of AD among other diseases, leads to destabilization of microtubules in the axons of neurons. Its this destabilization that may lead to axonal dysfunction and neuronal death. Stabilization of microtubules may represent a means of restoring axonal function and providing enhanced cognition. Al-108 is delivered intranasally to bypass the blood-brain-barrier. The results
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of a Phase II proof of concept trial in patients with amnestic mild cognitive impairment (aMCI) were presented. In a randomized, double-blind, placebo controlled trial patients (n=143) received either placebo, AL-108 5mg QD, or AL-108 15mg BID. Efficacy endpoints included digital span forward/backward, delayed match-to-sample (recognition, short term and working memory), spatial working memory (working memory and strategic use), paired associates learning (episodic memory and associative learning), one touch stockings of Cambridge (executive function and motor control) and Speilberger state and trait anxiety. Of these endpoints, two achieved statistical significance at the high dose of AL-108: delayed match-to-sample (12s delay, p = 0.038) and digital span forward (p = 0.038 @ 8 weeks, 0.052 @ 16 week follow up). The drug was well tolerated with rate of AEs similar to control. The most common side effects were headache (13%), nasopharyngitis (8%) and nasal discomfort (4%). Rates of serious AEs and discontinuations were low and similar between placebo and drug treated groups. Based on these data, AL-108 will be carried into a 12-week Phase II study in AD. The authors did not provide any data on drug exposure as measured in the CSF or other CSF biomarkers. Based on this very modest effect in a small population, and without exposure and biomarker data, AL-108 is a wildcard as it moves into clinical development for AD.
Acceras Ketasyn Also To Advance Into Phase III

Ketasyn (AC-1202) is an orally available compound that is efficiently metabolized by the liver into ketone bodies. Ketone bodies can be utilized as an alternative energy source when glucose metabolism is compromised. A characteristic of Alzheimers disease is neuronal hypometabolism, or decreased glucose use in the brain. In May 2007, Accera presented positive results from a Phase IIb study of Ketasyn at the American Academy of Neurology meeting. The 152-patient, 12-week trial enrolled patients with mild-tomoderate Alzheimers disease (AD). Patients were screened for the presence of APOE4 allele. In all trials conducted with Ketasyn, APOE4 non-carriers have responded better to Ketasyn treatment than ApoE4 carriers. At 12 weeks, ApoE4(-) patients treated with Ketasyn (1x daily) achieved ADAS-Cog scores 3.5 points better than placebo (p=0.01), and statistically significant improvement was seen as soon as 45 days. ApoE4(-) patients who also exhibited a genetic variation that affects glucose regulation achieved a 5 point improvement in ADAS-cog versus placebo at 12 weeks. When the data from all the patients including both ApoE4 carriers and non-carriers were combined, there was a positive trend in ADAS-cog improvement in the Ketasyn treated patients versus placebo, but the difference was not statistically significant (p=0.072). In the 12-week study, the incidence of gastrointestinal side effects seen with Ketasyn was similar to that of other AD drugs; however, a reformulated version of Ketasyn was used in the six-month, open-label extension (described in more detail below) and the incidence of gastrointestinal side effects was reduced. In June 2007, Accera presented results from a six-month open-label extension study of Ketasyn at the International Conference on Prevention of Dementia. There was a two-week washout period between the 12-week blinded portion of the trial and the six-month extension study. ApoE4(-) patients treated with Ketasyn demonstrated significant improvement in memory and cognition, while Ketasyn appeared to have a disease stabilizing effect on ApoE4(+) patients. Patients treated with Ketasyn experienced an ADAS-cog decline of 0.8 points versus baseline, compared to a 5.4 point decline in patients receiving placebo (extrapolated to nine months). Accera plans to initiate Phase III trials of Ketasyn in mild-to-moderate AD in 2008. In August 2007, Accera announced positive results from a 12-week, 159-patient trial (mean age of 65) of Ketasyn in patients with age-associated memory impairment. Patients were evaluated via a battery of memory tests. Patients treated with Ketasyn performed significantly better on the First-Last Name Association test (FLN) compared to those patients treated with placebo (p=0.042). In patients under 59 years of age, treatment with
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Ketasyn resulted in significantly (p=0.0217) better performance via the Name-Face Recognition (NFA) test versus patients treated with placebo.
Phase IIa Results For Prana Biotechnologys PBT-2 Encouraging

PBT-2 (clioquinol derivative) is a metal chelator thought to reduce the formation of betaamyloid plaques. Zinc and copper ions can induce beta-amyloid aggregation and toxic effects. An 87-patient Phase I trial program demonstrated that PBT-2 was safe and well tolerated in healthy volunteers. Prana released positive top-line results from a 78-patient Phase IIa trial (PBT2-201-Euro) of PBT-2 in February 2007 and presented these results at ICAD in July 2008. The 12-week, placebo-controlled trial tested two doses of PBT-2: 50mg and 250mg. The safety profile of both doses was indistinguishable from placebo and there were no study withdrawals due to adverse events, a significant improvement compared to what was seen with PBT-1, the precursor compound to PBT-2. Patients treated with the 250mg dose showed a statistically significant (p=0.006) reduction in toxic beta-amyloid levels in the CSF. At the 250mg dose, statistically significant improvement was seen via two of the four Executive Function NTB tests: the Category Fluency Test (p=0.028) and the Trail Making Test part B (p=0.005), at 12-weeks. No effect was seen via ADAS-cog at either dose. Prana plans to advance PBT-2 into longer/larger trials to further investigate its disease-modifying potential. PBT-2 Looks To Succeed Where PBT-1 Failed In January 2005, Prana announced it had received a Clinical Trials Authorization from the Medicines and Healthcare Products Regulatory Agency of the United Kingdom to initiate the potentially pivotal PLACQUE (Progression Limitation in Alzheimers: ClioQUinols Efficacy) Phase II/III clinical trial for PBT-1 (clioquinol). However, in April 2005, Prana announced that it would not proceed with enrollment of the PLACQUE trial due to concerns over PBT-1s toxicity and in July 2005, Prana announced it was discontinuing development of the product altogether. It appears that as part of the effort to manufacture GMP grade PBT-1 clinical material, Prana was able to characterize various impurities. In that process, Prana found high levels of a di-iodo form of PBT-1. The presence of the di-iodo impurity was a cause for concern, because it could lead to increased side effects and mutagenicity. It does not appear that PBT-2 contains any iodine and is therefore incapable of forming the di-iodo impurity seen in the PBT-1 preparations.
Phase I Trial Of Eisais E2012 Halted, Restarted

Eisai is developing E2012, a gamma-secretase modulator, for the treatment of AD. Preclinical studies indicate that E2012 selectively inhibits amyloid beta 42 production without inhibiting notch processing, suggesting that E2012 is a more selective inhibitor of gamma secretase. Eisai initiated a single-dose Phase I trial of E2012 in May 2006. The Phase I trial was suspended in February 2007 after lenticular opacity was observed in rats treated with high doses of E2012 during a 13-week oral toxicity study. In prior 4-week rat and 4- and 13-week monkey toxicity studies, lenticular changes were not observed. The FDA imposed a clinical hold on E2012 in April 2007. In April 2008, the FDA lifted the hold on E2012 and informed Eisai that it may continue the Phase I study.
Phase IIa Results For EPIXs PRX-03140 Encouraging

PRX-03140 is a 5-HT4 agonist for treatment of Alzheimers disease. PRX-03140 has been shown to stimulate the production of acetylcholine in the brain, which is expected to provide symptomatic improvement. This mechanism of action is complementary to that of acetylcholinesterase inhibitors, which act by preventing the breakdown of acetylcholine.
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In a two-week, 80-patient Phase IIa trial, PRX-03140 was tested as monotherapy and in combination with Pfizers Aricept. Two doses of PRX-03140 were tested in the monotherapy arms (50mg and 150mg 1x daily). Five doses of PRX-03140 (5, 25, 50, 100, and 200mg 1x daily) were tested in combination with 10mg/day of Aricept. A number of cognitive endpoints were evaluated, including ADAS-cog. The mean ADAS-cog improvement seen in the 150mg monotherapy arm (9 patients) was 3.6 points vs. a 0.9 point worsening in the placebo group. The mean ADAS-cog improvement seen in the 50mg monotherapy arm was 1.0 point. None of the PRX-03140/Aricept combination arms reached statistical significance via the ADAS-cog measure. This trial is useful as a proof-ofconcept and dose-finding study for PRX-03140. But because results for 1-2 patients can swing the data, we would not be relying upon the data to assess the efficacy of PRX-03140. Longer and larger trials will be required to confirm PRX-03140s clinical effect: EPIX initiated two Phase IIb trials of PRX-03140 in Q2:2008. One of the IIb trials will examine efficacy of PRX-03140 in combination with the standard of care, Aricept, versus Aricept alone. The second trial will test PRX-03140 as a monotherapy at two doses, 50mg/daily and 150 mg/daily. Assuming a partnership (GSK has an option on the program) and successful clinical development, we project a 2011 NDA filing for PRX-03140, followed by a potential 2012 launch.
Teva/Eisai Are Looking At Efficacy Of Rasagiline In AD

Teva/Eisai are investigating the efficacy of Rasagiline (currently marketed as Azilect for Parkinsons disease) in AD and other neurological disorders. Rasagiline is a monamine oxidase type-B (MAO-B) inhibitor and is currently in Phase II trial for AD. Teva indicates that the results from early Phase II trials in patients with mild-to-moderate disease have been encouraging. A combination study of Rasagiline plus Aricept is ongoing. The 6month Phase II study began in early 2004 and we could see results later this year. MAO-B inhibitors are believed to provide neuroprotective benefits in AD by reducing oxidative stress; however they have not been widely used off-label in AD to date due to their difficult side-effect profile and limited efficacy data. Oxidative stress in AD contributes to neuronal cell dysfunction and death. Beta-amyloid plaque accumulation in AD is believed to lead to a pro-inflammatory state that increases the production of oxygen-free radicals. Glial cells are believed to be a key mediator of this effect. Glial cells contain relatively high levels of MAO-B, which degrades dopamine, an important neurotransmitter. Degradation of dopamine results in the formation of free radicals leading to neuronal damage. There are many other potential sources of free radicals in AD, including the interaction of betaamyloid with metal ions. By inhibiting the expression of the MAO-B in glial cells, researchers believe that a significant portion of the oxidative stress and subsequent damage could be eliminated. Selegeline (Eldepryl), another MAO-B inhibitor, has demonstrated only marginal improvement in AD. Therefore, our enthusiasm for Rasagilines potential efficacy in AD is tempered.
Phase IIa Results For Memorys MEM1003 Disappointing

MEM1003, is a neuronal-selective L-type calcium channel blocker. In October 2007, Memory released disappointing results from a 12-week, 183-patient, placebo-controlled Phase IIa trial of MEM1003. The trial enrolled patients with mild-to-moderate AD. The trial failed to reach statistical significance via its primary endpoint (ADAS-cog) or any of the secondary endpoints; however, positive numerical trends were seen in the MEM1003-treated arms. Two doses of MEM1003 were tested: 30mg and 90mg bid. Management indicated that the placebo response rate was higher than was expected due to background therapy. Memory is analyzing the data further before deciding on next steps for the program.
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Phase IIa Results For Memorys MEM3454 Mixed

Memory is developing novel nicotinic alpha7 partial agonists in collaboration with Roche. The lead product from this effort is MEM3454. Memory announced top-line results from a Phase IIa trial of MEM3454 in November 2007. The 80-patient, 8-week trial tested three doses (5, 15, and 50 mg/day) of MEM3454 in patients diagnosed with mild-to-moderate AD. The Phase IIa results were mixed, with hints of efficacy seen at certain time points for certain doses. The primary endpoint of the trial was change from baseline in the Quality of Episodic Secondary Memory (QESM) factor score of the CDR battery. The CDR battery was administered at baseline and on six days during the 8-week treatment period. Each day the CDR battery was administered, it was administered at four time points during the day: predosing, and at 2, 4, and 8 hours post dosing. For the 8-hour post-dose time points over the entire treatment period, subjects receiving 5mg (p=0.023) and 15mg (p=0.05) of MEM3454 demonstrated a statistically significant effect via QESM vs. placebo. MEM3454 was generally well-tolerated during the study, except for the rate of constipation, which was 43% in the MEM3454-treated patients vs. 5% in the placebo arm. In May 2008, Roche and Memory announced that Roche had exercised its option to further develop and commercialize MEM3454 for the treatment of AD and schizophrenia. In December 2007, Memory advanced MEM3454 into a Phase IIa trial in patients with cognitive impairment associated with schizophrenia. Memory was also developing novel PDE4 inhibitors for AD in collaboration with Roche. The two products to emerge out of this are MEM1414 (Phase I) and MEM1917 (preclinical). Roche opted not to co-develop either of these products and Memory is actively looking to partner each of them. Memory and Roche continue to collaborate on the discovery of additional product candidates in this area. Memory recently presented Phase I data on MEM1414 at its R&D day in May 2008. The study was designed to measure drug effects on quantitative EEG (qEEG), a measure of CNS activity. The two highest doses, 500 and 750mg, demonstrated significant increase in both the absolute and relative power of the EEG signal in the alpha frequency. The company initiated a Phase IIa trial for MEM1414 in December 2008 for asthma, but has not given guidance on when it will initiate the AD Phase IIa study.
AstraZeneca/Targacepts AZD3480 Disappoints In Phase II

AstraZeneca and Targacept are developing AZD3480 for a variety of cognitive diseases including Alzheimers and schizophrenia. AZD3480 is believed to enhance cognition by acting on neuronal nicotinic receptors. Results of a Phase IIb trial in moderate-to-mild AD were released in September 2008 and were overall disappointing. The trial was a 12-week, placebo controlled study in 567 patients comparing AZD3480 at 3 doses and donepizil. Neither donepizil nor any of the AZD3480 doses achieved statistical significance on the primary efficacy outcome, ADAS-cog, or the secondary measure, CDR. The results were impacted by an improvement in the placebo group. AZD3480 did show improvement on secondary efficacy endpoints ADCS-CGIC and MMSE but failed to demonstrate a dose response, the middle dose achieving the most improvement in both measures. The companies are consulting with clinical experts to determine next steps.
Pfizer/TransTech RAGE Inhibitor In Phase II

The results of a Phase II trial for PF-04494700, Pfizer and TransTechs receptor for advanced glycation end-products (RAGE) antagonist were presented at ICAD in July 2008. The primary objective of the study was to evaluate safety and tolerability but secondary efficacy and biomarker endpoints were also evaluated. Efficacy endpoints included ADAScog, CDR-sb, MMSE and ADCS-ADL. Biomarkers included plasma Abeta (1-40 and 1-42), Creactive protein (CRP), interleukin-1 (IL-1), IL-6, isoprostanes, tumor necrosis factor-
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(TNF), and transforming growth factor- (TGF). These biomarkers were measured at baseline, week 4 and week 10. Low dose of PF-04494700 was defined at 30mg once daily (QD) for 6 days followed by 10mg QD for 9 weeks, high dose was 60mg QD for 6 days followed by 20mg QD for 9 weeks. The study enrolled 27 patients in the low-dose group, 28 patients in the high-dose group and 12 patients in the placebo group. The rate of adverse events (AEs) was similar across all treatment groups. The most common AEs were fall, upper respiratory tract infection, headache and urinary tract infection. PF-04494700 was associated with a dose-dependent increase in Abeta(1-40) at weeks 4 and 10. There was no apparent effect on Abeta(1-42) or any of the other exploratory biomarkers. There were no significant changes in any of the cognitive efficacy endpoints at either week 4 or week 10.
Neuro-Hitechs Huperzine Misses The Mark In Phase II

Huperzine A is a highly potent and selective reversible inhibitor of acetylcholinesterase. In addition, Huperzine A is believed to have neuroprotective properties against glutamateinduced neuronal toxicity at the NMDA receptor and antioxidative properties. In February 2007, Neuro-Hitech released results from a 210-patient Phase II trial of Huperzine A conducted in mild-to-moderate AD patients. Two doses of Huperzine A were tested in the 16-week trial: 200 and 400 micrograms, administered orally 2x daily. The trial did not achieve statistical significance via ADAS-cog at either dose tested at 16-weeks; however, the 400 microgram dose did achieve statistical significance at week 11 (p=0.001) vs. placebo. Management indicates that the placebo response was much higher than it anticipated; approximately half of the patients in the trial were also receiving concomitant treatment with Namenda. Overall, Huperzine A appeared to be safe and well-tolerated during the trial. Management is analyzing the data further in order to determine the appropriate next steps.
Comentiss CTS-21166 Is First Clinical BACE Inhibitor, But Issues Loom

From a purely biological perspective, beta-selective APP cleaving enzyme (BACE), the putative beta-secretase, represents the most attractive small molecule therapeutic approach to AD. This enzyme is predominantly expressed in the brain, represents the ratelimiting step in the conversion of APP to Abeta and most importantly, BACE knock-out mice display a normal phenotype indicating that inhibition should not give rise to unwanted side effects. Despite these striking qualities as a drug target, the development of BACE inhibitors has been slowed by the overwhelming medicinal chemistry challenges in finding a potent BACE inhibitor that exhibits good pharmacokinetics and is sufficiently brain penetrable. Comentis currently has the only BACE inhibitor in clinical development. Comentis has formulated a highly potent molecule that lacks robust pharmacokinetics and brain penetration with the hope that the potency will overcome these liabilities. A Phase I study was conducted with CTS-21166 and demonstrated robust plasma Abeta lowering post i.v. dose. Despite this trial being conducted with an i.v. formulation and no evidence of central activity, Comentis and new partner Astellas plan to continue development of CTS-21166 as an oral therapy. Our conviction in this molecule is low pending more compelling proof of in vivo activity.
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Source: company website
Noscira Initiates Phase II Trial With NP-12

Nosciras glycogen synthase kinase 3 (GSK-3) inhibitor NP-12 was approved by the Austrian Health Authorities and Ethics Committee to enter a Phase II AD trial in Q3:2008. NP-12, the first compound in the biotechs pipeline to enter clinical trials, is also the first GSK-3 inhibitor to reach Phase II clinical evaluation. NP12 has demonstrated efficacy in 3 transgenic mouse models that replicate the pathological hallmarks of AD by reducing gliosis, inflammation, and tau hyperphosphorylation in double transgenic conditional Tet/GSK-3 mice, which overexpress GSK-3 and produce hyperphosphorylated levels of tau in the brain; by lowering plaque levels in double transgenic cross APPV717I PS1A246E mice, which produce beta-amyloid plaques; and by reducing plaque deposits and tau hyperphosphoylation as well as showing cognitive improvements in double transgenic cross APPK670NM671L TauVLW, which generate fibrillary hyperphosphorylated tau deposits, increased beta-amyloid plaque levels, exhibit gliosis and neuronal loss. Most relevant to its potential for disease modification, NP-12 improves neuronal loss in animals. Three Phase I trials which recruited 160 healthy volunteers in May, 2006, showed that NP12 was well tolerated. The Phase II study will assess efficacy and tolerability of the GSK-3 inhibitor in patients with AD. A Phase II study evaluating NP-12 for the treatment of Supranuclear Palsy (PSP) will also begin in H1:2009.
AC-Immunes Dual-Mechanism Small Molecule Enters Phase II

In December, 2008, Switzerlands AC-Immune announced that its in-licensed orally active small molecule ACI-91 has entered Phase II trials for the treatment of mild to moderate AD. AC-Immune claims ACI-91 has the potential to slow the progression of AD by offering a neuroprotective benefit as well as a reduction in beta-amyloid plaques via the inhibition of beta-secretase. The double-blind Phase II study will evaluate both the tolerability and efficacy of ACI-91 over a 12-month treatment period. AC-Immune also announced that its anti-beta-amyloid monoclonal antibody ACI-01-Ab7, which they licensed to Genentech in 2006, received FDA fast track status for evaluation in a Phase I study. ACI-01-Ab7 demonstrated high plaque and oligo-specificity in pre-clinical
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models. The randomized, double-blind phase I clinical trial will evaluate the tolerability and human pharmacokinetics of multiple doses of the mAb therapy in mild to moderate AD patients. AC-Immune will continue to evaluate active immune therapy ACI-24 in an on-going Phase I/II combined trial. The company claims ACI-24 is a vaccine that triggers the patients immune system to form beta-sheet conformation-specific antibodies that have the potential to prevent the deposition of beta-amyloid plaques. Both vaccine ACI-24 and mAb ACI-01-Ab7 will be evaluated as blood and CSF diagnostic tools for AD patients.
Certain Exisiting Drugs May Prove Beneficial In AD

Epidemiological research has suggested that certain anti-inflammatory drugs, statins, and possibly glitazones may have disease modifying characteristics. Large-scale, long-term prospective studies are ongoing and several studies on statins recently have been completed. The results of these studies indicate that statins are not a viable therapy for mild-to-moderate AD. Despite Epidemiological Evidence, Statins Not A Therapy For AD It was theorized that statins may be effective in AD due to their cholesterol lowering capabilities as well as the potential to reduce, and/or alter amyloid precursor protein (APP) production. Three retrospective studies of statin use and Alzheimers disease have been completed. The studies indicate that the relative risk of developing AD was markedly reduced (by roughly 60-70%) in patients taking lovastatin (Mercks Mevacor) or pravastatin (Bristol-Myers Squibbs Pravachol) relative to patients taking other non-statin cholesterol lowering medications. Amyloid precursor protein (APP) is the protein which gives rise to the beta-amyloid peptide when cleaved. The mechanism of action by which statins may reduce or alter APP production is unknown. Atorvastatin (Pfizers Lipitor), lovastatin (Mercks Mevacor), and simvastatin (Mercks Zocor) have recently or are currently being tested in Phase III/IV trials. Pfizer sponsored a 600-patient study (LEADe) designed to assess the benefits of Lipitor (80mg) plus Aricept therapy vs. Aricept alone in patients with mildto-moderate AD. The results of the LEADe study were presented at the American Associatation of Neurology (AAN) meeting in April. Lipitor failed to demonstrate a significant benefit over Aricept alone. The National Institute on Aging recently conducted a 400-patient Phase III trial (CLASP) of simvastatin in patients with AD. Patients were treated with 20mg of Zocor per day for six weeks, followed by 40mg of Zocor per day for an additional 16.5 months. The results of this trial were negative, missing significance on all endpoints. This includes post-hoc stratification by ApoE4 genotype and lipid level response. The National Institute of Mental Health is sponsoring the Effect of Short-Term Statin and NSAID Treatment on Cerebralspinal Fluid Beta-Amyloid study to determine whether short-term use of ibuprofen and lovastatin affects levels of beta-amyloid in at-risk patients. GlaxoSmithKlines Rosiglitazone XR Is In Phase III Trials GlaxoSmithKlines rosiglitazone XR (GSKs Avandia) demonstrated modest efficacy in Alzheimers patients in Phase II trials. The 24-week Phase II study included 30 mild-tomoderate Alzheimers patients; 20 patients received 4mg rosiglitazone dosed once-daily and 10 patients received placebo. Cognitive function was measured via ADAS-Cog. Differences were noted at week 8 and were statistically significant at week 24. GlaxoSmithKline speculates that rosiglitazone XR may reduce the physiological resistance to insulin, which may reduce the level of beta-amyloid in the blood. GlaxoSmithKline initiated larger Phase III trials of rosiglitazone in January 2007. The Phase III program will enroll over 2,500 patients, and will test rosiglitazone XR in combination with an acetylcholinesterase inhibitor in patients with mild-to-moderate Alzheimers disease. Our
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consultants are skeptical that rosiglitazone XR will prove effective in the larger Phase III trials.
Source: GlaxoSmithKline
Flurizan Misses And Is Dismissed

Myriad Genetics announced in late June that Flurizan (tarenflurbil) failed to demonstrate statistically significant efficacy on either of the co-primary endpoints in the Phase III trial. This data was presented in full at the ICAD meeting in late July and the drug treatment group and placebo curves overlapped on all endpoints. The efficacy endpoints were change in ADAS-cog score (a cognitive measure) and change in ACDS-ADL score (a functional measure) relative to placebo. While we and most of the Street had expected Flurizan to miss at least one of its efficacy endpoints, the 1,684-patient, 18-month Phase III trial was powered to achieve statistical significance on even a non-clinically-significant change in ADAS-cog. So the failure confirms that Flurizan has no biological activity in Alzheimer's patients. Analysis of the preclinical data (in vitro IC50 ~ 100 M) supported the notion that the molecule was unlikely to display biological activity at concentrations that were achievable in vivo. This was borne out in a Phase I trial with Flurizan that failed to show lowering of Abeta 42 in plasma or CSF after 21 days of treatment in healthy volunteers. This leaves us to speculate on the possible reasons for the confounding preclinical mouse studies that demonstrated Abeta 42 lowering and cognitive improvement. One possibility is that Flurizan is known to racemize (~25%) to the S-isomer in mice and this isomer is a potent NSAID. The anti-inflammatory activity of the S-isomer could have been responsible for the benefit seen in these studies. Our analysis of the Phase II clinical data also led us to predict ultimate failure in Phase III. The compound did not demonstrate a positive efficacy response in moderate AD patients and the positive trends observed in mild patients were lost at 18 months during the open-label follow on period. NSAIDs May Prove Effective Arthritic patients taking non-steroidal anti-inflammatories (NSAIDs) demonstrate a lower incidence of AD and/or experience delayed onset. It has been postulated that certain NSAIDs (specifically sulindac sulfate, ibuprofen, indomethacin) may reduce the production of the 42 amino acid form of beta-amyloid peptide (this form is more prone to aggregation), while not impacting the levels of the 40 amino acid form of beta-amyloid (less prone to aggregation). The National Institute on Aging is conducting pilot studies investigating the potential effects of ibuprofen on AD. The failure of Flurizan, which was proposed to work by the same mechanism and has similar in vitro activity to other NSAIDs, casts significant doubt over the potential effectiveness of these drugs in AD.
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ALZHEIMERS DISEASE R&D PIPELINE Company Baxter Elan/Wyeth Eli Lilly GSK Medivation Voyager Abbott AC-Immune Accera Allon AstraZeneca AstraZeneca Cortex Dainippon Sumitomo Debiopharm S.A. Elan/Wyeth Elan/Transition Therapeutics Eli Lilly EPIX GSK Memory Pharma Memory Pharma/Roche Merck Newron Noscira Novartis Novartis/Cytos AG Pfizer Prana TauRx Teva Toyama Chemical Wyeth AC-Immune Elan/Wyeth Affiris GmbH Affiris GmbH BMS Wyeth Ceregene Product Gammagard Bapineuzumab LY450139 Rosiglitazone XR Dimebon Memryte implant ABT-089 ACI-91 Ketasyn AL-108 AZD3480 AZD0328 CX-717 AC-3933 Debio 9902SR ACC-001 ELND-005 LY2062430 PRX-03140 742547 MEM 1003 MEM 3454 MK-0249 HF0220 NP-12 AQW-051 CAD106 PF-4494700 PBT-2 Rember Rasagiline T-817MA SAM-531 ACI-24 Bapineuzumab SubQ AD01 AD02 BMS-708163 GSI-953 (Begacestat) CERE-110 P-C I II III NDA MKT Comments Immune globulin intravenous Anti-beta-amyloid antibody; AAB-001 Gamma secretase inhibitor PPAR gamma agonist Neuroprotectant; Ph. III initiated in Q2:2008 Leuprolide depot; GnRH agonist Neuronal nicotinic receptor agonist Dual mechanism Abeta lowering compound Targets hippocampal cellular energy deficit Microtubule stabilizing peptide (intranasal) Nicotinic receptor agonist Undisclosed Enhances AMPA receptor response to glutamate Partial benzodiazepine receptor inverse agonist Sustained release huperzine A (4 week) Peptide vaccine Inhibits beta-amyloid aggregation; formerly AZD-103 Anti-beta-amyloid antibody 5-HT4 agonist 5HT6 antagonist L-type Ca channel modulator Nicotinic alpha-7 agonist Increases histamine levels Cytoprotective steroid GSK-3 inhibitor Undisclosed Payload antibody vaccine; beta-amyloid targeted RAGE modulator; with TransTech Pharma; formerly TTP488 Metal chelator; blocks beta-amyloid deposition Tau aggregation inhibitor MAO-B inhibitor Undisclosed Undisclosed Vaccine Sub-cutaneous formulation of bapineuzumab Vaccine Vaccine Notch sparing gamma-secretase inhibitor Notch sparing gamma-secretase inhibitor AAV-NGE
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ALZHEIMERS DISEASE R&D PIPELINE Company Comentis/Astellas GSK GSK Memory Pharma Merck Pfizer Pfizer Roche Roche/Memory Pharma Sanofi-Aventis Sanofi-Aventis Torrey Pines Therapeutics Wyeth AstraZeneca AstraZeneca Elan Elan Elan/Wyeth Elan/Wyeth Genentech/AC Immune Memory Pharmaceuticals Neurochem Pfizer Roche/Morphosys Sanofi-Aventis Sucampo Torrey Pines Therapeutics Wyeth Product CTS-21166 933776 239512 MEM 1414 V950 PF-3084014 PF-4360365 R1450 MEM 63908 SSR 180711 AVE 8112 NGX267 PAZ-417 AZD6319 AZD8797 Undisclosed Undisclosed AAB-002 ACC-002 ACI-01-Ab7 MEM 1917 NRM-8499 BACE R1450 SAR 110894 SPI-017 NGX555 GSI-136 Total Drugs In Development
P-C
II
III
NDA
MKT Comments BACE inhibitor Anti-beta-amyloid antibody Dementia; H3 antagonist PDE4 inhibitor Beta-amyloid vaccine; targets N-term Undisclosed Anti-beta-amyloid MAb; targets a.a. 35-40 Monoclonal amyloid antibody Nicotinic alpha-7 agonist Alpha 7 nicotinic agonist PDE4 inhibitor Muscarinic agonist Plasminogen activator inhibitor Undisclosed Undisclosed Beta secretase inhibitor Gamma secretase inhibitor Anti-beta-amyloid antibody Peptide vaccine Anti-beta-amyloid monoclonal antibody PDE4 inhibitor; Roche has option on the product Undisclosed Beta-amyloid blocker Monoclonal antibody H3 antagonist Cl-channel activator Gamma secretase modulator Gamma secretase inhibitor
15 19 28 6
68
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Notes
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Arthritis
A Worldwide Epidemic
Arthritis encompasses numerous diseases that cause joint pain, inflammation, destruction, and ultimately disability. Arthritis and related rheumatic diseases are one of the most widespread chronic health problems: 40MM Americans, 2/3 of which are younger than the age 65, suffer from arthritis and related diseases, and it is estimated that this number will increase to over 67MM by 2030. In 2003, direct medical costs from arthritis, the leading cause of disability in the U.S., were $81B. Worldwide, over 450MM people suffer from arthritis. As the worlds population 11% 2008-13 CGR ages, with increasing incidence of such co-morbid illnesses as diabetes and obesity, arthritis will become an even bigger health care burden. There are two prevalent forms of arthritis: rheumatoid arthritis (RA) and osteoarthritis (OA). Over 2MM people in the U.S. are afflicted with RA, a serious and potentially disabling autoimmune disease in which connective tissue becomes inflamed. Other inflammatory conditions affecting joints include psoriatic arthritis, ankylosing spondylitis, vasculitis, inflammatory bowel disease, scleroderma, myositis, and systemic lupus erythematosus. Over 30MM people in the U.S. have OA, a degenerative joint disease characterized by erosion of cartilage around primarily weight-bearing joints such as the hip and knee.
Arthritis Category Market Share By $ Sales
2008
$23B
Other 11% NVS 4% ABT 19% BMY 4% ROHHY 5% JNJ 16% SGP 7% PFE 12% Other 15%
2013P
$39B
ABT 23%
PARTICIPANTS
SGP 9%
WYE 11%
PFE 13%
WYE 11% AMGN 16% AMGN 11%
JNJ 12%
ABT (Humira), JNJ (Remicade) and Amgen/Wyeth (Enbrel) led the arthritis category during 2007, with dollar shares totaling 19%, 16% and 16%, respectively. In 2013, Abbott should lead the category, driven by continued growth of Humira with PFE and JNJ tied for 2nd place. Sales of the anti-TNF agents could exceed $28B in 2013, driven by continued growth in rheumatoid arthritis, psoriasis, Crohns, and ulcerative colitis maintenance. We anticipate steady growth for Amgen/Wyeths Enbrel and Abbotts Humira. These biologics are well entrenched in RA and do not appear to face significant near-term threats from new modalities.
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MAJOR TRENDS & ISSUES
Bristol-Myers Squibbs Orencia, Biogen Idec/Genentech/Roches Rituxan, and Roches Actemra target RA patients refractory to anti-TNFs, a modest population estimated to be 10-15% of anti-TNF failures. Several new oral small molecule agents are in development (JAK2, JAK3, MEK, and SYK inhibitors; IL12 inhibitor; amd Adenosine A3 antagonist) and are viewed as interesting but early. The commercial opportunity for the Cox-2 inhibitor class has been substantially reduced post: (1) Mercks APPROVe (Vioxx), Pfizers APC (Celebrex), and pain studies in CABG patients (Bextra) that revealed cardiovascular safety signals, resulting in market removal of Vioxx and Bextra; (2) a black box warning for NSAIDs in the U.S. and Cox-2 selective drugs in the E.U.; and (3) a contraindication against use in high cardiovascular risk patients in the U.S. and EU. Celebrex now holds a monopoly position for Cox-2 selective drugs in the U.S. There are several late-stage agents in development for OA, some of which treat pain with potentially less AEs while others could have a disease modifying effect. In February, Takedas Uloric (febuxostat) was FDA approved the treatment of hyperuricemia in gout patients. Meanwhile, pivtoal data from Savients pegloticase demonstrated profound efficacy in advanced, refractory gout patients but safety concerns such as infusion reactions, immunogenicity, and APTC and non-APTC cardiovascular events will need to be addressed by the FDA. SVNTs BLA has a PDUFA date of August 1, 2009. There are currently four drugs in Phase III development for SLE (renal or non renal disease). Consultants are not optimistic for Genentech/Biogen Idecs Rituxan or Bristol Myer Squibbs Orencia in lupus nephritis or Zymogenetics/Merck Seronos atacicept in generalized lupus. GSK/Human Genome Sciences LymphoStat-B has a 50% chance of success based on its novel mechanism of action, composite primary endpoint, and open label extension data. Our scatter plot shows that, through 2013, Abbott, JNJ, Amgen/Wyeth and Schering-Plough, should lead the category.
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80% % Of Company 2008-13 Sales Growth From Category ABT
60% JNJ WYE
40%
NVS 20% RHHBY 0% MRK
SGP AMGN
-20% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Contributed By Company To Category ($ In B)
ESTIMATED WORLDWIDE MARKET FOR ARTHRITIS DRUGS BY CLASS ($MM)

2008 Market % Total
$17,117 3,057 523 1,624 576 137 74% 13% 2% 7% 2% 1%
Drug Class
TNF Inhibitors Coxibs Biologicals NSAIDs Muscle Relaxants Other Therapies
2013P Market % Total

$28,395 3,725 1,653 1,486 136 3,731 72% 9% 4% 4% 0% 9%
$ 08-13 CGR
11% 4% 26% -2% -25% 94%
NRx 87-08 CGR Comments

NM - AMGN/WYE's Enbrel, JNJ/SGP's Remicade, ABT's Humira NM - MRKs Arcoxia, PFE's Celebrex, Daiichi's Mobic NM - BMY's Orencia, Roche's Rituxan and Actemra 2% - NVSs Voltaren 7% - TDCHF's Seltouch NA - Includes various anti-inflammatory products
Total Market
$23,034
100% $39,379
100%
11%
5% - Driven by new TNF inhibitors and biologicals
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Rheumatoid Arthritis (RA)

DETAILED DISCUSSION
RA Is A Chronic Disabling Systemic Disease

Rheumatoid arthritis (RA) affects about 1% of the U.S. population, with a female to male ratio of 2:1. The exact etiology is unknown but there appears to be a genetic predisposition. Smoking, the presence of autoantibodies (RF and anti-CCP), hormonal imbalances, and environmental and infectious exposure may all play a synergistic role in triggering RA disease activity. The pathophysiology of RA is complicated and involves the interplay of T and B lymphocytes, cytokines, growth factors and ligands, the complement system, and other proteins and reactive agents. Patients present to their physician with complaints of morning stiffness >1 hr relieved with activity and red, hot, swollen, painful hands/wrists/feet/ankles. Symptoms typically develop slowly over time and if they continue over a period of 6 weeks or more, become typical for RA. While smaller joints are usually involved on presentation, as time progresses, almost any joint can be affected. Rheumatologists diagnose RA by the patients history, physical examination, laboratory testing, and diagnostic imaging and procedures. Patients, especially those with positive autoantibodies (RF and anti-CCP), can have manifestations other than joint inflammation. These include hematologic, cutaneous, pulmonary, cardiac, ocular, vascular, and renal disease. Patients with RA also have a decreased life expectancy from infection, cancer (especially lymphoma), and accelerated vascular disease.
Aggressive Medical Therapy Is The Standard of Care

Over the last decade, several new disease modifying antirheumatic drugs (DMARDs) have been approved for the treatment of RA. The main attribute of DMARDs is their ability to slow or stop disease progression and radiographic bony destruction. Rheumatologists aggressively scale up therapy, as most rheumatoid arthritis patients are able to achieve a clinical remission with a combination of two or more DMARDs. Most of the medical literature concludes that the earlier combination therapy is started, including utilizing anti-TNF agents, the quicker patients are able to achieve clinical disease and radiographic remission. Initial therapy includes NSAIDs, methotrexate, and possibly plaquenil, depending on disease severity and number of joints involved. Prednisone is prescribed as an initial therapy for those patients with severe symptoms since it can provide immediate relief (within 24 hrs) vs. methotrexate and Plaquenil, which can take up to 3-6 months to exert a maximum effect. If after 2-3 months disease activity is not quiescent, rheumatologists will often maximize the dose of methotrexate and consider additional therapies such as anti-TNF injectables, Arava (leflunomide; Sanofi-Aventis), Plaquenil (if not already prescribed), and low-dose prednisone.
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Enbrel (Amgen/Wyeth) and Humira (Abbott) are often the first-line biologic agents after methotrexate. Remicade (JNJ, SGP) represents a third anti-TNF option, especially for Medicare patients. Once started on an anti-TNF agent, most rheumatologists wait 3-6 months to evaluate its efficacy (including the option to dose escalate Humira/Remicade). If after 3-6 months, a patient continues to have break-through disease activity, then specialists will either change to a second antiTNF or switch classes to Orencia (Bristol-Myers) or Rituxan (BIIB/DNA/Roche). Other medications like sulfasalazine, azathioprine, Cytoxan, Kineret, and cyclosporine are rarely used.
Leflunomide Is An Effective Low-Cost Treatment Option

Leflunomide (also known by the brand name Arava) is an oral DMARD similar to methotrexate that is used for the treatment of rheumatoid arthritis. In two placebocontrolled pivotal Phase III clinical trials, leflunomide had ACR 20 response rates of 40-50%. Two-year data from a placebo-controlled trial show that Arava sustains efficacy long term. Leflunomide is administered orally 10mg or 20mg once daily and it takes about 3 months for maximum effectiveness to be realized. Side effects include diarrhea (17%), elevated liver enzymes (5%), reversible alopecia (10%), and rash (10%). Although methotrexate historically is the first DMARD prescribed in RA, leflunomide can be used either as monotherapy or in combination with any DMARD and is an attractive option for those patients that do not want, cannot afford, or otherwise cannot take injectables.
TNF Inhibitors Are Being Used More Often, Earlier On

Tumor necrosis factor alpha (TNF ), a cytokine produced by T-lymphocytes and macrophages, is a central player in the inflammatory cascade and a primary mediator of immune reactions. TNF inhibitors (anti-TNFs) bind to circulating TNF and block its ability to attach to cell receptors. The net result is a dramatic decline in inflammation. Anti-TNF agents are highly effective in treating a multitude of inflammatory diseases including: RA, juvenile idiopathic arthritis, ankylosing spondylitis, psoriatic and reactive arthritis, inflammatory bowel and ocular diseases, and psoriasis. Evidence-based clinical trials support the use of anti-TNFs as an early second-line therapy. Anti-TNFs can be used as monotherapy or in combination with traditional DMARDs in treatment nave or treatment failure patients. Issues with anti-TNFs include their high cost, contraindication in patients with CHF or a history of cancer or demyelinating disease, and the need for treating patients with signs of old/latent tuberculosis (by chest X-ray). Although there is an increased risk of skin malignancies in patients receiving anti-TNF therapy, there is no conclusive evidence to date of increased risks for developing solid tumors, lymphoproliferative diseases, or serious infections. Specialists are eager to use anti-TNFs because of clear efficacy in halting or slowing disease progression (clinically and radiographically), increasing amounts of data supporting long-term safety (10 years), and emerging evidence that associated comorbidities (i.e. acute coronary syndrome, stroke) may decline since the underlying inflammatory condition is better controlled. Thus, rheumatologists expect TNF inhibitors to remain a dominant therapy in RA, with modest growth for the class through 2013.
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New And Total Scrips For Enbrel and Humira

50,000 Enbrel NRx 45,000 Enbrel TRx Humira NRx 40,000 Humira TRx
Enbrel & Humira Scrips
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0 9/6/2002 8/6/2004 7/7/2006 11/6/1998 4/30/1999 4/14/2000 10/6/2000 3/30/2001 9/21/2001 3/15/2002 2/28/2003 8/22/2003 2/13/2004 1/28/2005 7/22/2005 1/13/2006 10/22/1999 12/29/2006 6/22/2007 12/14/2007 6/6/2008 11/28/2008
Source: IMS And Cowen And Company
Enbrel Continues To Be Market Leader

Enbrel is a soluble tumor necrosis factor receptor linked to the Fc portion of human IgG1. First approved in the U.S. in 1998, Enbrel is approved for the treatment of RA, juvenile idiopathic arthritis, psoriatic arthritis, ankylosing spondylitis, and psoriasis. Numerous studies evaluating combination therapy of Enbrel with methotrexate early in the disease course have demonstrated that the combination of Enbrel + methotrexate is statistically superior in preventing disease and radiographic progression versus either methotrexate or Enbrel monotherapy. A review of the available clinical data suggests that the Enbrel/methotrexate combination is as effective as Humira/methotrexate and Remicade/methotrexate combinations. Physicians differentiate Enbrel based on its long-standing efficacy and safety record. We believe these attributes will enable Amgen/Wyeth to maintain its U.S. market leadership in the anti-TNF field (for rheumatic and other indications) over the next few years. We forecast U.S. Enbrel sales of $3.7B in 2009, rising to $4.5B in 2013. In 2008, the FDA added a blackbox to Enbrels label for infections (including specifically fungal infections) and TB reactivation. The FDA is also considering adding a blackbox to Enbrels label for serious infections, hospitalizations, other complications, and death seen with use in children. We view these as neutral events as the FDA believes these side effects are a class effect. In November 2013 Amgens and Wyeths co-promotion agreement surrounding Enbrel will expire. During the following three years the royalty Amgen pays Wyeth will decline until November 2016 when Amgen regains 100% of North American rights.
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But Abbotts Humira Is Well Liked, Competitive

Humira (adalimumab) is a fully human monoclonal TNF antibody that has received FDA approval for the treatment of the signs and symptoms of RA (first approved indication in January 2003), psoriatic arthritis (late 2005), ankylosing spondylitis, juvenile idiopathic arthritis (2008), moderate to severe plaque psoriasis (2008) and for inhibiting the progression of structural damage. Our physician consultants consider Humira to be as safe and effective as Enbrel in RA, more efficacious than Enbrel in psoriasis. In Crohns disease, Humiras efficacy is viewed as more modest than that of Remicade in Crohns but with a better safety profile and more convenient administration. Humiras main differentiating features are less frequent injectable dosing (40mg subcutaneously every other week vs. one weekly 50mg injection with Enbrel). Humira can also be dosed escalated to 40mg weekly (another benefit over Enbrel). Thus, Humira continues to gain share across multiple inflammatory diseases including RA, psoriasis, and psoriatic arthritis. New Indications Increase Humiras Competitiveness Over the next two years, we expect Humira to continue to gain share in RA, ankylosing spondylitis, and psoriatic arthritis while also picking up share and benefiting from biologic market expansion in psoriasis and Crohns disease. Humira is also in Phase III trials for ulcerative colitis (UC), which may provide yet another opportunity in the next 2-3 years. Worldwide sales of Humira grew to $4.5B in 2008, and we estimate 2012 sales of $8.2B. Data from the Phase III CHARM study, presented at DDW 2006, reaffirmed the results of previous CLASSIC and CLASSIC II studies, which demonstrated Humiras ability to manage Crohns disease. Our physician consultants estimate that 30-35% of moderate to severe Crohns disease patients are intolerant of Remicade or are experiencing declining efficacy, which is attributed to anti-HACA (human antichimeric antibodies) neutralizing antibodies. Therefore, Humira could serve as an important treatment for moderate to severe Crohns disease. Although costs will be higher in Crohns vs. other indications (160mg given in 4 divided doses on day 1 or over 2 days, then 80mg in week 2, then 40mg every other weeks starting week 4), use will be driven by superior safety and tolerability and more convenient subQ dosing. We believe Crohns disease represents a greater than $1.5B opportunity for biologics and Humira is poised to take significant share and drive market expansion.
Remicade Continues To Be Profitable

Remicade (infliximab) is a chimeric anti-TNF monoclonal antibody approved for the treatment of RA (signs and symptoms, inhibition of disease and radiographic progression), ankylosing spondylitis, psoriasis and psoriatic arthritis, Crohns disease (acute and maintenance use; fistula closure or prevention), and ulcerative colitis. In RA, Remicades share of new and total patients has eroded due to competition from Enbrel and Humira. We estimate that Medicare represents about 20% of RA patients, and that Remicade will maintain a stronghold in this patient population in the near term. We also anticipate that Remicade will continue to be used in a small number of patients who fail Enbrel and/or Humira given the ability to dose escalate and increase compliance. We forecast U.S. Remicade sales (for rheumatologic diseases) of $1.8B in 2009 and $725MM in 2013 (a decline based on cannibalization from sales of Golimumab).
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Orencia Demonstrates Durable Efficacy, Good Safety Profile

Orencia (abatacept), a T-cell co-stimulator, was launched in the U.S. in 2006 for RA patients who have failed one or more DMARDs. It can be used as monotherapy or in combination with other traditional DMARDs. Orencia is also approved for the treatment of juvenile idiopathic arthritis. In 2007, the E.U. approved a MAA for Orencia in the treatment of moderate to severe RA in those patients who have failed one or more DMARDs and the UKs NICE recommended that Orencia not be used for the treatment of RA based on the cost per quality-adjusted year. Differentiating features of Orencia are its mechanism of action (modulates T-cell activation), once-monthly administration, and its use in patients with congestive heart failure (relative contraindication for anti-TNFs). However, data also suggest that Orencia increases COPD flares, may be associated with more adverse events when combined with leflunomide, and should not be used in patients with a history of cancer. We forecast U.S. Orencia sales of $500MM in 2009 and $840MM in 2013. Bristol-Myers conducted three Phase III studies in rheumatoid arthritis: (1) in combination with methotrexate; (2) in patients refractory to anti-TNF therapies; and (3) a large safety trial. Phase III results from AIM (Abatacept in Inadequate responders to Methotrexate) and ATTAIN (Abatacept Trial in Treatment of Anti-TNF INadequate responders) concluded that Orencia is effective and safe when dosed at 10mg/kg in combination with methotrexate, and in combination with DMARDs in anti-TNF non-responders. Phase III results of ASSURE, a one-year safety trial of Orencia with or without anti-TNF therapy vs. anti-TNF therapy alone, demonstrated that the combination of Orencia with biologic therapy was relatively safe and well tolerated, but there was a higher rate of infections with Orencia + anti-TNF therapy vs. anti-TNF therapy alone (5.8% or 6 patients vs. 1.6% or 1 patient). Other trials combining biologics have also shown a higher rate of infections with no incremental efficacy. Current FDA guidelines do not allow two biologics to be used in combination. Of the 1,955 patients treated in placebo-controlled clinical trials, 4 were diagnosed with lung cancer vs. 0 for the placebo. Although many rheumatologists take precautions when prescribing Orencia in patients with an extensive history of smoking or chest x-ray abnormalities, they do not view this as a major drawback.
ATTAIN Phase III RA Efficacy Data At 6 Months Response Criteria at 52 weeks ACR-20 ACR-50 ACR-70 DMARD + placebo (n=130) 19.5% 3.8 1.5 Abatacept 10mg/kg + DMARD (n=261) 50.4% 20.3 10.2
Source: ACR 2004 Abstracts AIM Phase III Data At 6 Months And 1 Year Methotrexate (n=219) 39.7% 16.8 6.5 6 months Abatacept 10mg/kg + methotrexate (n=433) 67.9% 39.9 19.8 Methotrexate (n=162) 39.7% 18.2 6.1 12 months Abatacept 10mg/kg + methotrexate (n=385) 73.1% 48.3 28.8
Response Criteria ACR-20 ACR-50 ACR-70

Source: ACR 2004 Abstracts
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In November 2007, Bristol released a five-year update from the long-term extension of its Phase IIb study. 59.4% of patients continued through the five years with 83%, 65%, and 40% maintaining ACR 20, 50, and 70 responses. Patient outcomes were also durable, including those measured by the modified HAQ-DI and SF-36. Safety analysis also demonstrates a decreasing trend over the five years in serious adverse events, serious infections, and incidence rates of malignancies as compared to the double-blind trial results. Over the five-year period, 11% of patients stopped Orencia due to serious side effects, and 5 deaths occurred, of which all were not thought to be drug related. A two-year open label extension of the AIM trial was reported in Annals of Rheumatic Diseases in December 2007. 539 patients received Orencia and hand and feet X-rays were taken at baseline, year 1, and year 2. After 1 year with Orencia, there was a 50% reduction in structural progression, including erosions and joint space narrowing. After two years, 79% of patients who did not have any X-ray progression at the end of year 1 while on Orencia, did not have any worsening at the end of year 2. 45% of patients who progressed while on Orencia after year 1, did not have any worsening during year 2. Thus, most patients who are X-ray responders during the first year maintain a durable benefit and approximately half of those patients who are X-ray non responders during year 1 benefit from Orencia in year 2.
Rituxan Vying For A Seat At The Table

Rituxan is approved for the treatment of TNF refractory moderate to severe RA, in monotherapy or in combination with traditional DMARDs. Approval was supported by data from the Phase III REFLEX trial. The study evaluated Rituxan in 520 patients with active RA refractory to anti-TNF therapy. Patients were randomized to receive Rituxan (n=201) or placebo (n=298) on days 1 and 15, and a stable dose of methotrexate plus two weeks of corticosteroids during the study. The study met its primary endpoint at 24 weeks with an ACR 20 of 51% for Rituxan vs. 18% for placebo (p <0.0001). Other statistically significant (p <0.0001) endpoints were the ACR 50 (27% Rituxan vs. 5% placebo) and ACR 70 (12% Rituxan vs. 1% placebo) response rates. Patients also experienced improvements across multiple health outcome measures. The study also investigated the effect at one year of Rituxan plus methotrexate (MTX) on joint structural damage, compared with methotrexate alone, From week 24 eligible patients were also permitted to receive a repeat course of Rituxan. Radiographs were obtained at baseline and at Weeks 24 and 56. At Week 56, the mean change in the total Genant-modified Sharp score in the placebo arm was 2.31 compared with 1.00 in the Rituxan group (p=0.0043). Significant differences were also observed in changes of erosion score and joint space narrowing score. In addition, the proportion of patients with no change in erosion score was significantly higher in the Rituxan arm compared to placebo: 61% vs. 52%, respectively (p=0.0445). The most common side effects were headache, nausea, upper respiratory tract infection, infusion reactions, and nasopharyngitis, with serious adverse events comparable across treatment arms. Withdrawals due to lack of efficacy were 12% Rituxan vs. 40% placebo, and withdrawals due to adverse events were 3% Rituxan vs. <1% placebo. In 2007, a consensus statement was published in Annals of Rheumatic Diseases on the use of Rituxan in moderate to severe RA patients that are refractory to anti-TNF
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agents. Given the lack of evidence in being able to first use B-cell depletion therapy and then anti-TNFs or other biologics, Rituxan, as monotherapy or in combination with other DMARDs, is still recommended for the 1 TNF refractory patient who has maximized other DMARD combinations. Data suggest that patients who cannot tolerate anti-TNFs due to other co-morbidities (malignancy, CAD, history of demyelinating disease or TB, Hep B or C, or CHF) could be administered Rituxan. All patients should receive premedication (at minimum methylprednisolone) prior to the first (and probably the second) infusion, since reaction rates during the first infusion can be as high as 35%. The guidelines also suggest which patients would best qualify for additional infusions (after the first two) but emphasize that repeat infusions should be given at least 24 weeks after the previous treatment. Since there are conflicting data on the efficacy of Rituxan in rheumatoid factor (RF) negative patients, Rituxan is best used in those refractory patients that are only RF+. Rituxan Trying To Expand Its Use In RA Patients In January 2008, Genentech and Biogen Idec announced positive results from the 509 patient Phase III randomized double blind placebo controlled SERENE study in biologics-nave patients deemed methotrexate failures. Patients received in combination with MTX two infusions of Rituxan 500mg or 1000mg, or placebo. The primary endpoint was the number of patients who achieved ACR 20 after 24 weeks. Patients receiving Rituxan (500mg or 1000mg) + MTX demonstrated a statistically significantly better ACR 20 than those taking placebo + MTX. Although not powered to compare different doses of Rituxan, it appeared that administering two infusions of 500mg was as efficacious as two infusions of 1000mg. Rates of infections and overall adverse and serious adverse events were similar between the trial arms. Those patients receiving Rituxan were more likely to receive infusion reactions (mostly mild to moderate with no serious infusion reactions reported). Based on these data, a sBLA was filed to amend Rituxans use for biologic nave moderate to severe RA patients. The PDUFA date is August 30, 2009. Follow-up open label extensions with Rituxan in RA patients, which are ongoing, have demonstrated that repeat dosing at least 24 weeks after the previous treatment is efficacious and safe for >2 years. In addition, new data, published in Annals of Rheumatic Diseases in January, suggest that administering a different biologic (e.g. anti-TNFs or Orencia) after a patient has been treated with Rituxan is safe and effective. While this is encouraging, the study was only in 185 patients and thus longer-term data in more patients are required before drawing definite conclusions. Net net, our physician consultants believe that more long-term safety data are needed to address the risks of 1) chronic B-cell depletion and 2) chronic B-cell depletion subsequently followed by use of other biologic therapies.. Hence, Rituxan will likely compete against Orencia for share in the relatively modest TNF-refractory market. Our physician consultants project that in two years, as many as 15-20% of their moderate to severe RA patients might be treated with either Rituxan or Orencia, with Orencia being the preferred initial agent.
Actemra Receives Complete Response Letter From FDA

Roche and Chugai are developing Actemra, an intravenous humanized monoclonal antibody against IL-6 receptor (membrane bound and soluble forms). IL-6 production by B and T lymphocytes, macrophages, and fibroblasts is stimulated by TNF- and IL-1. IL-6 in turn accelerates the inflammatory cascade by mediating T lymphocyte activation, maturation of megakaryocytes, B cell autoantibody and
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immunoglobulin production, hepatocyte production of acute phase reactants, and osteoclast activation. Roche and Chugai have conducted multiple Phase III trials (SAMARUI, TOWARD, OPTION, RADIATE, AMBITION, and LITHE) assessing Actemra in patients who have failed and were nave to anti-TNF therapies. All studies have demonstrated that Actemra is effective in treating the signs and symptoms of RA, including radiographic progression of structural damage. Adverse events include increased risk of infection, increase in total cholesterol, LDL, and triglycerides, transient increases in liver function tests, transient neutropenia, infusion reactions (7% reactions, mostly mild to moderate), and a possible increased risk in GI perforations.
Actemra Phase III Data In RA patients 24 weeks Response Criteria Actemra group Placebo group (Actemra + MTX placebo) (Actemra placebo + MTX) N=61 80.3 49.2 29.5 N=64 25.0 10.9 6.3 p-value
20% ACR response 50% ACR response 70% ACR response

Source: Chugai
<0.001 <0.001 <0.001
Phase III Actemra 6-Month Data
Incomplete response to DMARDs (pooled data) Actemra DMARD 4 mg/kg 8 mg/kg N 1,010 612 1,406 50% 57% ACR 20 26% ACR 50 11% 27% 41% ACR 70 2% 11% 19%
Source: Pooled data based on FDA briefing documents, July 2008
Incomplete response to TNFs Actemra placebo 4 mg/kg 8 mg/kg N 158 161 170 ACR 20 10% 30% 50% ACR 50 4% 17% 29% ACR 70 1% 5% 12%
In July 2008, the FDAs Arthritis Drugs Advisory Committee voted that the benefits of Actemra outweigh the risks and recommended approval. However, In December 2008 Roche announced that the FDA issued a complete response letter. The FDAs concerns revolved around 1) an incomplete preclinical package, 2) CMC, and 3) the proposed label and REMS program. Because Roche is being required to do additional preclinical work, a resubmission of Actemras BLA will be delayed until mid-:2010. In addition, with greater side effects seen in those patients who received IV 8 mg/kg vs. 4 mg/kg, we are unclear if FDA will approve both doses or just the 4 mg/kg regimen. Although Actemra seems to be efficacious at both doses and as monotherapy and in combination with conventional DMARDs (in anti-TNF nave and failure patients), the entrenched status of Enbrel and Humira as the first-choice biologics and safety concerns for a new agent with a novel mechanism will likely result in only a modest uptake. We believe Actemra will likely compete with Orencia and Rituxan for the anti-TNF failure patients.
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FDA Requires More Information On UCBs Cimzia As Well

Cimzia is a pegylated anti-TNF antibody fragment that received FDA approval in April 2008 for the treatment of moderate to severe Crohns disease patients who have not responded to conventional medications. Cimzia differentiates itself by its once-monthly subQ administration. In Europe, UCB received a negative CHMP opinion in November 2007. Although, UCB appealed the decision in March 2008, the CHMP rejected the appeal. We expect Cimzia to struggle in the U.S. Crohns market as Humiras and Remicades profile will likely hinder Cimzias potential. Cimzia is also in development for the treatment of RA. In February 2007, UCB announced top-line results of two Phase III trials -RAPID 1 and 2 in RA patients. Oneyear radiographic data from RAPID 1, which enrolled approximately 1,000 patients, demonstrated that Cimzia plus methotrexate inhibited progression of structural damage vs. patients receiving methotrexate plus placebo. RAPID-1 also achieved its co-primary endpoint of a smaller change from baseline in the modified Total Sharp Score at week 52 in both Cimzia treatment arms (400mg at week 0, 2, and 4 followed by 200mg every 2 weeks; or 400mg every 2 weeks) vs. the placebo arm (p<0.001). RAPID-2, which was conducted with a liquid reformulation to allow for extended dosing, also achieved statistical significance by week 24 (ACR 20, 50 and 70 scores in both Cimzia treatment arms vs. placebo). Open label continuation studies in RA patients taking methotrexate and Cimzia are ongoing and Cimzias efficacy appears durable with safety similar to other anti-TNFs. Cimzias BLA filing for the treatment of RA was accepted for review by the FDA in February 2008. However, in January, UCB received a complete response letter as the FDA requested a safety update from the clinical program and use in Crohns patients and further analysis of existing results. UCB plans on submitting a response in Q2:09 and could receive approval by YE:09. Physician experts are sceptical that Cimzia will be able to gather momentum in the competitive RA market.
JNJs Golimumab Likely To Cannabalize Remicade Sales

Golimumab, a fully human monoclonal anti-TNF antibody crated using Medarexs xenomouse technology, has completed Phase III testing for RA (GO-BEFORE, GOFORWARD, GO-AFTER), psoriatic arthritis (GO-REVEAL), and ankylosing spondylitis (GO-RAISE). Schering-Plough has the rights to Golimumab in ex-U.S. markets. It could be the first anti-TNF available in both subcutaneous (every 4 weeks in auto-injector) and IV (every 12 weeks, 30 minute infusion) formulations. All five pivotal trials suggest efficacy on par with other anti-TNFs without any new or higher rates of adverse events related to the once monthly dose regimen. Consultants believe that Golimumab will be grandfathered in because most rheumatologists will assume it has the same efficacy/safety profile as Enbrel and Humira. JNJ submitted its E.U. application in February 2008 and its BLA in June 2008 (PDUFA date of April 1, 2009) for subQ Golimumab as a treatment for RA, psoriatic arthritis, and ankylosing spondylitis. JNJ plans to file in 2009 for the IV formulation and for slowing/inhibiting structural damage. Our consultants expect Golimumab to be approved by the FDA and at a minimum cannibalize Remicade sales. It is also possible, depending on insurance coverage, that Golimumab will take market share away from Enbrel and maybe Humira based on its convenience of once-monthly administration. We project 2013 U.S. sales of $1.4B across all three indications.
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JNJ also anticipates conducting clinical trials to assess Golimumabs efficacy in reducing vascular events (acute coronary syndrome, stroke) in RA patients by exploring cardiovascular serum markers and ultrasound measurements of carotid artery thickness.
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U.S. Rheumatoid Arthritis Market Buildup ($MM)

2008 Market Assumptions: U.S. Patient Population Assumptions: # of patients in U.S with RA % Prevalence (of total U.S. population) % Not Entering Remission % Requiring Add-On Therapy Total RA Anti-TNF Population ("Add-On" Therapy) U.S. Market Penetration: # of RA Patients on Biolgics % penetration of potential "Add-On" market % penetration of total RA market % Y/Y growth Sales Analysis: Total Sales U.S. (MM): Growth (Y/Y) % Remicade (JNJ): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Remicade U.S. Sales (MM) Growth (Y/Y) % Enbrel (AMGN/WYE): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Enbrel U.S. Sales (MM) Growth (Y/Y) % Humira (ABT): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Humira U.S. Sales (MM) Growth (Y/Y) % Orencia (BMS): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Orencia U.S. Sales (MM) Growth (Y/Y) % Rituxan (DNA): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Rituxan U.S. Sales (MM) Growth (Y/Y) % Actemera (Roche): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Actemera U.S. Sales (MM) Growth (Y/Y) % Cimzia (UCB): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Cimzia U.S. Sales (MM) Growth (Y/Y) % Golimumab (JNJ/SGP): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Golimumab U.S. Sales (MM) Growth (Y/Y) % 2009E 2010E 2011E 2012E 2013E '08/13E CAGR
2,328,600 0.75% 85.0% 40.0% 791,724
2,358,872 0.75% 85.0% 40.0% 802,016
2,389,537 0.75% 85.0% 40.0% 812,443
2,420,601 0.75% 85.0% 40.0% 823,004
2,452,069 0.75% 85.0% 40.0% 833,703
2,483,946 0.75% 85.0% 40.0% 844,542
315,800 39.9% 13.6% 6.0%
340,100 42.4% 14.4% 7.7%
370,250 45.6% 15.5% 8.9%
404,450 49.1% 16.7% 9.2%
445,200 53.4% 18.2% 10.1%
478,900 56.7% 19.3% 7.6%
$5,680 7.2%
$6,140 8.1%
$6,600 7.5%
$7,100 7.6%
$7,690 8.3%
$8,160 6.1%
7.5%
77,600 9.8% $19,980 $1,550 -2.5%
73,800 9.2% $19,980 $1,470 -5.2%
67,450 8.3% $19,980 $1,350 -8.2%
53,500 6.5% $19,980 $1,070 -20.7%
37,500 4.5% $19,980 $750 -29.9%
25,350 3.0% $19,980 $510 -32.0%
-19.9%
110,850 14.0% $18,882 $2,090 7.2%
113,100 14.1% $18,882 $2,140 2.4%
117,800 14.5% $18,882 $2,220 3.7%
122,200 14.9% $18,882 $2,310 4.1%
125,900 15.1% $18,882 $2,380 3.0%
130,900 15.5% $18,882 $2,470 3.8%
3.4%
86,300 10.9% $16,000 $1,380 7.8%
92,250 11.5% $16,800 $1,550 12.3%
97,500 12.0% $16,800 $1,640 5.8%
102,450 12.5% $16,800 $1,720 4.9%
106,700 12.8% $16,800 $1,790 4.1%
110,650 13.1% $16,800 $1,860 3.9%
6.2%
21,000 2.7% $17,213 $360 56.5%
28,850 3.6% $17,213 $500 38.9%
36,550 4.5% $17,213 $630 26.0%
41,150 5.0% $17,213 $710 12.7%
45,850 5.5% $17,213 $790 11.3%
49,000 5.8% $17,213 $840 6.3%
18.5%
19,800 2.5% $15,000 $300 20.0%
30,100 3.8% $15,000 $450 50.0%
34,950 4.3% $15,000 $520 15.6%
37,850 4.6% $15,000 $570 9.6%
41,700 5.0% $15,000 $630 10.5%
44,750 5.3% $15,000 $670 6.3%
17.4%
250 0.0% $17,000 $0
0.0% $17,000 $0
0.0% $17,000 $0
9,050 1.1% $17,000 $150
15,000 1.8% $17,000 $260 73.3%
21,100 2.5% $17,000 $360 38.5%
NM
0.0% $15,000 $0
4,650 0.6% $15,000 $70
9,450 1.2% $15,000 $140 100.0%
12,500 1.5% $15,000 $190 35.7%
16,900 2.0% $15,000 $250 31.6%
NM
2,000 0.3% $15,000 $30
11,350 1.4% $15,000 $170 466.7%
28,800 3.5% $15,000 $430 152.9%
60,050 7.2% $15,000 $900 109.3%
80,250 9.5% $15,000 $1,200 33.3%
NM
Source: Company reports, Cowen and Company estimates
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Arthritis
U.S. Psoriatic Arthritis Market Buildup ($MM)

2008 Market Assumptions: U.S. Patient Population Assumptions: # of patients in U.S with psoriasis % prevalence (of total U.S. population) % Moderate-to-severe psoriasis % Moderate-to-severe with PsA % Moderate-to-severe Requiring Add-On Therapy Total PsA Anti-TNF Population ("Add-On" Therapy) U.S. Market Penetration: # of PsA Patients on Biolgics % penetration of potential "Add-On" market % penetration of total PsA market % Y/Y growth Sales Analysis: Total Sales U.S. (MM): Growth (Y/Y) % Remicade (JNJ): Avg # Pts per year Penetration of Moderate-to-severe PsA Market (%) Penetration of total PsA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Remicade sales ($MM) Growth (Y/Y) % Enbrel (AMGN): Avg # Pts per year Penetration of Moderate-to-severe PsA Market (%) Penetration of total PsA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Enbrel sales ($MM) Growth (Y/Y) % Humira (ABT): Avg # Pts per year Penetration of Moderate-to-severe PsA Market (%) Penetration of total PsA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Humira sales ($MM) Growth (Y/Y) % Golimumab (JNJ/SGP): Avg # Pts per year Penetration of Moderate-to-severe PsA Market (%) Penetration of total PsA market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Humira sales ($MM) Growth (Y/Y) % 2009E 2010E 2011E 2012E 2013E '08/13E CAGR
4,657,000 1.50% 25.00% 30.00% 30.00% 104,800
4,717,500 1.50% 25.00% 30.00% 30.00% 106,100
4,779,000 1.50% 25.00% 30.00% 30.00% 107,500
4,841,000 1.50% 25.00% 30.00% 30.00% 108,900
4,904,000 1.50% 25.00% 30.00% 30.00% 110,300
4,968,000 1.50% 25.00% 30.00% 30.00% 111,800
26,200 25.0% 0.6% 14.7%
29,708 28.0% 0.6% 13.4%
32,465 30.2% 0.7% 9.3%
35,175 32.3% 0.7% 8.3%
37,833 34.3% 0.8% 7.6%
40,583 36.3% 0.8% 7.3%
$495 15.1%
$565 14.1%
$615 8.8%
$665 8.1%
$710 6.8%
$755 6.3%
7%
9,222
8.80% 0.20% 37.4% $19,980
9,337
8.80% 0.20% 32.7% $19,980
8,600
8.00% 0.18% 27.6% $19,980
8,168
7.50% 0.17% 24.8% $19,980
7,721
7.00% 0.16% 21.8% $19,980
7,267
6.50% 0.15% 19.2% $19,980
$185 5.7%
$185 0.0%
$170 -8.1%
$165 -2.9%
$155 -6.1%
$145 -6.5%
-4%
7,546
7.20% 0.16% 32.3% $21,347
8,170
7.70% 0.17% 31.0% $21,347
8,815
8.20% 0.18% 30.9% $21,347
9,583
8.80% 0.20% 30.8% $21,347
10,258
9.30% 0.22% 31.0% $21,347
10,956
9.80% 0.22% 31.1% $21,347
$160 10.3%
$175 9.4%
$190 8.6%
$205 7.9%
$220 7.3%
$235 6.8%
7%
9,432
9.00% 0.20% 30.3% $16,000
12,202
11.50% 0.26% 36.3% $16,800
15,050
14.00% 0.31% 41.5% $16,800
17,424
16.00% 0.36% 44.4% $16,800
19,854
18.00% 0.40% 47.2% $16,800
22,360
20.00% 0.45% 49.7% $16,800
$150 36.4%
$205 36.7%
$255 24.4%
$295 15.7%
$335 13.6%
$375 11.9%
16%
0.00% 0.00% 0.0% $15,000
1,061
1.00% 0.02% 2.7% $15,000
2,150
2.00% 0.04% 4.9% $15,000
3,267
3.00% 0.07% 7.5% $15,000
4,964
4.50% 0.10% 10.6% $15,000
6,149
5.50% 0.12% 11.9% $15,000
$0
$15
$30 100.0%
$50 66.7%
$75 50.0%
$90 20.0%
NM
105
Arthritis
U.S. Ankylosing Spondylitis Market Buildup ($MM)

2008 Market Assumptions: U.S. Patient Population Assumptions: # of patients in U.S with AS % prevalence (of total U.S. population) % Moderate-to-severe AS % Moderate-to-severe Requiring Therapy % Moderate-to-severe Requiring Add-On Therapy Total AS Anti-TNF Population ("Add-On" Therapy) U.S. Market Penetration: # of AS Patients on Biolgics % penetration of potential "Add-On" market % penetration of total AS market % Y/Y growth Total Sales U.S. (MM): Growth (Y/Y) % Remicade (JNJ): Avg # Pts per year Penetration of Moderate-to-severe AS Market (%) Penetration of total AS market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Remicade sales ($MM) Growth (Y/Y) % Enbrel (AMGN): Avg # Pts per year Penetration of Moderate-to-severe AS Market (%) Penetration of total AS market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Enbrel sales ($MM) Growth (Y/Y) % Humira (ABT): Avg # Pts per year Penetration of Moderate-to-severe AS Market (%) Penetration of total AS market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Humira sales ($MM) Growth (Y/Y) % Golimumab (JNJ/SGP): Avg # Pts per year Penetration of Moderate-to-severe AS Market (%) Penetration of total AS market (%) Share of biologics therapy market (%) Annual cost of therapy Estimated US Golimumab sales ($MM) Growth (Y/Y) %
2009E
2010E
2011E
2012E
2013E
'08/13E CAGR
621,000 0.20% 40.0% 70.0% 50.0% 86,900
629,000 0.20% 40.0% 70.0% 50.0% 88,100
637,000 0.20% 40.0% 70.0% 50.0% 89,200
645,500 0.20% 40.0% 70.0% 50.0% 90,400
654,000 0.20% 40.0% 70.0% 50.0% 91,600
662,500 0.20% 40.0% 70.0% 50.0% 92,800
22,246 25.6% 3.6% 53.9% $390 36.8%
25,285 28.7% 4.0% 13.7% $450 15.4%
28,812 32.3% 4.5% 13.9% $505 12.2%
32,725 36.2% 5.1% 13.6% $575 13.9%
36,457 39.8% 5.6% 11.4% $640 11.3%
41,389 44.6% 6.2% 13.5% $645 0.8% 9%
1,912
2.20% 0.31% 10.3% $19,980
1,938
2.20% 0.31% 8.9% $19,980
1,873
2.10% 0.29% 6.9% $19,980
1,808
2.00% 0.28% 6.1% $19,980
1,740
1.90% 0.27% 5.5% $19,980
928
1.00% 0.14% 3.1% $19,980
$40 14.3%
$40 0.0%
$35 -12.5%
$35 0.0%
$35 0.0%
$20 -42.9%
-11%
9,907
11.40% 1.60% 47.4% $18,882
10,132
11.50% 1.61% 42.2% $18,882
10,436
11.70% 1.64% 38.6% $18,882
10,577
11.70% 1.64% 34.8% $18,882
10,900
11.90% 1.68% 32.0% $18,882
11,229
12.10% 1.69% 32.6% $18,882
$185 23.3%
$190 2.7%
$195 2.6%
$200 2.6%
$205 2.5%
$210 2.4%
2%
10,428
12.00% 1.68% 42.3% $16,000
13,215
15.00% 2.10% 48.9% $16,800
16,502
18.50% 2.59% 54.5% $16,800
20,340
22.50% 3.15% 59.1% $16,800
23,816
26.00% 3.64% 62.5% $16,800
24,592
26.50% 3.71% 64.3% $16,800
$165 65.0%
$220 33.3%
$275 25.0%
$340 23.6%
$400 17.6%
$415 3.8%
17%
0.00% 0.00% 0.0%
0.00% 0.00% 0.0%
1,784
2.00% 0.28% 5.0%
2,712
3.00% 0.42% 7.0%
4,122
4.50% 0.63% 9.4%
4,640
5.00% 0.70% 10.9%
$15,000 $0
$15,000 $0
$15,000 $25
$15,000 $40 60.0%
$15,000 $60 50.0%
$15,000 $70 16.7%
NM
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Arthritis
Multiple Other Agents In Phase II, Phase III

Our consultants believe that new biologics in development are at a significant disadvantage to being broadly adopted among patients with RA. First, the true number of anti-TNF failures is modest and this segment is already crowded with Orencia, Rituxan, and possibly Actemra. Second, in order to jump ahead of anti-TNFs in the treatment paradigm, the bar for efficacy (ACR responses, structural damage, and decrease in vascular outcomes) is high. Any new compound being developed would need to be almost as efficacious as anti-TNFs. Third, is long-term safety. Based on 10 years of clinical experience, rheumatologists consider anti-TNFs very safe. Any new compound would have to be as safe as, if not safer than, anti- TNFs to be broadly prescribed. Amgens Denosumab: Amgens denosumab is a humanized monoclonal antibody that inhibits the RANK/RANK ligand interaction by mimicking the actions of the naturally occurring osteoblast modulator protein OPG (osteoprotegerin). Inhibiting this interaction prevents osteoclast precursors from becoming functioning osteoclasts and suppresses the activity of pre-existing osteoclasts. Clincal trials have demonstrated that denosumab can have a rapid onset of action (12-24 hours) and durable effect (out to 4+ years). However denosumabs effects on bone remodeling and the RANK/RANK ligand pathway are reversible upon discontinuation of therapy. Denosumab is in Phase II development in patients with RA and receiving methotrexate. A one-year double blind randomized placebo controlled Phase II trial was conducted. 218 patients were enrolled with 75 receiving placebo, 71 receiving 60mg subQ every 6 months, and 72 receiving 180mg subQ every 6 months. The primary endpoint was change in baseline erosion score by MRI at six months. Denosumab 60mg and 180mg statistically significantly reduced the increase in the erosion score and modified Sharp erosion score both at 6 and 12 months vs. placebo. Denosumab did not impact joint space narrowing or measure of RA activity. Side effects were similar across the three arms.
Phase II Denosumab Results
MRI Erosion Score At 6 Months Modified Sharp Erosion Score At 6 Months Modified Sharp Erosion Score At 12 Months
Source: Amgen
60mg subQ every 6 months P=0.118 NS P=0.012
120mg subQ every 6 months P=0.007 P=0.019 P=0.007
Amgen has not provided an update on denosumab in RA and other erosive inflammatory arthritides such as gout and psoriatic arthritis. It appears that denosumabs success in inflammatory arthritis would be to decrease the degree of structural damage. However, since 1) disease activity is correlated with progression of erosions and 2) denosumab does not appear to be immunosuppressant, its use in this setting could be limited. Other Injectable Agents In Development: 1) Eli Lilly is conducting a Phase II trial in 150 methotrexate-failure RA patients with LY2127399, an IL-17 antagonist. Data are expected in mid-2010; 2) New anti-CD20 agents are in Phase II development by Genentech/Biogen Idec (oreclizumab), GSK (ofatumumab), and Trubion (TRU-015); 3) JNJ is conducting a Phase II trial in 150 methotrexate-failure RA patients with CNTO
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Arthritis
136, a subcutaneous IL-6 antagonist. Data are expected in 2009; 4) biologics in development by AstraZeneca (AZD5672) and GSK (GSK3152314A) are in Phase II studies with data expected in mid:2009 and early 2010 respectively; 5) Novartis is conducting a Phase II trial with canakinumab (a long acting IL-1 monoclonal antibody) in 208 RA patients with active disease. Data are anticipated for mid-2009; and 6) XOMA recently initiated a, 18-patient Phase IIa trial with XOMA 052, a long acting IL-1 monoclonal antibody.
Including Novel Oral Agents

We view the oral small molecules currently in development as interesting but unlikely to be used in the first-line setting. Some appear to have efficacy similar to anti-TNFs with earlier onset of action. However our physicians feel it is too early to make a call on the new crop of oral compounds in development because 1) efficacy and safety data are only in a small number of patients and 2) the targeted kinases are intertwined with so many pathways that off-target side effects (including an increase risk of infection, liver function, white blood cell, and cholesterol abnormalities, and possibly an increase in blood pressure, malignancy, and GI toxicity) are likely. JAK2 And JAK3 (Janus Associated Kinases) Inhibitors: Inhibition of JAK2 and JAK3 lead to distinct phenotypes. JAK2 is primarily responsible for red blood cell and platelet production although reports that show JAK2 mutations are found in lymphoid cells, and high levels of JAK2 expression have been found in mature activated B-cell lymphocytes. JAK3 is important for white blood cell production (Tcells, natural killer cells). That being said, there appears to be some common overlap between the two pathways, namely the cytokine IL-6. IL-6 is produced by a number of cell types including lymphocytes, and is an important regulator of hematopoesis as well as inflammation. IL-6 has been found in the synovial joints of rheumatoid arthritis patients, and is believed to be implicated in disease pathogenesis. Pfizers JAK 3 Leads The Way, Entering A Phase III Program Pfizer presented data from Study 1025 at ACR 2008. This was a 24-week dose finding Phase IIb study in 509 RA patients on top of methotrexate (MTX). Patients were randomized to one of six 550 doses (1 mg bid, 3 mg bid, 5 mg bid, 10 mg bid, 15 mg bid, and 20 mg qd) or placebo and assessed for efficacy at 12-weeks and safety through 24-weeks. All but the 1mg dose resulted in superior ACR20 at 12weeks with a flat dose-response thereafter. There was no correlation with dose and the ACR 50 and 70s. Interestingly the ACR20 response rate appeared to flatten after 6 weeks for all the doses above 1mg.
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Arthritis
550 Efficacy Data At 6 Weeks And Safety Data At 24 Weeks
placebo/MTX 1 mg BID+MTX 3 mg BID+MTX 5 mg BID+MTX 10 mg BID+MTX 15 mg BID+MTX 20 mg QD+MTX
N 69 71 68 71 75 75 80
Efficacy Results ACR 20 ACR 50 ACR 70 37.7% 17.4% 5.8% 49.3% 23.9% 7.0% 58.8% 30.9% 22.1% 60.6% 36.6% 18.3% 60.0% 30.7% 13.3% 58.7% 46.7% 25.3% 60.0% 36.3% 23.8%
LOE 5.8% 2.8% 0.0% 1.4% 0.0% 1.3% 5.8%
Study Discontinuations AEs Total ALT >3x ULN 4.3% 20.3% 1.4% 4.2% 14.1% 0.0% 1.5% 13.2% 0.0% 4.2% 18.3% 0.0% 6.7% 12.0% 1.3% 9.3% 16.0% 6.7% 4.3% 20.3% 1.3%
Source: Pfizer, ACR 2008 abstracts
There were five cases of serious infections, three cases of pneumonia, and two cases of UTIs (not dose related). Several doses resulted in anemia rates above placebo, but this was once again not dose dependent and there were also three cases of neutropenia (>500 but < 100 k/ul) - two cases on the 15mg bid dose and one case on the 1mg dose. There were seven cases of ALTs greater than the 3x ULN which all occurred at 10mg bid dose and higher. No cases met Hys law. Both HDL and LDL were increased although the increases plateaued at the 10mg bid dose. Also at ACR 2008, Pfizer presented results from two other studies: (1) An interim analysis from the open-label extension study, Study 1024, that included patients from studies 1019 (monotherapy) and 1025. Patients were allowed to continue on their background RA therapy and take 550 5 mg bid. The interim analysis included safety data for all 129 patients as of February 2008. Forty patients completed 6 months in the study and were included in the laboratory and DAS comparison. There were three severe AEs (MI, RA, acne) and of 32 infections, 13 were mild, 19 moderate, and none was severe. At six months, the DAS28-3 scores were similar to the one-month scores and this was similar for the DAS28-4 scores. Data from Study 1013, which evaluated the effects of methotrexate on the PK of CP-690,550. The study demonstrated that the combination wall safe and well tolerated and there were no clinically relevant effects. CP-690,550 had no impact on MTXs AUC but did increase the CMAX by 10%. This was not viewed as clinically meaningful. Pfizer believes that, based on these data, no dose adjustment is necessary when these drugs are co-administered.
(2)
Based on the results from the Phase II trials, Pfizer plans on advancing CP-690,550 into a broad Phase III program and hopes to have data by YE:10/early 2011. Two doses of CP-690,550 will be tested, the 5 mg and 10 mg twice-daily regimens. Incytes JAK2 Early But Yields Encouraging Efficacy Results At the ACR meeting in 2008, researchers presented data from the Phase I/II study from 4 dosing cohorts for 424, dosed over 4 weeks in patients with stable background therapy. ACR20 responses were 50-83%, ACR50 was 40-50%, and ACR70 was 25-30% for the 15 mg BID, 25 mg BID, and 50mg QD cohorts. The clinical benefit was observed after as early as 1 week of treatment. Overall, 424 was well tolerated.
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Arthritis
Two Grade 3 events were reported (neutropenia and thrombocytopenia) and are consistent with mechanism of action of 424. These data are early but encouraging, and ACR score could improve with longer duration therapy based on experience with other RA agents, which typically shows peak efficacy between 3-6 months of therapy. That said, 424 appears to have a faster onset of action compared to other RA agents and might plateau sooner than 36 months. It is difficult to compare 424 data directly with other products given the limited sample size in the 424 study and the generally easier to treat patient population. To get a general sense where 424 efficacy falls in relation to the RA standard of care anti-TNF agents, we note that Enbrel showed activity at 12 months comparable to the 424 4-week data in patients who had never taken methotrexate (ACR 20 of 72%, ACR 50 of 49% and ACR 70 of 25%). Although the data for 424 so far include small numbers of patients (n=12 active) and were of limited duration (4 weeks), the drug was well tolerated. Longer-term safety will be needed to solidify 424s profile. . INCY expects to bring forward its second-generation JAK2 inhibitor (INCB28050) into inflammatory indications, and plans on starting a three month Phase II dose-ranging RA study in H1:09. SYK (Spleen Tyrosine Kinase) Inhibitors: Rigel is developing a SYK inhibitor (R788) for the treatment of RA. In December 2007, Rigel announced results from R788s 12-week Phase IIa randomized double-blind placebo controlled trial in 189 patients. Patients were, in a 3:1 ratio, assigned to 50mg twice a day, 100 mg twice a day, 150mg twice a day, or placebo in combination with methotrexate. The primary endpoint was ACR 20 and the secondary outcomes were ACR 50 and ACR 70 responses and DAS score. The 100mg and 150mg twice daily dose met both primary and secondary outcomes statistically significantly and on par with anti-TNFs. Efficacy Results From Phase II Trial
Response Rates at 12 Weeks

ACR Response Rates ACR 20 ACR 50 ACR 70 DAS28 <2.6 Placebo N (%) N = 47 18 (38%) 9 (19%) 2 (4%) 3 (8%) R788 50mg bid N (%) N = 46 15 (32%) 8 (17%) 1 (2%) 6 (16%) R788 100mg bid N (%) N = 49 32 (65%)* 24 (49%) 16 (33%) 11 (26%) R788 150mg bid N (%) N = 47 34 (72%) 27 (57%) 19 (40%) 19 (49%)
Mean Absolute Change from Baseline in RA Disease Variables at Week 12

Components of ACR 20 Score
Tender Joint Count (0-28) Swollen Joint Count (0-28) Patient Assessment of Pain (0-100) Patient Global Disease Assessment (0-100) Physician Global Disease Assessment (0-100)
Placebo (n=47)
5.9 + 6.9 5.5 + 6.2 15.1 + 24.2 12.5 + 26.9 28.0 + 30.9 0.44 + 0.59 0.73 + 2.3
50 mg (n = 46)
9.3 + 9.2 6.4 + 6.0 13.5 + 22.5 15.8 + 21.9 24.9 + 23.9 0.18 + 0.37 0.1 + 1.75
100 mg (n=49)
10.0 + 8.6 9.4 + 7.6 31.6 + 24.9 26.9 + 26.2 38.6 + 31.6 0.55 + 0.62 1.12 + 2.61
150 mg (n=47)
11.6 + 6.2 10.4 + 4.6 36.9 + 27.0 34.9 + 29.0 48.5 + 24.4 0.76 + 0.77 1.0 + 3.0
* p=0.008 p=0.002 p<0.001 p=0.036
Health Assessment Questionnaire (0-3) C-reactive Protein mg/dL
Source: Rigel
Of those patients receiving the 150mg twice daily, 47% of patients had moderate to severe GI symptoms, 21% had neutropenia lasting one month, and 6% had ALT liver
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Arthritis
enzyme elevations greater than 3x normal. Based on these data, Rigel has discontinued development of 150mg twice daily. Of those patients receiving the 100mg twice daily, 9% of patients had moderate to severe GI symptoms, 11% had neutropenia lasting one month, and 4% had moderate to severe hypertension. Safety Profile Of R788 In Phase II Trial
Clinical Adverse Events

Event
Diarrhea Nausea Gastritis Dyspepsia Abdominal Pain Urinary Tract Infection Upper Respiratory Tract Infection Headache Dizziness Fatigue Edema Rash / Urticaria Cough Hypertension
Placebo (n=47)
6 (13%) 2 (4%) 2 (4%) 0 0 3 (6%) 6 (13%) 4 (9%) 1 (2%) 1 (2%) 1 (2%) 0 1 (2%) 0
50 mg (n=46)
5 (11%) 2 (4%) 1 (2%) 1 (2%) 0 3 (7%) 3 (7%) 6 (13%) 2 (4%) 3 (7%) 1 (2%) 3 (7%) 1 (2%) 0
100 mg (n=49)
8 (16%) 7 (14%) 2 (4%) 5 (10%) 2 (4%) 7 (14%) 0 1 (2%) 4 (8%) 3 (6%) 1 (2%) 4 (8%) 2 (4%) 3 (6%)
150 mg (n=47)
21 (45%) 7 (15%) 7 (15%) 3 (6%) 3 (6%) 4 (9%) 0 3 (6%) 5 (11%) 0 4 (9%) 2 (4%) 2 (4%) 2 (4%)
Source: Rigel
At the 2008 ACR meeting, some physicians were concerned about 1) the differences in ACR20 response rates seen in the U.S. vs. Mexico and 2) the adverse events (e.g. liver function tests, neutropenia, increases in blood pressure) and serious adverse events. Nonetheless, R788 appears active and additional studies will better characterize its efficacy and safety profile. In June 2008, Rigel initiated two double-blind randomized placebo-controlled Phase IIb trials to solidify a dose and better understand its efficacy and safety profile, with data expected in Q3:09. TASKi 2 has enrolled 457 methotrexate failure patients for 6 months to either placebo, 100mg twice a day, or 150mg once a day. TASKi 3 will enroll 195 patients who have failed a biologic agent for 3 months to either placebo or 100mg twice a day. The primary endpoint of both trials will be ACR20 scores with secondary endpoints including ACR50, ACR70, and DAS28. In TASKI 3, changes in erosions by MRI scans will also be a secondary endpoint. Pending data from these two trials, Rigel will seek to partner 788 for a broad Phase III development program. MEK (Mitogen Activated Protein/Extracellular Signal-Related Kinase) Inhibitors: MEKs role in the inflammatory pathway is via modulating growth factor signal transduction and cytokine production. Array presented results from a small Phase 1 study of its MEK inhibitor ARRY-162 in healthy volunteers (for 14 days) and RA patients (for 28 days) at the 2008 EULAR meeting. The drug was well tolerated in combination with methotrexate (no PK-PK interaction) and demonstrated 24-hour suppression of inflammatory cytokines including TNF, IL-1 and IL-6 over 28-days of treatment. Based on these data, Array initiated a 12-week
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Arthritis
Phase II study of ARRY-162 in combination with methotrexate in 200 RA patients, with the data expected in mid-2009. Pathways Mediated By Inflammatory Cytokines
Source: Google
Other Oral Compounds In Phase II Development: 1) Can-Fite BioPharmas CF101, an adenosine A3 receptor agonist, is in a 12-week Phase IIb trial. Enrollment was completed in January and 230 patients will be randomized to receive either 0.1 mg or 0.4 mg of CF101 or placebo. Data are expected in Q2:09; 2) OxyPharmas Rabeximod (ROB 803) is a novel compound in a Phase II trial. 224 patients will be randomized to either one of three Rabeximod doses or placebo. Data are expected in 2009; 3) Biogen Idecs BG00012 is in a Phase II study in 150 patients with active disease despite taking methotrexate. Data are expected YE:09/early 2010; 4) Syntas Apilimod (IL-12/IL-23 inhibitor) is in a Phase IIa trial in methotrexate-failure patients; and 5) Wyeths TACE inhibitor TMI-005, which it licensed from Amgen for the treatment of mild-moderate RA, is in an ongoing Phase II trial.
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Arthritis
Osteoarthritis
Inhibition of Cox-2 Has Benefits
Cyclooxygenase-2 (Cox-2) is found in low amounts in most healthy tissues except the brain and kidney, but is expressed only when tissues are inflamed. Cox-1 is widely expressed throughout the body, and it mediates production of prostaglandins that are essential in the gastrointestinal tract, kidney and platelets. Inhibition of Cox-2 is believed to prompt anti-inflammatory, analgesic, and antipyretic effects, while inhibition of Cox-1 can lead to stomach ulcerations and other prostaglandin-based side effects. The coxibs inhibit Cox-2 with up to 100x greater in vitro potency than Cox-1, while traditional NSAIDs offer near equal inhibition of Cox-1/2 enzymes.
But Evidence Of Cardiovascular Risk Damaged The Class

In 1998, evidence of a theoretical cardiovascular risk of selective Cox-2 inhibition surfaced: selective Cox-2 inhibition also inhibits prostacyclin production, a molecule produced by endothelial cells with antithrombotic properties and links to hypertension and atherosclerosis. The selective Cox-2 inhibitors Celebrex and Vioxx were launched almost simultaneously in 1999 and witnessed the most rapid uptake of any new class of drugs: Celebrex and Vioxx each achieved over $1BB in sales in less than 15 months on the market. However, the results of Vioxxs VIGOR highlighted a signal of cardiovascular risk that quickly slowed the growth of the class. In 2004, Merck announced the voluntary worldwide withdrawal of Vioxx due to evidence of cardiovascular risk in the 3-year placebo-controlled APPROVe study. These results were in addition to observational studies that found a correlation between Vioxx, cardiovascular events, and hospitalizations for heart failure versus NSAIDs. In 2004, Bextra showed evidence of a cardiovascular signal for the second time in a study of patients undergoing CABG surgery. These data were followed in 2005 by evidence of a cardiovascular signal in APC, a 3-year NCI study of high-dose Celebrex for the prevention of adenomatous polyps. Bextra was subsequently withdrawn from the market in 2005 at the behest of the FDA.
Black Box Warning Added To All Prescription NSAIDs

In 2005, the FDA requested that a boxed warning be added to all prescription NSAIDs including Celebrex. This decision followed an advisory panel, which concluded that all selective Cox-2 inhibitors have cardiovascular risk, and the cardiovascular risk profile of other NSAIDs is unclear. The label for Celebrex, issued in 2005, includes a contraindication for use in CABG surgery patients, and a recommendation that the lowest effective dose be used for the shortest duration possible. A ban on DTC advertising for Cox-2 inhibitors was recommended by the FDA panel, but this was not included in the FDAs final recommendation for Celebrex.
FDA Panel: NSAIDs Classified By Cardiovascular Risk High risk Moderate risk Low risk Bextra, Vioxx, Arcoxia Celebrex, Prexige, Ibuprofen, Diclofenac, Mobic Naproxen
Source: Joint Committee - Arthritis & Drug Safety and Risk Management
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Arthritis
EMEAs 2006 Review Of Non-Selective NSAIDs: No New Concerns

In 2006, the EMEAs Committee for Medicinal Products for Human Use reviewed the safety profile of non-selective NSAIDs. The committee focused on the long-term safety profile of these drugs as it relates to cardiovascular safety. The committee found that there were no new concerns with the non-selective NSAIDs. The EMEA had issued its final recommendation for Cox-2 selective drugs in June 2005. Two separate recommendations were issued: a class contraindication and a more specific contraindication for Arcoxia. The labeling for Arcoxia is only modestly worse than the class label. EMEA Recommendations For Cox-2 Selective Drugs
Selective Cox-2 Class Contraindication Contraindicated in patients with stroke or ischemic heart disease, peripheral arterial disease, confirmed cardiovascular disease, and congestive heart failure. Caution should be exercised in patients with risk factors for heart disease (hypertension, coronary artery disease, smoking, diabetes). Use should be weighed considering risk/benefit. Use should be limited to the lowest effective dose for the shortest period. Use of concomitant aspirin may negate any GI safety benefit.
Source: European Medicines Agency (EMEA)
Additional Contraindication For Mercks Arcoxia Contraindicated in patients with uncontrolled hypertension.
Dose of Arcoxia should not exceed 60mg for osteoarthritis, 90mg for rheumatoid arthritis, or 120mg for gout.
Patients with hypertension should have their blood pressure monitored.
Modest Celebrex Growth Forecast

Pfizer has a multi-pronged strategy to drive Celebrex growth consisting of: (1) a marketing message focusing on the efficacy and safety of Celebrex vs. other nonselective NSAIDs, including the ability to co-administer Celebrex with low-dose aspirin and recent epidemiology publications; and (2) a significant ongoing clinical development program in pain and oncology. A 20,000 patient study (PRECISION) is under way to demonstrate Celebrexs relative safety in high-risk heart disease patients vs. ibuprofen and naproxen, but this likely will report data in 2011. The 4,400 patient CONDOR (Celecoxib versus Omeprazole aNd Dicolfenac for at-risk Osteoarthritis and Rheumatoid arthritis patients) study was initiated in 2006, and recently had its last patient enrolled. The SCOT (Standard Care versus Celecoxib Outcome Trial) recently enrolled its first patient. Approvals for ankylosing spondylitis (08/05) and juvenile rheumatoid arthritis (12/06) together with a planned filing for chronic pain and an ongoing 400 patient Phase III trial in gouty arthritis (commenced 02/08) should support growth. In January 2007, Celebrex was approved in Japan for the treatment of osteoarthritis and rheumatoid arthritis. In February 2007, Celebrex was approved in Europe for the treatment of ankylosing spondylitis and applications were submitted in the E.U. for juvenile RA and in Japan for lower back pain. Celebrex is likely to remain the only approved Cox-2 inhibitor in the U.S. for the foreseeable future given the Arcoxia (MRK) and Prexige (NVS) not approvable letters. We forecast Celebrex sales of $2.725B (+8%) in 2009, and $2.4B in 2015.
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Not Much To Say About Other Cox-2 Inhibitors

Boehringer Ingelheim/Abbotts Mobic (meloxicam): Mobic is an oral NSAID approved for the treatment of osteoarthritis, rheumatoid arthritis, and juvenile RA. Exclusivity for Mobic, including a pediatric extension, expired in October 2005. Multiple generics of Mobic were launched in July 2006. Pfizers Dynastat (parecoxib): Parecoxib is currently marketed in 35 countries outside the U.S., with a label that includes a warning against use post CABG surgery. Pfizer filed parecoxib, an injectable pro-drug formulation of Bextra, for use in treating pain associated with general surgery in the U.S. in December 2004. In September 2005, Pfizer received a non-approvable letter for parecoxib in this indication. This likely stemmed from questions raised by two post-CABG studies which showed elevated cardiovascular risk with parecoxib as well as broad safety concerns with the Cox-2 inhibitor class. We forecast Dynastat sales of $60MM in 2008, $40MM in 2009, and $5MM in 2012 and 2015. Mercks Arcoxia: In April 2007, the FDA issued a non-approvable letter in response to the December 2003 Arcoxia NDA submission. This was not unexpected given the April 2007 FDA Advisory Committees 20-1 vote against approving Arcoxia. The AC considered Arcoxias cardiovascular risk profile unacceptable despite the MEDAL data demonstrating non-inferiority compared with diclofenac. The committee viewed Arcoxias GI benefits as non-significant given that there were no differences in complicated GI events compared to diclofenac. The committee suggested that naproxen + PPI should be the comparator in OA trials given its neutral effects on the cardiovascular system. In September 2008, Merck confirmed that the E.U. adopted the recommendation of the European Medicines Agency to approve Arcoxia 90 mg once daily as a new treatment for ankylosing spondylitis, maintain the 90mg dose for rheumatoid arthritis, and modify the contraindications and warnings sections of the label for treating and monitoring patients with hypertension. In Europe, Arcoxia is indicated for the treatment of osteoarthritis (30 mg or 60 mg), rheumatoid arthritis (90 mg) and acute gouty arthritis (120 mg). Arcoxia is approved and launched in 69 countries in Europe, Latin America and the Asia-Pacific region. We have modest sales contributions for Arcoxia of $410MM (+9%) in 2009 and $530MM in 2015.
Genzymes Synvisc Is Niche Player In OA

Synvisc is the top-selling viscosupplement for the treatment of pain due to osteoarthritis of the knee. In January 2005, Genzyme bought back the sales and marketing rights to Synvisc in the U.S. and portions of Europe from Wyeth. This extended Genzymes prior Synvisc franchise in the UK, France, Canada, and Australia. Synvisc-One is a single 6 mL intra-articular injection that contains the same material and total treatment volume of Synvisc, which is administered as a series of three injections. In December 2008 the FDAs Orthopedic And Rehabilitation Devices Advisory Committee reviewed Synvisc-Ones premarket approval application. The application was based on one randomized, double-blind placebo controlled 26-week trial that was conducted in Europe and enrolled 253 patients. The committee voted unanimously, 5 to 0, for approval without conditions concluding that Synvisc-One is safe and effective for the treatment of osteoarthritic knee pain. More specifically, the panel noted that the primary endpoint (WOMAC A Subscore of 0.15 out of 5 in the 5-point Likert Scale) is clinically meaningful and statistically significant and the
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statistical analysis for the secondary endpoints was adequate. Synvisc-Ones PDUFA date was December 23, 2008, but given the close proximity to the panel we expected a delay in approval. We believe that the FDA will follow the panels recommendation to approve Synvisc-One, but nonetheless do not believe Synvisc-One will drive significant growth in this franchise. Our consultants believe that Synvisc/SynviscOnes expense and somewhat lackluster efficacy will limit future growth and keep it as a niche treatment for osteoarthritis of the knee. Our Synvisc estimates are $305MM, $340MM, $360MM, $385MM, and $385MM respectively in 2009-2013.
Nexium/Naproxen Co-formulation Could Be Competitive

In 2006, AstraZeneca announced a collaboration with Pozen to develop a combination Nexium/naproxen called PN400 for arthritis. Pozen previously was developing a co-formulation of omeprazole plus naproxen (PN200), but efforts switched to PN400 given the collaboration with AstraZeneca. Pozen received a $40MM upfront payment, $160MM in development/regulatory milestones for the U.S./E.U., up to $175MM sales milestones and a tiered royalty on sales that starts in the mid-single digits and moves up to mid-teens Pozens coformulation for improved NSAID gastroprotection consists of a tablet with Nexium on the outer layer and a naproxen core, which has a pH sensitive coating. Combining these agents into a single pill is expected to simplify delivery and improve compliance for patients taking NSAIDs who require gastroprotection. Lack of compliance with gastroprotection in patients taking NSAIDs has been demonstrated as a risk factor for developing NSAID-related GI complications. Up to 60MM people in the U.S. regularly take NSAIDs, with serious GI effects developing in 1-2%. Roughly 65% of NSAID use is in the chronic setting, and approximately 25-30% of NSAID prescriptions are accompanied by a gastroprotective agent. The decline in COX-2 inhibitor prescriptions and the outcome of the Arthritis Advisory Committee in April 2007, suggesting that naproxen should be the NSAID of choice for OA, could lead to a large opportunity for the coformulated Nexium/naproxen product. In December 2008, AstraZeneca and Pozen announced positive top-line Phase III safety results. In the two completed trials subjects taking PN-400 experienced statistically significant fewer gastric ulcers (as measured by endoscopy) than patients taking enteric coated naproxen 500mg over the course of the 6 month trial. Each of the studies enrolled 400 patients randomized to receive either PN 400 twice daily or naproxen 500 mg twice daily. Upper endoscopies were administered for all patients at baseline, 1, 3, and 6 months to measure and compare cumulative incidence of gastric ulcers. The full results will be presented/published in H1:09. Two additional PN 400 Phase III trials are ongoing and are expected to be complete in early 2009. With a recent review by FDA validating endoscopic gastric ulcers as a primary endpoint in pivotal clinical trials and with expected positive results from the two remaining PN 400 trials, AstraZeneca and Pozen anticipate a mid-2009 NDA filing and H2:10 commercial launch. By establishing bioequivalence between the naproxen in the coformulated tablet and marketed naproxen, naproxen product claims likely will be gained through the 505(b)(2) statute. We model worldwide PN 400 sales of $425MM in 2012.
Naproxcinod: A New, Potentially CV and GI Friendly NSAID

NicOxs Naproxcinod is a novel Cox-Inhibiting Nitric Oxide Donator (CINOD) in Phase III development. Naproxcinod is naproxen with a nitric oxide donator attached in order to decrease and or prevent cardiovascular/renal and gastrointestinal side
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effects seen with current NSAIDs, including hypertension, ulcers, and dyspepsia. Phase II data in 2,709 patients demonstrated that Naproxcinod was superior to placebo and as effective as rofeccoxib (p<0.001) in treating pain. Patients taking Naproxcinod also experienced (1) lower blood pressure than those taking placebo, rofeccoxib, and naproxen and (2) statistically significantly less GI events including dyspepsia and gastro-duodenal damage. Naproxcinod has recently completed its large Phase III program, which included efficacy and safety results from three OA trials and pooled safety analysis (from all three studies) of changes in blood pressure as compared to placebo and Naprosyn. The first Phase III double blind randomized trial was conducted in 918 patients with osteoarthritis of the knee. Patients were prescribed either Naproxcinod (375 mg twice daily or 750 mg twice daily), Naprosyn (500mg twice daily), or placebo for 13 weeks. Patients taking Naproxcinod demonstrated a statistically significantly improvement in the WOMAC pain subscale, WOMAC function subscale, and overall disease rating versus those taking placebo (p<0.001). Patients who took Naproxcinod also had lower systolic and diastolic blood pressure at week 13 as compared to those taking Naprosyn (p<0.05 for 3 out of 4 comparisons). Naproxcinod was found to be safe and the number of serious adverse events, including hypotension, was low across all arms. The second Phase III randomized double-blind trial tested the same three primary endpoints (WOMAC pain subscale, WOMAC function subscale, and overall patient disease rating) in a 53-week study in 1,020 patients with osteoarthritis of the knee. Naproxcinod (375 mg and 750 mg twice daily) was statistically significantly superior to placebo at week 13 (p<0.001) across all three co-primary endpoints. Naproxcinod 750 mg twice daily was also non-inferior to Naprosyn 500 mg twice daily at weeks 13 and 26 for both the WOMAC pain and function subscales The third Phase III randomized double-blind trial tested the same three primary endpoints (WOMAC pain subscale, WOMAC function subscale, and overall patient disease rating) in a 13-week study in 810 patients with osteoarthritis of the hip. Patients received Naproxcinod (750 mg twice daily), Naprosyn (500mg twice daily), or placebo. Naproxcinod met all three co-primary endpoints with a p<0.001. In terms of safety, Naproxcinod 750 mg had a similar GI side-effect rate (15.5%) and blood pressure profile (on weeks 2, 6, and 13 using OBPM) as placebo and a superior profile to naproxen 500mg (19.2% GI adverse event rate and higher systolic and diastolic blood pressure measurements). The percent of patients having 1 adverse event was lower for those receiving Naproxcinod 750 mg than Naprosyn 500mg. In addition unlike in the placebo and Naprosyn 500mg arms, no patients administered Naproxcinod had a serious GI or CV event. Per the statistical plan outlined in the Phase III program, NicOx pooled all blood pressure data from 2,734 patients to compare Naproxcinod to Naprosyn. Naproxcinod statistically significantly reduced systolic and diastolic blood pressure at week 13 (p<0.05 for Naproxcinod 350 mg vs. Naprosyn 500 mg; p<0.001 for Naproxcinod 750 mg vs. Naprosyn 500 mg) versus Naprosyn which raised systolic blood pressure when compared to placebo (p<0.001). Naproxcinods favorable effect on blood pressure, especially as compared to Naprosyn has been documented in other trials including the ABPM 111 study and additional analysis of the ABPM 104 trial.
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NicOx plans on submitting an NDA in mid-2009, suggesting a H2:10 commercial launch. Based on discussion with the FDA and EMEA, NicOx does not believe that it needs a large clinical trial assessing cardiovascular safety. With 40% of osteoarthritis patients having cardiovascular disease, NicOx is trying to distinguish Naproxcinod as a safer NSAID for those patients with cardiovascular or gastrointestinal risk factors. Consultants caution however, that Naproxcinod use in patients taking nitrates could be a contraindicated.
Novartis Oral Salmon Calcitonin Could Be A Hidden Gem

Novartis licensed the U.S. rights to develop and commercialize SMC021, a synthetic oral salmon calcitonin (sCT), from Emisphere for the treatment of osteoarthritis. Calcitonin is a polypeptide hormone secreted by the parafollicular cells of the thyroid gland. Calcitonin enables the bone to retain more of its mass and functionality by inhibiting the bone-tissue resorbing activity of osteoclasts. Calcitonin is involved in the regulation of calcium and the decrease of bone loss and fractures. Calcitonin derived from salmon is estimated to be about 30 times more potent than the human version. Synthetic salmon calcitonin, which is identical to the natural salmon calcitonin, is currently available only as a nasal spray or as an injectable therapy. Parenteral sCT has a relatively long track record of safety and well-recognized adverse effects (e.g., headache and nonspecific gastrointestinal symptoms). The oral formulation comprises sCT and 5-CNAC, a delivery agent for increasing gastrointestinal absorption that is incorporated into tablet form with Emisphere's Eligen technology. Emispheres Eligen technology is reported to make possible oral delivery of therapeutic molecules without altering chemical form or biological integrity. A Phase II randomized, double blind, placebo-controlled study in 152 Danish postmenopausal women aged 5585 demonstrated that, in addition to SMC021s pronounced effect on bone resorption, it reduced cartilage degradation and thereby provided therapeutic benefit in terms of chondroprotection. 1,150 patients have been enrolled in a double-blind placebo-controlled randomized Phase III program in knee OA. The primary endpoints are joint space narrowing in the medial tibiofemoral knee joint measured by X-Ray after 12 and 24 months and pain and functional disability measured by WOMAC. Secondary endpoints include biochemical markers, effects on hand OA measured by X-Ray and questionnaire changes after 24 months, and MRI changes in the knee. Data are expected in H2:10. This Phase III program should be able to assess whether SMC021 has disease modifying potential in osteoarthritis. If the primary endpoint is positive, this would distinguish SMC021 from all other agents approved for OA (pain control) and, given the shear size of the OA market, could allow SMC021 to achieve blockbuster status. Our physician consultants view SMC021s data as promising given changes in OA biomarkers. However, the correlation of biomarkers to X-Ray changes is not specific and ultimately the demonstration of X-Ray changes will be required to be classified as a disease modifying therapy for OA.
Pfizers Tanezumab Is A Novel Biologic For Pain

Tanezumab is a monoclonal antibody that blocks nerve growth factor. It has been infused in over 600 people and its side-effect profile appears favorable. Phase II data in OA with 0.1, 0.3 and 1.0mg/kg doses in patients with baseline pain of 4348mm did not demonstrate a dose response but all doses separated from placebo. In patients with a baseline pain of 54-60mm, only the 0.1mg/kg dose was statistically different.
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Phase II Efficacy Data
Source: Pfizer
Tanezumab has entered into three randomized double-blind Phase III trials for osteoarthritis including: (1) Tanezumab +/- NSAIDS vs. NSAIDS in patients with hip and knee OA. The primary endpoints are WOMAC physical function and pain subscales and patient global assessment at week 16. 2500 patients will be enrolled and data are expected in mid-2010. (2) Tanezumab vs. placebo in patients with osteoarthritis of the hip. The primary endpoints are WOMAC physical function and pain subscales and patient global assessment at week 16. 600 patients will be enrolled and data are expected in H2:09. (3) Tanezumab vs. placebo in patients with osteoarthritis of the knee. The primary endpoints are WOMAC physical function and pain subscales and patient global assessment at week 16. 600 patients will be enrolled and data are expected in H2:09. Tanezumab is also in a Phase I study comparing a single dose subcutaneous formulation versus an intravenous formulation. Our consultants believe that only subgroups of patients with OA would benefit from Tanezumab, including those who want to delay or do not qualify for joint replacements and who have acute post-injury pain. We forecast Tanezumab sales of $100MM in 2012 and $400MM in 2015.
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Denosumab Could Have Disease Modifying Ability

Amgen mentioned at its 2008 R&D Day that denosumab will likely be tested in other arthritidites. We believe that denosumab will likely advance into Phase II trials for the treatment of (1) osteoarthritis, as a disease modifying agent (blockbuster potential) and 2) erosive osteoarthritis (possible U.S. sales of $1B+). Osteoarthritis: We believe that Amgen may also launch Phase II dose-ranging studies of denosumab for the treatment of osteoarthritis. Over 30MM people in the U.S. have osteoarthritis, a degenerative joint disease characterized by erosion of cartilage around primarily weight-bearing joints such as the hip and knee. Osteoarthritis remains a major unmet medical need as the medications approved today only treat the pain and do not stop the progression of the disease. As such, any disease modifying agent in osteoarthritis (e.g. slowing the progression of joint space narrowing on X-ray) could have blockbuster potential. The medical literature suggests that bone, and specifically the RANK-RANKL pathway, play a role in pathology of osteoarthritis (subchondrol bone edema, loss of cartilage). Amgen has tested denosumab in preclinical osteoarthritis models, although results have not been disclosed. A likely Phase II trial would be in patients with osteoarthritis of the knee and endpoints would include WOMAC scores, assessment of cartilage volume by MRI and or assessment of joint space narrowing by X-ray, and measurements of serum and urine biomarkers for osteoarthritis. Erosive Osteoarthritis: Erosive osteoarthritis is a subsegment of osteoarthritis that afflicts 3-5% of the 30MM patients with osteoarthritis and currently lacks any treatments to stop the progression of erosions. Denosumabs opportunity for the treatment of erosive osteoarthritis could represent low hanging fruit. Given denosumabs clear benefit in RA patients to significantly reduce the increase in the erosion score and modified Sharp erosion score and evidence that the RANK-RANKL pathway plays a role in other erosive arthropathies (i.e. psoriatic arthritis, gout), conducting a Phase II trial in patients with erosive osteoarthritis would be a relatively low risk high reward strategy. Positive results would position denosumab as the only treatment in this indication and could yield $1B+ in U.S. sales.
Genzyme/Osiris Studying Stem Cell Therapy For Knee OA

Osiris and Genzyme will soon a launch a Phase II/III Chondrogen trial for the treatment of knee OA. Chondrogen is a preparation of mesenchymal stem cells (derived from healthy young adult donors) that can be directly injected into the knee. Data suggests that Chondrogen may be able to reduce pain and possibly have a disease modifying effect by down-regulating inflammation and stimulate the repair of damaged cartilage.
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Systemic Lupus Erythematosus
Physicians Are Clamoring For New SLE Treatments

Systemic lupus erythematosus (SLE) is an idiopathic relapsing and remitting autoimmune disorder that predominantly affects women in their 20s and 30s. It has a varying prevalence depending on race (40-50 cases per 100,000 Northern Europeans, 200 per 100,000 Africans) and approximately 3MM are afflicted worldwide and 350,000 patients in the U.S. Fifteen-year survival is 80% and newly diagnosed 20 year old patients have a 17% chance of dying before the age of 35. SLE is not one disease but rather a constellation of signs, symptoms, and pathology that vary with each patient. Severity depends on race (Africans and Hispanics worse off), gender (males worse off), age (older patients worse off), and geographic location. The exact etiology is thought to be multifactorial, with genetics, immunology (especially interferon alpha), hormonal imbalances, and environment all playing a role. Any organ system can be affected, with the most common manifestations being constitutional symptoms, arthritis, and mucocutaneous, renal, and hematologic disease. Diagnosing SLE patients can be challenging and rheumatologists often use history and physical examination, multiple laboratory tests including antinuclear antibody (ANA), anti-double stranded DNA antibody (Anti-dsDNA), and complement levels, and diagnostic imaging and biopsies. Lupus severity spans a wide spectrum ranging from mild to severe. Severity can depend upon race (Africans and Hispanics are typically worse off), gender (males worse off), age (older patients worse off), and geographic location. Any organ system can be affected with the most common manifestations being constitutional symptoms, arthritis, and mucocutaneous, renal, and hematologic pathology. Experts have estimated that roughly 50% of lupus patients require immunosuppressive therapy at any given point in time. Immunosuppressants are used to induce remission in patients with active disease as well as to maintain patients in a quiescent disease state. Current therapies, most of which are used off label, have many unwanted side effects. Treatment options include Plaquenil, corticosteroids, azathioprine, methotrexate, CellCept, and Cytoxan. During a flare, the goal of therapy is to use a combination of two or more medications to induce remission. Then after the patient has been in remission for about 6 months, rheumatologists consider scaling down therapy. While consultants indicate that steroids are responsible for a majority of the longer-term morbidity issues associated with lupus, they are reluctant to withdraw immunosuppressive therapy for fear of risking a disease flare. SLE patients are also at increased risk for cardiovascular disease, malignancies, and infections.
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No new therapies for lupus have been approved in decades and numerous products have failed in clinical testing. The difficulties in developing drugs for lupus revolve, in part, around choosing an appropriate endpoint. While declining anti-dsDNA antibody levels are viewed as a favorable prognostic indicator in lupus nephritis, the FDA has been reluctant to accept this or any other biomarker as a surrogate endpoint of disease activity. Hence the options for drug developers include undertaking an all-comers trial to evaluate disease activity using a broad index such as SLEDAI or BILAG scale, or enrolling patients with specific manifestations to investigate reduction of those symptoms (such as kidney function in lupus nephritis). Consultants favor the latter using clearly defined and objective endpoints. Further challenges in study design include choosing whether to enroll patients during a lupus flare and measure improvement or attracting patients during a remission and studying time to next flare.
CellCepts Off-Label Use In Lupus Is Standard Of Care

Physician experts note that Galencias CellCept is an attractive immunosuppressant option as it appears to have efficacy at least similar to azathioprine and Cytoxan (cyclophosphamide) and a better safety profile. In August 2007, data from the first part of its Phase III randomized, open label lupus nephritis trial comparing CellCept to IV Cytoxan were reported. CellCept failed to meet its primary endpoint of superiority as induction therapy (superiority was mandated by the FDA). 370 patients were enrolled in the 24-week study in which 56.2% of those taking CellCept had a decrease in proteinuria and stabilization or improvement in serum creatinine vs. 53% with Cytoxan. There was a favorable trend in secondary endpoints (remission) and fewer adverse events with CellCept, even though the overall incidence of AEs was comparable between the two arms. Aspreva and Roche decided not to file CellCept for induction therapy in active lupus nephritis. Since open label and randomized data demonstrate that CellCept seems to be as efficacious as Cytoxan with a better safety profile, we do not expect that this trial will slow down the use of CellCept as an induction therapy (especially in mild and moderate disease). The second part of CellCepts double-blind Phase III trial randomized 197 patients to CellCept vs. azathioprine with the primary endpoints being maintenance of remission and renal function over 3 years. Rheumatologists expect CellCept to be at least as efficacious if not superior as a maintenance therapy.
Rituxan Failed In EXPLORER

EXPLORER randomized SLE patients without kidney disease in a 2:1 ratio to Rituxan vs. placebo when combined with prednisone and a single stable background immunosuppressive agent (methotrexate, azathioprine, CellCept, 6-MP, but not cyclophosphamide). Rituxan was dosed at 1000mg, on days 1 and 15, and then patients were re-treated with the same schedule on days 168 and 182. Patients prednisone dose was tapered after the second dose of Rituxan to <5mg (patients return to the full dose should they experience a flare). In April 2008, Genentech and Biogen Idec announced that EXPLORER failed to meet its primary endpoint (proportion of Rituxan-treated patients achieving a clinical response, as measured by BILAG scores at 52 weeks) or any of its six secondary endpoints (additional BILAG based endpoints). Consultants believe there are many possible reasons to explain why EXPLORER failed including that 1) not all patients
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had B-cell driven disease, 2) patients with BILAG A and B scores typically require high dose steroids, obfuscating Rituxans potential benefit, and 3) EXPLORERs allcomers lupus population was too broad a patient group. As these reasons relate more to clinical trial design, consultants do not view EXPLORERs failure as detrimental to all B-cell directed therapies. While consultants have been unable to identify anything encouraging about the EXPLORER dataset, they continue to believe, based upon their own anecdotal experience that Rituxan is an active drug in SLE. As a result, they continue to use the drug off-label in severe treatment-refractory patients.
LUNAR Data Expected Shortly

Genentechs lupus nephritis Phase III trial LUNAR is a randomized, double blind, placebo controlled study that has enrolled 140 patients and will evaluate the efficacy and safety of CellCept +/- Rituxan in patients with Class III or IV lupus nephritis. At entry, patients must exhibit at least four ACR lupus criteria, one of which must be a positive ANA at a titer of 1:160, and have a protein to creatinine ratio > 1.0. The studys primary endpoint is the proportion of patients who achieve a complete renal response at 52 weeks as defined by 1) normalization of serum creatinine, 2) inactive urinary sediment, and 3) normalization of urinary protein:creatinine ratio to a level <0.5). Secondary endpoints include: 1) change in anti-ds DNA antibodies; 2) change in C3 and C4 complement levels; 3) proportion of patients with partial responses who also achieve a complete renal response; 4) proportion of patients with a baseline urinary protein:creatinine ratio >3.0 who achieve a ratio of <1.0; and 5) time to complete renal response. Genentech expects to report data in H1:09. One factor in LUNARs favor is that the studys primary endpoint of renal function is readily assessable and objective. On the other hand, although consultants believe Rituxan is active in nephritis, they note that responses have been slightly less impressive than those seen in hematologic, neurologic and pulmonary manifestations of lupus. Moreover, while physicians expect Rituxan to add some benefit when administered on top of CellCept, achieving statistical superiority over an efficacious immunosuppressive agent in a 140-patient trial could prove challenging. As with EXPLORER, we expect that the performance of the control arm in this trial will be difficult to predict. Furthermore, LUNAR is a worldwide trial and previous studies of CellCept have demonstrated a range of different response rates in patients of different ethnicities (for example, Chinese patients have been shown to have a much higher response rate to CellCept than their African/American counterparts). Should LUNAR demonstrate a significant clinically meaningful difference between the two treatment arms, consultants expect Rituxan+CellCept would be adopted in lupus nephritis, even without an FDA label (one trial is not sufficient for approval). This could yield an incremental $500MM+ (peak potential) in U.S. Rituxan sales. Oreclizumabs BELONG Also Continues To Enroll Patients Oreclizumab is Genentechs/Roches/Biogen Idecs next generation humanized antiCD20 monoclonal antibody. BELONG is a randomized, double-blind, placebocontrolled Phase III trial in 369 patients with lupus nephritis. Patients will either receive oreclizumab + corticosteroid + one of two immunosuppressants or placebo + corticosteroid + one of two immunosuppressants. The primary endpoint is the percent of patients achieving a complete or partial renal response. Secondary endpoints include several efficacy measures. Data are expected in H1:13.
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Oreclizumab carries potential benefits over Rituxan in terms of lower association with serum sickness and HACA (human anti-chimeric antibodies). While in theory anti-Rituxan antibodies have the potential to impact Rituxans longer-term efficacy, data to support this hypothesis (including subset data from EXPLORER) are not available.
LymphoStat-Bs Novel Mechanism And Trial Endpoint To Be Put To The Test In Phase III Program
Human Genome Sciences (HGSI) and GSK are in the late stages of developing an antiBLyS/BAFF monoclonal antibody, LymphoStat-B. BLyS, B lymphocyte stimulator protein, is an endogenous protein that is necessary for the maturation of Blymphocytes into plasma cells. Elevated levels of BLyS, which have been found in patients with lupus, may facilitate autoantibody production and disease activity. Preclinical and clinical testing suggest that decreasing BLyS and thus circulating autoantibodies may be an effective in treating SLE. In June 2006, data were presented at EULAR from HGSIs third Phase II clinical trial of LymphoStat-B in 449 patients with serologically active SLE. This study was a 52 week randomized, double-blind, placebo-controlled, dose-ranging superiority trial designed to evaluate the safety, tolerability and efficacy of intravenous LymphoStatB plus standard of care, versus placebo plus standard of care. While LymphoStat-B failed to meet its primary endpoint, a post hoc analysis determined that 85% of patients had decreased flares and autoantibody production. In part the failure to meet the primary endpoint may have more to do with the choice of endpoint rather than the drugs true effect. Post hoc data showed that LymphoStat-B produced statistically significant reductions in disease and biological activity (significant reductions in anti-dsDNA and B-Cell subsets, increase in C4 complement) versus placebo and was safe and well tolerated. Among the significant Phase II study findings were improvements in SELENA score of 4 points or greater, no BILAG A worsening, no more than 1 BILAG B flare, and no worsening in Physicians Global Assessment (46% for LymphoStat-B versus 29% for placebo, p<0.01). Time to flare after 6 months and frequency of scaling up prednisone doses (>7.5mg) were also statistically significantly reduced (p<0.04 and p<0.05, respectively). Human Genome Science believed that a better way to gauge the activity of LymphoStat-B was to develop a novel composite endpoint that utilizes the strength of SLEDAI (assess SLE activity in most organs objectively), BILAG (assess SLE activity and flares in organs that dont necessarily overlap with SLEDAI), and Physician Global Assessment. This endpoint was used in the open label extension (improvements in SLEDAI score of 4 points or greater, no BILAG A worsening, no more than 1 BILAG B flare, and no worsening in Physicians Global Assessment). Over the subsequent two years, HGSI has presented follow-up data from its long-term Phase II open label study. The most recent update was at the October 2008 annual ACR meeting and treatment data were provided from week 52 through week 128. Patient responses to LymphoStat-B continue to be durable, regardless of autoantibody profile at baseline, with AEs comparable to the placebo group (no increase in infection or malignancy). Response (same as the primary endpoint for the ongoing Phase III trials) was seen in 54% of all patients and 63% for serologically active patients. 58% of patients had an improvement in their SLEDAI score. Other findings included: (1) No new BILAG A organ flare and no more than one new BILAG B organ flare were seen in 94% of serologically active patients; (2) no deterioration in lupus disease (as measured by the Physician Global Assessment) was seen in 91% of serologically active patients; (3) patients experienced less lupus flares as well as less
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severe flares as measured by the SELENA/SLEIDAI Flare Index; and (4) improvement in laboratory findings were documented (normalization of IgG in 57% of patients, an increase in C3 and C4 serum levels, and conversion of anti-Smith, anti-RNP, and antidsDNA to serongeative). Although these results are from an open label extension, physicians believe the data are encouraging. Phase III Data Expected in H2:09 Two randomized double-blind, placebo-controlled Phase III trials are evaluating the efficacy and safety of LymphoStat-B/placebo plus standard of care for the treatment of serologically active SLE. Both Phase III trials have an SPA and the EMEAs approval as having an adequate study design. The primary efficacy endpoint of both studies is the patient response rate at week 52 as defined by: a reduction from baseline in the SLEDAI score of at least 4 points; no worsening in Physicians Global Assessment; and no new BILAG A flare and no more than 1 new BILAG B flare. Although the two studies will have similar protocols, one will last 52 weeks and one will last for 76 weeks. In each of the two Phase 3 trials, patients are randomized to 1 of 3 treatment groups (1 mg/kg LymphoStat-B, 10 mg/kg LymphoStat-B, or placebo). Patients will be dosed on Days 0, 14 and 28, then every 28 days. To be eligible for enrollment in the Phase III trials, patients must be serologically active at 2 independent time points with an ANA > 1:80 and/or anti-dsDNA > 30 IU/mL. Patients also must be on a stable SLE treatment regimen for a period of at least 30 days prior to Day 0. In April 2008 and August 2008, BLISS-52 (52-week duration) and BLISS-76 (76 week duration) completed enrollment respectively (867 patients and 826 patients respectively). BLISS-76 will undergo an interim analysis at week 52 to support a BLA application. Data from BLISS-52 are expected in July and BLISS-72 in November. Based on the novel mechanism, primary endpoint in the Phase III trials, and open label extension data, consultants feel that LymphoStat-B has a 50% chance of success in the ongoing Phase III trials. Concerns with the pivotal studies include the enrollment of a heterogeneous (general) SLE population and that Phase II results were unimpressive. Assuming success, rheumatologists will need to translate how the primary endpoint figures into real world practice as most rheumatologists do not measure BILAG, SLEDAI, or Physician Global Assessment. On the other hand, doctors will be less concerned with long term use in the clinic as the long term extension study for over one and a half years has not demonstrated any imbalance versus placebo for serious adverse events (e.g. infections, malignancy).
Orencia In Phase III To Treat Nephritis

Orencia is a selective T-cell modulator that inhibits immune activation by binding to CD80 and CD86, thereby blocking interaction with CD28. This interaction normally provides the co-stimulatory signal necessary for full activation of T cells. Based on the pathophysiology of lupus (some T cell involvement) and results from preclinical and clinical trials, Bristol Myers Squibb investigated Orencias efficacy in both generalized lupus and lupus nephritis. Phase II data from a generalized lupus study with Orencia were presented at the 2008 ACR meeting. The primary endpoint was the proportion of patients with new SLE flare after the start of steroid taper over 1 year, which was similar between the Orencia and placebo groups. Secondary endpoints using BILAG were also similar between groups but patient-reported outcomes were significantly improved in patients who received Orencia. Consultants are surprised that Orencia failed. While T cells may play a role in serositis (e.g. arthritis), and to a lesser extent nephritis, lupus seems to be more B-
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cell driven. Hence, specialists are not optimistic for the two ongoing lupus nephritis trials. One study is a randomized double-blind placebo-controlled Phase II/III trial in 303 lupus nephritis patients. Patients will either receive Orencia/placebo + prednisone + CellCept. The primary endpoint is renal response (normalization or stable normal function + disappearance of urinary protein and cell casts) and data are likely in 2010. The second trial is being conducted by the National Institute of Allergy and Infectious Diseases. This is a randomized double-blind placebocontrolled Phase II SLE nephritis study. 100 patients will either receive Orencia/placebo + Cytoxan. The primary endpoint is the proportion of patients achieving a complete renal response (stabilization or improvement in GFR, urine protein:creatinine ratio <0.5, and prednisone dose 10mg/day). Data are expected in early 2013.
Atacicept Targets BLyS And April In Bid To Quell Lupus

Consultants are not optimistic concerning the development of Zymogenetics and Merck Seronos Atacicept. Atacicept is a soluble TACI receptor fused to Ig that acts as an antagonist protein to BLyS and APRIL. BLyS and APRIL are two peptides of the TNF family that stimulate B-cell growth and development and are elevated in patients with lupus (even in those with B cell depletion). Physicians believes that by targeting BLyS and APRIL, Atacicept may allow for a more complete inhibition of Bcell growth and development versus LymphoStat-B. Based on small Phase I studies, Zymogenetics and Merck Serono launched two pivotal Phase II/III trials under SPA agreements with the FDA - one in lupus nephritis (initiated December 2007) and the other in generalized lupus (initiated in June 2008). The first trial in nephritis was halted in October 2008 due to an imbalance in severe infections. This is particularly concerning to specialists as one trial demonstrating an infection signal eight months into enrollment suggests a possible sign that the drug is simply too toxic. The second study is a randomized, doubleblind placebo-controlled study that will enroll approximately 500 patients with generalized lupus. The primary efficacy endpoint will be the proportion of subjects experiencing a new flare during the 52-week treatment period, using the BILAG scoring system. Consultants are unsure if this study will be stopped early due to an imbalance in infections. In terms of atacicept meeting the primary endpoint, specialists believe that if LymphoStat-B works then atacicept should work as well. However, atacicepts safety profile could hinder the approvability and or commercial use, especially if LymphoStat-B has a better safety profile.
More Questions Than Answers Regarding Cephalons Lupuzor

Lupuzor (Spliceosomal Peptide P140) is a novel therapeutic for SLE with an unknown mechanism of action being developed by Cephalon. In February, Cephalon announced that it acquired worldwide rights to Lupuzor from ImmunPharma based on interim results from a 125-patient randomized double-blind placebo-controlled Phase IIb trial. The data demonstrated that 200 micrograms of Lupuzor given subcutaneously every 4 weeks statistically significantly decreased the SLEDAI-2K score by 4 points versus placebo (p=0.015). Cephalon plans on advancing Lupuzor into a pivotal Phase III program this year and will assume all future development and commercialization costs. According to a published article in Arthritis and Rheumatism in December 2008, Lupuzor might prevent the proliferation of CD4+ T cells and increase the secretion
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of IL-10. Lupuzor does not appear to have an impact on T cells or IL-10 in other autoimmune diseases. An open-label Phase IIa trial (20 patients) demonstrated that the 200 micrograms (but not 1000 micrograms) of Lupuzor statistically significantly reduced anti-dsDNA titers and SLEDAI scores. Physician global assessment also improved. Consultants are not familiar with this compound which has been largely developed in Bulgaria. However, they are unsure about the role of IL-10 in treating lupus and are skeptical of Lupuzors potential given its unknown mechanism of action, lack of dose response and impact on cells from other autoimmune diseases, and data from a short-term (4-week) Phase IIa study conducted in 20 patients.
MEDI-545 Is Interesting, But Early

AstraZenecas MEDI-545 is a fully human monoclonal antibody against interferonalpha (subcutaneous administration) in Phase II testing. MEDI-545 was created by Medarexs UltiMAb Human Antibody Development System and is being developed by partner MedImmune. MEDI-545 is currently in an 80-patient randomized doubleblind placebo controlled Phase II trial. The primary endpoint is safety and secondary endpoints include measures of disease activity. Data are expected by mid-09. Specialists believe that interferon-alpha is a valid target as 40-50% of interferon genes are unregulated in lupus patients and are down regulated when lupus patients are treated with prednisone. Results from a Phase I double-blind randomized placebo-controlled trial were presented at ACR in November 2007. 50 patients were enrolled and either received one of five different MEDI-545 doses or placebo. In addition to interferon inducible gene inhibition being documented (study day 56) in a dose dependant manner (in both blood samples and skin biopsies), several efficacy measures were hit with statistical significance (measured at study day 84). Patients receiving MEDI-545 were more likely to have 1) inactive disease (as measured by SELENA/SLEDAI scales), 2) a composite response (using SELENA/SLEDAI, BILAG, physician global assessment), 3) a physician global assessment of 0.5 inches, 4) fewer flares (as measured by SELENA/SLEDAI scales), and 5) lower requirement for another disease modifying agent and or require intravenous/oral prednisone as rescue therapy. MEDI-545s safety profile was acceptable. Physicians describe these results as impressive and one of the most positive Phase I trials they have seen. However, there is also concern about the safety profile of such a drug that inhibits interferon. Interferon is important in fighting infections and it is possible that by down regulating interferon with a lupus treatment, patients immune system (specifically the innate arm) will be so dampened that patients cannot adequately fight infection. Consultants are eager for the Phase II results (mid:2009) to gain additional insight into the safety and efficacy of MEDI-545.
Other Therapies Face High Hurdles

Epratuzumab is a novel B cell therapy that was being developed by Immunomedics prior to licensing the compound to UCB. Epratuzumab is a humanized monoclonal antibody that binds to CD22 antigen on B lymphocytes. According to consultants while the exact mechanism by which interfering with CD22 leads to suppressing SLE activity is unclear Epratuzumab appears to 1) impair B cell activity without causing B-cell depletion and 2) modulate B-cell receptor activity. Epratuzumab does not seem to affect the T lymphocyte population or immunoglobulin quantities. Doctors note that by avoiding B-cell depletion, its possible that long term concerns over Bcell depletion (e.g. an increased risk of infections) might be avoided with an agent such as Epratuzumab.
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At the 2008 annual ACR meeting limited data from 90 patients suggested that Epratuzumab versus placebo leads to a greater reduction in total BILAG scores, a steroid sparring effect, improved physician global assessment, and improved patient global assessment. While doctors agree that the data from the interrupted trial are promising, more information is needed to assess its efficacy. Epratuzumab is currently in a randomized double-blind placebo-controlled Phase IIb trial in serologically-positive SLE patients with active disease. 210 patients will be enrolled and the primary endpoint is a responder rate at week 12 (incorporates BILAG and SLEDIA scales, a physician global assessment, and treatment failure status). Data are expected in mid-09. Amgen/Wyeths Enbrel: The National Institute of Allergy and Infectious Disease is currently conducting a small randomized double-blind placebo controlled pilot Phase II SLE nephritis trial using Enbrel. The primary endpoint is safety and secondary endpoints include renal response and time to, and duration of, renal response. Consultants are not enthusiastic about using Enbrel for the treatment of SLE nephritis given anti-TNFs toxicity and ability to cause medication-induced lupus. Active Biotechs Paquinimod: Data from a 84-day Phase Ib study conducted in Sweden and Russia demonstrated that Paquinimod (quinolin-3-carboxamide at doses of 1.5, 3, 4.5, or 6 mg/day) down regulated 80% of 200-600 genes (e.g. IFN-based genes) implicated in SLE over 84 days. The MTD was 4.5 mg/day. Based on these data, Active Biotech is launching a Phase II/III trial in mid:2009. Specialists believe that while Paquinimod could hold promise since it does down regulate IFN genes, too little is known about this agent to make a call on how successful Paquinimod might be in the Phase II/III trial. R788. Rigel is developing SYK (spleen tyrosine kinase) inhibitor R788 for the treatment of RA. Based on successful preclinical SLE studies, Rigel plans on initiating a Phase II trial in lupus by YE:09. Actemra (Roche/Chugai) is a humanized monoclonal antibody against the IL-6 receptor. Data from a 16-patient investigator-sponsored Phase I trial were reported at the ACR meeting in 2006 and showed reductions in SLEDAI/SLAM scores as well as anti-dsDNA levels. While Actemra could hold promise, rates of infections and liver toxicity associated with Actemra may not allow for a path forward in lupus.
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New Interest Percolates In Developing Therapies For Scleroderma And Myositis

Scleroderma and myositis (dermatomyositis and polymyositis) are rare autoimmune diseases that are in need of more effective, targeted therapies. Scleroderma is a systemic condition whose exact pathophysiology is unknown, albeit fibroblasts play a pivotal role. Patients can be afflicted with one of two different subtypes: A. B. Limited disease called CREST: calcinosis, Raynauds (including digital ulcers), esophageal dysmotility, sclerodactyly, and telangiectasia. Diffuse disease involving the skin (calcinosis, sclerodactyly, and telangiectasia) and the vascular (Raynauds, and digital ulcers), gastrointestinal (telangiectasia, dysmotility, bacterial overgrowth, malabsorption, and pseudo-obstruction), cardiac (pericardial, arrhythmias, coronary disease), pulmonary (interstitial lung disease and pulmonary hypertension), musculoskeletal (myopathy and arthritis), neurological (central and peripheral system), and renal (including renal crisis) systems.
Patients are diagnosed via a combination of history, physical examination, blood (including a multitude of autoantibodies) and radiologic testing, and biopsies. There are currently no effective disease modifying agents for scleroderma. Standard of care dictates treating a patient by an organ-based system approach, albeit current medications used are of modest benefit in treating those organs affected. Scleroderma patients are at increased risk for cancer (particularly lung cancer) and infections and have a significant increase in mortality. The most common cause of death is pulmonary hypertension and or interstitial lung disease. Current agents in development include: 1) arGentiss ARG201(type 1 native bovine collagen), which is slated to start two Phase III trials in H1:09 for the treatment of late stage systemic sclerosis. Each trial will enroll 125 patients and the primary endpoint will be the modified-Rodnan skin score; 2) Novartiss Gleevac, a tyrosine kinase inhibitor that targets PDGF and TGF Beta and is in Phase II development; and 3) Genentech/Biogen Idecs Rituxan and Bristol Myer Squibbs Orencia, both in Phase II trials. Dermatomyositis and polymyositis are two types of autoimmune disease that afflict the muscles, causing a myositis. Dermatomyositis is considered to be a B cell drive condition leading to immune complex deposition and complement activation, as compared to polymyositis which appears to be a more T-cell driven disease. Females are more susceptible to this disease then males in a 2:1 ratio. These conditions can cause other systemic manifestations including skin (only in dermatomyositis), esophageal, cardiac, and interstitial lung disease and vasculitis. Patients are diagnosed via a combination of history, physical examination, blood (including CPK, LDH, ALT, aldolase, and a multitude of autoantibodies) and radiologic (EMG, MRI) testing, and biopsies (muscle, skin). Like scleroderma, patients are at an increased risk of cancer. Treatment relies on a combination of prednisone and disease modifying agents including methotrexate, azathioprine, and Cytoxan. However, there remains a significant unmet need in finding more targeted medications with less side effects to treat these conditions. The most promising agent in development for dermatomyositis and polymyositis is Rituxan.
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Gout: A Systemic Chronic Inflammatory Arthritis
Painful And Disabling, Gout Affects Up To 5M Patients In The U.S.

Gout is a systemic inflammatory condition with onset usually characterized by swollen joints that are acutely painful and hinder activity. While the large toe is the most common area affected early in disease, gout often progresses to cause signs and symptoms at multiple joints including other toes as well as the fingers, knees, ankles, and wrists. Gout tends to manifest in an intermittent pattern of flares, and after years of repetitive attacks the involved areas tend to become chronically deformed and painful. Advanced patients may also be at risk for developing kidney stones, chronic renal insufficiency, and cardiovascular disease. Gout primarily affects men and post-menopausal women. The self-reported prevalence of gout in the U.S. is approximately 2% in men older than 30 and women older than 50. It increases with age, and some estimates indicate a rate of 9% in men and 6% in women over the age of 80. It is believed that 3-5MM people in the U.S. have been diagnosed with gout, and its prevalence has more than doubled over the last two decades. Given that the U.S. population above the age of 65 is poised to expand markedly in coming years, and that rates of risk factors for gout such as diabetes, renal insufficiency, obesity, and hypertension are on the rise, gout is expected to be an increasing public health burden. At the 2008 EULAR meeting in Paris, studies documented that, from 1988 to 2005, all-cause U.S. hospitalizations for gout patients increased by 288%. In 2005, more than $11.2B was spent on all-cause hospitalizations associated with gout patients (a greater than 15X increase over the last 18 years).
Uric Acid Is The Key Culprit In Gout

The underlying cause of the painful nodules which are the hallmark of gout is the deposition of uric acid crystals in joints. Uric acid is a ubiquitous end-product of metabolism and derives both from the breakdown of certain foods as well as from internal sources, and its accumulation is balanced by its excretion. It is poorly soluble, and under normal circumstances its levels are maintained such that essentially all of it remains in solution in the body. However, any one of a number of factors may upset this balance (e.g. diabetes, renal disease, malignancies, alcohol abuse, hypertension, and medications) and cause serum uric acid to rise above its solubility limit of approximately 7 mg/dl. As this level is exceeded, it begins to precipitate as microscopic crystals in tissues, which may trigger an inflammatory response and lead to the clinical syndrome of gout.
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Treatments For Gout Can Be Effective, But Suffer Limitations

Treatments for gout flares are generally aimed at treating the associated pain and arthritic inflammation and include: 1) NSAIDs. Owing to their efficacy and safety, NSAIDs such as indomethacin and naproxen are the drugs of choice for patients experiencing an acute gout attack. However, these become less useful in controlling symptoms as gout progresses, and potential for toxicity in patients with renal and gastrointestinal disease may limit dosing. 2) Steroids. Steroids are effective in resolving inflammation, but are typically reserved for those patients unable to take oral NSAIDs. In cases in which gouty arthritis is limited to a single joint, injections of glucocorticoids into the joint are usually indicated. Oral or i.v. steroids are preferred in cases in which multiple joints become affected, but the cumulative potential of their toxicity generally limits the frequency with which systemic steroids may be given. 3) Colchicine. This product is approved by the FDA for the treatment of acute attacks of gouty arthritis, and is also used as a prophylactic measure. Taken orally in the early stages of an attack, it is able to provide relief and hasten recovery from flares, although response rates decline if given more than 24 hours after the attack begins. At higher doses, it frequently causes diarrhea and nausea, and dosing sensitivity is heightened in the presence of diminished renal function, a common problem in gout patients. Strategies To Lower Uric Acid Attack The Underlying Chronic Disease While approaches that aim at acutely treating the pain and inflammation associated with gout flares may be useful, gout is a progressive disease, and in more advanced patients a strategy based on chronic urate control is generally adopted. Patients who have more that two flares per year or have complications related to gout such as arthritis, tophi, bone erosions as seen by X-rays, uric acid stones, or renal insufficiency are considered candidates for chronic therapy. The goal is to reduce the frequency of gout flares and decrease the associated complications of gout by reducing serum uric acid. The time to disappearance of urate crystals from joints correlates well with the total duration of gout symptoms, and the complete absence of urate crystals essentially eliminates the possibility of joint inflammation. As serum uric acid levels of less than 6 mg/dl have been associated with a reduced frequency/complete prevention of gouty attacks, this range is generally viewed as the target of urate-lowering therapy. While a variety of drugs are available which can lower serum urate, their efficacies are variable and are often limited by poor tolerability. They lower uric acid at a gradual rate, and in patients with high levels of urate it can take months or years to reduce the crystal burden sufficiently to result in clinical benefit. As the initiation of any uric acid lowering therapy generally leads to an increase in flares, a prophylactic such as a NSAID, colchicine, or low dose steroid is usually administered concurrently for the first three to six months. Xanthine Oxidase Inhibitors. Allopurinol is a competitive inhibitor of xanthine oxidase, the enzyme that produces uric acid from xanthine. It also inhibits purine synthesis, resulting in a decrease in the synthesis of urate precursors. By reducing
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the synthesis of uric acid, allopurinol lowers its serum levels and reduces the incidence of gout flares. It is the first line choice for most physicians, as it works both in urate over-producers as well as under-excreters. However, allopurinol suffers several limitations in practice. Many patients are unable to reach target serum uric acid levels (6 mg/dl) at the most commonly used daily dose of 300 mg/dL. While greater efficacy can be achieved with higher dosing, the often poor understanding of how to manage gout on the part of physicians (especially generalists who care for the majority of gout patients) leads to a general reluctance to dose-escalate. Even at the standard dose, side effects occur in up to 20% of patients. Toxicity associated with allopurinol includes mild rash and itching as well as diarrhea and GI upset. Most concerning is its associated risk of a hypersensitivity syndrome, a composite of rash, fever, hepatitis, eosinophilia, and progressive kidney failure, and which can lead to death. While this occurs in only about 2% of patients who try allopurinol, it carries a mortality rate of 20-30% in affected patients. Uricosuric Agents. By increasing urate excretion by the kidney, the oral compound probenecid is able to lower serum urate. However, due to mild reductions in renal function that naturally occur with age, probenecid is ineffective in most patients older than 60 years and is hence excluded in a large portion of gout patients. In addition, its side effects are numerous, and apart from causing acute gouty attacks, it may cause rash, GI side effects, kidney stones, autoimmune hemolytic anemia, and decreased urinary clearance of several medications such as penicillins.
FDA Approves Uloric

Uloric (febuxostat) is a non-purine inhibitor of xanthine oxidase which is being developed by Takeda as a therapeutic option for chronic gout. Like allopurinol, it is an oral agent which blocks the oxidation of xanthine to uric acid. However, in contrast to allopurinol, which is mainly excreted by the kidney, Uloric is metabolized via the liver and hence may be a superior option for gout patients who suffer from renal insufficiency. In 2005, Uloric completed a randomized, doubleblind Phase III trial which compared Uloric 80mg and 120mg daily to a fixed daily dose of allopurinol 300mg in gout patients. Baseline serum uric acid concentrations were closely matched among the groups and ranged from 9.8 9.9 mg/dl. At the end of the 52 week study, both doses of Uloric resulted in a significantly greater proportion of subjects achieving serum urate of 6 mg/dl versus allopurinol. While side effects were similar to allopurinol, Uloric was associated with a greater incidence of maculopapular rash and abnormal liver function tests. Four deaths occurred in the Uloric group (versus none treated with allopurinol), but did not represent a statistically significant difference and were deemed not related to the treatment. Subsequently the FDA requested another trial and Takeda presented the results from this new head-to-head Phase III Uloric (40 mg or 80 mg daily) vs. Allopurinol (300 mg daily) study at the 2008 annual ACR meeting. The primary endpoint was the proportion of patients who achieved a serum uric acid < 6mg/dL at the final visit. Efficacy data demonstrated that the 40 mg Uloric dose was similar to Allopurinol in lowering serum uric acid to <6 mg/dL but the 80 mg dose was superior to both the 40 mg dose and Allopurinol. In patients with chronic kidney disease, Uloric 80 mg was superior to both other treatment arms while Uloric 40 mg was superior to Allopurinol. Adverse events were similar across all arms.
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Efficacy Results From Pivotal Uloric (40 mg or 80 mg) Vs. Allopurinol (300 mg)
Proportion Of Patients Achieving Serum Uric Acid <6mg/dL Allopurinol (A) p Value Febuxostat (F) 40 mg 80 mg 300 mg 45% 67% 42% F 40 mg vs. A, NS F 80 mg vs. F 40 mg and A 300 mg, p<0.001 In Patients with Chronic Kidney Disease Allopurinol (A) p Value 300 mg 42% F 40 mg vs. A, p<0.021 F 80 mg vs. F 40 mg and A 300 mg, p<0.001
Febuxostat (F) 40 mg 80 mg 50% 72%
Source: Takeda, Cowen and Company
In February, Takeda announced that the FDA approved Uloric (40 mg and 80 mg once daily) for the treatment of gout. Included in the label is a warning to monitor for CV events, namely MI and stroke, given an imbalance in APTC events in the Phase III trials and open label extension studies versus Allopurinol (although no causal relationship has been established). Our consultants do not expect rheumatologist to use Uloric first-line but rather in those patients who are intolerant / fail Allopurinol. However, Uloric may garner more uptake in the primary care setting as it does not require dose-escalation and can be used more effectively/safely in patients with renal insufficiency.
No Good Options For Patients Who Fail Urate-Lowering Therapy

While allopurinol is considered the mainstay treatment for gout patients with recurrent flares, its limitations preclude its use in many who would otherwise be candidates. Patients with renal insufficiency are particularly sensitive to allopurinol toxicity, and to avoid side effects physicians must often resort to under-dosing allopurinol at levels that are insufficient to provide meaningful improvement. Because renal disease promotes hyperuricemia and gout, these patients are a distinctly unmet population. The interaction of allopurinol with several drugs (cyclophosphamide, 6-mercaptopurine, and azathioprine) used for other inflammatory disorders can also narrow or altogether eliminate the therapeutic index of allopurinol. Patients who go untreated or receive inadequate treatment tend to have longer and more painful flares, and experience severe involvement at multiple joints. The frequency of recurrent gout flares and their severity primarily depends on the level of serum uric acid, but also on other predisposing factors such as trauma, hospitalizations, dehydration, alcohol ingestion, diets rich in purines (red meat, fish), co-morbid diseases, and medications. As the rate of gout flares increases, so does the probability of related complications. Patients tend to have multiple flares a year and develop a plethora of tophi, large uric acid crystal deposits surrounded by a mass of inflamed and fibrotic tissue. Tophi are perhaps the most physically debilitating complication of gout. They can affect multiple joints and soft tissues (ears, elbows, and ankles), resulting in deformities, extreme pain, and disability. Experts estimate that there are approximately 30,000 patients in the U.S. with this severe form of gout.
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Savients Pegloticase Shows Disease Modifying Potential In Phase III

Savients pegloticase is an intravenous enzyme formulation which acts specifically upon uric acid to facilitate its removal from the body. Pegloticases pivotal program in treatment-failure gout consisted of two replicate Phase III trials (GOUT 1 and 2) and was conducted under an SPA. The replicate six-month trials evaluated Pegloticase 8mg given monthly or twice-per-month in comparison to placebo (patients were randomized 4:1 Pegloticase to placebo). The trials enrolled subjects with high levels of uric acid and symptomatic gout. In addition, patients have to be either intolerant to Allopurinol, or unable to normalize their uric acid levels on it. The primary efficacy endpoint of both trials was uric acid reduction, and was based on a responder analysis. As specified by the SPA, responders were patients who maintain a serum uric acid level <6 mg/dl for 80% of the time during the third and sixth months of the trials as determined from multiple measurements throughout each month. Secondary endpoints included reduction in tophi, reduction in flare, improvement in number of joints affected, and quality-of-life. Patients received a standard premedication regimen prior to infusions (not given in Phase II), and in addition the infusions were more dilute and run over a longer period of time in Phase III vs. Phase II. Savient reported top-line data from these trials in December 2007. Between the studies, 212 patients received at least one dose and 165 patients completed all dosing. Both trials met their primary endpoint of uric acid lowering, with p <0.001 in the once-every-two week and once-monthly dose groups as pooled between the studies. Among the 50-60% of per-protocol patients who were classified as responders on Pegloticase, uric acid levels remained low throughout the six month treatment period and showed no sign of rebound, indicating Pegloticases efficacy did not wane over time. In addition, the once-every-two week cohort met significance in tophi elimination between both trials (p=0.005), and the once-monthly group showed a trend of improvement. Interestingly, patients who were classified as non-responders still showed tophi reduction or resolution, which suggests Pegloticase is able to lower uric acid sufficiently enough to yield benefit in those who did not strictly fit the response criteria. Both Pegloticase arms also showed a trend of reduction in flares in the last three months of the studies. Among all patients in both the biweekly and once-monthly dosing arms (uric acid responders + non-responders), Pegloticase led to significant reductions in the number of tender and swollen joints, as well as the number of tender joints alone. Pegloticase also demonstrated meaningful improved patient-reported outcomes, as indicated by significance vs. placebo in the SF-36 and HAQ-DI. Both questionnaires are standard tools for the assessment of subjective outcomes with rheumatology drugs, such as biologics in rheumatoid arthritis. No neutralizing antibodies to Pegloticase were detected in any patients.
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Efficacy Results From Pegloticases Phase III Trials

q2wk N Response Rate Response Rate (per-protocol) Complete Responders of tophi* Complete + Partial Responders of tophi
Vs. Placebo <0.001 <0.001 0.005
q4wk 84 35% 50% 24% 46% 88% 58%
Vs. Placebo <0.001 <0.001 0.152
Placebo 43 0 0 10% 30% 53% 68%
85 42% 61% 39% 61% 82% 44%
Rates of patients reporting flare in months 1-3 Rates of patients reporting flare in months 4-6
*
Defined as >1 tophus disappearing completely with no progression in any other tophi; Defined as at least one tophus decreasing in size by 50% with no progression in any other tophi. Source: Savient Pharmaceuticals
Pegloticases Downside Is Its Tolerability Profile

Infusion reactions were reported to occur in 33% of all Pegloticase infusions (11% were serious/severe), and 9% of patients dropped out due to these events (22% overall dropout rate). Looking at the data another way, of the patients experiencing an infusion reaction, 30-40% withdrew because of that reaction. These data were replicated in the open label extension trial for patients crossing over from placebo to Pegloticase, suggesting that despite physician experience with Pegloticase it is associated with infusion reactions that can be difficult to manage. Additionally, there were a eight cardiovascular (CV) related events in the Phase 3 trial. While the numbers are small, there were eight CV events in patients receiving Pegloticase versus one in the placebo arm (subsequently in the open label extension where almost all patients are receiving drug, two more patients receiving Pegloticase have had CV events). SVNT believes that pegloticase did not cause any of these events and there did not appear to be any correlation to drug exposure time or anti-Pegloticase antibody titers and there were no clusters of one type of a CV adverse event. In addition, some patients who had a CV event went on to receive Pegloticase for 6+ months without any additional incidences. Overall fewer patients were able to complete Pegloticase treatment over 6 months compared to placebo (69-70% completed vs 91% in placebo). Nonetheless, we expect physicians to use Pegloticase in their most severely affected patients. Infusion-related events which may fit the criteria for anaphylaxis occurred in 2.4% of all Pegloticase-treated patients (4/169), all of whom recovered uneventfully. One of the four patients got epinephrine, while the others received antihistamines and or prednisone. None were admitted to the emergency room or hospitalized. In serum testing, no patient in the GOUT trials had IgE antibodies to Pegloticase, which would by definition be required for true anaphylaxis to occur in response to the drug. In consultants opinion, these cases do not represent true anaphylaxis. Severe Gout Patients Are At Increased Mortality Risk Cardiologist consultants believe that the multiple and severe cardiovascular comorbidities which characterized the patients who died in these trials put them at meaningful elevated risk of death. In fact, physicians experts assigned each of them a three-year mortality of 60-70%+. Patients with severe gout often suffer morbid illness, as reflected by the population in the GOUT trials: 71% had hypertension, >30% had cardiovascular disease, 23% had diabetes, 45% had renal disease, and 16% had moderate to severe chronic kidney disease. In addition, elevated serum uric acid has been determined to be an independent predictor of mortality.
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Savient Reports Extension Data On Pegloticase In May 2008, Savient provided an interim look from pegloticases Phase III open-label extension studies. The demonstration that pegloticase is able to continue to provide meaningful improvement beyond six months should address concerns among some investors surrounding the longer-term use potential of this product. Given the FDAs request for Savient to include 12-month data on Pegloticase in its initial BLA filing, these provide incremental visibility on Pegloticases potential label. Data were reported from 82 subjects, evenly divided between patients receiving Pegloticase every two weeks and every four weeks. A fraction of them had received at least 12 months of continuous treatment, and as the pivotal controlled trials began their enrollment in June 2006 and the cut for this analysis was performed at the September 2007 time point, these data likely include a few patients treated with Pegloticase for as long as 15 months. Serum Uric Acid Reduction Maintained. Of those who had been classified as SUA responders in the six-month controlled phase and who were then treated according to once every-two-week or once-monthly schedules in the extension, 100% and 70%, respectively, continued to be classified as responders. While the basis for the observation that 30% of those who had been responders became non-responders on once-monthly Pegloticase in the extension is unclear, one possible explanation that we offer is that many or all of these patients had been treated on the biweekly regimen in the controlled portion and, for them, a switch to once-monthly dosing was simply too infrequent to provide sufficient activity. Interestingly, approximately 25% of those who were non-responders in the blinded portion normalized their SUA when treated with Pegloticase for at least nine months on either schedule. Altogether, these data indicate that, in general, pegloticases ability to control the underlying cause of the signs and symptoms of gout is durable beyond the six-month timeframe of the pivotal studies. Other Clinical Measures. Of those who were non-responders for tophi resolution at the end of Phase III, 31% showed a complete response during the extension, with additional patients showing a partial response. In terms of flare rates, only four gout flares were reported in the biweekly group after the second month of the extension phase, and gout flares were entirely absent in all patients in this cohort who remained on pegloticase beyond the fifth extension month.
BLA Filed, Amendments Delay PDUFA Date Until August 1st

Savient filed pegloticases BLA in October 2008 and was granted priority review in January, and an April 30th PDUFA date was established. However, Savient announced in February that amendments to the BLA package caused a 3-month delay in the PDUFDA date, now August 1. We anticipate a FDA Arthritis Advisory Committee to be scheduled in June. We expect, similar to the Uloric panel, for the committee to focus primarily on pegloticases safety and weigh the risks vs benefits in this orphan population. The amendments including four things: an updated REMS program, new information on how to track immunogenicity in patients receiving pegloticase, new prescribing information, and additional analysis of CV events. (1) REMS program: Savient will require all prescribers, infusion centers, and patients to enroll in the Elements To Assure Safe Use program. This program educates all stakeholders in understanding the benefits and risks
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and how to administer pegloticase. Annual certification will be necessary. In addition up to 3,000 patients will be enrolled in a safety database to capture information about CV and immunogenicity AEs, (2) Immunogenicity: Savient believes that those patients who develop the highest titer antibodies usually surface by the 4 month and have a lack of uric acid response. Savient has therefore proposed using serum uric acid screening as a surrogate marker for those patients who likely have high antibody titers. (3) Prescribing information: Savient believes that while the Q4week pegloticase regimen hit the primary endpoint in the pivotal trials the Q2 week regimen is a better path forward for initial FDA approval. The Q2 week treatment arm not only hit the primary endpoint, but also had a statistically significant improvement in the reduction/elimination of tophi, decreases in tender or swollen joints and flare incidence (from months four to six), and improvements in pain scores and quality of life measurements at six months. (4) Savient requested that an independent panel of CV experts adjudicate the Phase III (patients randomized 4:1 pegloticase to placebo) and open label extension (almost all patients are receiving pegloticase with only 2 observation patients and no placebo patients) CV endpoints. Specifically the panel concluded the following: a. As of August 28, 2008: In the Phase III trials there were 3 APTC and 10 non-APTC CV events in the pegloticase arm vs. 0 in the placebo. In the open label extension there were 2 APTC CV events and 7 non-APTC CV events. Of note, most patients with APTC and nonAPTC events continued to receive pegloticase after receiving the appropriate treatment.
b. As of February 2009, there were 6 deaths in patients receiving pegloticase versus 3 deaths in patients receiving placebo. Savient management and the Board do not believe any of the deaths in those patients receiving pegloticase were drug related.
Pegloticases Re-Exposure Study Ongoing

In May 2008, Savient initiated a re-exposure study of Pegloticase. This open-label trial has completed enrollment of 7 gout patients who had been exposed to Pegloticase in past clinical trials (Phase I, II), whose last infusion was at least one year before study entry, and who qualify according to the Phase III enrollment protocol. Patients will receive Pegloticase 8mg every two weeks for 24 weeks. The primary outcome measure will be safety, with secondary endpoints including efficacy (quality-of-life, functional improvement, swollen and tender joints, and tophus burden). Savient has elected to conduct this trial to better define Pegloticases safety when used intermittently, a paradigm that may be important to accommodate patients who may require intermittent therapy since they cannot take or tolerate other urate-lowering medications. Pegloticases immunogenicity (serum antibodies to Pegloticase were detected in 89% of Phase III subjects) has led some to question the efficacy and safety of this drug when used in the re-treatment setting. We have limited visibility on Pegloticases clinical profile when used as re-treatment.
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Regenerons Rilonacept Entering Broad Phase III Program

Regeneron Pharmaceuticals is developing Rilonacept (soluble receptor-Fc fusion protein that inhibits IL-1) for the prevention of gout flares in patients initiating urate lowering therapies and for the treatment of acute gout flares. Physiologic inflammatory mechanisms, animal models, and small case series support the notion that IL-1 plays a central role in the inflammatory reaction to uric acid crystals and using IL-1 antagonists can quell gout flares. Results from a multi-center nonrandomized single-blind placebo controlled monosequence crossover trial were presented at the 2008 EULAR meeting. Ten patients (6 months of chronic gouty arthritis, 1 active joints for 4 weeks, and a pain score (VAS) of 3) were enrolled and treated for 2 weeks with a subcutaneous placebo injection. They were then treated subsequently for 6 weeks with Rilonacept. As compared to placebo where no patients improved, with Rilonacept treatment the VAS score improved from week 2 to week 8 (p=0.02) with seven patients having at least a 50% improvement in their VAS (p<0.0001) and six patients having at least 75% improvement (p=0.0001). Highly specific CRP, an acute measure of inflammation, decreased by 59% (p=0.004) during week 2 to 8. While patients did experience mild to moderate injection site reactions, no SAEs or drug-related AEs occurred during the study. In September 2008 Regeneron released the results from rilonacepts (160mg subQ once a week) Phase II randomized double-blind placebo-controlled trial in gout patients initiating urate lowering therapy. In the 83-patient study, in which all subjects were initiating allopurinol therapy for gout, the mean number of flares experienced by those treated with rilonacept was 0.15 vs. 0.79 with placebo (81% reduction, p=0.0011). All secondary endpoints were also met with statistical significance, and the drug was well-tolerated.
Rilonacepts Phase II Data
Source: Regeneron
Based on the Phase II data, Regeneron plans on launching a broad Phase III pivotal program in gout in H1:09, targeting the treatment of both acute gout flares and gout flares during initiation of allopurinol therapy in chronic gout patients. For acute gout flares, a 225-patient study will compare the efficacy and safety of Rilonacept
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(one time subQ injection) vs. Rilonacept (one time subQ injection) + indomethacin vs. indomethacin. The primary endpoint will utilize the Liker scale. For those chronic gout patients initiating allopurinol therapy (starting at 300 mg, can be titrated to 600 mg once daily), two studies, each with 270 patients, will evaluate the efficacy and safety of Rilonacept (80 mg and 160 mg once weekly) for 16 weeks. The primary endpoint will be the mean number of flares per patient (similar to the Phase II study). Data from all three trials are expected in 2010. Although Regeneron does not plan on conducting this program under the auspices of an SPA, discussions with FDA have led Regeneron to conclude that the trial designs are acceptable. Assuming Phase III data duplicate Phase II results, we believe that Rilonacepts profile (once a week via self-administered subQ injection, no need for renal dose adjustment, possibly safer than other prophylactic agents) will be viewed favorably by both patients and physicians. The treatment of both acute flares (1.4MM patients per year have an acute gout flare) and flares in chronic gouty patients initiating allopurinol (>750KK scrips per year written for patients to start allopurinol) are large market opportunities. Barriers to use include patient and physician education for prophylactic agents when initiating urate lowering therapy and cost. Rilonacept could especially find a home in those patients with cardiovascular, renal, and gastrointestinal co-morbidities since these conditions preclude aggressive use of NSAIDs, colchicine, and prednisone. These cohorts of patients make up a substantial number (>30%) of the total patient population with chronic gout.
While Novartiss Canakinumab Is Entering Phase II

Canakinumab is a long-acting (every 8 weeks) IL-1 monoclonal antibody that is being developed for several autoimmune diseases, including gout. Canakinumab is now entering three randomized double-blind Phase II trials: (1) A 44-patient study that will examine self-reported response to treatment at 72 hours in a patient hospitalized and having an acute gouty arthritis flare. (2) A 24-week dose ranging study that will enroll 440 chronic gout patients initiating Allopurinol therapy. The goal is to determine that dose that has at least comparable efficacy in reducing the mean number of gout flares as colchicine. Data are expected in 2010. (3) An 8-week dose ranging study that will enroll 200 gout patients who cannot take NSAIDs and or colchicine. The goal is to determine that dose that has at least comparable efficacy (as measured by VAS) in reducing an acute flare as corticosteroid triamcinolone acetoinde. Data are expected in H2:09.
Ardea Explores Treating Gout By Targeting URAT-1

Analysis of a multiple ascending dose RDEA806 Phase 1 healthy volunteer study showed an unexpected statistically significant dose-dependent reduction of serum uric acid (SUA). This study evaluated twice-daily dosing of 300 mg, 500 mg, and 400 mg in a modified release formulation in 24 healthy males over 10-14 days. Each treatment group showed a statistically significant reduction in SUA as early as Day 3 (p<0.001) compared to the placebo-treated group. The largest reduction in SUA of 48% occurred in the 400 mg modified-release dose. The 300mg and 500mg doses resulted in placebo-corrected reductions of 35% and 41%, respectively. Interestingly, the magnitude of the decrease in the SUA levels directly correlated with the baseline
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uric acid levels. Specifically, subjects who had elevated urate levels of more than 6.8 mg/dL at baseline experienced the greatest SUA reductions of (3.2 mg/dL on average) on the last day of dosing. Metabolite of 806 Responsible For Uric Acid Lowering At the 2008 EULAR meeting, RDEA identified RDEA594, a metabolite of '806 that appears to be the active agent responsible for the serum uric acid reduction in healthy volunteers. '594 showed an almost perfect correlation with excretion of uric acid (R2>0.99) versus other '806 metabolites tested, and preclinical data confirmed '594's inhibition of URAT-1. This is a differentiated mechanism of action compared to Allopurinol and Uloric and similar to benzbromarone. The binding affinity is moderate (IC50=53uM), but clearly adequate to reduce uric acid re-absorption. Additionally, since all the healthy volunteers in Phase 1 and HIV patients in the Phase 2a studies of '806 were exposed to '594, there are over 150 patient exposures showing clean short-term safety data for this compound.
Additional Data Right Around The Corner

In July 2008, RDEA commenced a Phase IIa randomized, double-blind, dose ranging, safety and efficacy study of RDEA806 in hyperuricemic patients (SUA>8mg/dL). The trial will recruit 30 patients in two arms (12 active/3 placebo per arm), and will test 400 mg once/day and 400 mg twice/day dosing. The primary efficacy endpoint is the fraction of patients with sUA<6mg/dL after 4 weeks of treatment. We expect the results from this trial by the end of Q1:09. Meanwhile, 594 successfully completed its Phase I single-dose healthy human testing in patients with a serum uric acid > 5mg/dL. 594 was well tolerated, yielded linear increases in drug levels, had an 11 hour elimination half-life, and produced up to 30% reductions in serum uric acid versus placebo over 24 hours. 594s impact on serum uric acid is two times greater than what was documented with 800 mg of 806. 594 has subsequently, entered a Phase IIa trial. This study will examine the efficacy, safety, PK, and PD of multiple ascending doses administered once daily for 10 days with data expected in late 2009.
EnzymeRxs PEG-Uricase Early In Development

EnzymeRx (private) is evaluating Uricase-PEG 20, a PEGylated uricase derived from yeast, for the treatment of gout. Uricase-PEG 20 is differentiated from Pegloticase primarily by the number of PEG groups attached to it (20+ vs. 9-11 for Pegloticase), and appears to be protected by a separate intellectual property estate. While data on Uricase-PEG 20 are scant, an intramuscular (IM) formulation has demonstrated in Phase I studies to be safe and effective in lowering serum uric acid. Uricase-PEG 20 is slated to begin Phase II evaluation in 2009, and expects the protocol to be similar to Pegloticases Phase II and III trials with the exception that prior uric acid-lowering therapies may be continued. Although a simple injectable therapy for gout may present a more convenient option than one which requires an outpatient infusion over several hours, this candidate is early in development, and we lack visibility on its ultimate profile.
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U.S. ARTHRITIS MARKET

Total Prescriptions (000's) 2008 2009E 2013P 1987* NSAIDS 115,687 125,000 195,000 79% Muscle Relaxants 73,478 78,000 98,000 21% Coxibs 19,252 22,000 50,000 Biologicals/TNF Inhibitors 4,664 16,000 50,000 DMARDS 213 8,673 13,000 25,000 61,000 67,000 Other Therapies 60,766 Total 100,044 282,521 315,000 485,000 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates 1987* 78,816 21,015 % Market Share 2008 2009E 41% 40% 26% 25% 7% 7% 2% 5% 3% 4% 22% 19% 100% 100% CGR 2013P '87-08 '08-13 40% +2% +11% 20% +6% +6% 10% NA +21% 10% NA +61% 5% +19% +24% 14% NA +2% 100% +5% +11%
ARTHRITIS/INFLAMMATION R&D PIPELINE Company Eisai Wyeth GlaxoSmithKline Product E-2014 Enbrel Bosatria . PC I II III NDA . . Sep-08 MKT Comments Cervical dystonia; Japan Juvenile RA; inflammation; Japan Mepolizumab; anti-IL5 monoclonal antibody; eosinophilic esophagitis; hypereosinophilic syndrome; filed in EU Astellas 177) Celecoxib (YM. Feb-07 Coxib; post surgical, post traumatic, for lower back pain, shoulder and tenosynovitis Eisai Humira (D2E7) . . Filed for psoriasis; PIII for juvenile RS, ankylosing spondylitis, Crohn's disease, ulcerative colitis, inhibition of joint damage; Japan Johnson & Johnson Tanabe Mitsubishi Ustekinumab (CNTO1275) Remicade . . Dec-07 . Anti-IL 12, filed for psoriasis; PII for Crohn's disease Anti-TNF monoclonal antibody; sNDA filed for RA dose escalation, psoriasis, colitis and Croshn's disease dose escalation Nektar Therapeutics Cimzia . Apr-08 Pegylated humanized anti-TNF-alpha antibody fragment; filed for RA in psoriasis; UCB Pharma Pfizer, Inc. ScheringPlough Celebrex Simponi . . Feb-07 2008 combination with methotrexate; P2 for Filed in Japan for treatment of lower back pain; PIII for acute gouty arthritis Golimumab; filed in EU for rheumatoid arthritis and related diseases; PIII for ulcerative colitis; development and commercialization rights with JNJ SkyePharma Lodotra . . Inflammatory conditions; filed for RA; ankylosing spondylitis; PIII for ulcerative and tooth extraction pain; filed in Japan periarthritis; cervicobrachial syndrome
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ARTHRITIS/INFLAMMATION R&D PIPELINE Company Bristol-Myers Squibb Product Orencia PC I II . III . NDA Dec-08 MKT Comments with Nitec Subcutaneous pre-filled syringe (NDA 2009-10); sBLA filed Dec. 2008 for for systemic lupus erythematosus, Crohn's disease; ulcerative colitis; delay/prevention of RA onset Johnson & Johnson CNTO148 . . Jun-08 psoriatic arthritis; ankylosing Anti-TNF; filed for rheumatoid arthritis; spondylitis; PIII for structural damage( RA, PsA), IV formlation; PII for ulcerative colitis Chugai MRA . . . Nov-07 Filed in U.S. for treatment of early RA; PII for psoriatic arthritis; PIII
rheumatoid arthritis; PIII for systemic onset juvenile idiopathic arthritis; PI systemic lupus erythematodes; PI/II for sub-cutaneous formulation; anti IL-6 receptor Mab
Abbott Laboratories Daiichi Sankyo Daiichi Sankyo
Humira AMG 162 CS-600G
. . .
Anti-TNF inhibitor; PIII for ulcerative colitis and pediatric Crohn's disease Denosumab; rheumatoid arthritis Anti-inflammatory and analgesic loxoprofen gel; formulation by Toko Pharmaceutical
Johnson & Johnson Roche
Remicade Actemra (MRA)
. .
TNF alpha inhibitor; PIII for pediatric ulcerative colitis Humanised anti-IL-6 recombinant Mab; systemic-onset juvenile idiopathic arthritis; with Chugai
Roche
Mabthera
2008
Monoclonal antibody (rituximab); rheumatoid arthritis: launched in U.S. and E.U. for anti-TNF non-responders; PIII for DMARD inadequate responders; with Genentech/Biogen Idec
Roche
R1594
2010
Monoclonal antibody; rheumatoid arthritis, hematologic malignancies; with Genentech
Abbott
Laboratories GlaxoSmithKline Mitsubishi Tanabe
ABT-874 Ofatumumab CNTO-148
. . .
. . .
PIII for psoriasis; PII for Crohn's disease Anti-CD20 human monoclonal antibody; rheumatoid arthritis Anti-TNF monoclonal antibody; rheumatoid arthritis
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ARTHRITIS/INFLAMMATION R&D PIPELINE Company Novartis Product ACZ885 PC I II . III . NDA >2012 MKT Comments Muckle Wells Disease; rheumatoid arthritis; systemic juvenile idiopathic arthritis; acute gout; IL-1 inhibitor GlaxoSmithKline Belimumab . . Anti-B lymphocyte stimulator monoclonal antibody; PIII i.v. erythematosus AstraZeneca AstraZeneca Eli Lilly Eli Lilly GlaxoSmithKline GlaxoSmithKline Mitsubishi Tanabe Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Sanofi-Aventis Wyeth CE-224535 CP-690550 PH-797804 SD-6010 SSR-150106 TRU-015 . . . . . . AZD 5672 AZD 9056 BAFF Ab IL-17 antibody 315234 681323 T-0047 . . . . . . . 2012 2012 formulation; PI sub-Q; systemic lupus Chemokind antagonist (CCR5); rheumatoid arthritis Ion channel blocker; rheumatoid arthritis Rheumatoid arthritis Rheumatoid arthritis Rheumatoid arthritis P38 alpha kinase inhibitor; rheumatoid arthritis Cell adhesion inhibitor; asthma, rheumatoid arthritis, MS, IBD Rheumatoid arthritis; osteoarthritis; inflammation JAK 3 inhibitor; rheumatoid arthritis, transplant rejection Pain; rheumatoid arthritis; inflammation Formerly SC-84250; osteoarthritis; inflammation Cytokine/chemokine inhibitor; inflammation Small modular immunopharmaceutical rheumatoid arthritis (Phase II); IV formulation; from Trubion Pharmaceuticals Bristol-Myers Squibb Takeda Astellas AstraZeneca AstraZeneca Mitsubishi Tanabe Mitsubishi p38 Kinase Inhibitor TAK-783 ASK8007 AZD 8566 CAM-3001 MP-435 TA-5493 . . . . . . . . . Rheumatoid arthritis T-cell function regulator; rheumatoid arthritis; PI in Japan Rheumatoid arthritis; with Kaketsuken CCR5; rheumatoid arthritis Anti-GM-CSFR; rheumatoid arthitis C5a antagonist; rheumatoid arthritis p38 map kinase inhibitor; rheumatoid
protein (SMIP) directed against CD-20;
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ARTHRITIS/INFLAMMATION R&D PIPELINE Company Tanabe Novo Nordisk Novo Nordisk Anti-IL20 Neutrazumab . . Product PC I II III NDA MKT Comments arthritis, psoriasis Psoriasis Humanized anti-C5aR antibody; autoimmune diseases, including rheumatoid arthritis (RA) and systemic lupus erythematosus (SLE) Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche Roche Sanofi-Aventis Sanofi-Aventis SkyePharma Takeda Wyeth Eli Lilly Sanofi-Aventis Teva Wyeth Wyeth Wyeth PD-360324 PF-251802 PF-4171327 PF-4236921 Anti-CD4 Mab VAP-1 SAR-153191 SAR-479746 SKP-1032 MLN0415 ILV-094 antagonists SAR-113935 TV-3813 ATR-107 ILV-095 SBI-087 Total Drugs In Development 6 18 15 15 13 67 GPCR . . . . . . . . . . . . . . . . . biologic Rheumatoid arthritis; inflammation; Rheumatoid arthritis; inflammation Rheumatoid arthritis; inflammation Rheumatoid arthritis; biologic Rheumatoid arthritis Vascular adhesion protein-1 inhibitor; inflammatory diseases Anti-IL-6R mAb Oral IKK-beta inhibitor; arthritis Pain/inflammation IKK2 inhibitor; inflammatory diseases Rheumatoid arthritis; psoriasis Inhibits chemotaxis; inflammation; from ICOS IKK-b inhibitor; osteoarthritis joint pain Psoriasis Lupus/systemic lupus erythematosus (SLE) Rheumatoid arthritis; psoriasis Rheumatoid arthritis; lupus/systemic lupus erythematosus (SLE)
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Bone Disease
Osteoporosis Is Major Health Care Burden
Osteoporosis is a chronic condition that results in low bone mass and strength, microarchitectural deterioration, and an increase in fractures. All bones become more fragile and susceptible to fracture as the condition progresses, but fractures of the hip, spine, and wrist are most common. In the U.S., 10 million people (80% are women) are already diagnosed with osteoporosis and another 34 million have low bone mass without ever having a fracture (osteopenia). Fifty 6% 2008-13 CGR percent of women and 25% of men over the age of 50 will have at least one osteoporotic fracture in their lifetime. There are over 2.5 million fractures yearly in the U.S. and annual direct and indirect costs associated with osteoporotic fractures are over $30B. By 2020, half of Americans over the age of 50 will be at risk for fractures from osteoporosis with experts estimating that the number of fractures per year will pass 3 million by 2025.
Osteoporosis/Hormone Replacement & Skeletal Related Events Category Market Share By $ Sales
2008
$8B
Other 12% LLY 23% Other 36%
PARTICIPANTS
2013P $11B
LLY 25%
WYE 14%
MRK 20%
WYE 17% NVS 6% ROHHY 7% SNY/PG 10%
SNY/PG 16%
The entry of generic versions of Mercks Fosamax (alendronate) in February 2008 has significantly impacted the oral bisphosphonate market. Novartis Reclast (branded Zometa for malignancy indications) provides once-yearly convenience and good efficacy that likely will weather the pressures of generic Fosamax better than Roche/GlaxoSmithKlines Boniva and Sanofi-Aventis/P&Gs Actonel. Lillys Evista should grow only marginally over the next 5 years, but its status as the premier selective estrogen receptor modulator (SERM) for women should remain unchallenged, enhanced by its approval for breast cancer prevention. Wyeths Viviant is undifferentiated and Pfizers Fablyn has run into side-effect and FDA approval challenges. Amgens denosumab could emerge as the preferred 2nd line agent of choice based on convienance, differentiation, and its efficacy and safety profile.
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MAJOR TRENDS &

ISSUES
Generic alendronate should continue to dominate the oral bisphosphonate market. Novartiss Reclast received approval in 2007 for the treatment of osteoporosis and is uniquely positioned with once-yearly intravenous dosing and is the only bisphosphonate to demonstrate a benefit on mortality, although this is likely a class effect. The overall market for bisphosphonates peaked at nearly $6B in 2007 but is expected to decline to less than $4B in 2013. SERM sales ($1.2 in 2008) are expected to grow given features differentiated from estrogens and potential in breast cancer prevention. Evista has no data supporting a reduction in non-vertebral fractures but its label for breast cancer prevention provides mild upside. Should Wyeths Viviant or Pfizers Fablyn be approved, the market will become more competitive. GTxs toremifene met its Phase III primary and secondary endpoints for the treatment of osteoporsis and other side effects in men receiving androgen deprivation therapy (ADT) for prostate cancer. However, side effects (e.g. QT prolongation, DVTs) associated with toremifene are likely to cause regulatory and commercial hurdles. Amgens denosumab (RANK ligand antibody) has shown to be efficacious and safe in numerous Phase III osteoporosis trials including the pivotal FREEDOM study. Most consultants plan on using denosumab as the preferred second-line therapy after generic Fosamax. Mercks cathepsin-k inhibitor, MK-0822, which is in Phase III, should provide a novel mechanism but its impact on BMD is modest and skin toxicity raises concern. Our scatter plot (below) shows that, through 2013, Eli Lilly, Roche and Wyeth should dominate the osteoporosis/HRT segment.
Cancer-Induced Bone Loss Is An Unmet Need

Skeletal-related events are complications associated with bony metastases (malignant cells that have left the primary cancerous site and attach and grow on bone, most commonly the spine, pelvis, femurs, and skull). These adverse events include fractures, hypercalcemia, spinal cord/nerve root compression, incapacitating pain with lack of mobility, and bone marrow infiltration. Intravenous bisphosphonates including Zometa and Aredia are used by oncologists to prevent skeletal-related events in breast and prostate cancer, multiple myeloma, and other advanced solid tumors. Currently, Zometa dominates the market for the prevention and treatment of skeletal-related events versus Aredia due to its greater convenience (15 minutes versus 120 minutes infusion time), lower incidence of hypocalcemia, and a perceived belief among medical oncologists of superior efficacy. In 2008, worldwide Zometa sales were $1.4B, mainly for the treatment of skeletal-related events in patients with breast cancer and multiple myeloma.
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Osteoporosis/HRT
90% % Of Company 2008-13 Sales Growth From Category NVS
70%
50%
30% WYE 10% SNY -10% RHHBY LLY
-30% MRK -50% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 2013 Sales Contributed By Company To Category ($ In B)
ESTIMATED WORLDWIDE MARKET FOR OSTEOPOROSIS/HORMONE REPLACEMENT DRUGS BY CLASS ($MM)

2008 Market % Total $4,641 59% 1,849 1,222 108 $7,820 24% 16% 1% 2013P Market % Total $3,384 30% 2,690 2,631 2,439 24% 24% 22% 100% $ 08-13 CGR -5% 6% 14% 68% 6% NRx 87-08 CGR Comments NM - MRKs Fosamax, SNY's Actonel, GSK/RHHBY's Boniva 6% - WYEs Prempro/Premphase dominate; LLY's Forteo NM - LLYs Evista, PFE's Fablyn, WYE's Viviant 18% - Calcitonin, sodium fluroride 8% - Driven by SERMs
Drug Class Bisphosphonates Hormonal Agents SERMs Other Therapies Total Market
100% $11,144
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Osteoporosis: A Large And Growing Market

DETAILED DISCUSSION
Osteoporosis is a chronic condition that results in low bone mass and strength, microarchitectural deterioration, and an increase in fractures. All bones become more fragile and susceptible to fracture as the condition progresses with the wrist, pelvis, humerus, clavicle, femur, and tibula/fibula accounting for approximately 59% of all fractures. Osteoporosis typically affects postmenopausal women (age >55, lack of estrogen/progesterone results in increase bone resorption) and men older than 70 years old or those with low levels of testosterone, although depending on risk factors and co-morbidities, it can be diagnosed at any age. Asians, Caucasians, Hispanics, a family history, low body mass, smoking, drinking alcohol, chronic glucocorticoid use (>3 months), multiple other medications, early menopause, vitamin D deficiency, and other medical diseases (i.e., rheumatic, respiratory, hematologic, and infectious) are just some of the risk factors associated with osteoporosis. According to the National Osteoporosis Foundation, roughly three-fourths of those affected by or at risk of osteoporosis have not sought treatment. Hence, we believe that the potential for market growth is substantial as physicians and patients become more educated about the health benefits of pharmacotherapy. However sales growth will be tempered by Fosamax generics. We estimate that revenues of drugs to treat osteoporosis will grow at an average rate of 7%, from $8B in 2007 to $11B in 2013.
U.S. Prevalence of Osteoporosis and Low Bone Mass in People Aged 50+ (MMs)
2002 Osteoporosis and Low Bone Mass in Women and Men Osteoporosis in Women and Men Low Bone Mass in Women and Men Women With Osteoporosis or Low Bone Mass Women With Osteoporosis Women With Low Bone Mass Men With Osteoporosis and Low Bone Mass Men With Osteoporosis Men With Low Bone Mass 43.6 10.1 33.6 29.6 7.8 21.8 14.1 2.3 11.8
2010 2020 52.4 61.4 12.0 13.9 40.4 47.5 35.1 40.9 9.1 10.5 26.0 30.4 17.3 20.5 2.8 3.3 14.4 17.1
*Numbers have been rounded; Source: National Osteoporosis Foundation
Diagnosis And Treatment Guidelines

Postmenopausal women under the age of 65, all women over the age of 65, all men over the age of 70 (secondary to male menopause or andropause), and anyone with significant risk factors (i.e. glucocorticoid use, early menopause) should be tested for osteoporosis. Although the gold standard for initial diagnosis is measurement of bone mineral density (BMD) by densitometry (DEXA scans), evidence suggests that other risk factors should also be considered in deciding on initiation of treatment. In February 2008, the National Osteoporosis Foundation issued new guidelines that included the use of an algorithm, which combines DEXA results with nine other clinical risk factors, to assess a patients 10-year fracture probability and thus whether or not treatment should be initiated.
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BMD (g/cm2) measures the severity of osteoporosis by calculating T- and Zscores. T scores are derived by comparing a patients BMD with the young adult mean. Healthy patients have BMD T-scores within one standard deviation of the young adult mean. Patients with osteopenia (low bone mass) have BMD T-scores between -1.0 and -2.5 standard deviations of the young adult mean. Depending on risk factors, history, and physical examination, experts will either start osteopenic patients on prevention or treatment therapy. Women with osteoporosis have BMD Tscores of more than -2.5 standard deviations away from the young adult mean. The Z-score is a different method of assessing disease severity, and compares the amount of actual versus expected bone loss for patients of similar sex and age. Once diagnosed with osteoporosis, there is no consensus on how often DEXA scans should be performed (possibly every 2 years vs. follow the patient clinically for signs of treatment failure).
National Osteoporosis Foundation Guidelines for Testing and Treatment for Osteoporosis Guidelines For Testing 1. Postmenopausal women aged less than 65 with one or more risk factor 2. Postmenopausal women with a fracture Guidelines For Treatment 1. Women with BMD t-score less than -2, if no other risk factors 2. Women with BMD t-score less than -1.5, if one or more risk factors 3. Any woman considering treatment for osteoporosis 4. Women older than 65 regardless of risk factors 5. Women who have been on long-term hormone replacement therapy
Source: National Osteoporosis Foundation
3. Women older than 70, if multiple risk factors; treatment should be initiated without testing 4. Prior history of vertebral or hip fracture
What Is The Unmet Medical Need In Osteoporosis?

There are multiple classes of therapeutics for the treatment of osteoporosis including bisphosphonates, SERMs, PTH, estrogens, calcitonin, vitamin D, and calcium supplements. The worldwide market for these agents is estimated at $9B and is dominated by bisphosphonates (generic alendronate/Mercks Fosamax, P&Gs Actonel, Roches Boniva, Novartiss Reclast). The market leader for some years has been Mercks Fosamax (alendronate). Although generic alendronate is now available and mandated by many payors as a Tier 1 therapy, some physicians report alendronate generics are less well tolerated (GI side effects) than Fosamax. A variety of therapies are also employed in the first- or second-line setting. Most commonly these include Actonel, Boniva, Reclast, and Evista. Nonetheless, physicians believe better medications are still needed. Consultants list three main reasons why current anti-resorptive therapies are not adequate for the treatment of osteoporosis/osteopenia: 1) In terms of efficacy, although bisphosphonates are very effective for the prevention of vertebral fractures (50-70% reduction), they are considered only
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modestly effective at preventing hip fractures (30-40% reduction) and mildly effective at preventing other clinical nonvertebral fractures. Impaired efficacy at hip and other sites is important as these fractures are associated with significant health care complications and costs. For example, vertebral, hip (24% of patients 50 years old die one year after experiencing a hip fracture), and other nonvertebral fractures are associated with an increased risk of death. Post-hip fracture, 20% of patients require long-term nursing care and 15% require assistance with ambulation. Once an individual has a hip fracture, he/she is at a fourfold risk of a second hip fracture. Patients with fractures at sites other then the hip and spine burden the health care system with enormous outpatient costs including orthopedic supplies and visits to doctor offices, ERs, radiology, and physical therapy.
Types And Number of Osteoporotic Fractures Per Year
Type Of Fracture Vertebral Wrist Hip Pelvic Other Total Estimated
Number Fractures/Year 547,000 397,000 297,000 135,000 675,000 2,051,000
Source: National Osteoporosis Foundation and Cowen and Company
Osteoporosis Remains A Major Health Care Burden
Burden Of Osteoporosis In U.S.

3,000,000 2,600,000 Annual Patient Numbers 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Hospitalizations Visits To ER Visits To Physicians' Offices Placed Into Nursing Homes 500,000 180,000 800,000
Source: National Osteoporosis Foundation and Cowen and Company
2) The tolerability of oral bisphosphonates leaves much to be desired. Oral bisphosphonates are poorly absorbed through the GI tract, and as a result must be taken on an empty stomach with 8 ounces of water. Patients must then remain upright for 30-45 minutes, and despite these precautionary measures, 20% or more of patients report GI upset ranging from mild heartburn to severe esophagitis.
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The Unmet Need Within PMO
Source: Amgen R&D Day November 2008
3) Convenience/compliance can be improved upon. Although Fosamax and Actonel are taken once a week and Boniva is taken once monthly, patients often are non compliant. In part this may reflect the silent nature of osteoporosis. Nonetheless a drug that is administered less frequently and in a physicians office via injection would hold advantages. While Reclast is a once yearly injectable with the potential for improved compliance, the need for an infusion chair and extensive monitoring (renal function, acute infusion reactions) has hampered its use. In addition, the use of bisphosphonates in osteoporosis has been associated with infrequent adverse events that include osteonecrosis of the jaw, atrial fibrillation, anomalous fractures resulting from adynamic or frozen bone, and potentially an increase in the incidence of chronic esophagitis and its resulting complications. While physicians who treat osteoporosis are less concerned about these rare sideeffects, many patients and dentists have become aware of and are increasingly concerned about these risks (especially ONJ), making compliance even more challenging.
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COMPONENTS OF THE APPROVED OSTEOPOROSIS MARKET Drug Class Bisphosphonates Fosamax (Merck) Actonel (Sanofi) Boniva (GSK/Roche) Reclast (Novartis) Mechanism of Action - Limit bone breakdown and slow bone removal by inhibiting osteoclast activity Pros Increase bone mass density Cons Poor bioavailability Side effects, primarily gastrointestinal; rare incidence of osteonecrosis of the jaw Possible association with atrial fibrillation and adynamic bone Poor long term compliance Calcitonins Miacalcic (Novartis) - Naturally secreted by the thyroid gland. Increases deposition of calcium and phosphate in the bone while lowering calcium levels in blood Calcium Supplements - Reduce the bodys need to resorb calcium from the skeleton; reduce osteoclast activity Estrogens/ HRT Premarin (Wyeth) - Estrogens reduce bone resorption by reducing bone breakdown Most effective single modality for osteoporosis prevention Cost effective at approximately $200/year Useful in premenopausal women or Modest and more short term patients who cannot tolerate or refuse to take bisphosphonates, ERTs, and SERMs Available in nasal spray and injection Widely used and OTC Recent evidence suggests minimal effect but current guidelines continue to recommend 1200mg daily Potentially increases the risk of cancer in some women Contraindicated in patients in certain females with or at risk to certain cancers, thrombosis Compliance an issue due to side effects (breast tenderness, migraine, resumption of periods, etc.) WHI and HERS studies question long-term safety Parathyroid Hormones (PTH) Forteo (Lilly) - Naturally secreted hormone PTH stimulates bone formation ( via osteoblasts) Potentially best natural bone building capabilities Expensive Tumors detected in rat bone and in 1 reported case WW Patient can take for only 2 years Selective Estrogen - Stimulate certain estrogen Increase bone mass density Favorable lipid effects: decrease total and LDL cholesterol by approximately 10%; no increase in HDL Reduction in breast cancer Results encouraging when used in combination with calcium Controlled-release formulation lowers incidence of side effects Vitamin D Supplements - Vitamin D aids in calcium absorption in the intestine Widely used and OTC Recent evidence suggests minimal effect but current guidelines continue to recommend 800-1000 IU daily
Source: National Osteoporosis Foundation, PDR, Stedmans Medical Dictionary, Cowen and Company
efficacy in comparison to bisphosphonates, ERTs, and SERMs Expensive
Less efficacious than estrogens Increased risk of thrombosis
Receptor receptors that prevent bone Modulators (SERMs) destruction and block uterine Evista (Lilly) estrogen receptors, tempering the unfavorable side effects of ERTs Sodium Fluoride - Sodium fluoride improves the rate of bone formation
New bone growth of poor quality Inconclusive clinical evidence
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Bisphosphonates Are The Go-To Anti-Resorptive Agent Of Choice

Bisphosphonates inhibit bone resorption, or natural loss of bone, and are effective in the treatment of diseases of increased bone turnover, such as osteopenia, osteoporosis (men and women), and Pagets disease. Generic Alendronate Dominates The Oral Bisphosphonate Market Generic alendronate (approved in February 2008)/ Mercks Fosamax (indicated for osteopenia, osteoporosis in men and women, and Pagets) are the leading bisphosphonates, given solid efficacy in building bone, long-term data supporting a relatively benign side-effect profile, and convenient oral delivery (once-weekly pill or liquid solution). Our physician experts view Fosamaxs long-term spine and hip fracture data and tolerability profile as hurdles to other bisphosphonates (SanofiAventis/P&Gs Actonel, Roche/GlaxoSmithKlines Boniva, and Novartiss Reclast). Although Boniva is differentiated from alendronate by once-monthly oral dosing and once-every-three-months intravenous dosing, our experts do not feel that Boniva offers significant advantage over alendronate, especially since alendronate has better efficacy data. We believe the market for bisphosphonates, which peaked at nearly $6B in 2007, will decline to less than $4B in 2013.
BISPHOSPHONATE MARKET
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000 TRxs
800,000
600,000
400,000
200,000
0 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Actonel Jun-08 Jul-08 Aug-08 Sep-08 Boniva Oct-08 Nov-08 Dec-08 Jan-09
Alendronate
Fosamax
Source: IMS, Cowen and Company
Fosamax Has Great Long-Term Efficacy And Safety Data. Pooled clinical trial data taken from multicenter extension studies conducted in 16 countries showed that cumulative 10-year spine BMD increases were 13.7% and 9.8% respectively for 10 and 5mg Fosamax once-daily. Fosamax also has compelling BMD data for reducing hip fractures. At three years, Fosamax once-daily increased the BMD of the
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spine by 8-9% and hip by 4-6%. Data at five and 10 years show continued efficacy. In clinical trials, the incidence of side effects in patients on Fosamax and placebo was comparable, although our physician consultants state that 15-25% of their patients on Fosamax complain of side effects (mostly gastrointestinal) that can often be resolved with adjusting how its taken (e.g. more water, with a proton pump inhibitor). FACT: Fosamax Superior To Actonel. The FACT trial compared once-weekly Fosamax versus Actonel in assessing BMD and tolerability endpoints. Twelve-month FACT data presented in 2004 showed that patients on Fosamax experienced a greater increase in BMD at all pre-specified endpoints compared to Actonel. Fosamax increased BMD at the hip trochanter by 3.4% compared to 2.1% for Actonel. Fosamax also increased BMD at the femoral neck by 1.6% compared to 0.9% for Actonel and at the lumbar spine by 3.7% versus 2.6%. The tolerability profile of the two drugs was similar. FLEX Suggests That Some Patients May Be Able To Take A Drug Holiday. FLEX (Fracture Intervention Trial Long Term Extension) is a double blind randomized trial that compared the effects of stopping vs. continuing Fosamax after five years of treatment. 1,099 postmenopausal women with low BMD were enrolled and followed for five years. These patients had taken 5mg of Fosamax daily for two years and then 10mg daily of Fosamax for an additional three years prior to being enrolled. Total hip BMD after five years was the primary endpoint. Patients who changed to placebo, versus those who continued to take Fosamax, experienced a 2.4% decrease in total hip BMD (p<0.001) and a 3.7% decline in spine BMD (p<0.001). While the two arms did not differ in the rate of nonvertebral fractures or asymptomatic vertebral fractures, patients continuing with Fosamax did statistically significantly experience less symptomatic vertebral fractures (2.4% Fosamax vs. 5.3% placebo, relative risk 0.45). Our consultants believe that only patients who are low risk for fractures after 5 years of treatment can discontinue Fosamax as long as the patient is compliant with BMD monitoring. Future DEXA scan results, in combination with the clinical setting, would help guide physicians in determining when patients should resume Fosamax. Actonel, Boniva Are 2nd Choice Oral Agents Sanofi-Aventiss Actonel (once weekly and once monthly) is a bisphosphonate for the prevention and treatment of osteoporosis (men and women) and Pagets disease. Market share for Actonel (includes Actonel with calcium) stands at 24.1% of total prescriptions written for osteoporosis firmly placing it at the number-two spot after alendronate. Actonel was launched in Japan in 2002 and is marketed there under the name Benet by three companies: Sanofi-Aventis, Ajinomoto (which acquired a Procter & Gamble license) and Takeda. Actonel is marketed in the E.U. for use in reducing hip fracture risk in women with post-menopausal osteoporosis. Boniva once-monthly was launched in the U.S. in April 2005. GlaxoSmithKline/Roches Boniva gained ground in the osteoporosis market due to skillful marketing and a more convenient dosing cycle (monthly oral dose or IV every 3 months). Clinical evidence suggests that Fosamax is likely more effective agent. Our consultants do not feel that the availability of once-monthly or onceevery-three-month dosing differentiates Boniva enough to prevent sales erosion following the introduction of Fosamax generics. We forecast Boniva income of 750MM in 2015.
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Novartis Reclast Used Primarily In Refractory Patients

Reclast (zoledronate) in the U.S. (Aclasta ex-U.S). was approved in 2007 as a onceyearly infusion for Pagets disease and the treatment (hip, spine, and glucocorticoid induced) of osteoporosis. Our consultants believe that Reclast is effective for the reduction of fractures at vertebral and nonvertebral sites, including at the hip. Because most patients are able to tolerate oral bisphosphonates, Reclast will be reserved for use as a second-line agent in the approximately 15-25% of osteoporosis patients. This positioning reflects the need for an infusion center, cost/reimbursement considerations, the lack of long term safety data, need for renal monitoring, acute infusions reactions, chronic musculoskelatel pains, and concerns over ONJ and other rare side-effects. The most common reasons a patient is switched to Reclast is if he or she cannot tolerate the medication (e.g. GI discomfort) or lack of compliance (which can lead to reduced efficacy in preventing fractures). However, market penetration has been limited since the majority of patients are treated for osteoporosis by primary care doctors (who typically do not have infusion centers). Reclast obtained 3 year data exclusivity on approval and Novartis has a composition patent extending until 2012. Patients Can Safely Be Switched From Fosamax To Reclast At the 2006 ASBMR meeting, Novartis presented data that showed patients currently taking Fosamax can be directly switched to Reclast and maintain beneficial bone effects for a full 12 months after a single dose. Results from the study of 225 patients showed that at 12 months, BMD values for patients on Reclast were similar to the values for patients on Fosamax, hence the study's primary endpoint was met. In patients taking Reclast, bone turnover remained within the normal premenopausal range at 12 months after an infusion. The most common adverse events reported were similar to those observed in the pivotal fracture trial.
ONJ Is A Rare Problem Among Osteoporotic Patients

Reports of osteonecrosis of the jaw (ONJ) associated with bisphosphonates started to surface in 2005. ONJ associated with bisphosphonate use is a condition defined as a non-healing ulcer in the mouth with exposed bone for >6-8 weeks, past or present bisphosphonate use, and no radiotherapy to the jaw. ONJ is mostly associated with intravenous versus oral bisphosphonates (95% of reported cases are in patients who received Zometa and or Aredia), a diagnosis of cancer (94% of cases), administration of chemotherapy and or radiotherapy, and pre-existing dental disease or dental trauma (e.g. tooth extraction). The American Society for Bone and Mineral Research believes that while the rate of osteonecrosis of the jaw is significantly lower in patients taking oral bisphosphonates, the true rate is higher than the 1/100,000 incidence reported in the medical literature. A recent study suggested that the true incidence is 1 case of ONJ for every 1,729 osteoporotic patients on oral therapy.
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Incidence Of ONJ Is Rare In Osteoporosis
Source: Annals of Internal Medicine, 2006
The mechanism of action by which bisphosphonates cause ONJ is not known. Consultants believe that a multitude of mechanisms are possibly responsible including: 1) the chronic suppression of bone turnover; 2) the permanent embedding of bisphosphonates in bone and surrounding soft tissue; and 3) off target bisphosphonate effects including anti-angiogenic, anti-endothelial, anti-epithelial, and immunosuppressive (T-cells, macrophages) activity. These effects coupled with the naturally occurring thin mucosal barrier in the mouth, which is typically compromised by pre-existing dental inflammation and a bacterial infection (usually Actinomyces), may lead to bisphosphonates increasing the risk of ONJ. Though Rare, ONJ Concerns Could Impact PMO Market Share Although physicians continue to believe that benefits of bisphosphonates far outweigh the rare risk of ONJ in osteoporotic patients, concerns among patients and dentists/oral surgeons remain high. In 2006, the American College of Physicians published guidelines that recommended certain precautions prior to and during bisphosphonate therapy.
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Recommendations Issued By The American College Of Physicians
Source: Annals of Internal Medicine, 2006.
The reason there is such fear of ONJ associated with bisphosphonates, especially among patients and dentists/oral surgeons, is because ONJ is extremely difficult to treat. Surgical debridement does not work and most oral surgeons use a combination of antibiotics (systemic and or local), mouth rinses, and pain control. It is controversial whether patients who develop ONJ while receiving bisphosphonates should stop therapy. Consultants believe that this is an individualized patient decision weighing the risks versus benefits. Unclear If Bisphosphonates Can Rarely Cause Adynamic Bone, AtrialFibrillation Over the past few years, there have been reports of fractures at unusual sites in patients taking bisphosphonates. Some specialists have theorized that over suppression of bone turnover and increased bone mineralization by bisphosphonates lead to an accumulation of microcracks (normally repaired by osteoblasts/osteoclasts) in the bony microarchitecture. The resulting poor microarchitecture that cannot be repaired because of over suppression of bone remodeling may cause some patients to develop adynamic bone, or frozen/dead bone that is prone to fracture. The concept of adynamic bone is relatively new and challenging to diagnose with some experts stating that the lack of mature osteoclasts or the ratio of osteoblasts to osteoclasts may provide an indication as to whether a patient has adynamic bone. However, patients with these atypical fractures do not routinely get biopsies, thus most clinicians diagnose adynamic bone based simply upon being presented with an unusual fracture. With a paucity of good evidence-based medicine to support adynamic bone being caused by bisphosphonates, consultants believe more investigation is warranted.
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There have also been articles published suggesting bisphosphonates may increase the risk of atrial fibrillation, especially in high risk patients (e.g. coronary artery disease, diabetes, heart failure). Novartiss HORIZON study (The Health Outcomes and Reduced Incidence with Zoledronic Acid Once Yearly) was the first to report such data in 2007 when almost 3x the number of patients who received Reclast developed atrial fibrillation versus the placebo group. A recent article in Archives of Internal Medicine concluded that this increase risk in atrial fibrillation also seems to be associated with Fosamax. This article detailed a multivariate analysis of 1,700 patients taking Fosamax. The results showed an increased risk of developing atrial fibrillation with Fosamax (95% confidence interval, odds ration 1.86 with a range of 1.09-3.15). While the authors believe the benefits of bisphosphonates outweigh the risks in most patients, they cautioned against use in patients that are at high risk for atrial fibrillation (e.g. coronary artery disease, diabetes, heart failure). Other sources of data however do not support the view that bisphosphonates increase the risk of atrial fibrillation. The FDA issued a MedWatch Alert in October 2007 and determined that most cases of atrial fibrillation in HORIZON did not appear to be linked to the infusion of Reclast. In addition, another trial with zoledronic acid in patient with osteoporosis (published in the NEJM in November 2007) found that there was no difference in rates of atrial fibrillation between those patients receiving Reclast and placebo. In November 2008, the FDA issued at update stating that it failed to determine a link by analyzing other trials of patients taking Fosamax, Boniva, and Actonel. However, the FDA is still deciding whether to further explore this potential side effect in additional trials, and if so are the studies even feasible to conduct. Our consultants are not sure whether there is a link between bisphosphonates and atrial fibrillation. Moreover, assuming there is an association, they are at a loss to explain the mechanism. They do not feel that prescribing patterns should be altered at this time. Meanwhile denosumab has not increased the risk of any cardiac adverse events, including arrhythmias, in trials to date.
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Estrogens Fall Out Of Favor In Treating Osteoporosis

The Womens Health Initiative (WHI) was started to definitively prove or disprove the long-term benefits and risks of estrogen therapy. The WHI was the largest hormone replacement therapy (HRT) clinical trial ever conducted. It enrolled 64,500 women between 50-79 years old. The WHI consisted of four groups: (1) Premarin (estrogen + progesterone, WYE) versus placebo (halted), (2) Prempro (progesterone only, WYE) versus placebo (halted), (3) diet modification versus no change, and (4) calcium/vitamin D versus placebo. 16,600 women were randomized to Prempro. In 2002, the Prempro arm of the WHI was halted early due to the increased risk of breast cancer at 5.2 years. The results showed that for every 10,000 women treated with Prempro there were seven more myocardial infarctions, eight more breast cancers, eight more strokes, and eight more pulmonary embolisms. On the positive side, Prempro-treated women had six fewer cases of colorectal cancer and five fewer hip fractures, but these benefits are outweighed by the other side effects. A similar risk/benefit profile was seen in the Premarin arm of the trial. Thus, HRT is now mainly used for short-term symptom relief.
HRT Linked To Cancer, Heart Disease, Strokes, And Dementia

In 2003, WHI breast cancer data were published in the Journal of the American Medical Association. In the intent-to-treat analyses, Prempro increased total (hazard ratio=1.24; P<0.001) and invasive (HR=1.24; P=0.003) breast cancers compared with placebo. The invasive breast cancers diagnosed in the Prempro arm were similar in severity but were larger (1.7cm versus 1.5cm; P=0.04) and were at a more advanced stage (regional/metastatic 25.4% versus 16.0%; P=0.04) compared with those diagnosed in the placebo group. After one year, the percentage of women with abnormal mammograms was significantly greater in the Prempro group compared with the placebo group, a pattern which was observed throughout the trial. The study concluded that estrogen plus progestin use may stimulate breast cancer growth and make diagnosis more difficult. The data also showed that Prempro hormone therapy was associated with a hazard ratio for CHD of 1.24. The elevation in risk was the highest at one year (hazard ratio=1.81). Higher baseline levels of LDL cholesterol were associated with a greater CHD risk among women who received HRT. Increased baseline levels of C-reactive protein did not significantly change the risk of CHD. The study concluded that estrogen plus progestin is not cardioprotective and may increase the risk of CHD in healthy postmenopausal women, especially during the first year of treatment. Estrogen plus progestin should not be prescribed for the prevention of cardiovascular disease. In 2003, JAMA published data on the association between estrogen and progestin therapy and the risk of stroke and dementia. (1) One hundred fifty-one patients (1.8%) in the estrogen plus progestin and 107 (1.3%) in the placebo groups had strokes. 79.8% of the strokes were ischemic. For combined ischemic and hemorrhagic strokes, the intention-to-treat hazard ratio (HR) for estrogen plus progestin vs. placebo was 1.31 (95% confidence interval [CI], 1.02-1.68); with adjustment for adherence, the HR was 1.50 (95% CI, 1.082.08). The HR for ischemic stroke was 1.44 (95% CI, 1.09-1.90) and for hemorrhagic stroke, 0.82 (95% CI, 0.43-1.56). Point estimates of the hazard ratios indicate that excess risk of all stroke was apparent in all age groups, in all
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categories of baseline stroke risk, and in women with and without hypertension, prior history of cardiovascular disease, use of hormones, statins, or aspirin. (2) The Womens Health Initiative Memory Study (WHIMS), a substudy of the WHI. The study, which enrolled 4,500 women, found that women 65 and older taking estrogen and progestin had twice the rate of dementia, including Alzheimers disease (AD), compared with women who received placebo after five years. This represents an increase per year from 22 women per 10,000 at risk of dementia in the placebo group to 45 women per 10,000 in the combination therapy group, an additional 23 cases per 10,000 per year among women taking combination therapy. Sixty-one cases of dementia were diagnosed, and 66% of those cases occurred among women on combination therapy while 34% occurred in women taking placebo. Most of the dementia was diagnosed as Alzheimers disease, with vascular dementia the second most common diagnosis. The results also show the heightened risk of developing dementia in a study of women 65 years and older taking Prempro.
SERMS Take A Back Seat In The Osteoporosis Treatment Paradigm

A number of synthetic SERMs (selective estrogen receptor modulator) are currently in use in clinical practice. They include tamoxifen and Evista (Raloxifene, Eli Lilly) and several more are in development (Wyeths bazodoxifene and Pfizers Fablyn). These nonhormonal agents exhibit pharmacologic profiles distinct from conventional estrogen preparations. In contrast to pure estrogen receptor agonists or antagonists, SERMs such as Evista have selective estrogen agonism or antagonism properties on target tissues (vasculature, brain, bone, breast, and uterus). In general, SERMs have favorable estrogen-like activity on bone, vasculature, and lipid parameters, while displaying anti-estrogen action on reproductive tissues, including breast and endometrium.
Evistas Label For Breast Cancer Prevention A Mild Positive

Evista (Eli Lilly) is indicated for the treatment and prevention of osteoporosis and the reduction in risk of invasive breast cancer in post-menopausal women with osteoporosis and post-menopausal women at high risk for breast cancer. Evista has no impact on the uterus, does not increase the risk of myocardial infarction or stroke, and does not adversely impact cognitive function. The challenges faced by Wyeths Premarin franchise could have been an opportunity for Evista given its lack of progesterone properties and non-estrogen profile, aspects that differentiate it from Premarin. However, Evista has been unable to capitalize on this opportunity, possibly because women on Evista experience hot flashes, leg cramps, and to a lesser extent DVTs. Additionally, despite a long lead time over competitive SERMS and a formidable clinical trial program, Evista has no data supporting efficacy in reducing non-vertebral fractures. However, given the development setbacks for Pfizers Fablyn and the unclear competitive profile for Wyeths Viviant, Evistas position as the leading SERM appears secure. Evista also holds a strong position in the Japanese osteoporosis market because bisphosphonates are approved at half the U.S. dose. We forecast worldwide Evista sales of $1.225B in 2013.
Other SERMs Face Commercial, Regulatory Hurdles

Pfizers Fablyn (lasofoxifene) and Wyeths Viviant (bazedoxifene) are the two leading SERMS in development for PMO. Our physician consultants are somewhat divided on
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the market opportunity for the new SERMs. Data on newer agents appear to offer little differentiation from Lillys Evista relative to its effectiveness in osteoporosis. In terms of safety, these newer therapies increase thrombotic events and may also adversely affect breast and uterine tissue. Pfizers Fablyn Unknown Receives A Complete Response Letter, Contents
In January 2008, Pfizer resubmitted an NDA with the FDA for Fablyn (in 2005 Fablyn received a non-approvable letter for the prevention of osteoporosis), a selective estrogen receptor modulator for the treatment of osteoporosis in postmenopausal women. Pfizer included the three-year interim data from the PEARL study to support its NDA. In September 2008, an FDA panel voted 9 to 3 to approve Fablyn for the treatment of osteoporosis in certain postmenopausal women where the benefits outweigh the risks (e.g. women high risk for fractures who cannot tolerate other therapies). In the briefing documents for the advisory committee the FDA expressed concerns about higher rates of death and blood clots among women taking a lower dose of the drug, which regulates the feminine hormone estrogen. Reviewers also noted increased rates of gynecological problems, including vaginal bleeding and abnormal growths in the uterus. However, in January, the FDA issued a complete response letter denying approval and Pfizer has yet to disclose the contents. We believe that even if Fablyn is approved, its market opportunity will be modest. We forecast Fablyn sales of $475MM in 2015. WYEs Viviant And Aprela Face Further Delays Viviant (bazedoxifene) is a selective estrogen receptor modulator (SERM) that has been filed for both the treatment and prevention of osteoporosis but appears to offer little differentiation over Lillys Evista and Pfizers Fablyn. Viviant was filed in 6/06 for osteoporosis prevention based on a 1,700 patient trial and radiologic endpoints. Data from a three-year fracture study in osteoporosis prevention were filed mid:07, as part of Wyeths response to an approvable letter. Then, in December 2007, Wyeth received a second approvable letter with FDA requiring further analyses of the incidence of stroke and thromboembolic disease and citing concerns with data collection. No additional studies were requested in the second approvable letter. In February 2008, Wyeth agreed to conduct and submit further analyses of data from its clinical trials. Wyeth plans to submit its complete response for the treatment and prevention indications in H1:09 and expects that FDA will ask an advisory committee to discuss Vivants NDA. We forecast Viviant sales of $350MM in 2015. Meanwhile, in Europe, Wyeth submitted Vivants MAA in September 2007 for the treatment and prevention of osteoporosis. The European reviewers have raised several questions regarding the efficacy results and non-clinical safety data. Wyeth submitted a response in Q3:08 and it expects further feedback from the CHMP in Q1:09, after which it will asses its regulatory options. Viviant Three-Year Fracture Data Unimpressive. The three-year study enrolled 7,492 postmenopausal women between the ages of 55 and 85 with lumbar spine (LS) or femoral neck (FN) T-scores <-2.5 and no prevalent vertebral fractures or LS or FN T-scores >-4.0 with prevalent vertebral fractures. At baseline, mean LS T-score was 2.4, mean total hip T-score was -1.4, and 56% of women had >1 prevalent vertebral
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fracture. Viviant showed significant risk reduction, compared with placebo, for new vertebral fractures. Specifically, the three-year incidences of new vertebral fracture were 2.3%, 2.5%, 2.3% and 4.1% in the Viviant 20 mg, 40 mg, Evista 60 mg and placebo groups, respectively with a relative risk reduction for new vertebral fracture of 42% (p=0.015), 37% (p=0.031), and 42% (p=0.012), respectively, versus placebo. There was overall no treatment effect on non-vertebral fractures. In an analysis of 1,782 women at higher risk for fracture, Viviant significantly reduced the incidence of non-vertebral fracture. With regard to the safety and tolerability observed in this clinical trial, a non-statistically significant increase in the incidence of venous thromboembolic events was observed in all active treatment groups compared with the placebo group. No safety concerns related to the reproductive system, including breast, were observed in the Viviant treatment groups. Aprela Delay Due To Hyperplasia Seen With Higher Conjugated Estrogen Dose. Wyeth refers to Aprela as a tissue selective estrogen complex (TSEC) and is developing it for menopausal symptoms and osteoporosis. Wyeth has a proprietary position on conjugated estrogens so a SERM/conjugated estrogen combination would be unique. Our physician consultants are mixed on the value offered by such a treatment regimen for either menopausal symptoms or osteoporosis prevention. Some cite that each agent may have competing functions at the same receptor. Others believe that the estrogen component should negate the adverse effects of the SERM. However, Wyeth claims that Aprelas tissue selectivity may provide some key advantages to the combination. Both principal doses studied in the trial (20mg BZA/0.625mg CE and 20mg BZA/0.45mg CE) provided efficacy for bone protection and relief of vasomotor symptoms. Data from the SMART-1 (a pivotal Phase III study) demonstrated both endometrial safety and efficacy. In a second trial presented at the 13th World Congress of Gynecological Endocrinology in Florence, Italy SMART4 endometrial safety was demonstrated at the lower dose, but there was a higher incidence of endometrial hyperplasia at the higher dose. Wyeth states that this higher incidence likely resulted from the relatively low bioavailability of Aprela in one of the formulations used in the SMART-4 trial as compared to the formulation used in SMART-1. This could result in an NDA filing for only the lower dose (20 mg BZA/0.45mg CE). Wyeth must complete additional work before filing its NDA, including finalizing the proposed commercial formulation and linking it to the formulations used in the clinical trials. Wyeth now expects to file the Aprela NDA no earlier than H2:09. Additional clinical trials may also be required to support an approval. We forecast Aprela sales of $650MM in 2015. Arzoxifene On Track For Q4:09 Submission Lilly is developing arzoxifene for treatment of osteoporosis and prevention of breast cancer claims. Arzoxifene and Evista are closely related chemically. The structure of arzoxifene differs from that of Evista by replacement of a carbonyl group with oxygen. The replacement creates a molecule with a much higher affinity for the estrogen receptor and improved pharmacokinetics. Therefore, arzoxifene is believed to be a better SERM than Evista. Lilly is excited about its ability to convert the Evista franchise to arzoxifene for three reasons: 1) arzoxifenes superior potency has the potential to demonstrate non-vertebral fracture reduction; 2) arzoxifene will be launched with both bone and breast cancer data; and 3) while arzoxifenes flushing profile is unlikely to be better than Evistas, it is unlikely to be worse. The two Phase III trials, FOUNDATION and NEXT, have completed enrollment. The fiveyear Phase III study, GENERATIONS, has fully enrolled its 9,000 patients and is expected to be completed in 2010. FOUNDATION, comparing arzoxifene 20mg versus placebo, was presented at ASBMR and demonstrated increased vertebral and
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non-vertebral BMD with no endometrial thickening. The NEXT study, comparing arzoxifene to Evista, demonstrated a significant improvement in spine and hip BMDs, no differences in vaginal bleeding, and no reports of endometrial thickening through 12 months. Interestingly, arzoxifene patients reported fewer worsening hot flashes. The overall safety will be assessed in GENERATIONS, and interim analysis is likely to be conducted in 2009. Lilly plans to file the arzoxifene NDA is Q4:09. We estimate arzoxifene sales of $600MM in 2015. GENERATIONS is looking at arzoxifenes impact on bone fractures and the incidence of breast cancer in over 9,000 postmenopausal women. The study, which started in June 2004 and is fully enrolled, is expected to be complete in December 2010. However, Lilly will use interim efficacy data that are expected in Q1:09 to file in Q4:09 and submit the final data at a later date, but during FDA review. The primary outcomes of the study are the effects of arzoxifene on bone fractures and the incidence of breast cancer. As secondary outcomes, the study will look at: 1) cardiovascular events; 2) blood tests related to osteoporosis and cardiovascular health; 3) impact on the uterus; 4) impact on cognition, and 5) back pain. A long-term safety study called FOUNDATIONS in 330 patients studied for 2 years with an endpoint of endometrial thickness concluded in 2007 but the results will only be presented closer to arzoxifenes launch. Results from a randomized, double-blind, Phase II study that assessed two doses of arzoxifene in women with advanced breast cancer suggest that there were no significant differences between the 20 and 50 mg doses of arzoxifene. Ninety-two patients with advanced breast cancer received arzoxifene 20 or 50 mg/day. Tumor response, complete response (CR) plus partial response (PR), was assessed using World Health Organization criteria. The study shows that response rates in the 20 mg arm were numerically higher than the 50mg arm according to the investigator (40.5% versus 36.4%) and the independent review panel (42.9% versus 27.3%). The clinical benefit rate, defined as CR plus PR plus standard deviation lasting greater that six months, was higher in the 20 mg arm according to the investigator (64.3% versus 61.4%) and the independent review panel (59.5% versus 47.7%). Arzoxifene was well tolerated. There were no drug-related deaths. Mean observed steady-state plasma concentrations of arzoxifene were 3.62 and 7.48 ng/ml for the 20 and 50 mg doses, respectively. Hot flashes, nausea, breast pain and weight gain were among the most commonly reported events causally related to the drug. The incidence of vasodilation was higher in the 20mg arm (47.8%) than the 50mg arm (26.1%).
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Investigator assessed Arzoxifene 20mg (n=42) Objective tumor response1 Response rate (%) 95% CI (%; within group) Clinical benefit response2 Clinical benefit rate (%) 95% CI (%; within group)
1 2
Independently reviewed Arzoxifene 20mg (n=42) 3 + 15 42.9 27.2 to 59.0 3 + 15 + 7 59.5 43.3 to 74.4 50mg (n=44) 2 + 10 27.3 15.0 to 42.8 2 + 10 + 9 47.7 32.5 to 63.3
50mg (n=44) 1 + 15 36.4 22.4 to 52.3 1 + 15 + 11 61.4 45.5 to 75.6
3 + 14 40.5 25.6 to 56.8 3 + 14 + 10 64.3 48.0 to 78.5
Objective tumor response = complete response (CR) + partial response (PR). Clinical benefit response: CR + PR + SD 6 months
Source: Annals of Oncology, May 2003
Toremifenes NDA For ADT-Induced Osteoporosis Pending At FDA

GTx announced in February 2008 that a Phase III trial on toremifene in prostate cancer patients on androgen-deprivation therapy (ADT) met its primary endpoint of reducing vertebral fractures. ADT refers to the elimination of testosterone by medical or surgical means and is the standard of care for men with late-stage prostate cancer. In addition to osteoporosis, ADT is associated with side effects that include dyslipidemia, gynecomastia (breast enlargement with pain), hot flashes, fatigue, loss of libido, erectile dysfunction, and loss of muscle mass. In GTxs 1,389-patient pivotal trial, toremifene reduced vertebral fracture rates by a convincing magnitude: 53% in the SPA-specified modified intent-to-treat (p=0.034) and a 50% reduction in the intent to treat analysis (p<0.05). Toremifene also met several secondary endpoints including a decrease in cholesterol (p=0.011), LDL (p=0.018), and triglycerides (p<0.0001), an increase in HDL (p=0.001), and an improvement in gynecomastia (breast enlargement and pain, p=0.003). In addition, toremifene reduced the incidence of hot flashes both in the overall intent-to-treat population as well as in a non-pre-specified subset of patients with six or more hot flashes per day (p=0.03). GTx may eventually initiate trials on toremifene in ADT with the goal of expanding the drug's label to include reductions in gynecomastia and hot flashes. Such trials could provide important marketing differentiation versus other bone loss agents (bisphosphonates and denosumab). GTx filed toremifene's NDA in December 2008 and has a PDUFA date of October 30. GTx is seeking a label for toremifene's efficacy in reducing vertebral fractures with the drug's benefits in reducing gynecomastia-associated pain and hot flashes and improving the lipid profile as part of the safety section. Partner Ipsen plans on filing toremifene in the E.U. for the same indication in 2009. Safety, Competition Are Barriers To Success Toremifene was associated with no negative trend in stroke, death, serious adverse events, or prostate cancer progression. However, toremifene was associated with a higher incidence of venous thromboembolic events (17 vs. 7 on placebo). Although other SERMs (i.e., Evista) have been approved for the treatment of osteoporosis
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despite VTE risk, the FDA's heightened interest in drug safety suggests that the FDA will scrutinize the risk/benefit profile of toremifene closely. FDA reviews for other SERMs such as PFEs Fablyn and WYEs basodoxefine suggest toremifenes association with VTEs will be some cause for concern. In our view, the benefits of preventing roughly one morphometric vertebral fracture for every new case of VTE appear mixed. However, GTx will argue that the incidence of VTEs can be greatly reduced by disqualifying patients who are at higher risk of developing VTEs, including older patients. Toremifene is also associated with a prolongation of the QT interval. In January, the EMEA issued a warning on Orions Fareston (toremifene 60 mg), the drug substance that GTx hopes to market in the U.S. as toremifene (at the 80 mg dose). QT prolongation is a cardiovascular electrical disorder that can be associated with severe life-threatening arrhythmias (including torsades de point). The degree of prolongation associated with toremifene (based on a study of 250 men conducted by GTx) is dose related with the 80 mg doses effect greater in magnitude (22.43 milliseconds) on an order of magnitude that the FDA typically deems concerning. GTx asserts there is no evidence linking toremifene to torsades de point arrhythmias. However, given the off-label availability of other agents for bone loss associated with ADT (e.g. bisphosphonates) and the FDAs focus on CV signals the approval of toremifene for ADT appears at risk and may be dependent on a requirement for larger trials. While toremifene was the first agent to demonstrate a reduction in fractures in men on androgen deprivation therapy, Amgens denosumab has subsequently demonstrated a similar benefit (>50% fracture reduction in Phase III trial). Amgen filed denosumabs BLA for postmenopausal osteoporosis and hormone ablation therapy induced osteoporosis in December 2008 and has a PDUFA date of October 19. In addition to looking at BMD changes and fracture prevention, Amgens studies are investigating whether denosumab has the ability to prevent SREs and new bone metastases. If Amgen succeeds in these indications (data expected in 2010), it may be perceived to have efficacy superior to toremifene. Side Effects Of ADT Being Increasingly Recognized Approximately 220,000 men in the U.S. are diagnosed with prostate cancer each year. Roughly 40% of newly diagnosed patients receive androgen deprivation therapy (ADT) with an estimated 400K patients in the U.S. currently on therapy. Treating osteoporosis secondary to ADT has gained momentum of late as evidenced by newly issued guidelines from the American College of Physicians (considers men on ADT as having intermediate to high risk for low bone mass and fracture) and National Osteoporosis Foundation (recommends routine osteoporosis screening for men receiving ADT).
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Denosumab Stops Bone Loss Via A Dual Mechanism

Denosumab is a humanized monoclonal antibody that inhibits the RANK/RANK ligand interaction. Denosumab binds to the RANK (Receptor Activator of NF-Kappa ) ligand, a receptor found on osteoblastic stromal cells. In doing so, it prevents RANK ligand from binding to and stimulating RANK receptors located on osteoclast precursor cells. This in turn prevents osteoclast precursor cells from differentiating into functioning osteoclasts that resorb bone. The RANK/RANK ligand pathway also plays a crucial role in mediating osteoclast survival. By inhibiting this interaction, mature osteoclast cells are directed toward apoptosis (cell death). Thus denosumab inhibits osteoclast formation and function. Clinical trials have demonstrated that denosumab has a rapid onset of action (12-24 hours), with durable efficacy (out to 4+ years), that its effects are reversible upon discontinuation of therapy. In contrast other anti-resorptive agents inhibit only the function of (mature) osteoclasts, and dont impact osteoclast precursor cells. Bisphosphonates such as Fosamax, Actonel, Boniva, and Reclast embed in bones and upon contact with functioning osteoclasts inhibit an enzyme in the cholesterol biosynthetic pathway within these cells. This in turn disrupts the osteoclast structure (cytoskeleton) and causes apoptosis.
Denosumab Inhibits Bone Turnover By Decreasing Pre-Osteoclasts/Osteoclasts And Active Osteoclasts
Source: Medscape
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Denosumab Phase III Osteoporosis Program Indication Number of Patients 255 2,800 1,400 Comparator Primary End Point LS BMD Time 1st Clinical Fracture LS BMD Data
Breast Cancer Patients on Aromatase Inhibitors Breast Cancer Patients on Aromatase Inhibitors Prostate Cancer Patients on Androgen Deprivation Therapy Prevent Osteoporosis in Post Menopausal Women
Placebo Placebo Placebo
Met Primary Endpoint July, 2007 Mid 2012 Met primary and secondary endpoints July 2008 Met Primary Endpoint April, 2007 Met Primary, Endpoint January 2008 Met Primary, Secondary Endpoints May 2008 Met primary and secondary endpoints July 2008
332
Placebo
LS BMD
Post Menopausal Osteoporosis
1,189
Fosamax
Hip BMD
Post Menopausal Osteoporosis: Fosamax Switching Study
504
Fosamax
Hip BMD
Post Menopausal Osteoporosis

Source: Amgen and Cowen and Company
7,800
Placebo
Safety & Vertebral Fractures
The FREEDOM Trial Hits All Endpoints

Denosumabs FREEDOM trial was a 7,800 patient Phase III study in osteoporosis. Denosumab statistically significantly reduced vertebral, hip, and other nonvertebral fractures by 68% (p<0.0001), 40% (p=0.036), and 20% (p=0.011) respectively. The detailed data demonstrate that denosumab has a clean safety profile as compared to placebo (AEs: 52.9% vs. 54.4% respectively), with no worrisome imbalances in infections (4.1% vs. 3.4% respectively), delayed fracture healing (0.1% vs. 0.1% respectively), stroke (1.4% vs. 1.4% respectively), coronary artery events (1.2% vs. 1.0% respectively), atrial fibrillation (0.7% vs. 0.7% respectively), new neoplasms (2.4% vs. 2.2% respectively), and deaths (1.8% vs. 2.3% respectively). No cases of osteonecrosis of the jaw occurred in this trial. Consultants believe that fracture data are roughly in line with bisphosphonates (5070% vertebral, 30-40% hip reductions) and would position denosumab as the 2nd-line agent of choice based upon its superior tolerability, convenience, and novel mechanism. In fact, because confidence intervals around the fracture reduction point estimates are so wide, just the fact that denosumab hit statistical significance in reducing vertebral and hip fractures puts its efficacy on par with bisphosphonates, irrelevant of the actual reduction. Consultants are unwilling to draw more definitive comparisons from non head-to-head trials that enrolled divergent populations and indicate it will be difficult for denosumab (or any competing agent) to differentiate itself based upon efficacy.
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Denosumab Is Very Effective In Increasing Bone Mineral Density Three Phase III denosumab versus placebo studies, one Phase III denosumab versus Fosamax trial, one Phase III Fosamax switching trial, and a 4-year Phase II extension study have yielded impressive bone mineral density data in patients taking denosumab. In fact, denosumab appears to be more effective than bisphosphonates in increasing bone mineral density at all sites in patients with osteoporosis (this seen both comparing results across different trials and in a head-to-head denosumab versus Fosamax study).
A Comparison Of Bone Mineral Density Changes Of Different Anti-Resorptive Therapies
Therapy Fosamax Actonel Boniva Reclast Denosumab Denosumab Duration Of Therapy 36 Months 36 Months 36 Months 36 Months 24 Months 48 Months Vertebral Spine BMD Change Increase 6.2% Increase 5.4% Increase 5.0-6.6% Increase 6.7% Increase 7.1% Increase 10.6% Femoral Neck BMD Increase 4.1% Increase 2.8% Increase 3.0% Increase 5.1% Increase 4.5% Trochancter BMD Increase 7.4% Increase 3.3% Increase 5.7% Total Hip BMD Increase 4.7% Wrist BMD Increase 1.6% Increase 1.6%
Increase 2.5-3.7% Increase 6.0% Increase 4.5% Increase 3.5% Increase 8.7% Increase 3.5%
Denosumab Appears To Positively Impact Other Aspects Of Bone Multiple factors play a role in reducing fractures. Based on data from four different preclinical models, denosumab exerts positive effects on trabecular and cortical bone geometry and microarchitecture that are equivalent to or better than bisphosphonates. Denosumab also reduces bone turnover markers better than bisphosphonates.
Multiple Factors Play A Role In Reducing Fractures
Source: National Osteoporosis Foundation
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Denosumab Reduces Vertebral Fractures In Men Taking ADT

Denosumabs 3-year double-blind, placebo-controlled trial in 1,400 men on androgen deprivation therapy reported positive results in July. Men were randomized to either denosumab or placebo. Denosumab improved bone mineral density at the lumbar spine (primary endpoint) and statistically significantly reduced vertebral fractures by more than 50% (secondary endpoint). There was also a reduction in non vertebral fractures. Treating osteoporosis in men is considered more challenging than in women since men have a higher starting bone mineral density. In addition, there is less of a relationship between low bone mineral density and fracture risk in men than in women. The market size for PRCA patients with bone loss secondary to ADT is modest, likely $100-200MM. Reversibility May Be A Blessing, Not A Curse Should denosumab be associated with ONJ at rates similar to bisphosphonates in the cancer related trials, specialists assert that denosumab may still hold an advantage over bisphosphonates based upon its reversible activity. In a Phase II study patients who took denosumab (210 mg subcutaneously every six months) for two years were asked to discontinue therapy in order to assess changes in bone remodeling. After discontinuing therapy for two years, the benefits of taking denosumab were gone, as seen by bone mineral density and bone turnover maker data. Thus, immediately terminating denosumab therapy upon diagnosis with ONJ may increase the likelihood of healing as bone resorption is no longer being suppressed. This compares to bisphosphonates, which embed in bones permanently and likely prevent bone healing in patients who get ONJ. Although some investors worry that the reversibility feature of denosumab could be a negative for physicians, our consultants disagree for three reasons. One, they would use denosumab as a chronic therapy and would only discontinue it if a patient was to experience a significant adverse event. Since denosumab is only administered every 6 months, they do not believe that chronic use of denosumab will be a barrier to patient compliance. In fact, they think compliance will be higher with denosumab than with once weekly or monthly oral bisphosphonates. Second, there are instances when patients would not benefit from a long acting therapy like bisphosphonates (e.g. women of child bearing years with osteoporosis) and thus denosumab would be an effective option. Third, as discussed above, reversibility may be a benefit in the potential case of a patient with ONJ.
Denosumab BLA Submitted For Two Different Osteoporosis Indications

In December 2008, Amgen announced that it had submitted denosumabs BLA for two separate osteoporosis indications: (1) prevention and treatment in post menopausal women (PMO) and (2) prevention and treatment in breast and prostate cancer patients receiving hormone ablation therapy. The PDUFA date is October 19, 2009. Our consultants believe that denosumab will likely be approved for both osteoporotic indications based on its efficacy (fracture reduction in PMO and in men with osteoporosis associated with androgen deprivation therapy) and safety profile from six Phase III trials that enrolled 11,480 patients.
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Denosumab Adoption Likely To Be Gradual In Osteoporosis

At Amgens R&D Day in November 2008, management discussed market opportunity for denosumab in osteoporosis. Amgen estimates that 3MM of the 5MM+ women being treated for osteoporosis are not receiving adequate benefit. A further 1MM women are estimated to have discontinued therapy. Amgen believes that denosumab could be associated with lower GI adverse events and less use of concomitant medications (such as proton pump inhibitors) to treat GI side effects. Thus, the company believes that denosumab will lead to better compliance and therefore better outcomes. Although intuitive, these claims are not supported by data. Amgen was more convincing on the cost side of the equation where it argued that reimbursement may be less of a barrier than some had believed (no formularies within medical benefit plans, no need for concomitant PPI therapy). Still, we expect a dearth of long-term safety experience and conservative prescribing habits to constrain the early launch. Consultants expect to use denosumab as the preferred second-line therapy after generic Fosamax. This positioning reflects cost/reimbursement considerations and the lack of long-term safety data. The most common reason a patient is switched to second-line therapy is if he or she cannot tolerate medication (e.g. GI discomfort, musculoskeletal pains). Other reasons to switch include patient concerns over ONJ, renal insufficiency, a lack of expected improvement in bone mineral density, poor compliance, or a fracture while on therapy. Denosumab could beat out Reclast as the dominant choice for second-line therapy for three reasons: (1) most physicians who treat osteoporosis do not have infusion centers and would therefore prefer every 6 month subcutaneous administration (denosumab) over intravenous administration (Reclast); (2) denosumab may be more tolerable in that it could be associated with lower acute and chronic musculoskeletal pain, acute infusion reactions, and does not require monitoring of kidney function; and (3) denosumabs novel mechanism of action is likely to be viewed as superior to another bisphosphonate in refractory patients. In addition, denosumab could prove to be associated with a lower risk of osteonecrosis of the jaw than Reclast. Consultants indicate that the availability of denosumab as a viable second-line option might lead to a shortening in the time they spend trying to see if patients will tolerate a first-line oral bisphosphonate. Currently, physicians struggle with patients who either do not take oral bisphosphonates properly or have GI discomfort (e.g. esophagitis, heartburn). Doctors counsel patients on how to take medication properly and additional time treating adverse GI events. Consultants believe that with denosumab as an effective, safe, and convenient alternative, they would likely spend far less time on these endeavors and simply switch patients to denosumab. Physician consultants estimate that 20% of patients end up on second-line therapy. Assuming denosumab is priced at $1,000 per patient per year, at parity with other branded osteoporotic therapies, the second-line opportunity in the U.S. might be worth $500MM+ (excludes use in patients with rheumatologic diseases that have relative or absolute contraindications to bisphosphonates another $500MM opportunity) over time. Amgen estimates that a 500-1,000 person sales force would be needed to commercialize denosumab in the U.S. Although Amgen has not made any final decisions on whether to partner U.S. denosumab commercialization rights, management leans more towards to a going-it-alone strategy in the U.S. and partnering in the E.U.
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U.S. Denosumab Sales For The Treatment Of PMO

2010E Osteoporosis Number of patients with osteoporosis (M) % growth in number of patients with osteoporosis Number of patients diagnosed with osteoporosis (M) Number of patients actively being treated for osteoporosis (M) % of patients who stop treatement for osteoporosis (M) Number of patients who stop treatment for osteoporosis (M) % of patients candidates for denosumab Number of patients candidates for denosumab (M) % of patients administered denosumab Number of patients administered denosumab (M) Price of denosumab per patient per year U.S. denosumab sales in osteoporosis ($M) Y/Y growth Osteopenia Number of patients with osteopenia (M) % growth in number of patients with osteopenia Number of patients diagnosed with osteopenia (M) Number of patients actively being treated for osteopenia (M) % of patients candidates for denosumab Number of patients candidates for denosumab (M) % of patients administered denosumab Number of patients administered denosumab (M) Price of denosumab per patient per year U.S. denosumab sales in osteopenia ($M) Y/Y growth Total U.S. denosumab sales ($M) Y/Y growth
Source: National Osteoporosis Foundation, Amgen, Cowen and Company
2011E 12.2 1.5% 8.9 6.0 11.0% 1.0 50% 4.0 10% 0.4 $850 $350 133%
2012E 12.4 1.5% 9.0 6.1 11.0% 1.0 50% 4.1 15% 0.6 $850 $525 50%
2013E 12.5 1.5% 9.2 6.2 11.0% 1.0 50% 4.1 19% 0.8 $850 $650 24%
2014E 12.7 1.5% 9.3 6.3 11.0% 1.0 50% 4.2 21% 0.9 $850 $750 15%
2015E 12.9 1.5% 9.4 6.4 11.0% 1.0 50% 4.2 23% 1.0 $850 $825 10%
12.0 1.5% 8.8 6.0 11.0% 1.0 50% 3.9 4% 0.2 $850 $150
40.4 1.7% 14.9 6.3 50% 3.1 0% 0.0 $850 $0
41.1 1.7% 15.2 6.4 50% 3.2 0% 0.0 $850 $0
41.7 1.7% 15.4 6.5 50% 3.2 0% 0.0 $850 $0
42.4 1.7% 15.7 6.6 50% 3.3 0% 0.0 $850 $0
43.1 1.7% 16.0 6.7 50% 3.4 0% 0.0 $850 $0
43.8 1.7% 16.2 6.8 50% 3.4 0% 0.0 $850 $0
$150
$350 133%
$525 50%
$650 24%
$750 15%
$825 10%
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Mercks Odanacatib (MK-0822) Displays Modest Efficacy

Cathepsin K, a cysteine protease abundantly expressed in osteoclasts, is necessary for bone collagen degradation. Odanacatib, a selective inhibitor of cathepsin K, is in a three-year 20,000-patient Phase III randomized double-blind placebo controlled program for osteoporosis prevention at both vertebral and non vertebral sites (primary endpoint). Data are expected in H2:12. We forecast odanacatib sales of $400MM in 2015. Two-year data from a Phase IIB study of odanacatib, reported at ASBMR 2008, demonstrated dose-dependent increases in bone mineral density at the total hip, lumbar spine and femoral neck fracture sites and decreased indices of bone resorption compared to placebo in postmenopausal women with low BMD. The multi-center, double-blind, randomized, placebo-controlled study evaluated doses of 3, 10, 25 or 50 mg of odanacatib administered orally, once-weekly and without regard to the timing of meals or the patient's physical position in 399 postmenopausal women with low BMD (T-scores equal to or less than -2.0 but equal to or greater than -3.5) for 24 months. The BMD improvements are directionally lower than comparable Fosamax or denosumab changes.
Odanactib Phase II Two Year Data N BMD (LS mean % increase) Lumbar spine Total hip Femor neck s In Biochemical Markers sCTx uNTx s-BSAP sP1NP
Source: Company data
50mg 58 +5.48 +3.16 +3.84
Placebo 61 -0.19 -0.93 -0.85 p < 0.001 p < 0.001 p < 0.001 p < 0.001 p < 0.001 p=0.002 p=0.011
(% change from baseline) -51.83 +32.77 -30.57 -4.62 -13.26 +3.38 -20.20 +1.29
The number of patients experiencing a drug-related adverse experience was similar in the 50mg odanacatib group and placebo (34.6% and 39.8%, respectively). Likewise, the discontinuation rates due to drug-related adverse experiences were similar in the 50mg odanacatib group and placebo (7.7% and 4.8%, respectively). For the 50 mg odanacatib group, the most common drug-related adverse experiences, as assessed by investigators, were nausea, headache, rash and muscle spasms. There was no dose-dependent increase in the incidence of skin adverse experiences or upper respiratory tract infections observed through 24 months.
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Lillys Forteo Has A Lock On Patients Needing An Anabolic Agent

Forteo (teriparatide), parathyroid hormone (PTH) 1-34, is the only approved agent that builds bone primarily by increasing the activity of osteoblasts (cells that deposit bone). Our consultants note that Forteo is an important addition to the osteoporosis treatment armamentarium, but it is only appropriate for severe patients refractory to bisphosphonates or younger patients who tend to have more of an osteoblastic bone condition (vs. osteoclastic). Barriers to Forteos use include its high cost, the need for daily injections (20 mcg), the potential risk of osteosarcoma, and the limited therapeutic duration (24 months in U.S., 18 months in Europe). Patients can also develop hypercalcemia (symptoms include muscle and joint pain/change in mental status) but this is reversible upon discontinuation of treatment. Our experts feel that the long discussion related to the black box warning over osteosarcoma as well as the daily subQ injection turns patients off treatment. Despite these limitations, Forteos niche status because of its differentiated mechanism of action has driven solid growth. Our consultants believe that Forteo will be used in 15% of osteoporotic patients. Lilly is implementing plans to improve patient adherence and adoption. Forty percent of patients requiring Forteo utilize Medicare. Medicare Part D insurance access has improved and private insurance requires only a $60 co-pay per treatment. Data in glucocorticoid-induced osteoporosis (GIOP) were approved by the EMEA in February, 2008. In April 2008, Forteo in GIOP received an FDA approvable letter which was followed by a complete response letter in November 2008. A 2nd generation Forteo pen was approved and launched mid-2008; this should help with compliance. We forecast Forteo sales of $855MM (+10%) in 2009, $1,025MM in 2012, and $1,175MM in 2015.
RECOMBINANT PARATHYROID HORMONE FRACTURE REDUCTION RATES
Vertebral* 20mcg 40mcg * statistically significant
1637 women with 1 prevalent vertebral fractures were randomly assigned to 1 of 3 equal study arms. All patients received
Non-Vertebral* 54% 54%
63% 69%
According To One Study, Forteo More Effective Than Fosamax In Treating Glucocorticoid Induced Osteoporosis In November 2007, New England Journal of Medicine published an 18 month randomized double-blind controlled study comparing Forteo to Fosamax in 428 patients with glucocorticoid induced osteoporosis (GIOP). The primary endpoint was change in LS BMD and secondary endpoints were total hip BMD, time to changes in BMD, bone markers, fractures, and safety. Within 6 months of therapy, patients administering Forteo had a greater increase in LS BMD than those taking Fosamax (p<0.001). Findings after 12 months of therapy included: (1) new vertebral fractures were statistically significantly less in the Forteo arm than placebo arm (p=0.004); (2) patients taking Forteo had greater total hip BMD (p=0.01); and (3) there were similar rates of nonvertebral fractures between the two treatment arms. Compliance to treatment protocol was similar in both arms. At the 2008 annual ACR meeting, an update was provided from the ongoing head-tohead Phase III study of Forteo vs. Fosamax in GIOP. Over 36 months, patients
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receiving Forteo continued to have greater mean changes in lumbar spine and femoral neck BMD than those taking Fosamax (p<0.001). More importantly perhaps, those administered Forteo vs. Fosamax continued to have a greater reduction in new vertebral factures (3/173 vs. 13/169, p=0.007). There was no difference in 1) nonvertebral fractures between the two treatment arms and 2) in patients with 1 side effects. Results from this trial suggest that patients taking glucocorticoids (prednisone 5mg/day) for 3 months and have osteoporosis or are high risk for a fracture should receive Forteo instead of Fosamax as a first-line treatment agent.
Consultants Clamor For New Anabolic Agents

Although there are several different types of PTH products in Phase II and III development for osteoporosis (different subQ formulations, nasal and patch deliveries of PTH products, and oral calcilytics) consultants are most excited for Amgens anti-sclerostin antibody (AMG785). Oral calcilytics: Mercks MK-5442, an oral calcium-sensing GPCR antagonist that was licensed from Japan Tobacco, stimulates the release of pulsed PTH. A Phase II proof-of-concept study has been completed and a Phase IIb Japanese study is underway. We are cautious on the outlook for this class of compounds given GSK/NPSPs failure with a similar agent. Merck is planning a global Phase IIb program in 2009. Anti-Sclerostin: Amgen and UCB are co-developing AMG 785, a monoclonal antibody (administered subcutaneously) against sclerostin. Sclerostin is a protein secreted only by osteocytes that plays the role as the master regulator in bone growth. Mice that dont produce sclerostin have very high bone mass while mice with an over-production of sclerostin have severe bone loss. Phase I dose-ranging studies have yielded very encouraging results. With one subcutaneous dose, AMG 785 increased lumbar spine and hip bone mineral density after 84 days by 3-6% and 1.2-2.6% respectively (depending on the dose). Amgen plans to begin Phase II trials in post menopausal osteoporosis and difficult to heal bone fractures shortly.
Interaction Between Osteocytes and Osteoblasts
Source: Amgen
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Bone Disease
Bony Disease In Oncology Remains An Unmet Need

Skeletal-related events are complications associated with bony metastases (malignant cells that have left the primary cancerous site and attach and grow on bone, most commonly the spine, pelvis, femurs, and skull). The most common adverse event is fractures but other side effects include hypercalcemia, spinal cord/nerve root compression, incapacitating pain with lack of mobility, and bone marrow infiltration. Intravenous bisphosphonates including Zometa and Aredia (pamidronate, Novartis and generics) are used by oncologists to prevent skeletalrelated events in breast and prostate cancer, multiple myeloma, and other advanced solid tumors. Currently, Zometa dominates the market for the prevention and treatment of skeletal-related events versus Aredia due to its greater convenience (15 minutes versus 120 minutes infusion time), lower incidence of hypocalcemia, and a perceived belief among medical oncologists of superior efficacy. Oral bisphosphonates, which are sometimes prescribed for bone loss/osteoporosis secondary to medications such as aromatase inhibitors and androgen deprivation therapy, do not play a role in preventing skeletal-related events as they lack sufficient potency. Most oncologists employ Zometa when a patient is diagnosed with bony metastasis in an effort to prevent and treat skeletal-related events. Although some physicians use Zometa to prevent bony metastases, a paucity of data supports that indication. In 2008, worldwide Zometa sales were $1.4B in oncology, mainly for the prevention of skeletal-related events (fractures) in patients with breast cancer and multiple myeloma. Although Zometa is used by the large majority of medical oncologists who treat breast cancer and myeloma, it is less commonly used by urologists who treat bony metastases associated with prostate cancer. This is likely due to lack of access to infusion centers and lower awareness of the clinical data. Zometa sales have flattened in recent years due to concerns over osteonecrosis of the jaw, generic competition ex-U.S., and recently issued ASCO guidelines that recommend decreasing the treatment course of Zometa in patients with bony metastases (treat monthly for two years, and then consider increasing time between infusions or suspending infusions). Our consultants believe that there is an unmet need for new bone therapies in oncology for the following five reasons: 1) Approximately 20% of myeloma and breast cancer patients who are administered Zometa are non responders (bone turnover markers remain elevated). 2) Zometa is only partially efficacious in reducing the likelihood of (40% reduction in breast cancer and 25% reduction in prostate cancer) of skeletal related events. 3) Zometas side-effect profile (e.g. osteonecrosis of the jaw, severe musculoskeletal symptom) leaves something to be desired. 4) Zometa needs to be dose-adjusted depending on a patients renal function (physicians must also monitor renal function in patients using Zometa). 5) Zometa has not been shown to prevent the formation of bony metastases. In the oncology setting, demonstration of superior efficacy, more so than safety, is the key differentiating attribute among competing medications. Since denosumab is going head-to-head against Zometa in the reduction of skeletal-related events in
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three different trials, the drug that proves superior in efficacy will likely dominate the market.
Zometa Has A Grip On Cancer-Induced Bone Diseases

Prevention Of SREs In Breast Cancer Patients With Bony Metastases: Intravenous bisphosphonates Zometa and Aredia are used in an estimated 50%+ of breast cancer patients with bone metastases to prevent skeletal-related events. In clinical trials, Zometa prevented skeletal-related events (fractrures) by reducing the risk for vertebral and non vertebral fractures and spinal cord compression, the need for radiotherapy as a treatment to the fracture site, the time to first skeletal event, and need for orthopedic surgery. Zometa has also been shown to provide significant bone pain relief in breast cancer patients with bony metastases. Based on this wealth of data and its greater convenience over Aredia, Zometa is the preferred choice among medical oncologists.
Zometa Reduces The Risk Of Skeletal Related Events In Breast Cancer
Source: Novartis
Prevention Of Bony Metastases In Breast Cancer Patients: Another unmet need among breast cancer patients is the prevention of bony metastasis. Currently no medications are FDA-approved for the prevention of bony metastases in patients with breast cancer. However, some oncologists use bisphosphonates off label for
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this indication based on trials of clodronate (a bisphosphonate not approved in the U.S.), Zometa, and Aredia that hint at possible efficacy in this setting. Studies using clodronate have yielded mixed results for the prevention of bony metastases in breast cancer patients. In a 1,069-patient randomized double-blind placebo-controlled trial, clodronate decreased the risk for bony metastases in stage I-II breast cancer patients. However, at least two other large clinical trials have failed to confirm a statistical benefit for clodronate. Meanwhile in vitro, preclinical, and clinical data suggest that Zometa may be effective in preventing bony metastases. In vitro and preclinical models have shown that Zometa can induce apoptosis (cell death) of breast cancer cells and prevent breast cancer cells from metastasizing to bone. Clinical results from small trials further suggest that Zometa might be effective in preventing bony metastases. Yet consultants are skeptical of the data and that bisphosphonates induce apoptosis because, in vivo, these medications bind so strongly to bone that other anti-tumor effects are less likely to occur. Consultants believe data from three major ongoing trials may settle the issue as to whether bisphosphonates can prevent bony metastases in patients with breast cancer. The National Surgical Adjuvant Breast and Bowel Projects study (NSABP-B34) has enrolled 3,323 patients to receive placebo or clodronate. All patients are followed for at least five years, with final results due in 2010. The AZURE trial is a multi-center Phase III study sponsored by the University of Sheffield that has enrolled 3,300 patients and tests Zometa. Finally, the South West Oncology Groups study (SWOG0307) has enrolled 4,500 patients and is testing Zometa, Aredia, and Boniva (Ibandronate, Roche and GSK). The trial began in 2005 and final data are expected in 2011. Consultants are mixed as to whether these studies have a chance of demonstrating a delay in the development of bony metastases, with most assigning odds of roughly 50/50. Physicians hypothesize that the biology and mechanisms by which breast cancer cells metastasize are very complex (more so than in prostate cancer). Hence in the absence of good animal models or clinical data, they are unable to handicap the likelihood of success. There is another trial of Zometa which could impact perception of the drugs ability to prevent new metastases. The Austrian Breast and Colorectal Cancer Study Group, Astra Zeneca, and Novartis (ABCSG-12) are conducting an 1,800-patient Phase III trial in breast cancer patients. This study tests the benefits of tamoxifen versus anastrozole both with and without low dose Zometa (4mg twice yearly). The primary endpoint is overall and disease-free survival for tamoxifen versus anastrozole. Secondary outcomes include overall survival, recurrence-free survival, and new bone metastases in those patients who are receiving Zometa versus those who are not. At the annual 2008 ASCO meeting, data showed for the first time that Zometa extended disease-free survival in Stage 1-2 breast cancer patients. However, a leading oncologist who critiqued the data was pessimistic about the trial's validity. Regardless of Zometa's ultimate success at slowing disease progression (the AZURE trial will provide interim data this summer), denosumab could still be positioned to dominate the breast cancer market assuming superior SRE data versus Zometa. Prevention Of SREs In Prostate Cancer Patients With Bony Metastases: In clinical trials, Zometa prevented skeletal-related events in prostate cancer patients with bony metastases by reducing the incidence of fractures and need for radiotherapy. In a 643-patient Phase III randomized double blind placebo controlled trial, Zometa reduced the odds ratio of developing a new fracture by 43%. Zometa also delayed the median time to skeletal-related events vs. placebo (488 vs. 321 days respectively). Interestingly, Zometa has never been shown to reduce pain and
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improve quality of life from bony metastases in patients with prostate cancer. This contrasts to its label in breast cancer. Although Zometa succeeded in delaying and treating skeletal-related events and has an FDA label for this indication, it is not widely used by urologists as there appears to be a lack of awareness of the data and urologists tend not to have access to infusion centers.
Zometa Delays Time To First Skeletal Related Events
Source: Novartis
Prevention Of Bony Metastases In Prostate Cancer Patients: Another big unmet need among patients with prostate cancer is the prevention of bony metastases. Similar to the experience in breast cancer, no medications have demonstrated the ability to prevent bony metastases in prostate cancer patients. Zometas one attempt at prevention of bone metastases in patients with prostate cancer dates back to 2003, when the Central European Cooperative Oncology Group initiated a Phase III randomized open-label active control trial with Zometa. The primary endpoint was the time to first bony metastases. The trial design planned to enroll 376 patients but this study was terminated due to a low event rate. Prevention Of SREs In Patients With Other Cancers: Other tumor types including multiple myeloma, small cell lung, head and neck, renal, colorectal, genitourinary, gastrointestinal, and endocrine malignancies also metastasize to bone, albeit less commonly than breast and prostate cancer. The associated skeletalrelated events include fractures, hypercalcemia, spinal cord/nerve root
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compression, incapacitating pain with lack of mobility, and bone marrow infiltration. Zometa and Aredia are labeled for the prevention of skeletal-related events in these cancers, with Zometa garnering the lions share of the market. Of Zometas $1.3B in 2007 worldwide oncology sales, we estimate $300-500MM is derived from use in a variety of non-breast, non-prostate tumors.
Zometa Delays Time To First Skeletal Related Events In MM, Other Advanced Cancers
Source: Novartis
Denosumab Targeting Breast Cancer-Induced Bone Disease

Patients with breast cancer might require anti-resorptive bone therapy for one of two reasons: for preventing and treating skeletal-related events in patients with bony metastases and for delaying the onset of bony metastases. Amgen is tackling the first market opportunities via one ongoing denosumab trial - a study in breast cancer patients with metastatic disease with a primary endpoint of time to first skeletal-related event (data in Q3:09). Amgen is also planning on conducting a trial in the near future for delaying the onset of bony metastases. Prevention Of SREs In Breast Cancer Patients With Bony Metastases: Amgen is testing denosumab (120mg subQ monthly) versus Zometa (4mg monthly infusion) in an ongoing 2,049-patient head-to-head Phase III non-inferiority trial. The studys primary endpoint is time to first skeletal related event. The trial has completed enrollment. This is an event driven study and data are due out in Q3:09,
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when Amgen estimates that 745 on-study skeletal-related events will have occurred. If the primary endpoint is met, a secondary analysis will occur to determine if denosumab is superior to Zometa. Consultants are optimistic that this trial will succeed and denosumab will be at least non inferior and possibly superior to Zometa. Consultants optimism that denosumab may be more active relative to Zometa is derived from several Phase II trials demonstrating denosumabs greater potency in inhibiting bone resorption. These include two Phase II studies in breast cancer patients with bony metastases and one Phase II trial in prostate cancer patients. In one of the trials in breast cancer, more patients that received denosumab achieved a 65% reduction in bone turnover marker urinary N-telopeptide as compared to Zometa (74% versus 63% respectively). Patients receiving Zometa also took longer to reach a 65% reduction in bone turnover marker urinary N-telopeptide as compared to denosumab (median 29 days versus 13 days respectively). When comparing time to first skeletal-related events, the Kaplan-Meier curves from this trial suggested denosumab was at least as effective as Zometa.
Kaplan-Meier Curves For Denosumab And Zometa In Time To 1st SRE
Source: JCO, 2007
In the second Phase II breast cancer study (open label), patients with bony metastases and elevated bone turnover markers while already on intravenous bisphosphonates were more likely to experience a lowering of urinary N-telopeptide (to below 50nM/mM of creatinine) when switching to denosumab as compared to those patients who remained on intravenous bisphosphonates (86% of patients achieved goal levels on denosumab versus 33% on bisphosphonates). These data suggest that denosumab is highly effective in Zometa non-responders and, according to consultants, is at least consistent with their view that denosumab is a more potent anti-resorptive agent than Zometa. A small open label trial in prostate cancer patients reinforces the results from the above breast cancer study. This trial enrolled patients with at least three bony metastases and elevated bone turnover markers while already on intravenous bisphosphonates. Patients were more likely to experience a lowering of urinary Ntelopeptide (to below 50nM/mM of creatinine) when switching to denosumab as
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compared to those patients who remained on intravenous bisphosphonates (69% of patients achieved goal levels on denosumab versus 38% on bisphosphonates). Prevention of skeletal-related events in breast cancer is the big opportunity for denosumab. In the U.S. approximately 100,000 women have metastatic disease, of which 70% will have bony metastases. However this market segment is also very competitive as Zometa is well regarded, and entrenched (>50% penetration). Moreover, denosumabs subcutaneous administration is not particularly advantageous in this patient population since patients typically receive their Zometa infusion in the oncologists office at the same time they are being administered chemotherapy. Consultants believe that denosumab has a >50% chance of demonstrating greater efficacy and or safety as compared to Zometa. If denosumab lives up to our physicians high expectations, we expect denosumab to grow the market by reducing fears surrounding osteonecrosis of the jaw and extending treatment duration.
Prostate Cancer-Induced Bone Disease

Patients with prostate cancer might require anti-resorptive bone therapy for one of two reasons: for preventing and treating skeletal-related events in patients with bony metastases and for delaying the onset of bony metastases. Amgen is tackling both market opportunities via two ongoing denosumab trials: 1) a study in prostate cancer patients with metastatic disease with a primary endpoint of time to first skeletal-related event (data in 2010); and 2) a study in prostate cancer patients with hormone refractory prostate cancer without bony metastases with a primary endpoint of time to first metastasis (data in 2010). Prevention Of SREs In Patients With Bony Metastases: Amgen is conducting a 1,870-patient Phase III denosumab (120mg subQ monthly) non inferiority trial versus Zometa (4mg intravenous monthly regimen) in hormone refractory prostate cancer patients with bony metastases. The primary endpoint is time to first skeletalrelated event (non inferiority analysis) with secondary endpoints including time to first and additional on-study skeletal-related events (a superiority analysis). This trial is an event-driven study and data are due out in 2010 when Amgen estimates 745 subjects will have had a skeletal-related event. Consultants believe that denosumab has a 60-70% chance of hitting the primary endpoint (non inferiority), with at least a trend toward superiority. Physicians confidence that denosumab will succeed in preventing skeletal-related events in metastatic prostate cancer patients is based on preclinical and clinical data that suggest denosumab will be at least non inferior to Zometa. In several preclinical mouse models prostate cancer cells have been shown to directly stimulate the development of osteoclasts (as a means to cause skeletal-related events) by producing a soluble version of RANKL. In these animal models, blocking the RANK/RANKL pathway (via administering osteoprotegerin) prevented the formation of skeletal lesions. These data demonstrate the importance RANK/RANKL pathway in preventing skeletal-related events specifically associated with prostate cancer. Denosumab potency at inhibiting bone resorption was demonstrated in three Phase II trials that are discussed in the breast cancer section of this chapter. In these studies, denosumab appeared to be a more effective anti-resorptive agent than
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Zometa in treating nave patients and demonstrated high levels of activity in Zometa non responders. Denosumab has a large opportunity within the prostate cancer market for the prevention of skeletal related events. The medical literature suggests that at least 25% of patients receiving ADT have bony metastases (100,000 patients). Our specialists believe that as long as denosumab demonstrates non-inferiority to Zometa for both safety and efficacy in the head-head trial (60-70% likely in their view), denosumab will grow the overall market and capture at least 50% share. Denosumab would become the favorite among urologists given its convenient subQ administration. Assuming denosumab is priced at parity with once-monthly Zometa ($10,000 per patient per year), the prevention of skeletal related events could be a $500MM+ opportunity. Prevention Of Bony Metastases In Prostate Cancer Patients: Another big unmet need among patients with prostate cancer is the prevention of bony metastases. Similar to the experience in breast cancer, no medications have demonstrated the ability to prevent bony metastases in prostate cancer patients. Amgen is currently the only company in the later stages of pursuing an indication in prevention of bony metastases in this setting. If denosumab is successful in preventing bony metastases, it will be viewed by urologists as the most potent antiresorptive therapy for patients with prostate cancer and will become the dominant bone therapy in the entire prostate cancer setting. Amgen is conducting a 1,468-patient Phase III randomized double-blind placebo controlled denosumab (120mg subQ monthly) trial in hormone refractory prostate cancer patients. The primary endpoint is time to first bony metastasis or death from any cause (event driven) with secondary endpoints including the time to first bony metastasis and overall survival. Following an interim analysis in Q4:08, the independent data monitoring board recommended that Amgen continue the trial as planned. Final data are expected in 2010. Consultants believe that Amgens trial is well powered (based on larger number of patients enrolled) so as to avoid the design flaws in the Zometa trial. Specialists are optimistic that denosumab might prevent bony metastases in prostate cancer patients for two reasons. First, prostate cancer cells primarily metastasize to the bone. This is in contrast to breast cancer cells which metastasize to the bone, liver, lung, and brain. The fact that prostate cancer cells seem to target the bone implies that the biology behind metastasis may be easier to target therapeutically via a bone-directed approach. Preclinical models support physicians stance. In several preclinical mouse models, prostate cancer cells have been shown to directly stimulate the development of osteoclasts by producing a soluble version of RANKL. In these animal models, blocking the RANK/RANKL pathway (via administering osteoprotegerin) prevented the formation of skeletal lesions. These data demonstrate the importance RANK/RANKL pathway in preventing bony metastases. Second, osteoclasts and the RANK/RANKL pathway appear to be intimately involved in prostate tumor progression (based on bone biology, cytokines released by prostate cancer cells, and preclinical data). Therefore, consultants hypothesize that denosumabs mechanism of action and its potency make it a likely candidate to be the first therapy that could prevent bony metastases in prostate cancer patients. If this trial succeeds, denosumab would be the only therapy proven to prevent bony metastases in prostate cancer patients. We expect success would lead urologists to
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view denosumab as the most potent anti-resorptive therapy for patients with prostate cancer and to employ it, almost exclusively, in patients on ADT (to treat bone loss/osteoporosis) and those patients who are at risk or have bony metastases. Articles in European Urology Supplements and JCO report that at least 70% of men taking ADT are candidates for bony metastases prophylaxis. As an estimated 400,000 patients in the U.S. are taking ADT, this suggests 280,000 U.S. patients would be candidates for denosumab as a prophylaxis for bony metastases. In our model we assume denosumab will be priced at parity with once monthly Zometa ($10,000 per patient per year). Based on these assumptions, if denosumab demonstrates a statistically significant outcome in delaying the onset of bony metastases, it could have a sales potential of $1B+ based upon 40% penetration of the ADT market. Although other trials testing bisphosphonates for the prevention of bony metastases in prostate cancer patients might be forthcoming, we believe that denosumabs developmental lead in this indication and convenient subQ administration diminish competitive risk.
And Other Cancers

Other tumor types including multiple myeloma, small-cell lung, head and neck, renal, colorectal, genitourinary, gastrointestinal, and endocrine malignancies also metastasize to bone, albeit less commonly than breast and prostate cancer. Amgen has completed enrollment in a 1,690-patient Phase III denosumab (120mg subQ monthly) non inferiority trial vs. Zometa in MM and advanced cancer patients (excluding prostate and breast cancer) with bony metastases. The primary endpoint is time to first skeletal-related event (non inferiority analysis) with secondary endpoints including time to first and additional on-study skeletal-related events (a superiority analysis). This trial is an event driven study and Amgen estimates that data could be available in Q4:09. Based on consultants confidence that denosumab will be at least non inferior to Zometa for the prevention of skeletal-related events in patients with breast and prostate cancer, we believe that denosumab is equally likely to succeed in this trial. If denosumab demonstrates superior efficacy +/safety to Zometa or clearly superior safety (e.g. lower risk of ONJ) to Zometa, its possible that denosumab will capture the lions share of this $300-500MM worldwide opportunity.
Denosumabs Safety Profile Holds Room For Differentiation

In the oncology setting, physicians place more weight on efficacy versus safety relative to chronic disease indications such as osteoporosis. Drug safety tends to be less of a focus among oncologists because of the unmet medical need and short life expectancy of patients with late-stage disease. Nonetheless, based on available preclinical and clinical data, consultants suggest that denosumab might have a better safety/tolerability profile than Zometa. According to physicians, there is no compelling evidence that denosumab increases the risk of infections, osteonecrosis of the jaw (ONJ), or renal complications. Denosumab also appears to have a low adverse event rate for moderate to severe hypocalcemia and musculoskeletal pain. Thus, denosumabs profile could emerge as better than Zometa in terms of safety. However, it is still early and the ongoing Phase III trials (in oncology) will supplement what is known about denosumabs clean safety profile.
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ONJ Could Be Less Of A Problem With Denosumab Now that ONJ has been accepted as a complication of intravenous bisphosphonates, all new medications in development for bony treatments (osteoporosis or in the oncology setting) are put under the microscope to see if ONJ is a side-effect. So far, no patients receiving denosumab have developed ONJ. Most consultants believe that the >20,000 patients in denosumabs Phase III program, including 11,205 patients in oncology-related indications, should be able to flush out whether or not ONJ is an adverse event of denosumab. Experts are particularly keen to see data on rates of ONJ from the head-to-head denosumab versus Zometa trials as a lower incidence of ONJ associated with denosumab would prove compelling. Physicians believe that denosumabs mechanism of action and pharmacokinetic/pharmacodynamic profile might confer a lower association with ONJ. If one believes the dominant mechanism by which bisphosphonates cause ONJ is via their build up in bone or their anti-angiogenic/anti-endothelial actions, then denosumab should be less likely to cause ONJ. However, if chronic suppression of bone turnover is the dominant mechanism, then denosumab would also be expected to cause ONJ. Should denosumab be associated with ONJ at rates similar to intravenous bisphosphonates, specialists assert that denosumab may still hold an advantage over bisphosphonates based upon its reversible activity. Immediately terminating denosumab therapy upon diagnosis with ONJ may increase the likelihood of healing as bone resorption is no longer being suppressed. This compares to bisphosphonates, which embed in bones permanently and likely prevent bone healing in patients who get ONJ. Thus, consultants believe if patients get ONJ while receiving denosumab, they may have a better chance of their jaw healing. Acute Nephrotic Syndrome, Albuminuria Have Not Been An Issue There have been no reports to date of acute renal insufficiency, nephrotic syndrome, or albuminuria in patients administering 120mg subQ once monthly of denosumab. The lack of renal side effects with denosumab contrasts with monthly Zometa, which has been reported in the medical literature to cause renal deterioration (e.g. an increase in serum creatinine, acute renal failure requiring dialysis, nephrotic syndrome, and albuminuria) in 8-17% of patients, and up to 40% of patients with preexisting renal insufficiency. Zometas dose (according to its label) must also be adjusted for those patients with pre-existing renal insufficiency and is absolutely contraindicated in patients with severe renal failure or end-stage renal disease. Consultants estimate that 20% of their patients receiving monthly Zometa experience nephrotic syndrome, but that only the rare patient develops acute renal failure. If a patient does develop renal side effects, some specialists typically hold Zometa until the creatinine returns to near baseline and then resume infusions, albeit at a slower rate (over 30-60 minutes versus 15 minutes) and in a more diluted concentration (in 1L of saline versus 500mL). Other physicians will switch patients that experience renal abnormalities from Zometa to Aredia since Aredia is less likely to cause renal adverse events. Although specialists feel that Zometas renal sideeffect profile is not a big deal, they do appreciate the fact that renal monitoring and dose reduction or discontinuation may not be an issue with denosumab.
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Musculoskeletal Pains Do Not Appear To Be Problematic Denosumab has been reported in Phase II trials (using mostly higher doses of denosumab) to cause bone pain, back pain, extremity pain, and arthralgias with an adverse event rate between 9.and 17%. Meanwhile, Zometas musculoskeletal profile may be more problematic. Monthly Zometa has been reported in clinical trials to cause severe and debilitating musculoskeletal pain in patients both acutely during the infusion and for months afterward. Fifty-five percent of patients receiving monthly Zometa have reported bone pain, 15% have complained of back pain, 14% have noted extremity pain, and up to 21% have documented arthralgias. In January 2008, the FDA issued an alert about the possibility of severe and sometimes incapacitating bone, joint, and/or muscle pain in patients taking bisphosphonates. The severe pain may occur within days, months, or yearsThis severe pain is in contrast to the acute phase response characterized by fever, chills, bone pain, myalgias, and arthralgias.
Musculoskeletal Pain In Denosumab Trials
Trial
Phase
Number of Patients
Sub Q Dose 30,120,180mg monthly
Bone Pain 11% total 17% w/120mg
Back Pain
Extremity Pain/Pain 14% total 10% w/120mg
Arthralgias 9% total 7% w/ 120mg
Metastatic (bone) breast-cancer
II
255
60, 180mg every 3 months
Multiple Myeloma
II
95
120mg day 1,8,15, then monthly
13%
17%
13%
Giant Cell tumors
II
15
120mg monthly
13%
Zometas more problematic musculoskeletal adverse events may be related to its mechanism of action of embedding permanently in bone. Its possible that denosumabs novel anti-resorptive mechanism of action may support a lower musculoskeletal adverse event rate. Severe Hypocalcemia Rare, Transient Hypocalcemia can lead to neurological, psychiatric, and muscular complications. Based on four Phase II trials, denosumab appears to have a very low rate of hypocalcemia. Denosumabs 0-4% rate of hypocalcemia seen in four Phase II trials compares favorably to monthly Zometa, which can cause hypocalcemia in up to 10% of patients.
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Hypocalcemia In Denosumab Trials

Trial
Phase II
Number of Patients 255
Sub Q Dose 30, 120, 180mg monthly 60, 180mg every 3 months
Patients w/Hypocalcemia <2 mmol/L 8% transient In the 180mg arm only 4% transient Receiving 0.1 (1), 0.3 (1) mg/kg
Metastatic (bone) breast-cancer Multiple Myeloma and Metastatic (bone) breast-cancer
II
54
0.3, 1.0, 3.0 mg/kg single dose
Giant Cell tumors
II
15
120mg monthly
0%
Multiple Myeloma
II
95
120mg day 1,8,15, then monthly
1%
Why Oncology May Be Denosumabs Biggest Opportunity

We believe oncology-related bone disease represents a larger and more fertile market for denosumab, and that in contrast to PMO, denosumab has the potential to rapidly become a first-line agent. Points of differentiation that could allow denosumab to claim a majority of Zometa's existing $1.3B WW market include the potential for superior efficacy (three head-to-head trials ongoing), superior safety (lower risk of ONJ), and convenience (an important consideration in prostate cancer). In addition, denosumab is being studied for the prevention of new bone metastases, a novel indication with $1B+ potential. Moreover, we believe the profit margins associated with success in oncology are more significant to Amgen owing to lower selling costs. Amgens aggressive development strategy, including multiple head-tohead studies with Zometa, will likely result in a rapid, winner take all outcome. The cancer market will not likely feature any new generic entrants until 2013 (Zometa), providing plenty of time for denosumab to gain traction. In addition, denosumab has the potential to dramatically expand the oncology market via new marketing claims/indications, improved convenience, and superior tolerability.
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U.S. Denosumab Sales For The Treatment Of Cancer Related Bone Disease*
2010E Prostate Cancer
Bones Loss Associated With Hormone Ablation Therapy
2011E
2012E
2013E
2014E
2015E
Number of patients with prostate cancer on ADT (K) % of patients administered denosumab Number of patients administered denosumab (K) Price of denosumab per patient per year U.S. dmab sales in patients w/bones loss associated w/hormone ablation therapy ($M)
Patients At Risk For Bony Metastases
400 0% 0 $850 $0
400 3% 12 $850 $10
400 10% 41 $850 $35
400 15% 59 $850 $50
400 21% 82 $850 $70
400 25% 100 $850 $85
Number of patients with prostate cancer and at risk for bony metastases (K) % of patients administered denosumab Number of patients administered denosumab (K) Price of denosumab per patient per year U.S. dmab sales in patients at risk for bony metastases ($M)
Patients With Bony Metastases
280 0% 0 $10,000 $0
280 0% 0 $10,000 $0
280 0% 0 $10,000 $0
280 0% 0 $10,000 $0
280 0% 0 $10,000 $0
280 0% 0 $10,000 $0
Number of patients with prostate cancer and SREs (K) % of patients administered denosumab Number of patients administered denosumab (K) Price of denosumab per patient per year U.S. dmab sales in patients with bony metastases and at risk/have SREs($M) Total U.S. denosumab sales in patients with prostate cancer ($M) Breast Cancer
Bones Loss Associated With Hormone Ablation Therapy
100 5% 5 $10,000 $50 $50
100 20% 20 $10,000 $200 $210
100 34% 34 $10,000 $341 $376
100 55% 55 $10,000 $550 $600
100 60% 60 $10,000 $600 $670
100 65% 65 $10,000 $650 $735
Number of patients with breast cancer on AIs (K) % of patients administered denosumab Number of patients administered denosumab (K) Price of denosumab per patient per year U.S. dmab sales in patients w/bones loss associated w/hormone ablation therapy ($M)
Patients At Risk For Bony Metastases
500 0% 0 $850 $0
500 1% 5 $850 $4
500 3% 15 $850 $13
500 5% 25 $850 $21
500 7% 35 $850 $30
500 10% 50 $850 $43
Number of patients with breast cancer and at risk for bony metastases (K) % of patients administered denosumab Number of patients administered denosumab (K) Price of denosumab per patient per year U.S. dmab sales in patients at risk for bony metastases ($M)
50 0% 0 $10,000 $0
50 0% 0 $10,000 $0
50 0% 0 $10,000 $0
50 0% 0 $10,000 $0
50 0% 0 $10,000 $0
50 0% 0 $10,000 $0
Number of patients with breast cancer and SREs (K) % of patients administered denosumab Number of patients administered denosumab (K) Price of denosumab per patient per year U.S. dmab sales in patients with bony metastases and at risk/have SREs($M) U.S. denosumab sales in patients with breast cancer ($M) Multiple Myeloma And Other Solid Tumors
70 0% 0 $10,000 $0 $0
70 4% 3 $10,000 $28 $32
70 10% 7 $10,000 $70 $83
70 15% 11 $10,000 $105 $126
70 20% 14 $10,000 $138 $168
70 25% 17 $10,000 $172 $215
Number of patients with MM or other solid tumors and SREs (K) % of patients administered denosumab Number of patients administered denosumab (K) Price of denosumab per patient per year U.S. denosumab sales in patients with multiple myeloma and other solid tumors ($M) Total U.S. denosumab sales in oncology ($M) Y/Y denosumab growth
16 0% 0 $10,000 $0 $50
16 5% 1 $10,000 $8 $250 400%
16 10% 2 $10,000 $16 $475 90%
16 15% 2 $10,000 $24 $750 58%
16 20% 3 $10,000 $32 $870 16%
16 25% 4 $10,000 $40 $990 14%
*Assumes denosumab is non inferior to Zometa in Phase III SRE trials Source: Cowen and Company
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Bone Disease
Mercks Odanacatib Also Pursuing Cancer-Induced Bone Diseases

Phase II data in odanacatib in breast cancer patients were presented at ASCO in June 2008. Data demonstrated that odanacatib reduced markers of bone turnover in line with Zometa. Phase III trials in breast and prostate cancer are planned but not yet open for recruitment. Both trials are investigating odanacatibs impact on preventing metastasis. The breast cancer trial will enroll 4,000 patients with a primary endpoint of the risk of developing first bone metastasis. Secondary endpoints include assessing disease-free survival. The prostate cancer trial will enroll 1,550 patients with a primary endpoint of bone metastasis-free survival. Secondary endpoints include risk of developing first bone metastasis.
U.S. OSTEOPOROSIS/ESTROGEN MARKET
Total Prescriptions (000's) % Market Share 2008 2009E 2013P 1987* 2008 2009E Bisphosphonates 57,811 61,000 96,000 44% 45% Estrogens 24,681 60,404 61,000 67,000 99% 46% 45% SERMs 8,127 7,000 8,000 6% 5% Other (Calcitonins, Forteo) 160 4,045 6,000 4,000 1% 3% 4% Total 24,840 130,387 135,000 175,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates 1987* CGR 2013P '87-08 '08-13 55% NA +11% 38% +4% +2% 5% NA -0% 2% +17% -0% 100% +8% +6%
KEY PATENT EXPIRATIONS

U.S. Sales in Year Drug Zometa/Reclast Evista Actonel Forteo Manufacturer Novartis Eli Lilly Sanofi-Aventis/P&G Eli Lilly Patent Expiration 3/13 3/14 12/13 12/18 Patent Expires ($MM) $750 500 ------
*Patent extension granted in Europe and U.S. until 2012; Source: Cowen and Company estimates
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Bone Disease
ENDOCRINE/METABOLIC/HORMONES R&D PIPELINE Company Bayer Schering Pharma Pharma Eisai Novo Nordisk Novo Nordisk Pfizer, Inc. KES524 Activelle Vagifem Fablyn . . Nov-08 Dec-07 Bayer Schering Product Menostar Visanne transdermal PC I II III NDA . . MKT Comments Vasomotor symptoms; filed in EU Oral dienogest-containing product for treatment of endometriosis; formerly Endometrion Obesity; Japan Ultra-low dose of Activelle; filed in U.S. and E.U. product Lasofoxifene; SERM; osteoporosis treatment; filed January 2008 in EU; EU Novartis Reclast/Aclasta . . 2007 Zoledronic acid; approved U.S. for Paget's disease and osteoporosis treatment; filed for steroid-induced PMO-prevention Wyeth Conbriza . Jun-06 Bazedoxifene; SERM; osteoporosis prevention; good safety profile; 7,600 patient osteoporosis treatment and 1,700 patient osteoporosis prevention recommended for approval in U.S. and Ultra-low-dose of the topical estrogen
osteoporosis; PIII male osteoporosis;
trials; VTE and stroke analysis required; complete response/FDA Advisory review possible H1:09 Eli Lilly Forteo . . Feb-07 Approved in EU, approvable in U.S. for osteoporosis (GIOP) in patients who are at high risk for fracture; PIII for back pain; PII transdermal formulation Astellas Bayer Schering Pharma Bayer Schering Pharma Bayer Schering Pharma Bayer Schering YAZ Flex . Fertility control YAZ . Dysmenhorrea; Japan Mirena . YM-529 (Minodronate) Angeliq low . . Bisphosphonate; osteoporosis; intermittent administration; with Ono Treatment of moderate to severe vasomotor symptoms; treatment of Menorrhagia hypertension in postmenopausal women treatment of glucocorticoid-induced
189
Bone Disease
ENDOCRINE/METABOLIC/HORMONES R&D PIPELINE Company Pharma Chugai Eli Lilly ED-71 Arzoxifene . . 2009(U.S.) Endo Endo Pharmaceuticals Mitsubishi Tanabe Novartis Roche Sanofi-Aventis ScheringPlough ScheringPlough Takeda Wyeth Merck Vivus Vivus ATL-962 Aprela Odanacatib Luramist Qnexa . . . . . . . . H2:09 2012 2011 2009 2012 2010 Lipase inhibitor; obesity; Japan Bazedoxifene plus conjugated estrogen; pursuing lower dose MK-0822; PI for arthritis; PIII for osteoporosis Testosterone transdermal spray; HSDD; required 5,000 patient safety trial Obesity; phentermine/topiramate combo; PII for obesity in patients with Type 2 diabetes Bayer Schering Pharma Bristol-Myers Squibb Eli Lilly GlaxoSmithKline GlaxoSmithKline Undisclosed 221149 Ronacaleret . . . BMS-646256 . Cannabinoid antagonist; obesity; with Solvay Vasomotor symptoms Oxytocin antagonist; threatened preterm labor Calcium antagonist; osteoporosis ErB Agonist . Menopausal management NOMAC/E2 . SMC021 ED-71 Actonel Esmirtazapine . . . . 201112 2009 2011 Pharmaceuticals Nebido Octreotide Implant MCI-196 . . . Q1:09 2010 2010 2011 10 Treatment of osteoporosis; activated vitamin D derivative LY353381; SERM for osteoporosis and prevention of breast cancer; 20x potency of Evista 12-week depot testosterone injection for hypogonadism; from Indevus Somatostatin analog for treatment of acromegaly and carcinoid syndromes; 6-month implant; from Indevus hyperphosphatemia Osteoporosis, osteoarthritis; oral formulation of Miacalcic Vitamin D derivative; osteoporosis; with Chugai Combi D tablets (EU, U.S.), Non-absorbed phosphate binder; Product PC I II III NDA MKT Comments
postmenopausal osteoporosis; pediatric
Serotonin receptor antagonist; vasomotor symptoms, insomnia; from Organon Progesteron/estrogen; from Organon
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Bone Disease
ENDOCRINE/METABOLIC/HORMONES R&D PIPELINE Company Merck Product MK-5442 PC I II . III NDA MKT Comments Oral osteoanabolic agent for treatment of osteoporosis; oral calcium sensing receptor antagonist; from Japan Tobacco Mitsubishi Tanabe Novartis Novo Nordisk SBR759 Long-acting growth Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Sanofi-Aventis ScheringPlough Bayer Schering Pharma Eli Lilly Eli Lilly GlaxoSmithKline Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche ScheringPlough Takeda Wyeth Forest Laboratories Sanofi-Aventis ScheringPlough SAR-150640 ORG 219517 . . TAK-385 BMP-2 Undisclosed . . . . Undisclosed Undisclosed 1521498 PF-2575799 PF-3932295 PF-4325667 R7376 ORG 43228 (3) (2) . . . . . . hormone CE-326597 CP-533536 CP-866087 AVE-1625 ORG 39970 eF-Ment . . . . . . Obesity; diabetes PGE2 receptor agonist; bone healing Obesity CB1 antagonist; obesity and dyslipidemia Androgen receptor agonist; male infertility; from Organon Male contraception; PI hypergonadism treatment Osteoporosis Obesity mu-opioid receptor inverse agonist; obesity Obesity Obesity Obesity; biologic Small molecule; polycystic kidney disease Estrogen receptor agonist; HRT; from Organon LH-RH receptor antagonist; endometriosis; uterine myoma (preclinical); fracture treatment (PI) Development agreement with Aurigene; focused on obesity and metabolic disorders labor Cathepsin K inhibitor; prevention of postmenopausal bone loss; from Organon Beta 3-adenoreceptor agonist; preterm . . 2010 MT-2832 . Vitamin D analog; secondary hyperparathyroidism Hyperphosphatemia; licensed from SeBo Growth disorder
Dibotermin alfa; fracture prevention
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Bone Disease
ENDOCRINE/METABOLIC/HORMONES R&D PIPELINE Company ScheringPlough Product ORG 42152 Total Drugs In Development 4 13 15 20 9 61 PC . I II III NDA MKT Comments Androgen receptor agonist; androgen deficiency; from Organon
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Cardiovascular
Cardiovascular
Cardiovascular Drugs The Largest Therapeutic Category

Cardiovascular disease (CVD) is the most prevalent of all -6% 2008-13 CGR diseases: an estimated 58MM+ Americans and 100MM+ people in the developed world suffer from one or more forms of CVD. This results in 14MM+ deaths each year, or about 20% of all deaths in the U.S. The cardiovascular drug market is one of the largest therapeutic categories in prescriptions and sales. We divide the cardiovascular market into six therapeutic categories: angina, antiplatelet/antithrombotic, arrhythmia, cholesterol, congestive heart failure, and hypertension.
Cardiovascular Category Market Share By $ Sales
2008
$71B
Other 12% GSK 3% ABT 4% SGP 4% MRK 10% PFE 23%
2013P
$51B
Other 19% JNJ 2% LLY 2% GSK 4%
SNY 12%
AZN 18%
SNY 15%
PARTICIPANTS
AZN 10% BMY 11%
BMY 5% PFE 6% SGP 6% MRK 7% ABT 7%
NVS 11%
NVS 9%
Pfizer dominated the cardiovascular category in 2008, with Sanofi-Aventis in second place. Lipitor (Pfizer) and Plavix (Sanofi/Bristol-Myers) patent expirations in 201112 will impact the landscape. We anticipate that AstraZeneca will take the leading position in 2013 with 18% share driven by the success of Crestor, and that SanofiAventis will retain second place with 15% share.
Cholesterol
The cholesterol market could decrease by 3% annually, with patent expirations offsetting boosts by revisions to U.S. guidelines and outcomes trials (IDEAL, TNT, REVERSAL, PROVE-IT, ASCOT-LLC, HPS) supporting aggressive LDL lowering in broader populations. HMG-CoA reductase inhibitors (statins) appear unchallengeable in cholesterol reduction for the foreseeable future. Additional outcomes trials (SEARCH, JUPITER) likely will support more aggressive lipid lowering goals in a broader range of patients.
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Lipitor should remain the top statin but the availability of generic simvastatin has resulted in increased therapeutic substitution and declining brand share. Merck/Schering-Ploughs Vytorin/Zetia have had sales clipped post the ENHANCE and SEAS data as new prescriptions are reserved for second-line therapy; this dynamic may not change until IMPROVE-IT reports in 2011+. AstraZenecas Crestor has gained momentum. . Schering-Plough/Mercks Zetia has settled into a niche, albeit a sizable one. Sanofi-Aventis (AVE 5530) works by a similar mechanism but results have been sub-par. Interest persists in drugs that raise HDL cholesterol or alter the course of atherosclerosis despite the setback of Pfizers CETP inhibitor, torcetrapib. AstraZeneca/Abbotts Crestor/ABT-355 holds promise, but Pfizer recently stopped development of its HDL mimetics. Mercks Cordaptive (extended release niaspan + flushing inhibitor) was given a not approvable letter. Torcetrapib is dead but other CETP inhibitors from Merck, AstraZeneca, and Roche are moving forward slowly. GlaxoSmithKlines darapladibdarapladib (Phase III) (LpPLA2 inhibitor) targets a novel marker of inflammation, but data have been mixed. The potential resurgence of the MTP inhibitors (Surface Logix) remains a wild card for triglyceride reduction but liver toxicity is an obstacle.
Hypertension
Angiotensin receptor blockers, or ARBs (Abbott, AstraZeneca/Takeda, Boehringer-Ingelheim/Astellas, Bristol-Myers Squibb, Merck, Novartis, Forest/Sankyo, King/Solvay), have become the most prescribed antihypertensive class, although sales will be clipped by Cozaar (MRK) generics in 2010. Novartis Diovan should maintain its leadership until it comes off patent in 2012 together with Avapro and Atacand/HCT. Novartis Exforge, a single-pill valsartan/amlodipine combination, is viewed as a Diovan franchise extension. Forest/Sankyos Benicar likely is the ARB with the most upside potential due, in part, to its low cost. ACE inhibitor sales are declining due to generics and competition from ARBs. Earlier than expected loss of the Altace (King) and Lotrel (benazapril/amlodipine; Novartis) patents has accelerated this decline. Calcium channel blockers (Sanofi-Aventis, Forest, Pfizer), which are also used in angina, will continue to decline due to generics. Medicines Companys intravenous Cleviprex (approved 09/08) will be a minor contributor to the class. Forests Nebivilol, a third-generation beta-blocker, has demonstrated interesting preclinical advantages over earlier-generation beta-blockers. Until these findings can be produced in clinical trials, its uptake will be challenged by generic Coreg and Toprol.
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Cardiovascular
Novartis Tekturna, a first-in-class direct renin inhibitor, provides physicians with the next advance in the treatment of hypertension and heart failure, but uptake has been slow as physicians await outcomes data. Merck/Actelion also have renin inhibition programs but Pfizer dropped its effort. Novartis plans a 2010 filing for a Diovan/NEP blocker fixed-dose combination, LCZ696.
Angina
CV Therapeutics Ranexa, a late sodium channel inhibitor, is the first new treatment approved for angina in over 10 years. However, its chronic refractory angina indication targets a modest market opportunity and the rollout has been lackluster. Despite missing in MERLIN, Ranexa has garnered additional indications, including HbA1c lowering and anti-arrhythmia.
Antiplatelets and Antithrombotics

Bristol-Myers Squibb/Sanofi-Aventis Plavix U.S. sales will decline beginning in 2011 due to the patent expiration; European non-AB rated generics are rolling out. Eli Lilly/Sankyos Effient (prasugrel) demonstrated a favorable riskbenefit profile in the majority of patients undergoing PCI, but bleeding concerns will limit its uptake outside this indication pending additional data. Reversible ADP inhibitors have theoretical advantages and disadvantages; AstraZeneca AZD6140s could be more potent than Plavix and its Phase III study, PLATO will report in Q3:09. Thrombin receptor antagonists, including Schering-Ploughs TRA and Eisais E5555, have significant potential, with Scherings two Phase III trials underway. Oral factor Xa inhibitors may have efficacy and safety advantages over AstraZenecas Exanta and convenience advantages over Warfarin. JNJ/Bayers Xarelto (rivaroxaban) has been filed in the U.S., but Bristol/Pfizers apixaban filing is delayed beyond the original 2009 target. Boehringer Ingelheims Pradaxa/Rendix (dabigatran), the most advanced oral direct thrombin inhibitor, is approved in the E.U., and its pivotal 16K patient atrial fibrillation should report in 2009, significantly ahead of all competitors across classes. Schering-Plough/Millenniums Integrilin should maintain GPIIb/IIIa market share, bolstered by solid clinical data and a favorable cost profile. Eli Lilly/Johnson & Johnsons ReoPro sales likely will continue to decline. Medicines Companys Angiomax, an injectable direct thrombin inhibitor, failed to get approval for medically managed ACS and now is likely confined to PCI
Arrhythmia
Sanofi-Aventis Multaq (dronedarone) is effective in reducing atrial fibrillation as well as in reducing mortality, as shown in the ATHENA results. ATHENA is the basis its NDA filing that will go before an FDA panel in March 2008. Generic amiodarone (Wyeths Cordarone) likely will remain the efficacy gold standard.
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Cardiovascular
Selective voltage-dependent channel antagonists from Cardiome/Astellas (RSD1235) and AstraZeneca (AZD7009) could expand the anti-arrhythmic market given strong efficacy in atrial arrhythmia.
Congestive Heart Failure (CHF)

The CHF market is attractive post favorable studies of ACE inhibitors, beta blockers, and ARBs. However, Pfizers Inspra has been disappointing. GlaxoSmithKline has been unsuccessful in converting the Coreg market to its once-a-day version, Coreg CR. The beta blocker market now is largely generic, with Coreg and Toprol (AstraZeneca) both off patent.
Scatter Plot
Through 2013, AstraZeneca should lead the cardiovascular segment and this category is critical to the growth of AstraZeneca.
Cardiology
200% 150% 100% 50% 0% -50% -100% -150% -200% -250% -300% $0.0 $1.0 $2.0 $3.0 $4.0 $5.0 $6.0 $7.0 $8.0 $9.0 $10.0 2013 Sales Contribution By Company To Category ($ In B) PFE SNY NVS JNJ SGP ABT FRX AZN
LLY
GSK
MRK
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Cardiovascular
Cardiovascular Disease
DETAILED DISCUSSION
Numerous Drugs Target Cardiovascular Disease

The cardiovascular system is comprised of the heart and the blood vessels supplying the organs. Many diseases afflict the cardiovascular system and patients often suffer from more than one cardiovascular illness. Hypertension, or high blood pressure (BP >140/90 mmHg), is the most prevalent cardiovascular disease (CVD), affecting an estimated 85% of Americans. Ischemia or reduced blood flow can result in myocardial infarction (MI) and stroke, and is predominantly due to cholesterol build-up in blood vessels. Over 50% of Americans have elevated LDL-C levels (200 mg/dL), and 20% have levels of 240 mg/dL or higher. 10-15% of people in the U.S. suffer from angina, chest pain resulting from coronary (heart) vessels ischemia. Heart failure or congestive cardiac failure (CCF), the inability to pump blood adequately, is often the result of ischemic and/or hypertensive disease with a U.S. prevalence estimated at 8% (4.9MM Americans). Approximately 7% of CVD patients suffer from abnormal heart rhythms, or arrhythmia (4.3MM Americans). We also include therapeutics that target clotting (thrombosis) in the CVD section. More than 13 classes of drugs treat the different types of CVD.
COMPONENTS OF THE CARDIOVASCULAR MARKET
Therapeutic Target Hypertension, CHF Hypertension Hypertension, CHF Arrhythmia Thrombosis, Stroke Hypertension, CHF Hypertension, CHF Hypertension, Angina Lipid Disorders Hypertension Thrombosis Arrhythmia Hypertension Various CVDs $ NRx 08-13 87-08 Sales ($MM) 2008 2013P CGR CGR $3,898 $2,178 -11% 12% 602 15,865 271 13,530 2,037 90 3,196 27,010 20 575 25 70 4,177 $71,356 337 9,140 1,487 11,638 1,171 46 1,040 17,496 5 455 5 305 5,242 $51,225 -11% -10% 41% -3% -10% -13% -20% -8% -24% -5% -28% 34% 5% -6% 4% NM 0% NM 6% NM 7% 22% 3% NM 0% -3% 5% 7%
Drug Class ACE Inhibitors Alpha Blockers Angiotensin Receptor Blockers Anti-Arrhythmics Anti-Thrombotics Beta Blockers BNP Agonist Calcium Channel Blockers Cholesterol Diuretics GP IIb/IIIa Inhibitors Inotropic Agents Vasodilators Other CVD Agents TOTAL
NA= Not available NM = Not meaningful
Source: Company data; Cowen and Company estimates; IMS America
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LIPIDS No Major Changes Expected In Lipid Market Through 2011

The outlook for the cholesterol market has changed significantly keyed to four events: 1) Zocor (Merck) generics in 2006; 2) torcetrapibs (Pfizers CETP-inhibitor) December 2006 demise; 3) Vytorins (Schering-Plough/Merck) ENHANCE and SEAS data and ensuing debates; and 4) Cordaptives (Merck) April 2008 not approvable letter from FDA. Generic simvastatin continues to gain share within the statin market. Outcomes data will be necessary to drive branded prescription share, and likely will be required for approval of new therapeutic classes or NMEs, despite LDL still being an accepted surrogate endpoint. Despite these negative events, the cholesterol market, which includes, statins, fibrates, niacin, and others, is poised to see growth, albeit modest, driven by 1) heavy promotion of newer drugs and new indications, including AstraZenecas Crestor JUPITER data which could expand the market to patients with normal LDLs and high CRPs, and 2) potentially recommendations targeting lower LDL. Lipitor generics expected to arrive in 11/11, likely will lead to a significant increase in generic use in the statin class. NIH Guidelines Support High-Potency Statins In July 2004, the National Institutes of Health (NIH) revised its clinical practice guidelines suggesting more aggressive treatment options for patients at high or moderately high risk of a heart attack. The revised guidelines were based on a comprehensive review of five clinical trials, including HPS, PROSPER, ALLHAT-LLT, ASCOT-LLA, and PROVE IT. The key conclusions of the panel were: 1) a more aggressive LDL treatment goal of <70mg/dL in high-risk patients and initiation of LDL-lowering drug therapy in high to moderate-risk patients with LDL >100mg/dL; 2) LDL-lowering drug therapy in high- or moderately high-risk patients should target at least a 30% to 40% reduction in LDL-C levels; and 3) when high-risk patients have high triglycerides or low high-density lipoprotein cholesterol (HDL-C), consideration can be given to combining a fibrate or nicotinic acid with an LDL-lowering drug.
2004 NCEP GUIDELINES: SUMMARY OF CLINICAL TRIAL REVIEW Trial HPS Heart Protection Study Impact Suggests that reducing serum LDL-C from any baseline level further lowers risk in high-risk patients, patients with diabetes, and elderly patients. PROVE-IT Pravastatin or Atorvastatin Evaluation and Infection-Thrombolysis in Myocardial Infarction ASCOT-LLA Anglo-Scandinavian Cardiac Outcomes TrialLipid Lowering Arm ALLHAT-LLT Antihypertensive and Lipid-Lowering Treatment to Prevent Heart Attack Trial-Lipid Lowering Trial PROSPER Prospective Study of Pravastatin in the Elderly at Risk
Source: Circulation; July 2004
Suggests that more intensive LDL-C-lowering therapy reduces major cardiovascular events in patients with acute coronary syndrome compared with less intensive therapy over a two-year period. Supports use of an LDL-lowering drug in patients with moderate risk and LDL-C level of 100-129 mg/dL to achieve an LDL-C level <100 mg/dL Little new evidence due to challenges of open trials design; supports ATP III recommendation that goals of LDL-lowering therapy do not vary based on ethnicity Add support for benefit of LDL-lowering therapy in elderly with or without evidence of established CVD.
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ATP III Suggests >36MM Americans Should Be Treated Under the Adult Treatment Panel (ATP) III guidelines, the estimated number of U.S. patients who are candidates for drug therapy is >36MM. The ATP III LDL treatment goal of <100mg/dL was solidified in the July 2004 update. While not formalized, for high-risk patients (those with a 10-year risk of a cardiac event > 20%): LDL-c should be lowered to < 70 mg/dL.
ATP III CLASSIFICATION OF LDL, TOTAL AND HDL CHOLESTEROL (mg/dL) LDL Cholesterol <100 100-129 130-159 160-189 >/= 190 Total Cholesterol <200 200-239 >/= 240 HDL Cholesterol <40 >/= 60
Source: NIH
Optimal Near Optimal/Above Optimal Borderline High High Very High Desirable Borderline High High Low High
LDL LOWERING THERAPEUTICS (MEAN PERCENT CHANGE FROM BASELINE)

Class Statins Drug Crestor 5-40mg (AZN) Lipitor 10-80mg (PFE) Simvastatin/Zocor 10-80mg (generics; MRK) Lovastatin/Mevacor 10-80mg (generics; MRK) Pravachol 10-80mg (BMY) Lescol/XL 10-80mg (NVS) Cholesterol absorption inhibitors Nicotinic acid Combinations Zetia (SGP/MRK) 10mg Tot. Chol. -33-46 -29-45 -23-35 -12 -16-27 -17-25 -12 LDL-C** -53 -49 -37 -37 -29 -27 -15 Apo-B -38-54 -32-50 -29-39 NA NA -19-27 -12 Triglycerides -10-35 -19-37 -17-27 -35 -11-24 -12-19 -2 HDL-C 8-14 5-9 5-8 7-12 3-12 3-7 +0.1
Niaspan 500-2000mg (ABT) Vytorin 10/10-80mg (MRK/SGP) Advicor 2000/40mg (ABT)
-2-12 -31-43 NA
-3-17 -45-60 -45
-2-16 -35-49 NA
-5-35 -23-31 -42
10-26 6-10 41
* for statins standardized to 40mg dose and LDL-C 186 mg/dL (mean concentration in trials) before therapy
Source: Company data; Facts And Comparisons; Law MR et al. BMJ 2003;326:1423-1427
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Statin Growth Moderating
CHOLESTEROL DRUG NEW PRESCRIPTION COMPARISON

40%
35%
30%
% Market Share
25%
20%
15%
10%
5%
0% Oct-06 Oct-07 Oct-08 Jul-06 Jan-06 Jan-08 Jul-08 Apr-06 Apr-07 Apr-08 Jan-07 Jan-09 Jul-07
Source: IMS America
Crestor
Lipitor
Zetia
Vytorin
Source: IMS America
Cholesterol Price Comparison

Crestor (AZN) 5mg 10 20 40 $3.42 3.42 3.42 3.42 Lipitor (PFE) 10mg 20 40 80 $2.68 3.64 3.64 3.64 Vytorin (MRK/ SGP) 10/10mg 10/20 10/40 10/80 $3.07 3.07 3.07 3.07 Zetia (MRK/ SGP) 10mg $3.02 Simvastatin (Generics)* 10mg 20 40 80 $0.09 0.13 0.18 0.30
Source: Price Rx- reported wholesale acquisition cost (WAC) *lowest price
Pfizers Lipitor Outlook Tempered By Several Factors

Lipitor domination of the U.S. statin market has waned. Declines stem from increasing competitive challenges from simvastatin generics and to a lesser extent AstraZenecas Crestor. Worldwide patent expirations beginning in mid-2011 will lead to a substantial sales decline, forecast at 15%+, with continued decline thereafter. Despite aggressive efforts by Pfizer with its Lipitor message and flexible contracting to achieve optimal tier 2 access, Lipitor still lost share. In Q1:08, post Vytorins negative ENHANCE data, Lipitor also failed to capitalize on its competitors woes. Despite an expanded label, including the March 2007 approval for reduction of the risk of fatal and non-fatal strokes and hospitalization for heart failure, and price increases, Lipitors share and sales likely will continue to slip. In an effort to combat Crestors JUPITER outcomes data that demonstrated a mortality benefit in patients with normal LDLs but high CRPs, Pfizer published results from a 26 week 340 patient study that demonstrated that Lipitor 80mg dropped CRP by 55% and Lipitor 10mg by 21%. These results likely confirm that CRP lowering is a class effect but are unlikely to benefit Lipitor. In June 2008, Pfizer settled with Ranbaxy granting
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Cardiovascular
it a license to sell and distribute generic versions of Lipitor and Caduet in the U.S. and seven other countires effective 30 November 2011. Lipitors enantiomer patent that expires in June 2011 was reissued in January 2009. FTC has completed its analysis of the settlement with Ranabxy and the final decision is pending. We have reservations about FTCs ratification being a formality given the 6 months of additional exclusivity beyond Lipitors patent expiration that was garnered in the deal We estimate Lipitor sales of $10.95B (-12%) in 2009, $10.35B (-5%) in 2010, $2.6B in 2012 and $700MM in 2015. Lipitors Broad Clinical Trial Program Supports Potency And Positive Impact On Outcomes Pfizers aggressive promotion of REVERSAL, PROVE-IT, and TNT accelerated the uptake of Lipitor 80mg. TNT demonstrated a 22% reduction in cardiovascular events with Lipitor 80mg vs. 10mg and no significant difference in muscle-related side effects, including rhabdomyolysis. By contrast, IDEAL (Lipitor 80mg vs. Zocor 20mg and 40mg) showed a non-significant 11% relative reduction in the primary composite endpoint of cardiovascular events. IDEAL provides managed care a data point on which to push generic simvastatin at the expense of brand statins. On the other hand, an analysis conducted post IDEAL showed that patients who took Lipitor 80mg had a 46% reduction in the risk of experiencing another heart attack, and a 34% reduction in the risk of experiencing a major coronary event compared with patients who took simvastatin 20-40mg dose. Lipitor 80mg also significantly reduced the risk of death, stroke, unstable angina and revascularization combined by 18% compared to simvastatin 20-40mg. The safety profiles were similar between the two groups. PROVE-IT And REVERSAL Initiated The Shift To Lipitor 80mg The results of the REVERSAL and PROVE-IT studies, comparing Lipitor 80mg to Pravachol 40mg, found that Lipitor 80mg was superior to Pravachol 40mg in reducing plaque volume (REVERSAL) and cardiovascular events (PROVE-IT). Lipitor 80mg also was proven to be extremely safe over the two-year duration of each trial. The results were consistent with those from other studies: lower cholesterol is associated with fewer cardiovascular events and less detrimental activity at the vessel wall. Our physician experts were not surprised by the positive results of both studies, but the results leave no question regarding the value of lowering cholesterol, and the impact this has on lowering morbidity and mortality. Although the difference was non-significant, Lipitor 80mg reduced all-cause mortality by 28% (p=0.07) and death or myocardial infarction by 18% (p=0.06) relative to Pravachol 40mg. The positive results of PROVE-IT also corroborate the results of MIRACL, demonstrating the benefits of Lipitor 80mg in acute coronary syndrome patients.
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PROVE-IT Efficacy Results
Source: Cannon, C. et al. N Engl J Med 2004;350:1495-1504
TNT Further Validated The Efficacy And Safety Of Lipitor 80mg The Treating to New Targets trial (TNT) was presented in March 2005 at the American College of Cardiology (ACC) meeting. The results also were published in the March 7, 2005, issue of the NEJM. TNT compared Lipitor 10mg to 80mg in chronic coronary disease patients (secondary prevention). The goal of the study was to assess the efficacy and safety of lowering LDL cholesterol levels below 100mg per deciliter. A total of 10,001 patients with clinically evident CHD and LDL cholesterol levels of less than 130 mg per deciliter (3.4 mmol per liter) were randomly assigned to double-blind therapy and received either 10 mg or 80 mg of Lipitor per day. Patients were followed for a median of 4.9 years. The primary endpoint was the occurrence of a first major cardiovascular event, defined as death from CHD, nonfatal non-procedure-related myocardial infarction, resuscitation after cardiac arrest, or fatal or nonfatal stroke. Mean LDL cholesterol levels were 77 mg/dL with Lipitor 80mg vs. 101 mg/dL for 10mg. Lipitor 80mg demonstrated a 2.2% absolute reduction and a 22% relative reduction in the rate of major cardiovascular events, thus adding to the evidence that aggressive lipid-lowering therapy provides additional clinical benefits. However, there was no difference in overall mortality. Lipitor 80mg was associated with more adverse events (8.1% vs. 5.8%) and a higher rate of treatment discontinuation (7.2% vs. 5.3%), but treatment-related myalgia was similar (4.8% vs. 4.7%; p=0.72) and there was no difference in the rate of rhabdomyolysis. Lipitor 80mg did result in a modest increase in persistent liver enzyme elevations (1.2% vs. 0.2%), but persistent elevations in creatinine kinase, a risk factor correlated to muscle injury, were not observed. Our physician experts view the results of TNT as further evidence of the value of reducing LDL; NCEP LDL goals target 70mg/dL for secondary prevention of cardiac events in patients with confirmed heart disease.
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HMG-CoA Reductase Inhibitor: Secondary Prevention HMGTreating to New Targets (TNT) Trial
10,001 patients with stable CHD randomized to atorvastatin (80 mg) or atorvastatin (10 mg) for 4.9 years
0.15 Major CV Event* (%) Atorvastatin (10 mg) Atorvastatin (80 mg) 22% RRR
0.10 0.05 0.00 0
P<0.001 1 2 3 Years 4 5 6
High-dose statins provide benefit in chronic CHD

CHD=Coronary heart disease, CV=Cardiovascular, MI=Myocardial infarction, RRR=Relative risk reduction *Includes CHD death, nonfatal MI, resuscitation after cardiac arrest, or stroke LaRosa JC et al. NEJM 2005;352:1425-35 23
Two separate post-hoc analyses from TNT were published in JACC. The first substudy in 3,107 patients with moderate to severe chronic kidney disease and heart disease, demonstrated that Lipitor 80mg reduced the risk of heart attack and stroke by 32% compared with patients taking Lipitor 10mg. The second analysis in 4,654 patients who had CABG versus 5,347 who had not demonstrated that Lipitor 80mg significantly reduced the risk of major cardiovascular events, including MI and stroke by 27%, compared with Lipitor 10mg. Lipitor 80mg also reduced repeat CABG or angioplasty rates by 30% versus Lipitor 10mg. IDEAL Not Ideal For Lipitor IDEAL (Incremental Decreases In End Points Through Aggressive Lipid Lowering), an open label study to the patient but not the evaluator, was presented in November 2005 at the American Heart Association (AHA) meeting. The results also were published in the November 16, 2005 issue of JAMA. IDEAL showed Lipitor 80mg not associated with a lower risk of cardiac events than Zocor 20mg and 40mg. Like TNT, the goal of the study was to assess the efficacy and safety of lowering LDL cholesterol levels below 100mg per deciliter. Patients were followed for a median of 4.8 years and mean LDL cholesterol levels were 81 mg/dL with Lipitor 80mg vs. 104 mg/dL for Zocor 20-40 mg. IDEAL missed the primary endpoint of coronary death, hospitalization for nonfatal acute MI and cardiac arrest with resuscitation (9.3% vs 10.4%; p=0.07; 11% relative risk reduction). There were three secondary outcomes: 1) major CV events (any primary event plus stroke), 2) any CHD event (any primary event, revascularization, hospitalization for unstable angina), and 3) any CV events (any of the former plus hospitalization with CHF and peripheral arterial disease). Lipitor achieved significance (p=0.02; 13% relative risk reduction) when stroke was added to the primary outcomes and on any CV event (p<0.001; 16% relative risk reduction). Patients on Lipitor had higher rates of discontinuation due to nonserious adverse events but not any adverse event or any serious adverse event. Liver enzyme elevations requiring discontinuation occurred in 43 Lipitor patients and 5 Zocor patients. In terms of efficacy, virtually every endpoint numerically
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favored Lipitor. In terms of side effects, many endpoints favored Zocor. Overall, IDEAL suggests that lower LDL is better and that benefits of further reductions in LDL have not been reached. However, Lipitor does not appear to have special properties that differentiate its efficacy from other cholesterol-lowering drugs. The fact that only 23% of patients were on Zocor 40mg at the end of the study and 13% of patients had their dose reduced to 40mg on Lipitor also suggests that Zocor is a highly effective statin. This represented a potential risk given comparable reductions in LDL for Zocor 20/40mg versus Lipitor 10mg. IDEAL provided managed care a datapoint on which to push generic Zocor at the expense of brand statins. On the other hand, an analysis conducted post IDEAL showed that patients who took Lipitor 80mg had a 46% reduction in the risk of experiencing another heart attack, and a 34% reduction in the risk of experiencing major coronary events that included heart attack, cardiac death and cardiac arrest, compared with patients who took simvastatin 20-40mg dose. Lipitor 80mg also significantly reduced the risk of death, stroke, unstable angina and revascularization combined by 18% compared to simvastatin 20-40mg. The safety profiles were similar between the two groups.
HMG-CoA Reductase Inhibitor: Secondary Prevention HMGIncremental Decrease in End Points Through Aggressive Lipid Lowering (IDEAL) Trial
8,888 patients with a history of acute MI randomized to atorvastatin (80 mg) or simvastatin (20 mg) for 5 years
Cumulative Hazard (%) 12 8 4 HR=0.89, P=0.07 0 1 2 3 4 5 Years Since Randomization Simvastatin (20 mg) Atorvastatin (80 mg)
HR=Hazard ratio, MI=Myocardial infarction
High-dose statins provide a strong trend towards benefit after a MI
*Includes coronary death, hospitalization for nonfatal acute MI, or cardiac arrest with resuscitation Pedersen et al. JAMA 2005;294:2437-2445 24
SPARCL Showed Reduced Chance Of Additional Strokes SPARCL (Stroke Prevention by Aggressive Reduction in Cholesterol Levels) was published in the New England Journal of Medicine in August, 2006. In SPARCL, 4,731 patients who had no history of heart disease and had experienced a stroke or TIA within six months prior to trial enrollment were followed for an average of 4.9 years. Patients had mildly elevated cholesterol levels, and were treated with either Lipitor 80 mg or placebo. Before the trial results were known, the investigators leading the trial decided to analyze the results taking into account baseline characteristics, such as age and gender. Epidemiologic data have shown, for example, that the risk of stroke significantly increases with age. Results showed that 265 patients (11.2%) receiving Lipitor and 311 patients (13.1%) receiving placebo had a fatal or nonfatal stroke. The Lipitor group had 218 ischemic strokes and 55 hemorrhagic strokes,
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whereas the placebo group had 274 ischemic strokes and 33 hemorrhagic strokes. The five-year absolute reduction in the risk of major cardiovascular events was 3.5%. The overall mortality rate was similar, with 216 deaths in the Lipitor group and 211 deaths in the placebo group, as were the rates of serious adverse events. Elevated liver enzyme values were more common in patients taking Lipitor. Major Lipitor Clinical Program Concluded Pfizers Atorvastatin Landmark Program is complete. Results of the LEADe study in Alzheimers disease, the last of the major Lipitor studies, were presented at the April 2008 American Academy of Neurology meeting. Lipitor 80mg on top of Aricept 10mg failed to demonstrate significant differences in cognition or global function compared to Aricept 10mg alone. The 18-month study in 640 patients together with the failed CLASP study likely has put an end to the speculation whether statins can impact mild-to-moderate AD. Data presented at ICAD 2008, from the Zocor CLASP (Cholesterol Lowering Agents to Slow Progression of Alzheimers Disease) study, an almost identical study to LEADe, failed to meet its primary endpoint. Lipitor/Zetia Fixed-Dose Combination In Development Schering-Plough is developing a fixed-dose combination of Lipitor/Zetia. ScheringPlough/Merck believe that bioequivalence studies are likely to suffice and outcomes data are not required for approval. We believe that the Pfizer/Ranbaxy Lipitor patent settlement suggests that Schering-Plough/Merck might target a late 2011/early 2012 launch for the combination.
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TRIALS SUPPORTING LIPITOR'S LONG-TERM OUTLOOK

Study ALLIANCE Full Name Aggressive Lipid Lowering Initiation Abates New Cardiac Events Beyond Endorsed Lipid Levels Evaluation Study Focus Study to compare the effects of aggressive lipid lowering regimen with atorvastatin vs. conventional care in patients after myocardial infarction. Reduced non-fatal MI vs. usual care 47%. Study showed no effect on coronary calcification as measured by Ultrafast CAT scan in post menopausal women after one year of aggressive versus moderate lipid lowering with atorvastatin 80mg or pravastatin 40mg. Trial in 604 post menopausal women at risk for osteoporosis with dyslipidemia aged 40-75 showed no effect of atorvastatin 1080mg compared to placebo on bone mineral density at one year. Aggressive lipid lowering as evaluated by IVUS showed no progression on arterial plaque on atorvastatin versus statistically significant progression on pravastatin 40mg. Atorvastatin 80mg vs. pravastatin 40mg in elderly showed statistically significant reduction in duration of myocardial ischemia (p<0.0001) as measured by 48-hour Holter monitoring at one year. Trend for reduced cardiac events was evident though trial was not powered for endpoint. Study comparing the effects of atenolol versus amlodipine based therapy in hypertensive patients on the prevention of coronary heart disease and vascular events. Lipid-lowering arm with atorvastatin 10mg vs. placebo in patients with a total cholesterol of <6.6mmol/L stopped early due to statistically significant benefit on coronary and vascular events. Assessed whether atorvastatin 10mg will reduce ischemic events in patients with type 2 diabetes mellitus and one additional risk factor. Reduced CV events by 37% and stroke by 48%. Assessed whether aggressive lowering with atorvastatin 80mg vs. 10mg to 75mg/dL of LDL cholesterol is associated with additional benefit over the currently recommended level of 100mg/dL. Demonstrated a 22% reduction in CV events with 80mg vs. 10mg and no difference in muscle related side effects or rhabdomyolysis. Compared the effects of a mean decrease in LDL of 55% vs. 35% on coronary heart disease mortality and morbidity with atorvastatin 80mg vs. simvastatin 20mg and 40mg; demonstrated a non-significant 11% relative risk reduction in the primary outcome. Assessed whether atorvastatin 80mg reduced the incidence of second stroke over 5 years in 4,731 patients aged 21-92 without coronary heart disease. Primary endpoint: stroke incidence reduced by 16%, secondary endpoint: composite of cardiac death, resuscitated cardiac arrest, nonfatal MI, unstable angina incidence reduced by 35%. Study to assess the efficacy and safety of Lipitor 80mg + Aricept 10mg vs. Aricept alone over 72 weeks in patients with mild to moderate Alzheimer's. Failed to demonstrate significant differences in cognition and global assessment over Aricepts alone. Expected Year Of Completion Completed
BELLES
Completed
BONES
BONES
Completed
REVERSAL
REVERSAL of Atherosclerosis with Lipitor
Completed
SAGE
Study Assessing Goals in the Elderly
Completed
ASCOT-LLA
Anglo-Scandinavian Cardiac Outcomes Trial
LLA completed 2003
CARDS
Collaborative Atorvastatin Diabetes Study
Completed
TNT
Treating to New Targets
Completed
IDEAL
Incremental Decrease in End points through Aggressive Lipid lowering
Completed
SPARCL
Stroke Prevention by Aggressive Reduction in Cholesterol Levels
Completed
LEADe
Lipitor's Effect In Alzheimer's Dementia
Completed
Source: American Stroke Association, Pfizer, www.lipitor.com
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Lipitors 893 And 995 Patents Reissued In December 2005, Judge Joseph Farnan ruled that Ranbaxy's generic atorvastatin infringes Lipitor's '893 (the basic patent which expires March 24, 2010) and '995 (the enantiomer patent which expires June 2011) patents. An appeal of the verdict was heard by the U.S. Court of Appeals in May 2006 and a decision was rendered in August 2006. The Appeals Court upheld the validity of the 893 patent but invalidated the 995 patent on technical grounds, for which Pfizer filed a reissue application in January 2007. In August 2007, the USPTO issued a non-final rejection of Pfizers request for the 995 patent reissue. In October 2007, Pfizer submitted its response but in April 2008, the USPTO once again rejected the request for reissue. In January 2009 the U.S. PTO issued a Notice of Allowance accepting the Pfizers application to correct the technical defect in the 995 enantiomer patent. The reissued patent will have the same June 2011 expiration date (including the sixmonth pediatric exclusivity period). Separately, after Ranbaxy sought reexamination of the 893 patent in July 2007, the U.S. PTO confirmed the patentability of the claims in 893 in April 2008. This was after an initial rejection given in January 2008. Lipitor Suits And Settlements Aplenty In June 2008, Pfizer and Ranbaxy announced that they had agreed to settle substantially all their patent litigation worldwide involving Lipitor. Under the terms of the agreement, Ranbaxy will have a license to sell generic versions of Lipitor and Caduet in the U.S. effective November 30, 2011, in other words five months after the expiration of the enantiomer patents. As of January 2008, the FTC has concluded its review of the settlement but has not provided an opinion. The lawsuits between Pfizer and Ranbaxy regarding Lipitor and Caduet will be dismissed in the specified countries, and Ranbaxy will no longer contest the validity of Pfizers patents in the specified countries, including the United States, according to the agreement. The settlement also resolves all patent litigation with Ranbaxy relating to Accupril in the U.S. and Viagra in Ecuador. In March 2008, Pfizer sought a declaratory judgment, asserting Ranbaxys infringement of two Lipitor/Caduet process patents 511 and 740 (6,087,511 and 6,274,740; July 16, 2016 expiration). Process patents are not cited in FDAs Orange Book. A review of these two patents by our intellectual property consultants revealed that both patents have claims directed to a method of making amorphous atorvastatin or hydrates thereof from crystalline form 1. The '551 has 3 independent claims directed to a method of making (1) amorphous atorvastatin, (2) anhydrous amorphous atorvastatin, and (3) hydrated amorphous atorvastatin by dissolving the crystalline form 1 in a non-hydroxylic solvent (that is a solvent that does not contain a hydroxy group) and removing the solvent by drying to afford the desired amorphous atorvastatin. The claims in the '740 patent are substantially similar except that the independent claims define a specific concentration range of atorvastatin in the non-hydroxylic solvent. Our intellectual property consultants do not believe that the 511 and 740 patents likely would have been upheld. In April 2007, Teva filed an ANDA seeking approval to market generic Lipitor asserting invalidity of the 995 patent. In June 2007, Pfizer filed suit against Teva in the U.S. District Court for the District of Delaware. A court case date has not been set. In October 2007, Cobalt filed an ANDA seeking approval to market a product containing atorvastatin sodium, a salt that is different from atorvastatin calcium,
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which is used in Lipitor. Cobalt was challenging the enantiomer patent and certain later-expiring patents, but not the basic patent. In December 2007, Pfizer filed suit against Cobalt in the U.S. District Court for the District of Delaware asserting the validity and infringement of the enantiomer patent. In April 2008, Pfizer and Cobalt entered into a settlement. In November 2008, Apotex announced that it had filed an ANDA claiming the 995 to be invalid. Defense Of Lipitor Patents Ex-U.S.: Mixed UK: Win. The U.K. High Court of Justice affirmed the lower Courts decision upholding the basic patent, which expires in November 2011. Canada, Netherlands, Germany, Sweden, Italy and Australia: Settled. In June 2008, as part of the broad agreement, Pfizer and Ranbaxy settled the Lipitor patent dispute in Canada, Belgium, Netherlands, Germany, Sweden, Italy and Australia. Pfizer granted Ranbaxy a license to sell generic versions of Lipitor but the timing has not been specified. Pfizer and Ranbaxy have also resolved their disputes regarding Lipitor in Malaysia, Brunei, Peru and Vietnam. In July 2008, Pfizer settled with Apotex in Canada. Finland, Spain, Portugal, Denmark and Romania: Ongoing. The patent infringement litigation between Pfizer and Ranbaxy relating to Lipitor continues in Finland, Spain, Portugal, Denmark and Romania despite the June 2008 settlement. Court cases involving the enantiomer patents are pending in Spain and Portugal, while an infringement action on the commercial process patent is pending in Finland. Patent cases involving the enantiomer patent are pending in Denmark and Romania. Austria: Win. The Austrian Patent Office also ruled in Pfizers favor, although Ranbaxy can appeal. Ireland: Win. In July 2007, the High Court in Ireland ruled that the basic patent covering atorvastatin would be infringed by Ranbaxy. The decision, which is subject to appeal, prevents Ranbaxy from launching before the basic Lipitor patent (Irish Patent Number 60014) expires in November 2011.
AstraZenecas Crestor JUPITER Trial An Incremental Positive

Crestor claimed 11.7% of new HMG-CoA reductase inhibitor prescriptions in January 2009, up 26% year-on-year. Growth and share improvement likely have been driven by: 1) new clinical data including JUPITER; 2) increased use of high-potency statins; 3) diminishing safety concerns; and 4) a shift away from Vytorin post the ENHANCE and SEAS data. Crestor was plagued at launch by an undifferentiated label without outcomes data and safety concerns. In April 2006, the U.S. National Lipid Association published data from large U.S. managed care population and safety databases comprising over 8,000 Crestor-experienced patients. The data showed Crestor safety to be in line with other marketed statins. AstraZeneca stepped up its promotion of Crestors safety following the publication of the NLA paper as it added substantial credibility to its promotional efforts. In November 2007, Crestor was approved for the slowing of atherosclerosis progression based on data in the METEOR trial. Our physician consultants do not believe this indication significantly differentiates
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Crestor. However, our physician consultants are very excited about the JUPITER primary prevention study that was stopped early in March 2008, as this is the first outcomes trial with Crestor. The data that were presented at AHA 2008 and published in the NEJM, demonstrate a 44% (p < 0.0001) reduction in the composite primary endpoint versus placebo and similar or better reductions across each of its components. Adverse events were for the most part balanced between the study arms. JUPITER has a modest benefit on Crestors marke share but a meaningful increase is dependent on two factors: 1) a new indication and 2) updated NCEP guidelines to reflect JUPTIER. AstraZeneca will file the sNDA in Q2:09 but the NCEP guidelines are expected to be updated in 2010. It is also likely that JUPITERs results could be applicable to all statins. However, given that a comparative study between Crestor and another satin is unlikely, JUPITER will be a differentiating feature and likely to entrench and expand Crestors Tier 2 formualry status. Crestor has access to 85% of commercial and Medicare Part D covered lives, is on 41 state formularies in a preferred position, and has 55% access on tier 2. Our review of several major 2009 formularies suggests that Crestors tier 2 status has improved. AstraZeneca launched an IVUS head-to-head trial versus Lipitor in January 2008. The study, called SATURN, is looking at atherosclerosis. SATURN likely will report in March 2011, close to the Lipitor patent expiration and 9 months ahead of Ranbaxys exclusive atorvastatin generic launch. We forecast Crestor sales of $4.125B (+15%) in 2009, $4.525B (+10%) in 2010, $5.175B in 2012, and $6.15B in 2015. On November 1, 2007, AstraZeneca received notice from eight generic manufactures that each had filed an ANDA with the FDA alleging that one or more of the three Orange Book listed U.S. patents (314 expiring 01/16; 450 expiring 08/20; and 618 expiring 12/21) referencing Crestor was not infringed or otherwise invalid or unenforceable. On November 11, 2007, AstraZeneca filed infringement suits against six of the companies alleging infringement of the 314 patent which it had licensed from Shionogi & Co. Ltd. Our legal consultants believe that there is an inequitable conduct case to be made as a key reference that should have been cited during the patent application process was expressly not submitted which therefore could be construed as a breach of duty. However, AstraZeneca did cite the reference in the reissued patent, which substantially narrowed claims. Therefore, the key question is whether the subsequent fix during reissuance nullifies the inequitable conduct claim, and therefore providing validity. Our consultants appear to believe that the intent of AstraZeneca during the patent prosecution (and the reason behind the omission) will be key. However, gross negligence or willful ignorance is often not a valid defense (if that is the defense that AstraZeneca chooses), and the simple act of failing to disclose such a key prior art reference could in itself be sufficient to prove inequitable conduct and provide a victory for the generics. Long-Term Success Keyed To Clinical Outcomes Program Crestors ability to lower LDL is well established but it had not produced confirmatory outcomes data until JUPITER was stopped early due to an unequivocal benefit. In previous studies, Crestor 10-40mg achieved ATP III LDL targets in 53-80% of patients compared to 18-70% for those on Lipitor 10-80mg. A comparison of the LDL lowering capabilities of Crestor 40mg and Lipitor 80mg shows that 23% of Lipitor-treated patients had a decrease in LDL of 60%+ while about 46% of Crestortreated patients had a decrease of 60%+. In the STELLAR study, Crestor raised HDL by 12-20%, although certain patients receiving Crestor had significant reductions in HDL cholesterol. The surrogate imaging (IVUS/carotid IMT) endpoint trial ASTEROID was presented in March 2006 and METEOR presented in March 2007. METEOR, ASTEROID, and ORION supported the November 2007 atherosclerosis sNDA.
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JUPITER: Crestors First Outcomes Data JUPITER's results were presented at AHA 2008 and published in the NEJM. JUPITER resulted in a 44% (p < 0.0001) reduction in the composite primary endpoint and similar or better reductions across each of its components. Adverse events were for the most part balanced between the study arms. Risk Reduction Better Than Our Expectations After a median of 1.9 years (versus the planned 4 year follow-up), Crestor significantly reduced the primary composite endpoint (1.6% vs. 2.8% in the placebo arm; 0.77 versus 1.36 per 100 person years follow-up) by 44% (HR 95% CI 0.46-0.69; p<0.00001). Reductions in the components of the endpoints included: 65% in nonfatal MI, 48% in the risk of nonfatal stroke and 47% in the risk of hard cardiac events (a composite of MI, stroke, and death from cardiovascular causes). Crestor significantly reduced the primary composite endpoint in women by 46% and in men by 42%. At 24-months, LDLs in the Crestor arm were 54 versus 108mg/dL (50% reduction) in the placebo arm; CRP levels were 2.2 versus 3.5mg/L, respectively (37% reduction).
Outcomes According To JUPTER Study Group
End Point Primary end point Nonfatal myocardial infarction Any myocardial infarction Nonfatal stroke Any stroke Arterial revascularization Hospitalization for unstable angina Arterial revascularization or hospitalization for unstable angina Myocardial infarction, stroke, or confirmed death from cardiovascular causes Death from any cause Death on known date Any death
Source: NEJM
Crestor Placebo (N = 8901) (N = 8901) No. of Patients No. of Patients 142 251 22 62 31 68 30 58 33 64 71 131 16 27 76 83 190 198 143 157 235 247
Hazard Ratio (95% CI) 0.56 (0.460.69) 0.35 (0.220.58) 0.46 (0.300.70) 0.52 (0.330.80) 0.52 (0.340.79) 0.54 (0.410.72) 0.59 (0.321.10) 0.53 (0.400.70) 0.53 (0.400.69) 0.81 (0.670.98) 0.80 (0.670.97)
P-Value <0.00001 <0.00001 0.0002 0.003 0.002 <0.0001 0.09 <0.00001 <0.00001 0.03 0.02
JUPITER Confirms Lowering LDL Still Relevant Post the failure of Vytorins (Merck/Schering-Plough) ENHANCE and SEAS studies there has been debate on the relevance of lowering LDL to very low levels as it relates to outcomes and risk reduction. JUPITERs consistent benefit and magnitude of reduction appears to put this question to rest and in addition, raises the question whether current guidelines that do not recommend LDL treatment below 130mg/dL be reevaluated, especially in patients who have other markers of risk, including increased age, obesity, hypertension, and possibly elevated CRP. But Role Of CRP Less Clear JUPITER resulted in a 37% reduction in CRP levels but dissecting the association between this change and the 44% reduction in the primary endpoint is challenging
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for several reasons: 1) statins, including Crestor, are known to lower both LDL and CRP; 2) JUPITER did not evaluate subjects with normal CRP levels; and 3) JUPITER did not compare other known risk factors against CRP levels. In addition, the CRP diagnostic test has high variability and is elevated with infections and injuries, so abnormally high CRP levels do not always reflect arterial injury or cardiovasculardisease risk. Despite these criticisms, our clinical consultants believe that new NCEP guidelines are likely to be broad, sweeping and recommend routine hsCRP screening of asymptomatic men and women, greater than 50 and 60 years old, respectively, who are not on a statin. For those patients with elevated hsCRPs (above > 2 mg/L) our consultants would recommend initiating a statin. There are three major counter arguments to broader adoption from a health economic perspective: 1) small absolute reduction of 1.2% in the primary endpoint and debate on the number needed to treat; 2) lack of long-term safety data; and 3) the role of CRP screening. The NEJM editorial accompanying the JUPTER publication cites a NNT of 120 to prevent one primary endpoint but the JUPITER authors cite - on the basis of Kaplan Meier estimates - that the NNT for 2 years is 95, and the number needed to treat for 4 years is 31. The delta between these NNTs is likely to fuel a cost-effectiveness debate.
Baseline and change in LDL cholesterol and CRP levels during study period
Baseline LDL cholesterol (mg/dL) Crestor Placebo High-sensitivity CRP (mg/L) Crestor Placebo
p<0.001 for all between-group comparisons
Source: theheart.org; NEJM
12 months 55 110 2.2 3.5
24 months 54 108 2.2 3.5
36 months 53 106 2 3.5
48 months 55 109 1.8 3.3
108 108 4.2 4.3
Crestors Side-Effect Profile For The Most Part Robust In JUPITER Total numbers of reported serious adverse events were similar in the Crestor and placebo groups (1352 and 1377, respectively; p=0.60). Nineteen myopathic events were reported: 10 patients receiving Crestor and 9 receiving placebo. Some physicians have questioned why JUPITER was stopped early without more information about the long-term safety of very low LDL levels in this population. Two abnormal findings could raise some questions especially given that JUPITER was studying the potential benefit of Crestor in patients with metabolic syndrome, although admittedly the absolute difference in two of the findings is small: 1. The median glycated hemoglobin values in the Crestor and placebo groups were 5.9% and 5.8% (p=0.001) 2. The physician-reported diabetes incidence was 270 reports of diabetes in the Crestor arm, versus 216 in the placebo group (p=0.01)
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Monitored Adverse Events, Measured Laboratory Values, and Other Reported Events of Interest during the Follow-up Period*
Crestor (N = 8901) Monitored adverse events Any serious adverse event no. (%) Muscular weakness, stiffness, or pain no. (%) Myopathy no. (%) Rhabdomyolysis no. (%) Newly diagnosed cancer no. (%) Death from cancer no. (%) Gastrointestinal disorder no. (%) Renal disorder no. (%) Bleeding no. (%) Hepatic disorder no. (%) Laboratory values Creatinine, >100% increase from baseline no. (%) Glomerular filtration rate at 12 mo ml/min/1.73 m2 Median Interquartile range Alanine aminotransferase >3 ULN on consecutive visits no. (%) Glycated hemoglobin at 24 mo % Median Interquartile range Fasting glucose at 24 mo mg/dl Median Interquartile range >Trace of glucose in urine at 12 mo no. (%) Other events Newly diagnosed diabetes (physician reported) no. (%) Hemorrhagic stroke no. (%) * Data were missing for some patients for some events The single case of rhabdomyolysis occurred after closure of the trial 1352 (15.2) 1421 (16.0) 10 (0.1) 1 (<0.1) 298 (3.4) 35 (0.4) 1753 (19.7) 535 (6.0) 258 (2.9) 216 (2.4) 16 (0.2) 66.8 59.176.5 23 (0.3) 5.9 5.76.1 98 91107 36 (0.5) 270 (3.0) 6 (0.1)
Placebo (N = 8901) 1377 (15.5) 1375 (15.4) 9 (0.1) 0 314 (3.5) 58 (0.7) 1711 (19.2) 480 (5.4) 275 (3.1) 186 (2.1) 10 (0.1) 66.6 58.876.2 17 (0.2) 5.8 5.66.1
P-Value 0.6 0.34 0.82 0.51 0.02 0.43 0.08 0.45 0.13 0.24 0.02
0.34 0.001
0.12 98 90106 32 (0.4) 216 (2.4) 9 (0.1)
0.64 0.01 0.44
To convert values for creatinine to micromoles per liter, multiply by 88.4. To convert values for glucose to millimoles per liter, multiply by 0.05551. ULN denotes upper limit of the normal range
Source: NEJM
METEOR Met Endpoint But Did Not Reverse Plaque METEOR (Measuring Effects on intima media Thickness: an Evaluation Of Rosuvastatin) was a 24-month, randomized, double-blind, placebo-controlled, international study to evaluate the effect of Crestor 40mg in 984 asymptomatic, hypercholesterolemic patients with a low risk of coronary heart disease and evidence of sub-clinical atherosclerotic disease as determined by a thickened carotid artery wall (maximum intima media thickness (IMT) >1.2 and <3.5 mm). METEOR used B-mode ultrasound imaging to assess and measure change in mean maximum IMT of 12 vessel sites in the carotid artery. Crestor 40mg significantly slowed progression of atherosclerosis compared to placebo (MaxIMT at all sites 0.0014 mm/year versus 0.0131 mm/year; p<0.0001). LDL-C was reduced by 48.8%, compared to 0.3% with placebo (p<0.0001). HDL-C increased by 8.0%, compared to
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2.8% with placebo (p<0.0001). METEOR met its primary endpoint of slowing plaque progression versus placebo but it did not result in plaque reversal.
METEORs Individual Arterial IMT Measurements
Artery
CCA ICA Bulb CCA
Measurement
MaxIMT MaxIMT MaxIMT Mean carotid intimamedia thickness
Results
-0.0038 vs. +0.0084 mm/year with placebo (p<0.0001) +0.0039 vs. +0.0145 mm/year with placebo (p=0.023) +0.0040 vs. +0.0172 mm/year with placebo (p<0.0001) +0.0004 vs. +0.0088 mm/year with placebo (p<0.0001)
Source: www.crestor.com
ORIONs Carotid Atheroma Reduction Data Not Stellar ORION (Outcome of Rosuvastatin treatment on carotid artery atheroma: a magnetic Resonance Imaging ObservatioN) was presented at the 75th European Atherosclerosis Society in 2005. This was a 2-year trial in 43 patients with moderate hypercholesterolemia and asymptomatic carotid disease. The study consisted of a 6week dietary lead-in period, followed by 104 weeks of randomized treatment with either Crestor 5 mg or Crestor 40/80 mg. Following a protocol amendment in May 2002, all subjects receiving Crestor 80 mg were titrated down to Crestor 40 mg (80 mg exposure: n=14; range, 70701 days). A total of 35 patients (mean age 65 years) had matched baseline and 2-year scans. Crestor reduced the proportion of the lipidrich necrotic core (% LRNC) in the most diseased area of atherosclerotic plaques: 5mg and 40mg reduced % LRNC at this site by 17.6% (p=NS) and 35.5% (p=0.006), with 75% and 90%, respectively, of these plaques showing regression over two years from the start of the study. In patients without LRNC plaques at baseline, none developed these plaques over the two-year study duration with Crestor 5mg or 40mg. No significant difference was observed between Crestor 5mg and 40mg for the atherosclerosis endpoints. Results also showed that Crestor 5mg and 40mg significantly reduced LDL-C from baseline by 39% and 58%, respectively (p<0.001 from baseline and Crestor 40mg versus 5mg). Crestor 5mg and 40mg resulted in no significant median (mean) % change in carotid artery wall volume from baseline: 0.5% (-1.2%) and -1.4% (1.1%), respectively (p=NS). Where regression of carotid atherosclerosis was observed, this was associated with more intensive LDL-C lowering as patients whose artery wall volume regressed had an LDL-C reduction of 56% from baseline and achieved a mean LDL-C level of 69mg/dL. Both Crestor 5mg and 40mg were well tolerated. ASTEROID Showed Significant Plaque Reduction, But Study Design Compromised Conclusion ASTEROID (A Study To Evaluate the Effect of Rosuvastatin On Intravascular Ultrasound-Derived Coronary Atheroma Burden) was a 104-week, open label, singlearm, blinded endpoint study designed to study the effect of Crestor 40mg in 507 patients who had undergone coronary angiography and who had evidence of coronary artery disease (CAD). The plaque volume in the target coronary artery was measured at the initial catheterization and again after two years of treatment. ASTEROID used IVUS imaging to measure the effect on the change in plaque volume compared to baseline in the target vessel. Crestor produced a 0.79% (median) reduction in percent atheroma volume in the entire target vessel (p<0.001) first primary endpoint; a 9.1% (median) reduction in total atheroma volume in the most
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diseased 10mm segment of the target vessel (p<0.001) second primary endpoint; a 6.8% (median) reduction in total atheroma volume in the entire target vessel (p<0.001) secondary endpoint; a 53% reduction in LDL-C (p<0.001) and a 15% increase in HDL-C (p<0.001); and significant regression in all patient subgroups including men and women, and older and younger patients. Crestor 40mg was well tolerated in the two-year study. However, the fact that ASTEROID lacked a control group makes these results difficult to interpret. CORONA Misses Endpoint In CHF CORONA, presented at AHA 2007, failed to demonstrate an improvement in morbidity and mortality in CHF patients when Crestor was added on top of standard of care heart failure medication. Patients on Crestor 10mg experienced an 8% reduction (p=0.12) in the combined primary endpoint of cardiovascular death or myocardial infarction or stroke, which was not statistically significant. This reduction was primarily driven by a decrease in atherosclerotic events, i.e., stroke and myocardial infarctions (post hoc analysis p=0.05), which is where statins have been proven to have benefit. In this study, the majority of deaths were due to sudden death, or non-ischemic causes, which did not appear to be impacted by statin therapy. In addition, significantly fewer hospitalizations occurred in patients on Crestor compared to placebo, whether due to any cause (p=0.007), cardiovascular causes (p<0.001), or for worsening heart failure (p=0.01). EXPLORER Showed Incremental Benefit Of Crestor In Combination With Zetia EXPLORER (Examination of Potential Lipid-Modifying Effects of Rosuvastatin in Combination with Ezetimibe versus Rosuvastatin Alone) utilized a combination of Crestor 40mg and Zetia 10mg. Results showed that at six weeks, Crestor and Zetia reduced mean LDL-C from 190mg/dL to 57 mg/dL representing a 70% reduction, compared to Crestor monotherapy, which reduced mean LDL-C from 190mg/dL to 82mg/dL representing a 57% reduction. This reduction in LDL-C enabled significantly (p<0.001) more patients to achieve LDLs of <100 mg/dL (94% vs. 79%) at six weeks with Crestor and Zetia compared with Crestor monotherapy. Both Crestor monotherapy and Crestor combined with Zetia produced similar increases in HDL-C (8.5% vs. 10.8%). Crestor and Zetia were both well tolerated. GRAVITY To Assess A Low Dose Crestor/Zetia Combination In August 2007, enrollment began in the GRAVITY study (Gauging the lipid effects of RosuvAstatin plus ezetimibe Versus sImvastatin plus ezetimibeTherapY). GRAVITY is designed to determine whether treatment with Crestor or simvastatin given as monotherapy or given in combination with Zetia, will lower the LDL-C in patients with hypercholesterolemia and CHD or a CHD risk equivalent, atherosclerosis or a 10-year CHD Risk of >20%. This is an 800 patient study and the primary efficacy endpoint is the change in LDL-C relative to the baseline value. The primary endpoint is assessed after six weeks of combination treatment.
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CRESTOR ATHEROSCLEROSIS AND ENDPOINT STUDIES

Study Full Name Desing/ Results Date Of Presentation/Expected Year Of Completion Presented 2005
ORION
Outcome of Rosuvastatin treatment on carotid artery atheroma: a magnetic Resonance Imaging ObservatioN
The 24-month study to assess the progression of carotid artery atheroma using MRI and ultrasound, in hypercholesterolemic subjects with asymptomatic carotid disease following treatment with low or high dose Crestor demonstrated that Crestor 5mg and 40mg reduced the proportion of lipid-rich necrotic core (LRNC) in the most diseased area of atherosclerotic plaques by 17.6% (p=NS) and 35.5% (p=0.006), respectively. LDL-C was reduced 39 percent and 58 percent, respectively (p<0.001). In terms of individual responses to Crestor 5mg and 40mg, regression of plaques from baseline at the most diseased sites occurred in 75% and 90% of patients, respectively. No significant median (mean) percent change in carotid artery wall volume was observed versus baseline from baseline: 0.5% (-1.2%) and -1.4% (1.1%) at 5 mg and 40 mg respectively (p=NS). Open label, 26-month, non-comparative study using intravascular ultrasound (IVUS) and quantitative coronary angiography (QCA) showed Crestor 40mg led to a 0.79% (median) reduction in percent atheroma volume in the entire target vessel in patients with coronary artery disease who required angiography.
ASTEROID
A Study To evaluate the Effect of Rosuvastatin On Intravascular ultrasound-Derived Coronary Atheroma Burden
Presented 3/06
METEOR
Measuring Effects on intima media Thickness: an Evaluation Of Rosuvastatin
The 24-month intima media thickness (IMT) study in low risk, asymptomatic, hypercholesterolemic subjects (mean LDL-C 154 mg/dL) with sub-clinical evidence of atherosclerosis, demonstrated that patients on Crestor 40mg experienced a 0.0014 mm/yr decrease in the mean max-IMT compared to a progression of 0.0131 mm/yr for those on placebo (p<0.0001). Crestor 40mg was associated with a 48.8 percent reduction in LDL-C and an 8.0 percent increase in HDL-C (both p<0.0001 vs placebo). Crestor 10mg did not significantly improve the prognosis for patients with advanced heart failure. Patients on Crestor10mg experienced an 8% reduction (p=0.12) in the combined primary endpoint of cardiovascular death or myocardial infarction or stroke, which was not statistically significant. This reduction was primarily driven by a decrease in atherosclerotic events, i.e. stroke and myocardial infarctions (post hoc analysis p=0.05). Tthe majority of deaths were due to sudden death, or non-ischemic cause. In addition, significantly fewer hospitalizations occurred in patients on CRESTOR compared to placebo, whether due to any cause (p=0.007), cardiovascular causes (p<0.001), or for worsening heart failure (p=0.01). Study to evaluate the effects of Crestor 10mg on survival and major cardiovascular events in subjects with end stage renal disease on chronic hemodialysis.
Presented 3/07
CORONA
COntrolled ROsuvastatin multiNAtional trial in heart failure
Presented 11/07
AURORA
A study evaluating the Use of Rosuvastatin in patients requiring Ongoing Renal dialysis: an Assessment of survival and cardiovascular events Justification for the Use of statins in Primary prevention: an Intervention Trial Evaluating Rosuvastatin
2008+
JUPITER
15,000 patient study to assess Crestor 20mg in the primary prevention of cardiovascular events in subjects with low LDL-C levels and elevated levels of C-reactive protein (CRP). After a median of 1.9 years (versus the planned 4 year follow-up) Crestor significantly reduced the primary composite end point (1.6% vs. 2.8% in the placebo arm; 0.77 versus 1.36 per 100 person years follow-up) by 44% (HR 95% CI 0.46-0.69; p<0.00001). Reductions in the components included: 65% in nonfatal MI, 48% in the risk of nonfatal stroke and 47% in the risk of hard cardiac events (a composite of MI, stroke, and death from cardiovascular causes). At 24-months LDLs in the Crestor arm were 54 versus 108mg/dL (50% reduction) in the placebo arm; CRP levels were 2.2 versus 3.5mg/L, respectively (37% reduction).
Presented 2008
SATURN
Study of Coronary Atheroma by InTravascular Ultrasound: Effect of Rosuvastatin Versus AtorvastatiN
104-week, parallel-group, multicentre, double-blind, Phase IIIb intravascular ultrasound (IVUS) imaging study of approximately 1,300 patients at 170 centres worldwide designed to measure the impact of Crestor 40mg and Lipitor 80mg on the progression of atherosclerosis in high risk patients.
2011
Source: AstraZeneca; reuters.com; medicalnewstoday.com
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Crestor/ABT-335 Combination In Phase III

In December 2008, FDA approved Abbotts next-generation fenofibrate (ABT335/TriLipix). Trilipix is the first fibrate to be specifically approved for use along with a statin. AstraZeneca and Abbott are developing a coformulation with Crestor. The NDA submission is planned for H2:09 for the management of mixed dyslipidemia. The 12-week, 1,445 patient Phase III, multicenter, randomized, doubleblind, parallel-group study of the combination of TriLpitx and Crestor compared to TriLpitx and Crestor monotherapy in subjects with Type IIa and IIb dyslipidemia met its primary endpoint of a mean percent change in HDL and triglycerides for the combination versus rosuvastatin alone, and mean percent change in LDL for TriLipix combined with rosuvastatin versus TriLipix alone. Our physician consultants are mixed as to whether TriLipix is an advancement over Tricor. Nonetheless, with torcetrapibs failure and uncertainty of the CETP inhibitor class, this product could have significant potential. We forecast TriLipix/Crestor sales of $100MM in 2010, $300MM in 2012, and $600MM in 2015.
Source: Cowen and Company Therapeutics Conference, October 2007
Disadvantaged Position On Key 2009 Formularies A Challenge For Merck/Scherings Vytorin

Vytorin (simvastatin+ezetmibe fixed dose combination) prescriptions are down 47% (Y/Y for January 2009; NRx share 5.0%) stemming from a number of factors. Vytorin has demonstrated significant LDL lowering power but its outcomes study (IMPROVEIT) has yet to report. The controversy surrounding Vytorin/Zetia is due to the fact Zetias mechanism for lowering LDL levels is different from the statins. This may result in different outcomes data and without IMPROVE-IT there is much speculation. The ENHANCE data, which were fully released on March 30, 2008, and the ACC 2008 panel discussion, prompted U.S. physicians to curtail their first-line prescribing, likely reserving Vytorin for patients resistant or intolerant to statins. The results of the failed SEAS trial, top lined in July 2008 and published in a September NEJM edition, have not resulted in significant additional erosion despite missing the primary endpoint and causing an unexplained increase in cancer rates in the Vytorin arm. At AHA 2008, the association of Vytorin with cancer seen in SEAS was again
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refuted. Vytorins U.S. prescription decline appears to have moderated and Vytorin in Europe has not been significantly affected. However, Vytorins disadvantaged position on key U.S. 2009 formularies, including Express Scripts and Caremark, and a lowered status on United Health Cares Medicare Part D formulary, likely will create additional headwind. Vytorin remains on the Medco formulary. Appreciable Vytorin acceleration now is unlikely until outcomes data from the IMPROVE-IT trial are available (potentially not until 2012), but this acceleration is not assured given the fact that Lipitor generics will be available at that time. Our analysis suggests that there is a 40% chance the IMPROVE-IT trial is stopped early but this is likely optimistic with JUPTIER being the exception rather than the rule in cholesterol trials. The SHARP study in renal failure, which will report before IMPROVE-IT, is unlikely to meet its primary endpoint because of intrinsic hurdles within the study population but it will draw significant investor attention. Schering-Plough is in Phase II with a Zetia/atorvastatin fixed-dose combination. We forecast JV Vytorin sales of $2.39B (+2%) in 2009, $2.35B (-2%) in 2010, $2.2B in 2012, and $1.6B in 2015.
VYTORIN CLINICAL ENDPOINT TRIALS Trial Ezetimibe and Simvastatin in Hypercholesterolemia Enhances Atherosclerosis Regression (ENHANCE) Target Study evaluated Zetia 10mg and Zocor 80mg together versus Zocor 80 mg therapy alone in reversing the atherosclerotic thickening of the carotid artery wall in familial hyperlidpiemic patients with high cholesterol levels. Non-invasive ultrasound measurements of the carotid arteries were done at 6,12, 18 and 24 months. Results demonstrated no significant difference in the primary endpoint despite a significant reduction in cholesterol. Four-year study of Vytorin 10/40 versus placebo to examine the reduction of mortality and morbidity in 1,800 patients with aortic stenosis. Study missed primary endpoint, but demonstrated statistically significant benefit in secondary non-AS related end points. An increase rate of malignancies in the Vytorin arm was determined to be unrelated to Vytorin.
Simvastatin and Ezetimibe in Aortic Stenosis (SEAS)
Study Of Heart and Renal Protection (SHARP)
Four-year, event-driven study to evaluate the effects of lowering LDL-C with Vytorin 10/20mg, Zocor 20mg, or placebo in 9,000 patients with chronic kidney disease (CKD) but not necessarily having high cholesterol: 6,000 pre-dialysis patients 3,000 currently undergoing dialysis. Primary composite endpoint includes: non-fatal MI; CV death; non-fatal stroke; fatal stroke; and revascularization, including coronary or non-coronary angioplasty, CABG, nontraumatic amputation. Data likely in 2010/11. Secondary prevention ACS study, including unstable angina (UA), non-ST-segment Improved Reduction of elevation acute myocardial infarction (NSTEMI) and ST-segment elevation acute Outcomes: VYTORIN Efficacy International Trial (IMPROVE IT) myocardial infarction (STEMI). Patients will be randomized to either Vytorin 10/40 mg or simvastatin 40 mg per day. Composite primary end point includes CV death, major coronary events, and non-fatal stroke. Trial size increased from 12,500 to 18,000 patients in 3/08 to speed up accruement of the planned 5,250 events. Patients are required to be followed for a minimum of 2.5 years. In 9/08 more than 12,000 patients were enrolled. Results expected 2013/14. Interim efficacy analysis will take place when 50% of events have occurred (estimated H2:09)
Source: Company reports; clinicaltrials.gov
ENHANCE Data Unconvincing

The complete ENHANCE data presented at ACC 2008 and published in the NEJM revealed that, despite significant LDL and CRP reductions in the Vytorin arm, all but one endpoint trended in the Zocor-alone arms favor with no statistical difference
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between the arms. Several explanations have been put forward in an attempt to explain this including: 1) inability to impact IMT in heavily statin-pretreated patients through incremental LDL-lowering; 2) ENHANCEs imaging methodology and relevance, and 3) Zetias effectiveness beyond LDL reduction. Vytorins side-effect profile was no different than placebo. Only One ENHANCE Secondary Endpoint Trended In Vytorins Favor The primary outcome measure, the change from baseline in the mean (SE) intima media thickness of the carotid artery, was 0.00580.0037mm in the Zocor-only group and 0.01110.0038mm in the Vytorin group. This difference (0.0053 mm) did not reach statistical significance (p=0.29). The change in the average intimamedia thickness over time did not differ significantly between the two study groups (p=0.17 for the interaction between treatment and time). There was a slight increase in the mean intimamedia thickness over time in both groups; at 2 years, estimates were 0.00950.0040 mm in the simvastatin-only group (p=0.02) and 0.01210.0038 mm in the Vytorin group (p<0.01). In the secondary outcome measures, regression in the mean carotid-artery intimamedia thickness was seen in 142 of 320 patients (44.4%) in the Zocor-only group and in 146 of 322 patients (45.3%) in the combinedtherapy group (p=0.92); this was the only end point in Vytorins favor. New plaque formation (which was defined as an intimamedia thickness of more than 1.3 mm) was seen in 9 of 320 patients (2.8%) in the Zocor-only group and in 15 of 322 Vytorin patients. Vytorins Safety Confirmed In ENHANCE ENHANCE confirmed Vytorins safety, with no differences in adverse event rates seen between the two arms. There were no CK or liver function abnormality differences noted. Why No Change In IMT Depth Despite LDL Reduction? Several explanations have been put forward in an attempt to explain why there was no change in IMT depth despite significant LDL reduction. These explanations include: 1) inability to impact IMT in heavily statin-pretreated patients through incremental LDL-lowering; 2) imaging methodology; and 3) Zetias effectiveness despite its significant LDL reduction. Heavily Statin Pretreated FH Patients May Not Respond. Unlike the previous FH studies including ASAP (Atorvastatin vs Simvastatin on Atherosclerosis Progression), the baseline IMTs were much lower and the rate of IMT change much less in ENHANCE, raising the possibility that there may be limits to decreasing the progression of IMT post previous statin therapy, particularly in a backdrop of a modest baseline IMT. On the other hand, 19% of patients not receiving statins at the time of enrollment and those patients with IMT readings above the mean fared no better. Imaging Methodology Largely Dispelled As A Reason For Failure. Variability in the IMT images and the potential inability to discern small differences in readings have been raised as reasons for ENHANCEs failure, but the investigators demonstrated very limited intergroup variability, suggesting that this was not a problem. The ASAP trial used the same methodology and therefore most experts believe the technique is sufficient to detect small changes. Our cardiology consultants believe that IMT readings using EKG gaiting and cine-loop readouts
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would have improved the quality of the results but ultimately this did not impact the unfavorable trends, especially the new plaque formation going the wrong way. Separately, the significance of IMT as a relevant surrogate has been debated in an effort to put the ENHANCE results into context. However, it is believed that a CV benefit is unlikely to manifest in the absence of an IMT benefit. Zetias Effectiveness Despite Its Significant LDL Reduction. This is unlikely to be resolved prior to the IMPROVE-IT data. SANDS Post-Hoc Analysis Unlikely To Change Perceptions In early December 2008, the online version of the JACC published a post-hoc analysis of the SANDS trial. In this study, those patients managed on aggressive LDL lowering therapy plus Zetia demonstrated a carotid intima-media thickness (CIMT) regression no different from the aggressively managed group not requiring Zetia. These data are in contrast to the ENHANCE results which demonstrated a CIMT progression in patients on Vytorin. This SANDS analysis was not prospectively defined and the absolute number of patients (69 patients in the aggressively managed group receiving Zetia) was small. We conclude that this publication, that demonstrated Zetias effectiveness in patients who could not get to an aggressive LDL goal on statin therapy alone, is a modest positive for Zetia, and reinforces Zetia as a niche therapy for some patients. Details From the SANDS Post-Hoc Analysis The post-hoc analysis compared the effects on CIMT in diabetic Native Americans across three groups: an aggressively managed group (LDL <70 mg/dl, nonHDL <100 mg/dl, and blood pressure <115/75 mm Hg); 2) an aggressively managed group who received Zetia; and 3) a standard managed group (LDL <100 mg/dl, nonHDL <130 mg/dl, and blood pressure <130/80 mm Hg), some of whom received Zetia but were excluded from this analysis.
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Selected Data From SANDS Post-hoc Analysis Standard Group N=204 Mean (95% CI) CIMT Baseline 36 months Mean change, 36 months DL-C, mg/dl Baseline Mean change, 36 months Mean Change at 36 Months 0.794 (0.77 to 0.82) 0.833 (0.81 to 0.86) 0.039 (0.02 to 0.06) Aggressive Group Zetia (+) Zetia (-) N=69 N=154 Mean (95% CI) Mean (95% CI) 0.819 (0.77 to 0.86) 0.794 (0.75 to 0.84) -0.025 (-0.05 to 0.003) 0.813 (0.78 to 0.84) 0.801 (0.77 to 0.83) -0.012 (-0.03 to 0.008)
102 (98 to 106) 103*(100 to 105) 0.9*(-3.6to5.4)
108 (101 to 116) 78 (72 to 84) -31.1 (-36.7 to -23)
101 (97 to 106) 68 (65 to 72) -32.3 (-38 to -26.6)
CRP, mg/dl 2.80 (2.4 to 3.3) 3.25 (2.5 to 4.3) 2.58 (2.1 to 3.2) Baseline Mean change, 36 months 3.3 (2.8 to 3.9) 2.96 (2.1 to 4.2) 1.99 (1.6 to 2.5) -11%(-5to26) -24% (-47 to -1%) -26% (-47 to -4%) Mean Change at 36 Months Values are mean (95% confidence interval) The values were determined using the ANOVA test. Sample size for baseline and 36 months may not be equal. Therefore, the mean changes apply to the sample where both measures exist. *Significant difference between and S & Z+; Significant difference between and E (based on logarithm of CRP) Significant difference between Z+ and Z-; 36-month lipid variables are based on the average of 24-30-and 36-month observations. Source: doi:10.1016/j.jacc.2008.10.031
Points of interest .in favor of the analysis and/or Zetia 1. Despite a higher final LDL level in the Zetia arm, the CIMT regression was similar to the statin alone arm. 2. Nearly a third of the aggressively-managed patients (69 out of 223) and 10% of the standard arm required the addition of Zetia. 3. There were no serious adverse events related to lipid therapy in any group. There were five cases of cancer of which none were in the aggressive group plus Zetia. .against the analysis and/or Zetia 1) Post-hoc analysis with a small sample size in a non-representative population.
2) Lower baseline blood pressure changes in the Zetia group although declines in the blood pressure were less at 36 months than the non-Zetia group which could have been a negative bias. 3) The analysis excluded 25 patients treated with Zetia in the non-aggressive arm. When including these patients into the non-aggressive arm analysis, the CIMT change at 36 months was +0.041 mm versus the reported +0.039 mm despite an LDL change of 1.5 mg/dl versus 0.9 mg/dl.
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SEAS Raises More Questions Than Answers

The Simvastatin and Ezetimibe in Aortic Stenosis (SEAS) study was a randomized, double-blind, placebo-controlled, multicenter study of a minimum 4 years duration investigating the effect of lipid lowering with Vytorin 10/40mg daily in asymptomatic, statin-naive aortic stenosis (AS) patients with baseline LDLs of 139+36 mg/dL; SEAS was initiated before the new NECP guidelines). In an unusual manner and earlier than expected, the SEAS principal investigator together with a panel of expert physicians broadcast the top-line data from SEAS in July 2008. The complete data were published in NEJM in September 2008. There was no significant difference between the treatment groups for the combined primary endpoint (cardiovascular death, aortic valve replacement (AVR) surgery, congestive heart failure (CHF) as a result of progression of AS, nonfatal myocardial infarction, coronary artery bypass grafting (CABG), percutaneous coronary intervention (PCI), hospitalized unstable angina, and nonhemorrhagic stroke): 333 patients on Vytorin had an event versus 355 on placebo; hazard ratio (HR) 0.96. There was no significant difference for the secondary endpoint of aortic valve disease events alone (308 versus 326; HR 0.97). Vytorin did, however, produce a statistically significant 22% (p=0.02) reduction in the secondary endpoint of atherosclerotic events alone: 148 (15.7%) in the Vytorin group versus 187 (20.1%) in the placebo group. This reduction was driven by a disproportionate reduction in CABG. Compared with placebo, Vytorin reduced LDL by an average of 61%, corresponding to a reduction of about 76 mg/dl, and this effect was sustained throughout the study. This powerful LDL lowering in the face of only a 20% reduction in ischemic events has raised some questions as to whether Zetia is contributing a benefit. Vytorin was generally well tolerated, with no significant differences between the treatment groups. A total of 158 patients were recorded with a serious adverse event attributed to cancer. More of these events were observed among patients assigned Vytorin than among those assigned placebo (93 [9.9%] versus 65 [7.0%]; unadjusted p=0.03), and there were also slightly more cancer deaths (39 [4.1%] versus 23 [2.5%]; unadjusted p=0.05). These differences were not related to any particular type of cancer and did not become significantly larger with more prolonged treatment. Analyses of the ongoing SHARP and IMPROVE-IT safety databases presented in July and again at the AHA 2008 do not support the hypothesis that Vytorin causes cancer. We reviewed the SEAS data and compared it to two other statin aortic stenosis endpoint studies, SALTIRE and RAAVE (table on next page). These two studies were not M&M studies but SALTIRE did have secondary CV endpoints. RAAVE, a study with Crestor versus placebo, was positive. However, the baseline characteristics were tilted in Crestors favor, with higher total and LDL baseline cholesterols in the Crestor arm. SALTIRE, a study with Lipitor 80mg, failed to demonstrate a difference in the aortic stenosis associated endpoints despite resulting in 54% greater LDL reduction. Interestingly, the secondary composite endpoint, which included AS and ischemic endpoints, trended favorably for the Lipitor treated patients. Because SALTIRE had similar baseline characteristics to those seen in SEAS, we believe it a useful comparator.
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EFFICACY COMPARISON OF STATIN TRIALS IN AORTIC STENOSIS Rosuvastatin Affecting Aortic Valve Endothelium to Slow the Progression of Aortic Stenosis (RAAVE)* median of 25 months Crestor 61 73.4+8.5 78.4+13.6 154.4+18.6 Placebo 60 73.9+9.4 73.4+13.6 146.6+26.2 A Randomized Trial of Intensive LipidLowering Therapy in Calcific Aortic Stenosis (SALTIRE) median of 73+24 weeks Lipitor 77 68+11 82+10 144+18 Placebo 78 68+10 81+12 144+21 Simvastatin and Ezetimibe in Aortic Stenosis (SEAS) 464 events or 4.5 years Vytorin 944 67.7+9.4 82.0+10.6 145.6+20.4 Placebo 929 67.4+9.7 82.0+10.0 144.0+20.0
Study Follow-up
N Age Baseline diastolic blood pressure Baseline systolic blood pressure Lipid Profile Baseline total cholesterol (mg/dl) Change Baseline LDL Change % change Baseline HDL Change Baseline CRP Change Echocardiography Peak jet velocity (m/s) New measuremeent or change Aortic valve area (cm2) New measuremeent or change Ejection Fraction New measuremeent or change
245.5+ 41.7 175.4+31.6 159.7+33.4 93.3+21.1 42% 55.0+13.2 NG 2.7 (1.16.9) 2.3 (0.95.1)
p<0.001
193.7+47.9 195.1+ 37.1 118.6+37.4 117.8+29.2 53.1+12.2 NG
p=0.830
220+38 132+27 137+34 63+23 54% 53
217+34 209+35 133+30 130+30 0 53
223+40
221+38
p<0.001
p=0.882
140+36 53+23 61% 58+17 NG NG NG
139+35
58+17 NG NG NG
p=0.03
2.4 (1.06.9) 1.9 (0.84.9) p=0.363
3.65+0.64 3.73+0.74 1.23+0.42 1.16+0.42 54.3+3.1 58.0+3.4
p=0.112
3.62+0.61 3.86+0.62 1.20+0.35 1.11+0.35 55.6+4.4 57.9+3.7
p<0.0001
3.39+0.62 0.199+0.210 1.03+0.4 -0.079+0.107
3.45+0.67 0.203+0.208 1.02+0.41 -0.083+0.107
3.09+0.55 0.61+0.59 1.29+0.48
3.10+0.54 0.62+0.61 1.27+0.46
p=0.01
p<0.0001
67+6 p=0.017 n/% 13/16.9% n/% 21/26.9% n /% 333/35.3% 148/15.1% 308/32.6% 47/5.0% 267/28.3% 105/11.1%
66+7
p<0.001
Outcomes Primary composite end point Ischemic events composite end point Aortic-valve disease events alone CV Death Aortic-valve replacement 3 Hospitalization for severe AS Death from any cause 4 4 Hospitalization for any cause Lipitor did not halt the progression of calcific aortic stenosis, outcomes are secondary measure * Crestor slowed the hemodynamic progression of aortic stenosis NG= not given; NS= not statistically different
p=0.19
3/3.9% 11/14.3% 3/3.9% 3/3.9% 10/13%
3/3.8% 19/24.4% 5/6.4% 5/6.4% 12/15.4%
p=1.00 p=0.17 p=0.73 p=0.74 p=0.84
n /% 355/38.2% 187/20.1% 326/35.1% 56/6.0% 278/29.9% 100/10.8%
p=0.59 p=0.02 p=0.73 p=0.74 p=0.97 p=0.8
Source: J Am Coll Cardiol 2007;49:55461,Am Heart J 2005;149:234- 9., N Engl J Med 2005;352:2389-97; SEAS press conference, NEJM359;13
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SHARP: Pre-dialysis Subgroup Could Be Positive

SHARP (Study of Heart And Renal Protection) is assessing Vytorin 10/20 in 9,000 patients with chronic kidney disease (CKD). 6,000 patients are pre-dialysis and 3,000 patients are already on dialysis. The trial will conclude when all patients have been followed for a mean of 4.5 years and at least 1,100 major cardiovascular events have occurred. The composite endpoint includes: non-fatal MI; CV death; non-fatal stroke; fatal stroke; and revascularization, including coronary or non-coronary angioplasty, CABG, non-traumatic amputation. Key inclusion criteria included: no definite indication or no contraindication for a statin; predialysis patients (creatinine >1.7mg/dl in men; > 1.5 mg/dl in women) or dialysis patients. A key exclusion criterion was a history of MI or coronary revasculature. Interestingly, the study was designed to enroll three arms for a year. The 1,000 patient Zocor 20mg arm (Arm 3) would then discontinue and the patients would be split between placebo (Arm 1) and Vytorin 10/20 (Arm 2). However those patients would not constitute the primary efficacy analysis.
Randomization Scheme And Timeline
Arm 1 Placebo (4,000 pts) Arm 1 Placebo
Arm 3a Placebo 500 pts Arm 3 Simva 20mg only (1,000 pts)
Placebo
1 year
500 pts
Arm 3b Simva 20mg + Zetia 10mg
Arm 2 Simva 20mg + Zetia 10mg (4,000 pts)
Arm 2 Simva 20mg + Zetia 10mg
6 weeks run-in Screening Randomization 1 year
3+ years Study end
Source: SHARP investigators brochure
SHARP Powered To Demonstrate A 20% Reduction In Risk All patients are to be followed for at least 4 years and until at least 1,100 major CV events have occurred in order to have a 90% power to detect a 20% proportional reduction in CV events at p < 0.01. The assumptions behind the 20% relative risk reduction included: a 3% annual event rate in the pre-dialysis patients and a 5% annual event rate in dialysis patients was assumed to give an overall combined annual event rate of 3.7%. It was further assumed that 20% of non-CHD events are unlikely to be influenced by cholesterol lowering and that the LDL lowering over 4year duration would be 38-40mg/dl. Cowen Statistical Approach To Analyze SHARP We used statistics based on simple event rates to perform an analysis in the predialysis, the dialysis and the pooled groups. The primary endpoint is determined
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from the pooled group data. We distributed the target number of events between treatment arms until statistical significance is reached. We also evaluated the impact of reduced sample size due to dropouts, assuming equal rates for both treatments but this did not alter the results. The limitations of using simple events versus the planned Kaplan-Meyer analysis are that it assumes similar lost-to-follow-ups between treatment groups and therefore only approximates the final analysis. This methodology was chosen as it was not possible to perform time-to-first event analysis without the actual data and simple event rates contain all the information one needs to perform statistical tests.
Cowen Assumptions For SHARP Statistical Analysis

Overall N=8000 excluding the 1,000 patient substudy 1,100 events Pre-dialysis patients, assuming 2/3, N=5,334 600 events Dialysis patients, assuming 1/3, N=2,666 500 events
Source: Cowen and Company assumptions
We compared SHARP to other statin trials to help hone in on a likely outcome. The most relevant study was 4D. The 4D study evaluated Lipitor 20mg in type 2 diabetes patients on dialysis. This trial failed to demonstrate any difference in outcome versus placebo. It was concluded from 4D that once patients are on dialysis, statins are unlikely to impact outcome. At this stage of disease, the cardiovascular pathology appears unrelated to cholesterol and ischemia. The missed primary endpoint in 4D drove our analysis to look beyond the pooled group in SHARP. We analyzed the dialysis and pre-dialysis groups to see if the dialysis group would drive a negative outcome once pooled.
Comparable Statin Studies
Name Drugs Study type LDL baseline (mg/dl) LDL reduction Primary end point (placebo vs drug) Diff RRR p value
Source: Cowen and Company
4D Lipitor 20 vs placebo Type 2 DM/ Dialysis 127 42% 38 vs 37
4S Simva 20/40 vs placebo 2o prevention 272 38% 11.5 vs 8.2
HPS Simva 40 vs placebo 2o prevention 132 36 25.2 vs 19.8
1% 8% 0.37
3.20% 30% <0.001
5.40% 27% <0.0001
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Cowen Statistical Analysis Suggests Pre-dialysis Group Could Demonstrate A Statistical Difference Using the simple event rate methodology of distributing the events between the two arms, we were able to determine when the Vytorin events would be statistically significant (shaded columns in figure below). For example, in the dialysis group (middle column), a Vytorin event rate of less than or equal to17.18% is not different from placebo. Therefore a relative risk reduction of 14.8% and greater would be required for the dialysis group to achieve statistical significance. In the table above we concluded that, based on the 8% relative risk reduction from 4D (dialysis study), the dialysis group in SHARP would likely miss the endpoint, as the delta between 8% and 14.8% is too steep to bridge. However, based on the relative risk reductions in 4S and HPS, a positive outcome is possible. We assume that Vytorin 10/20 will have similar LDL reduction capability compared to Zocor 40 in 4S and HPS. In order for the overall trial, i.e. the pooled group, to be successful, Vytorin 10/20 will be required to show a risk reduction of greater than 15.5%. This provides some leeway versus the planned 20% reduction.
Simple-event-rate Statistical Analysis Of SHARPs Pre-dialysis, Dialysis, And Pooled Groups
% of Events
Group Placebo Vytorin10/40 12.07% 10.42% Pre-dialysis 12.11% 10.39% 12.15% 10.35% 12.19% 10.31% 20.18% 17.33% Dialysis Group 20.26% 17.25% 20.33% 17.18% 20.41% 17.10% 14.48% 13.00% Pooled 14.50% 12.98% 14.53% 12.95% 14.55% 12.93%
Relative Risk Reduction (Vytorin 10/20 placebo)
10.3%
10.7%
11%
11.3%
13.7%
14.2%
14.8%
15.4%
14.1%
14.8%
15.5%
16.2%
4S and HPS suggest positive outcome possible

8% RRR in 4D Study suggests unlikely
40/60 Chance That IMPROVE-IT Is Stopped Early

We took a close look at possibility of IMPROVE-IT being stopped early for efficacy. Our analysis suggests that IMPROVE-IT has a 40% probability of being stopped early although the timing is uncertain, and most cholesterol trials are not stopped early. The IMProved Reduction of Outcomes: Vytorin Efficacy International Trial (IMPROVEIT) is a multicenter, randomized, double-blind, active-control trial designed to test the hypothesis that Vytorin will result in an increased clinical benefit on cardiovascular outcomes relative to simvastatin monotherapy in patients with ACS. IMPROVE-IT will recruit up to 18,000 moderate- to high-risk patients stabilized after ACS. Patients are randomized in a 1:1 ratio to once-daily doses of either Vytorin 10/40 mg or simvastatin 40 mg. If patients LDLs do not go below 79 mg/dL at follow-up visits, the simvastatin dose will be increased to 80 mg in a double-blind manner. The primary endpoint is the first occurrence of cardiovascular death, nonfatal myocardial infarction, re-hospitalization for unstable angina, coronary revascularization (occurring at least 30 days after randomization), or stroke. Patients will be followed for a minimum of 2.5 years and until at least 5,250 patients experience a primary endpoint.
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IMRPOVE-IT Design
Source: Am Heart J 2008;156:826-32
Statistical Design, Analysis, And Amendments An initial sample size of 10,000 patients was selected for IMPROVE-IT to provide a 90% power to detect a 10% relative risk reduction in the primary endpoint at a pvalue of 0.05. The trial originally was planned to continue until a minimum of 2,955 primary endpoint events had occurred and each patient completed a minimum 2.5 years of study exposure. The sample size was calculated using an anticipated event rate at 2 years of 23.5% in the control arm (simvastatin 40 mg). The investigators made several changes to the protocol based on changes to their original assumptions. Their original assumption (not known) about the relationship between LDL-C reduction and clinical benefit was changed to reflect a 1.6mg/dL LDL change translates into a 1% clinical benefit. The expected 15mg/dL difference in LDL between the 2 groups (based on previous Vytorin studies) would then translate into a 9.375% hazard reduction. 5,250 events were therefore required to have sufficient power to detect a significant reduction in risk. Accordingly, the sample size was increased to 12,500. Subsequent review of pooled and blinded data from IMPROVEIT, as well as of rates in prior studies in patients who would meet IMPROVE-IT eligibility criteria, found that a rate of 0.43% per month was a reasonable estimate. The investigators felt that to complete the trial in a timely fashion, 18,000 patients were required. Duke Clinical Research Institute continues to monitor event rates and model projections to refine the final sample size. Interim Efficacy Analysis To Be Done When 50% Of The Total Primary Events Are Available. One interim efficacy analysis will be performed when approximately 50% of the expected total primary events are available. It is expected that a nominal p-value of 0.003 will be used for the interim analysis.
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Can IMPROVE-IT Be Stopped At The Interim Efficacy Analysis? Our analysis suggests that if the baseline LDL is greater than 105mg/dL the trial could be stopped early. This conclusion is based on a statistical analysis we performed, that was based on criteria for the interim efficacy analysis provided by the IMPROVE-IT authors. We have no visibility when the analysis will be done but believe that it is likely in 2009 given that 11,000 patients were enrolled as of June 2008. Our Analysis Suggests A Relative Risk Reduction Between 9.2-9.8% Required To Reach Significance We made two assumptions for this analysis: 1) number of patients enrolled at the time of the interim analysis and 2) the number of events. We then distributed the events between the two arms to determine when a p value of 0.003 would be achieved. We assumed a total number of events of 2,600 (~50% of the planned event rate which is 2,625) and ran a sensitivity analysis using 8,000, 10,000, and 12,000 patients for the denominator. Our analysis determined that a relative risk reduction of between 9.2-9.8% (1 minus 0.908 and 1 minus 0.902) would be required to reach significance (see Table 1). The event rates, which are dependent on the denominator, ranged between 22 and 35%, which is higher than most secondary prevention studies.
Table 1: Relative Risk Reductions Required To Reach Statistical Significance At Interim Efficacy Analysis
Interim Number Of Patients Simvastatin n 1365 1364 1363 1362 1361 1360 1368 1367 1366 1365 1364 1363 1370 1369 1368 1367 1366 1365 % 34.13 34.1 34.08 34.05 34.03 34 27.36 27.34 27.32 27.3 27.28 27.26 22.83 22.82 22.8 22.78 22.77 22.75 95% CI (32.66, (32.63, (32.61, (32.58, (32.56, (32.53, (26.13, (26.11, (26.09, (26.07, (26.05, (26.03, (21.78, (21.76, (21.74, (21.73, (21.71, (21.69, 35.62) 35.59) 35.57) 35.54) 35.52) 35.49) 28.62) 28.60) 28.58) 28.56) 28.54) 28.52) 23.92) 23.90) 23.88) 23.87) 23.85) 23.83) n 1235 1236 1237 1238 1239 1240 1232 1233 1234 1235 1236 1237 1230 1231 1232 1233 1234 1235 Vytorin % 30.88 30.9 30.93 30.95 30.98 31 24.64 24.66 24.68 24.7 24.72 24.74 20.5 20.52 20.53 20.55 20.57 20.58 95% CI (29.45, (29.47, (29.49, (29.52, (29.54, (29.57, (23.45, (23.47, (23.49, (23.51, (23.53, (23.55, (19.48, (19.50, (19.52, (19.53, (19.55, (19.57, 32.33) 32.36) 32.38) 32.41) 32.43) 32.46) 25.86) 25.88) 25.90) 25.92) 25.94) 25.96) 21.54) 21.56) 21.58) 21.59) 21.61) 21.63) P-Value ChiFisher's Difference Square Exact Test Test -3.25 0.0021 0.0019 -3.2 0.0024 0.0022 -3.15 0.0028 0.0026 -3.1 0.0033 0.0031 -3.05 0.0039 0.0036 -3 0.0045 0.0042 -2.72 -2.68 -2.64 -2.6 -2.56 -2.52 -2.33 -2.3 -2.27 -2.23 -2.2 -2.17 0.0021 0.0024 0.0028 0.0033 0.0038 0.0044 0.0021 0.0024 0.0028 0.0032 0.0037 0.0043 0.0019 0.0023 0.0026 0.003 0.0035 0.0041 0.0019 0.0022 0.0026 0.003 0.0034 0.004 Rel. Risk 0.905 0.906 0.908 0.909 0.91 0.912 0.901 0.902 0.903 0.905 0.906 0.908 0.898 0.899 0.901 0.902 0.903 0.905
8,000
10,000
12,000
Key: dashed border is Rel Risk at which p<0.003
From P-Values To LDL Reduction: Probability Of Early Stoppage 40% Using an average 9.5% relative risk reduction from Table 1 and assuming the 1% benefit for each 1.6mg/dl in LDL reduction, we calculate that a 15.2mg/dL LDL difference between the two arms is required to demonstrate significance. This assumes clinical benefit is achieved regardless of the mechanism by which LDL is reduced (e.g. inhibition of production in the liver by a statin versus inhibition of absorption by Zetia). In order to determine whether early stoppage is achievable, we ran several sensitivity analyses varying baseline LDLs and the percent of LDL reduction in the two arms (Table 2). This resulted in an array of LDL differences between the two arms. Utilizing the calculated minimum of 15.2mg/dL difference between the arms, we determined the likelihood of early stoppage based on data from previous studies. Given that Vytorin generally results in a 15% greater LDL
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reduction when compared to simvastatin, our analyses suggests IMPROVE-IT could be stopped early if the baseline LDL is greater than 105mg/dl. Given the inclusion criteria of an LDL <125mg/dl or <100mg/dl if on prior statins, we assume that the average baseline could range between 100 and 115mg/dL; as a reference the LDL baseline in PROVE-IT (Lipitor vs. Pravachol ACS study) was 106 mg/dl and in JUPITER (high hsCRP and normal LDLs) was 106 mg/dL. Given that most cholesterol trials are not stopped early, we believe IMPROVE-IT has a 40% probability of being stopped early, which is higher than would be expected for interim efficacy analyses.
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Table 2: Sensitivity Analysis Varying Baseline LDLs And % LDL Reductions, To Determine Statistically Significant Interim LDL Differences Between Vytorin And Simvastatin Arms
Delta in final LDLs with a baseline LDL of 105mg/dl 105 % reduction from baseline in simva arm 65% 60% 55% 50% 45% 40% 35% 30% 40% 26.25 21.00 15.75 10.50 5.25 (5.25) (10.50) % reduction from baseline in Vytorin arm 45% 50% 55% 60% 21.00 15.75 10.50 5.25 (5.25) (10.50) (15.75) 15.75 10.50 5.25 (5.25) (10.50) (15.75) (21.00) 10.50 5.25 (5.25) (10.50) (15.75) (21.00) (26.25) 5.25 (5.25) (10.50) (15.75) (21.00) (26.25) (31.50) 65% (5.25) (10.50) (15.75) (21.00) (26.25) (31.50) (36.75)
Key Does not meet statistical significance Borderline for meeting statistical significance Meets statistical significance Source: Cowen and Company
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Zetia/Vytorin Joint Venture Agreement Has Standstill Provision Schering disclosed in an 8-K filing in 2002 that it has an anti-takeover provision in its Zetia/Vytorin joint venture agreement with Merck that was inked in May 2000. The change-of-control provision states that Schering will not enter into discussions with another company regarding any business arrangement without first obtaining written permission from Merck. In the event that a third party makes a bid for Schering, Merck would have the right of first refusal to buy Scherings portion of the Merck/Schering Joint Venture. However, the definition of change in control in the agreement appears to provide Schering with merger flexibility. Schering could avoid triggering Mercks buyout option by retaining at least 40% ownership in the new company, preventing an individual shareholder from holding 20%+ of the new company, and if Schering contributes at least half of the board of directors. The purchase price would be assessed by two internationally recognized investment banking firms. Interpretation Of Contract Terms Will Determine Flexibility In Licensing New Drugs. Schering and Merck both are pursuing new compounds for the treatment of cardiovascular disease internally and externally. It appears that interpretation of the Merck/Schering-Plough cholesterol JV contract is a contentious issue between the two companies. Any resolution does not appear imminent. Cholesterol Absorption Inhibitors Still A Viable Target Sanofi-Aventis AVE5530 Appears Inferior To Zetia In Phase II. Sanofi-Aventis AVE 5530 is currently in Phase III clinical studies. In preclinical animal models it has shown potency better or comparable to Zetia. Additive effects have also been demonstrated in combination with statins. Initial safety data suggest that, upon repeated administration, AVE 5530 is safe and well tolerated up to a dose of 100 mg. In a four-week randomized, double-blind, parallel-group, placebo-controlled, Zetiacalibrated, multicenter study evaluating 4 doses and 2 dose-regimens (day and night) of AVE5530 in patients with mild to moderate hypercholesterolemia, the highest dose tested did not match Zetias effectiveness. There was no dose response after 50mg and AVE5530 appeared to have better efficacy when taken at night, however Sanofi-Aventis did not test 50mg nor 100mg at night. The Phase III program was initiated in July 2008, currently four pivotal studies are ongoing: A simultaneous filing with a fixed-dose combination with a statin (probably Lipitor) is planned for 2010.
AVE5530 Phase IIb Dose-Ascending Placebo & Zetia Controlled Study
Pbo (N=28) % LDL from placebo P value Source: Sanofi-Aventis
Ezetimibe 5mg am (N=25) (N=31) -19.5 <0.0001 -4.8 0.1650
25mg am (N=37) -10.4 0.0019
25mg pm (N=26) -14.5 <0.0001
50mg am (N=29) -12.2 0.0002
100mg am (N=26) -12.0 0.0001
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AVE5530 PIVOTAL PROGRAM Title Evaluation of Safety and Efficacy of AVE5530 as Add-on to Ongoing Statins in Patients With Primary Hypercholesterolemia Evaluation of Efficacy and Safety of AVE5530 in Patients With Primary Hypercholesterolemia Evaluation of Efficacy and Safety of AVE5530 co-Administered With Atorvastatin in Primary Hypercholesterolemia Evaluation of Safety and Efficacy of AVE5530 as Add-on to Ongoing High Doses of Statins in Patients With Primary Severe Hypercholesterolemia Recruitment Recruiting Active, not recruiting Active, not recruiting Recruiting Phases Enrollment Start Date Completion Date Last Updated Phase III Phase III Phase III Phase III 1000 825 1725 600 Jul-08 Jul-08 Aug-08 Oct-08 Mar-10 Mar-10 Mar-10 Apr-10 28-Nov-08 11-Dec-08 9-Jan-09 6-Feb-09
Source: clinicaltrials.gov
MTP Resurgence Viewed Cautiously Two compounds, SLx-4090 (Surface Logix) and AEGR-733 (Aegerion), lead the MTP inhibitor resurgence following the cessation of most clinical programs due to a high incidence of GI and hepatic adverse events, specifically fatty liver. MTP mediates triglyceride absorption and chylomicron secretion from the intestine and very-lowdensity lipoprotein (VLDL) secretion from the liver by linking lipid molecules with apolipoprotein B (apoB). Inhibition of MTP reduces the level of all apoB-containing lipoproteins, including LDL. Surface Logixs SLx-4090, currently in Phase IIa development, was designed to act selectively at the enterocytes lining the GI tract without being systemically absorbed. The single-dose Phase I study presented at AHA 2006 demonstrated safety up to 800mg and no signs of systemic absorption. The Phase Ib tested doses up to 200mg TID. The company intiated a Phase II study in January 2009 using 50 and 100mg doses due to bowel effects seen at 200mg. AEGR-733 (Aegerion), previously BMS-201038 (Bristol-Myers Squibb), is now being developed at lower doses and in combination with other agents. AEGR-733 is in two Phase III programs in FH patients. In 2001, Bristol dropped the drug due to elevations in AST and ALT. Aegerion presented Phase II data at DALM 2007. The patient population consisted of men and women 18-70 years of age, with baseline LDLs in the range of 130 to 250 mg/dL, and 400 mg/dL TGs. The patients were randomised and assigned to daily doses of Zetia 10 mg (n = 23), ARGR-733 (n = 28) at three dose-levels (5 mg, 7.5 mg, and 10 mg), or the combination AEGR-733 plus Zetia (n = 28) over the course of this 12-week study. Patients in the Zetia arm experienced a 22% decrease in LDL-C by week 12 of the study, while patients assigned to AEGR-733 alone showed dose-dependent reductions in LDL-C levels ranging from 19% to 30% (P =.013 for 10 mg AEGR-733 single-agent vs Zetia alone). The synergistic effect of AEGR-733 when used in combination with Zetia was significant: patients experienced dose-dependent decreases in LDL-C levels ranging from 35% to 46% (P <.001 for 10 mg AEGR-733 in combination vs Zetia alone). The adverse events were mild, most common being GI disorders experienced by 37.9% of patients in the Zetia arm, versus 64.3% of patients in the AEGR-733 arm, and 42.9% of patients in the combination arm. In November 2008, Aegerion released top line data from three separate Phase II studies. The three Phase II trials ranged in duration from 8 to 12 weeks and collected clinical data on more than 460 patients who suffer from dyslipidemia. During the trials, AEGR-733 was administered alone as a once-daily pill in doses ranging from 2.5 mg to 10 mg and also in combination with other lipid lowering agents. At the high end of the dose range evaluated in these Phase II trials, the drug reduced LDL-C in
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patients up to 35% from baseline when used as a monotherapy, and up to 66% from baseline when administered in combination with Lipitor. In addition to reducing LDL-C, patients also experienced a reduction in their triglyceride levels by up to 50% and weight loss of up to 3% after 12 weeks on therapy. In one of the trials, which was designed to evaluate patients hepatic fat levels while treated with AEGR-733 alone and in combination with Lipitor, Zetia and fenofibrate, the average hepatic fat levels after 12 weeks of exposure across doses of AEGR-733 ranging from 2.5 to 10 mg were approximately 7% with no arm exceeding 10%. Across all trials, less than 2% of the patients experienced adverse events related to elevated liver enzyme levels where such events resulted in their discontinuation from the studies. When titrated from a starting dose of 2.5 mg of AEGR-733, less than 5% of patients experienced gastrointestinal adverse events leading to discontinuation from the trial. In November 2008, Aegerion also released preliminary results from its ongoing open-label Phase III study of AEGR-733. Patients are being treated with AEGR-733 in doses titrated up to 60 mg per day. The preliminary data revealed LDL-C reductions of greater than 50% (beyond the existing reductions patients experienced on background therapy, such as statins and cholesterol absorption inhibitors) in the majority of patients on the high dose. The safety and tolerability was reasonable with no discontinuations from the study but it will be critical to review the safety data at the high doses. It is unclear whether these data will be sufficient for FDA approval in light of FDA requirements for Genzyme/ISIS to do outcomes studies for mipomersen.
Penetration Of Generic Zocor As Expected

Zocor (simvastatin) is now generic in most markets. Zocor is an excellent drug, but evidence of muscle toxicity at the 80mg dose coupled with more aggressive treatment guidelines leave a sizable portion of the market to high-efficacy statins. Despite the lower LDL treatment goals and safety questions at 80mg, the efficacy and safety of Zocor 40mg were bolstered by the Heart Protection Study and the results of Pfizers IDEAL study. Furthermore, the efficacy and safety of Zocor 40mg and Lipitor 10mg are comparable. Simvastatin prescribing has increased since ENHANCE results in January, 2008. A to Z Hinted At Superiority Of High-Potency Statins The A to Z study, released in August 2004, compared patients with acute coronary syndrome (ACS) treated with either 1 month of Zocor 40mg followed by Zocor 80mg versus 4 months of placebo followed by Zocor 20mg. The results showed a favorable trend toward a reduction in major cardiovascular events at two years with aggressive Zocor therapy, but there was no difference between the two arms during the first 4 months of treatment. Although the trial did not reach its pre-specified endpoint, the trial suggested that aggressive Zocor therapy has a favorable impact on events. The results of the trial likely were negatively impacted by a high dropout rate that impeded statistical power. Our physician experts are intrigued by differences in the impact on C-reactive protein (CRP) in A to Z versus PROVE-IT. A to Z showed a modest effect on C-reactive protein, while PROVE-IT showed a significant >30% reduction in CRP for patients on Lipitor 80mg. Post-hoc analysis of PROVE-IT suggested that low CRP levels after statin therapy are correlated to better clinical outcomes; this may have been confirmed in Crestors JUPITER study. Despite the 9 cases of myopathy (0.4%) reported in the high-dose arm of A to Z versus none in
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PROVE-IT, our physician experts are not convinced that Lipitor 80mg is safer than Zocor 80mg. Clinical experience suggests that muscle weakness occurs with Lipitor 80mg and caution should be exercised when using any statin at high doses.
Comparison of Statin Trials In Acute Coronary Syndrome
Trial Design Active Control Duration *mean duration; follow-up ranged from 18-36 months **follow up ranged from 6-24 months Efficacy Outcomes Event Reduction dfferential (Primary Endpoint) At 4 months At Trial Completion Secondary Endpoints* Death MI Stroke Revascularization LDL cholesterol differential (mg/dL) At 4 months At Trial Completion C-reactive protein differential (%) At 4 months At Trial Completion *data at trial completion **revascularization due to documented ischemia +non-fatal acute MI Safety Profile AST/ALT>3x ULN Active Placebo/Comparator Incidences of Myopathy (CK>10x ULN) Active Placebo/Comparator A to Z 0.9% 0.4% 9* (.4%) 1 (0.04%) PROVE-IT 3.3% 1.1% 0 0 MIRACL 2.5% 0.6% 0 0 A to Z 0% 11% 20% 2% 20% 4** 62 15 26% 17% ( data after 8 months) PROVE-IT 18% (data after 90 days) 16% 28% 13% + -9% 14% 33 28 N/A 38% MIRACL 15% 15% 8% 6% 50% 2% 63 63 34% 34% A to Z Simvastain 40/80mg Placebo + simvastatin 20mg/d 24 months** PROVE-IT Atorvastatin 80mg Pravastatin 40mg 24 months* MIRACL Atorvastatin 80mg Placebo 16 weeks
*Note: 3 out of 9 patients experienced rhabdomyolysis (1 patient had contrast-induced renal failure, 1 patient was concomitantly receiving verapamil)
Source: JAMA (de Lemos; September 15, 2004), (Schwartz; April 4, 2001); NEJM (Cannon, April 8, 2004).
SEARCH Raises Questions About Zocor 80mg And Proves Vitamins Fruitless The results of SEARCH (Study of the Effectiveness of Additional Reductions in Cholesterol and Homocysteine) were presented at AHA in November 2008. During an average 6.7 years of treatment, LDL-cholesterol levels of patients receiving Zocor 80mg fell about 14% more than those receiving Zocor 20mg, which is lower than would have been predicted. The additional reduction in LDL was associated with 6% fewer heart attacks, strokes or revascularization procedures; this was not significant but trended favorably. Fifty-three patients on Zocor 80mg developed myopathy compard with only three patients receiving low-dose simvastatin. Seven of the highdose patients developed rhabdomyolysis, a more severe form of muscle damage, compared with none of the low-dose patients. The 50% of patients also on folic acid and vitamin B12 daily, versus placebo, showed no improvement. Our physician experts believed that lowering homocysteine would have had a positive effect on coronary events, and Zocor 80mg + vitamin therapy likely will show the greatest benefit, followed by Zocor 80mg without vitamin therapy. SEARCH, conducted by researchers at Oxford University, involved 12,000 men and women who had survived a heart attack. One group of patients were on Zocor 20m and the other
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group, Zocor 80mg. Using a factorial design patients were also randomized to homocysteine and Vitamin B12 or placebo.
Pravastatin (Bristol-Myers Squibb, Generic) A Minor Market Participant

Pravastatins market share has declined significantly since: 1) the availability of generic Pravastatin since April, 2006; 2) Bristols PROVE-IT study, which showed that Lipitor 80mg had superior efficacy and safety than Pravastatin 40mg; and 3) the publication of the new NCEP recommendations advocating more aggressive LDL goals. Pravastatin is available in an 80mg dose, providing patients not adequately controlled on lower doses (10, 20, and 40mg) with a stronger option, but according to the package insert, Pravastatin 80mg only lowers LDL by 37% vs. 34% for Pravastatin 40mg. We peg Pravachol sales at $90MM (-55%) in 2009, $60MM (-33%) in 2010, and $10MM in each year from 2012 through 2015.
SUMMARY OF PRAVACHOL STUDIES Study PLAC I and PLAC II KAPS REGRESS West of Scotland CARE LIPID PROVE-IT
Location U.S. Finland Holland Scotland U.S. Austral/Asia U.S./E.U.
Population Characteristics Established coronary heart disease and moderately elevated cholesterol levels Elevated cholesterol without advanced coronary artery disease Elevated cholesterol with a history of coronary artery disease Moderate levels of cholesterol with no history of heart disease Post myocardial infarction men and women with normal cholesterol levels History of coronary disease with elevated cholesterol levels Acute coronary syndrome patients
Claims Generated Claim for 67% reduction in heart attacks in Pravachol patients vs. placebo patients Regression claims
Primary prevention claim (before any heart attack) Secondary prevention claim Secondary prevention claim None; Lipitor 80mg equally safe and more effective than Pravachol 40mg
Takedas Lapaquistat Discontinued

In March 2008, Takeda announced the discontinuation of development of TAK-475 (lapaquistat acetate). In Octoeber 2007, the FDA requested additional clinical data prior to submission of the NDA for lapaquistat and recommended the suspension of clinical studies with higher doses. Lapaquistat, an oral squalene synthase inhibitor, was in Phase II trials in Japan and Phase III trials in the U.S., Europe and Latin America, either alone or in combination with a statin, for the treatment of hypercholesterolemia.
GlaxoSmithKlines Darapladib Outcomes Studies Required
Potentially
Exciting
But
Lp-PLA2 is an enzyme that helps process a form of LDL-C into atherosclerotic plaques and produces signals within the plaques that promote inflammation. Several studies have documented the strong association of Lp-PLA2 with coronary heart disease and stroke in the general population, regardless of total cholesterol or other markers of inflammation. Patients who might benefit from darapladib would be those at risk for or who have unstable plaques before or after myocardial infarction or ischemic stroke. These patients would be identified using the Plac test,
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which measures plasma Lp-PLA2, and is approved as an aid in predicting risk for CHD and ischemic stroke associated with atherosclerosis. A Phase II biomarker study presented at ACC 2008 demonstrated darapladibs inhibition of Lp-PLA2 and the results of IBIS-2 were presented at ESC 2008. IBIS-2 missed its co-primary endpoint of deformability and hsCRP change but did demonstrate plaque stabilization. It is unclear whether there is a clinical benefit from the plaque stabilization. Asthma exacerbation is a potential side effect but this is being evaluated in Phase I and II trials. In December 2008, GlaxoSmithKline initiated a 15,500 patient pivotal Phase III trial, STABILITY. This is an event driven trial (~1,500 events) in patients with stable chronic coronary heart disease. STABILITY is likely to take three years. GlaxoSmithKline plans to initiate a second pivotal trial in post-ACS patients by year-end 2009. We forecast darapladib sales of 100MM in 2012 and 400MM in 2015. IBIS-2: Darapladib Stabilizes Plaque But Clinical Relevance Unknown Integrated Biomarker and Imaging Study-2 (IBIS-2) compared the effects of 12 months of treatment with darapladib (160 mg daily) or placebo on coronary atheroma deformability (intravascular ultrasound palpography) and plasma highsensitivity C-reactive protein in 330 patients with angiographically documented coronary disease. Secondary endpoints included changes in necrotic core size (intravascular ultrasound radiofrequency), atheroma size (intravascular ultrasound gray scale), and blood biomarkers. Background therapy was comparable between groups, with no difference in low-density lipoprotein cholesterol at 12 months (placebo, 8834 mg/dL; darapladib, 8431 mg/dL; P=0.37). In contrast, Lp-PLA2 activity was inhibited by 59% with darapladib (P=0.001 versus placebo). After 12 months, there were no significant differences between groups in plaque deformability (P=0.22) or plasma high sensitivity C-reactive protein (P=0.35). In the placebo-treated group, however, necrotic core volume increased significantly (4.517.9 mm3; P=0.009), whereas darapladib halted this increase (-0.513.9 mm3; P=0.71), resulting in a significant treatment difference of -5.2 mm3 (P=0.012). These intraplaque compositional changes occurred without a significant treatment difference in total atheroma volume (P=0.95). The composite of cardiovascular death, myocardial infarction, stroke, and revascularization was 17% in the darapladib group versus 19% in the placebo group. The incidence of adverse events leading to withdrawal was similar with 7% (n=11) in placebo and 4% (n=7) in the darapladib group. Within each organ class, the incidence of adverse events leading to withdrawal was 1% in both groups with the exception of 2% (n=4) due to gastrointestinal events in the darapladib group. A higher incidence of malodor (mainly feces or urine) was reported with darapladib (16%, n=28) compared with placebo (3%, n=5), but was not a common cause of withdrawal from the study (darapladib, 2%, n=3). Routine measurements of systolic blood pressure showed a difference between the groups (darapladib showed mean difference of 3.0 mm Hg, above placebo, p=0.031) that was not previously observed in other clinical trials with darapladib. Biomarker Study Data At ACC 08 Encouraging The multicenter, randomized, double-blind, placebo-controlled, dose-ranging study enrolled 959 patients with CHD or CHD-risk-equivalent on Lipitor 20 mg or 80 mg and randomized them to oral darapladib 40 mg, 80 mg, 160 mg or placebo once daily for 12 weeks. Blood samples were analyzed for Lp-PLA2 activity and inflammatory and platelet biomarkers. At baseline, mean LDL-C was 67 22 mg/dL
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and Lp-PLA2 activity was 123 mmol/min/mL. Plasma Lp-PLA2 activity was higher in elderly patients (age 75 years), men, patients receiving Lipitor 20 mg, those with LDL-C 70 mg/dL or HDL-C < 40 mg/dL, or those with documented vascular disease (all P < .01). Throughout the study, darapladib inhibited Lp-PLA2 activity in a sustained, dosedependent manner compared with placebo (P < .001 for all doses at weeks 4 and 12). The dose-dependent inhibition was seen in both atorvastatin groups and at different levels of baseline LDL-C ( 70 vs < 70 mg/dL) and HDL-C (< 40 vs 40 mg/dL). LpPLA2 mass was also reduced, but without a dose response. Darapladib did not modify levels of LDL-C, HDL-C, total cholesterol, or triglycerides.
Effect of Darapladib on Lp-PLA2 at 12 Weeks Darapladib Lp-PLA2 Activity (%)
Mass (%)
40 mg -43
-9.6
80 mg -55
-12.9
160 mg P value vs placebo -66

-9.3
< .001
< .001
Source: www.medscape.com
Significant reductions in inflammatory biomarkers were seen with the 160mg dose of darapladib. Over 12 weeks, darapladib 160 mg decreased interleukin 6 (IL-6) by 12% (95% CI, -22 to -1; P = .028) and high-sensitivity C-reactive protein (hs-CRP) by 13% (95% CI, -28 to 5; P = NS) compared with placebo, suggesting a reduction in systemic inflammatory burden. Post hoc analysis by quartiles of baseline Lp-PLA2 showed that darapladib 160 mg significantly reduced hs-CRP by 43% (95% CI, -50 to 10; P = .01) compared with placebo in patients in the highest quartile. IL-6 in patients in this quartile was reduced by 20.5% (95% CI, -38 to 3; P = .08). No changes were seen in myeloperoxidase or matrix metalloproteinase. No major safety concerns were raised during the study. No important effects on vital signs, ECGs, or blood chemistry were seen in patients taking darapladib compared with placebo. There were no cases of rhabdomyolysis or creatine kinase elevation. Darapladib was not associated with any AEs on biomarkers of platelet activity (Pselectin, CD40 ligand, and urinary 11-dehydrothromboxane B2). Serious AEs occurred in 3% of patients in the study and cardiovascular events in 1% of patients receiving darapladib. The most commonly reported serious AE adverse event was angina. Three percent of patients taking darapladib at the 160mg dose reported gastrointestinal events (mostly feces odor or diarrhea).
Isis/Genzymes Mipomersen: A Novel Option For High LDL-C But Data A Long Ways Off
Isis is developing mipomersen, a second-generation antisense compound in Phase III clinical trials for the reduction of high cholesterol. Mipomersen is a potent and specific antisense inhibitor of ApoB-100, a key component of lipid metabolism. ApoB-100 is a critical element of low-density lipoproteins (LDLs), which contain cholesterol and are considered to be an important risk factor for cardiovascular disease when elevated. By preventing the formation of the ApoB-100 protein, mipomersen reduces LDL levels and represents a potential therapeutic strategy for patients with high cholesterol. In fact, because atherogenicity is determined as much
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by the number of circulating LDL particles as it is by their size, ApoB-100 levels may be a better predictor of cardiac riskan important differentiating fact, given that mipomersen appears to reduce ApoB-100 levels to a greater extent than statins. A Phase III trial of 200 mg/wk mipomersen in HoFH (RADICHOL 1) is under way, in which Isis expects to treat roughly 45 patients for six months with a further sixmonth open label extension phase. While data should become available in 2009, a BLA for the HoFH indication is unlikely to be filed until 2010 per an FDA request for data from two ongoing long-term carcinogenicity studies. Mipomersen Demonstrates Impressive LDL Lowering... Isis has reported data from two Phase II trials of subcutaneous mipomersen in patients with polygenic hypercholesterolemia in which this drug both as monotherapy and as an add-on to statins yields dramatic reductions in LDL and other lipid parameters. The monotherapy trial randomized 50 patients who had been unable to meet LDL goals with diet and exercise alone to five dose groups (50, 100, 200, 300, and 400 mg/wk drug). Within each group of 10, eight patients received active drug, and two were injected with placebo. Subjects were treated for three months and were followed for an additional six months. While patients in the 200-400 mg/wk dose groups received injections on a weekly basis, patients in the lowest two groups received injections of 100 mg and 200 mg drug every-other-week (equating to 50 mg and 100 mg per week drug exposure). Treated subjects in each group demonstrated dose-dependent reductions in ApoB-100, LDL, total cholesterol, triglycerides, and non-HDL cholesterol. Following the termination of dosing, subjects lipid profiles trended back to baseline at rates that were dose-dependent, and those in the 200 mg/wk cohort were estimated to maintain LDL levels <90% of baseline for over five months off drug. The reductions in ApoB-100 observed with mipomersen were consistent with human pharmacokinetic models during both the on- and offtreatment phases. The impressive reductions in ApoB and LDL of 50-60% each at the 300 mg/wk dose illustrate mipomersen monotherapy to be at least as good as treatment with statins. Results from a 13-week Phase II trial in which mipomersen was given to hypercholesterolemic patients not reaching target LDL levels on a statin were just as impressive. Treatment with the Phase III dose of mipomersen (200mg/week) reduced LDL levels by 48% from baseline (p<0.0001). This compared to a previously reported 30% reduction after five weeks. These reductions in patients who have already been maintained on statins suggest that mipomersen can again cut in half levels of these cardiovascular risk factors.
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Mipomersen: Summary Of Phase II Trials As Monotherapy And As Added To Statins
Source: ISIS Pharmaceuticals
And In Familial Hypercholesterolemics Results in a very small (n=3) number of subjects with homozygous FH suggest that mipomersen is also capable of potently lowering LDL in this patient population. Three homozygous FH patients treated with 300 mg/week mipomersen as added to their maximally-tolerated statin-containing regimens experienced a 45-51% further lowering of LDL-C with 12 weeks of treatment, with similar reductions in ApoB. Mipomersen was well tolerated in the study. Liver Enzyme Elevations Bear Watching, But Reasonable So Far Mipomersen has been well-tolerated in its Phase II trials. Although patients experienced injection-site reactions consisting of mild transient painless erythema, these appeared to have no impact on compliance. The basis of this skin redness is unknown. While safety concerns are focused on potential liver toxicity, elevations 3x-5x ULN at the 200mg/week dose (to be studied in Phase III) have been infrequent (3% while on treatment, 7% for the entire study's duration), and in only 1% of subjects have elevations >5x ULN (285 U/L max) been observed. These results are similar to placebo. Importantly, in no patient has mipomersen been observed to raise bilirubin, a marker for liver damage, and a component of the FDA criteria for liver toxicity. In addition, the liver enzyme elevations tended to subside during the treatment period. Such findings are seen with other cholesterol lowering drugs and are believed to be a non-specific response to rapid LDL lowering. In speaking with experts, their opinion is that a rise in liver enzymes would be unavoidable with rapid, severe reductions in ApoB, and they expressed confidence that we are not seeing true liver toxicity and were optimistic that mipomersen will be shown to be a safe, well-tolerated agent.
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Liver Safety Data On Mipomersen
Registration Trial Of Mipomersen In HoFH Under Way A Phase III trial of 200 mg/wk mipomersen in HoFH is under way, in which Isis expects to treat roughly 45 patients for six months with a further six month open label extension phase. While data should become available in 2009, a BLA for the HoFH indication is unlikely to be filed until 2010 per an FDA request for data from two ongoing long-term carcinogenicity studies. Isis believes that a 200 mg/wk regimen will result in >50% reductions in LDL-C beyond that achieved with statins in most patients at 26 weeks. Outcomes Studies To Be Required For Other Populations While the FDA continues to indicate that reduction of LDL is an acceptable surrogate endpoint for accelerated approval in HoFH, the agency informed Isis/Genzyme in April 2008 that approval of mipomersen in broader high-risk populations including HeFH will require an outcomes study. Given this guidance, Isis and Genzyme have accelerated plans to conduct an outcomes trial, and now anticipate initiating such a study in very high-risk patients in early 2009. The companies expect the trial can be smaller and of shorter duration than traditional outcomes studies of 10,000+ patients and 5-10 years duration, however no details have been provided.
Karos Eprotirome Intriguing

In March 2008, Karo initiated the second clinical phase IIb dose ranging study with eprotirome in dyslipidemic patients on Zetia. Eprotirome is a novel, selective, thyroid hormone agonist for treatment of dyslipidemia. In a phase IIa study, eprotirome induced a significant LDL-cholesterol lowering of 25-30% in dyslipidemia patients. Eprotirome significantly reduced other risk factors for development of cardiovascular disease such as triglycerides and lipoprotein(a), and was well tolerated. In October 2008 Karo released top line data from the eprotirome Phase IIb placebo controlled, parallel group, double blind, ten week dose-ranging study in 109 patients. Eprotirome was given once daily in doses of 25, 50, or 100 g in patients who were on a stable Zetia 10 mg per day. The data demonstrated that there was a statistically significant lowering of LDL-cholesterol of 15-25% on top of
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Zetia. Reductions in triglycerides and lipoprotein(a) were also documented. The Phase IIb data will be presented as a late-breaking clinical trial at ACC 2009.
ISIS, Bristol-Myers Squibb, Interesting But Early
and
Alnylams
ALN-PCS01
Another antisense oligonucleotide approach is against proprotein convertase subtilisin/kexin type 9 (PCSK9), a recently identified enzyme of the serine protease family that reduces cellular uptake of LDL-C by causing degradation of hepatic LDL receptors. Humans who have mutations that prevent function of PCSK9, a widespread genetic polymorphism in the United States, have significantly reduced LDL-C and decreased cardiovascular risk. PCSK9 therapy could also be potentially very effective in people who have high levels of PCSK9 and thus very high LDL-C levels. Statins are known to increase serum levels of PCSK9 so the addition of a PCSK9 inhibitor to a statin could blunt the statin effect and lead to further lowering of LDL-C.
HDL As A Target Not Clear Cut

Studies indicate that low HDL-C levels are relatively common in the general population; levels less than < 35mg/dl are seen in 16-18% of men and 3-6% of women. HDL-C remains an important risk factor even in patients with a low LDL-C level. For example, a patient with an LDL-C of 100mg/dL and an HDL-C of 25mg/dL has a similar risk of coronary heart disease as a patient with an LDL-C of 220mg/dL and an HDL-C of 45mg/dL. Epidemiologial studies like The Framingham Heart Study demonstrated that 43-44% of coronary events occurred in persons with HDL-C <40mg/dl. The risk nearly reaches 3-fold when LDL-C is 220mg/dL and HDL-C is 25mg/dL. Angiographic and IMT studies indicate that low HDL-C levels are associated with increased risk and severity of coronary CHD, carotid disease, and and post-angioplasty restenosis. Observational studies have demonstrated that each 1mg/dl decrease is associated with a 2-3% increase risk of CVD. However, a metaanalysis published in JAMA (August 15, 2007) found that while studies (Coronary Drug Project, The Cholesterol-Lowering Atherosclerosis Study (CLAS), The Familial Atherosclerosis Treatment Study (FATS)), have shown some benefit, proof that increasing HDL confers a reduction in major cardiovascular outcomes independent of changes in LDL and TGs, remains elusive. A closer look at Pfizers torceptrapib program demonstrated that raised HDL-C levels may have conferred some benefit despite an overall unfavorable mortality. Nonetheless, HDL-C remains a viable drug target. There are several agents on the market that target HDL: those that modify HDL composition (Nictonic Acid [Niacin] and statins) and those that target the reverse cholesterol transport and macrophage cholesterol efflux (eg fibrates). Niacin is the most potent and most commonly prescribed HDL-C increasing agent. Several novel therapies are in development: nicotinic acid-based formulations (Mercks Cordaptive), and CETP inhibitors (Mercks anacetrapic, Roche/Japan Tobaccos JTT705).
Abbotts Simcor Approval Expands Its Niaspan Franchise

Niaspan (controlled-release niacin; Abbott), Advicor (niacin/lovastatin combination; Abbott), and now Simcor (Niaspan/simvastatin; Abbott) are differentiated by their ability to raise HDL cholesterol. Prior to the May 2007 launch of Niaspan CF, prescription trends for both Niaspan and Advicor were flat. Our physician consultants believe that this prescription trend was due to: 1) no outcome trials to
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support niacins impact on adverse cardiovascular events; 2) a subset analysis from the ARBITER 3 study data presented at AHA 2006 revealed that Niaspan increased HbA1C levels in diabetic patients; 3) a subset analysis of the ARBITER 2 data revealed that Niaspan had a muted effect on atherosclerosis in insulin-resistant patients; and 4) only a limited subset of patients can tolerate the side-effect profile. In December 2006, Abbott acquired KOS, bolstering its chronic cardiovascular disease portfolio. In April 2005, Kos signed a patent litigation settlement agreement with Barr Labs removing the threat of generic competition to Niaspan for at least 4-5 years. Abbott has developed two low flush versions of Niaspan: Niaspan MF and Niaspan CF (caplet formulation). Niaspan MF was approved by the FDA in October 2005 and the CF in April 2007. Abbott did not launch Niaspan MF, but launched Niaspan CF in May 2007. The Niaspan franchise is likely to continue its recent uptick benefiting from Cordaptives and MK-0524Bs and the CETP inhibitor class delays. We forecast Niaspan franchise revenues of $848MM in 2009, $915MM in 2010, and $1,100MM in 2013.
Niaspan U.S. TRx By Formulation
600 500 TRx '000 400 300 200 100 0
ay -0 8 Ju l-0 8 Se p08 -0 6 -0 7 -0 7 -0 8 Ju l-0 6 Se p06 Ju l-0 7 Se p07 N ov -0 7 6 7 8 ov -0 Ja n0 Ja n0 ov -0 ay ay ar ar 8
Niaspan CF
Niaspan
Top-Line Data From Niaspan CF Plus Aspirin Study Were Positive In July 2006, Kos released top-line data from a 156-patient study investigating the flushing effects seen with Niaspan CF either with or without the co-administration of aspirin The results indicate that Niaspan CF (2000mg) plus aspirin (650mg) resulted in a 44% reduction in the incidence, duration, and severity of flushing compared to Niaspan CF alone. The reduction in flushing effects seen via the cotreatment with aspirin were the same no matter if the aspirin was taken 30 minutes prior to Niaspan CF or at the same time as Niaspan CF. The ability of aspirin to reduce the flushing effects seen with Niaspan has been well established; therefore, these results are not surprising. Consistent with previously released top-line data for Niaspan CF, these data are difficult to compare to flushing data for Mercks Cordaptive (niacin ER/ Laropiprant), a potentially competing low flush niacin product. Abbott is developing a Niaspan CF/aspirin combination pill. AIM-HIGH To Answer Outcome Question But Data Not Expected Until 2010. The NIH and Abbott are sponsoring a trial that is evaluating the merits of simultaneously lowering LDL and raising HDL. The trial, known as Atherothrombosis Intervention in Metabolic Syndrome with Low HDL/High Triglycerides and Impact on Global Health Outcomes (AIM-HIGH), will compare the incidence of major cardiovascular events in patients randomized to niacin plus simvastatin or
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simvastatin alone. The trial will enroll 3,300 patients. Simvastatin is started at 40 mg/day and may be increased to achieve an LDL-C target of 80 mg/dl. The study will include at least 30 percent women. Enrollment began in 2005 and the average follow-up is expected to be 4 years but full results are not expected until 2011. Abbotts Cholesterol Franchise Boosted By Simcor Approval In February 2008, the FDA approved Abbotts Simcor, the fixed dose combination of Niaspan and simvastatin for use in patients with complex lipid abnormalities where treatment with niacin or simvastatin alone is not sufficient. Simcor is approved to lower total- and LDL-cholesterol levels and triglycerides and to raise HDLcholesterol levels. The approval is based on safety and efficacy data from 640 patients with mixed dyslipidemia and type 2 dyslipidemia. The SEACOAST pivotal data on Simcor (Niaspan/simvastatin) were presented at AHA 2007. Both SEACOAST I and II met their primary endpoints, and there were no unexpected adverse events. In SEACOAST I (20mg simvastatin) - both doses of Simcor (1000/2000mg of Niaspan ER) significantly improved non-HDL cholesterol (-14%/-23% versus -7%), and the high dose Niaspan arm delivered significant improvements in LDL, HDL and TG (14%/+25%/-38% versus -7%/+7%/-15%). These improvements enabled a greater number of patients to achieve concurrent target ranges. The lower dose Simcor arm also showed a clinical improvement relative to these parameters (-13%/+18%/-27% versus -7%/+7%/-15%). Overall discontinuation in the Niaspan arms related to flushing were 7.5%, and most flushing episodes were mild to moderate in intensity (>90%). In SEACOAST II (Simcor formulated with 1000/2000mg of Niaspan with 40mg simvastatin vs. 80mg simvastatin control) -both Simcor doses were non inferior on non HDL measures (-11%/-17% vs. -10%), and were comparable to 80mg of simvastatin on LDL. Both doses of Simcor resulted in significant increases in HDL and reductions in triglycerides versus 80mg of simvastatin (HDL +15%/+22% versus -1%; TG -23%/32% vs. 0%), and the high dose arm enabled a greater number of patients to achieve concurrent target ranges. Overall discontinuation in the Niaspan arms related to flushing was 4.6%, and most flushing episodes were mild to moderate in intensity (79%). Simcor is not formulated with the Niaspan CF (caplet formulation) which has an improved flushing profile over Niaspan. Simcor is currently priced at $3.53/day for the 1000/20 tablet. We forecast Simcor sales of $75MM in 2009, $140MM in 2010, and $275M in 2013.
Simcor U.S. TRx And NRx
60,000 50,000 40,000 TRx 30,000 20,000 10,000 0
Ju n08
Ju l-0 8
08
Fe b08
N ov -0 8
Se p08
M ay -
Au g08
M ar -
Ap r-
Simcor TRx
Simcor NRx
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D ec -0 8
08
ct -0 8
08
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Mercks Cordaptive And Its Statin Combinations Unlikely To Be Filed Before 2012; Approved In E.U.
Cordaptive is extended-release niacin plus laropiprant, a PG D2 antagonist antiinflammatory agent that reduces the rate of flushing associated with niacin by 5060%. Tredaptive (E.U. brand name) has been approved in more than 30 countries worldwide but based on the complete response letter receive in April 2008 and ongoing dialogue with FDA, the results of the HPS2-THRIVE are likely required for Cordaptive (U.S.) approval. It is likely that FDAs concern centered on laropiprants unknown long-term cardiovascular safety, especially given that it acts in the prostaglandin pathway. In addition, some have speculated that the Cordaptive combination may not be more effective at reducing flushing than Niaspan ER and aspirin. The Oxford University Clinical Trial Service Unit increased HPS2-THRIVEs sample size to 25,000 from 20,000. Currently 15,000 patients have been enrolled and the trial is expected to complete in 2012. Merck anticipates filing an NDA with the FDA for MK-0524A in 2012. Merck is evaluating fixed dose formulation options with simvastatin, (MK-0524B) and atorvastatin, (MK-0524C). We estimate Cordaptive sales of $100MM in 2011, $200MM in 2012, and $500MM in 2015. Data presented thus far from the Phase III program support an improved flushing profile with a more convenient dosing schedule (ACC 2008), efficacy in line with niacin (ESC 2007, DALM 2007, AHA 2007, and ACC 2008), and a safety profile that likely is in line with extended-release niacin but may have a higher new onset diabetes rate. Target organ toxicities in preclinical study at very high doses include liver enzyme and kidney function abnormalities correlating with the adverse events seen in the Phase III studies. Given laropiprants potential to induce platelet aggregation through its affinity for thromboxane A2 receptor, the clinical studies focused on platelet function through bleeding time, collagen or ADP-induced platelet aggregation, and urinary 11-dehydroxy-TxB2 assays. Laropiprant 40mg (therapeutic dose) did not show clinically meaningful changes in platelet function. MK-0524B combines Cordaptive with Zocor. This would compete with Simcor but potentially have an improved flushing profile. Merck announced in September 2006 that there would be a delay in filing MK-0524B beyond the original 2007 target because of continuing formulation difficulties. Now MK-0524Bs filing is delayed insync with Cordaptive and Merck is still working on the formulation. Merck initiated two 12-week Phase III trials of MK-0524B in January 2006: (1) a 1,400-patient study comparing MK-0524B with Cordaptive (ACC 2008); and (2) a 1,700-patient study comparing MK-0524B with Lipitor and a 20-week 2,370 patient cross-over study comparing MK0524B with Cordaptive+Simvastatin. Two cardiovascular end point/outcomes studies were initially undertaken: HPS2THRIVE and ACHIEVE. In April 2008, Merck stopped enrollment of ACHIEVE, a 900patient, 2-year study comparing the effect of Cordaptive plus intensive lipidlowering therapy to intensive lipid-lowering therapy alone on carotid intima media thickness in heterozygous familial hypercholesterolemic patients, because it was employing IMT measurement methodology similar to that used in ENHANCE.
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Cordaptive Phase III Outcome Study

Study HPS-THRIVE (Treatment of HDL to Reduce the Incidence of Vascular Events) Objective Study to investigate whether MK-0524A can further reduce the risk of heart attacks, strokes, and revascularization procedures among people who are already being treated to lower LDL. Also examining the long-term safety of MK-0524A. A total of 20,000 men and women aged 50 to 80 years with a history of heart attack, stroke, peripheral arterial disease, or other coronary disease in the presence of diabetes are being recruited in three regions: the UK (7,500), China (7,500), and Scandinavia (5,000 from Denmark, Norway, Finland and Sweden). Up to 7,000 patients in the study will have diabetes.
Source: Merck
Cordaptive Phase III Lipid Profile And Flushing Reduction On Target Cordaptive 2 grams produced significant, durable (+6 months) reductions in plasma LDL-C, TG, non-HDL-C, LDL-C:HDL-C ratio, apo B, Lp(a), TC and TC:HDL-C, and increases in HDL-C and apo A-I relative to placebo. Patients receiving 1 gram of Cordaptive in the first week had significantly less flushing as measured by the Global Flushing Severity Score (GFSS) versus Mercks extended-release niacin (ERN). Both Cordaptive and ERN doses were increased in week 2 for the remainder of the study (maintenance phase). In the maintenance phase, patients on Cordaptive had significantly less flushing as measured by the number of days per week with "moderate or greater" GFSS (GFSS 4) compared with patients taking ERN (p<0.001). Similar results were obtained across weeks 6 to 24 (p<0.001). A significantly lower percentage of patients treated with Cordaptive discontinued due to flushing symptoms (itching, tingling, redness, and warmth) versus patients treated with ERN (p<0.001): discontinuation rates were 10.2% in the Cordaptive group, 22.2% in the ERN group, and 0.7% in the placebo group. Importantly, the ERN control arm did not use aspirin, making a direct comparison with current Niaspan use difficult.
Hepatic And Glucose Safety Trend Less Favorably Despite Cordaptives safety being similar to ERN, liver enzyme elevation, increased creatine kinase (CK) levels, and diabetic parameters all trended less favorably versus ERN. Consecutive or presumed consecutive elevations 3x ULN in ALT and/or AST were reported by 1.4% in the Cordaptive, 1.0% in the ERN, and 0% of patients in the
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placebo group (p=0.610 for Cordaptive versus ERN). All ALT/AST elevations were asymptomatic and resolved with discontinuation of treatment. One patient in the Cordaptive group had acute cholecystitis and cholelithiasis, which were considered serious and drug-related by the investigator; the patient discontinued study therapy and recovered following cholecystectomy. Three (0.4%) patients in the Cordaptive group had 10x ULN increases in CK but none had associated muscle symptoms. All elevations resolved upon discontinuation of study therapy. The effects on glucose were: (1) a median fasting plasma glucose (FPG) increase of 4.0mg/dl for the entire Cordaptive group versus 4.0mg/dl for ERN and 0 for placebo; (2) in a subgroup of patients with diabetes, the median FPG increased by 4mg/dl in the Cordaptive group versus 8.5mg/dl in the ERN group and 0.5mg/dl in the placebo group; (3) there were 5 (0.8%) patients with new onset diabetes versus 2 (0.4%) in the Cordaptive and ERNs groups respectively; and (4) there was a 16.8% increase in the number of patients with worsening diabetes in the Cordaptive group versus 24.4% in the ERN group and 5.3% in the placebo group. Other adverse events related to gout and decreases in platelets were similar between the Cordaptive and ERN groups.
Phase III: % Change from Baseline in Lipids across Weeks 12 through 24
LS Mean (95% CI) Lipid Parameter LDL-C HDL-C TG, median Non HDL-C Apo B Apo A-I Source: Merck; ESC 2007 ERN/LRPT 2g -18.9 (-21.0, -16.8) 18.8 (17.2, 20.4) -21.7 (-23.9, -19.5) -19.0 (-20.8, -17.2) -16.4 (-18.0, -14.7) 11.2 (10.1, 12.4) Placebo -0.5 (-3.3, 2.4) -1.2 (-3.4, 1.0) 3.6 (-0.5, 7.6) 0.8 (-1.6, 3.3) 2.5 (0.2, 4.7) 4.3 (2.7, 5.9) Difference -18.4 (-21.4, -15.4) 20.0 (17.7, 22.3) -25.8 (-29.5, -22.1) -19.8 (-22.4, -17.3) -18.8 (-21.2, -16.5) 6.9 (5.3, 8.6)
12-Week Phase III Co-administration Study With Simvastatin Demonstrates Additive Benefit At AHA 2007, Merck presented data from the 12-week double-blind, parallel study with seven treatment arms in 1,400 patients. Patients were started on Cordaptive 1g +- simvastatin 10-40mg in weeks one through four and Cordaptive 2g +- simvastatin 20-40mg in weeks five through 12. Reported lipid results in other treatment arms included a 17% decrease in LDL-C, 23% increase in HDL-C, and 22% decrease in triglycerides with Cordaptive alone (n = 192); and a 37% reduction in LDL-C, 6% increase in HDL-C and 15% reduction in triglycerides with simvastatin alone (pooled) (n = 585). Side effects included: liver enzyme elevations >3x ULN in ALT and/or AST (0.3% with Cordaptive coadministered with simvastatin, 0.5% with Cordaptive alone, and 1.0% with simvastatin alone), and increased median fasting plasma glucose values (4.0 mg/dL with Cordaptive plus simvastatin, 4.0 mg/dL with Cordaptive alone, and 1.0 mg/dL with simvastatin alone). There were no cases of creatine kinase (CK) levels >10x ULN in the group treated with Cordaptive coadministered with simvastatin, which was not significantly different than that of the group treated with Cordaptive or simvastatin alone (0.5% and 0.3%, respectively). All elevations were asymptomatic and resolved with discontinuation of treatment. There were no cases of myopathy, rhabdomyolysis or drug-related hepatitis. Discontinuations due to flushing were 4.8% in the group treated with Cordaptive coadministered with simvastatin, 8.7% with Cordaptive alone and 0.3% with simvastatin alone.
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Side-Effect Profile Appears Similar To Extended-Release Niacin A post-hoc analysis of the 1,600 patients studied in Phase III demonstrated that extended-release niacin, alone or in combination with laropiprant, significantly reduced systolic blood pressure and diastolic blood pressure in dyslipidemic patients. Both extended-release niacin and Cordaptive produced similar decreases in blood pressure. Data suggest that extended-release niacin-induced reductions in BP were not related to niacin's PGD2-mediated flushing effect. In a pooled analysis of three Phase III studies and two Phase II one-year safety extension studies, Cordaptive had a safety profile similar to that of extended-release niacin. There were fewer adverse events and discontinuations due to flushing with Cordaptive versus extended-release niacin. The incidence of consecutive 3 x ULN increases in ALT and/or AST was low but trended unfavorably in the Cordaptive group; elevations were reversible with therapy discontinuation and not associated with clinical hepatotoxicity. There was no evidence that Cordaptive had an adverse effect on muscle. Two cases of myopathy occurred (one each in the extended-release niacin and Cordaptive groups); both were associated with unusually high levels of physical activity. Cordaptive and extended-release niacin produced small increases in fasting blood glucose levels (~4 mg/dL), consistent with known effects of niacin. However, the Cordaptive rate was nearly double that of extended-release niacin.
POOLED CORDAPTIVE SAFETY DATA SIMVA/Pbo N=931 156 (16.8) 1 (0.1) 28 (3.0) ERN N=1268 501 (39.5) 1 (0.1) 204 (16.1) ERN/LRPT N=2548 901 (35.4)1,2 8 (0.3)3,4 328 (12.9)1,2
Safety Parameter Drug-related* AEs (n [%]) Drug-related* serious AEs (n [%]) Discontinuations due to drug-related* AEs (n [%]) Pre-specified parameters of interest: Confirmed adjudicated cardiovascular events (n/N [%]) Consecutive or presumed consecutive ALT/AST elevations >3 x ULN (n/N [%]) Drug-related hepatitis (n) Myopathy** (n/N [%]) CK elevations >10 x ULN (n/N [%]) New onset diabetes (n/N [%])
3/931 (0.3) 5/1268 (0.4) 8/920 (0.9) 6/1221 0 0 0 1/1221 2/920 (0.2) 2/1221 1/888 (0.1) 3/1094 (0.5) (0.08) (0.2) (0.3)
8/2548 (0.3)5,6 25/2465 (1.0)5,6 0 1/2465 (0.04)5,6 7/2465 (0.3)5,6 12/2276 (0.5)5,6
*Determined to be possibly, probably, or definitely drug-related by the investigator. **Defined as CK 10 x ULN with muscle symptoms and considered drug-related by the investigator.
1 2 3 4 5 6
Based on clinical AEs and/or change in medication. 95% CI for difference with ERN does not include 0. 95% CI for difference with SIMVA/Pbo does not include 0. 95% CI for difference with ERN includes 0. 95% CI for difference with SIMVA/Pbo includes 0. Not significantly different from ERN based on exposure-adjusted analysis. Not significantly different from SIMVA/Pbo based on exposure-adjusted analysis.
Source: ACC 2008 Abstracts
Head-To-Head With Niaspan Favorable 1,455 dyslipidemic patients were randomized 1:1 to Cordaptive (1g for 4 weeks advanced to 2g for 12 weeks) or Niaspan (0.5g for 4 weeks titrated in 0.5g
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increments every 4 weeks to 2g for the last 4 weeks). Cordaptive patients experienced less flushing than Niaspan patients as measured by days/week with moderate or greater flushing across the treatment period (p<0.001), despite having received higher doses of niacin advanced more quickly. NSAIDS and aspirin were allowed for mitigation of flushing symptoms. Overall, the flushing signal was lower with Cordaptive and fewer patients discontinued due to flushing (7.4% vs. 12.4%; p=0.002).
Source: ACC 2008
MK-0524B Demonstrates Greater Benefit Than The Sum Of The Parts Phase III data from a 1,398 double-blind study in dyslipidemic patients were presented at ACC 2008. Patients were equally randomized to Cordaptive 1g/20mg, simvastatin (10, 20, or 40 mg), or Cordaptive 1g/20 mg /simvastatin (10, 20, or 40 mg) once/day for 4 weeks. At week 5, doses were doubled except simvastatin 40 mg (unchanged) and Cordaptive 1g/20mg/simvastatin 40 mg (switched to Cordaptive 2g/40mg/simvastatin 40 mg). The primary analysis was % change for Cordaptive/ simvastatin (pooled) versus Cordaptive and simvastatin alone (pooled) at week 12. The results demonstrated that Cordaptive/simvastatin was more effective than Cordaptive and simvastatin at reducing LDL-C (-48, -17 and -37%), triglycerides (TG) (-33, -22 and -15%), and non-HDL-C (-46, -18 and -33%), and raising HDL-C (28, 23 and 6%). Cordaptive/simvastatin produced substantial reductions in LDL-C which appeared additive compared to each monotherapy. Cordaptive + simvastatin and Cordaptive raised both HDL-C2 and 3 with the relative % changes higher for HDL2 than HDL3. Cordaptive/simvastatin and simvastatin lowered both LDL-C1 and LDLC3 while the effects were more variable for Cordaptive; all 3 treatments raised LDLC4.
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Baseline And Median % Change From Baseline In Cholesterol Associated With Lipoprotein Median values Cordaptive (N = 155-156) Baseline Change (mg/dL) (% [95% CI])1 20 -38.5 (-46.4, -30.5) 10.5 -19.1 (-23.7, -14.4) 14 24.7 42.8 54.3 4.9 11 39 -22.2 (-26.4, -18.0) -10.7 (-16.6, -4.9) 7.9 (0.4, 15.4) -18.8 (-24.8, -12.8) 9.5 (-14.8, 33.8) 25.0 (17.6, 32.4) y 15.0 (12.2, 17.8) ; p p Pooled SIMVA (N = 549-551) Baseline Change (mg/dL) (% [95% CI])1 20 -52.6 (-55.4, -49.9) 10.6 -18.3 (-20.4, -16.3) 14 26.4 42.9 55.5 4.9 12 39 -22.2 (-24.1, -20.3) -39.4 (-41.3, -37.4) -37.2 (-37.9, -34.6) -31.7 (-33.8, -29.5) 21.6 (7.6, 35.7) 0.0 (-2.0, 2.0) y 3.2 (2.2,y4.2)p p Pooled MK-0524B (N = 504-507) Baseline Change (mg/dL) (% [95% CI])1 20 -81.8 (-85.5, -78.1)* 10.6 -31.3 (-33.6, -29.0)* 14 27 45 53.7 5.1 12 40 -38.5 (-40.7, -36.2)* -52.6 (-55.3, -49.9)* -37.2 (-41.5, -32.8)* -48.5 (-51.4, -45.7)* 26.3 (4.1, 48.6)** 37.5 (33.2, 41.8)* 14.0 (12.4, 15.6) y
IDL-C VLDL-C1+2 VLDL-C3 LDL-C1 LDL-C2 LDL-C3 LDL-C4 HDL-C2 HDL-C3

1
lipoprotein cholesterol; HDL-C= high-density lipoprotein cholesterol Expressed as median % change from baseline to Wk 12 (95 % confidence interval) p<0.001 vs. Pooled SIMVA *p<0.001 vs. ERN/LRPT; **p<0.050 vs. ERN/LRPT
Source: ACC 2008 Abstracts
Merck/Arenas Niacin Receptor Antagonist Moves Into Phase II

In October 2008, Merck completed a randomized, double-blind, placebo-controlled Phase 1 program of a second generation oral niacin receptor agonist that evaluated safety, tolerability and pharmacokinetics. The compound is one of three GPCRs (G protein-couple receptors) under the collaboration with Arena targeting atherosclerosis and other disorders. GPCRs play a role in regulating plasma lipid profiles, including HDL cholesterol and are responsible for the HDL-raising activity of niacin. In February 2009, Merck announced that it had moved the niacin receptor antagonist into a randomized, double-blind, placebo-controlled Phase II study that is evaluating the safety, tolerability, as well as potential efficacy of the niacin receptor agonist in patients with dyslipidemia.
Torcetrapib Dead; Mechanism Of Mortality Unclear

Torcetrapibs surrogate marker IMT studies, ILLUSTRATE and RADIANCE, were revealed at ACC 2007, additional analyses from these studies, and the complete ILLUMINATE results were presented at AHA 2007. Torcetrapib came up short in each. In ILLUMINATE, the prematurely-terminated 15,067 patient outcome study, torcetrapib therapy let to a mean increase in blood pressure and an increased risk of mortality and morbidity despite impressive LDL-C reduction and HDL-C elevation. ILLUSTRATE and RADIANCE both failed to demonstrate a difference with torcetrapib. In ILLUSTRATE, despite lowering LDL and raising HDL, the percent atheroma volume increased by 0.19% in the Lipitor only arm and by 0.12% in the combination group (p=0.72). In RADIANCE, the increase in maximum carotid intima-media thickness, the primary efficacy endpoint, did not show a benefit: 0.0053mm per year progression in the Lipitor arm versus 0.0047mm in the Lipitor and torceptrapib group (p=0.87). At AHA 2007, both Merck and Pfizer presented preclinical data suggesting that torcetrapib acts directly on the adrenal cortex, increasing aldosterone production. Mercks anacetrapib and Roches dalcetrapib inhibitor do not have this effect. Aldosterone increases blood pressure, results in potassium, sodium, and bicarbonate changes, but also has a direct effect on arterial walls. These changes were seen when analyzing the ILLUMINATE and ILLUSTRATE studies but, causality of
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the mortality cannot be proven. The ILLUMINATE data have thus far been unable to shed light on the reason for the mortality imbalance although several mechanisms have been postulated, including off-target adrenal gland effects and possibly the direct results of CETP inhibition. In addition, while several questions linger regarding the mechanism of CETP inhibitors, a post hoc exploratory analysis of the ILLUMINATE trial showed that rates of CHD death/MI were lowest in torcetrapibtreated patients with the biggest increases in HDL levels. Similar data from the ILLUSTRATE IVUS study showed that increasing levels of HDL from torcetrapib treatment were associated with a beneficial impact on atherosclerotic plaque progression. In patients with reduced potassium levels, there was no longer this benefit, suggesting that stimulation of aldosterone is tempering with the benefit of the raised HDL. Many theories will continue to be discussed as to why torcetrapib led to these outcomes as well as the role of CETP inhibition. Confounding the mortality data is the increase non-CV related deaths in the torceptrapib arm including cancers and infections. ILLUMINATE Not Designed To Answer Safety-Based Mechanistic Questions At 12 months in patients who received torcetrapib, there was an increase of 72.1% in HDL-C and a decrease of 24.9% in LDL-C, as compared with baseline (P<0.001 for both comparisons). In addition to an increase of 5.4 mmHg in systolic blood pressure, there was a decrease in serum potassium, and increases in serum sodium, bicarbonate, and aldosterone (P<0.001 for all comparisons). There was also an increased risk of cardiovascular events (hazard ratio, 1.25; 95% confidence interval [CI], 1.09 to 1.44; P=0.001) and death from any cause (hazard ratio, 1.58; 95% CI, 1.14 to 2.19; P=0.006). Post hoc analyses showed an increased risk of death in patients treated with torcetrapib whose reduction in potassium or increase in bicarbonate was greater than the median change. Although there was evidence of an off-target effect of torcetrapib, one cannot rule out that the adverse effects were related to CETP inhibition. ILLUSTRATE Study: Lipitor Plus Torcetrapib Drops LDL, Raises HDL, But Fails To Change Atheroma Volume Progression ILLUSTRATE enrolled 1,188 patients to study the effect of torcetrapib plus Lipitor combination versus Lipitor alone on atheroma progression at 24 months. The study used intravascular ultrasonography (IVUS) to measure atheroma progression. The combination therapy resulted in a 61% relative increase in HDL and a 20% relative decrease in LDL but missed the primary efficacy endpoint; the percent atheroma volume increased by 0.19% in the Lipitor only arm and by 0.12% in the combination group (p=0.72). The percent increase in the torcetrapib plus Lipitor group was higher than would have been expected for corresponding LDL-C decreases based on previous studies. A secondary measure, the change in the atheroma volume, showed a benefit for the combination (p=0.02). Torcetrapib plus Lipitor was associated with a modest but significant increase in systolic blood pressure of 4.6mm Hg and trended towards a higher composite of deaths from cardiovascular related events.
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ILLUSTRATE: Selected Efficacy And Safety Data

Lipitor Only (n = 446) Selected Safety Data Change From Baseline % Atheroma volume Mean + SD Least-square mean + SE Normalized total atheroma volume (mm3) Mean SD Least-square mean SE Atheroma volume of most diseased 10-mm segment (mm3) Mean SD Least-square mean SE Selected Safety Data Death All causes Coronary heart disease Nonfatal myocardial infarction Fatal or nonfatal stroke Hospitalization for unstable angina Coronary revascularization Peripheral vascular disease Transient ischemic attack Hospitalization for congestive heart failure Composite of death from coronary heart disease, nonfatal myocardial infarction, nonfatal stroke, and hospitali-zation for unstable angina Composite of death from coronary heart disease, nonfatal myocardial infarction, nonfatal stroke, hospitalization for unstable angina, and coronary revascularization Blood pressurerelated event Investigator-reported hypertensive adverse event Blood pressure >140/90 mm Hg Blood pressure increase >15 mm Hg
Source: NEJM
Lipitor + Torcetrapib (n = 464)
P value
0.72 0.192.83 0.190.14 6.322.2 6.31.0 3.39.1 3.30.4 0.122.99 0.120.13 0.02 9.421.0 9.51.0 0.12 4.18.6 4.20.4
6 (1.0) 1 (0.2) 16 (2.7) 8 (1.3) 34 (5.7) 95 (15.9) 13 (2.2) 0 4 (0.7)
8 (1.4) 1 (0.2) 13 (2.2) 2 (0.3) 47 (8.0) 114 (19.3) 10 (1.7) 2 (0.3) 9 (1.5)
57 (9.5)
62 (10.5)
117 (19.6)
124 (21.0)
63 (10.6) 49 (8.2) 19 (3.2)
140 (23.7) 126 (21.3) 53 (9.0)
RADIANCE-1 Study: Torcetrapib Plus Lipitor Improved Cholesterol Profile But Failed To Reduce Plaque Progression Despite dramatic improvement in the cholesterol profile, torcetrapib plus Lipitor did not impact plaque progression and in one secondary endpoint the combination therapy was worse. The study was designed to measure changes in the carotid intima-media thickness of 850 FH (familial hypercholesterolemia) patients on either Lipitor or Lipitor plus torceptrapib after 24 months of therapy. The combination therapy significantly dropped LDL and raised HDL. There was an average LDL increase of 6.3% for Lipitor alone versus a decrease of 14.4% for the torcetrapib plus Lipitor group. HDL increased by 2.5% in the Lipitor alone group versus 54.4% in the Lipitor plus torcetrapib group. The increase in maximum carotid intima-media thickness, the primary efficacy endpoint, did not show a benefit: 0.0053mm per year
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in the Lipitor group versus 0.0047mm in the combination group (p=0.87). The second efficacy measure, annualized change in mean carotid intima-media thickness for the common carotid artery, indicated a decrease of 0.0014 mm per year in the Lipitor group versus an increase of 0.0038 mm per year in the torcetrapib plus Lipitor group (p=0.005). Systolic blood pressure increased by 2.8mm Hg in patients on Lipitor plus torcetrapib versus Lipitor alone. Changes in Levels of HDL and LDL Cholesterol in Patients Receiving Lipitor Alone or Lipitor plus Torcetrapib.
Source: NEJM
Roches Dalcetrapib Moves Into Phase III

Roche is advancing dalcetrapib (JTT-705/R1658), its CETP inhibitor for the treatment of lipid disorders. Roche has completed four Phase II programs and recruiting patients into its 15,000 morbidity and mortality Phase III study, that should complete in 2013. Pooled Phase II safety data presented at ACC 2008 demonstrated that, after four weeks, dalcetrapib either alone or in combination with pravastatin, atorvastatin or simvastatin, was generally well tolerated and did not show drug-related increase in cardiovascular adverse events (AEs) or changes in blood pressure in the trials compared to placebo. The incidence of AEs was similar between the treated patients and those taking placebo with gastrointestinal disorders, headache and dizziness being the most frequent. Pre-clinical data also presented at ACC showed that dalcetrapib, in contrast to torcetrapib, had no impact in rats on blood pressure or genes associated with the activation of a system that is involved in blood pressure control (renin angiotensin aldosterone system [RAAS]).
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Comparison of Torcetrapib, JTT-705, Anacetrapib

n Torcetrapib Torcetrapib 120mg 2x/day Lipitor 20mg + Torcetrapib 120mg Torcetrapib 120mg daily JTT-705 900mg daily 600mg daily 300mg daily Placebo Anacetrapib 10mg daily 40mg daily 150mg daily 300mg daily Source: NEJM, April 8, 2004; Circulation, May 7, 2002; Merck 44% 86% 139% 133% -16% -27% -40% -39% 52 48 48 50 -37% -30 -15 1 34% 26 16 3 59% 45 19 7 19% 14 13 4 -7% -5 -5 -3 15% 13 8 2 -5% -2 -5 -1 -11% -6 0 0 10 9 10 -65% -38 -28 106% 61 46 283% 323 87 56% 36 29 -17% -17 -8 36% 13 16 -17% -14 -10 -26% -18 1 CETP Inhibition HDL-C HDL-2 HDL-3 LDL-C Apo-A1 Apo-B TG
Mercks Anacetrapib Efficacy And Safety Promising, But Likely Years From Market
Merck initiated a sequenced Phase III program for anacetrapib in April 2008 to obtain additional clinical experience and evaluate key safety parameters including blood pressure, and aldosterone and electrolyte levels before initiating a cardiovascular outcomes study. A November 2008 DSMB meeting recommended that the Phase III continue. Merck plans enrollment to begin for a CV outcomes study in 2010. The ongoing Phase III is a 1,500-patient study evaluating anacetrapib 100mg QD over 76 weeks. Torcetrapib's off-target increase in aldosterone is not seen with anacetrapib. Merck claims that torcetrapib can result in hypertension that is resistant to therapy. However, with anacetrapib's "cleaner" CV profile and its impressive lipid modulator properties, there is reasonable rationale to advance clinical development. We forecast anacetrapib sales of $200MM in 2012 and $800MM in 2015. Anacetrapib Phase IIb Data Very Encouraging Merck presented data from an 8-week double-blind, randomized, parallel-group dose-ranging (10, 40, 150, and 300mg) study at DALM in October 2007. The study evaluated lipid level changes and the safety profile of anacetrapib, administered as monotherapy or co-administered with Lipitor 20 mg, in 589 patients with dyslipidemia (primary hypercholesterolemia or mixed hyperlipidemia). Both anacetrapib monotherapy and the combination with Lipitor 20mg produced statistically significant changes from placebo in the tested cholesterol parameters. When comparing these Phase IIb data with Torcetrapib and R1658, anacetrapibs higher doses appear more potent on both the LDL and HDL parameters. Anacetrapib was not associated with a mean increase in blood pressure in any treatment arm. The incidence rates of individual adverse events were similar across the placebo, Lipitor and active treatment groups ( 5.5 percent). There were non-dose related incidences of clinically important elevations in ALT, AST and CPK. There were no treatment-related serious adverse events or deaths. Treatment-related discontinuations were rare ( 5 percent) and no patients discontinued due to serious
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treatment-related adverse events. There were no reports of hepatitis, myopathy, or rhabdomyolysis observed in this study.
Abbotts Trilipix To Succeed Its Niched Tricor

In December 2008, FDA approved Trilipix, a derivative or Tricor, as a monotherapy and in combination with statins. The latter will be a differentiating feature in the label over Tricor, although there is much clinical data supporting the safety and efficacy of Tricor and statins. Tricor (fenofibrate), a fibric acid derivative has been the backbone of therapy for managing patients with high triglycerides or hypertriglcyeridemia, independent of LDL and HDL levels. Tricor lowers triglyceride by approximately 30% and increase HDL by 15%, but may also modestly increase LDL-C. Because Tricor is relatively easy to use and have improved safety profiles in combination with a statin, this combination has become the most popular option for clinicians in the management of mixed dyslipidemia. Similar to HDL lowering therapies, there are no outcomes data with fenofibrates and based on COMBOS and other trials with triglyceride-lowering agents, the potential benefits of increasing LDL-C size and raising HDL-C are not achieved unless triglycerides are lowered below a specific threshold, such as <150 mg/dL. Prior to the launch of Trilipix, Tricors growth was attributed to (1) increasing recognition that LDL lowering agents are not a panacea in the management of hyperlipidemia and dyslipidemia, which has resulted in a new level of enthusiasm for drugs that impact HDL and triglycerides, (2) a building body of data supporting increased efficacy and safety claims of Tricor in combination with statins (gemfibrozil increases statin plasma levels by 2-fold or more, while Tricor has no significant effects on the area under the curve of all statins tested), and (3) data from the FIELD Study which supported use in diabetic patients with no pre-existing CV disease. The ACCORD (Action to Control Cardiovascular Risk in Diabetes) study is a randomized, multicenter, double 2 X 2 factorial design in 10,251 patients with type 2 diabetes mellitus. The trial is designed to test the effects on major CVD events of intensive glycemia control, of treatment to increase HDL-cholesterol and lower triglycerides (in the context of good LDL-C and glycemia control), and of intensive blood pressure control (in the context of good glycemia control). All 10,251 participants are in the overarching glycemia trial. In addition, one 2 X 2 trial will also address the lipid question in 5,518 of the participants and the other 2 X 2 trial will address the blood pressure question in 4,733 of the participants. In February 2008, the NIH stopped the intensive blood sugar strategy after an average of 3.5 years of treatment, instead of the planned 5.6 years, due to safety concerns. The intensive strategy group had a 22% higher risk of death or 54 more deaths -- compared to the standard group. The increased risk began emerging within 1 to 2 years after the strategy began to aggressively lower the participants blood sugar levels. However, ACCORD's ongoing studies of the effects of aggressively lowering blood pressure and treating multiple blood lipids (cholesterol and triglycerides) in high-risk diabetic patients are expected to continue through June 2009. ACCORD will be the first outcomes trial with data on the impact of triglyceride lowering and potential key catalyst for Trilipix and Tricor. We forecast U.S. Tricor/Trilipix sales of $1,480MM in 2009, $1,598MM in 2010, and $1,922MM in 2013 FIELD Results Mixed The 9,795-patient placebo-controlled FIELD (Fenofibrate Intervention and Event Lowering in Diabetes) trial investigated the efficacy of Tricor as adjunctive therapy in the prevention of coronary heart disease (CHD) events in Type II diabetics. CHD
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events were defined as the combined incidence of non-fatal MI or coronary death. The Tricor arm failed to achieve a statistically significant benefit relative to standard of care (statins, beta blockers) on the primary endpoint of serious coronary events (p=0.16). The Tricor arm did achieve statistically significant benefits on a number of secondary endpoints, achieving a 24% reduction in the risk of a non-fatal heart attack (p=0.01) and a 21% reduction in the need for coronary angioplasty or bypass surgery (p=0.003). FIELD did have some clinically significant results notably data supported use of Tricor in combination with statins - a major growth driver, and potential support for the use of the drug in primary prevention in diabetics. TriLipix/Crestor Combination On Track For H2:09 Filing A collaboration pursuant to the development and commercialization of a fixed dose of ABT-335 and AstraZenecas Crestor was announced in July 2005. ABT335/Crestor is currently in Phase III and an NDA filing is planned for H2:09. Phase III data presented at the National Lipid Association's 2008 Scientific Sessions in June demonstrated that patients treated with the combination of TriLipix 135mg and Crestor 20mg had an increase in HDL of 19.0% and decrease in triglycerides of 42.9% compared to 10.3% and 25.6%, respectively, with Crestor 20mg monotherapy. LDL decreased 38.8% with the combination compared to 6.5% with TriLipix 135mg monotherapy.
GlaxoSmithKlines Lovaza Demonstrates Survival Benefit But OTC Fish Oils May Do The Same
In November 2007, GlaxoSmithKline acquired Reliant, primarily for their triglyceride lowering drug Lovaza. Despite containing omega-3 fatty acids that are available as over the counter agents, Lovaza is only available by prescription to treat adult patients with triglycerides greater than or equal to 500 mg/dL only. Lovaza has a proprietary formulation that contains highly purified (>90%) omega-3 oils. In clinical trials it has demonstrated its benefit across all lipid parameters and has been tested both as monotherapy and in combination with Simvastatin but is only indicated as an adjunct to diet to reduce triglyceride levels in adult patients with very high (>500 mg/dL) triglyceride levels. Results from the GISSI Heart Failure study presented at ESC 2008 showed that 1 g/d dose of Lovaza reduced all cause mortality and hospital admissions for cardiovascular reasons in patients with chronic heart failure. Experts are excited about these outcomes data and expect an increase in omega-3 fatty acids prescription. However, it is unclear whether OTC supplements or a high fish diet are adequate substitutes for Lovaza. We forecast Lovaza sales of 350MM (+21%) in 2009, 400MM (+14%) in 2010, 500MM in 2012, and 650MM in 2015.
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Median Baseline and Percent Change From Baseline in Lipid Parameters in Patients with Very High TG Levels (>500 mg/dL) LOVAZA N=42 BL % Change 816 -44.9 271 -13.8 296 -9.7 175 -41.7 22 9.1 89 44.5 Placebo N=42 BL % Change 788 6.7 292 -3.6 314 -1.7 175 -0.9 24 0 108 -4.8
Difference -51.6 -10.2 -8 -40.8 9.1 49.3
TG Non-HDL-C TC VLDL-C HDL-C LDL-C
Source: Lovaza Label
Half Of Patients Do Not Achieve Blood Pressure Goals

Accoriding to the American Heart Association, 73MM American adults have high blood pressure (BP=140/90 mmHg). Of those people with high blood pressure, 71.8% are aware of their condition. Of all people with high blood pressure, 61.4% are under current treatment, 35.1% have it under control, and 64.9% do not have it controlled. The cause of 9095% of the cases of high blood pressure is not known; however, high blood pressure is easily detected and usually controllable. Uncontrolled high blood pressure can lead to stroke, heart attack, heart failure or kidney failure. This is why high blood pressure is often called the "silent killer." Therapeutics For Hypertension/Congestive Heart Failure Prescription growth in the hypertension and congestive heart failure (CHF) markets should be driven by demographics, increased focus on cardiac event prevention, and continued adoption of newer, more expensive therapies.The Seventh Report of the Joint National Committee on Prevention, detection, Evaluation, and Treatment of High Blood Pressure (JNC7) published U.S. guidelines for high blood pressure management in 2003. The guidelines recommend initial therapy with thiazide-type directis (generic) for most hypertensive patients but acknowledge that mosts patiens will require at least two agents to achieve their blood pressure target; the second agent could be angiotensin converting enzyme inhibitors (ACE inhibitors; e.g., Bristols Capoten and Monopril, Kings Altace, Mercks Vasotec and Prinivil, Pfizers Accupril, CV Therapeutics/Solvays Aceon, and several generics) , angiotensin receptor blockers (ARBs; e.g. Abbott/Boehringer Ingelheims Micardis, AstraZenecas Atacand, Bristols Avapro, Forest/Sankyos Benicar, Mercks Cozaar and Novartis Diovan), beta-blockers (e.g. Forests Bystolic, AstraZenecas Toprol XL GlaxoSmithKlines Coreg, and several generics), calcium channel blockers ( Forests Tiazac, Pfizers Norvasc, Kings Cardizem LA, and several generics). New European guideline for the management of hypertension were released in June 2007 that are very similar to the U.S. guidelines. Many of the 2nd line agents have fixed dose formulations with either hydrochlorothiazide or another class. The fixed dose combinations help compliance. Novartis Tekturna, a renin inhibitor was launched in 2007. Renin inhibitors are the first new class of antihypertensives to be launched in over a decade but adoption is likely to be tempered as physicians gain experience with the class and await outcomes data that are expected in 2012.
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Congestive heart failure (CHF) often is a manifestation of end-stage cardiac disease, making it a difficult condition to treat, especially given limited options. Heart failure in the form of systolic or diastolic ventricular dysfunction, results primarily from systolic hypertension and IHD. In asymptomatic individuals with demonstrable ventricular dysfunction, ACEs inhibitors and betablocker are recommended. For patients with symptomatic ventricular dysfunction or end-stage heart disease, ACE inhibitors, betablockers , ARBs and aldosterone blockers are recommended along with loop diuretics. Heart transplants currently are the only cure for late-stage disease.
TOTAL PRESCRIPTION MARKET SHARE IN 2003-07 Beta Blockers ACE Inhibitors Calcium Channel Blockers Thiazide Diuretics ARBs Potassium Sparing Diuretics ARBs w/ Diuretics ACE Inhibitors w/ Diuretics Alpha-Beta Blockers Beta Blockers w/ Diuretics
Source: IMS America
2003 23.0% 24.8% 18.0% 8.1% 7.3% 7.5% 4.5% 3.2% 1.7% 2.0%
2004 23.0% 24.1% 16.8% 8.7% 7.7% 7.2% 5.3% 3.3% 2.0% 1.8%
2005 23.2% 23.7% 16.2% 9.2% 7.8% 6.8% 5.6% 3.4% 2.4% 1.7%
2006 23.8% 21.1% 15.3% 11.7% 8.1% 5.1% 6.2% 4.1% 3.2% 1.4%
2007 21.4% 24.1% 13.3% 11.7% 7.1% 4.8% 5.4% 3.4% 4.4% 1.2%
2008 19.9% 20.6% 13.5% 11.3% 7.1% 4.9% 5.4% 3.7% 4.7% 1.1%
Therapies AZN's Toprol XL, generics KG/WYE's Altace, PFE's Accupril, generics PFE's Norvasc, FRX's Tiazac, generics Hydrochlorothiazide AZN's Atacand, BMY's Avapro, MRK's Cozaar, NVS' Diovan, FRX's Benicar PFE's Inspra, spironolactone AZN's Atacand HCT, BMY's Avalide, MRK's Hyzaar, NVS' Diovan HCT AZN's Zestoretic, BMY's Monopril HCT, generics GSK's Coreg WYE's Ziac, generics
ALLHAT Supports Thiazide Diuretics, But Market Impact Minimal

In December 2002, JAMA published the results of the National Institutes of Healths ALLHAT (Antihypertensive and Lipid-Lowering Treatment to Prevent Heart Attack Trial). ALLHAT examined the effects of various drugs, including Norvasc (Pfizer), lisinopril (generics), an older diuretic (chlorthalidone), and Pravachol (Bristol-Myers Squibb) on reducing cardiovascular events in 33,357 patients. The results show that, for the primary endpoint of fatal CHD or nonfatal MI, the rates were similar between the Norvasc, lisinopril and chlorthalidone treatment groups. In terms of secondary endpoints, there was no significant difference in the rate of all-cause mortality or combined endpoint of CHD, stroke, combined CVD, angina, coronary revascularization, peripheral artery disease, cancer and ESRD. Norvasc was superior to lisinopril in terms of kidney function, a surprising finding given that ACE inhibitors are considered highly effective in protecting the kidney. Chlorthalidone was superior to Norvasc in heart failure, and lisinopril in stroke and the combined risk of CVD. Five year systolic blood pressures were significantly higher in the Norvasc (0.8mm Hg; p=0.03) and lisinopril (2mm Hg; P<0.001) groups compared to chlorthalidone. Diastolic pressure was significantly lower with Norvasc (0.8mm Hg; p<0.001) compared with chlorthalidone. There was no signal of cancer with Norvasc, which has been suggested in previous smaller studies involving calcium channel blockers. Authors of the JAMA article concluded that thiazide diuretics are superior in preventing one or more major forms of CVD, are less expensive, and should be the preferred first-line treatment. Overall, the ALLHAT results suggest that diuretics should be used as first-line agents. While use of diuretics either alone or in singlepill combinations has increased from 16.3% of total hypertension/CHF prescriptions in 2002 to 21.5% in 2008, a major shift in physician prescribing has not occurred.
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ALLHAT EFFICACY RESULTS

Groups Norvasc Vs. Chlorthalidone Primary Endpoint No significant difference in rate of fatal CHD or nonfatal MI (11.3% for Norvasc vs. 11.5% for Chlorthalidone) Secondary Endpoints No significant difference for rate of allcause mortality, or combined endpoint of CHD, stroke, combined CVD, angina, coronary revascularization, peripheral artery disease, cancer and ESRD; Patients treated with Norvasc had 38% higher risk of hospitalized/fatal heart failure (p<0.001). No significant difference in No significant difference for rate of allrate of fatal CHD or nonfatal cause mortality, or combined endpoint of MI (11.4% for lisinopril vs. CHD, stroke, combined CVD, angina, 11.5% for Chlorthalidone) coronary revascularization, peripheral artery disease, cancer and ESRD; Patients treated with lisinopril had 15% higher risk of stroke (p=0.02) and a 10% higher risk of combined CVD (p<0.001).
Lisinopril Vs. Chlorthalidone
Source: JAMA, December 18, 2002
A high dropout rate (20-30%) was observed in ALLHAT at year five, raising questions about the data given the intent-to-treat design. A breakdown of discontinuations is depicted below. ALLHAT DROPOUT RATES IN YEAR FIVE
Chlorthalidone 6210 completed visit 1873 discontinued drug tx 775 unspecified refusal 282 symptomatic AE 84 blood pressure elevation 91 blood pressure too low 73 morbid event 71 other AE 125 nonmedical reason 638 other
Source: JAMA, December 18, 2002
Norvasc 3769 completed visit 1052 discontinued drug tx 443 unspecified refusal 180 symptomatic AE 38 blood pressure elevation 51 blood pressure too low 45 morbid event 17 other AE 83 nonmedical reason 387 other
Lisinopril 3605 completed visit 1399 discontinued drug tx 552 unspecified refusal 264 symptomatic AE 131 blood pressure elevation 76 blood pressure too low 49 morbid event 34 other AE 94 nonmedical reason 484 other
Generics Dominate The ACE Inhibitor Market

Angiotensin converting enzyme inhibitors (ACE inhibitors) lower arteriolar resistance and increase venous capacity; increase cardiac output and cardiac index, stroke work and volume, lower renovascular resistance, and lead to increased natriuresis (excretion of sodium in the urine) Generics to Prinivil, Zestril, Univasc, Lotensin, Monopril, and Accupril were launched between 2002 and 2004. King/Wyeths Altace (ramipril) lost its exclusivity in Q2:08
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Novartis Lotrel In Decline Post Earlier Than Expected Generic Launch Lotrel is a fixed-dose combination of an ACE inhibitor, benazepril and the calcium channel blocker amlopidine. In May 2007, Teva received approval for its generic Lotrel and launched on that day. Novartis secured a temporary restraining order, but it failed to secure a Preliminary Injunction barring Teva from the continued launch of the generic. Novartis then launched its own generic creating a co-exclusive period with Teva through Q1:09, when the remaining generic companys 30-month stay expires. We forecast Lotrel sales of $260MM (-33%) in 2009, $150MM in 2010, and $50MM in each year from 2012 through 2015.
ARBs Growth Continues Driven By Outcomes Data

Angiotensin II receptor blockers (ARBs) have efficacy that is comparable to competitive agents, with a more benign side-effect profile. Angiotensin-II is a powerful blood vessel constrictor, and can cause vasoconstriction throughout the body. In general, angiotensin-II receptor antagonists have very good efficacy and side-effect profiles. The absence of the cough side effect provides ARBs their biggest advantage over the ACE inhibitors. About 10% of patients cannot tolerate ACE inhibitors because of cough. Several important studies have yielded generally positive results with ARBs. VAL-HeFT revealed that Novartis Diovan was superior to conventional therapy for the treatment of CHF. LIFE showed that Mercks Cozaar reduced the risk of cardiovascular mortality, stroke, and myocardial infarction compared to a beta blocker. VALIANT (Diovan vs. Captopril in post-MI patients) and VALUE (Diovan vs. Norvasc in patients with hypertension) showed ARBs to be equivalent to existing antihypertensives in preventing cardiovascular events. Novartis Diovan is the leading ARB but efficacy and safety is likely similar between the brands. Mercks Cozaar and Hyzaar (losartan and losartan hydrochlorothiazide) have patent expirations on 9/09 and 2/10, respectively. Merck is seeking pediatric exclusivity on Cozaar. Post Cozaars exclusivity period, the ARB market dynamic is likely to mimic the statin market when simvastatin generics were launched.
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ARB NEW PRESCRIPTION COMPARISON

550 500 450 # OF NEW PRESCRIPTIONS (000) 400 350 300 250 200 150 100 50 0 Jul-06 Jul-07 Jan-06 Jan-07 Jan-08 Jul-08 Jan-09 Oct-06 Oct-07 Apr-06 Apr-07 Apr-08 Oct-08
Atacand
Source: IMS
Avapro
Cozaar
Hyzaar
Diovan
Benicar
ARB COMPETITIVE LANDSCAPE

Product Diovan/HCT Cozaar/Hyzaar Benicar/HCT (U.S) Avapro/Avalide Atacand/HCT Micardis/HCT Azor Teveten/HCT Company Novartis Merck Sankyo/Forest Labs Bristol-Myers/Sanofi AstraZeneca/Takeda BI/Yamanouchi Sankyo/Forest Labs Abbott/Solvay U.S.NRx Jul-08 39.1% 21.2% 15.4% 12.2% 4.9% 5.3% NA 0.3% U.S. NRx Jan-09 39.4% 20.9% 17.2% 11.9% 4.6% 5.9% 1.72% 0.17% Sales ($MM) 2009E 2013E $5,820 $1,550 3,615 400 1,090 1,121 1,355 500 1,625 2,200 817 977 105 373 20 20
Source: IMS America, Cowen and Company estimates
Novartis Diovan Should Maintain Market-Leading Position

Diovan/HCT (valsartan/HCT) is the leading angiotensin II receptor blocker (ARB) and captured 39.4% of U.S. ARB new prescriptions in January 2009; NRxs were flat Y/Y. Novartis 55,000+ patient clinical programs (Val-HeFT, VALIANT, and VALUE studies, among others) expanded the Diovan label beyond hypertension and solidified its position in the market. The Val-HeFT (Valsartan Heart Failure Trial) trial supported an indication for the treatment of heart failure in patients who cannot tolerate ACE inhibitors, VALIANT (VALsartan In Acute Myocardial Infarction Trial) supported the indication for the reduction of cardiovascular death in patients at high risk (with left ventricular failure or dysfunction) following a heart attack, and VALUE supported long-term use when compared to Norvasc. ABCD-2V demonstrated intensive diastolic blood pressure control and increased diabetic patients return to normoalbuminura. NAVIGATOR, which should report in 2009, is looking at cardiovascular (CV) outcomes in type 2 diabetics. Novartis launched two new formulations of Diovan HCT in the E.U. with higher doses of diuretic (12.5mg, 25mg).
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Exforge, a Diovan/amlodipine fixed-dose combination, has had a solid launch with reasonable growth ex-U.S. where traditionally fixed-dose combinations have struggled. A fixed-dose Exforge/HCT is anticipated to be launched in the U.S. and E.U. in 2009 and 2010, respectively. We peg Exforge sales of $580MM (+43%) in 2009, $740MM (+13%) in 2010 peaking at $900MM in 2011, but then declining to $300MM in 2015 due to Cozaar generics and the U.S. Diovan 09/12 patent expiration. We estimate Diovan/HCT sales of $5.82B (+1%) in 2009, $6.23B (+7%) in 2010, declining to $4.65B in 2011 because of Cozaar generics, $3.2B in 2012, and $700MM in 2015. NAVIGATOR will evaluate whether Starlix (nateglinide) or Diovan are effective at reducing progression to type 2 diabetes and CV morbidity and mortality in people with impaired glucose tolerance (IGT). At present, there are no licensed treatments for IGT. The 9,306 patients with IGT enrolled in the trial are either older than age 50 with diagnosed cardiovascular disease or older than age 55 with at least one risk factor for cardiovascular disease, such as high blood pressure, family history of heart disease, high cholesterol or smoking. The study was designed to conclude when 1,000 events in the primary endpoint were reached. NAVIGATOR appears better designed than GlaxoSmithKlines DREAM study which had mixed outcomes. DREAM compared Rampiril (King), an ACE inhibitor, to Avandia in a smaller IGT population. Ramipril demonstrated an improvement in terms of regression to normoglycemia, but did not reduce the likelihood of progression to diabetes. Although Avandia showed an impressive reduction in progression to diabetes, no improvement in cardiovascular outcomes related to such glucose lowering was demonstrated. The absence of macrovascular benefit, or in fact an increased risk of macrovascular harm despite glucose lowering seen with oral diabetic agents including Avandia, is of major clinical and regulatory interest. Any clinical trial or agent that is able to demonstrate both positive micro and macrovascular benefits together with glucose control could result in significant commercial upside. Given that Ramipril improved the rate of regression to normoglycemia, we believe a similar trend is possible in the NAVIGATOR Diovan arm; however, a positive benefit on CV outcomes is less clear. The NAVIGATOR should conclude in 2009 and the data are expected to be filed in 2010/11. VALUE (Valsartan Antihypertensive Long-term Use Evaluation), published in The Lancet in June 2004, compared Diovan to Norvasc at the same level of blood pressure control in 15,300 patients with hypertension. The primary endpoint was cardiac mortality/morbidity. The results showed that Diovan was equivalent to Norvasc. Norvasc was associated with more rapid blood pressure lowering while Diovan showed a benefit in renal function similar to that seen in the IRMA, IDNT, and RENAAL trials. VALUE showed a significant 23% risk reduction in new-onset diabetes with Diovan (13.1% incidence) compared to Norvasc (16.4% incidence, p<0.00001). Diovan and Norvasc were similar in the primary composite endpoint. However, myocardial infarction occurred more frequently in patients treated with Diovan. VAL-HeFT (Valsartan Heart Failure Trial) assessed the efficacy and safety of Diovan (valsartan) in patients with heart failure when combined with ACE inhibitors and other conventional therapies. The double-blind, parallel-group trial randomized 5,005 multinational patients suffering from mild to moderate congestive heart failure into two groups: Diovan 40mg twice daily (patients were titrated to 160mg twice daily), and placebo. All patients received conventional background therapy (93% of patients received an ACE inhibitor and 35% received beta blockers). The primary endpoints were (1) a reduction in all-cause mortality and (2) a reduction in all-cause mortality and morbidity. Val-HeFT, which began in 1997, was powered to show a 20% reduction in mortality (until 906 deaths occurred). There was no
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difference in total mortality, the first primary end point, between Diovan plus conventional therapy and conventional therapy alone; the reduction was -19% for both treatments. However, Diovan plus conventional therapy did show a statistically significantly greater reduction than conventional therapy alone in the combined endpoint of mortality and morbidity (-13.3% greater reduction). In August 2002, Diovan received approval for CHF in patients who cannot tolerate ACE inhibitors. VALIANT (VALsartan In Acute Myocardial Infarction Trial) compared Diovan to captopril and the combination of the two in 14,500 post IM patients. The primary endpoint was all-cause mortality (time to death). The results showed that Diovan is equivalent to captopril in this population, and the combination of the two agents offers no incremental benefit. This 5-year trial included 3,000 deaths, producing very definitive results. ABCD-2V (Appropriate Blood pressure Control in Diabetes Part II with Valsartan) was an 800 patient single-centre, prospective, randomized trial investigating the long-term effects of moderate versus intensive blood pressure control on the progression or development of complications in type 2 diabetic patients. Patients were randomized to receive either intensive blood pressure control with Diovan plus additional anti-hypertensives to achieve a target diastolic blood pressure of less than 75 mmHg or moderate blood pressure control with placebo (target diastolic blood pressure goal: less than 80-90 mmHg). The average length of patient follow-up was 1.9 years. Mean blood pressure of 119+7.8/78+3.1mmHg was achieved in the intensive group and 124 +6.8/81+4.1mmHg in the moderate group. A higher percentage of patients (77.8%) returned to normoalbuminuria with intensive versus with moderate therapy (33.3%; p = 0.046). There was no difference in change in creatinine clearance between treatment groups.
Mercks Cozaar/Hyzaar Reaching The End Of The Road

Cozaar and Hyzaar claimed 21.1% (-1%) and 18% (-6%) of U.S. new prescription ARB market share in January 2009, placing it in the number-two position behind Diovan. Indications for reduction in end-stage renal disease in diabetic patients stemming from RENAAL and a stroke indication based on LIFE supported Cozaar during the past several years. However, Cozaar lacks a first-line congestive heart failure (CHF) claim worldwide, giving an advantage to Diovan and AstraZenecas Atacand. Atacand has reflected in its label two head-to-head trials illustrating Atacands superiority over Cozaar. Cozaar and Hyzaar have U.S. patent expirations in 9/09 and 2/10, respectively. Merck is seeking pediatric exclusivity on Cozaar but not Hyzaar. We peg sales at $3.615B (+2%) in 2009, $2.2B in 2010, and $500M in 2012 post the April 2012 patent expiration. RENAAL (Reduction of Endpoints in Non-Insulin Dependent Diabetes Mellitus) was a 1,513 patient study of type II diabetics that assessed Cozaars impact on renal insufficiency and diabetic nephropathy. Patients received Cozaar 50, 100mg or placebo once daily, and were studied for 3.4 years. Cozaar reduced the primary endpoint of either a doubling of serum creatinine, kidney failure or death by 16% compared with placebo (p=0.024). Cozaar also reduced the risk of progression to end-stage renal disease requiring dialysis or kidney transplantation by 28% compared with placebo (p=0.002). LIFE (Losartan Intervention For Endpoint Reduction in Hypertension) was revealed at the American College of Cardiology meeting in March 2002. LIFE compared
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Cozaar (Losartan) with atenolol (beta blocker). LIFE was designed to conclude after 1,040 events and four years. The overall results were positive for Cozaar as it showed a 13% risk reduction in the primary endpoint of cardiovascular mortality, stroke, and MI (p=0.009). Cozaar reduced total mortality in diabetics by 39% versus atenolol (p<0.05). However, there were some questions raised with the data. Stroke was the only component of the primary endpoint that contributed a statistically significant improvement when assessed separately. Cozaar reduced the risk of stroke by 25% compared to atenolol (p=0.001). Data assessing Cozaar versus atenolol for the reduction of cardiovascular death and MI were not statistically significant. Overall, our physician experts view LIFE as impressive, given the sizable mortality benefit that was observed with Cozaar, especially in diabetics. Furthermore, LIFE was the first outcomes study which showed that mechanisms are important: Cozaar led to similar blood pressure reduction versus atenolol, yet delivered more powerful reductions in events. Cozaar likely will become the ARB of choice in patients with hypertension and left ventricular hypertrophy, the latter of which is sometimes viewed as a proxy for high-risk hypertension. Beta blockers are considered less effective than ACE inhibitors due to a lack of impact on the kidney. Cozaar received an indication for the prevention of stroke based on the LIFE data. OPTIMAAL (Optimal Trial in Myocardial Infarction with Angiotensin II Antagonist Losartan) was a study of 5,477 patients post MI with evidence of heart failure and/or left ventricular dysfunction. The primary endpoint was total mortality. Patients were randomized to Cozaar 12.5mg and titrated to a maximum of 50mg once daily (mean dose was 45mg), or captopril 6.25mg, up to 50mg once daily (mean dose 44mg). The results showed that Cozaar was similar to captopril in reducing total mortality (18.2% mortality rate versus 16.3%; p=0.069). Cozaar was better tolerated than captopril in OPTIMAAL. ELITE II showed that Cozaar was not superior to captopril in lowering the risk of death in patients with CHF. In fact, while not statistically significant, captopril delivered a 12% lower risk of death, and if data were adjusted for the higher dropout rate in the captopril arm, the gap would have been larger. Captopril is not the most potent ACE inhibitor, and if a more powerful ACE inhibitor were used, the gap may have been even larger. There are unlikely to be significant differences between the ARBs; however, they could work synergistically with ACE inhibitors.
AstraZenecas Atacand A Modest Commercial Success

Atacand, a prodrug that is hydrolyzed to candesartan, is an angiotensin II receptor antagonist (ARB) indicated for the treatment of hypertension and heart failure. Atacand/HCT, the fixed dose combination with a hydrochlorothiazide diuretic, is only indicated in patients requiring more than a monotherapy. Candesartan was discovered and originally synthesized by Takeda and it was jointly developed with AstraZeneca. Atacand has been unable to a garner significant share. Reasons for the poor performance include a tempered commercial effort due to unfavorable economics because of royalties paid to Merck and Takeda, and strong competition from Diovan. Atacand achieved a 4.6% NRx share in the U.S. in January 2009 with NRxs down year on year by 10%. In the rest-of-world Astras economics are more favorable. The CHARM study supported its cardiac failure label. The TROPHY study assessed Atacand for the treatment of pre-hypertension and reported in March, 2006. Despite meeting its endpoint, there is debate on the interpretation of these data and clinical practice has not been impacted. The DIRECT (DIabetic REtinopathy Candesartan Trials) Program is investigating the effects of Atacand on retinal damage and visual loss related to diabetes. DIRECT is made up of three studies.
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DIRECT, presented in September 2008, demonstrated a strong trend in favor of treatment with Atacand in reducing the incidence of diabetic retinopathy in Type 1 diabetes patients, although not statistically significant, and a significant increase in regression of diabetic retinopathy in Type 2 diabetes patients. It is unclear whether these data are suitable for a filing. We forecast Atacand sales of $1.625B (+10%) in 2009, $1.8B (+9%) in 2010, $2.1B in 2012, and $2.4B in 2015. CHARM (Candesartan in Heart failure Assessment of Reduction in Mortality and morbidity) compared Atacand in 7,600 patients with CHF to patients receiving a standard of care, which included ACE inhibitors or beta-blockers (CHARM Added), patients intolerant of ACE inhibitors (CHARM Alternative), and patients with preserved left ventricular systolic function (LVEF > 40%) (CHARM Preserved). Patients were titrated to Atacand 32mg and followed for two years. Overall, Atacand produced a 9% risk reduction in all-cause mortality, a 12% risk reduction in cardiovascular death, and a 21% risk reduction in hospital admissions. Atacand also produced a statistically significant reduction in the combined endpoint of cardiovascular death and hospital admission over and above standard of care and in ACE intolerant patients. Atacand also significantly reduced hospital admissions in patients with LVEF of >40%. TROPHY (Trial Of Preventing Hypertension) was a four-year, multi-center, randomized, placebo-controlled study in 772 evaluable subjects with prehypertension as defined as BPs <=139/85-89 mmHg or 130-139/<=89mmHg. The trial consisted of two years of double-blind treatment with Atacand or matching placebo followed by 2 years of single-blind treatment with matching placebo in both groups. The primary objective was to determine whether a 2-year period of active treatment with Atacand would be sufficient to reduce the proportion of subjects developing hypertension over the 4-year duration of the trial. TROPHY demonstrated a 15.6% relative risk reduction in the group treated with Atacand (53.2% vs 63.0% p<0.007). During the first two years of the trial, 154 patients on placebo (40.4%) developed hypertension, compared with 53 (13.6%) in the Atacand group. The relative risk reduction for treatment compared with placebo during this phase was 0.34, 95% confidence interval, 0.25-0.44, P<0.001. Despite a statistical difference in the primary endpoint, stopping Atacand after 2 years resulted in blood-pressures in the Atacand arm approaching that in the placebo arm. Atacand is likely therefore acting as a therapeutic and not a prophylactic.
Sanofi/Bristols Avapro Slips To Fourth Place In ARB Market

Sanofi/Bristol-Myers Squibbs Avapro/Avalide had 11.9% new prescription share of the ARB market in January 2009, limited by the introduction of Forest/Sankyos Benicar, and the success of Diovan. Beyond hypertension, Avapro has been approved for the treatment of diabetic nephropathy based on the results of the PRIME study, which showed that Avapro reduces morbidity and mortality for patients with Type 2 diabetes and hypertension with early or late alteration of renal function. The results of the 4,500 patient I-PRESERVE study presented at AHA 2008, demonstrated that Avapro failed to make a difference in mortality or cardiovascular events in patients with heart failure and preserved LVEF. I-PRESERVE randomized 4128 patients aged >60 years with NYHA class 2-4 heart failure and an LVEF >45% to receive Avapro or placebo and followed them for a mean of about four years. Excluded were patients with recent ACS or stroke, hypertrophic or restrictive cardiomyopathy, or pericardial or valvular disease. Avapro was initiated at 75 mg/day and titrated to the target dosage of 300 mg/day; the average dosage achieved was 275 mg/day. I-PRESERVE is third outcomes study- the others being CHARM and PEP-CHF- where a RAAS active
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agent failed to make a difference in mortality or CV events when blood pressure is controlled. These results are likely to limit use of ARBs in what is estimated to be 1520MM patients worldwide suffering from heart failure with preserved systolic function (HF-PSF). Avapro sales are forecast to be $1.415B (+6%) in 2009, $1.5B (+6%) in 2010, before declining to $750MM in 2012 post the September 2011 patent expiration.
Forest/Sankyos Benicar Growing Fast In Crowded Market

In May 2002, Forest and Sankyo launched Benicar (olmesartan) under a U.S. marketing joint venture. Benicar was discovered and developed by Sankyo for the treatment of hypertension. A Sankyo-sponsored study presented at the November 2000 American Society of Hypertension meetings showed Benicar to be statistically significantly superior to starting doses of each of the leading ARB antihypertensives, including Cozaar, Diovan, and Avapro, in reduction of diastolic blood pressure and time to onset; numerically superior in reduction of systolic blood pressure; and similar in tolerability. Our physician consultants are impressed with the efficacy and safety profile of Benicar, but do not believe that it is therapeutically differentiated from the six other currently marketed ARBs. Sankyo and Forest launched a diuretic combination version of Benicar (Benicar plus hydrochlorothyazide) in September 2003, which has propelled market share gains. Benicar has been a strong performer, reaching 17.2% new prescription share of the ARB market in January 2009. In Q3:04, Sankyo launched the ROADMAP (Randomised Olmesartan And Diabetes MicroAlbuminuria Prevention) study. ROADMAP is the first large-scale multinational clinical trial to study whether an ARB can prevent the onset of microalbuminuria, an early sign of kidney disease, in patients with type 2 diabetes. Final results are expected in 2012, although interim analyses will be conducted. Benicar/HCT is covered by approximately 90% of Medicare Part D prescription drug plans, and holds tier 2/preferred status on 50-60% of those covering the product. We estimate Benicar sales of $765MM (+3%) in 2009, $800MM (+5%) in 2010, $865MM in 2012, and $750MM in 2015. Azor Receives FDA Approval. Forest/Daiichi Sankyos Azor received FDA approval in September 2007. Azor is a fixed dose combination of amlodipine (calcium channel blocker; active ingredient in Pfizers Norvasc) and olmesartan (ARB; active ingredient in Daiichi Sankyo/Forests Benicar) for the treatment of hypertension, alone or with other antihypertensive agents, but not as initial therapy. Azor is likely to compete directly with Novartis Exforge (fixed dose amlodpine/Diovan combination). In June 2008, Forest terminated its agreement with Daiichi.
Beta Blockers Dominated By Generics

Beta blockers, which slow the heart rate and reduce cardiac output, are prescribed for a variety of indications including hypertension, CHF, angina, and arrhythmias. The market is dominated by generics including atenolol, metoprolol, nadolol, pindolol, and propranolol. GlaxoSmithKline is unlikely to successfully convert Coreg to Coreg CR. All doses of AstraZenecas Toprol XL, a once-daily version of atenolol, are now generic. The success of Forests Bystolic is keyed to differentiated outcomes data.
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Forest Thinking Big On Bystolic

Forest sub-licensed the U.S. and Canadian development rights to Bystolic (nebivolol) from Mylan Labs in January 2006: Forest launched Bystolic for the hypertension indication in February 2008. Bystolic is a beta blocker originally developed by Janssen (JNJ) in the 1990s. Our hypertension clinical consultants are enthusiastic about the mechanism and profile of Bystolic. They note that Bystolic is differentiated from other beta blockers by high selectivity for the beta-1 receptors (reducing pulmonary side-effects), and by its nitric oxide (NO) synthesis capabilities, which augment its blood pressure reduction efficacy while maintaining a clean sideeffect profile. Our consultants believe that clinical data supporting such effects would make Bystolic an attractive antihypertensive candidate for higher-risk hypertension patients, including patients with concomitant diabetes, obesity, CHF, or COPD. Clinical trials show that Bystolic is better tolerated than atenolol in African Americans (this study is included in the Bystolic label). Other smaller studies have shown Bystolic to have a good tolerability and efficacy profile in hypertension patients with diabetes, obesity and respiratory disease. Forest currently is conducting a total of 8 Phase IV trials to demonstrate these benefits in larger studies. The beta blocker class is under scrutiny due to concerns about long-term safety in patients with more severe hypertension (particularly diabetes/obesity patients) and congestive heart failure (CHF). Our clinical consultants view this as an opportunity for Forest to position Bystolic as a differentiated, safer beta blocker. The JNC 8 guidelines which could incorporate Bystolic will only be released in Spring 2010. We estimate Bystolic sales of $65MM in F2009, $125MM in F2010, $180MM in F2011, and $450MM in F2015.
SUMMARY OF ONGOING BYSTOLIC CLINICAL TRIALS
Title A Study on the Long-Term Efficacy of Nebivolol After Withdrawal of Therapy Recruitment Conditions Interventions Phases Enrollment Start Date
Recruiting
Hypertension
Nebivolol vs. Placebo
Phase IV
144
Nov-08
Nebivolol Versus Losartan Versus Nebivolol+Losartan Against Aortic Root Dilation in Genotyped Marfan Patients A Study of the Effect of Nebivolol to Evaluate Its Vasodilatory Effects in Hypertensive Patients A Study on the Efficacy and Safety of Nebivolol Monotherapy in Hispanic Hypertensive Patients.
Recruiting
Marfan Syndrome
Losartan Vs. Nebivolol Vs. Losartan+Nebivolol
Phase III
291
Jul-08
Recruiting
Hypertension
Nebivolol Vs. Metoprolol ER
Phase III
30
Mar-08
Recruiting
Hypertension
Nebivolol vs. Placebo
Phase IV
260
Sep-08
Study of the Glycemic Effects of Nebivolol Compared With Metoprolol and HCTZ in Diabetic Hypertensive Patients Efficacy and Safety of Nebivolol (Added to Lisinopril or Losartan) in Hypertensive Patients The Effect of Nebivolol in Hypertensive Patients With Coronary Artery Disease The Blood Pressure and Metabolic Effects of Nebivolol in Hypertensive Patients With Impaired Glucose Tolerance or Impaired Fasting Glucose Safety Study to Lower the Risk of Heart Failure is Also Effective in Reducing Stiffness of the Arteries
Recruiting
Hypertension;Type 2 Diabetes Mellitus
Nebivolol Vs. Metoprolol+HCTZ
Phase IV
200
Aug-08
Recruiting
Hypertension
Nebivolol Vs. lisinopril Vs. losartan
Phase IV
320
Aug-08
Recruiting
Hypertension;Coronary Artery Disease
Nebivolol Vs. Carvedilol
Phase IV
160
May-08
Recruiting
Hypertension
Nebivolol+ HCTZ Vs. Placebo
Phase IV
450
May-08
Active, not recruiting
Stiffness of the Arteries
Nebivolol
Phase II/III
60
Jan-09
GlaxoSmithKlines Coreg CR Only A Modest Success

Coreg CR, a once-daily version of Coreg, was launched in March 2007. Coreg IR, an alpha-beta blocker, is the only approved drug for the treatment of mild to moderate congestive cardiac failure, including stable post-MI patients, that has demonstrated a mortality benefit. Glaxo has failed to convert the IR franchise to Coreg CR. Two
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reasons for CRs modest performance have been cited: 1) sales force distraction due to Avandias woes, and 2) MHCs perceive CRs value to be limited, especially given the lack of outcome data. Coreg CR may find its niche in complicated hypertensive patients who are taking many pills a day and require a beta blocker. Coreg IR lost patent protection in September 2007. We peg sales of Coreg/Coreg CR at 200MM in 2008 (Coreg vs. CR split 10/90), 105MM in 2010 (Coreg vs. CR split 5/95), 30MM in 2012 (Coreg vs. CR split 17/83) declining to 15MM in 2015. In December 2004, GlaxoSmithKline began recruiting for the 488-patient CLEVER (Coreg CR And LEft VEntricular Mass Regression) study. CLEVER is designed to compare the effects of Coreg CR vs. atenolol when added to ACE inhibitors, versus ACE inhibitors alone in patients with LVH (left ventricular hypertrophy) and hypertension. The primary endpoint is a change in left ventricular mass index (LVMI) characterized by magnetic resonance imaging (MRI) following 18 months of treatment. Secondary endpoints include the change in LVMI by MRI at nine months and change in LV (left ventricular) mass, LV wall thickness, diastolic left ventricular filling parameters, and left ventricular ejection fraction by echocardiographic methods at months 9 and 18. In July 2005, GlaxoSmithKline initiated a 1,220-patient clinical outcomes trial to determine if Coreg CR is superior to Toprol XL in reducing microalbuminuria in type 2 diabetic or non-diabetic patients with high blood pressure and microalbuminuria this study was later terminated- likely for commercial reasons.
AstraZenecas Toprol XL In Decline Post Generic Competition

Toprol XL, a once-daily version of metropolol, enjoyed great success driven by broad use as a once-daily antihypertensive, use in CHF, and its attractive pricing (45% below Coreg). In January, 2006, Judge Sippel of the U.S. District Court for the Eastern District of Missouri ruled in favor of Andrx, KV, and Eon (Sandoz) that patents 5,081,154 and 5,001,161, which cover Toprol XL and expired in September 2007, were invalid and unenforceable based on anticipation, obviousness-based double patenting, and inequitable conduct. AstraZeneca filed an appeal with the Court of Appeals for the Federal Circuit in February 2006. In November 2006, Par began shipment of the authorized generic Toprol XL 25mg for AstraZeneca simultaneous with Novartis Sandoz true generic launch. The 25mg was the lowest selling dose, with revenues of $300MM. KV Pharmaceutical launched the 100 and 200mg formulations (combined $700MM in brand sales) in July 2007. Watson/Andrx sold rights to the 50mg dose ($550MM in brand sales) to Sandoz. We forecast Toprol XL sales of $300MM in 2009, $100MM in 2012, and $25MM in 2015.
Calcium Channel Blocker Sales In Decline Post Patent Expirations

Calcium channel blockers (CCBs) work by slowing cardiac contractions, which reduces blood pressure. CCBs are classified by their structure and specificity for cardiac tissue, including dihydropyridines (AstraZenecas Plendil, Pfizers Procardia XL and Norvasc, Bayers Adalat, and Novartis DynaCirc) and non-dihyropyridines (phenylalkylamines and benothiazepines). The dihydropyridines are indicated predominantly for vasospastic and chronic stable angina and hypertension, with immediate-release Adalat (nifedipine) also used off label for a variety of illnesses. Phenylalkylamines, such as Pfizers Calan and Covera and all forms of verapamil, are indicated mostly for hypertension; immediate-release verapamil is indicated for all forms of angina. The immediate-release benothiazepines (diltiazems; SanofiAventis/Biovails Cardizem, Forests Tiazac) are indicated for chronic stable angina,
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while sustained-release versions treat hypertension. Post Pfizers Norvasc patent being determined invalid in 2007, the CCB market was all but generic.
INDICATIONS FOR MAJOR CALCIUM CHANNEL BLOCKERS Indications Angina Hypertension Arrhythmias Unlabeled Uses: Migraine Raynauds syndrome CHF Cardiomyopathy Cleviprex Yes Norvasc Yes Yes -----Tiazac Yes Yes -----Plendil -Yes --Yes Yes -Covera-HS -Yes -----Calan Yes Yes Yes Yes ---Adalat CC Yes Yes Adalat Yes --
-----
Yes Yes Yes Yes
Source: 2005 Drug Facts & Comparisons; Company data
Norvasc Sales Mostly Foreign

In March 2007, a panel of the Federal Circuit reversed the District Court's decision in the action against Torpharm/Apotex and held that the amlodipine besylate patent is invalid. On April 5, 2007, Pfizer filed a request for a review of that decision by the full U.S. Court of Appeals of the Federal Circuit, but that request was denied. Multiple generics now are on the market. We forecast Norvasc sales of $1.3B (-42%) in 2009, $1050MM in 2010, $500MM in 2012 and $50MM in 2015. Pfizer likely sought to switch patients from Norvasc to Caduet, a Norvasc/Lipitor fixed dose combination before Norvasc went generic. Caduets marketing authorization was withdrawn in 12 E.U. countries, including Germany, Italy and the U.K. These countries had reservations about whether the required benefits of the fixed combinations had been demonstrated. Caduet is approved in 15 other E.U. countries, including France and Spain. ASCOT Hypertension Results Have Not Accelerated Caduet The Caduet (Lipitor/Norvasc) rollout has been disappointing due to slow managed care acceptance. Caduet is viewed by many formulary managers as a franchise extension strategy for Norvasc, which suffers generic competition as described above. In the 19,000 patient ASCOT (Anglo-Scandinavian Cardiac Outcomes Trial) study, the Lipitor arm of the trial was stopped early due to the positive effect of Lipitor in this patient population. The hypertension arm also was stopped early due to a greater-than-anticipated benefit of patients treated with Norvasc versus atenolol. In 2005, data presented at the ACC in March and again at the ESC in September revealed a more confusing picture: although patients receiving the Norvasc-based regimen demonstrated a 25% reduction in cardiovascular death and a 15% reduction in total mortality, patients in the Norvasc arm received the ACEinhibitor perindopril (Aceon) and the alpha-blocker Cardura XL as add-on therapy if additional blood pressure control was needed. Patients in the atenolol arm received a diuretic and Cardura XL (doxazosin GITS), if needed. Therefore, it is unclear which drug, Aceon or Norvasc, drove the benefit in the Norvasc arm. ASCOT did not have much of an impact on Norvasc or Caduet. We forecast Caduet sales of $615MM (+4%) in 2009, $635MM in 2010, $400MM in 2012, and $100MM in 2015.
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The Medicine Companys Intravenous Cleviprex Approved But Opportunity Is Niched

Cleviprex (clevidipine) is an ultra short-acting, arterial-specific dihydropyridine calcium antagonist, without negative inotropic or chronotropic effects. In August 2008, FDA approved Cleviprex for the reduction of blood pressure when oral therapy is not feasible or not desirable. Unlike other antihypertensive treatments which are metabolized by the kidney or liver, Cleviprex is metabolized in the blood and does not accumulate in the body, making it a suitable treatment for patients with endorgan damage. Cleviprex has been studied in six Phase III trials (1,406 medical and surgical patients treated with Cleviprex) and met all of their primary endpoints. The most common adverse reactions seen with Cleviprex use were headache, sinus tachycardia, hypotension, nausea, polyuria, flushing, dizziness and vomiting. The Medicine Company acquired Cleviprex from AstraZeneca in 2002 but announced in March 2005 a voluntary suspension of patient enrollment in the Phase III safety trials because preliminary data from an interim analysis contained more frequent reports of atrial fibrillation in patients randomized to clevidipine than in patients randomized to comparator drugs. These preliminary data from 750 patients, available at that time, showed atrial fibrillation rates of 25% on clevidipine and 15% on comparator agents. In October 2005, the Phase III ECLISPSE safety program resumed after receiving the green light from the DSMB. Cleviprex is being investigated in several ongoing Phase III trials. However, even if it does garner further indications these are all most likely short-term therapy and therefore cap the market opportunity. The ECLIPSE program included 1,964 cardiac surgery patients each enrolled in one of three randomized, open-label trials comparing Cleviprex to current intravenous antihypertensive agents: nitroglycerin, sodium nitroprusside or nicardipine (ECLIPSE-NTG, ECLIPSE-SNP and ECLIPSE-NIC trials, respectively). Beginning just before surgery, investigators monitored patients' blood pressure (BP) and administered the assigned antihypertensive agent, at their discretion, if BP became too high. Based on each patient's BP response for 24 hours after initiating the therapy, investigators determined "BP excursions" -- how much and how long systolic BP went above or below predefined, acceptable perioperative BP ranges. The ECLIPSE analysis evaluated BP excursions from data pooled from all three studies and from the individual studies. In the pooled analysis, for the widest predefined acceptable perioperative BP range of 75-145 mm Hg pre- and post-operatively and 65-135 mm Hg during surgery, Cleviprex resulted in approximately half the BP excursion compared to the other agents (3.8 vs. 7.8 mm Hg x min/h, p = 0.0004). Results for the narrowest BP range of 105-145 mm Hg pre- and post-operatively and 95-135 mm Hg during surgery also favored Cleviprex (87.7 vs. 111.5 mm Hg x min/h, p = 0.0002). In the individual ECLIPSE-NTG and ECLIPSE-SNP studies, for the widest BP range, Cleviprex resulted in approximately half the BP excursion compared to nitroglycerin (4.14 vs. 8.87 mm Hg x min/h, p = 0.0006) and sodium nitroprusside (4.37 vs. 10.50 mm Hg x min/h, p = 0.0027), respectively. At this BP range, there was no significant difference in BP excursions for Cleviprex vs. nicardipine (1.76 vs. 1.79 mm Hg x min/h, p = 0.8508), however that comparison was restricted to the post-operative period only, since nicardipine is not generally used before or during surgery due to its relatively slow onset and offset of action. Other standard intravenous BP control agents were administered, as deemed appropriate, just before or during surgery in the ECLIPSE-NIC trial.
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For the narrowest BP range, Cleviprex also resulted in less BP excursion compared to sodium nitroprusside (100.17 vs. 127.87 mm Hg x min/h, p = 0.0068), nicardipine (76.5 vs. 101.59 mm Hg x min/h, p = 0.0231), and nitroglycerin (83.74 vs. 108.57 mm Hg x min/h, p = 0.0556). The ECLIPSE-SNP trial also showed that the rate of death was significantly lower with Cleviprex than with sodium nitroprusside (1.7% vs. 4.7%, p = 0.045). Other than this difference, the primary endpoints - rates of death, stroke, heart attack and kidney dysfunction were similar for Cleviprex compared to the other three agents.
Pfizers Inspra A Modest Player But Generics Now Approved

Inspra (eplerenone), a selective aldosterone blocker for the treatment of hypertension and CHF, and for use post M.I., has been a modest performer. In clinical trials, Inspra showed effectiveness on par with alternative agents such as ACE inhibitors and CCBs. Its novel mechanism of action offers another method of lowering blood pressure beyond frequently used therapies, it is useful as add-on therapy, and it offers heart and kidney protection benefits. Inspras side-effect profile is acceptable, but our physician experts believe risk of hyperkalemia, and the availability of generic spironolactone compromise the drugs potential. Potassium levels become seriously elevated in patients with renal compromise, those on ACE inhibitors, or those on high doses of Inspra (200mg). Inspra has lower affinity for progesterone and androgen receptors and therefore causes less gynecomastia versus spironolactone. In June 2008, Sandoz and Apotex received approval for their ANDA applications. We peg Inspra sales at $175MM (+17%) in 2009, $20OM in 2010, $250MM in 2012, and $270MM in 2015. The post M.I. claim is based on EPHESUS (Eplerenone Post-AMI Heart Failure Efficacy And Survival Study). EPHESUS assessed Inspra plus conventional therapy versus conventional therapy alone in 6,642 post-MI patients. The results showed that Inspra reduced death from any cause by 15% (p=0.008) and death or hospitalization from cardiovascular causes by 13% (p=0.002). Inspra also was effective on secondary endpoints, including sudden death from cardiac causes (21% reduction; p=0.03) and hospitalization due to heart failure (15% reduction; p=0.03). The study concluded that adding Inspra to current therapies reduces mortality and morbidity in patients who have suffered an MI or have left ventricular hypertrophy. It was estimated that adding Inspra to standard regimens would save one out of fifty lives treated per year. Indeed, the mortality benefit seen with Inspra was higher than that observed in CAPRICORN (GlaxoSmithKlines Coreg) and OPTIMAAL (Mercks Cozaar) studies, and mortality was lower in the placebo group in EPHESUS. Inspra was well tolerated in EPHESUS, with a low rate of discontinuations due to adverse events. The rate of gynecomastia seen with Inspra was similar to placebo. As expected, the incidence of hyperkalemia was more prevalent with Inspra. There were no deaths due to hyperkalemia; the risk was minimized by excluding patients with a baseline serum potassium concentration of more than 5.0 mmol per liter and/or a baseline serum creatinine concentration of more than 2.5mg/dL. The incidence of any hyperkalemia was twice as frequent as severe hyperkalemia.
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NitroMeds BiDil For African-American CHF Patients

BiDil is a co-formulation of two generic vasodilator drugs, isosorbide dinitrate and hydralazine (H+I). NitroMed markets BiDil for treatment of CHF in African-American patients. The isosorbide dinitrate component is thought to act as a nitric oxide donor. Since low levels of the naturally occurring vasodilator, nitric oxide, occur in African-American CHF patients, BiDil is postulated to have particular benefit in this group. Hydralazine acts to prevent nitrate tolerance; thus, the two drugs are synergistic and commonly used together. In July 2004, the confirmatory AfricanAmerican Heart Failure Trial (A-HeFT), evaluating BiDil (two tablets three times daily if tolerated) versus placebo for African-American CHF patients, was stopped by the Data Safety Monitoring Board (DSMB) after a 43% survival benefit was noted. BiDil was approved in June, 2005 for self-identified black patients with heart failure, making it the first drug ever approved for a specific race. BiDils label does not restrict use to a particular class of heart failure symptoms, although does note there is little experience with the drug in patients with Class IV symptoms. Cost And Generic Alternatives Are Challenges For BiDil BiDil uptake has been disappointing. BiDil is priced at $1.80/tablet, or $14.40/day for the targeted treatment regimen of two tablets four times daily. Our physician and formulary consultants expressed sticker shock over this high price, particularly given the availability of individual generic alternatives which can be purchased for less than $1/day as well as the fact that other branded heart failure drugs are priced closer to $3/day. Our consultants note that a 3-times daily drug such as BiDil is cumbersome for patients and limits uptake. They view a sustained release formulation of BiDil as a far more compelling value proposition and believe it would increase patients willingness to pay for the drug, and help BiDil penetrate the market. NitroMed is working to develop a sustained-release BiDil formulation, although there are important technical challenges that must first be overcome. Nitromed was planning to conduct PK bioequivalent studies in Q1:09 but the timing of these are uncertain; stability studies were originally holding up the PK investigations but Nitromed has had several corporate challenges culminating in the acquisition by Deerfield Partners.
Novartis Tekturna Off To A Slow Start But Positioned Well For Long Term
Tekturna, a once-daily direct renin inhibitor, was approved by the FDA in March 2007 and garnered E.U. approval in August 2007 for the treatment of hypertension. Renin is an enzyme that initiates the cascade that ultimately produces the blood pressure regulating peptide angiotensin II. Other anti-hypertensive agents target the renin-angiotensin system (RAS) by inhibiting angiotensin II (ARBs) or angiotensin I (ACE inhibitors). Tekturnas NDA filing involved more than 6,400 patients, and demonstrated significant blood pressure reductions for a full 24 hours and added efficacy when used in combination with other commonly used blood pressure medications. Novartis initially launched Tekturna as add-on therapy to hydrochlorothiazide, ARBs, and ACE-inhibitors, and as a monotherapy for uncontrolled hypertensives. By February 2009, Novartis had secured Tier 2 access for 76% of commercial and 82% of Medicare U.S. lives, and 200,000 patients were currently being treated with Tekturna. In January 2008, the fixed-dose combination Tekturna/HCT was approved in the U.S. This is likely to improve Tekturnas competitive profile given that a third of all U.S. antihypertensive prescriptions are for hydrochlorothiazide (HCT); the E.U. application received a positive
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recommendation in October 2008. In November 2007, Tekturna received a black-box warning contraindicating against use in pregnant women. Agents acting on the RAS system have been associated with severe fetal abnormalities. In February 2009, the EMEA required Novartis to add a new contraindication and warning of angiodema to Tekturnas label. The incidence of angiodema on Tekturna is 0.02% in 16,000 patient years compared to 0.1-0.5% with ACE inhibitors, and 0.07% with ARBs. Although much lower than the ARBs and ACE inhibitors this may be a drag on sales. Our physician consultants believe that, despite Tekturnas novel mechanism of action, it is being prescribed as a 3rd line agent because its current data are undifferentiated from standard of care. However, they believe the outcomes program ASPIRE HIGHER should change this prescribing behavior, and potentially reimbursement. Tekturna is approved in over 45 countries. In Q3:08, Novartis acquired the remaining shares outstanding of Speedel at a cost of $850MM. Novartis gained access to Speedels 2nd generation direct renin inhibitors. The combination of Diovan/Tekturna was filed in Q4:08 and Novartis plans to file two additional Tekturna fixed combinations over the next two years: Tekturna/amlodipine and Tekturna/amlodipine/HCT by 2010. We estimate Tekturna sales of $280MM in 2009, $420MM in 2010, $700MM in 2012, and $1B in 2015. Outcomes Program Expanded. The outcomes program, ASPIRE-HIGHER, was expanded in June 2008 to involve more than 35,000 patients in 14 clinical trials. Three biomarker studies, ALOFT, ALLAY, and AVOID have already reported and two pilot studies, AVANTE-GARDE and ASPIRE should report in H2:09. The large studies ALTITUDE, ATMOSPHERE, and APOLLO are unlikely to report before 2011/12. ALOFT Successful But Utility Unclear. ALOFT data (ALiskiren Observation of Heart Failure Treatment) were presented at ESC in August 2007. In the 12-week trial, Tekturna was added to existing standard-of-care therapies including ACE inhibitors and angiotensin receptor blockers. A slightly higher but non-significant number of patients receiving Tekturna experienced hyperkalemia (elevated potassium levels) compared to those receiving placebo. This did not lead to an adverse outcome. The results showed that the addition of Tekturna to standard heart failure treatments resulted in singifcant reductions in BNP (brain natriuretic peptide) nearly five times greater than the standard therapy alone (-61 pg/ml versus -12 pg/ml). BNP is a substance released from the heart's lower ventricles in response to increased wall tension. The level of BNP in the bloodstream increases when heart failure symptoms worsen, and decreases when the heart failure condition is stable. Three abstracts were presented at ESC 2007: 1) a pooled analysis of 10 randomized trials assessing Tekturnas efficacy in patients with metabolic syndrome; 2) a pooled analysis of three randomized trials assessing 24-hour sustained BP effectiveness; and 3) a randomized, double-blind study of 560 obese patients with hypertension non-responsive to hydrochlorothiazides (HCTZ). In the metabolic syndrome analysis, Tekturna monotherapy was equally effective in patients with and without metabolic syndrome, with placebo-like tolerability. In the sustained 24-hour blood pressure study, Tekturna demonstrated sustained 24-hour BP control with excellent homogeneity when administered as a monotherapy or in combination with Diovan. However in combination with ramipril, it was superior to ramipril alone. In the 560 obese patient study, patients with BMIs >30kg/m2 and mean sitting diastolic BPs (msDBP) of 95-110mmHg were given HCTZ for 4-weeks. 489 (87%) non-responders were then randomized to Tekturna, Avapro, Norvasc, or placebo for 4 weeks followed by 8 weeks of double dose Tekturna, Avapro or Norvasc. Plasma renin activity (PRA) was measured in a subset of patients. Tekturna/HCTZ produced efficacy equal to Avapro/HCTZ and Norvasc/HCTZ at reducing BP but additionally
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provided effective suppression of PRA where the other agents did not. The clinical utility of these data is unclear as the FDA will not approve a label based on biomarkers. Novartis believes this type of data may help with reimbursement. AVOID Showed Tekturna Significantly Lowered UACR. AVOID (Aliskiren in the Evaluation of Proteinuria in Diabetes), a 599 patient, multi-national, randomized, double blind Phase III study, was presented at the American Society of Nephrology Renal Week in November 2007. The study included a 3-month open-label run-in period with patients receiving losartan 100mg QD in addition to optimal antihypertensive therapy. After 3 months, patients were randomized to receive 6months treatment with placebo or Tekturna (150mg QD for 3 months followed by forced titration to 300mg QD for another 3 months) on top of losartan. The primary outcome was reduction in early morning urinary albumin creatinine ratio (UACR) from baseline to end of study. UACR is a widely accepted biomarker for measuring kidney function. Reductions in albuminuria are associated with improved renal function and decreased risk of end stage renal disease. Tekturna provided a significant 20% reduction in mean UACR on top of standard therapy compared with placebo after 24 weeks (p=0.0009, 95% CI: 9-30) and Tekturna also significantly reduced mean urinary albumin excretion rate (UAER) by 21% compared to placebo (p=0.009; 95% CI: 5-30). The number of patients with 50% reduction in UACR at the end of the study was 24.7% for Tekturna-treated patients versus 12.5% for placebo (p = 0.0002). Estimated glomerular filtration rate (eGFR) was preserved by Tekturna during the study. Blood pressure was similar between the two treatment groups and remained controlled throughout the study; changes in albuminuria did not correlate to changes in blood pressure. The total number of adverse events and serious adverse events was similar in the two groups. Single-measurement serum-potassium of 6.0mEq/L occurred in 4.7% vs. 1.7% (difference not significant) in the Tekturna and placebo groups respectively. ALLAY Trends Favorably. Aliskiren in Left Ventricular Hypertrophy (ALLAY), presented at ACC, compared Tekturna 300mg with Cozaar and the combination of both agents over 36 weeks in overweight patients with essential hypertension and left ventricular hypertrophy (LVH). A total of 465 patients with a BMI of >25 kg/m2, documented hypertension, and evidence of LV hypertrophy (LV wall thickness of 1.3 cm) were randomly assigned to one of three treatment groups: aliskiren 300 mg/day (n=154); losartan 100 mg/day (n=152); or combination therapy with both agents (n=154). The primary endpoint was the change in LV mass index from baseline to 36 weeks, as assessed by cardiovascular magnetic resonance (CMR). Although 86% of patients were taking some form of antihypertensive medication at the time of the screening visit, 51% had no history of treatment with RAS inhibitors. After 36 weeks of therapy, patients in all treatment groups saw a reduction in sitting blood pressure. The mean reductions in systolic/diastolic blood pressure in the aliskiren, losartan, and combination groups were 6.5/3.8 mm Hg, 5.5/3.7 mm Hg, and 6.6/4.6 mm Hg, respectively. Patients in all treatment groups showed a reduction in LV mass index at the 36-week visit. The mean change in LV mass was -4.9 g/m2, -4.8 g/m2, and -5.8 g/m2 in the aliskiren, losartan, and combination therapy groups, respectively (p<0.0001 vs baseline for each group). These findings were consistent across patient subgroups, including groups defined by gender, age, BMI, the presence of diabetes, and history of prior therapy with ACE-inhibitors or ARBs. Despite a numerically greater reduction in LV mass with the combination therapy, this was not significantly greater than losartan alone (p=0.52). However, the test for non-inferiority of aliskiren monotherapy compared with losartan was highly significant (p<0.0001).
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ASPIRE HIGHER: KEY STUDIES AND RESULTS Study Name Definition Description Number Results If Applicable Presentation/ Expected Completion Date
Biomarker Studies ALOFT
ALiskiren Observation of Heart Failure Treatment
Evaluate the safety and efficacy of Tekturna + 280 standard therapy in hypertensive patients with stable heart failure. Change from baseline in the heart failure biochemical markers of N-terminal probrain natriuretic peptide (NT-proBNP) and brain natriuretic (BNP) after 12 weeks. The study included a 3-month open-label run-in period with patients receiving losartan 100mg QD in addition to optimal antihypertensive therapy. After 3 months, patients were randomized to receive 6-months treatment with placebo or Tekturna (150mg QD for 3 month followed by forced titration to 300mg QD for another 3 months) on top of losartan. The primary outcome was reduction in early morning urinary albumin creatinine ratio (UACR) from baseline to end of study. Tekturna , Cozaar , and the combination of both agents over 36 weeks in overweight patients with essential hypertension and left ventricular hypertrophy (LVH). 599
Slightly higher but non-significant number of Presented ESC 2007 patients receiving Tekturna experienced hyperkalemia. Reductions in BNP (brain natriuretic peptide) nearly five times greater than the standard therapy alone (-61 pg/ml versus -12 pg/ml; p=0.016). Significant 20% reduction in mean UACR on Presented ASN 2007 top of standard therapy compared with placebo after 24 weeks and Tekturna also significantly reduced mean urinary albumin excretion rate (UAER) by 21% compared to placebo (p=0.009; 95% CI: 5-30). Singlemeasurement serum-potassium of 6.0mEq/L occurred in 4.7% vs. 1.7% (difference not significant) in the Tekturna and placebo groups respectively. Patients in all treatment groups showed a Presented ACC 2008 reduction in LV mass index at the 36-week visit. The mean change in LV mass was -4.9 g/m2, -4.8 g/m2, and -5.8 g/m2 in the aliskiren, losartan, and combination therapy groups, respectively (p<0.0001 vs baseline for each group). Despite a numerically greater reduction in LV mass with the combination therapy, this was not significantly greater than losartan alone (p=0.52). Mid-2009/ presentation potentially AHA 2010 (from 2009 originally)
AVOID
Aliskiren in the Evaluation of Proteinuria in Diabetes
ALLAY
Aliskiren in Left Ventricular Hypertrophy
465
Pilot Studies AVANT-GARDE
ASPIRE
Combination with Diovan . Assess improved LV dynamics through NT-pro -BNP measurements in high-risk patients with ACS Assess the effectiveness of Tekturna on the prevention of left ventricular remodeling in high risk ACS patients ALiskiren Trial In Type 2 Diabetic nEphrophathy N/A Assess whether Tekturna, added to conventional therapy, delays heart and kidney complications
1100
800
Large Outcomes Trials ALTITUDE
8,600
2012
ATMOSPHERE
APOLLO
N/A
N/A Assess the effects of Tekturna on cardiovascular morbidity and mortality in patients with acute and chronic congestive heart failure on top of standard therapy Assess the effectiveness of Tekturna in preventing N/A cardiovascular morbidity and mortality in elderly patients with or without high blood pressure and other risk factors
2012+
2012+
Source: Company data; clinicaltrials.gov
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Mercks Rolofylline A Wild Card In Acute Heart Failure

In July 2007, Merck acquired NovaCardia, garnering rolofylline (KW-3902 or MK7418). Rolofylline is an IV adenosine A1 receptor antagonist in Phase III clinical trials in patients with acute congestive heart failure (CHF). Rolofylline is believed to block adenosine-mediated constriction of blood flow to the kidneys and inhibit reabsorption of salt and water by the kidney, thereby increasing urine volume and maintaining renal function in patients with CHF. Preliminary results from a pilot Phase III trial of MK-7418 were presented at a late-breaking session of the European Society of Cardiologys Heart Failure Congress 2007 and the full data were presented at ACC 2008. Patients treated with rolofylline 30 mg were more likely to achieve treatment success compared to patients treated with placebo, 53% (39/74) and 37% (29/78), respectively, and less likely to experience treatment failure compared to patients treated with placebo, 16% (12/74) and 28% (22/78), respectively. A similar number of patients in each treatment group were classified as unchanged; 31% (23/74) with rolofylline 30 mg versus 35% (27/78) on placebo. Nearly 60% of patients treated with rolofylline 30 mg reported marked or moderately improved dyspnea at day 2 and day 3, compared to 41% of patients on placebo. Fewer patients on rolofylline 30 mg had persistent renal impairment compared to patients on placebo, 8 percent and 18 percent, respectively. Treatment with rolofylline 30 mg was associated with a trend towards reduced 60-day mortality or hospital readmission for cardiovascular or renal causes. There were no seizures observed in the pilot Phase III trial. A1 receptor antagonists lower patient seizure thresholds and may contribute to seizures in CHF patients who are already at risk for seizure. In the Phase II clinical trials, two patients with risk factors for seizure had seizures that were determined to be drug-related. One of the patients subsequently died. Merck believes that the seizure risk is manageable in less controlled settings for the following reasons: 1) patients with history of seizure are excluded; 2) patients with increased seizure risk can take a benzodiazepine in combination with rolofylline, and 3) rolofylline is given as an infusion over 4 hours in a controlled hospital setting. Two pivotal Phase III trials, PROTECT 1 and PROTECT 2, are currently enrolling participants in the United States, Canada, Europe, Israel and Russia and will enroll 2,359 patients with a minimum of 1,500 patients exposed to MK-7418 required by the FDA. Merck is running a bioequivalent study investigating a lower 30 mg 4 hour infusion versus the 40 mg 4 hour infusion used in the PROTECT studies. An oral formulation is in development. An NDA filing with the FDA continues to be anticipated in 2009. We estimate rolofylline sales of $25MM in 2010, $75MM in 2012, and $150MM in 2015.
Cytokinetics CK-1827452 A Novel Selective Cardiac Myosin Activator

In November 2008 Cytokinetics announced top-line results from a Phase IIa clinical trial evaluating the safety of CK-1827452 in patients with ischemic cardiomyopathy and angina. The primary safety endpoint was defined as stopping an exercise test during treatment with CK-1827452 (versus placebo) due to unacceptable angina at an earlier exercise stage than at baseline. This endpoint was observed in one patient receiving placebo and did not occur in any patient receiving CK-1827452. This double-blind, randomized, placebo-controlled Phase IIa clinical trial was designed to evaluate both intravenous and oral formulations of CK-1827452 in patients with ischemic cardiomyopathy and angina. The primary objective of this trial was to assess the effect of intravenous CK-1827452 on symptom-limited treadmill exercise tolerance in this patient population. The secondary objective of
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this trial was to assess the tolerability and resulting plasma concentrations of CK1827452 administered as an oral formulation. The trial was designed to evaluate two cohorts of 45 patients each with ischemic cardiomyopathy and angina who have an ejection fraction of less than or equal to 35%. Patients in the first cohort were randomized in a 2:1 ratio to CK-1827452 at a dose level intended to target a maximum plasma concentration of 295 ng/ml during the infusion and 184 ng/ml during oral dosing or to placebo. Patients in the second cohort were randomized in a 2:1 ratio to CK-1827452 at a dose level intended to target a plasma concentration of 550 ng/ml during the infusion and 368 ng/ml during oral dosing or to placebo. A total of 94 patients were enrolled and treated in this Phase IIa clinical trial; 29 patients received placebo, 31 received CK-1827452 at the lower dose level, and 34 received CK-1827452 at the higher dose level. Nineteen patients reported at least one unique adverse event at any time during the trial: 5 patients on placebo; 2 patients on the lower dose level of CK-1827452; and 12 patients on the higher dose level of CK-1827452, who reported 18 unique adverse events. The 2 severe adverse events both occurred in the same patient, who received intravenous CK-1827452. Topline Phase IIa Data In Stable Heart Failure Demonstrate A Dose Response In November 2008, Cytokinetics also provided today an interim analysis on another Phase IIa clinical trial. This clinical trial is a multi-center, double-blind, randomized, placebo-controlled, dose-escalation, pharmacokinetic and pharmacodynamic trial of CK-1827452 administered intravenously to patients with stable heart failure. The primary objective of this trial is to evaluate the safety and tolerability of CK1827452 administered as an intravenous infusion to stable heart failure patients. The interim analyses demonstrated statistically significant increases in systolic ejection time (p < 0.0001) and fractional shortening (p < 0.05) at CK-1827452 plasma concentrations greater than 100 ng/mL, statistically significant increases in stroke volume (p < 0.01) at CK-1827452 plasma concentrations greater than 200 ng/mL, and statistically significant increases in ejection fraction (p < 0.05) at CK-1827452 plasma concentrations greater than 300 ng/mL. In addition, there were statistically significant correlations between increasing CK-1827452 plasma concentration and increases in systolic ejection time, stroke volume, and fractional shortening (all p < 0.0001), ejection fraction (p < 0.0005) and cardiac output (p < 0.01). There were also statistically significant correlations between increasing CK-1827452 concentration and decreases in supine and standing heart rate (both p < 0.0001) and left ventricular end-systolic volume (p < 0.05). Final data are expected to be presented in 2009.
No Angiodema Seen With Novartis LCZ696

LCZ696, a single molecule NEP/ARB inhibitor, does not appear to cause angiodema, a side effect that sidelined forerunners in the NEP class (Bristols Vanlev, Lillys Fasidotril, and Sanofis ilepatril). In a 1,000 patient Phase II hypertension trial that comprised 5-10% African Americans, no cases of any severity of angiodema were reported. At the 400mg dose, LCZ696 resulted in superior blood pressure reduction to Diovan. Novartis believes that the angiodema seen with Vanlev was as a result of dual blocking of the bradykinin system. Vanlev was never approved and in 2008 SanofiAventis terminated development of its ACE/NEP inhibitor, Ilepatril. Novartis believes that LCZ696 has the potential to replace ACE inhibitors as the standard of
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care in heart failure and plans to initiate a pivotal morbidity and mortality study in 2009. We forecast LCZ696 sales of $50MM in 2011 and $400MM in 2015.
Vasogens Celacade System Fighting For Survival

Vasogens proprietary treatment (Celacade System) involves the ex vivo exposure of the patient's own venous blood (10 mL) to controlled oxidative stress in the form of an oxygen-ozone gas mixture and ultraviolet light. The treated blood is then returned to the patient by intragluteal injection. The procedure, which is administered four times the first month and monthly thereafter, has been shown to provoke a reduction in inflammatory cytokines and an upregulation of antiinflammatory cytokines; this is believed to target inflammation underlying heart failure. The results of the Advanced Chronic Heart Failure Clinical Assessment of Immune Modulation Therapy (ACCLAIM) trial were first announced in 2006, at the European Society of Cardiology/World Congress of Cardiology and the final results published in the Lancet, January 2008. Whilst ACCLAIM missed the primary endpoint, the treatment appeared to benefit patients with less-advanced disease, that is, those without a history of MI and those with a history of MI who had not yet progressed to an increased symptomatic or refractory stage of myocardial damage. Vasogen has been in protracted discussions with FDA since 05/07 on the statistical methodology and trial design for the required follow on morbidity and mortality study, ACCLAIM II. The Celacade system is controversial as the entire concept of immune-modulation therapy for heart failure has some limitations. The involved cytokines, for example, can be produced by cells other than immune cells and therefore might be beyond the treatment's reach and the chronic inflammatory process could be beneficial in removing myocytes that are dying or dead for reasons other than the immune response. In addition, the treatment could have serious clinical consequences that include susceptibility to opportunistic infections and failure to respond to antigenic stimuli or to eliminate potentially malignant cells, and the induction of autoimmune disease. However, none of these theoretical risks were seen in ACCLAIM. The Celacade System is approved in Europe and was to be commercialized by Grupo Ferrer but in April 2008 Vasogen announced that it was terminating support for the European commercialization due to lower than expected sales forecasts from Grupo Ferrer. Despite Missing End Point, ACCLAIM Shows Benefit In NYHA Class 2 Patients. ACCLAIM randomized 2,426 patients with NYHA class 3 or 4 systolic heart failure on optimal standard medical therapy to receive either the immune-modulation therapy or a sham version of the procedure in a double-blind fashion. Over a mean of 10 months, the adjusted hazard ratio for the primary end point of all-cause mortality or cardiovascular hospitalization in the active-therapy group, compared with controls, was 0.92 (95% CI, 0.80-1.05; p=0.22). However, it was 0.74 (95% CI, 0.57-0.95; p=0.02) for the 919 patients without a history of MI and 0.61 (95% CI, 0.46-0.80; p=0.0003) for the 689 patients who had started out in NYHA class 2. There was a slight but significant improvement (p=0.04) in the Minnesota Living with Heart Failure Questionnaire score among Celacade-treated patients.
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Actellions Tezosentan Misses In CHF; Now Being Explored PAH

Tezosentan is an intravenous dual endothelin receptor antagonist. In two Phase III acute CHF studies tezosentan failed. Actelion is now evaluating it for PAH. The endothelins are peptides with a powerful vasoconstrictor action as well as other effects that could be harmful in heart failure. Higher plasma endothelin concentrations also predict worse clinical outcomes in patients with heart failure. Tezosentan is a short-acting endothelin A-type and B-type receptor antagonist developed for intravenous use. Tezosentan is a potent vasodilator that reduces systemic vascular resistance and PCWP and increases cardiac output in a dosedependent manner. Actelion initiated two large Phase III programs evaluating Tezosentan in acute CHF (VERITAS 1&2). The Value of Endothelin Receptor Inhibition With Tezosentan in Acute Heart Failure Studies (VERITAS) were designed to test the hypothesis that tezosentan would have a favorable effect on symptoms and clinical outcomes in patients with acute heart failure. VERITAS was stopped in 2004 due to futility and the results of both VERITAS studies were reported in a JAMA article in November, 2007. Of the 1,435 patients who received treatment as assigned, 855 (60%) were men; mean age was 70 years. Mean left ventricular ejection fraction (measured in 779 patients [54%]) was 29% (SD, 11%). Baseline dyspnea scores were similar in the 2 treatment groups. Tezosentan did not improve dyspnea more than placebo in either trial, with a mean treatment difference of 12 (95% confidence interval [CI], 105 to 81) mm h (P = .80) in the first trial and 25 (95% CI, 119 to 69) mm h (P = .60) in the second. The incidence of death or worsening heart failure at 7 days in the combined trials was 26% in each treatment group (odds ratio, 0.99; 95% confidence interval, 0.82-1.21; P = .95).
Angina Will CV Therapeutics Ranexa Enjoy A Renaissance?

After enduring a tortuous regulatory path, Ranexa (ranolazine) was approved by the FDA in January 2006 for refractory chronic stable angina. Ranexa, the first new entrant into the U.S. angina market in over 20 years, is approved for use in combination with beta blockers, nitrates, or amlodipine in patients who have failed first-line therapies, a population that CVT estimates comprises about 10-25% of the 6M-patient U.S. chronic angina market. The drugs label includes a warning on QTc prolongation, but no black box. In November 2008, favorable safety data from Ranexas SPA-sponsored MERLIN trial translated into a broader label. The new label includes 1) an indication for use in first-line chronic angina, 2) less safety/precautionary language, 3) a claim for reducing arrhythmias (e.g. tachycardia, bradycardia, and atrial fibrillation), and 4) a claim that "Ranexa produces small reductions in HbA1c in patients with diabetes, the clinical significance of which is unknown." In conjunction with Ranexas new label, CV Therapeutics is launching a new promotional campaign that includes new advertisements and 40 additional sales reps targeted toward internists in the Northeast. CV Therapeutics may further expand its sales force over time or use information gained on Ranexa's promotional sensitivity. Such information may also support partnering discussions. While it is still difficult to call the impact of Ranexa's new label on prescribing trends, we expect that less prominent language
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around QT prolongation and the ability to promote the drug's anti-arrhythmic benefits can only benefit trends.
Ranexa WRx
12,000 10,000 8,000 6,000 4,000 2,000 0
Ranexa WTRx Ranexa WNRx
Source: IMS
MERLIN Missed Primary Endpoint, But Provided A Wealth Of Data

The Metabolic Efficiency with Ranolazine for Less Ischemia in Non-ST Elevation Acute Coronary Syndromes (MERLIN) or TIMI-36 study was conducted to evaluate Ranexas efficacy in treating patients with acute coronary syndromes (ACS) and to further evaluate the drugs safety. MERLIN randomized 6,351 patients to receive intravenous ranolazine, initiated as 200mg over one hour, followed by an 80mg/hr infusion (40 mg/hr for patients with severe renal insufficiency) for up to 96 hours, then oral Ranexa 1,000 mg twice-daily, or matched placebo. Patients also received standard ACS therapy at the physicians discretion, including beta-blockers, antiplatelet agents, statins, and ACE inhibitors. In March 2007, CVT announced that MERLIN failed to achieve its primary endpoint of time to first occurrence of the composite of cardiovascular death, myocardial infarction, or recurrent ischemia. While the failure of Ranexa to achieve the primary efficacy endpoint in its MERLIN trial closed off a potential $200-400MM new market opportunity in ACS, the lack of adverse trends in death or arrhythmias led to changes in Ranexas label that includes less cautionary safety language and a broader indication. Ranexa Demonstrates Anti-Arrhythmic, HbA1C Benefits In September 2007, CVT announced specific data from the MERLIN study pertaining to Ranexas impact on arrhythmia. The 6,351-patient trial included approximately 1M hours of Holter monitoring, making MERLIN the largest study of its kind. Ranexa statistically significantly reduced ventricular tachycardia of 8 beats in patients with and without ischemia as compared to placebo (p <0.001). High-risk patients with low ejection fractions or QTc intervals > 450 msec taking Ranexa had an even greater reduction in 8 beats of ventricular tachycardia. Patients taking Ranexa also experienced fewer pauses, a problem with beta blockers, and none of the cardiac and systemic side effects that are seen with sotalol and amiodarone.
08 8/ 15 /2 00 8 8/ 29 /2 00 8 9/ 12 /2 00 8 9/ 26 /2 00 10 8 /1 0/ 20 08 10 /2 4/ 20 08 11 /7 /2 00 11 8 /2 1/ 20 08 12 /5 /2 00 12 8 /1 9/ 20 08 1/ 2/ 20 09 1/ 16 /2 00 9 1/ 30 /2 00 9
Rxs
8/ 1/ 20
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Arrhythmia Data From The MERLIN Trial
Arrhythmic End Point Ventricular Tachy. 3 beats Ventricular Tachy. 8 beats Supraventricular Tachy 4 beats New-onset atrial fibrillation Bradycardia <45 beats/min, complete heart block, or pause 2 seconds Pause 3 seconds
Ranexa (%) 52.0 5.3 44.7 1.7 39.8 3.1
Placebo (%) 60.6 8.3 55.0 2.4 46.6 4.3
p value <0.001 <0.001 <0.001 0.08 <0.001 0.01
Source: MERLIN TIMI-36 presentation September 2007, and Cowen and Company
Supportive data for Ranexa lowering HbA1c in diabetic patients with coronary artery disease comes from the MERLIN trial which showed that (similar to CARISA) diabetics had a 0.7% reduction in HbA1c at 4 months (pre-specified secondary endpoint, p<0.001). While an established safety profile along with anti-arrhythmic and anti-diabetic properties may benefit sales trends, Ranexa will be competing for first-line share with multiple therapeutics (beta blockers, calcium channel blockers, nitrates) that are generic (the cost of Ranexa is roughly $2,100 per patient per year), safe, convenient, and established. Hence the potential benefit of the new label to sales in chronic angina is difficult to gauge. EU Partner Menarini Will Launch Ranexa In Q1:09 CVT originally filed for E.U. approval of Ranexa in 2004. Following the EMEAs request for additional clinical pharmacokinetic data, CVT withdrew its MAA. Additional, small trials to obtain these data were completed, and CVT re-submitted Ranexas MAA, with the MERLIN data included, in late 2006. In July 2008, Ranexa received approval from the E.U. with a favorable label recommendation (diastolic and left ventricular improvement, reduction in ventricular arrhythmias and cardiac calcium overload, and no cautionary safety language) as a 2nd-line agent to treat chronic angina. In September 2008, CV Therapeutics signed a collaboration with Menarini, a privately owned Italian pharmaceutical company, to market Ranexa in Europe. Menarini is the #1 cardiovascular sales organization in Europe with revenues of euro 2.5B+. Menarini will market Ranexa in Europe and other territories including Turkey, Russia, and select countries in Central and South America. CVT received $70MM in upfront cash, will receive royalties in the 20-30%+ range, and commercial (related to achievement of certain sales levels) and developmental (related to approval of new Ranexa indications) milestones of roughly $200MM. Menarini has also committed to spend approximately $100MM to promote Ranexa. Menarini expects to launch Ranexa in Germany and the UK in Q1:09 with other countries to follow thereafter. CVT and Menarini expect to garner premium pricing for Ranexa based on its label and 2nd-line use (a 1st-line label would have lead to pricing on par with generics). We
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estimate end user E.U. Ranexa sales of $45MM in 2009 ramping up to $233MM in 2013, equating to royalties of $10MM and $70MM to CVT, respectively. Ranexa Was Approved On Solid ERICA Data The multinational, double-blind, placebo-controlled Evaluation of Ranolazine In Chronic Angina (ERICA) study randomized 565 patients with symptomatic angina despite therapy with maximum-dose amlodipine (10mg daily) to receive either placebo or Ranexa at a dose of 1,000 mg twice daily. Ranexa resulted in 0.4 fewer angina attacks/week versus placebo (p=0.028), the primary endpoint. Average frequency of angina at baseline in both arms was approximately 5.5 attacks/week, and was reduced to roughly 2.8 attacks/week in the Ranexa arm compared to 3.3/week in the placebo arm. Ranexa also improved quality of life (as measured by the Seattle Angina Questionnaire) by approximately 30%, and reduced nitroglycerin consumption by 0.6 pills per week versus placebo (p=0.014). Full data from this approval-enabling study were presented at the AHA in November 2005 and published in the Journal of the American College of Cardiology in June 2006. CARISA Study Supports Efficacy In Other Combinations The 823-patient CARISA trial, the results of which were initially reported in November 2001, enrolled patients treated with background monotherapy (either amlodipine 5mg/day, diltiazem 180 mg/day, or atenolol 50 mg/day) who despite such calcium channel or beta blocker therapy were still symptomatic for chronic stable angina (symptom-limited exercise duration of between 3 and 9 minutes). Patients were randomized to receive Ranexa (750 mg or 1000 mg, twice daily) or placebo on top of stable doses of background medications. In the trials primary endpoint of improvement in exercise treadmill duration from baseline at trough concentrations of Ranexa, patients on Ranexa exhibited a 116 second increase versus a 92 second increase for patients on placebo (24 second differential, p=0.012). This benefit was observed across each of the three background therapy arms (amlodipine, diltiazem, and atenolol). Ranexa also reduced the frequency of angina by an average of 1.2 attacks per week (from 3.3 attacks to 2.1) versus placebo. Ranexa A New Way To Treat Angina Ranexa targets stable angina, a common and serious cardiovascular disorder that can be followed by unstable angina, heart attack, and death. Angina afflicts roughly 6MM Americans. Current therapies include nitrates, beta blockers, and calcium channel blockers (CCBs), which act by either widening blood vessels (nitrates) or lowering the frequency and power of heart beats (beta blockers, CCBs). CVT estimates that 1-2M patients in the U.S. are either poorly served by these drugs or cannot take them because of a contraindicated condition such as asthma, diabetes, chronic obstructive pulmonary disease (COPD), or congestive heart failure. Ranexa is the first angina drug that does not affect blood vessel diameter or heart rate, and avoids problems associated with hypotension. Ranexas novel mechanism, demonstrated efficacy, and the clean safety profile suits it well for these refractory populations. It was initially believed that Ranexa exerts its anti-anginal effects by inhibiting pFOX, and hence could cause cardiac muscle to favor the metabolism of glucose instead of fatty acids, yielding more energy under the hypoxic conditions of the ischemic heart. However, more recent studies have shown that Ranexas clinical benefits come from its inhibition of the late sodium current. When defective, the
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sodium channel does not close properly. When this occurs, excess sodium is sent out of the cell in exchange for calcium, which in overload causes mechanical and electrical dysfunctions such as increased diastolic tension and arrhythmias, respectively.
Atrial Fibrillation And Rhythm Disorders

Atrial Fibrillation (AF) is a condition in which the upper chambers of the heart beat in an uncoordinated and disorganised fashion, resulting in an irregular and fast heart rhythm (i.e. an irregular rate and irregular rhythm). Atrial flutter is an abnormal fast heart rhythm that occurs in the atria of the heart. Atrial flutter frequently degenerates to atrial fibrillation. However, it may persist for months to years. AF is the most common sustained cardiac rhythm disturbance, increasing in prevalence with age. There are several types of AF: paroxysmal AF; persistent AF; and permanent AF. AF is often associated with structural heart disease, although a substantial proportion of patients with AF have no detectable heart disease. Atrial fibrillation affects about 2.5 million people in the United States, as well as 4.5 million people in the E.U. Patients suffering from atrial fibrillation have twice the risk of death, an increased risk of stroke and cardiovascular complications, including congestive heart failure. Furthermore atrial fibrillation considerably impairs patients lives, mainly because of their inability to perform normal daily activities due to complaints of palpitations, chest pain, dyspnoea, fatigue or lightheadedness, without consideration of the cumbersome and sometime serious constraints imposed by current therapies of atrial fibrillation. Over the past two decades hospitalizations for AF have increased by a factor of two to three. Management of patients with AF involves three objectivesrate control, prevention of thromboembolism, and correction of the rhythm disturbanceand these are not mutually exclusive. The initial management decision involves primarily a rate control or rhythm control strategy. Rate control drugs include calcium channel blockers, beta blockers and digoxin. The rhythm control drugs are referred to as the antiarhtymic drugs (AAD) and these are discussed in detail; however these two broad classifications are not mutually exclusive. The beta blockers are Class II antiarrhythmics. Under the rate control strategy, the ventricular rate is controlled with no commitment to restore or maintain sinus rhythm (the normal heart rhythm). The rhythm control strategy attempts restoration and/or maintenance of sinus rhythm. The latter strategy also requires attention to rate control. Depending on the patients course, the strategy initially chosen may prove unsuccessful and the alternate strategy is then adopted. Regardless of whether the rate control or rhythm control strategy is pursued, attention must also be directed to antithrombotic therapy for prevention of thromboembolism. Pharmacotherapy and ablation (removal of faulty electrical trigger points in the heart) are effective for both rate and rhythm control, and in special circumstances surgery may be the preferred option. Regardless of the approach, the need for anticoagulation is based on stroke risk and not on whether sinus rhythm is maintained. Several randomized trials comparing outcomes of rhythm versus rate control strategies in patients with AF have been conducted. Among these, AFFIRM (Atrial Fibrillation Follow-up Investigation of Rhythm Management) found no difference in mortality or stroke rate between patients assigned to one strategy or the other. The RACE (Rate Control vs. Electrical cardioversion for persistent atrial fibrillation) trial
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found rate control not inferior to rhythm control for prevention of death and morbidity. Clinically silent recurrences of AF in asymptomatic patients treated with anti-arrhythmic drugs (AAD) may be responsible for thromboembolic events after withdrawal of anticoagulation. Hence, patients at high risk for stroke may require anticoagulation regardless of whether the rate control or rhythm control strategy is chosen. Management of patients with AF requires knowledge of its pattern of presentation (paroxysmal, persistent, or permanent), underlying conditions, and decisions about restoration and maintenance of sinus rhythm, control of the ventricular rate, and antithrombotic therapy. For newly diagnosed patients no ADD is needed if the AF is paroxysmal. If newly diagnosed patients have permament AF patients can be managed with rate control drugs and anticoagulation as needed and cardioversion can be done if required but permanent AADs are not required. For recurrent paroxysmal AF patients required anticoagulation regardless of symptoms but if they are symptomatic an AAD is required. The selection of the AAD will be dependent on comorbidities. For recurrent persistent patients management is similar to the recurrent paroxysmal patients. Permanent AF is managed with anticoagulation and rate control AADs as needed. One Size Does Not Fit All For The AADs There are several pharmacological therapies available for the treatment and prevention of AF (after cardioversion), all are generic and none have demonstrated a mortality benefit. In general, because antiarrhythmic drugs (AAD) comprise different drug classes, have several mechanism of action, and sometimes are only effective for a certain type of arrhythmia, there have been many attempts to classify the drugs by their mechanisms. Despite its many flaws, the Vaughan Willams Classification is still the most used classification. In the Vaughan Williams Classification, there are four classes of AADs, I-IV and within Class I there is a subclassification A, B, and C.
Vaughan Williams Classification Class I IA IB IC II III IV Basic Mechanism sodium-channel blockade - moderate - weak - strong beta-blockade potassium-channel blockade calcium-channel blockade Comments Reduce phase 0 slope and peak of action potential. Moderate reduction in phase 0 slope; increase APD; increase ERP. Small reduction in phase 0 slope; reduce APD; decrease ERP. Pronounced reduction in phase 0 slope; no effect on APD or ERP. Block sympathetic activity; reduce rate and conduction. Delay repolarization (phase 3) and thereby increase action potential duration and effective refractory period. Block L-type calcium-channels; most effective at SA and AV nodes; reduce rate and conduction
Source: http://www.cvpharmacology.com/antiarrhy/Vaughan-Williams.htm
The AADs most frequently used for the maintenance of sinus rhythm are amiodarone, flecainide, dofetilide (Tikosyn; PFE), propafenone, and sotalol. Amiodarone is the most potent AAD but has a litany of side effects and is not recommended for patients with heart failure. Flecainide, propefanone, and sotalol are proarrhytmic but are niched depending on the patients presentation. We summarize the the key attributes of the AADs that are used in maintaining sinus rhythm in the table below. The ACC/AHA/ESC 2006 guidelines recommend
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Typical Doses of Drugs Used to Maintain Sinus Rhythm in Patients With Atrial Fibrillation* Vaughan Williams Classification
Drug
Daily Dosage
Amiodarone Disopyramide Dofetilide Flecainide Propafenone
100 to 400 mg 400 to 750 mg 500 to 1000 mcg 200 to 300 mg 450 to 900 mg
Type III Type IA Type III Type IC Type IC
Potential Adverse Effects Photosensitivity, pulmonary toxicity, polyneuropathy, GI upset, bradycardia, torsades de pointes (rare)hepatic toxicity, thyroid dysfunction, eye complications Torsades de pointes, HF, glaucoma, urinary retention, dry mouth Torsades de pointes Ventricular tachycardia, HF, conversion to atrial flutter with rapid conduction through the AV node Ventricular tachycardia, HF, conversion to atrial flutter with rapid conduction through the AV node
Torsades de pointes, HF, bradycardia, exacerbation of chronic obstructive or bronchospastic lung disease Sotalol 160 to 320 mg Type III *Drugs and doses given here have been determined by consensus on the basis of published studies. Drugs are listed alphabetically. loading dose of 600 mg per day is usually given for one month or 1000 mg per day for week. Dose should be adjusted for renal function and QT-interval response during in-hospital initiation phase. AF indicates atrial fibrillation; AV, atrioventricular; GI, gastrointestinal; and HF, heart failure.
Source: JACC Vol. 48, No. 4, 2006
Flow Diagram For Management Of Sinus Rhythm In Patients With AF

Maintenance of Sinus Rhythm
No (or minimal) heart disease
Hypertension
Coronary artery disease
Heart Failure
Flecainide Propafenone Sotalol No
Substantial LVH
Dofetilide Sotalol
Dofetilide Sotalol
Yes
Amiodarone Dofetilide
Catheter ablation
Flecainide Propafenone Sotalol
Amiodarone
Amiodarone
Catheter ablation
Catheter ablation
Amiodarone Dofetilide
Catheter ablation
Catheter ablation
Source: JACC Vol. 48, No. 4, 2006
Non Pharmacological Approaches To AF Are Second Line Radiofrequency ablation may be effective in some patients when ADDs do not work. In this procedure, thin and flexible tubes are introduced through a blood vessel and directed to the heart muscle. Then a burst of radiofrequency energy is delivered to destroy tissue that triggers abnormal electrical signals or to block abnormal electrical pathways. Surgery can be used to disrupt electrical pathways that generate AF. Atrial pacemakers can be implanted under the skin to regulate the heart rhythm.
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Prevention Of Stroke Key In The Management Of AF Five large randomized trials published between 1989 and 1992 evaluated oral anticoagulation mainly for primary prevention of thromboembolism in patients with nonvalvular AF. A sixth trial focused on secondary prevention among patients who had survived nondisabling stroke or cerebral TIA. Meta-analysis according to the principle of intention to treat showed that adjusted-dose oral anticoagulation is highly efficacious for prevention of all stroke (both ischemic and hemorrhagic), with a risk reduction of 61% (95% CI 47% to 71%) versus placebo. The target intensity of anticoagulation involves a balance between prevention of ischemic stroke and avoidance of hemorrhagic complications. Targeting the lowest adequate intensity of anticoagulation to minimize the risk of bleeding is particularly important for elderly AF patients. Several clinical schemes have been proposed to stratify the risk of ischemic stroke in patients with AF, based on analyses of prospectively monitored cohorts of participants in clinical trials in which antithrombotic therapy was controlled. Other criteria have been developed by expert consensus to classify patients into low-, intermediate-, and high-risk groups. Still others have used recursive partitioning and other techniques to identify low-risk patients. The CHADS2 (Cardiac Failure, Hypertension, Age, Diabetes, Stroke [Doubled]) integrates elements from several of these schemes and is based on a point system in which 2 points are assigned for a history of stroke or TIA and 1 point each is assigned for age over 75 years and a history of hypertension, diabetes, or recent HF
CHADS2 Risk Criteria Prior stroke or TIA Age >75 Hypertension Diabetes mellitus Heart failure
Source: AHA
Score 2 1 1 1 1
Several pharmacological therapies have been studied to prevent stroke in AF patients. For most patients with AF who have stable CAD, warfarin anticoagulation alone (target INR 2.0 to 3.0) should provide satisfactory antithrombotic prophylaxis against both cerebral and myocardial ischemic events. The challenges with warfarin go beyond its bleeding risk and are miltiple. Warfarin has tremendous PK variability and many drug-drug interactions. A key challenge is ensuring that the patient reaches the INR target .This requires daily blood tests until the patient is at goal. Monthly measurements may be required thereafter. Skin reactions are well documented with patients on warfarin but the biggest risk remains bleeding with intercranial hemorrhage the most severe side effect. Aspirin appears to offer only modest protection against stroke for patients with AF with a reduction of 19%. Combinations of oral anticoagulants plus antiplatelet agents have not generally shown reduced risks of hemorrhage or augmented efficacy over adjusted-dose anticoagulation alone. The favorable properties of lowmolecular-weight heparins may simplify the treatment of AF in acute situations and shorten or eliminate the need for hospitalization to initiate anticoagulation. Self administration of low-molecular-weight heparins out of hospital by patients with AF undergoing elective cardioversion is a promising approach that may result in cost savings
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Amiodarone Still The Gold Standard

Cordarone/amiodarone (Wyeth/generics) remains the gold standard and probably most potent AAD. Amiodarone is available as both an i.v. and an oral. Amiodarone is a class III antiarrhythmic agent, and prolongs phase 3 of the cardiac action potential. It has numerous other effects however, including actions that are similar to those of antiarrhythmic classes Ia, II, and IV. Amiodarone shows beta blocker-like and potassium channel blocker-like actions on the SA and AV nodes, increases the refractory period via sodium- and potassium-channel effects, and slows intracardiac conduction of the cardiac action potential, via sodium-channel effects. Because amiodarone has a low incidence of pro-arrhythmic effects, it has been used both in the treatment of acute life-threatening arrhythmias as well as the chronic suppression of arrhythmias. It is useful both in supraventricular arrhythmias and ventricular arrhythmias. Despite this broad effect, there are no outcomes data with amiodarone. Amiodarone resembles thyroid hormone and its binding to the nuclear thyroid receptor might contribute to some of its pharmacologic and toxic actions. Amiodarone is extensively metabolized in the liver, and can affect the metabolism of numerous other drugs. The major metabolite of amiodarone is desethylamiodarone (DEA), which also has antiarrhythmic properties. The metabolism of amiodarone is inhibited by grapefruit juice, leading to elevated serum levels of amiodarone. Amiodarone has numerous side effects. The key side effects include: interstitial lung disease, hypo/hyperthyroidism, corneal micro-deposits, abnormal liver functions, and discoloration of the skin. Amiodarone received a boost from the ARREST (Amiodarone in out-of-hospital Resuscitation of Refractory Sustained ventricular Tachyarrhythmias) trial, which showed that Cordarone IV improved patients out-of-hospital survival rate by 26%. However, generics were launched in April 2003, pressuring the Cordarone franchise.
Sanofi-Aventis Multaq Finally Filed

Multaq (dronedarone) is a novel antiarrhythmic drug with electrophysiological properties that are similar to those of amiodarone, but with different relative effects on individual ion channels. The structural changes made to amiodarone to produce dronedarone include the removal of iodine and the addition of a methanesulfonyl group. The latter change decreases lipophilicity, thus shortening the half-life (to approximately 24 hours) and reducing accumulation in tissue. These molecular changes were made with the intention of reducing the risk of amiodarone-associated thyroid-related and pulmonary disease. Dronedarone is hepatically metabolized and excreted in the feces. Multaq has had a tortuous development with several non-approvable letters and withdrawn regulatory applications. In the EURIDIS and ADONIS, both placebocontrolled studies, Multaq was significantly better at maintaining sinus rhythm and reducing the ventricular rate during recurrence of arrhythmia. In addition, rates of pulmonary of thyroid and liver toxicities were not significantly increased in the Multaq group. However, a 1,000 patient study of Multaq in patients with Stages III and IV heart failure (ANDROMEDA) was stopped early due to an increase in mortality as a result of worsening heart failure in the Multaq (400mg bid) arm. This was not surprising to our physician consultants but nonetheless required Sanofi to review Multaqs clinical trial program and eventually embark on ATHENA.
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In June 2008, Sanofi resubmitted the Multaq NDA in the U.S. and E.U. based on the ATHENA study, which was the first outcomes study of an anti-arrhythmic agent. ATHENA demonstrated a 24% reduction in cardiovascular hospitalization or death (composite endpoint) in patients with atrial fibrillation who were on Multaq. There are several criticisms and limitations of ATHENA: 1) Multaqs benefit was driven by hospitalizations and not overall mortality; 2) ATHENA was a placebo-controlled study, although no AAD is approved for this setting; and 3) the median follow-up was only 21 months and this may have been insufficient to detect amiodarone related sife-effects that often present after two years. Another potential confounder is the top line results from the DIONYSOS study which were released in December 2008. DIONYSOS, a short-term head-to-head study versus amiodarone, demonstrated that Multaq is less effective at suppressing AF than amiodarone. Our physicians consultants view Multaq as an exciting therapeutic that will address a large unmet need. They are not surprised that Multaq is less potent than amiodarone and postulate that had DIONYSOS been allowed to continue for longer amiodarones inferior tolerability would have resulted in a significant drop out resulting a favorable outcome for Multaq. Our consultants believe that Multaqs benefit in ATHENA is easily explained but it is real and unprecedented. ATHENAs result depicts how little is known about the pathophysiology of AF. Nonetheless, our consultants are confident that the March 18 2009, FDA advisory committee likely will result in a recommendation for approval with an exclusion for patients with heart failure. The use of Multaq in patients with heart failure of any NYHA class I is likely to be a contentious issue. Multaqs risk-benfit versus amiodarone and its longterm safety likely will also be debated. However, our consultants do not believe that Multaq benefits can be conferred to amiodarone. Sanofis REMS program will also be critical. The CHMPs recommendation is expected to be in April 2009. We expect the results of DIONYSOS to be presented potentially at ACC in March 2009. Should Multaq be approved the market opportunity is likely to be significant despite the availability of generics and the exclusion of heart failure patients (30-40% of the patients with AF). Our consultants believe that it will be the agent of choice in loan AF patients (30%), in patients with hypertension (30-40%) and patients with coronary artery disease (10-20%). ATHENA Sets Multaq Apart From Other Antiarrhythmics With Outcomes Data ATHENA is a randomized, placebo controlled, international multi-center study that evaluated Multaq on top of standard background therapy for the management of patients with atrial fibrillation in reducing morbidity and mortality by preventing cardiovascular hospitalizations or death from any cause. The study included 4,628 atrial fibrillation or atrial flutter patients. The primary composite endpoint was allcause mortality combined with cardiovascular hospitalization as compared to placebo. The pre-specified secondary endpoints were death from any cause, cardiovascular death and hospitalization for cardiovascular reasons. The prespecified safety endpoint was the incidence of treatment emergent adverse events (time of observation for treatment emergent adverse events) including: all adverse events, serious adverse events, adverse events leading to study drug discontinuation. Patients were randomized to Multaq 400 mg BID or placebo, with a maximum follow-up of 30 months. The ATHENA study results were presented at the 2008 Heart Rhythm Society meeting and published in the NEJM in 2009. The two groups were well matched with respect to baseline characteristics. Overall, the mean age was 71.6 years, and 46.9% of participants were female. Twenty-five
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percent of patients had atrial fibrillation at randomization. The predominant underlying cardiovascular disease was hypertension (85%). 29-31% had coronary heart disease, and ~6% had loan atrial fibrillation. There was evidence of structural heart disease in the majority of patients (59.6%) for whom the data were available. Twenty to twenty-two percent of patients had a history of CHF, NYHA class II or III. Approximately 60% of patients were on a background of a vitamin K antagonist. The mean (SD) duration of follow-up among all patients was 215 months, with a median of 22 months. The minimum follow-up duration was 1 year, and the maximum 2.5 years. Among patients assigned to receive Multaq, 734 (31.9%) had a primary outcome event, including 675 (29.3%) with a hospitalization due to cardiovascular events and 59 (2.6%) who died. In the placebo group, 917 patients (39.4%) had a primary outcome event. These included 859 (36.9%) with a first hospitalization due to cardiovascular events and 58 (2.5%) who died before hospitalization. The hazard ratio for the primary outcome in the Multaq group was 0.76 (95% confidence interval[CI], 0.69 to 0.84; P<0.001). Death from any cause was one of the three prespecified secondary outcomes. There were 116 deaths (in 5.0% of patients) in the Multaq group and 139 (in 6.0%) in the placebo group (hazard ratio, 0.84; 95% CI, 0.66 to 1.08; P = 0.18). Multaq showed a significant decrease in the risk of cardiovascular death by 30% (p=0.03). Multaq also significantly decreased the risk of arrhythmic death by 45% (p=0.01) and there were numerically fewer deaths (16%) from any cause in the Multaq group compared to placebo (p=0.17). First cardiovascular hospitalization was reduced by 25% (p<0.001) in the Multaq group. The study drug was prematurely discontinued in 696 (30.2%) patients receiving Multaq, as compared with 716 (30.8%) receiving placebo. The main reasons were adverse events (in 12.7% of patients in the Multaq group versus 8.1% in the placebo group), subjects request (7.5% in each group), and other reasons (9.4% in the Multaq group versus 14.4% in the placebo group). The most frequently reported adverse events of Multaq versus placebo were gastrointestinal effects (26% vs. 22%), skin disorders (10% vs. 8%, mainly rash) and increased blood creatinine (4.7% vs. 1%). The mechanism of blood creatinine increase (inhibition of creatinine secretion at the renal tubular level) is well defined. Compared to placebo, Multaq showed a low risk of pro-arrhythmia and no excess of hospitalizations for congestive heart failure. DIONYSOS: Multaq Less Effective But Probably Safer Than Amiodarone The DIONYSOS trial compared Multaq to amiodarone in the maintenance of sinus rhythm in 504 patients with persistent Atrial Fibrillation (AF) for a short treatment duration (mean follow up of 7 months). Multaq was significantly inferior to amiodarone with 73.9% versus 55.3% (p<0.001) of patients reaching the composite primary endpoint (AF recurrence or premature drug discontinuation for intolerance or lack of efficacy). Atrial fibrillation after electrical cardioversion occurred in 36.5% of patients in the Multaq arm vs. 24.3% of patients in the amiodarone arm. There were 26 premature drug discontinuations in the Multaq arm versus 34 in the amiodarone arm although this was not significant. The DIONYSOS trial showed a decrease of 20% favoring Multaq versus amiodarone (83 versus 107, p=0.1291) in the predefined main safety endpoint. The predefined main safety endpoint included thyroid, hepatic, pulmonary, neurological, skin, ocular, and gastrointestinal adverse events as well as premature study drug discontinuation due to any adverse event. In the dronedarone arm less thyroid events (2 versus 15), neurological events (3
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versus. 17) and premature study drug discontinuation due to any adverse events (13 versus 28) was observed. In contrast, gastrointestinal events (diarrhea, vomiting, nausea) were more frequent in the dronedarone arm (32 versus 13)
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Key Results From Other Multaq Studies

Name Full Name Design Placebo-controlled, multicenter, doubleblind study in patients hospitalized with symptomatic heart failure and severe LV dysfunction. Primary endpoint was the composite of death from any cause and hospitalization Dose Tested Key Exclusion Criteria Previous MI within 7 days; bradycardia <50 bts/min;use of Class I or III antiarrhythmic drugs Randomization Results Key Efficacy Endpoints Key Safety Endpoints
ANDROMEDA
Antiarrhythmic Trial with Dronedarone in Moderate to Severe Congestive Cardiac Failure Evaluating Morbidity Decrease
Multaq 400mg twice daily
Stopped early: Multaq 310; Placebo 317
Study terminate early. During a median follow-up of 2 months, 8.1% of Multaq patients vs. 3.8% placebo pts died. The excess mortality was predominantly due to worsening heart failure (10 vs. 2). There was no difference in the primary endpoint 53 vs. 40 events, p=0.12
EURIDIS
The European Trial in Atrial Fibrillation or Flutter Patients Receiving Dronedarone for the Maintenance of Sinus Rhythm American-Australian-African Trial with Dronedarone in Atrial Fibrillation or Flutter Patients for the Maintenance of Sinus Rhythm
Placebo-controlled, multicenter, doubleblind trial in patients with atrial fibrillation or flutter. Primary endpoint was time to first recurrence of atrial fibrillation or flutter
Multaq 400mg twice daily
ADONIS
Permanent AF; patients taking Class I or III antiarrhythmic drugs; patients with NYHA Class III or IV CHF; serum creatinine >1.7mg/dl; significant hepatic, pulmonary, or endocrine disease
Multaq 411; Placebo 201
Multaq 417; Placebo 208
The median times to recurrence of atrial fibrillation was 116 vs. 53 days. At 12 months, the recurrence rates were 64.1% vs. 75.2% p<0.001
No significant differences in pulmonary, liver, and thyroid abnormalities; serum Cr: 2.4% vs. 0.2% p=0.004.
DIONYSOS
Efficacy & Safety of Dronedarone Versus Amiodarone for the Maintenance of Sinus Rhythm in Patients With Atrial Fibrillation
Randomized, double-blind trial to evaluate Multaq versus Amiodarone for at least 6 months for the maintenance of sinus rhythm in patients with atrial fibrillation. Primary endpoint was treatment failure defined as recurrence of atrial fibrillation or premature study drug discontinuation for intolerance or lack of efficacy. Study length 6 month duration.
Multaq 40 mg twice daily; amiodarone(600 mg daily for 28 days, then 200mg daily thereafter)
Contraindication to oral anticoagulation; atrial flutter; paroxysmal atrial fibrillation; contraindication to amiodarone
504 patients total
184 (73.9%) Multaq vs. 141 (55.3%) amiodarone patients (p<0.001) reached primary endpoint. 24 vs. 36 patients experienced more premature drug discontinuation p=NS
83 vs.107, p=0.1291 in the predefined main safety endpoint (thyroid, hepatic, pulmonary, neurological, skin, ocular, GI, and premature discontinuation) Thyroid: 2 vs. 15, neuro: 3 vs. 17; GI: 32 vs. 13; prem discon: 13 vs. 28. Bradycardia 8 vs. 22; QTc prolongation 27 vs. 52
Source: NEJM; clinicaltrials.gov; company data
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Sanofi-Aventiss Celivarones Development In AF Terminated Celivarone was being developed as a once-daily anti-arrhythmic for the treatment of AF. Celivarone appeared more potent than Multaq and had completed three Phase II studies. The 673-patient MAIA Phase II study showed a trend towards reduction in recurrences of atrial fibrillation events at a dose of 50mg/day versus placebo. There were no Torsades de Pointes or amiodarone-like side effects at any dose. In February 2009 Sanofi announced that it discontinued development of Celivarone in atrial fibrillation and was waiting the outcome of Multaqs Advisory Committee to determine further development.
Pfizers Tikosyn Usage Limited By Dosing Hurdles

Tikosyn is a highly selective potassium channel blocker offering delayed recovery in cardiac excitability. This sets the drug apart from competitive products that may broadly block potassium channels, and/or calcium and sodium channels. Tikosyn seeks to reduce hospitalization costs and enhance quality of life. Pfizer believes that patients experiencing atrial fibrillation should be hospitalized and placed on Tikosyn. Thirty percent of these patients should convert to normal rhythm on drug therapy; if patients do not convert, they should be administered electro cardioversion therapy. Once converted, patients could be discharged from the hospital on Tikosyn. Our physician consultants believe that Tikosyn has effectiveness on par with amiodarone but may have a better side-effect profile, although Tikosyn is associated with a higher incidence of pro-arrhythmic effects (0.8%). Given complex initiation procedures, which require hospitalization for the first few days, sales are modest.
Cardiomes Kynapid Awaits FDA Decision

Cardiomes Kynapid, a selective inhibitor of voltage-dependent ion channels, received a refusal to file letter in May 2006. In December 2006, Cardiome and Astellas resubmitted the NDA after re-review and audit of the previous submission and inclusion of an additional 140 patients (from ACT 2) to support the safety database. The FDA accepted the filing in 02/07. In December 2007, FDAs Cardiovascular and Renal Drugs Advisory Committee voted 6 to 2 in favor of recommending to the FDA that Kynapid be approved for the rapid conversion of acute AF to sinus rhythm. However, the panel warned that Kypnapid should not be used at all in patients with recent myocardial infarctions, or for those with Class 3 or Class 4 heart failure; groups that comprise 10 percent and 20 percent of patients. An FDA decision was expected by January 19, 2008 but to date a decision has not been made. In August 2008 Cardiome received an approvable letter from FDA requesting additional information associated with the risk of previously identified events experienced by a subset of patients during the clinical trials in order to assure an acceptable risk benefit profile compared to electrical cardioversion. FDA also requested a safety update from ongoing or completed studies of Kynapid, regardless of indication, dosage form, or dose level. Cardiome and its partner Astellas announced the topline data from ACT 2 in June 2007, which demonstrated a 45% conversion rate within 90 minutes and no cases of Torsade de Pointes. Kynapid did not convert any of the 10 patients with atrial flutter to sinus rhythm. Kynapid is designed to block ion channels in the atria, including early repolarizing potassium channels Ikur and Ito, as well as frequency-dependent blockade of sodium channels. Positive top-line results were released from two Phase III trials (ACT - Atrial arrhythmia Conversion Trial 1 and 3) of Kynapid in December 2004 and September 2005. Cardiome licensed North American rights for the i.v. formulation of Kynapid to Astellas in October 2003. Cardiome retains worldwide right to oral Kynapid and all rights to the i.v. formulations outside of North America.
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ACT 1 And 3 Show Good Efficacy In Early Onset AF ACT 1, which measured the safety and efficacy of intravenous RSD1235 in 416 patients with atrial arrhythmia, evaluated three sub-groups of patients: recent-onset AF (more than 3 hrs but less than 7 days; n=237), longer-term AF (more than 7 days but less than 45 days; n=119) and atrial flutter (n=60). The primary endpoint was conversion of recent-onset AF to normal heart rhythm for a period of at least 1 minute post-dosing within 90 minutes of the start of dosing. In the overall study population, 38% of patients treated with RSD1235 experienced termination of AF vs. 3% for placebo (p<.001); most of the benefit was driven by efficacy in recent onset AF where 52% of patients treated with RSD1235 vs. 4% of placebo patients experienced conversion to normal heart rhythm (p<.001) while causing no side effect arrhythmias. The median time to conversion in this patient subset was 11 minutes, consistent with Phase II data, and only 1 of 75 patients relapsed at 90 minutes. RSD1235 appears to be ineffective at converting patients with atrial flutter (roughly 8% of AF patients in the U.S.) to normal heart rhythm. Results of ACT 3 were highly consistent with ACT 1: overall, 41% of RSD1235 patients experienced AF termination vs. 4% for placebo (p<0.0001); most of the effect was driven by patients with recent onset AF and median time to conversion was 8 minutes. In October 2005, a safety study (ACT 4) in an additional 140 AF patients was initiated to supplement the ACT 1 and 3 studies. A dose-escalation Phase IIa study with the oral formulation was presented at ECS 2007. 221 subjects with symptomatic AF (72 h - 6 months duration) were randomized to placebo or Kynapid for up to 28 days (stratified to background ACE-I or ARB use). In Tier 1, patients received either 300 mg b.i.d. Kynapid or placebo and in Tier 2 they received either 600 mg b.i.d. Kynapid or placebo. 73 subjects received placebo and 71 and 75 subjects received Kynapid at 300 mg b.i.d. and 600 mg b.i.d., respectively. In the placebo group, 57% of subjects had a recurrence of AF as compared to 39% of subjects in the 300 mg b.i.d. Kynapid group (Log-rank Test p=0.048), and 39% of subjects in the 600 mg b.i.d. Kynapid group (Log-rank Test p=0.060). From the start of dosing to the end of the 30 day follow-up period, serious adverse events occurred in 8% of placebo, 10% of 300 mg Kynapid, and 11% of subjects in the 600 mg Kynapid group. The most commonly reported adverse events (>5% and at higher incidence in Kynapid than placebo) were bradycardia, sinus bradycardia and 1st degree AV block. One death due to MI, considered unrelated to drug, occurred. No Torsades was seen. ACT 2 Demonstrates Robust Conversion Rates In AF But Not Flutter In June 2007, Astellas and Cardiome announced topline results of ACT 2. The trial evaluated the efficacy and safety of the intravenous formulation of Kynapid hydrochloride for the treatment of patients who developed atrial fibrillation or atrial flutter between 24 hours and 7 days following coronary artery bypass graft (CABG) or valve replacement surgery. The study achieved its primary endpoint in the combined atrial fibrillation and atrial flutter groups, showing that 45% of patients receiving Kynapid (iv) converted to normal heart rhythm within 90 minutes, as compared to 15% of placebo patients within the same time period (p=0.0002). Of the 10 patients in the atrial flutter population, no patients in the drug group and one patient in the placebo group converted to normal heart rhythm. Kynapid was well-tolerated in the studied patient population. In the 30-day interval following drug administration, serious adverse events occurred in 9% of all patients dosed with Kynapid (iv) and 11% of all placebo patients. Potentially drug-related serious adverse events occurred in 2% of patients who received Kynapid and 0% of placebo patients. There were no cases of drug-related Torsades de Pointes, a specific and well-characterized ventricular arrhythmia. A total of 190 patients were randomized in the study, of which 161 received treatment.
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Solvays Tedisamil Fails To Get Advisory Committees Recommendation For Atrial Fibrillation
In December 2007, members of FDAs Cardio-Renal Advisory Committee voted against approval of tedisamil, requesting that Solvay provide additional information to FDA. The NDA for tedisamil was filed in December 2006. In April 2007, additional clinical data amending the NDA for tedisamil were filed and FDA extended the 10- month review to January 19, 2008. To date no decision on the approval has been made. Tedisamil is a potassium channel blocker (class III anti-arrhythmic agent). The drug had completed Phase III trials for angina pectoris, and although an NDA dossier for angina pectoris in refractory patients was ready for filing with the U.S. FDA, Solvay decided to pursue the broader indication of atrial fibrillation instead. Tedisamil is bradycardic without producing a negative inotropic effect. The class III antiarrhythmic effect of tedisamil is related predominantly to the strong blocking effect of the drug on the rapid component of the delayed rectifier potassium current. Tedisamil appears to be more potent in blocking atrial potassium channels compared with ventricular potassium channels. In a multicenter double-blind, randomized placebo-control sequential ascending-dose trial of intravenous tedisamil in 201 patients with AF or atrial flutter, tedisamil demonstrated a conversion to sinus rate in 41% of patients receiving 0.4 mg/kg and 51% of patients in the 0.6 mg/kg group but only 7% in the placebo group. There was one episode of monomorphic ventricular tachycardia and one of torsades, both in the 0.6 mg/kg group. Tedisamil appeared to be of comparable or greater efficacy compared to ibutilide, but still carried the risk for ventricular arrhythmias.
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Antithrombotic And Antiplatelet Agents

A clot (thrombus) is an aggregation of platelets within the lumen of a blood vessel. Clots generally form as a result of either slowing of blood flow (stasis), damage to a vessel wall (leads to the release of clotting factors), or hypercoagulability (e.g. genetic disorders). The three are known as Virchows Triad. The clotting system has many checks and balances to ensure that clot formation is appropriate, for example after a cut, but abnormal clot formation eventually results in ischemia and potentially infarction. Ischemia is the reduction of blood supply to the tissues; infarction is permanent tissue damage as a result of ischemia. When clots break off from the vessel and travel through the blood stream, they are known as thromboemboli. Clots may form in both the venous (venous thrombosis) and the arterial (arterial thrombosis) systems. The underlying causes are usually different. Arterial clots are usually associated with atheromatous plaque formation and present as ischemic disease including: acute coronary syndrome (ACS); stroke; and peripheral arterial disease. Cardiovascular procedures (e.g. stenting) irritate the arterial vasculature and the foreign body can lead to clot formation. Venous thrombi usually result from stasis (slowing of blood flow), for example because of surgery and drugs, but mainly the post-operative immobility. Atrial fibrillation - which has high risk of stroke because of stasis of blood flow in the atria of the heart - is treated similarly to venous thromboembolic disease. Arterial and venous thromboses are currently managed differently as most studies have failed to show a benefit when using anti-platelet agents for venous disease and anticlotting agents for arterial disease. Newer agents may alter this paradigm. The heparins, aspirin, and Plavix (clopidogrel; Bristol-Myers/Sanofi-Aventis) form the mainstay of arterial thrombosis management. Unfractionated heparin, the low molecular weight heparins (LMWH) including Lovenox (Sanofi), Fragmin (Pfizer), and Arixtra (GlaxoSmithKline) bind to antithrombin inactivating several coagulation enzymes including thrombin (Factor IIa) and activated Factor Xa. Aspirin and Plavix have antiplatelet activating activity but act on different targets (COX-1 and P2Y12, respectively). Warfarin inhibits the effective synthesis of biologically active forms of the vitamin Kdependent clotting factors: II, VII, IX and X, as well as the regulatory factors protein C, protein S and protein Z. Regardless of mechanism, prevention of clot formation generally results in a predisposition to increasing bleeding. Aspirin and Plavix are oral and can be given without the requirement for monitoring but Plavix has a variable response. The heparins are generally used for short-term treatment or prophylaxis because they are administered intravenously or subcutaneously; UFH requires monitoring. Warfarins variable PK, drug-drug interactions and its requirement for monitoring has made it a target of many novel therapeutics. However, in general, the safety hurdle remains high and new agents will have to demonstrate superior effectiveness that outweighs any increased bleeding risk. AstraZenecas Exanta resulted in post-approval liver toxicity, and was withdrawn from the market. Any target organ toxicity will be under the regulators microscope.
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The Coagulation Cascade And The Anti-Coagulation And Fibrinolysis Pathways
Source: http://practical-hemostasis.com/Screening%20Tests/screening_tests_aptt.html
New agent commercial penetration likely will be confined to the approved indication and require expansive clinical data, including outcomes studies to garner broad adoption. Several agents and classes are under FDA review or in late-stage clinical development. Platelet inhibitors: Lillys Effient (prasugrel, approved in Europe; recommended for approval in U.S., ACS-PCI); AstraZenecas AZD6140 (Phase III, ACS-PCI); and Schering-Ploughs TRA (Phase III, ACS). On the venous side: Rendix (oral dabigatran, EC approval; Phase III AF study to be completed Q1:09); the Factor Xa inhibitors: JNJ/Bayers rivaroxaban (approved in E.U.; filed U.S., DVT); Bristol-Myers/Pfizers apixaban (Phase III, DVT); and the indirect Factor Xa inhibitors: Sanofi-Aventis idrabiotaparinux (Phase III, PE treatment and stroke prevention in AF). The diagram on the next page summarizes most approved and key clinical stage development stage antiplatelet and anticoagulant agents.
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Overview Of Commercialized And Late Stage Antithrombotics/Anticoagulants Class Heparins UFH Generic name heparin Brand name generic Company Mechanism of action Indirectly inhibits thrombin and Factor Xa through binding with antithrombin III SNY Indirectly inhibits thrombin and Factor Xa through binding with antithrombin III Status Approved Formulation IV Indications UA, NSTEMI, MI, DVT & PE treatment and prophylaxis Treatment and prophylaxis of DVT and PE; Prophylaxis of ischemic complications of UA and NSTEMI; Treatment of STEMI Treatment and prophylaxis of DVT and PE; Prophylaxis of ischemic complications of UA and NSTEMI Treatment and prophylaxis of DVT and PE;
enoxaparin
Lovenox
Approved
SubQ/ IV
dalteparin LMWH AVE5026
Fragmin
PFE
Approved
SNY
fondaparinux Pentasaccharides Direct thrombin inhibitors Bivalent Idrabiotaparinux
Arixtra
GSK SNY
Selectively binds to antithrombin III Phase II indirectly potentiating Factor Xa inhibition with some residual antiIIa activity Selectively binds to antithrombin III Approved indirectly potentiating Factor Xa Phase III inhibition with no effect on thrombin
SubQ
SubQ SubQ weekly
Treatment and prophylaxis of DVT and PE; ACS treatment (EU only) DVT prophylaxis
bivalirudin
Angiomax
MDCO
Binds to both the active site and exosite-1 of thrombin
Approved
IV
PCI + HIT, HIT, registration for ACS
argatroban Monovalent dabigatran
Argatroban Rendix/Pradaxa generic
GSK BoerhingerIngelheim Binds to active site on thrombin Inhibits the synthesis of biologically active forms of the vitamin Kdependent clotting factors II, VII, IX and X, as well as the regulatory factors protein C, protein S, and protein Z. JNJ/Bayer BMY/PFE LLY Direct inhibitors of Factor Xa Yamanouchi Portola Daiichi-Sankyo SNY
Approved Registration Approved
IV Oral Oral
Treatment and prevention of DVT/PE in HIT, PCI in HIT
Vitamin K antagonists warfarin
Treatment and prevention of DVT/PE, AF & prosthetic valves treatment and prophylaxis
Factor Xa inhibitors
rivaroxaban apixaban LY 517717 YM150 PRT05402 DU-176b otamixaban
Xarelto
Registration Phase III Dropped Phase II Phase II Phase IIa Phase IIa Irreversibly inhibits both isoforms of COX and blocking the formation of platelet-activating TXA2 that causes platelet aggregation Approved
Oral QD Oral BID Oral Oral Oral Oral IV Oral QD QD QD QD
Treatment and prophylaxis of DVT/PE ; AF; ACS Treatment and prophylaxis of DVT/PE ; AF; ACS Treatment and prophylaxis of DVT Prophylaxis of DVT Prophylaxis of DVT Prophylaxis of DVT ACS ACS, prophylaxis arterial thrombus
Antiplatelet agents TXA2 Inhibitors
aspirin
generic
Glycoprotein IIb/IIIa inhibitors
abciximab etifibatide tirofiban
Reopro Integrilin Aggrastat
LLY MLMN/SGP MRK
Approved Block platelet glycoproteins IIb/IIIa inhibition platelet aggregation Approved Approved
IV IV IV
PCI, UA ACS, PCI UA, NSTEMI, PCI
ADP receptor inhibitors Irreversible (thienopyridines) Reversible clopidogrel ticlopidine prasugrel AZD6140 cangrelor PRT060128 TRA E4444 Plavix Ticlid Effient BMY/SNY Roche LLY/Sankyo AZN MDCO Portola SGP Eisai
Irreversible blockade of ADP Approved receptor P2Y12, inhibiting the ADP- Approved mediated GPIIb/IIIa complex Registration Phase III Reversible blockade of ADP Phase III receptor P2Y12, inhibiting the ADP- Phase II mediated GPIIb/IIIa complex Blocks thrombin receptor protease- Phase III activated receptor-1 inhibiting platelet aggregation Phase II
Oral Oral BID Oral Oral IV IV/Oral Oral Oral
Recent MI, stroke, PAD, ACS+ PCI Stroke, subacute stent thrombosis PCI, ACS ACS, PCI PCI PCI ACS, PCI ACS
Thrombin receptor antagonist
Source: company websites; theheart.org; medscape; ASH abstracts; ISTH abstracts;
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Platelet Continues To Be Attractive Target Of Multiple Therapeutics

Due to the platelets roll in the clotting process, it continues to be a key target for arterial associated thrombosis. The figure below highlights the majority of approved and late stage anti-platelet agents.
Source: American Heart Journal: Volume 156, Issue 2, Supplement 1, August 2008, Pages 10S-15S
Sanofi/Bristols Plavix Outlook Solid In U.S.; Uncertain In E.U.

Plavix, which Bristol markets in North America in a joint venture with Sanofi-Aventis, has been a huge success worldwide. Plavix has been studied in over 100,000 patients in 8 major clinical trials resulting in Class I recommendations in many guidelines for ACS, peripheral arterial disease, and stroke. To date, Plavix has been taken by over 70MM people. In the U.S., 65% of Plavix use is in ACS. Over 25% of this is initiated in hospitals and 40% outside the hospital. Of the hospital business, 15% is in stented patients (1.5MM total patients) and 97% of stented patients are discharged on Plavix. 10% of Plavix business is in non-stented patients (1.5MM total patients) but only 50% of these patients are discharged on Plavix. 35% of Plavix business comes from the combined PAD (8MM total patients) and stroke (10MM total patients) markets. The average length of therapy is 184 days. 40% of the business is from other cardiovascular disease. Plavix sales continue to grow for several reasons: 1) target markets are not fully penetrated; 2) incidence of diseases where Plavix is indicated continues to grow; and 3) Plavix has no competition. However, Plavix faces several headwinds even prior to its November 2011 U.S. patent expiration: 1) potential competitors: Lilly/Sankyos Effient and AstraZenecas
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AZD6140; 2) broader adoption of generics in Europe despite limited penetration of the German market; and 3) no major line extension studies besides CURRENT/OASIS 7 which could establish the safety and effectiveness of a high loading dose. In 2008, BristolMyers announced that the EC approved the 300mg loading dose; currently four 75mg tablets are taken. We forecast Plavix sales of $6,125MM in 2009, $2,700MM in 2012, and $100MM in 2015. Bristol-Myers has yet to apply for a six-month pediatric extension that could extend the exclusivity to May 2012. These forecasts assume a successful U.S. and E.U. launch of Lillys Effient in 2009, based on the favorable FDA advisory committee meeting in February 2009. CURRENT Study May Not Provide Clear Cut Comparison With Effients TIMI 38 CURRENT/OASIS-7 (Clopidogrel Optimal Loading Dose Usage to Reduce Recurrent Events/Optimal Antiplatelet Strategy for Interventions) is evaluating the efficacy and safety of (1) a higher loading and initial maintenance dose of Plavix (600mg loading dose, 150mg days 2-7, 75mg days 8-30) compared with the standard-dose regimen (300mg loading dose followed by 75mg days 2 to 30) and (2) high-dose ASA (300325mg/daily) compared with low-dose ASA (75-100mg/daily) in patients with ST or non ST-segment-elevation ACS managed with an early invasive strategy. The Plavix analysis is double-blind and the ASA analysis is open-label. The primary endpoint of CURRENT is the reduction of a composite end point of cardiovascular death, stroke and myocardial infarct (MI) up to day 30, and the primary safety outcome is major bleeding. The original study design assumed an event rate of 6-8% in the standard-dose group, requiring 14,000 patients for 90% power to detect a relative risk reduction of 17.9-20.8%. However, a review of the treatment blinded event rates by the steering committee after 10,033 patients had been randomized revealed an event rate of 4.4%. To preserve the power the steering committee recommended that the sample size be increased to between 18,000 and 20,000 patients. Assuming an event rate of 5%, the trial now has a 90% power to detect a relative risk reduction of 19.2-20.2% and an 80% power to detect reductions of 16.7-17.5%. Results are now expected in Q4:09, nearly a year and a half delay from previous estimates. A 600mg loading dose is often used off-label in clinical practice but no trials have proved its benefit. CURRENT was designed to provide an answer on the effectiveness of the higher Plavix loading dose and potentially garner approval with the higher dose. A solid outcome would raise questions about the design of TIMI 38 and potentially moderate prescribing of Effient. However, the 30 day design, and the 6 days of 150mg post the loading dose is a new regimen that may prevent a direct comparison to TIMI 38. Plavix Patent Status Firm In U.S. But On Less Solid Footing In EU German Non AB-Rated Plavix Generics Launched; Outlook For Broader European Launches Unclear. In August 2008, a German Court reversed its temporary injunction allowing YES Pharmaceutical, acting on behalf of Acino (previously Schweizerhall), to launch its clopidogrel besylate salt. Ratiopharm (ClopidogrelRatiopharm 75 mg) and Novartis Hexal (Clopidogrel-Hexal 75 mg) are responsible for the German commercialization under a license from Acino. However, by the end of January 2009, these alternative salt generics had captured just over 20% of the market. It is unclear how quickly a broader European launch will occur and whether individual countries will substitute this different salt for Plavix. In October, the German Higher Administrative Court Nordrhein-Westfalen dismissed the objections against the immediate enforcement of the drug approval for Acinos clopidogrel. Acino, YES Pharmaceutical and their partners have announced that they plan to seek marketing authorization in other EU countries in addition to Germany. The third party objection
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before Bfarm is still pending. Bristol believes that other companies have filed for generic approvals in the E.U. of a clopidogrel containing product after the expiration of the data protection period. These applications are pending. Plavix 265 Patent Upheld In The U.S. On June 19, 2007, the U.S. District Court for the Southern District of New York upheld the validity and enforceability of the 265 patent until November 2011. The Court also ruled that Apotexs generic clopidogrel infringes the 265 patent and enjoined Apotex from marketing this product in the U.S. until patent expiration. This decision is in line with views of our legal consultants who believed that Plavixs 4,847,265 (265) patent would hold. Patent 265 describes and identifies the active enantiomer of Plavix and a manufacturing method for separating the isomer from the racemic mixture. Apotex argued that patent 265 was invalid based on obviousness, given that Plavixs molecular structure is described in patent 4,529,596 (596), Plavixs original composition-of-matter patent that expired in July 2003. The Apotex appeal was held in March 2008. In December 2008, the District Court ruled in Bristols favor in the appeal. The damages phase of the trial is ongoing but, should Bristol win, it is unlikely to collect meaningful compensatory damages. A trial date for the action against Dr. Reddys has not been set. The patent infringement actions against Teva and Cobalt were stayed pending resolution of the Apotex litigation. In July 2008, Bristol initiated a patent infringement lawsuit against Sun for infringement of the 265 patent and the 210 patent. Each of Dr. Reddys, Teva, Cobalt, Watson, and Sun have filed an ANDA with the FDA, and all exclusivity periods and statutory stay periods under the Hatch-Waxman Act have expired. Accordingly, final approval by the FDA would provide each company authorization to distribute a generic clopidogrel bisulfate product in the U.S., subject to various legal remedies for which Bristol/Sanofi may apply, including injunctive relief and damages. Apotexs Appeal Dismissed In Canada. Apotex sought to appeal the Canadian Federal Court of Appeals decision to the Supreme Court of Canada regarding the ruling in Bristol-Myers Squibb/Sanofi-Aventis favor in litigation over Plavix's patent in Canada. On July 5, 2007, the Supreme Court of Canada granted Apotex leave to appeal the decision of the Canadian Federal Court of Appeal. BIOTECanada, the Canadian Generic Pharmaceutical Association, and Canadas Research-Based Pharmaceutical Companies were granted leave to intervene. The oral hearing was held in April 2008 and the appeal was ultimately dismissed. Separately, on October 10, Ontarios Court of Appeal dismissed Apotexs lawsuit regarding break-up of the proposed settlement agreement; Apotex had 60 days to appeal. Apotex filed a lawsuit in Canada seeking $60MM plus interest related to break up of the proposed settlement. Alternative Salt Form Possible In Australia. On August 12, 2008, the Federal Court of Australia held that claims of Patent No. 597784 covering clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate salts are valid. The Federal Court also held that the process claims, pharmaceutical composition claims, and a claim directed to clopidogrel and its pharmaceutically acceptable salts are invalid. It is now possible for a generic company to develop and seek registration for an alternate salt form of clopidogrel (other than bisulfate, hydrochloride, hydrobromide, or taurocholate). Bristol and Sanofi filed notices of appeal in the Full Court of the Federal Court of Australia appealing the holding of invalidity of the claim covering clopidogrel and its pharmaceutically acceptable salts, process claims, and pharmaceutical composition claims, which have stayed the Federal Courts ruling. Apotex filed a notice appealing the holding of validity of the clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate claims.
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Korea Generics Approved. In January 2008, the Patent Court affirmed the Korean Intellectual Property Tribunals invalidation of all claims of Sanofi/Bristols Korean patent. Bristol and Sanofi have filed an appeal to the Supreme Court of Korea and commenced infringement actions against generic companies that have launched generic clopidogrel bisulphate and other salt forms. PLAVIX CLINICAL STUDIES
Clinical studies ACTIVE A and W CAPRIE CHARISMA CLARITY CLASSICS COMMIT CREDO CURE CURRENT/OASIS-7 (ongoing) MATCH WATCH Total
Number of patients 14,000 20,000 15,200 3,500 1,020 45,000 2,116 12,562 14,000 7,601 <4,500 Approx. 137,800
COMMIT/CLARITY Support ACS Claim. In August 2006, Plavix was approved in S-T elevation myocardial infarction (STEMI) based on the COMMIT/CLARITY data presented at the American College of Cardiology meeting in 2005. CLARITY (CLopidogrel as Adjunctive ReperfusIon TherapY) was a randomized, double-blind study of 3,000 patients with acute STEMI within 6 hours. In CLARITY, Plavix reduced the odds of acute MI patients having another occluded artery, or a second heart attack or death by 36% after one week of hospitalization (event rate: 15.0% in clopidogrel arm vs. 21.7% in placebo; P<0.001). Plavix also reduced the rate of MACE (cardiovascular death, recurrent myocardial infarction, recurrent ischemia leading to urgent revascularization) at 30 days by 20% (event rate: 11.6% vs. 14.1%; P=0.03). The primary prevention opportunity was clipped by the CHARISMA data, present at ACC 2006, which failed to meet the primary endpoint and resulted in an increased CV mortality in patients with multiple CV risk factors and no history of CV symptoms when Plavix was added to aspirin. This was confirmed in a post-hoc analysis published in the European Heart Journal in August 2007. CLARITY (CLopidogrel as Adjunctive ReperfusIon TherapY) was a randomized, doubleblind study of 3,000 patients with acute S-T elevation myocardial infarction within 6 hours. CLARITY was presented as a late-breaker at the ACC in March 2005, and the full results were published as an early release article in NEJM. Patients were treated with a combination of aspirin and either heparin or lytic therapy, as well as Plavix 300mg followed by 75mg daily or placebo. An ECG was administered at 90 and 180 minutes. A coronary angiography was done before discharge, and a follow-up clinical examination was performed in 30 days. The primary endpoint was patency of the infarct-related artery and the secondary endpoint is S-T segment resolution and clinical events. In CLARITY, Plavix reduced the odds of acute MI patients having another occluded artery, or a second heart attack or death by 36% after one week of hospitalization (Event rate: 15.0% in clopidogrel arm vs. 21.7% in placebo; P<0.001). Plavix also reduced the rate of
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MACE (cardiovascular death, recurrent myocardial infarction, recurrent ischemia leading to urgent revascularization) at 30 days by 20% (Event rate: 11.6% vs. 14.1%; p=0.03). COMMIT (COMprehensive Multidisciplinary Interventional Trial for regression of coronary artery disease) was conducted by an independent body, the Oxford Group. COMMIT was presented as a late-breaker at the ACC in March 2005, and the full results were published as an early release article in NEJM. It enrolled 45,000 patients in China and compared the combination of Plavix and aspirin with aspirin alone in acute myocardial infarction. Patients did not receive a loading dose of Plavix in this trial. At 28 days, Plavix reduced the relative risk of death by 7% (Event rate: 7.5% vs. 8.1%; P=0.03). In the same patient population, Plavix reduced the relative risk of the combined endpoint of recurrent MI, stroke or death by 9% (Event rate: 9.3% vs. 10.1%; p=0.002). CLASSICS (Clopidogrel Aspirin Stent International Cooperative Study) demonstrated the usefulness of Plavix in the implantation of stents. It enrolled 1,020 high-risk patients, and demonstrated that the combination of Plavix and aspirin offered comparable effectiveness and better tolerance than the combination of Ticlid and aspirin in the prevention of thrombosis following the implantation of coronary stents. Stents are implanted after an angioplasty to separate coronary artery walls. This frequently causes micro-injuries that are sealed by platelets, leading to the formation of new clots. CREDO (Clopidogrel for the Reduction of Events During Observation) was presented at the AHA meeting in November 2002. It showed that the efficacy of long-term treatment with Plavix and aspirin prevented the risk of death, heart attack and stroke. The results show that patients (n=2,116) who underwent coronary angioplasty (with or without stent) had a statistically significant 27% reduction in the relative risk of death, heart attack and stroke when treated with Plavix and aspirin compared with placebo and aspirin. CURE (Clopidogrel in Unstable Angina to prevent Recurrent ischemic Events) included patients with unstable angina or non Q-wave myocardial infarction. Plavix reduced the primary endpoint of cardiovascular death, myocardial infarction and stroke by 20%, with strong statistical significance (p=0.00005). The risk of each of these components also was reduced, with myocardial infarction reduced by 23%, stroke reduced by 15%, and cardiovascular death reduced by 8%. For every 1000 patients treated with Plavix versus placebo for nine months, there would be 28 fewer events but three more bleeds. WATCH (Warfarin and Antiplatelet Therapy in Chronic Heart failure) was conducted by the Veterans Administration, and compared Plavix to aspirin in the prevention of ischemic events for patients suffering from cardiac insufficiency. However, an enrollment rate of only 40% of the 4,500 patients anticipated forced protocol modifications and, finally, early discontinuation of the study at enrollment of only 1,587 patients. WATCH results failed to show significant differences between aspirin, warfarin, and Plavix in the composite primary endpoint with a strong trend in favor of warfarin in the prevention of non-fatal stroke. MATCH (Management of Atherothrombosis with Clopidogrel in High-risk patients with recent transient ischemic attacks or ischemic stroke) measured the effectiveness of Plavix in combination with aspirin for the prevention of repeat incidents following strokes or transitory ischemic events in high-risk patients. Results, published in May 2004, showed that the combination Plavix + aspirin was no better than Plavix alone. CHARISMA (Clopidogrel for High Atherothrombotic Risk and Ischemic Stabilization, Management and Avoidance) evaluated Plavix on top of existing therapy for the
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prevention of cardiovascular events in approximately 15,000 symptomatic and asymptomatic high-risk patients. The study achieved a non-significant 7.1% relative risk reduction in the primary endpoint of cardiovascular death, MI and stroke. Plavix did achieve a statistically significant 7.7% relative risk reduction in the secondary endpoint of CV death, MI, stroke, and hospitalization. CHARISMA was originally designed targeting a primary prevention claim, but only 3,000 high-risk asymptomatic patients were in the study. CHARISMA suggested that Plavix may increase risk in primary prevention patients. A pre-specified subset analysis of high-risk asymptomatic patients found an increased risk of death, cardiovascular death, and severe bleeding (under the GUSTO definition) in patients treated with Plavix. The investigators concluded that Plavix should not be used for primary prevention in combination with aspirin. In secondary prevention patients, use of Plavix resulted in a 12.5% relative risk reduction in qualifying cardiovascular events (p=0.046). Despite this reduction, investigators concluded that the effect in this patient population required further evaluation. Some physicians no longer place high-risk patients on Plavix given the increased risk demonstrated in CHARISMA. Physicians also do not plan to significantly extend treatment duration in their secondary prevention patients. In a published post hoc analysis of 2,289 patients who started out both asymptomatic and without a history of CV events or revascularization, the rates for the primary composite end point werent significantly different by treatment group, but those for CV death alone trended in favor of aspirin-only therapy. The rates of severe bleeding were similar for treatment groups making it difficult to attribute bleeding as the cause of the increased CV deaths. Minor bleeding rates were statistically higher on the dual therapy.
FDA Panel Recommended Lilly/Sankyos Prasugrel For Approval; But Congressional Investigation May Result In A U.S. Delay
In February 2009, FDAs Cardiovascular and Renal advisory committee voted unanimously in favor of approving prasugrel for ACS patients requiring PCI. The panel concluded that prasugrels superior effectiveness over Plavix, demonstrated in TIMI-38, support a favorable risk benefit profile despite an increased bleeding rate. Based on the committees votes and recommendations prasugrel should be highly competitive and have access to 20-25% of the Plavix market. Upon FDA approval, Lilly and its partner Sankyo are prepared to launch soon thereafter. However, a Congressional investigations into the make-up of the advisory committee announced at the end of February could delay the approval. Congress is likely investigating whether Lilly was key to the removal of panel member, who was a known prasugrel dissenter. n February 23, 2009 the EC approved Efient mg and 10mg dose for ACS PCI patients. Lilly/Sankyo will be able to launch immediately in the Scandinavian countries, Germany, and the UK but pricing negotiations will gait launches in the other E.U. countries. The availability of Plavix generics in some E.U. countries may affect pricing. The 10,000+ ACS study TRILOGY, which includes the 5mg dose, is ongoing but unlikely to be stopped early for effectiveness. TRILOGY, designed to demonstrate superiority, should report in 2011/12 and is key to expand prasugrels market. Lilly/Sankyo has not initiated studies in other indications. We estimate prasugrel/Effient/Efient sales of $150MM in 2009, $250MM in 2010, and$1.5B in 2015, admittedly these may be too high given the potential U.S. delay.
Advisory Committee Unanimously In Favor Of Effient

In February 2008, FDAs Cardiovascular and Renal advisory committee voted unanimously recommending approval for prasugrel. FDA required debate on several issues:
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Efficacy Whether some of the events (MI and stent thrombosis) in the primary endpoint were captured or defined in a manner that favored prasugrel and whether the periprocedural MIs are clinically relevant; Labeling on use in UA /NSTEMI and STEMI; Should the label include ability to reduce stent thrombosis;
Safety Labeling on use prior to CABG, previous TIA/stroke, weight below 60Kg, the elderly, and use with GP IIb/IIIa inhibitors; whether to exclude these populations or provide warnings; Cancer: whether this is spurious finding and how to account for this in the label;
PK
Labeling: on the 25% base form of prasugrel and the interaction with PPIs
Risk Benefit Does the reduction in 22 events (20 MIs and 2 CV deaths) per 1000 patients out weigh the 2 fatal bleeds plus 4 TIMI major bleeds per 1000 patients?
Final Label Likely To Be Competitive With Plavix The advisory committee confirmed that TRITON's primary endpoint was reasonable and periprocedural MIs clinically meaningful. The advisory committee believed that prasugrel is superior to Plavix in both UA/NSTEMI and STEMI patients although there was some debate if continuous therapy for STEMI patients is appropriate as most of the benefit in this group was derived up front. Lilly management argues that continued prasugrel therapy in the STEMI group may be critical to sustain the benefit and its unclear that another or no agent could have sustained the benefit. There was also debate regarding the timing of the loading dose especially in relation to potential CABG; several members noted the flexibility that prasugrel offers. The committee however recommended that the label should caution physicians against use prior to CABG and for those patients who need CABG, given that these patients may be required to wait seven days after a prasugrel loading dose versus five days on Plavix. The rationale for the extra two days is unclear given that both agents irreversibly bind to platelets and platelet clearance should be independent of P2Y12 blockade. Another debated issue was length of use but FDA is likely to approve prasugrel use for longer than 30 days and probably over a year; the mean duration of therapy in TRITON was 14 months. Prasugrel's benefit in stent thrombosis was not voted upon although this could be reflected in the label as FDA may not have required a discussion given the strength of the data. The advisory committee concurred that prasugrel should be avoided in patients with a previous history of stroke/TIA; there is potential for a boxed warning. A potential victory for Lilly is that the committee only recommended a caution and not a contraindication in patients over 75 years of age and were less concerned in the <60Kg group; some even recommended the 5mg dose for the latter. Lilly still believes that the 5mg dose option based on its PK data may still be included the label. We are less convinced.
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The increased rate of cancer in the prasugrel arm in TIMI 38 was discussed at length at the advisory committee. Ultimately it was considered worthy only of inclusion in the adverse events section with a commitment by Lilly to study the risk in the ongoing TRILOGY study or additional studies. Lilly proposed the increased rate was as a result of an ascertainment bias but several of FDAs analyses suggested that this was an oversimplification of the relationship. FDA however concurred that the link between prasugrel and cancer seemed unlikely for several reasons: 1) TIMI-38s duration is likely to short for prasugrel to act as a neoplastic promoter, and 2) patients on Plavix, which has a very similar if not identical action, have not developed an increase risk of cancer despite significant patient-years exposure. TRITION TIMI-38 Conclusive: Benefit Outweighs The Risk In February 2008, Lilly/Sankyos NDA filing for Effient was accepted and granted priority review by FDA. The TRITON-TIMI 38 study formed the basis of the December 26, 2007 NDA submission. The results of TRITON-TIMI 38, presented at AHA in November 2007, demonstrated overwhelming superiority for Effient versus Plavix contrasted by significantly worse bleeding in certain sub-groups. The net clinical benefit, a prespecified but not FDA agreed upon endpoint of death, MI, stroke, and major bleeds (non-CABG), was 13.9% versus 12.2% (HR 0.87, p=0.004). This is the basis on which we believe Effient could be approved, despite the efficacy predominantly driven by nonfatal MI prevention and the significant increase in life-threatening bleeding. The evidence of harm or the lack of net clinical benefit in subjects with a history of TIA/stroke, or age >75 and weight <60kg, will likely exclude these groups from an initial indication, with the latter two groups requiring additional studies to further understand dosing and exposure. Our physician consultants do not believe these studies will be required prior to registration, and while there are questions about the applicability of TIMI 38 to real world clinical practice, our physician consultants believe that 50-80% of their ACS patients requiring stents are likely to be initiated on Effient.
Source: www.timi.org
Superior Efficacy Throughout Study Driven By Prevention Of Nonfatal MIs Effient was statistically superior to Plavix in both the primary and the 30 and 90 days secondary endpoints. However, in the individual components of the primary composite
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endpoint, only the reduction in nonfatal MIs was statistically different with positive trends seen in the reduction of CV death and nonfatal stroke endpoints. A benefit in CV mortality would have supported a stronger risk-benefit profile given the increased risk of life-threatening and fatal bleeds. The MI benefit was detailed at ESC 2008. At 15 months, prasugrel significantly reduced the risk of new/recurrent MI compared with clopidogrel (7.4% vs. 9.7%, HR 0.76, p<0.0001). This benefit was observed with respect to both peri-procedural MI (4.8% vs. 6.1%, HR 0.78, p=0.0009) and spontaneous/secondary MI (2.9% vs. 4.0%, HR 0.71, p=0.0004). Considering spontaneous/secondary MI, prasugrel reduced the risk of both new ST-elevation MI (0.3% vs. 0.9%, HR 0.31, p<0.0001), as well as non-ST elevation MI (2.6% vs. 3.2%, HR 0.81, p=0.046). Moreover, when the late effects of prasugrel beyond 30 days were considered, patients treated with prasugrel had a significantly lower risk of any MI (2.9% vs. 3.7%, HR 0.77, p=0.01), including spontaneous MI (2.5% vs. 3.2%, HR 0.78, p = 0.024). Our consultants are encouraged that the nonfatal MI benefit was not just associated with peri-procedural events but extended to MIs throughout the 12-15 month study. The efficacy benefit was seen as early as three days (benefit of loading dose) and a Landmark analysis confirms the benefit through 15 months (benefit of maintenance dose).
Source: ESC 2008
The unpublished PRINCIPLE TIMI-44 study, comparing the inhibition of platelet aggregation (IPA) of Effient 60 mg loading dose versus Plavix 600 mg LD at 6 hours, suggests that a Plavix 600mg loading dose was unlikely to have changed this benefit. Effients primary efficacy benefit was consistent across prespecified subgroups. Diabetics appeared to have a greater benefit and our consultants are intrigued with the finding that gpIIb/IIIa inhibitors had minimal impact on Effients efficacy, suggesting the need to evaluate Effient as a monotherapy. Effient significantly reduced stent thrombosis, a prespecified endpoint (1.1% vs 2.4%, HR=0.48, p<0.0001). The baseline stent thrombosis incidence appears higher than the reported incidence. While this may be a definition issue, TIMI 38 stent use is likely to represent a real-world scenario. Stent thrombosis is a major concern for interventional cardiologists and these results are viewed as very encouraging.
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TIMI 38 Selected Efficacy End Points Prasugrel N=6813 N (%) CV Death, Nonfatal MI, Non fatal stroke CV death Nonfatal MI Nonfatal stroke 643 (9.9) 133 (2.1) 475 (7.3) 61 (1.0) Plavix N=6795 N (%) Odds Ratio p-value (95% CI)
Timing of Benefit (Landmark Analysis)

8
P rim a ry E n d p o in t (% )
0.81 781 (12.1) (0.730.90) <0.001 0.89 150 (2.4) (0.701.12) 0.31 0.76 620 (9.5) (0.670.85) <0.001 1.02 (0.711.45) 0.93 60 (1.0) 0.95 (0.781.16)
Clopidogrel
6
Clopidogrel 5.6 4.7
6.9 5.6
Prasugrel
2
Prasugrel HR 0.80 P=0.003

1
Death from any cause
188 (3.0)
197 (3.2)
0.64
HR 0.82 P=0.01
Death from any cause, nonfatal MI, nonfatal stroke
0.83 692 (10.7) 822 (12.7) (0.750.92) <0.001 0.48 (0.360.64) <0.001
3060 90
180
270
360
450
Stent thrombosis
Source:NEJM.org
68 (1.1)
142 (2.4)
Loading Dose
Days
Maintenance Dose
Does The Loading Dose Timing Really Matter? There have been questions raised about Effients true benefit over Plavix in the realworld setting based on an analysis of the timing of the Effient loading dose and its impact on the primary endpoint. Our physician consultants believe that half of the patients undergoing PCI are likely to be treated pre-PCI and the others immediately post PCI. However, in the specific sub-population that was investigated in TRITON, those with high-risk UA/non-STEMI/STEMI, the numbers are likely to be in the 70-80% range. However, some institutions treat all their patients pre-PCI with Plavix and others withhold it for fear of patients needing cardiac surgery. The studies that investigated loading with Plavix pre-PCI demonstrated benefit only when the loading occurred several hours prior to PCI. Therefore, Effients quicker onset of action should provide flexibility in management allowing physicians to dose patients peri-procedure. However, our consultants believe FDA will be restrictive with Effients label both in terms of patient population (ACS - PCI ) and time of administration, Peri-PCI.
Source: TIMI group
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Bleeding Significantly Worse But Subgroups Appear To Drive Difference Bleeding rates were consistently and significantly higher for Effient across the safety endpoints. The Plavix bleeding rate of 1.8% was much lower than seen in CURE, potentially due to improved current patient management. The life threatening bleeds and especially fatal bleeds in TIMI 38 are a major concern. The data suggest that patients with a previous history of stroke or TIA, or those patients with increased Effient exposures (>75 years and <60Kg), were more susceptible to increased bleeding. The intracranial hemorrhages (ICH) (19 vs. 17) were driven by six bleeds in the Effient arm in patients with a history of TIA/stroke versus zero in the Plavix arm (p=0.02). Subtracting out the above-mentioned subgroups from the 26 fatal bleeds (21 vs. 5, Effient vs. Plavix; p=0.002), the difference is not statistically different (6 vs. 4). The increased bleeding in these subpopulations may have resulted in the absence of the significant CV mortality benefit, potentially confirming Angiomaxs ACUITY data and demonstrating the relationship between bleeding and survival. However, these data will require further analyses. The imbalance in the CABG-related bleeding (13.4 vs 3.2%; Effient vs Plavix) rates will require additional analyses as this may further limit Effients potential, but our physician consultants believe that this can be managed by delaying what is likely nonurgent CABG surgery. Lilly stated that the >75 years and <60kg subgroups had Effient maintenance dose exposures similar to that seen with the 15mg dose in the Phase II studies.
TIMI 38 Safety End Points Hazard Ratio for Prasugrel Clopidogrel Prasugrel (N = 6741) (N = 6716) (95% CI) NonCABG-related TIMI major bleeding Related to instrumentation Spontaneous Related to trauma Life-threatening Related to instrumentation Spontaneous Related to trauma Fatal Nonfatal Intracranial Major or minor TIMI bleeding Bleeding requiring transfusion CABG-related TIMI major bleeding 146 (2.4) 45 (0.7) 92 (1.6) 9 (0.2) 85 (1.4) 28 (0.5) 50 (0.9) 7 (0.1) 21 (0.4) 64 (1.1) 19 (0.3) 303 (5.0) 244 (4.0) 24 (13.4) 111 (1.8) 38 (0.6) 61 (1.1) 12 (0.2) 56 (0.9) 18 (0.3) 28 (0.5) 10 (0.2) 5 (0.1) 51 (0.9) 17 (0.3) 231 (3.8) 182 (3.0) 6 (3.2) 1.32 (1.031.68) 1.18 (0.771.82) 1.51 (1.092.08) 0.75 (0.321.78) 1.52 (1.082.13) 1.55 (0.862.81) 1.78 (1.122.83) 0.70 (0.271.84) 4.19 (1.5811.11) 1.25 (0.871.81) 1.12 (0.582.15) 1.31 (1.111.56) 1.34 (1.111.63) 4.73 (1.9011.82)
P Value
0.03 0.45 0.01 0.51 0.01 0.14 0.01 0.47 0.002 0.23 0.74 0.002 <0.001 <0.001
The most frequent sites of life-threatening bleeding were gastrointestinal sites, intracranial sites, the puncture site, and retroperitoneal sites. One patient in the clopidogrel group had a fatal gastrointestinal hemorrhage while receiving the study medication, but hemoglobin testing was not performed and, therefore, the criteria for TIMI major bleeding (including life-threatening and fatal bleeding) could not be applied and the data do not appear in this table. Transfusion was defined as any transfusion of whole blood or packed red cells. For major bleeding related to CABG, the total number of patients were all patients who had received at least one dose of prasugrel or clopidogrel before undergoing CABG: 179 and 189, respectively. The ratio is the odds ratio, rather than the hazard ratio, and was evaluated with the use of the CochranMantelHaenszel test. Source: NEJM.org
ACAPULCO Demonstrates Superior Effient Efficacy Even Compared To Higher Plavix Doses And A Reasonable Switch Data from the ACAPULCO study comparing Effient 10mg to Plavix 150mg presented at ESC 2008 confirmed Effients superior potency in the ACS setting. 56 patients treated with aspirin and a 900 mg Plavix loading dose within 48 hours after UA/NSTEMI ACS symptoms were randomized into this double-blind, crossover study. Within 16-28 hours
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post the loading dose, either an Effient 10 mg or Plavix 150 mg maintenance dose was initiated. After 14 days of their initial maintenance dose treatment, subjects were directly switched to the alternate maintenance study drug for 14 days. The primary aim was to compare the level of maximal platelet aggregation (MPA, 20 M ADP) between Effient and Plavix for the combined pre and post crossover maintenance dose periods. Of 56 randomized subjects, 37 underwent PCI. Combining both maintenance dose periods, MPA (least squares mean) with Effient 10 mg (26.2%) was significantly lower than that achieved with 150 mg Plavix [39.1%; difference -12.9%; 95% CI (-17.0, -8.8); p<0.001]. Similar results were seen for each 14-day treatment period and for MPA using 5 M ADP or residual platelet aggregation (not shown). Also, Effient significantly reduced MPA from the level at 6-18 hours post Plavix loading dose (41.2% to 29.1%, p=0.003). There were no TIMI major/GUSTO severe or life-threatening bleeding events. Commercial Opportunity Likely To Be Initially Limited TO ACS/PCI Prior to the advisory committee, our physician consultants believed that Effients opportunity will be restricted by a narrow label and potentially a safety registry. However, post the AC prasugrels label should be highly competitive. The TIMI 38 population included only ACS patients undergoing elective PCI with defined CV anatomy (12-25% of current Plavix TRxs). Patients with a history of TIA/stroke who are likely to be an absolute contraindication likely represent 4% of the TIMI 38 population. Patients who require CABG are less 1% of the market. Patients >75 years and <60Kg together did not comprise more than 16% of TIMI 38. These rates may vary from the real world and could be higher. Effient adoption into the larger upstream medical management market is likely to occur only with supportive data (TRILOGY) and not through off-label use due to the increased risk of bleeding, especially the CABG-related bleeds. TRILOGY Finally Initiated; Early Stoppage Unlikely TRILOGY ACS (TaRgeted platelet Inhibition to cLarify the Optimal strateGy to medicallY manage Acute Coronary Syndromes), was initiated in June 2008, several months after originally planned. TRILOGY is a 10,000 patient, multi-center, double-blind, randomized, controlled trial evaluating the safety and efficacy of Effient against Plavix in reducing the risk of cardiovascular death, heart attack or stroke in ACS patients who are to be medically managed without a planned artery-opening procedure. Patients randomized to Effient will receive a 30mg loading dose and then either a 10 mg or 5 mg maintenance dose depending on weight and age, or a Plavix 300mg loading dose followed by 75 mg maintenance dose. TRILOGY has a superiority design and was modified to include cancer screening as a result of TIMI 38. There are multiple looks for safety but probably just one look for efficacy. Lilly does not believe early stoppage is likely based on the stringent statistical criteria. TRILOGY is expected to be complete in 2011.
AstraZenecas Reversible ADP Receptor Blocker Intriguing But Side Effect Profile May Be Limiting
AZD6140 (tigcagrelor), a reversible adenosine diphosphate (ADP is responsible for platelet aggregation) receptor blocker in Phase III development, is a novel antithrombotic therapy. The drug is believed to selectively inhibit the P2Y12 receptor, a key receptor for ADP on the surface of platelets. AZD6140s reversible receptor binding properties is different from Plavix (Bristol/Sanofi-Aventis), Ticlid (Roche) and Effient (Lilly/Sankyo), which are irreversible inhibitors of ADP. AZD6140 does not require metabolic activation, has an onset of action within 2 hours and peak plasma levels within 2-3 hours. The offset of effect is between 36-48 hours.
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A reversible inhibitor in the PCI setting would theoretically be advantageous. Currently patients who receive a Plavix loading dose prior to PCI are at a significant bleeding risk should CABG be required and therefore are required to wait 5 days before surgery for the platelets that have Plavix irreversibly bound to them to be replaced. A reversible inhibitor could provide physicians flexibility and significantly shorten the wait period should PCI be required. However, it is not clear whether a shortened duration is of clinical benefit. In addition, our physician consultants do not believe that the reversible binding will translate into clinical benefit given concerns with compliance especially of BID drug, which could lead to an increase in clotting. However, AstraZeneca has demonstrated that, if a dose is missed, IPA remains constant. Our consultants believe that the double-digit dyspnea rates seen in Phase II are likely due to an off-target effect associated with an ADP interaction but are not a major reason for concern. In 2006, AstraZeneca initiated an 18,000 patient Phase III study, PLATO, that is assessing AZD6140 in ACS PCI and is expected to complete in 2009. PLATO, like Lilly/Sankyos TRITON, is designed for superiority but it also allows physicians the flexibility to utilize a higher Plavix loading dose than in TRITON. AZD6140 IPA data presented in 2005 at ESC demonstrated a rapid onset and less variability than Plavix. One may conclude based on these data, that AZD6140 should be superior to Plavix as was prasugrel; assuming compliance but there may be a higher bleeding rate. While our consultants are not excited about AZD6140s profile, especially compared to Effient (Prasugrel) and Schering-Ploughs TRA, they believe AstraZeneca would not have committed to such a large program without reasonable comfort of safety. DISPERSE 1 Demonstrates Rapid And Consistent Onset Of Efficacy. Data from the Phase IIa DISPERSE study were presented at the ESC meeting in September 2005. DISPERSE 1 was a 200-patient dose-ranging safety study in patients with stable atherosclerotic disease who received AZD 6140 (50, 100, or 200 mg twice daily, or 400 mg once daily) or Plavix (75 mg) for 28 days, in addition to aspirin 75-100 mg once daily. Results suggest that AZD6140 has a rapid onset of action (peak inhibition 2 hours post dose) and mean platelet inhibition of 88-95% vs. 60% for Plavix. However, one major non-fatal bleed was seen at the 400mg dose. In addition, there was a dose-dependent 1020% incidence of dyspnea that was confirmed in DISPERSE 2.
Source: Husted SE, et al. Presented at: European Society of Cardiology Annual Congress 2005; 3-7 September, 2005; Stockholm, Sweden.
DISPERSE 2: Efficacy Robust But Dyspnea And Ventricular Pauses Concerning. Final results from a large Phase II dose-ranging study (DISPERSE 2TIMI 33) were presented at the November 2005 American Heart Association (AHA) meeting. The trial compared AZD6140 + aspirin versus Plavix + aspirin in 900 patients with non-ST
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elevation acute coronary syndrome. Patients received Plavix, or low or high-dose AZD6140 for 4 weeks and were then followed for 12 weeks, with bleeding events as the primary endpoint. There was no significantly increased bleeding risk associated with either low (10.2%; 90mg twice daily) or high (10.2%; 180mg twice daily) dose AZD6140 versus Plavix (9.2%; 75mg). Similarly, there was no increased risk of major bleeding, with the study reporting rates of 7.8%, 6.2% and 8.0% for the three groups, respectively. However, in the 180mg daily dose there was a corresponding dyspnea rate of 10.5%, increasing to 15.8% when the daily dose was doubled (vs. 6.4% of patients on Plavix 75 mg). 90 mg BID is the Phase III dose. A post-hoc analysis of Holter ECG data demonstrated an unfavorable trend in the AZD6140 arm in ventricular pauses, 5.5% versus 4.3%. Overall, the recorded pauses were mostly asymptomatic and AZD6140 has not been associated with syncope, presyncope, ventricular arrhythmias, or QT prolongation. Disperse 2: Safety Analysis at 4 and 12 Weeks
DISPERSE2 Adjudicated Bleeding Rates (%) Week 4 and Overall (Week 12)
Week 4
12 12
Overall
10.2 10.2
10
Minor* Major 9.2
Total Bleeding Rate, %
10 8 6 4 2 0
9.6 7.7 8.0
8 6 4 2 0
AZD6140 90 mg bid
AZD6140 180 mg bid
Clopidogrel 75 mg qd
AZD6140 90 mg bid
AZD6140 180 mg bid
Clopidogrel 75 mg qd
Adjudicated total bleeding rates were similar for all groups No evidence of dose-response pattern for major bleeds dose*Minor bleeding without major bleeding. Cannon C et al. Circulation. 2005;112:II-614.
PLATO Likely To Completed In 2009 The 18,000 patient, head-to-head versus Plavix Phase III study called PLATO (A Study of Platelet Inhibition and Platelet Outcomes) commenced in September 2006. A 180mg loading dose followed by 90mg bid AZD6140 plus aspirin is being compared to Plavix 300/75mg or 600/75 in PCI plus aspirin. This is a design advantage over TRITON-TIMI 38 allowing for an additional 300mg Plavix dose to be given prior to PCI, if patients were pretreated with 300mg. An additional 90mg AZD6140 is permitted pre-PCI. The primary outcome measure is the reduction in the relative risk of cardiovascular death, nonfatal myocardial infarction, or nonfatal stroke (composite primary endpoint) comparing AZD6140 to Plavix in patients with non-ST or ST elevation ACS. Secondary outcomes include the individual event categories from the primary composite endpoint, a variety of other important clinical outcomes related to ACS, and assessment of the overall safety and tolerability of AZD6140 compared to Plavix. Patients will have a maximum of 12 months exposure. Separately, an initial cohort of 2,900 patients underwent Holter ECG monitoring. PLATO is also measuring bleeds differently from the TIMI categories used in TRITON; the method provides additional granularity for the TIMI minor bleeds.
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Medicines Companys Cangrelor May Have Synergy With Angiomax

Cangrelor, the first reversible injectable ADP (P2Y12) inhibitor, is in Phase III trials for PCI. Cangrelor exhibits 100% platelet inhibition in up to 75% of patients. However, unlike Plavix and prasugrel which are irreversible inhibitors of P2Y12, platelet activity recovers just 60 minutes post the halt of Cangrelor administration, which may allow significant flexibility should patients require CABG. A subset analysis of over 1,000 patients in REPLACE-2 found a statistically significant survival benefit in patients receiving preloaded Plavix and Angiomax versus those receiving pre-loaded Plavix plus heparin and a IIb/IIIa inhibitor. These data suggest that P2Y12 inhibition coupled with thrombin inhibition may have additive or even synergistic anti-inflammatory/anticoagulation effects and argue for Cangrelor plus Angiomax use in PCI. The CHAMPION PCI trial, a large Phase III superiority trial versus Plavix 600mg load, seeks to enroll 9,000 patients. CHAMPION PLATFORM is a placebo-controlled PCI trial that will enroll 6,500 patients. Our physician consultants are enthusiastic about Cangrelor; however, they await the Phase III data to understand better when to give an oral anti-platelet as there is a concern that Cangrelor will, for example, interfere with Plavix activity, creating a window when the patient is at risk for clotting. The Medicines Company was planning to do an interim analysis in Q4:08 and possibly present these data at ACC 2009. The interim analysis could result in several outcomes: 1) continuation of the study; 2) early stoppage; and 3) enlarge the sample size. Cangrelor Large Phase III Underway With Interim Data Expected In 2009 The CHAMPION-PCI study, which commenced enrollment in March 2006, had enrolled 7,400 patients by 10/08 out of planned 9,000 patients. The primary objective of this study is to demonstrate that the efficacy of Cangrelor is superior, or at least noninferior, to that of Plavix in subjects requiring PCI as measured by a composite of allcause mortality, myocardial infarction (MI), and ischemia driven revascularization (IDR). The incidence of hemorrhage by clinically relevant criteria (ACUITY, GUSTO, TIMI) and the need for blood transfusions will also be measured up to 48 hours. Patients will be followed up to one year. The trial has an 80% power to demonstrate a 22.5% reduction in
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risk. Patients in this trial may be treated with other intravenous anticoagulants, such as bivalirudin, heparin and GP IIb/IIIa inhibitors, at the investigators discretion. The 2nd trial in the Phase III program, CHAMPION-PLATFORM, commenced enrollment in October 2006 and had enrolled 3,600 patients by 10/08 out of a planned 6,500 patients. The primary objective of this study is to demonstrate that the efficacy of cangrelor (combined with standard-of-care) is superior to that of standard-of-care, in subjects requiring PCI, as measured by a composite of all-cause mortality, MI, and IDR. The incidence of hemorrhage by clinically relevant criteria (ACUITY, GUSTO, TIMI) and the need for blood transfusions will also be measured up to 48 hours. Patients in this trial may also be treated with other intravenous anticoagulants, such as bivalirudin, heparin and GP IIb/IIIa inhibitors, at the investigators discretion. Patients will be followed up to one year. The trial has an 80% power to demonstrate a 25% reduction in risk.
Novartis/Portolas IV/Oral Reversible ADP Inhibitor Elinogrel Completes Phase II PCI Study
Elinogrel (PRT060128) is the only direct acting reversible IV and oral ADP receptor antagonist in clinical development. Portola believes that elinogrel may provide significant clinical benefit through immediate, high-level platelet inhibition in the acute setting and a seamless transition to predictable, reversible platelet inhibition in the chronic setting. The IV can be given as a bolus dose and the onset of action is seconds. Elinogrel is given BID as the t1/2 is 6-12 hours. ERASE-MI, a randomized, double-blind, placebo controlled, dose ascension study assessing the use of elinogrel upon diagnosis of STEMI in 70 patients was completed in July 2008. Prior to PCI patients were dosed with IV elinogrel or placebo, in addition to standard treatment, in an effort to accelerate the opening of the blocked artery and restore blood flow to the heart. Efficacy was not assessed efficacy but safety appeared in line with placebo although the numbers were small per group. Portola has not seen any off-target effects including dyspnea and bradycardia. A 20 patient clopidogrel non-responder study is ongoing and a 800 patient Phase II PCI study began in December 2008. INNOVATE-PCI will assess two IV doses (80 and 120mg) and three oral doses (50, 100, and 150mg) for 60 days compared with Plavix. Results could be available in Q4:09. Portola believes that the ability to give PRT60128 as a bolus dose positions it well for ACS (versus the Medicine Companies, Cangrelor that is 2-4 hour infusion). In February 2009, Portola announced that Novartis had acquired the exclusive rights to elinogrel. Novartis has responsibility for Phase III trials, manufacturing and commercialization, while collaborating with Portola on the ongoing Phase II trials. Novartis paid $75MM upfront and Portola is eligible for milestones and royalties on future sales. ERASE MI Phase II Results
10 mg (n=5) TIMI major 0 20 mg (n=9) 0 40 mg (n=10) 0 60 mg (n=10) 0 Placebo (n=36) 3 (9%)
TIMI minor
2 (40%)
3 (9%)
Any bleeding
3 (60%)
1 (13%)
5 (56%)
3 (30%)
16 (47%)
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Schering-Ploughs Thrombin Receptor 530348) Novel With Big Potential
Antagonist
(SCH
Schering-Plough is conducting two Phase III clinical trials with SCH 530348, a thrombin receptor antagonist (TRA) that inhibits platelet aggregation by selectively blocking the protease activated receptor 1 (PAR-1) for ACS. SCH 530348 is a once-daily oral compound discovered at Schering, and because a TRA does not inhibit the ability of thrombin to catalyze the production of fibrin, agents in this class may produce fewer hemorrhagic side effects than would conventional anticoagulants. It was well tolerated in Phase II trials. Initial data suggest that SCH 530348 has minimal impact on bleeding alone or when added to other platelet aggregation inhibitors (aspirin and Plavix). Data from the Phase II TRA-PCI study presented at ACC 2007 demonstrated that SCH 530348 plus standard of care (Plavix) met its primary safety endpoint, TIMI major plus minor bleeds of 2.8% versus standard of cares 3.3%. The study was not powered to demonstrate efficacy but trends were favorable. Results from two Japanese Phase II studies supported that TRA when added to standard anti-platelet therapy does not increase the rate of major or minor bleeding in patients with ACS or prior ischemic stroke. However, data from single and multiple oral dosing studies demonstrated mild epistaxis in four subjects who received a loading of 10 or 20 mg followed by a maintenance dose. The pivotal studies, TRA-2P (secondary prevention) and TRA-CER (ACS), are enrolling slower than expected with 13,000 out 30,000 patients enrolled as of November 2008; Schering has not provided an updated status since then. TRA-CER was started after TRA-2P and required a protocol amendment, which widened the window for patients to enter the study. The two pivotal studies share a DSMB who have had several safety reviews to date but are only allowed one interim efficacy look. Fast track status was designated in April 2007. In November 2008, Schering guided to a 2010/11 filing. TRAs effectiveness, a seemingly innocuous bleeding profile, and ability to be used on top of standard of care support a significant market opportunity. The initial target market is the 2.7MM patients that suffer from acute coronary syndrome (ACS), but Schering hopes to ultimately target treatment for secondary prevention (est. 25-30MM patients in developed world) on top of standard anti-platelet therapy (aspirin + Plavix). A TRA/clopidogrel fixed-dose combination is being developed that would further simplify treatment. We estimate TRA sales of $250MM in 2012 and $1B in 2015. Johnson & Johnson and Eisai (E-5555; Phase II but potentially delayed) also are developing PAR-1 antagonists. Large Phase III Programs To Be Filed In 2010/11 The pivotal Phase III program consisting of two large studies was initiated towards the end of 2007: The first study initiated, the Thrombin Receptor Antagonist in Secondary Prevention of Atherothrombotic Ischemic Events (TRA-2P TIMI 50) trial, is a multinational, randomized, double-blind, placebo-controlled study in approximately 19,500 patients with prior MI or stroke, as well as patients with existing peripheral arterial disease. Patients are randomized to either placebo plus standard medical care (including aspirin and clopidogrel) or to TRA 2.5mg once daily plus standard medical care. The primary endpoint of the trial is the composite of cardiovascular death, MI, urgent coronary revascularization or stroke. The key secondary endpoint is the composite of cardiovascular death, MI or stroke. Patients will be followed for a minimum of one year. This Phase III trial is being conducted by the Thrombolysis in Myocardial Infarction (TIMI) Study Group. Assuming an expected placebo event rate of 8%, the study has an 85% power to determine a 15% relative reduction in events with a p-value = 0.05.
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Cardiovascular
Thrombin Receptor Antagonist Clinical Event Reduction in acute coronary syndrome (TRA-CER) trial began after TRA-2P and also required a protocol amendment to facilitate enrollment. The entry criteria were broadened allowing a longer window for presentation to the hospital. TRA-CER is a multinational, randomized, double-blind, placebo-controlled study in approximately 10,000 patients with non ST segment elevation acute coronary syndrome. Patients will be randomized to either placebo plus standard medical care (including aspirin or clopidogrel) or to TRA plus standard medical care. The Phase III TRA-CER trial will use the oral 40 mg loading dose and the 2.5 mg maintenance dose. The primary endpoint is the composite of cardiovascular death, MI, rehospitalization for ACS, urgent coronary revascularization or stroke. The key secondary endpoint is the composite of cardiovascular death, MI or stroke. Patients will be followed for a minimum of one year. This trial is being conducted by the Duke Clinical Research Institute. Assuming an expected placebo event rate of 8%, the study has a 90% power to determine a 10% relative reduction in events with a p-value = 0.05. Phase II Japanese Study In Line With Previous Results. Data from a Phase II PCI (NSTEMI) randomized, double-blind, placebo-controlled study in Japanese patients were presented at ESC 2008. 117 patients were randomized 4:1 and received SCH 530348 for 60 days (either 20 mg or 40 mg loading dose, followed by 1 mg or 2.5 mg maintenance dose) plus standard of care (aspirin, ticlopidine, and heparin) or placebo plus standard of care. Ninety-two patients (79%) underwent PCI. The key safety end point was TIMI major and minor bleeding in patients undergoing PCI. The key efficacy endpoint was cardiovascular death and MACE. Addition of SCH 530348 to standard of care did not increase the rate of TIMI major or minor bleeding, nor non-TIMI bleeding. Patients undergoing PCI treated with SCH 530348 plus standard of care experienced a significant reduction in periprocedural MI compared to standard of care alone (16.9% vs. 42.9%, respectively; P=0.013). There were no deaths or any other MACE. Overall incidence of adverse events (non-MACE) and discontinuation due to adverse events were similar across the treatment arms. Phase II Data Suggest SCH 530348 Safe And Efficacious. Schering-Plough presented the Phase II randomized, double-blind, placebo-controlled, dose-ranging, sequential period study in patients undergoing non-urgent PCI or coronary angiography with an intent to perform PCI at ACC in 2007. In the 1,108 patient PCI study, comparing 3 doses of SCH 530348 added to standard anti-platelet therapy (including Plavix and aspirin) versus standard anti-platelet therapy, SCH 530348 met its primary safety end point. TIMI major and minor bleeds in patients treated with PCI on SCH 530348 were 2.8% versus 3.3% in patients treated with standard care alone. The overall non-TIMI bleed rate was slightly higher in the SCH 530348 group when compared to placebo: 40% versus 32% in the placebo group, and its discontinuation rate was slightly higher, 6% versus 5%. In the CABG cohort, SCH 530348 performed less well with a TIMI major/minor bleed rate of 92% versus 79% in the placebo cohort. The study was not powered to demonstrate efficacy but the incidence of death, stroke and major adverse cardiac events was 6.2% with SCH 530348 plus standard care versus 8.6% for standard care alone. The highest dose, 40mg, had a TIMI major and minor bleed rate of 4.0% versus the controls 3.3%, but the 60 day death or MACE rate was 4.6% with SCH 530348 plus standard care versus 8.6% with standard care alone. SCH 530348 Phase II PK Analysis Confirms High IPA. In a Schering-Plough PK analysis of the Phase II TRA-PCI presented at AHA 2007, the loading doses of 10, 20 or 40 mg TRA achieved >90% inhibition of platelet aggregation (IPA) 60 120 minutes post dose with 40 mg achieving >90% inhibition between 60 and 90 minutes. Prasugrels (Lilly/Sankyo) onset of action is between 30-60 minutes. TRA patients receiving maintenance doses of 0.5, 1.0 or 2.5 mg exhibited >90% IPA at 30 and 60 days. Placebo-
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treated patients had on average >10% IPA. TRA had no significant effects on ADP, collagen or AA-induced platelet aggregation compared with placebo controls. TRAs PK was characterized by fast distribution and slow elimination (t1/2 = 165311 hr) with clear evidence of hysteresis. Competitor Data Confirms Low Risk Of Bleeding With TRA. Data on Pierre Fabres preclinical PAR1 antagonist (F16618) presented at AHA 2007 demonstrated a very low bleeding potential in a rat tail model. Pierre Fabre states that no dose-limiting toxicities have been seen to date. F16618 was scheduled to begin clinical development in September 2008 but its status in development is unclear. F16618 may have improved bioavailability and potentially a less complex synthesis than the apparent 16 step process Schering-Plough utilizes. Pierre Fabre believes that F16618 in combination with a lower clopidogrel dose could produce improved efficacy with reduced bleeding rates.
COMPARISON OF TRITON AND TRA PHASE II DATA TRITON-TIMI 38 Prasugrel (n=6,813) 2.4 5 Plavix (n=6,795) 1.8 3.8 0.6 1.2 Difference All TRA Doses + Standard Care (n=422) 0.7 2.8 TRA/PCI Study Standard Care (n=151) 1.3 3.3 -0.6 -0.5 Difference
Bleeding Event (%) Non-CABG TIMI major Non-CABG TIMI major/minor Efficacy events (%) MACE2 CV Death Stroke MI Recurrent ischemia CV Death/MI
1 2
12.3 2.1 1 7.3 0.9 8.9
14.6 2.4 1 9.5 1.6 11.3
-2.3 -0.3 0 -2.2 -0.7 -2.4
6.2 0.5 0.2 4.3 0.2 4.5
8.6 0 0 7.3 0.7 7.3
-2.4 0.5 0.2 -3 -0.5 -2.8
Clinically significant bleeding at 15 months for TRITON vs 60 days in the TRA study MACE = Major Adverse Cardiac Event (death, myocardial infaction, stroke, recurrent myocardial ischemia requiring hospitalization)
Source: NEJM, company data
Eisais E5555 Behind TRA In Phase II

E5555 is a novel protease PAR-1 antagonist that is currently in Phase II testing. In studies on platelet-rich plasma derived from healthy volunteers, E5555 inhibited the release or expression of the inflammatory markers that have been linked to a high risk of events in patients with ACS, including the release of sCD40L and interleukin 6 and the expression of P selectin. Two randomized, double-blind, placebo-controlled Phase II clinical trials of E5555 called LANCELOT (Lessons from Antagonizing the Cellular Effects of Thrombin) have been initiated to evaluate the safety and tolerability of this drug and to assess its effects on platelet aggregation inhibition, endovascular inflammatory processes, and the incidence of major adverse cardiovascular events in patients with coronary artery disease and nonST-segment elevation ACS. The anticipated enrollment for each study is about 600 patients; the CAD study should be completed by Q1:09 and the ACS in Q3:09.
Arenas APD791 Novel Mechanism Early In Development

APD791 targets the 5-HT2A serotonin receptor, blocking the signal of serotonin, which facilitates thrombosis. Preclinical testing suggests that APD791 could have a unique risk-benefit profile because its anti-thrombotic activity may be less likely to cause the increased bleeding seen with anti-thrombotic agents that are members of other classes of drugs. In July 2008 results from the Phase Ib 50-patient, multiple-ascending doses
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were announced. Daily doses ranged from 15 mg to 240 mg and were generally well tolerated. The most frequently reported adverse event was headache, which was more common in the placebo group than in any APD791 dose group. None of the adverse events occurred in a dose-related fashion with the exception of epistaxis (nose bleed), which occurred in two volunteers in the 240 mg group, a dose outside the anticipated therapeutic range. In addition to evaluating APD791's safety and tolerability profile, the trial evaluated the pharmacokinetics and pharmacodynamics of multiple oral doses of APD791 over a period of one week. APD791 was rapidly absorbed and exposures were related to dose. Dose-dependent inhibition of serotonin-mediated amplification of platelet aggregation was demonstrated starting at the 15 mg dose and will permit the identification of exposure ranges that produce minimal, moderate and near-complete inhibition of serotonin-mediated platelet aggregation. These results further support APD791's novel mechanism of action and preclinical and Phase 1a clinical trial data. In January 2008, Arena announced the results of its Phase 1a trial, a randomized, placebo-controlled, double-blind, single-ascending dose trial in 90 healthy male and female volunteers. Doses originally intended for study ranged from 1 mg to 160 mg, but due to tolerability the maximum dose was increased to 320 mg. Doses were well tolerated, without any dose related adverse events, such that a maximum tolerated dose could not be defined despite achieving high concentrations in blood. APD791 was rapidly absorbed and exposures were generally related to dose. Terminal half-life of the parent plus active metabolites was also related to dose, and was approximately 11 hours at the higher doses. Dose dependent inhibition of serotonin-mediated amplification of platelet aggregation was demonstrated starting at the 1 mg dose, supporting APD791 preclinical data. APD791 is currently in a Phase 1b study with results expected mid-year.
Schering-Ploughs Integrilin Forecast To Decline Modestly

Integrilin holds over 70% share in the IIb/IIIa market. Given the current run rate and maturity of the IIb/IIIa market, we forecast that Integrilins sales gains will be modest. In July 2005, Schering-Plough acquired exclusive U.S. development and commercialization rights from Millennium (now Takeda). The agreement guarantees minimum royalties to Takeda. A series of studies in percutaneous coronary intervention (PCI) are ongoing with Integrilin. The 857-patient PROTECT study enrolled high-risk patients to receive Integrilin plus heparin or Lovenox or Angiomax during PCI. Data were presented at the AHA meeting in November 2004, but were mixed. While the primary endpoint of coronary flow reserve favored Angiomax, the secondary endpoints of improvement in myocardial perfusion favored Integrilin, and the data suggested that cardiac perfusion was an important predictor of clinical outcome. Median duration of ischemia 24 hours post-PCI and cardiac enzyme peak elevations also favored Integrilin, while TIMI minor bleeding was lower in the Angiomax arm. EARLY ACS is a trial in high-risk patients suffering from acute coronary syndrome (ACS). This trial will investigate use of Integrilin early when a patient first presents to the emergency room. The trial will enroll 10,500+ patients to receive Integrilin plus a drug-eluting stent or Integrilin plus low molecular weight heparin. It is estimated that approximately 700,000 patients in the U.S. do not receive a IIb/IIIa agent in this setting. Our consultants note that Integrilins penetration of this market segment is approximately 25%. We forecast Integrilin sales of $305MM (-3%) in 2009, $295MM (-3%) in 2010, $275MM in 2012, and $245MM in 2015.
J&J/Lillys ReoPro Clipped By Integrilin

Sales of ReoPro are being hurt by the positive Integrilin ESPRIT data, offset somewhat by the results of the ADMIRAL trial, which supported ReoPro. ReoPro has completed an 1,800-patient ischemic stroke study. This study allowed for administration of ReoPro up to six hours post event versus the current gold standard, TPA, which must be given
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within a couple of hours post stroke. The data were presented at the European Stroke Conference in Brussels in May, 2006, but showed no benefit. We peg sales of ReoPro at $245MM (-4%) in 2009, $205MM in 2012, and $150MM in 2015.
Aggrastat A Third-Line Option

Aggrastat has been considered a third-line agent post the results of TARGET several years ago. TARGET compared Aggrastat and ReoPro in patients undergoing percutaneous revascularization with stent placement. This study was a double-blind, double-dummy trial that randomized 4,800 patients to ReoPro or Aggrastat. The primary endpoint was a composite of 30-day death, myocardial infarction, and urgent target revascularization. Despite the fact that TARGET was designed as a non-inferiority trial (a lower hurdle than an equivalence trial), Reopro delivered a statistically significant 26% reduction in the primary endpoint compared to Aggrastat. Reopro was more effective than Aggrastat in preventing death (0.4% vs. 0.5%), myocardial infarction (5.4% vs. 6.9%), and urgent target revascularization (0.7% vs. 0.8%). TARGET faced two challenges that may have hindered Aggrastats efficacy. First, the event rate may have been lower than anticipated, making it tougher to show non-inferiority. Second, the dose of Aggrastat used may have been insufficient for platelet inhibition. The study concluded that Reopro is the preferred agent over Aggrastat for patients undergoing PCI with stent placement. Medicure markets Aggrastat in the U.S. and Merck retained foreign rights.
Not-Approvable Letter For MDCOs Angiomax In ACS A Significant Setback

There are four marketed injectable direct thrombin inhibitors (GlaxoSmithKlines Argatroban, Medicines Companys Angiomax, and Sanofi-Aventis Iprivask and Refludan). The mechanism and half-life for each drug is slightly different. In the U.S., thrombin inhibitors are used in place of heparin in patients suffering or at risk of heparin-induced thrombocytopenia (HIT) and thrombosis syndrome (HITTS). Additionally, Refludan is used in Germany in bypass patients. Angiomax is the leading intravenous direct thrombin inhibitor and was approved for patients undergoing percutaneous coronary intervention (PCI: angioplasty, stent placement) based on the BAT, ATBAT and REPLACE-1 studies. The Medicines Companys goal is to replace heparin as the anticoagulant of choice for acute interventions and cardiac surgery. Angiomax is approved and marketed in the U.S. and the E.U.; in July 2007, European commercial rights were reacquired from Nycomed. As of July 2008, The Medicines Company estimates that Angiomax is used in 45% of PCI procedures (vs 41% in 2007): 60% share in stable angina, 51% share in unstable angina, 38% (vs. 34% previously) in NSTEMI; and 22% (vs. 19% previously) in STEMI. The decline in the PCI market due to the COURAGE data (released Q2:07) has negatively impacted Angiomax sales. According to the Medicine Company, this negative impact had begun to stabilize in Q3:08 and there were early signs of a modest rebound. In January 2008 the EMEA recommended approval of Angiox (European tradename) for ACS. However, in May 2008, FDA issued a not-approvable letter regarding the sNDA for the treatment of acute coronary syndromes (ACS) initiated in the emergency department. The agency indicated that the basis of its decision involved the inappropriate use and interpretation of non-inferiority trials. An approval could have resulted in upstream usage, significantly expanding the Anigomax market opportunity but it appears the company has made unsuccessful progress in its discussion with FDA regarding the sNDA. In 2001, the Medicine Company failed to submit a patent extension application on time that would have potentially granted several years additional patent exclusivity beyond the March 2010, current expiration; Hatch-Waxman exclusivity expires November 2008.
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REPLACE-2 Supports Angioplasty
Use
Of
Angiomax
Instead
Of
Heparin
During
REPLACE-2 (Randomized Evaluation in PCI Linking Angiomax to reduced Clinical Events), which reported results in November 2002, tested Angiomax and IIb/IIIa inhibitors if needed versus heparin plus IIb/IIIa inhibitors in 6,010 patients undergoing coronary stenting or angioplasty; all patients received aspirin and use of Plavix 300mg was encouraged. The primary endpoint was MACE (death, heart attack, urgent need for revascularization, or major bleeding within 30 days) at 30 days. Treatment with Angiomax resulted in a comparable event rate (Angiomax=9.2%; Heparin + IIb/IIIa =10.0%), but bleeding rates were significantly lower in the Angiomax arm (2.4% vs. 4.1%). The rate of heart attack was increased somewhat (7.0% vs. 6.2%), but Angiomax was noninferior to anticoagulation with heparin on the secondary composite endpoint of death, MI, and revascularization (7.6% vs. 7.1%). Follow-ups at 6 and 12 months were consistent with non-inferiority of Angiomax compared to heparin plus IIb/IIIa inhibition. ACUITY Data Not Good Enough For FDA ACUITY evaluated 13,800 patients with moderate- to high-risk ACS at 448 centers randomized to heparin or Lovenox + IIb/IIIa inhibition, vs. Angiomax + IIb/IIIa inhibition, vs. Angiomax + provisional IIb/IIIa inhibition. ACUITY was designed to determine if Angiomax is a superior and/or cost effective anti-coagulation regimen compared with heparin and routine IIb/IIIa inhibition. The study included three co-primary endpoints: 1) ischemic complications; 2) major bleeding; and 3) the combined endpoint of ischemic complications and major bleeding (composite of death, myocardial infarction, unplanned revascularization for ischemia, and major bleeding) at 30 days. Patients were also followed up for one year post treatment. Angiomax alone achieved non-inferiority vs. the other two arms and superiority on the combined and safety endpoints at both 30 days and one year. Noninferiority was declared if the upper limit of the one-sided 97.5% confidence interval (CI) for the event rate in the investigational group did not exceed a relative margin of 25% from the event rate in the control group, equivalent to a onesided test with an alpha value of 0.025. A two-sided alpha value of 0.05 was used for superiority testing. ACUITY was the basis for an sNDA filed in 2007 for the treatment of acute coronary syndromes initiated in the emergency department. In May 2008, FDA issued a nonapprovable letter. The agency indicated that the basis of its decision involved the inappropriate use and interpretation of of non-inferiority trials.
ACUITY Co-Primary Efficacy And Safety Endpoints At 30 Days
Heparin + IIb/IIIa Combined Endpoint 11.7% Angiomax + IIb/IIIa 11.8% Angiomax alone 10.1% P=0.02; RR, 0.86; 95% CI, 0.77 to 0.97 Ischemic Events 7.3% 7.7% 7.8% P=0.32; RR, 1.08; 95% l [CI], 0.93 to 1.24 Major Bleeding 5.7% 5.3% 3.0% P<0.001;RR, 0.53; 95% CI, 0.43 to 0.65 Source: ACC 2006
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ACUITY was viewed as a home run by many in the clinical community. ACUITY appeared to have the potential to change the guidelines for ACS treatment and drive upstream use in the ER. However, given limited communication between the ER and catheterization lab, a shift in ER treatment patterns may depend on ER physicians who are less familiar with Angiomax. Collectively, the data showed that ACUITY met all primary one-year endpoints for the Angiomax alone treatment group and confirmed previously published 30-day findings. At one year, the mortality rate of patients treated in the Angiomax alone treatment group was 3.8%, compared to 4.4% in the control treatment group. A separate analysis found that, in patients with ACS, having a major bleeding episode within 30 days following treatment nearly triples the risk of death up to one year later, making major bleeding a more powerful predictor of mortality than even a heart attack. Despite Angiomaxs bleeding benefit, it did not result in a significant mortality benefit at one year. Angiomaxs major advantage in the ACS setting was that it could simplify the treatment regimen and would more likely to be used in those patients being rushed to the cath lab but not necessarily in the routing setting where IIb/IIIa inhibitors + heparin are equally effective. The clinical concern with ACUITY was the confounding issue of pretreatment with other antithrombins, upstream, prior to the randomized trial therapies. In ACUITY, patients received the study drugs only for approximately four to five hours prior to catheterization. For many hours prior to randomization, nearly two-thirds of patients received either unfractionated heparin or enoxaparin. Since recent U.S. registries have shown that the average time to cath is nearly 24 hours, it is difficult to judge whether Angiomax would work or be better than unfractionated heparin or enoxaparin when administered for such long periods of time.
ACUITY: One Year Mortality Results
1-y mortality Overall ACUITY population Medically treated patients PCI patients Source: theheart.org Heparin/enoxaparin+IIb Bivalirudin (%) /IIIa blocker (%) 4.4 3.8 4 4 3.8 3.2 p NS NS NS
Influence Of Major Bleeding And MI In The First 30 Days On The Risk Of Death At One Year Outcome Major bleed at 30 d MI at 30 d Source: theheart.org HR For Death Medically Treated Patients 1 yr 3.77 3.39 p <0.0001 0.0012 HR For Death PCI Treated Patients 1 yr 3.16 2.3 p <0.0001 <0.0001
Deep Vein Thrombosis Is Under-Treated In The U.S.

Deep vein thrombosis (DVT) is a major problem in the U.S. Venous thromboembolism (VTE), made up of pulmonary embolisms (PE) and DVTs, is estimated to occur in nearly 300,000 patients each year of which 250,000 patients are hospitalized. Our physician experts note that DVT is a major problem in the U.S. for at least two reasons: 1) underutilization of anticoagulant therapy for prophylaxis; and 2) shorter hospital stays, which reduce the appropriate duration of anticoagulation. Indeed, shorter hospital stays result in 20-30% of patients discontinuing prophylaxis early. Data from the Worcester Venous Thromboembolism Study suggest that 30-40% of patients at risk for VTE are not treated. Our physician experts note that VTE prophylaxis is highest among orthopedic surgery patients: they estimate that 90% of patients receive prophylaxis in the hospital or in outpatient clinics.
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The heparins (UFH and LMWH) are the mainstay of thromboembolic disease treatment and prevention and as discussed are integral in the treatment of ACS and atrial fibrillation (intial therapy). The heparins however are limited to short-term use predominantly because they are given either intravenously (UFH) or subcutaneously (LMWH). In 2008 there was a shortage in the global supply of heparin which is the base material for both UFH and LMWH due to contamination in Chinese manufacturing plants. However, this appears to have been resolved. Lovenox generics have been in the approval wings for several years but with the U.S. Courts deeming the patents unenforceable in May 2008, Sanofis citizens petition and regulatory approval are the only barriers, admittedly not insignificant, to approval. Nonetheless, Momenta and partner Sandoz believe a 2009 Lovenox generic highly possible. Warfarin, the vitamin K antagonist, is the standard-of-care for out patient therapy but as described in the atrial fibrillation section it has variable PK, drug-drug interactions, and the requirement for monitoring. The anticoagulants in development are targeting improved efficacy and convenience without increasing the bleeding risk. The most promising agents are the oral direct thrombin inhibitors (Rendix, BI) and the Factor Xa inhibitors (Xarelto, JNJ/Bayer; apixaban, BMY/PFE). However, the post approval withdrawal of AstraZenecas Exanta from the market due to liver toxicity will make any liver signal a key focus for regulators. These new agents have all targeted DVT prophylaxis as the quickest path to market but the largest opportunity resides in atrial fibrillation and medically managed ACS.
U.S. Expected To Catch Up To E.U. On LMWH Utilization

Low-molecular-weight heparin (LMWH) is the gold standard for DVT treatment and prophylaxis. Despite a superior clinical profile, LMWH penetration in the U.S. lags Europe. Only 40% of DVT patients receive LMWH as opposed to unfractionated heparin (UFH) in the U.S. The major driver appears to be cost, but economic studies suggest that LMWH and UFH are roughly equal in cost when factoring in the extensive monitoring required when using UFH. Our physician experts expect usage of LMWH to increase in the U.S. LMWHs also have been shown to reduce 30-day MACE (major adverse cardiac events) in acute coronary syndrome (ACS) patients. National databases, including the CRUSADE ACS clinical registry, suggest even lower penetration in ACS: only 20-30% of ACS patients receive LMWH. The dominant LMWH is Sanofi-Aventis Lovenox, followed by Pfizer/Eisais Fragmin (dalteparin), and only minor use of Pharmions Innohep. Lovenox has the broadest label and clinical database of the LMWHs.
Sanofi-Aventis Lovenox Could Face Generics In 2009

Lovenox is the worlds best selling low-molecular-weight heparin (LMWH) with a market share exceeding 60%. There are two drivers for market expansion for LMWH: 1) replacing unfractionated heparin (UFH) in existing indications, and 2) expanding use of anticoagulation therapy into new indications. The U.S. is the largest opportunity for expansion of the use of LMWH where unfractionated heparin currently accounts for up to 60% of the heparin market. The penetration of LMWH in Europe has been more rapid, with between 60-75% of the total heparin market. Lovenox is indicated for the prevention of post-surgical deep vein thrombosis (DVT), the prevention of DVT in medical patients, treatment of DVT with or without pulmonary embolism and prevention of morbidity (further strokes or heart attacks) and mortality subsequent to unstable angina with non-Q wave myocardial infarction. In May 2007, Lovenox received FDA approval for the treatment of STEMI patients receiving thrombolysis and being managed medically or with PCI based on the results of EXTRACT-TIMI 25 study. Results of the Phase III ESSENCE study (Effectiveness and Safety of Subcutaneous Enoxaparin in non-Q
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wave Coronary Events) demonstrated Lovenoxs superior efficacy in these cases when compared with traditional unfractionated heparins. Lovenox also has benefited from the results of SYNERGY, which were presented in March 2005 at the American College of Cardiology (ACC). In January 2008, Lovenox/Clexane was approved for VTE prevention in lower limb surgery. In May 2008, the U.S. Appeals court confirmed the Lovenox patents unenforceable. The final mandate was issued in early October 2008 triggering the initiation of the 180-day exclusivity period that will expire on April 1, 2009. However, Sanofis Citizens Petition at FDA remains unanswered and there is no mandated timetable for FDA action on the ANDAs. Sanofi-Aventis filed a petition for CERT to the United States Supreme Court. There is a request for review, not an appeal by right, and it does not stop the 180-day market exclusivity period. Momenta and Sandoz who are third to file after Amphostar and the Teva, submitted additional immunogenicity data in September 2008 to support their ANDA and are preparing for a 2009 launch. Irrespective of generics, Lovenox is likely to face competition in the U.S. and Europe in the DVT prophylaxis market segment. Boerhinger-Ingelheims Rendix/Pradaxa (oral DTI) and JNJ/Bayers Xarelto (oral Factor Xa inhibitor) have demonstrated robust and superior efficacy in the case of Xarelto over Lovenox in the prevention of DVT in orthopedic surgery. Rendix has not been filed in the U.S. and Xarelto goes before FDAs Cardiovascular and Renal advisory committee on March 18, 2009. SYNERGY This 8,000 patient study who primary endpoint was death or myocardial infarction at day 30 showed that: 1) Lovenox is as effective as UFH when administered with an early aggressive, invasive therapy (death and MI, 14.0% for Lovenox, 14% for UFH, p=0.396, ns); 2) there is no benefit from switching the patient from Lovenox to UFH for cath labs; and 3) a sub-analysis of 5,637 patients showed that those who began treatment with Lovenox prior to randomization and continued on Lovenox throughout the course of therapy experienced an 18% relative risk reduction in the incidence of death and MI at 30 days vs. patients who were started on UFH and continued on UFH (12.8% vs.15.6%, p=0.0029). ExTRACT-TIMI 25 (Enoxaparin and Thrombolysis Reperfusion for Acute Myocardial Infarction Treatment-Thrombolysis In Myocardial Infarction Study 25) compared the safety and efficacy of Lovenox versus UFH in patients with acute ST segment elevation myocardial infarction receiving thrombolytic therapy (streptokinase, alteplase, tenecteplase or reteplase) in an international, randomized, double-blind design. The trial enrolled 21,000 patients with death and myocardial infarction at day 30 as the primary efficacy endpoint and TIMI major hemorrhage as the primary safety endpoint. The previous studies comparing Lovenox and UFH in acute myocardial infarction (AMI), ASSENT 3 or ENTIRE-TIMI 23, demonstrated a benefit from the use of Lovenox as part of the treatment for this type of patient versus UFH. The results of ExTRACT-TIMI 25 showed that the risk of death or recurrent non-fatal heart attack was significantly reduced by 17% for patients who were administered Lovenox compared to those who received unfractionated heparin. The benefits of Lovenox became apparent within 48 hours. At the end of one month, the risk of recurrent non-fatal heart attack was significantly reduced by 33% for patients given Lovenox compared with those given unfractionated heparin. A total of 7.5% of patients who received unfractionated heparin died compared to 6.9% who were given Lovenox. TIMI major bleeds at 30 days were 1.4% in the fractionate heparin group versus 2.1% in the Lovenox group (p <0.0001). Rates of intracranial hemorrhage were 0.7% versus 0.8%. Minor bleeds were 2.6% in the Lovenox group versus 1.8% in the unfractionated group. PREVAIL (Prevention of VTE after Acute Ischemic Stroke with Low-Molecular-Weight Heparin Enoxaparin) compared enoxaparin versus unfractionated heparin (UFH) in medically ill patients hospitalized for acute ischemic stroke. 1,762 patients were
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enrolled within 48 hours of the onset of ischemic stroke symptoms. They were randomly assigned to be treated with either enoxaparin or the older class of agent, unfractionated heparin, for 10 days and were followed for 90 days. Results were presented at ASH in December 2006. Enoxaparin reduced the relative risk for developing VTE after an acute ischemic stroke by 43 percent versus unfractionated heparin (10.2 percent of participants in the enoxaparin arm of the study developed VTE, versus 18.1 percent of participants in the unfractionated heparin arm). ExClaim (Extended CLinical prophylaxis in Acute Ill Medical patients), initiated in 2002, evaluated the efficacy and safety of extended venous thromboembolism prophylaxis (28 days +/- 4 days) vs. placebo following 10 days of Lovenox in 5,800 patients. The data were presented at the International Society of Thrombosis and Hemostatis 21st congress in July 2007 demonstrated a statistically significant 44% relative risk reduction in VTE events observed for extended-duration prophylaxis with Lovenox versus placebo for the primary endpoint (2.8% vs. 4.9%; p=0.0011). This was associated with a reduction in symptomatic VTE by 73% (0.3% vs. 1.1%; p=0.0044) and asymptomatic proximal DVT by 34% (2.5% vs. 3.7%; p=0.0319). No statistically significant differences were observed for symptomatic pulmonary embolism (PE) or fatal PE. The statistically significant relative risk reduction of VTE observed with Lovenox at 38 days was maintained at 90 days (3.0% vs. 5.2%; p=0.0015). In comparison with placebo, the rate of major bleeding was statistically significantly higher in the extended enoxaparin arm (0.6% vs. 0.15%, p=0.019), but the overall event rate was low. There was no difference in all-cause mortality between extended enoxaparin vs. placebo at 6 months (10.1% vs. 8.9%; p=0.18). Sanofi-Aventis does not plan to file these data as part of an sNDA. Lovenoxs Complexity Gives Weight To Citizens Petition. While the courts have removed all intellectual property hurdles to a generic Lovenox launch, it remains unclear whether traditional generic drug manufacturers will ever be able to demonstrate therapeutic equivalence to Lovenox (a requirement for ANDA approval). The composition of Lovenox (enoxaparin) includes more than 2,000 polysaccharide chains of different lengths (up to 32-mers) and sequences (a basic heparin disaccharide building block can assume up to 48 possible unique structures). While only a small portion of these chains is thought to inhibit the blood clotting factors Xa and IIa, the structures that are responsible for this activity are poorly characterized. Moreover, there is evidence that many other uncharacterized structures within Lovenox contribute to the products biological activity through mechanisms other than anti-Xa and anti-IIa activity. Sanofi-Aventis has admitted in citizens petitions on file with the FDA that it is unable to identify all of the active molecules in Lovenox and that a large portion of Lovenox (approximately 30%) remains uncharacterized. Rather than being characterized on the basis of its chemical composition, Lovenox is characterized through the process by which it is manufactureda highly controlled (temperature, pH, time) chemical cleavage reaction to break up unfractionated heparin. The issue for Momenta and other potential developers of generic enoxaparin is how to establish equivalence to a drug substance that is poorly characterized. FDA guidelines for an ANDA require demonstration of therapeutic equivalence to the branded drug. Meeting this hurdle requires demonstration of: (1) the same active ingredients; (2) the same route of administration, dosage form, and strength; and (3) bioequivalence (the rate and extent to which active ingredients are metabolized). If a generic can meet these stringent hurdles, it is granted an A-rating, which allows substitution at the pharmacy level without prior authorization. Sanofi-Aventis believes that, due to limitations in technology, low molecular weight heparins that make up Lovenox cannot be characterized to FDA standards.
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Momenta/Sandoz ANDA Back On Track Despite Initial Setbacks In November 2007, Momenta announced that partner Sandoz received a Non-approvable letter from the FDA for M-Enoxaparins ANDA. The company has subsequently characterized this letter as a minor deficiency letter than included the terminology nonapprovable. The FDA believes that the ANDA did not sufficiently address MEnoxaparins potential for immunogenicity. Management asserted that this is the first time the FDA has asked questions about the drugs potential for immunogenicity. Following several months of discussions with the Office of Generic Drugs (OGD) and other groups within the FDA, in April 2008, the FDA provided notification to Momenta indicating general concurrence with the companys plan to submit additional in vitro and animal data (but no new clinical data). Momenta has characterized additional work requested as falling into three categories: 1) additional lot testing comparing MEnoxaparin to the innovator product; 2) further information regarding the sensitivity of Momenta 's proposed assays; 3) additional "orthogonal" validation around Momenta's analytical methods. The company submitted a complete response to the FDA in September 2008 that includes in vitro and animal data, (human clinical data could hinder an AB rating). Momenta indicated that the FDA is actively reviewing its resubmission and expects a response in early 2009. A key gating factor to an approval is production, especially in light of the Heparin contamination fiasco. Momenta/Sandoz sources heparin from four Chinese suppliers; two of the facilities have been inspected by FDA and the remaining two inspections are scheduled to be completed by the end of March 2009; the timing of the results from these inspections is less clear. Although we believe that visibility as to whether M-Enoxaparin will emerge as the sole generic version of Lovenox is low, we have assumed a mid- 2009 launch.
GlaxoSmithKlines Arixtra ACS Indication In Regulatory Limbo

Arixtra (fondaparinux sodium), a pentasaccharide, was co-developed by Sanofi-Aventis and Organon, and is the first compound of a new class of antithrombotics, the selective Factor Xa inhibitors. In January 2004, Sanofi purchased the rights to Arixtra and idraparinux (once-weekly subcutaneously administered Factor Xa inhibitor) from Organon. However, in compliance with FTC regulations ahead of its merger, SanofiAventis sold the rights for Arixtra to GlaxoSmithKline in August 2004. Sanofi-Aventis retained the rights to idraparinux. Arixtra is synthetic pentasaccharide, in contrast to the low molecular weight heparins, which are derived from animals. In the U.S., Arixtra is approved for VTE prophylaxis and treatment, but our physician experts believe that gains versus LMWH have been modest due to a slightly increased risk of bleeding in orthopedic prophylaxis trials. In October 2006 the sNDA for the treatment of ACS was accepted for priority review by the FDA, which then issued the first approvable letter in February 2007 and a second in September 2007. The application was based on positive results from two pivotal, Phase III trials (OASIS 5 and 6) that evaluated Arixtra in the treatment of a broad spectrum of patients with acute coronary syndromes (ACS). The filing submission data included the OASIS 5 clinical trial results, which compared Arixtra to Lovenox in patients with UA/NSTEMI, and OASIS 6, which compared Arixtra to standard therapies (unfractionated heparin or placebo) in STEMI patients. The results of OASIS 5, a clinical outcomes trial in 20,078 acute coronary syndrome patients, demonstrated equivalence for Arixtra versus Lovenox on efficacy, but significantly fewer major bleeds. Patients were randomized across 576 centers in 41 countries to receive either Arixtra 2.5 mg, once daily (n = 10,021) or Lovenox 1 mg/kg, twice daily (n = 10,057). Non-inferiority was established on death, MI, and refractory ischemia through nine days with a hazard ratio of 1.01. Patients treated with Arixtra were 47% less likely
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to experience a major bleed at nine days; this effect was more pronounced in patients >65 years old. Higher use of unfractionated heparin in the Lovenox arm vs. the Arixtra arm (53.8% vs. 18.8%) confounded the results somewhat. However, at 30 days post treatment, patients treated with Arixtra had a lower mortality risk and a lower combined risk of death/MI/stroke. Our physician experts believe that these data could move Arixtra into a competitive position with Lovenox in ACS patients but visibility on the U.S. regulatory pathway is limited and approval seems unlikely. The EMEA authorized Arixtra for ACS in September 2007 based on a positive recommendation from CHMP in July. At ECS 2007, a post-hoc analysis was presented on CHF patient in the ARTEMIS trial in 849 patients 60 years old hospitalized for congestive heart failure (NYHA class III/IV), or acute respiratory, infectious or inflammatory disease and expected to remain bedridden for 4 days. The analysis demonstrated that Arixtra significantly reduced death and symptomatic pulmonary embolism at Day 32 in patients hospitalized with CHF. We forecast Arixtra sales of 200MM in 2009, 275MM in 2012, and 350MM in 2015. ARTEMIS: 32 Day CHF Analysis
Fondaparinux Day 32 All patients (N=429) 4 (0.9%) 14 (3.3%) 15 (3.5%) 1 (0.2%) Patients with CHF (N=153) 1 (0.7%) 5 (3.3%) 6 (3.9%) 0 Placebo All patients (N=420) 11 (2.6%) 25 (6.0%) Patients with CHF (N=155) 5 (3.2%) 14 (9.0%) RR fondaparinux vs placebo [95% CI] Patients with CHF (N=308)
All patients
Symptomatic PE All deaths Symptomatic PE + all deaths Major bleed Source: ESC 2007
0.36 [0.11;1.11] 0.55 [0.29;1.04] 0.51 [0.28;0.93]
0.20 [0.02;1.71] 0.36 [0.13;0.98] 0.36 [0.14;0.88]
29 (6.9%) 17 (11.0%) 1 (0.2%) 1 (0.7%)
AstraZenecas Exanta Discontinued Due To Liver Toxicity

Exanta (ximelagatran), an oral direct thombin inhibitor, was developed by AstraZeneca as a potential Warfarin-replacement. In September 2004, the FDA Cardio-renal Advisory Panel voted against approval of Exanta for short-term and long-term use due to concerns regarding elevated risk of coronary events and liver toxicity. Panel members voted unanimously against approval for the short-term use of Exanta. However, the panel suggested a trial that would allay concerns over short-term coronary event and liver toxicity risks. Based on the EXPRESS study, both oral and subcutaneous Exanta were approved and launched in France in Q2:04 for short-term use in the prevention of VTE post orthopedic surgery. French authorities requested more data on long-term use indications in January 2005. However, AstraZeneca discontinued development of Exanta and removed it from all international markets, following evidence of liver toxicity in the EXTEND Phase III clinical trial, which was designed to examine the efficacy and safey of extended VTE prophylaxis with Exanta.
Fate Of Sanofi-Aventis Otamixaban Unclear

Otamixaban is an intravenous direct Factor Xa inhibitor in Phase II development for the management of ACS. The Phase II program is made up of two studies, SEPIA-PCI and SEPIA-ACS 1. SEPIA-PCI, which is complete, compared Otamixaban to unfractionated
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heparin (UFH). The study showed a dose proportional response in patients undergoing elective PCI with an unremarkable safety profile. SEPIA-ACS 1/ TIMI-42 is a 3,240 patient study which has completed enrollment and should report in H1:09. SEPIA-ACS is a randomized, double-blind, triple dummy, dose-ranging study (5 otamixaban doses) including an active control of UFH and Integrillin, designed to evaluate the clinical efficacy and safety of otamixaban in patients with NSTEMI and planned early invasive strategy. The primary composite endpoint includes death, MI, urgent revascularization, bailout IIb/IIIa inhibitors through day seven. The study drug is to be given until the end of PCI, as clinically indicated, until Day 4 or hospital discharge. Patients will be followed up at Day 30, 90, and 180, the latter two telephonically. Sanofi is likely awaiting the Phase II results to determine a path forward and establish whether there is a commercial opportunity. SEPIA-PCI Results Uninspiring The results of Subjects Undergoing Non-Urgent Percutaneous Coronary Intervention (SEPIA-PCI) were presented at ESC 2006. SEPIA-PCI is a Phase II, randomized, doubleblind, double-dummy, parallel-group, dose-ranging study. Patients undergoing nonurgent PCI were randomized to receive one of five otamixaban regimens (an intravenous bolus followed by a 3-hour intravenous infusion or unfractionated heparin, prior to PCI. Other treatments included aspirin, clopidogrel, and optional glycoprotein IIb/IIIa inhibitors). A total of 947 patients (median age, 63 years; 77% male) participated in the study. There was no dose response for the Day 30 composite efficacy endpoint (death, myocardial infarction, and target vessel revascularization). There was a dose response for TIMI bleeding at Day 3; fewer bleeds occurred than with unfractionated heparin among lower otamixaban doses and more bleeds occurred than with unfractionated heparin across higher otamixaban doses. Most bleeds were minimal. These data will aid in the design of clinical investigations of otamixaban for the treatment of ACS.
SEPIA-PCI PHASE II DATA Dose 1 Dose 2 Dose 3 Dose 4 Dose 5 (.025/.035) (.045/.065) (.080/.120) (.120/.160) (.140/.200) (mg/kg / mg/kg/hr) UFH Prothrombin fragment F1+F2 (nmol/L) change from -0.2 -0.3 -0.2 -0.2 -0.3 -0.2 baseline (median) ND ND ND P = .1191 P = .008 Comparison vs UFH Anti-Xa (ng/mL) at end of 64.51 154.59 393.31 571.32 691.04 infusion (median) P <.0001 P <.0001 P <.0001 P < .0001 Comparison with dose 1 TIMI major/minor/ minimal 37 65 66 77 86 59 bleeding at Day 3 or (24.8%) (N = 149) (42.2%) (N = 154) (41.8%) (N = 158) (49.7%) (N = 155) (55.1%) (N = 156) (37.3%) (N = 158) hospital discharge Comparison vs UFH Triple composite endpoint (death, MI, or TVR) Comparison vs UFH Median aPTT at end infusion
Source: ESC 2006
P = .018 9 (5.8%) (N = 155) P = .948 42
P = .402 11 (7.1%) (N = 155) P = .601 46
P = .410 6 (3.8%) (N = 159) P = .431 61
P = .03 4 (2.5%) (N = 159) P = .150 68
P = .002 8 (5.1%) (N = 157) P = .834 81 9 (5.6%) (N = 160)
Sanofi-Aventis Refocuses AVE5026

Sanofi-Aventiss AVE 5026 is an ultra low molecular weight heparin derivative with residual anti-IIa acitivity. Sanofi was developing AVE5026 as a replacement for Lovenox but in February 2009 announced that it was pairing down development to focus on oncology, and DVT prophylaxis in abdominal surgery only. Sanofi will discontinue
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development in general medical conditions and orthopedic surgery DVT prophylaxis. AVE5026 has a high ratio (>30) of factor Xa to anti-factor IIa activity compared to the rest of the LMHW class. Prior to the February 2009 announcement seven Phase III studies were underway in nearly 20,000 patients: VTE prophylaxis in knee and hip replacement surgery and hip fracture surgery looking at superiority versus Lovenox; VTE prevention in medical cancers; VTE prevention in abdominal surgery; and VTE prevention in medical conditions. Sanofi-Aventis was on track to file these data in 2010/11. Sanofi- Aventis elected to move forward into Phase III with 20mg once-daily based on the results of the TREK sudy that were presented at ASH 2007. The TREK study involved 705 patients in 19 different countries. In this dose ranging study, AVE5026 was administered for up to ten days for primary prevention of VTE in patients undergoing elective total knee replacement surgery. Lovenox 40mg once daily was used as the comparator. The primary efficacy endpoint was a composite endpoint of asymptomatic and symptomatic VTE, as well as VTE related deaths. The results of the study demonstrated a highly significant dose response (p<0.0001) on the primary efficacy endpoint with event rates at 40.0%, 44.1%, 15.6%, 13.6% and 5.3% for the AVE5026 doses of 5, 10, 20, 40 and 60mg respectively. In comparison, the event rate in the Lovenox comparator arm was 35.8%. A statistically significant dose response (p=0.0231) was found for major bleedings with rates increasing from 0% to 3.4% for the AVE5026 dosing arms versus 0% in the Lovenox arm. A statistically significant dose response (p=0.0003) was also found for any bleeding with rates ranging from 3.8% to 20.5% for the AVE5026 dosing arms, compared with 5% in the enoxaparin arm. In the TREK study, compared to Lovenox, AVE5026 20mg and 40mg showed superior efficacy for confirmed adjudicated VTE (58% RRR, p=0.0017 & 61% RRR, p=0.0010 respectively) with a good safety profile (any bleeding rates with AVE5026 20mg: 3.8%, with AVE5026 40mg: 7.5% versus 5% with enoxaparin).
AVE5026 PHASE III PROGRAM Name SAVE-ABDO SAVE-ONCO SAVE-HIP2 SAVE-VEMED SAVE-KNEE SAVE-HIP3 SAVE-HIP1 Title Evaluation of AVE5026 as Compared to Enoxaparin for the Prevention of Venous Thromboembolism in Patients Undergoing Major Abdominal Surgery Evaluation of AVE5026 in the Prevention of Venous Thromboembolism in Cancer Patients Undergoing Chemotherapy Evaluation of AVE5026 as Compared to Enoxaparin for the Prevention of Thromboembolism in Patients Undergoing Hip Fracture Surgery Evaluation of AVE5026 in the Prevention of Venous Thromboembolism in Acutely Ill Medical Patients With Restricted Mobility Interventions AVE5026 Vs Enoxaparin AVE5026 Vs Placebo AVE5026 Vs Enoxaparin AVE5026 Vs Enoxaparin Phases Phase III Phase III Phase III Phase III Phase III Phase III Phase III Enrollment 4,400 3,200 1,000 12,300 1,060 454 2,320
Evaluation of AVE5026 as Compared to Enoxaparin for the Prevention of AVE5026 Vs Enoxaparin Thromboembolism in Patients Undergoing Elective Knee Replacement Surgery Evaluation of AVE5026 as Compared to Placebo for the Extended Prophylaxis of Venous Thromboembolism in Patients Having Undergone Hip Fracture Surgery Evaluation of AVE5026 as Compared to Enoxaparin for the Prevention of Thromboembolism in Patients Undergoing Total Hip Replacement Surgery AVE5026 Vs Placebo AVE5026 Vs Enoxaparin
Boehringer Ingelheims Pradaxa Approved In The E.U.; AF Trial To Report In 2009

Rendix/Pradaxa (dabigatran etexilate), the most advanced oral once-daily fixed-dose direct thrombin inhibitor received a EC approval in March 2008 for the prevention of venous thromboembolic events in patients who have undergone total hip replacement surgery or total knee replacement surgery. In September 2008, the U.K.s NICE recommended Pradaxa because of its potential to improve morbidity and mortality as a result of its convenience. The standard recommended dosage of Pradaxa in VTE prevention is 220 mg once daily. A single capsule of 110 mg is administered orally
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between 1 and 4 hours following surgery, continuing with 2 capsules once daily thereafter for a total of 10 days in total knee replacement patients and 28-35 days in total hip replacement patients. A second approved dosage of 150 mg taken as two capsules of 75 mg is recommended for specific patient populations, including patients over 75 years of age and those with moderate renal impairment. Similar to Exanta, Rendix was designed to provide consistent anticoagulation effect without the need for coagulation monitoring and dose adjustment and has no foodeffect. In all Phase III trials to date, liver enzyme abnormalities were low throughout treatment and did not differ significantly between treatment groups. Some level of comfort can also be afforded by RELY, which completed enrollment in December 2007 and has not been stopped because of a liver a signal. Pradaxa is also the most advanced therapeutic in development for the treatment of VTE and the prevention of stroke associated with atrial fibrillation. The 18,000+ RELY stroke study in patients with atrial fibrillation will report in 2009, significantly ahead of the the Factor Xa inhibitors in development. The dabigatran Phase III program has been dubbed RE-VOLUTION and will involve over 34,000 patients. The European VTE prevention submission was based on the RE-MODEL (presented at AHS, 2006) and RE-NOVATE (presented at ISTH 2007) studies. RE-MOBILIZE, a U.S. VTE in Total Knee Replacement reported in July 2007. RE-LY, the largest stroke prevention in AF trial conducted to date, with 18,114 patients in 1,000 centres in 44 countries, completed enrollment in December 2007 with final study results expected to be reported in early 2009. RE-COVER is assessing the treatment of VTE should report in 2009. RE-MEDY and RE-SONATE are evaluating secondary prevention of VTE. In December 2007, Boehringer-Ingelheim announced the intiation of the 1,800 ACS patient RE-DEEM study. Pradaxs PETRO-Ex Refines Dose For RELY But Therapeutic Index Appears Narrow Long-term extenstion data for Pradaxas PETRO AF studies were presented at AHA 2008. PETRO-Ex is an open-label extension of the Prevention of Embolic and Thrombotic Events Study in Patients with AF Randomised to dabigatran (PETRO), and included 361 patients from 53 centres in Denmark, The Netherlands, Sweden and the United States, with AF and at least one other stroke risk factor receiving dabigatran. In the PETRO trial, 502 patients with AF were treated with dabigatran (50, 150, and 300 mg twice daily) or warfarin (INR 2.0-3.0) alone or in combination with aspirin for 12 weeks. The PETRO_EX patients were followed for an average of 29 months, with the maximum follow-up being 51 months, marking the longest mean follow-up of any new oral anticoagulant. Many patients switched to different dosing groups for the PETRO-Ex trial. Patients who were initially treated with Pradxa 150 mg twice daily or 300 mg twice daily continued with these doses in the PETRO-Ex trial. However, patients who were treated with 50 mg twice daily in the PETRO trial switched to Pradaxa 150 mg once daily for the extension trial. However, once PETRO-Ex was underway, the DSMB recommended discontinuation of the 300 mg twice daily dose due to major bleeding events. Patients in this group were down-titrated to Pradaxa 300 mg once daily. The DSMB also recommended the discontinuation of the 150 mg once daily group due to insufficient anticoagulation and excessive thromboembolic events. Patients in this group were up-titrated to dabigatran 150 mg twice daily. Overall, patients had a collective 1000 patient-years of exposure to various doses of Pradaxa during PETRO and PETRO-Ex.
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Stroke and major bleeding rates were dose-dependent. Eighteen strokes were reported, representing a risk of 1.7 strokes per 1000 patient years across all doses. In addition, 44 major bleeds were reported (4.2 bleeds per 1000 patient years). The risk of bleeding was notably higher in patients who took concomitant aspirin (8.5 per 1000 patient years) than in patients who did not take aspirin (3.2 per 1000 patient years). The Pradaxa dose of 150 mg twice daily appeared to have the best balance of thromboembolic and bleeding rates as the risk of stroke or thromboembolism was 1.0 per 1000 patient years, whereas the risk of major bleeding was 4.2 per 1000 patient years. There was no evidence of drug-related liver toxicity in patients who took dabigatran. All cases of abnormal liver function test results resolved completely while on therapy, recovered after treatment discontinuation, or were attributed to an unrelated cause. Only three patients had evidence of severe liver toxicity, defined as an alanine transaminase or aspartate transaminase level 3-times higher than the upper limit of normal (ULN) and a total bilirubin level 2-times higher than the ULN within 30 days. These events were attributed to cholelithiasis, gall stones, and adenocarcinoma of the pancreas. Regarding other adverse events, one transient ischemic attack, seven myocardial infarctions, and 11 other major adverse cardiovascular events were reported. A total of 120 patients discontinued therapy due to adverse events. The PETRO and PETRO-Ex studies showed that thromboembolic event rates were low with Pradaxa doses of 150 and 300 mg twice daily. Major bleeding was more frequent with the 300 mg b.i.d. dose. No significant liver function abnormalities were noted. RE-NOVATE Phase III Support DVT Prophylaxis Approval The results of the RE-NOVATE study presented at ISTH, 2007 demonstrated that dabigatran was non-inferior to Lovenox 40mg. The RE-NOVATE trial randomized 3,494 hip-replacement-surgery patients to one of two doses of dabigatran (150mg or 220mg orally once daily) or Lovenox (40 mg by subcutaneous injection once daily) for an average of 33 days. The primary efficacy endpoint of total VTE and death from all causes was similar among the three groups, as was major bleeding. The incidence of liverenzyme elevations and acute coronary events during the treatment or during the followup period also did not differ significantly between the groups.
RE-NOVATE Major Results Dabigatran 150 mg (%) Total VTE and death from all causes Major bleeding
Source: Company Data
Dabigatran 220 mg (%) 6 2
Enoxaparin 40 mg (%) 6.7 1.6
8.6 1.3
Also presented at the ISTH meeting was a prespecified pooled analysis of major VTE and VTE-related death after major orthopedic surgery across more than 8,000 randomized patients included in the Phase III primary VTE prevention program for dabigatran (including the RE-MODEL, RE-MOBILIZE and RE-NOVATE studies). This analysis concluded that dabigatran was comparable to Lovenox in the prevention of major VTE and VTErelated mortality after both knee and hip replacement. In addition, elevations of liver enzymes and treatment-emergent ACS events were infrequent and comparable across treatment groups. RE-MOBILIZE Fails To Demonstrate Equivalence Vs Lovenox 60mg Results of the Phase III RE-MOBILIZE were presented at ISTH, 2007. Due to North American regulatory requirements, the Lovenox dosage was increased to 60 mg daily
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(30mg bid) in RE-MOBILIZE and dabigatran missed its primary composite endpoint of proximal DVT, distal DVT, PE, and all-cause mortality. But differences were predominantly due to asymptomatic distal DVTs, since major (clinically relevant) VTE occurred at similar rates in all treatment groups. Although bleeding rates were not statistically different between treatment groups, there were twice as many major bleeding events in the enoxaparin group as in the dabigatran groups.
RE-MOBILIZE Efficacy Results Dabigatran 150 mg (%) Proximal DVT, distal DVT, PE, and allcause mortality (primary end point)
Dabigatran 220 mg (%) 31.1
Enoxaparin 60 mg (%) 25.3
33.7
Results of RE-MODEL were reported in December 2006. The trial showed that both oral doses of dabigatran were as good as injected enoxaparin at reducing the risk of thromboembolic disease. For the primary efficacy endpoint of total VTE and all cause mortality, results were similar between all groups, occurring in 40.5 percent, 36.4 percent and 37.7 percent of patients assigned to dabigatran 150 or 220mg once daily or enoxaparin, respectively. Proximal DVT and/or PE occurred in 3.8 percent, 2.6 percent and 3.5 percent of patients receiving dabigatran 150 or 220 mg or enoxaparin, respectively. No difference in bleeding rates was observed between the treatment groups; the rate of major bleeding was 1.3 percent, 1.5 percent and 1.3 percent of patients receiving dabigatran 150 or 220 mg or enoxaparin. Elevated levels of alanine aminotransferase (ALT>3xULN) as measured by liver function tests (LFTs) occurred in 3.7 percent, 2.8 percent and 4.0 percent of the patients treated with 150 and 220mg dabigatran or enoxaparin during the study. The liver enzyme data from the remaining two trials needs to be followed closely.
Sanofi-Aventis Moving Forward With Idrabiotaparinux

Idraparinux is similar to Arixtra, selectively binding ATIII indirectly potentiating Factor Xa inhibition Idraparinuxs sulphated/methylated modification is designed for an extended half-life. Idraparinux is dosed subcutaneously once weekly. Sanofi-Aventis terminated the idraparinux Phase III program based on concerns with its long half-life and bleeding. Sanofi instead is pursing biotinylated formulation that would allow for neutralization with a biotin infustion (Avidin). Biotinylated idraparinuxs (Idrabiotaparinux) clinical development program is designed to bridge clinical results obtained with idraparinux. A DVT bioequipotency study called EQUINOX demonstrated similar Factor Xa inhibition and effective neutralization of anti-Xa activity and no rebound anti-Xa activity. Patient recruitment in CASSIOPEA, a 3,200 patient PE treatment study, is still ongoing but appears slow. BOREALIS, an atrial fibrillation study, was initiated in Q1:08. Sanofi-aventis plans to file the BOREALIS data in 2011. While the onceweekly dosing schedule and the availability of anti-dote likely provide an attractive profile, commercial barriers include potential bleeding in renally-impaired patients, education required about neutralization and oral competition. Idrabiotaparinux could be niched to patients who cannot take oral medication. EQUINOX Confirms Compatabilty With Idraparinux. The data from the bioequivalence study were presented at ASH 2008. Patients assigned to idrabiotaparinux had less clinically relevant bleeding (5.2% vs. 7.3%) and less major bleeding (0.8% vs. 3.8%) compared with patients assigned to idraparinux. However, patients in both groups
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experienced a similar amount of VTE and fatal or non-fatal pulmonary embolism. After a six-month study period, 52 patients originally assigned to idrabiotaparinux were randomly assigned to avidin or placebo. Intravenous avidin reverses the anti-Factor Xa activity of idrabiotaparinux. The reversal of Factor Xa in 41 of these patients was analyzed; 23 assigned to avidin. At the end of the 30-minute infusion, mean anti-Factor Xa was reduced by 77.8% and was sustained for at least five days compared with 2.4% for the placebo group.
VAN GOGH Program Demonstrates Efficacy For Idraparinux

In December 2006, results of the Phase III VAN GOGH clinical program were announced. Idraparinux could offer a convenient alternative to current cumbersome schedules but there were concerns raised regarding its efficacy in PE. The trials looked at weekly Idraparinux versus LMWH followed by dose adjusted Vitamin K antagonist for 3-6 months in DVT and PE. The primary endpoint was the 3-month incidence of recurrent venous thromboembolism. VAN GOGH DVT Has A Leg Up. At 3 months the DVT study (2,904 patients) met its noninferiority endpoint, recurrence of symptomatic VTE similar to that of the combination of LMWH / VKA (2.9% and 3.0% respectively, p=0.00056). The equivalence in efficacy was complemented by significantly less bleeds in the idraparinux arm (4.5% versus 7.0% p=0.004). VAN GOGH PE Disappointed. At 3 months the VAN GOGH PE study (2,215 patients) did not meet its primary efficacy endpoint, recurrence of symptomatic VTE (3.4% versus 1.6% p=0.59). However at 6 months event rates were similar. Sanofi-Aventis believes that PE requires more aggressive early management in its more severe form. This is being addressed in the CASSIOPEA (Clinical Study Assessing SSR126517E Injections OnceWeekly in Pulmonary Embolism Therapeutic Approach) study using the new neutralizable form. The bleeding rate in the PE study was lower in the idraparinux arm but not statistically significant (5.8% versus 8.2%). CASSIOPEA is designed to overcome the Van Gogh PE deficits but is also using Idrabiotaparinux. 3,200 patients will be recruited comparing LMWH (5 days) plus Bio Idraparinux for either 13 or 16 weeks to LMWH followed by Vitamin K for either 13 and/or 16 weeks. This is aimed to address the acute period post PE where Van Gogh PE failed. The Van Gogh Extension study, looking at long-term VTE prevention, demonstrated a significant 72.9% relative risk reduction (p=0.002) versus placebo after an additional 6 months. During the 6 months of randomized treatment, the Van Gogh Extension study met its primary endpoint (recurrence of VTE for idraparinux: 1% versus 3.7% for placebo). Idraparinux was also being studied for the prevention of stroke in patients with atrial fibrillation (the AMADEUS program with 5,700 patients planned for enrollment). However, due to a low event rate, recruitment for AMADEUS was discontinued following a recommendation by the DSMB to increase the size of the trial. BOREALIS Study In AF Underway. The 6-month Phase III study in patients with AF was recently initiated comparing idrabiotaparinux versus warfarin. Patients in the idrabiotaparinux arm will receive 3mg subQ weekly for seven weeks and then get doseadjusted for age and renal impairment. The primary efficacy endpoint includes all stroke and systemic embolism, and the safety endpoint is evaluating all clinically relevant bleeds.
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Factor Xa Inhibitors Have Broad Potential Across Arterial And Venous Disease
Factor Xa is a coagulation factor that is essential for the formation of thrombin (factor IIa), a protein that produces fibrin which is the building block of blood clots. Factor Xa inhibition blocks thrombin, but at a location upstream in the coagulation cascade of that targeted by direct thrombin inhibitors. JNJ/Bayers Xarelto (rivaroxaban; approved in Europe; FDA advisory committee 3/18) demonstrated superior effectiveness versus Lovenox in clot prevention confirming the biology of the inhibitors. Our physician consultants believe that inhibiting coagulation further upstream may also lead to better efficacy than warfarin in chronic medical conditions. However, warfarins efficacy represents a high hurdle, having demonstrated a 70% reduction in the risk of stroke in patients with atrial fibrillation. The Factor Xa inhibitors also appear to have a benefit in ACS with apixaban (BMY/PFE; Phase III) demonstrating extremely encouraging Phase II data, and Xarelto mimicking a similar profile. Several companies are also developing oral Factor Xa inhibitors including YM150 (Astellas Phase II), Daiichis Du-176b (Phase II in Japan), and Portolas betrixaban (Phase II).
J&J/Bayers Xarelto Approved In Europe But FDA Panel Key To U.S. Approval
Bayer/J&J leads the Factor Xa inhibitor class development with Xareltos October 1 2008 European approval for VTE prevention in orthopedic surgery and an NDA filing in the same month. The EMEA approval and U.S. NDA was based on the RECORD-1, 2, & 3 studies and RECORD-4 supplementing the U.S. application. The RECORD -1,2, & 3 studies were head-to-head with Lovenox 40 mg QD, RECORD-4 was versus Lovenox 30 mg BID. All trials consistently demonstrated superiority over Lovenox, with a similar if not better bleeding profile. These data established Xareltos lead in the oral Factor Xa inhibitor class with its once-daily dosing, efficacy, and safety results potentially creating a significant commercial hurdle in addition to its first-mover advantage. However, the warfarin market should be large enough for multiple competitors. Safety, especially liver toxicity, remains a concern given Exantas record but none of the case-reports with liver associated finding fulfills the criteria for Hys Law. Hys Law has the following components: three-fold increase or greater elevations above ULN of ALT or AST; among subjects with raised transaminases subjects show elevation of serum total bilirubin >2x ULN with no signs of cholestasis; and no other reason can be found for the combination of raised AT and TBL. JNJ/Bayer presented the results of their Phase II dose ascending ATLAS study in ACS at AHA 2008. ATLAS demonstrated dose dependent bleeding and a favorable trend in the reduction of MACE. The companies elected to advance the lowest two doses, 2.5 mg BID and 5 mg BID into the Phase III program. Xarelto is being evaluated in several other Phase III acute and chronic indication studies: MAGELLAN for VTE prevention, in medically ill patients, is expected to be filed in 2011; EINSTEIN in VTE treatment and secondary prevention is to be filed in 2010; ROCKET AF for AF prevention is on track to be filed in 2010; and ATLAS TIMI 46 in ACS which was initiated in December 2008 will be filed in 2011/12. We forecast Xarelto U.S. sales of $35MM in 2009, $125MM in 2010 and $900MM in 2013. RECORD-1 Data In THA Confirm Superiority. Data from Rivaroxabans 4,541 patient, Phase III VTE prophylaxis in total hip replacement surgery (RECORD-1: Regulation of Cogulation in major Orthopedic surgery reducing the Risk of DVT and PE) study were presented at ASH, 2007. RECORD-1 was a Phase III, multinational, randomized, doubleblind, double-dummy trial, conducted to determine the efficacy and safety of oral Xarelto, compared with Lovenox, for 5 weeks of thromboprophylaxis in patients
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undergoing THA. Patients received Xarelto 10mg beginning 6-8 hours after surgery and once daily thereafter, or Lovenox 40mg, beginning the evening before surgery (restarting 6-8 hours after surgery). Therapy continued for 35+4 days and mandatory, bilateral venography was conducted the next day. The primary efficacy endpoint was the composite of any deep vein thrombosis (DVT), non-fatal pulmonary embolism (PE), and all-cause mortality. The primary efficacy analysis was a test for non-inferiority in the per-protocol (PP) population, followed by a test for superiority in the modified intentionto-treat (mITT) population. The main secondary efficacy endpoint was major venous thromboembolism (VTE): the composite of proximal DVT, non-fatal PE and VTE-related death. Major and non-major bleeding during the active treatment period were the primary and secondary safety endpoints, respectively. A total of 4,541 patients were randomized; 4,433 were eligible for the safety population, 3,153 for the mITT population, and 3,029 for the PP population.
RECORD-1
Outcome DVT, nonfatal PE, allcause mortality Major VTE Major bleed Non-major bleed Rivaroxaban, % (n) 1.1 (18/1595) 0.2 (4/1686) 0.3 (6/2209) 5.8 (128/2209) Enoxaparin, % (n) 3.7 (58/1558) 2.0 (33/1678) 0.1 (2/2224) 5.8 (129/2224) Relative risk reduction, % (95% CI) 70 (4982) 88 (6696) --p <0.001 <0.001 0.178 1
Source: Medline
RECORD-2 Data In THA Support Efficacy And Safety. Data from rivaroxabans 2,509 patient, Phase III VTE prophylaxis in total hip replacement surgery (RECORD-2: Regulation of Cogulation in major Orthopedic surgery reducing the Risk of DVT and PE) study were presented at ASH 2007. This global, Phase III, double-blind trial, was designed to compare short-term thromboprophylaxis with Lovenox with extended thromboprophylaxis for up to 5 weeks with Xarelto after THA. Patients received Lovenox 40mg once daily, beginning the evening before surgery, continuing for 10-14 days (short-term prophylaxis), and followed by placebo until day 35+4, or Xarelto 10mg daily beginning 6-8 hours after surgery and continuing for 35+4 days (extended prophylaxis). Mandatory, bilateral venography was conducted at the end of the extended treatment period. The primary efficacy endpoint was the composite of any deep vein thrombosis (DVT), non-fatal pulmonary embolism (PE), and all-cause mortality. The main secondary efficacy endpoint was major VTE; the composite of proximal DVT, non-fatal PE, and VTErelated death. Major and non-major bleeding during double-blind treatment were the primary and secondary safety endpoints, respectively. A total of 2,509 patients were randomized; 2,457 were included in the safety population and 1,733 in the modified intention-to-treat (mITT) population.
RECORD-2
Outcome DVT, nonfatal PE, allcause mortality Major VTE Major bleed Non-major bleed Rivaroxaban, % (n) 2.0 (17/864) 0.6 (6/961) 0.1 (1/1228) 6.5 (80/1228) Enoxaparin, % (n) 9.3 (81/869) 5.1 (49/962) 0.1 (1/1229) 5.5 (67/1229) Relative risk reduction, % (95% CI) 79 88 --p <0.001 <0.001 0.98 0.246
Source: Medline
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RECORD-3 Data In TKR Highly Compelling. Data from Rivaroxabans 2,531 patient, Phase III VTE prophylaxis in total knee replacement surgery (RECORD-3: Regulation of Coagulation in major Orthopedic surgery reducing the Risk of DVT and PE) study were presented at the XXIst International Society on Thrombosis and Hemostatis (ISTH) conference. RECORD 3 demonstrated that rivaroxaban 10mg, once-daily started 6-8 hours after surgery when compared to Lovenox 40mg daily started prior to surgery with both regimens continued 10-14 days, significantly reduced, 9.6% vs. 18.9% (RRR 49%; p<0.001), the primary end point (diagnosed and symptomatic VTE and all-cause mortality). Major VTE (the major secondary efficacy endpoint: proximal DVT + PE + VTErelated death) occurred in 1% and 2.6%, respectively (RRR 62%; p=0.01), and symptomatic VTE occurred in 1% and 2.7%, respectively of patients. In the rivaroxaban and Lovenox groups, major bleeding rates were 0.6% and 0.5%, and any bleeding 4.9% and 4.8%, respectively. No monitoring of rivaroxaban was required throughout the study.
RECORD-3
Endpoint DVT, nonfatal PE, allcause mortality Major VTE * Major bleed Non-major bleed Rivaroxaban (%) 9.6 (79/824) 1 (9/908) 0.6 (7/1220) 4.3 (53/1220) Enoxaparin (%) 18.9 (166/878) 2.6 (24/1217) 0.5 (6/1239) 4.4 (54/1239( Relative risk reduction (%) 49 62 --p-value <0.001 0.01 p=0.774 p=0.990
*proximal DVT, nonfatal PE, and VTE-related death)
Source: Medline
RECORD-4, The Cherry On The Top. The RECORD-4 trial was presented in June 2008, at the annual meeting of the European Federation of National Associations of Orthopaedics & Traumatology (EFORT). It involved 3,148 patients who were assigned to rivaroxaban (10 mg once daily orally) starting six to eight hours postsurgery or to enoxaparin (30 mg twice daily by subcutaneous injection), 12 to 24 hours postsurgery. Both treatments were continued for 10 to 14 days. Patients were followed for 40 days, after which time venograms of all extremities were performed. The primary endpoint total VTE events (defined as the composite of all deep vein thrombosis, nonfatal pulmonary embolism, and all-cause mortality)was significantly reduced in the rivaroxaban group.
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RECORD-4
Endpoint DVT, nonfatal PE, allcause mortality Major VTE * Symptomatic VTE Major bleed Any bleed Non-major bleed Clinically relevant nonmajor bleed ALT >3x ULN >5xULN >10xULN >3xULN + TC>2xULN 1.3 0.3 0.1 0.1 2.6 1.0 0.1 0.2 ----Rivaroxaban (%) 6.9 1.2 0.7 0.7 10.5 10.2 2.6 Enoxaparin (%) 10.1 2 1.2 0.3 9.4 9.2 2.0 -p=0.990 Relative risk reduction (%) 68 60 58 -p-value 0.012 0.124 0.187 p=0.774
*proximal DVT, nonfatal PE, and VTE-related death) Source: theheart.org
ATLAS TIMI 46 Shows Promise In ACS; Phase III Initiated The ATLAS TIMI 46 enrolled 3,491 patients and assigned them to either an aspirin alone group (n=761) or a group receiving aspirin plus clopidogrel (n=2,730). Patients in both strata were then assigned to receive Xarelto either once daily at 5 mg, 10 mg, 15 mg and 20 mg twice daily at the same dosing levels or placebo. The primary efficacy endpoint of the study was the combination of all-cause death, MI, stroke or severe ischemia requiring revascularization. There was no difference in the primary efficacy endpoint between patients taking placebo and patients taking Xarelto (7.0% vs. 5.6%; HR=0.79; 95% CI, 0.601.05). For the secondary efficacy endpoint of the incidence of all-cause death, MI and stroke, patients assigned rivaroxaban had lower risk than those assigned placebo, with an absolute risk reduction of 1.6% (5.5% vs. 3.9%; HR=0.69; 95% CI, 0.50-0.96). Safety was evaluated by measuring clinically significant bleeding, defined as a composite of TIMI major bleeding, TIMI minor bleeding and any reported bleeding event requiring medical attention. This very sensitive bleeding measure represents a broader definition compared to other standard definitions. Xarelto-treated patients exhibited higher rates of bleeding versus placebo when administered on a background of antiplatelet therapy, and there was a significant dose trend (p<0.001). No study arm was halted due to increased bleeding. Rates of clinically significant bleeding were: placebo: 3.3%, Xarelto 5 mg: 6.1%, 10 mg: 10.9%, 15 mg: 12.7%, 20 mg: 15.3%. Most bleeding (82%) was classified as bleeding requiring medical attention. No evidence of drug-induced hepatotoxicity was seen in the study. The increased risk for bleeding was one aspect of the study results that warranted more attention in future trials. The global Phase III study, ATLAS ACS TIMI 51, began in December 2008 and has a potential enrollment of up to 16,000 patients. All patients will receive standard care antiplatelet therapy and will then be randomly assigned to take either Xarelto at doses of 2.5 mg or 5 mg, or placebo, twice daily for at least six months. The rationale for advancing the two dose groups was based on a favorable net clinical benefit seen in ATLAS however, it is unclear whether these doses will benefit recurrent ischemia. The
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data portrayed by the companies at AHA 2008 only demonstrated a benefit when the other three endpoints - death, MI, and stroke - were compared to placebo. The primary efficacy endpoint will be a composite of cardiovascular death, MI or stroke. The primary safety endpoint will be TIMI major bleeding events not associated with coronary artery bypass graft (CABG) surgery.
Source: AHA 2008
Bristol-Myers Squibb/Pfizers Apixaban Suffers Setback In VTE But ACS Data Promising
Apixaban is a selective, oral direct Factor Xa inhibitor that offers good oral bioavailability, no food effect, a half-life of 12 hours, and no organ toxicity or raised LFTs seen in animal toxicity studies. Apixaban is excreted predominantly via the liver but also by the kidney (25%), may not require monitoring and has not been associated with significant bleeding. Bristol-Myers/Pfizer are undertaking a comprehensive Phase III program in multiple indications: VTE prevention; stroke prevention; VTE treatment and ACS (scheduled to begin). Data from the Phase III U.S. VTE prevention, ADVANCE-1, study released in August 2008 revealed that it had missed the primary endpoint. This has resulted in an indefinite delay in the H2:09 U.S. VTE prevention filing, a major setback especially in relation to Xareltos potential launch in Q1:09. An EU filing remains on track. The Phase II APPRAISE-1 data in ACS were presented at ESC 2008. The data support moving forward into ACS on top of Plavix and aspirin. However, based on the results of the ADVANCE-1 and APPRAISE-1 studies it is unclear whether Bristol/Pfizer have selected the correct dose for the ongoing Phase III program as there appears to be a narrow therapeutic index. We forecast apixaban sales of $250MM in 2012 and $1B in 2015.
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APIXABAN EXPANSE PROGRAM Number of Patients
Study
Clinical Setting
Apixaban Dose
Comparator
Surgical VTE Prophylaxis ADVANCE-1 Knee replacement surgery ADVANCE-2 Knee replacement surgery ADVANCE-3 Hip replacement surgery Medical Prophylaxis ADOPT ARISTOTLE AVERROES
2.5mg BID 2.5mg BID 2.5mg BID
Lovenox 30mg BID Lovenox 40mg QD Lovenox 40mg QD
3,670 3,670 4,424
Acute medical illness Stroke prevention in atrial fibrillation who VKA ineligible Stroke prevention in atrial fibrillation
2.5mg BID 5mg BID 5mg BID
Lovenox 40mg QD Warfarin Aspirin
7,502 15,000 16,455
VTE Treatment AMPLIFY AMPLIFY-EXT
Acute DVT/PE Long-term treatment of VTE/PE
10mg BID 2.5mg or 5mg BID
Lovenox + warfarin Placebo
4,800 2,430
Source: company data; clinicaltrials.gov
ADVANCE-1 A Major Setback Top-line results from the ADVANCE-1 study were released in August 2008. Apixaban 2.5mg BID missed the primary endpoint, resulting in the inability to demonstrate noninferiority. The VTE rate for patients on apixaban was 9.0% versus 8.9% (p=0.64) on Lovenox. Bristol/Pfizer had designed the study based on the Phase II results expecting a Lovenox VTE rate of 16%; however, both JNJ/Bayers Xarelto RECORD-4 and now ADVANCE-1 have had significantly lower rates, 10.1% and 8.9% respectively. The major bleeding event rate for apixaban was lower than for Lovenox (0.7% vs. 1.4%, p=0.053). When considering the low bleeding rate in relation to the moderate efficacy we surmise that dosing may not be adequate. There were no unexpected adverse events and the rate of elevated liver enzymes was lower in patients on apixaban than on Lovenox.
APIXABAN U.S. VTE PREVENTION IN TKR (ADVANCE-1)
Lovenox 30mg BID Apixaban BID (%) (%) VTE Endpoint Major bleeding Clinically relevant non-major bleed Source: Company data 9 0.7 2.9 8.9 1.4 4.3 Relative risk reduction 1.01 0.50 0.67
p-value p=0.64 p=0.53 p=0.034
APPRAISE-1 Demonstrate Proof-Of-Concept In ACS, A 1st For The Factor Xa Inhibitors Bristol-Myers/Pfizer presented data from the Phase II APPRAISE-1 study at ESC 2008. This is the first study to demonstrate Factor Xa inhibitors role in ACS, an arterial rather than a venous clotting diease. Apixaban demonstrated the ability to reduce recurrent ischemic events beyond standard of care, dual platelet therapy. APPRAISE-1 was a 6month, dose-ranging, placebo-controlled trial in patients with ACS (plus at least one additional risk factor). The trial was not powered to demonstrate a statistical difference in efficacy or safety. The study was conducted in two phases: Phase A randomized
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patients 1:1:1 to placebo, 2.5mg BID, and 10mg QD. After an interim analysis two more doses were added and patients were randomized 3:1:1:2:2 to placebo, 2.5mg BID, 10mg QD, 10mg BID, and 20mg QD. The 20mg total dose arms were discontinued due to excess bleeding. In the efficacy composite primary endpoint (CV death, MI, severe recurrent ischemia, or stroke) the placebo rate was 8.7% versus 7.6% and 6.0% for the two apixaban doses. It appears that a CV death of 3.5% may have driven the 2.5mg dose primary endpoint compared to 1.8% for placebo and 1.3% for 10mg QD. ISTH major bleeding rates were 3.0%, 5.7%, and 7.9% for placebo, 2.5mg BID, and 10mg QD, respectively. There was one patient in the 10mg QD arm who experience raised ALTs >3x ULN. Bristol/Pfizer are in the process of designing the Phase III study.
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COMPARISON OF TRITON VERSUS TRA AND APIXABAN PHASE II DATA TRITON-TIMI 38 Prasugrel (n=6,813) 2.4 5 Plavix (n=6,795) 1.8 3.8 TRA/PCI Study All TRA Doses + Standard Care (n=422) 0.7 2.8 Standard Care (n=151) 1.3 3.3 APPRAISE-1 Apixaban Apixaban 5mg BID + 10mg QD Standard standard + standard Care care care (n=611) 0.0 1.0 (n=317) 1.0 1.3 (n=318) 0.3 0.8
Bleeding Event (%) Non-CABG TIMI major Non-CABG TIMI major/minor Efficacy events (%) MACE2 CV Death Stroke MI Recurrent ischemia CV Death/MI
1 2
12.3 2.1 1 7.3 0.9 8.9
14.6 2.4 1 9.5 1.6 11.3
6.2 0.5 0.2 4.3 0.2 4.5
8.6 0 0 7.3 0.7 7.3
7.6 3.5
6.0 1.3
8.7 1.8
Clinically significant bleeding at 15 months for TRITON vs 60 days in the TRA study vs 6-months in APPRAISE-1 MACE = Major Adverse Cardiac Event (death, myocardial infaction, stroke, recurrent myocardial ischemia requiring hospitalization)
Source: NEJM, company data
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Daiichi-Sankyos DU-176b Moves Into Large Phase III AF Study On Promising Data
DU-176b inhibits FXa with a Ki of 0.6 nM, and is 10,000-fold more selective for Factor Xa than thrombin. Two Phase II studies of DU-176b administered once or twice daily for VTE prevention have completed and were presented at ESC 2008. A 16,500 Phase III study in AF was initiated in November 2008. The study was initiated on the back of a promising Phase II b AF study. The Phase III program, ENGAGE AF TIMI-48, is evaluating two DU-176b doses on top of placebo. Phase II VTE Data Unremarkable The Phase II dose ranging study was presented at ESC 2008 and appears undifferentiated from other Factor Xa inhibitors. In the randomized, double-blind comparative study four doses of DU-176b (15, 30, 60 and 90 mg once daily) were compared to the low molecular weight heparin, dalteparin. The study was conducted among 903 patients in Europe and North America undergoing total hip replacement surgery. The results depicted in the table below show a dose-dependent increase in bleeding and improvement in the VTE rate. The company appears to have elected not to advance DU-176b in the VTE but rather pursue atrial fibrillation.
DU-176b PHASE II VTE STUDY
Dalteparin DU-176b 15 mg 30 mg 60 mg 90 mg
VTE incidence (%) 43.8 [35.5-52.3]# 28.2 [21.6-35.6]* 21.2 [15.0-28.6]** 15.2 [10.0-21.8]** 10.6 [6.2-16.6]**
Bleeding occurence*** (%) 0 [0-2.1] 1.6 [0.3-4.5] 1.8 [0.4-5.1] 2.2 [0.6-5.4] 2.3 [0.6-5.7]
#95% confidence interval, * p=0.005, **p<0.001, ***Major+Clinically Relevant
Phase II AF Data Competitive Versus Pradaxa A total of 1,146 patients with atrial fibrillation (as determined by the CHADS2 index 2) were enrolled in the study. Patients were randomly assigned to receive either one of the four fixed dose regimens of DU-176b (30mg/N=235 or 60mg/N=234 administered once daily; 30mg/N=244 or 60mg/N=180 administered twice a day), or warfarin (N=250) doseadjusted locally to a target international normalized ratio (INR) of 2.0-3.0 for 12 weeks. The primary endpoints of the study were the incidence of bleeding events (major and clinically relevant non-major) and elevated liver enzymes and/or bilirubin. Secondary endpoints included major adverse cardiovascular events, stroke, systemic embolism, acute myocardial infarction, hospitalizations due to cardiovascular conditions or cardiovascular death. The incidence of major and clinically relevant non-major bleeding events was significantly higher with the 30 mg and 60 mg twice-daily DU-176b regimens (7.8%, p = 0.029 and 10.6%, p = 0.002 respectively) than it was in patients given warfarin (3.2%). In contrast, the incidence of major and clinically relevant non-major bleeding events with the 30 and 60 mg once-daily DU-176b regimens was comparable to that with warfarin (3.0%, 3.8% and 3.2%, respectively). There were no significant differences in the numbers of patients with elevated liver enzymes or bilirubin across all treatment groups. Although the study was not powered to detect efficacy, there were no significant differences in the rates of secondary efficacy endpoints across treatment groups. We
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compared the efficacy and safety of DU-176b versus Pradaxs Phase II data and conclude that the profiles are very similar.
COMPARISON OF DABIGATRAN VS. DU-176b IN AF DABIGATRAN PHASE II Dabigatran Dose No. of patients Thromboembolic event* Major bleeding Major or relevant bleeding 50 mg bid 150 mg bid 300 mg bid Warfarin 105 166 161 70 2 0 2 (2%) 0 0 13 (8%) 1 2.5% 17 (11%) 0 0 4 (6%) DU-176b PHASE II DU-176b Dose 30mg bid 60mg bid 235 234 1 (0.4%) 0 (0%) 7 (3.0%) 1 (0.4%) 1 (0.4%) 11 (4.7%) 30mg bid 244 2 (0.8%) 5 (2.0%) 60mg bid Warfarin 180 250 2 (1.1%) 6 (3.3%) 4 (1.6%) 1 (0.4%)
19 (7.8%) 19 (10.6%) 8 (3.2%)
* For DU-176b study the data are for stroke only
Source: ASH 2008 abstracts; Company data; Medscape
Portola's Betrixaban Moving Into A Large AF Phase II Study

Betrixaban is a once-a-day, Factor Xa inhibitor with a 19-24 hours terminal half-life. It has minimal renal clearance and is not metabolized through Cyp, i.e. limited drug-drug interaction potential. Betrixaban has a peak to trough ratio of 3x, potentially reducing bleeding potential, Xareltos is 12x. Phase II results reported at the ISTH 2007 meeting demonstrated proof-of-concept. The EXPERT study randomized 215 U.S. and Canadian patients undergoing total-knee-replacement surgery to receive one of two oral doses of PRT054021 (15 mg or 40 mg twice daily) or enoxaparin (30 mg twice daily by subcutaneous injection) for 10 to 14 days. The primary efficacy endpoint, the incidence of VTE through day 10 or 14 measured by venography, supported betrixabans efficacy but favored enoxaparin. Phase I Qtc study was completed in March without any complications. To date, betrixaban has not caused increased LFTs or bilirubin. In Ocotber 2008, Portola advanced betrixaban into a 3-month, 500 patient, dose ranging (40, 60, 80mg), Phase II stroke prevention AF study (EXPLORE Xa). Portola believes that betrixaban s long half-life positions it better for the long-term indications. EXPERT Phase II Results
End point VTE (95% CI) Major bleeds Significant nonmajor bleeds PRT054021 15 mg (n=87) (%) 20 (12-32) 0 0 PRT054021 40 mg (n=84) (%) 15 (8-27) 0 2.4 (2 patients) Enoxaparin (n=43) (%) 10 (3-23) 2.3 (1 patient) 4.7 (2 patients)
Source: theheart.org
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Direct Factor Xa Inhibitors (Oral) Rivaroxaban Bayer/JNJ Phase III 0.4 60-86% 5-9 28% 66% Primarily unchanged (36%) Intra-subject variability of 35% No No No No Increase in anti-FXa activity Increase in PT QD/ (BID for AF) No No No No No BID QD QD QD/BID QD Apixaban BMY/PFE Phase III 0.8 34-88% >10 75% 25% DU-176b Daiichi/Sankyo Phase III 0.56 YM150 Astellas Phase II 31 Betrixaban/P RT054021 Portola Phase II 0.117 47% 19 TAK-442 Takeda 813893 GSK Phase I/II >7 AVE-3247 SNY Phase I LY 517717 LLY Discontinued 4.6-6.6 25-82% 25 Primary
Company Stage of Development Ki for Factor Xa (nM) ADME Bioavailability T1/2 (hours) Mode of excretion Liver Renal Metabolites Other Drug:Drug Interaction Aspirin Naproxen Warfarin Digoxin Enoxaparin Dosing Indications And Status
Approved in EU; Filed in U.S. VTE Prevention Phase III Phase II Phase II Phase II Phase II VTE Prevention In Medical Phase III Phase III Phase III Treatment Of DVT Phase III Stroke Prevention In AF Phase III Phase III Phase III Phase II Phase II Phase I Acute Coronary Syndromes Phase III Phase II complete Phase II ki: dissociation constant for the Factor Xa inhibitors Source: Turpie, A.G.G., Oral Direct Factor Xa Inhibitors in Development For The Prevention And Treatment Of Thromboembolic Disease; www.clinicaltrials.gov; Company Data; ESC; AHA
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U.S. CARDIOLOGY MARKET

Total Prescriptions (000's) % Market Share 2008 2009E 2013P 1987* 2008 2009E Cholesterol 363,627 350,000 310,000 2% 27% 27% ACE Inhibitors 245,794 232,000 145,000 7% 18% 18% ARB's 129,621 115,000 145,000 9% 9% Diuretics 114,502 202,816 194,000 145,000 31% 15% 15% Beta Blockers 71,118 201,243 194,000 130,000 19% 15% 15% Calcium Blockers 35,319 136,476 130,000 80,000 10% 10% 10% Vasodilators 59,960 29,250 26,000 20,000 16% 2% 2% Digitalis 28,944 22,377 26,000 17,000 8% 2% 2% Alpha Blockers 8,062 16,666 13,000 11,000 2% 1% 1% Anti-Arrhythmics 12,684 12,514 13,000 11,000 3% 1% 1% 4,662 4,000 11,000 0% 0% 0% Other 1,277 Total 365,572 1,365,045 1,297,000 1,025,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates 1987* 7,650 26,056 CGR 2013P '87-08 '08-13 30% +20% -3% 14% +11% -10% 14% NA +2% 14% +3% -6% 13% +5% -8% 8% +7% -10% 2% -3% -7% 2% -1% -5% 1% +4% -8% 1% -0% -3% 1% +6% +19% 100% +6% -6%

Drug Cozaar/Hyzaar Angiomax Lipitor
Manufacturer Merck The Medicines Company Pfizer Bristol-Myers/Sanofi-Aventis Bristol-Myers/Sanofi-Aventis Novartis Merck AstraZeneca/Takeda Schering-Plough/Millennium Schering-Plough/Merck Forest/Sankyo
Patent Expiration 2/10 3/10 11/11 5/12 3/12 9/12 5/12 6/12 11/14 6/15 4/16
U.S. Sales in Year Patent Expires ($MM) 500 Not covered 5,000 6,400 750 2,000 80 1,000 250 1,875 ---
Plavix* Avapro* Diovan Aggrastat Atacand Integrilin Zetia Benicar
* Includes 6-month pediatric exclusivity Patent settlement
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Cardiovascular
CARDIOVASCULAR R&D PIPELINE Company Astellas Product BIBR-277 HCT PC I II III NDA Apr-06 MKT Comments Combination drug of angiotensin II receptor blocker/diuretic; with Boehringer Ingelheim; Japan Astellas RSD-1235 Dec-06 Selective Ka and Na channel blocker; atrial fibrillation and flutter; with Cardiome Daiichi Sankyo CS-866AZ Dec-08 Olmesartan, azelnidipine; hypertension; A2 receptor antagonist and calcium blocker combination Daiichi Sankyo GlaxoSmithKline Sevikar Arixtra . Aug-06 Olmesartan combination with amlodipine; EU Synthetic factor Xa inhibitor; treatment of acute coronary syndrome based on OASIS 5; approvable 2/2007 and 9/2007 Pfizer, Inc. Sanofi-Aventis AstraZeneca Bayer Schering Pharma Caduet Multaq Atacand Plus Xarelto . . Nov-07 Jun-08 Q2:08 Jul-08 Hypertension; Japan Dronedarone; antiarrhythmic; atrial fibrillation A2 antagonist with thiazide diuretic; hypertension; filed in EU Rivaroxaban; Factor Xa inhibitor; PIII
for DVT treatment, stroke prevention, acute coronary syndrome (ACS); with JNJ
Bristol-Myers Squibb Daiichi Sankyo
Avapro Effient
. .
Feb-06 Dec-07
Congestive heart failure with preserved systolic function Prasugrel; antiplatelet agent; ADP with UBE Industries and Eli Lilly; receptor antagonist; jointly developed priority review at FDA; EU rollout underway; PIII for acute coronary syndrome (ACS)
Eli Lilly
Effient
Dec-07
Prasugrel; ADP receptor blocker; oral anticoagulant; acute coronary syndrome; priority review at FDA; Sankyo
approved in EU Feb. 2009; with Daiichi Pfizer, Inc. Sanofi-Aventis Thelin Lovenox . . May-05 . Treatment of pulmonary arterial
hypertension (PAH); from Encysive surgery
Pen; filed in Japan for abdominal
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Cardiovascular
CARDIOVASCULAR R&D PIPELINE Sanofi-Aventis Plavix . . Prevention in at risk patients; AF; ACS high loading dose data in H2:09; pediatric extension; stent filed in EU Sanofi-Aventis 121463) Satavaptan (SR. . Vasopressin V2 antagonist; EU for hyponatremia Takeda TCV-116 . Jun-08 A2 receptor antagonist; fixed-dose PIII for high dose Johnson & Johnson Xarelto . . Jul-08 Rivaroxaban; filed for prevention of knee replacement; PIII for stroke treatment, and VTE treatment in with Bayer Abbott Laboratories AstraZeneca AstraZeneca AstraZeneca AstraZeneca Bayer Schering Pharma Bristol-Myers Squibb Plavix . Prevention of thromboembolic events in patients with atrial fibrillation (ACTIVE); higher-loading dose Daiichi Sankyo CS-8635 . Olmesartan combination with amlodipine and hydrochlorothiazide; U.S. Daiichi Sankyo Forest Laboratories GlaxoSmithKline Darapladib . 201011 CS-866DM Bystolic/Nebivolol . . H1:09 Olmesartan; line extension; diabetesrelated kidney dysfunction CHF planned in H1:09 Lp-PLA2 inhibitor; atherosclerosis; Phase III STABILITY study started December 2008 Merck Merck Anacetrapib Cordaptive . . >2014 2012 MK-0859; atherosclerosis; CETP inhibition MK-0524A; niacin plus novel flushing pathway inhibitor; atherosclerosis; sNDA filing of SENIORS trial data for Tri-Lipix/Crestor combination Atacand Brilinta Crestor Crestor/TriLipix Aspirin I.V. . . . . . Q4:09 Q2:09 Q3:09 Prevention of diabetic retinopathy AZD 6140; ADP receptor antagonist; oral; arterial thrombosis Statin; renal outcomes; outcomes in subjects with elevated CRP with Abbott Laboratories Acute coronoary syndrome Statin + fibrate fixed combination; . 2010 Fixed-dose combination; dyslipidemia venous thromboembolism in hip and prevention in atrial fibrillation, VTE medically ill; PII for ACS; collaboration combination with diuretic filed in EU; hyponatremia; cirrhotic ascites; filed in
(CURRENT); pediatric (CLARINET)
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Cardiovascular
CARDIOVASCULAR R&D PIPELINE approved in foreign markets; not HPS-THRIVE trial Merck MK-0524B . 2012 MK-0524A + Zocor; NDA filing awaits resolution of Cordaptive notapprovable letter Merck Rolofylline . 2009 MK-7418; selective renal arterial NovaCardia Mitsubishi Tanabe Argatroban . Thrombin inhibitor; heparin-induced undergoing PCI; EU Mitsubishi Tanabe Novartis Maintate (TA4708) Diovan/Starlix . . Selective beta 1 inhibitor; chronic heart failure; with Merck KGaA Insulin secretagogue in combination with antihypertensive for prevention of type 2 diabetes; 7,500 patients to be recruited for NAVIGATOR trial Novartis Roche Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Lotrel 10-20 and 10-40 R1658 (Dalcetrapib) Aprovel (irbesartan) . . . 201011 2010 . >2012 CETP inhibitor; dyslipidemia; with Japan Tobacco; RO4607381/JTT-705 CHF with preserved systolic functions; atrial fibrillation Ultra low molecular weight heparin (ULMWH); VTE prevention Cholesterol absorption inhibitor; hypercholesterolemia; Phase IIb data different doses Sanofi-Aventis Idrabiotaparinux . 2011 Biotinylated long-acting pentasaccharide; indirect Xa inhibitor; long-term treatment DVT/PE; atrial fibrillation Sanofi-Aventis (NV1FGF) Acadesine Integrilin SCH 530348 XRP0038 . 2010 Therapeutic angiogenesis; plasmidbased gene therapy; critical limb ischemia, peripheral arterial disease ScheringPlough Plough ScheringPlough . 201011 Thrombin receptor antagonist; acute coronary syndromes, including unstable angina and acute M.I.; blocks platelet aggregation: designated fast Schering. . 201112 Prevention of ischemia-reperfusion Early acute coronary syndrome injury; with PeriCor Pharmaceuticals showed significant reduction in LDL at . PIII ACCOMPLISH data thrombocytopenia; PIII for HIT patients vasodilator for acute heart failure; via approvable in U.S. pending outcome of
AVE-5026 AVE-5530
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Cardiovascular
CARDIOVASCULAR R&D PIPELINE track by FDA; PII data presented at 2007 ACC Takeda Bayer Schering Pharma Dainippon Sumitomo TAK-491 Riociguat (sGC stimulator) Droxidopa . . . . . A2 receptor antagonist; hypertension PAH, CTEPH; PII for pulmonary hypertension in COPD Treatment of symptomatic neurogenic orthostatic hypotension (PIII); (PII) Novartis Tekturna . . 200910 treatment of intradialytic hypertension Approved in U.S. & EU; fixed-dose with Starlix in PII; ASPIRE_HIGH outcomes study ongoing Pfizer, Inc. Apixaban . . Factor Xa inhibitor; PIII for VTE prevention, VTE treatment and atrial Myers Squibb Astellas YM-150 . Factor Xa inhibitor; prevention of venous thromboembolism (VTE) after major orthopedic surgery, prophylaxis of thromboembolic complications associated with atrial fibrillation AstraZeneca AstraZeneca Bayer Schering Pharma Pharma Bayer Schering Pharma Daiichi Sankyo Daiichi Sankyo Eisai GlaxoSmithKline GlaxoSmithKline Merck Merck Mitsubishi Tanabe Novartis Cinaciguat (sGC activator) CS-866CMB DU-176B E-5555 Losmapimod (856553) Rilapladib MK-0524C MK-6213 MCC-135 LCI699 . . . . . . >2012 2012 Lp-PLA2 inhibitor; atherosclerosis MK-0524A + Lipitor PII for primary hypercholesterolemia; PI for atherosclerosis Intracardiac Ca handling modular; MI Hypertension; aldosterone synthase inhibitor . . . . . Acute decompensated heart failure A2 receptor antagonist; diuretic; hypertension Factor Xa inhibitor; anticoagulant Acute coronary syndrome; atherothrombotic disease P38 kinase inhibitor; atherosclerosis Bayer Schering AZD 0837 AZD 1305 Adenosine A1Agonist BAY 60-4552 . . . . 2012 Thrombin inhibitor; thrombosis Arrhythmias Afib; stable angina sGC stimulator; heart failure fibrillation; PII for ACS; with Bristol-
combination with Diovan in PIII; FDC
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Cardiovascular
CARDIOVASCULAR R&D PIPELINE Novartis Novartis Pfizer, Inc. Roche Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis ScheringPlough Takeda Bristol-Myers Squibb TAK-536 Apixaban . . . LCZ696 SPP635 PD-348292 Anti-oxl DL Atacigual (HMR1766) AVE-0657 149744) Celivarone (SSR . . . . 2011 NHE3 inhibitor; sleep apnea Anti-arrhythmic agent; atrial fibrillation Direct Factor Xa inhibitor; acute coronary syndrome Direct thrombin inhibitor (DTI); factor Xa inhibitor; from Organon A2 receptor antagonist; hypertension; PII in the U.S., Europe, Japan Thrombosis; co-development/co . . . . . >2012 Hypertension; ARB/NEP inhibitor Hypertension; from Speedel Thrombosis Previous CV events; with Genentech Guanylate cyclase activator; PAD; PAH
(XRP0673)
Otamixaban
ORG 42675
marketing with Pfizer; VTE delayed (knee, hip, medical, cancer); stroke prevention in AF (vs. warfarin); ACS
KAI 9803
Treatment of reperfusion injury associated with heart attacks (PII); with KAI Pharmaceuticals treatment of ischemic diseases (PI);
Takeda AstraZeneca Bayer Schering Pharma Pharma Pharma Daiichi Sankyo Eli Lilly GlaxoSmithKline GlaxoSmithKline Merck Merck Merck Merck Mitsubishi Tanabe Myriad Genetics Bayer Schering Bayer Schering
TAK-442 AZD 6482 Dual FIIa/Xa Inhibitor Agonist IP receptor Rec. Factor VII DB-772D Undisclosed 1278863 256073 MK-1093 MK-1597 MK-3614 MK-8984 TA-8995 MPC-0920
. . . . . . . . . . . . . . .
Factor X inhibitor; venous/arterial thromboembolism PI3K-beta inhibitor; thrombosis ACS PAH Hemophilia Anticoagulant Atherosclerosis Prolyl hydroxylase inhibitor; anemia High affinity nicotinic acid receptor (HM74A) agonist; dyslipidemia Atherosclerosis Cardiology Cardiology Cardiology CETP inhibitor; dyslipidemia Thrombosis; direct thrombin inhibitor; looking to partner pre-Phase II
346
Cardiovascular
CARDIOVASCULAR R&D PIPELINE Novartis Novartis Novartis Pfizer, Inc. Pfizer, Inc. Roche Roche Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis SPP1148 SPP676 VNP489 CP-800569 PF-3185043 R1512 R7232 AVE-0118 AVE-3085 SAR-407899 SSR-128428 . . . . . . . . . . . >2011 Renin inhibitor; hypertension; from Speedel Speedel Hypertension; on hold Atherosclerosis Atherosclerosis Monoclonal antibody; peripheral vascular disease CETP Inhibitor Potassium channel blocker; obstructive sleep apnea (nasal route) eNOS transcription enhancer; CHF Rho-kinase inhibitor; hypertension; neuropathic pain Long-acting hexadecasaccharide; embolic diseases ScheringPlough Plough Takeda SCMP Wyeth Aradigm TAK-591 SPI-017 GAP-134 Treprostinil . . . . . . ScheringORG 224283 ORG 27306 . . Direct thrombin inhibitor (DTI); from Organon Thrombin (factor IIa) inhibitor; from Organon A2 receptor antagonist; hypertension Peripheral arterial disease (Phase I); stroke Atrial fibrillation, IV and oral formulations Pulmonary arterial hypertension; I.V. Remodulin; partnered with United Therapeutics; potential dosing advantages Bristol-Myers Squibb Squibb Squibb Bristol-Myers Squibb Squibb Bristol-Myers Sanofi-Aventis Sanofi-Aventis LXR Agonist PCSK9 Inhibitor SAR-104772 SAR-106881 . . . .
347
Renin inhibitor; hypertension; from
indirect Xa/IIa inhibitor; thrombo-
formulation currently on the market as
CCR2 antagonist Delta PKC Inhibitor DGAT Inhibitors
. . .
Cardiovascular/metabolic indications Cardiovascular disease Cardiovascular/metabolic indications Atherosclerosis Prevention and treatment of
Bristol-Myers Bristol-Myers
cardiovascular disease; from Isis
TAFla inhibitor; thrombo-embolic diseases FGF agonist; post-ischemic
Cardiovascular
CARDIOVASCULAR R&D PIPELINE revascularization Sanofi-Aventis Sanofi-Aventis ScheringPlough Plough ScheringSAR-114646 SAR-548304 ORG 227541 ORG 235697 Total Drugs In Development 12 30 28 33 18 121 . . . . Antiarrhythmic agent; IV treatment of atrial and ventricular arrhythmias Bile acid reabsorption inhibitor; hypercholesterolemia Factor Xa inhibitor; from Organon LXR agonist; cholesterol; from Organon
348

CNS Category Includes An Array Of Disorders
The central nervous system market may be segmented into -7% 2008-13 CGR numerous subcategories, including depression, anxiety, schizophrenia, bipolar disorder, attention deficit/hyperactivity disorder, migraine, addiction therapies, among others. While established treatments are currently available for each of these therapeutic subcategories, these markets are large and significant unmet medical needs remain. Novel treatments under development seek to address these opportunities.
Central Nervous System Category Market Share By $ Sales
OTHER 12% NVS 3% SHPGY 4%
2008
$39B
LLY 21% Other 17%
2013P
$28B
JNJ 14%
PARTICIPANTS
SHPGY 4% WYE 4% AZN 14% BMY 5% NVS 6% JNJ 13% AZN 8% MRK 9%
BMY 6% GSK 7%
LLY 14%
GSK 10%
PFE 9% WYE 11%
PFE 9%
In 2008, Eli Lilly led the CNS category with 21% share of worldwide sales. JNJ is expected to share the top spot in 2013 on the strength of their schizophrenia and ADHD franchises (Risperdal Consta, Paliperidone Palmitate, Concerta) with Eli Lilly. Lilly is expected to decline roughly 7% in dollar share from 2009 through 2013, due to the launch of Zyprexa generics in 2011. GSK will assume the third spot while AstraZeneca will lose share due to patent expirations. Selective serotonin reuptake inhibitors (GlaxoSmithKline, Forest Labs, and Pfizer) should continue to be the mainstay treatment for depression and anxiety despite concerns over suicidality, but sales of the class have declined due to generics. Dual-acting agents impacting both serotonin and norepinephrine (Eli Lilly, Wyeth) should continue to grow and gain prescription market share from the SSRIs, driven by Eli Lillys Cymbalta. The recent approval of Cymbalta for the treatment of fibromyalgia syndrome offers additional opportunities for SNRI growth. The introduction of Effexor XR generics in 2010 tempers sales growth. The potential of newer modalities in depression, such as NK antagonists, beta3adrenoreceptor agonists, and CRF antagonists, remains unclear. Our consultants have become more positive on the outlook for triple reuptake inhibitors (serotonin, norepinephrine, and dopamine). Atypical agents should dominate the antipsychotic market through 2013, given good efficacy, reasonable safety and broad application. Once-daily stimulants should remain the gold standard for ADHD given solid efficacy and manageable side effects. The rollout of Shires Vyvanse (launched in
349
July 2007) thus far has been solid. Eli Lillys Strattera, the first non-scheduled agent for ADHD, gained rapid acceptance, but we project Strattera sales will decline through 2013 due to competition and its own adverse label warnings. The migraine market (Abbott, AstraZeneca, Endo, GlaxoSmithKline, Merck, and Pfizer) is unlikely to grow significantly over the next two years, as newer agents offer little differentiation. GlaxoSmithKline/Pozens Treximet (Imitrex plus naproxen) was approved in April 2008 and launched in May: early uptake has been slow. Mercks MK-0974 (Phase III; 2010 launch projected) looks very promising, offering a novel mechanism and potentially a cleaner safety profile compared to the triptans. New therapeutics to treat addiction and substance abuse are rolling out, led by Pfizers Chantix (smoking cessation) and Cephalon/Alkermes Vivitrol (alcohol dependence). Chantixs prospects have been significantly hampered by recent developments related to side effects of suicidal ideation and depression. SanofiAventis dropped development of Dianicline (Phase III) for smoking cessation, indicating it wasnt adequately differentiated from Chantix, which has been an early success. Our scatter plot shows that JNJ and Eli Lilly will lead the CNS segment in 2013. GSK and Pfizer will continue to hold strong positions in the category. The CNS segment is a key component of growth for Merck. Patent expirations will hurt a number of companies, most notably Lilly and AstraZeneca.
CNS
80% MRK
40% SHPGY 0% PFE -40% NVS GSK
JNJ
-80%
WYE
-120%
BMY AZN
LLY
-160%
350
ESTIMATED WORLDWIDE MARKET FOR CNS DRUGS BY CLASS ($MM)

2008 Market % Total $16,794 43% 5,038 2,316 758 3,944 13% 6% 2% 10% 2013P Market % Total $9,045 33% 2,925 2,878 1,995 998 11% 10% 7% 4% $ 08-13 CGR -12% -10% 4% 21% -24% NRx 87-08 CGR Comments 14% - LLY's Zyprexa, JNJ's Risperdal, AZN's Seroquel, BMY's Abilify NM WYE's Effexor/Pristiq, LLY's Cymbalta
Drug Class Antipsychotics SNRI's Anti-Migraine Newer Antidepressants SSRI's
NM - GSK's Imitrex, AZN's Zomig, MRK's Maxalt, PFE's Relpax NM - GSK's Wellbutrin NM - LLY's Prozac, PFE's Zoloft, GSK's Paxil, FRX's Celexa, Lexapro, and generics -2% - Generics dominate 6% - Generics dominate NA 7% - Driven by newer antipsychotics
Tranquilizers Older Antidepressants Other CNS Total Market
482 632 7,040 $38,658
1% 2% 18% 100%
145 250 8,717 $27,610
1% 1% 32% 100%
-21% -17% 4% -7%
Over 18MM Americans Suffer From Depression

DETAILED DISCUSSION
An estimated 18.8MM Americans suffer from depressive illness, whether it be major depressive disorder (MDD), dysthymia (a less severe form of depression), or bipolar disorder. Despite significant efforts to reduce the stigma associated with depressive illness and the growing number of treatment options, a significant portion of people suffering from depressive illness still do not seek treatment. Without treatment, symptoms can persist for a few weeks to years. MDD can interfere with a persons ability to work, sleep, eat, and may lead to increased irritability and in some cases suicide. Depression episodes often occur multiple times throughout an individuals lifetime. Depression is twice as prevalent in women compared to men; however, men are less likely to admit to feeling depressed, which may account for at least some of the difference. Bipolar disorder, previously called manic-depressive illness, is characterized by mood swings. Patients typically cycle gradually from a depressed mode (similar to MDD), to a manic mood, during which the patient has a great deal of energy and may be overactive. While the exact cause of depressive illness is unknown, there are a number of products available to treat the disorder.
Current Treatments Focus On Neurotransmitter Regulation

Currently available antidepressant agents primarily target the metabolism, storage, and/or release of the neurotransmitters, including serotonin and norepinephrine. The older antidepressants, like monoamine oxidase inhibitors (MAOIs) and tricyclic antidepressants (TCAs), primarily affect depression by decreasing the metabolism of serotonin (MAOIs) or by inhibiting the uptake of serotonin and norepinephrine (TCAs). However, potentially life-threatening side effects limit the utility of these agents in a broad range of patients. Newer antidepressants such as selective serotonin reuptake inhibitors (SSRIs) and serotonin and norepinephrine reuptake inhibitors (SNRIs) have better side effect and safety profiles compared to older agents, and now dominate the treatment of less severe depression. Triple re-uptake inhibitors (TRIs), which inhibit the re-uptake of serotonin, norephinephrine, and dopamine, are making their way through clinical trials, but are unlikely to prove to be significant therapeutic advances,
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as physicians wishing to achieve such an effect have been able to do so already via tailored combination drug therapy. The implementation of Medicare Part D and resumption of use in adolescent patients helped drive prescription growth in 2006 (+7%), but prescription growth slowed to just 1% in 2007. We project SSRI/SNRI U.S. prescription growth will be 1-2% annually over the next five years.
Label Expansion Provides Opportunity For Growth And Differentiation

A number of the leading antidepressants are approved for indications in addition to depression (MDD), including obsessive compulsive disorder (OCD), general anxiety disorder (GAD), panic disorder, social anxiety disorder (SAD), premenstrual dysphoric disorder (PMDD), post traumatic stress disorder (PTSD), and bulimia. While depression remains the single largest market opportunity, these additional indications almost double the potential market opportunity (36.2MM total U.S. patients) for these drugs. Cymbaltas indication for the treatment of diabetic peripheral neuropathic pain (DPNP) taps an incremental market of an estimated 2-3MM people in the U.S. Cymbalta and more recently Forests Savella have gained approval for the treatment of fibromyalgia syndrome (FMS), which affects an estimated 1.5-12MM Americans.
COMPARISON OF FDA-APPROVED INDICATIONS FOR LEADING ANTIDEPRESSANTS Indication (Est. size of U.S. Market) MDD OCD GAD Panic SAD PMDD PTSD Bulimia (18.8MM) (3.3MM) (4.0MM) (2.4MM) (5.3MM) (3.0MM) (5.2MM) (1.5MM) Yes No No No No No No No Yes No Yes No No No No No Yes No No No No No No No Yes No Yes Yes Yes No No No Yes No Yes No No No No No Yes Yes Yes Yes Yes No Yes No Yes No No Yes Yes Yes No No Yes Yes No Yes No Yes No Yes Yes No No No No No No No Yes Yes No Yes Yes Yes Yes No Yes No No No No No No No
Product Celexa Cymbalta Effexor Effexor XR Lexapro Paxil PaxilCR Prozac Wellbutrin XL Zoloft Pristiq
DPNP (2.5MM) No Yes No No No No No No No No No
Sources: Product labels, www.nimb.nih.gov
SSRI Generics Changing The Complexion Of The Market

Our physician consultants believe SSRIs will remain the first-line therapy of choice for depression given that general practitioners are comfortable with the profile of this drug class and the average clinician is unlikely to observe significant difference in patient response to SSRIs versus SNRIs. As of January 2009, SSRIs accounted for 77.5% of the market, in terms of total prescriptions, while SNRIs accounted for 22.5%. Nevertheless, SNRIs have actually gained market share, presumably due to new product launches like Lillys Cymbalta and Wyeths Pristiq. While the SNRI total prescriptions have grown 43% over the past 24 months (since February 2006), the SSRI total prescriptions have grown only about 15%. Overall, the total market for both SSRIs and SNRIs has grown about 20% since February 2006. While the percentage of Cymbalta prescriptions written for Fibromyalgia is unclear, some part of the SNRI growth in the antidepressant category is clouded by Cymbaltas growth in Fibromyalgia. Our consultants view the five major SSRIs -- Eli Lillys Prozac, Forest Labss Celexa and Lexapro, Pfizers Zoloft, GlaxoSmithKlines Paxil/CR, and their respective generics -- as similar products. Our consultants indicate that there currently is no SSRI of choice,
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although minor differences in efficacy and tolerability in different patients distinguish certain agents. The arrival of multiple SSRI generics has changed the complexion of the antidepressant market; Prozac generics arrived in August 2001, Celexa generics arrived in October 2004, Zoloft generics arrived in August 2006 and Paxil CR generics came in May 2008. The rollout of Zoloft generics slowed market share gains for the branded SSRI players. Forests appellate court victory in the Lexapro patent trial in September 2007 likely means that we will not see generic versions of Lexapro until 2012. Our physician consultants believe Lexapro is modestly differentiated from the other SSRIs by good tolerability and ease of use. Lexapro is the second most widely prescribed SSRI (branded or generic), behind generic Zoloft. Eli Lillys Cymbalta continues to gain market share as a result of strong promotional support and use in non-depression indications (e.g., DPNP and fibromyalgia).
SSRI/SNRI MARKET MONTHLY TOTAL PRESCRIPTION SHARE Lexapro Prozac generics

25.0%
Celexa generics Cymbalta
Paxil/CR generics Zoloft generics
Effexor XR
20.0%
TRx Share (%)
15.0%
10.0%
5.0%
0.0% Feb-06 Feb-07 Aug-06 Aug-07 Feb-08 Aug-08 Jun-06 Jun-07 Jun-08 Oct-06 Oct-07 Dec-06 Dec-07 Oct-08 Apr-06 Apr-07 Apr-08 Dec-08
Source: IMS monthly prescription audit
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2007 Depression Patients (MM): Treatment Penetration Total Treated Depression Patients Anxiety Patients (MM): Treatment Penetration Total Treated Anxiety Patients Other Patients Total Treated Patients (MM): Compliance Rate Total Rx's (MM) Rx Growth Rate Lexapro (FRX) Rx Share Rx's (MM) Average Daily Cost Lexapro Sales ($MM) Zoloft (PFE) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Paxil/CR (GSK) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Effexor/XR (WYE) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Cymbalta (LLY) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Prozac Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Prozac (LLY) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Celexa (FRX) Rx Share Celexa Rx's (MM) Average Daily Cost Celexa Sales ($MM) Generic Celexa Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Paxil Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Pristiq (WYE) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Others Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth 21% 34.32 $0.78 $800 $8,500 -7% 18.9 50% 9.4 15.0 40% 6.0 9.3 24.7 54.0% 160.2 +1% 19% 31.05 $2.39 $2,225 1% 1.83 $2.87 $157 2% 2.90 $3.29 $286 12% 18.70 $4.60 $2,580 9% 13.94 $4.39 $1,836 14% 22.66 $0.21 $145 0% 0.64 $7.52 $144 0% 0.27 $0.62 $5 11% 17.80 $0.12 $62 10% 16.14 $0.53 $257
2008 18.9 50% 9.5 15.0 40% 6.0 9.9 25.3 54.0% 164.2 +2% 18% 29.87 $2.60 $2,330 1% 0.92 $3.64 $100 1% 1.31 $5.11 $200 11% 18.00 $4.98 $2,687 10% 15.85 $4.74 $2,254 14% 22.58 $0.16 $110 0% 0.37 $11.64 $130 0% 0.20 $0.82 $5 14% 22.37 $0.07 $50 10% 16.24 $0.93 $455 0% 0.50 $3.97 $60 22% 36.00 $0.46 $500 $8,820 +4%
ESTIMATED U.S. SSRI/SNRI MARKET DYNAMICS CGR 2009E 2010E 2011E 2012E 2013E 08-13 19.0 50% 9.5 15.1 40% 6.0 9.6 25.1 54.0% 162.5 -1% 19% 30.25 $2.60 $2,360 0% 0.73 $3.64 $80 0% 0.42 $5.11 $65 11% 17.31 $4.90 $2,545 11% 17.80 $4.74 $2,530 10% 16.67 $0.20 $100 0% 0.53 $7.55 $120 0% 0.28 $0.60 $5 9% 13.89 $0.12 $50 16% 26.67 $0.50 $400 1% 0.95 $4.75 $135 23% 37.04 $0.45 $500 $8,760 -1% 19.0 50% 9.5 15.1 40% 6.0 10.2 25.7 54.0% 166.4 +2% 18% 30.70 $2.60 $2,395 0% 0.55 $3.64 $60 0% 0.10 $5.11 $15 7% 10.88 $4.90 $1,600 12% 19.84 $4.74 $2,820 10% 16.67 $0.20 $100 0% 0.49 $7.55 $110 0% 0.28 $0.60 $5 8% 13.89 $0.12 $50 16% 26.67 $0.50 $400 1% 1.47 $4.75 $210 27% 44.87 $0.52 $700 $8,260 -6% 19.0 50% 9.5 15.1 40% 6.0 10.3 25.9 54.0% 167.5 +1% 19% 31.08 $2.60 $2,425 0% 0.37 $3.64 $40 0% 0.03 $5.11 $5 2% 3.40 $4.90 $500 13% 21.10 $4.74 $3,000 10% 16.67 $0.20 $100 0% 0.44 $7.55 $100 0% 0.28 $0.60 $5 8% 13.89 $0.12 $50 16% 26.67 $0.50 $400 1% 2.11 $4.75 $300 31% 51.52 $0.55 $850 $7,480 -9% 19.1 50% 9.5 15.1 40% 6.0 10.5 26.1 54.0% 169.1 +1% 5% 8.33 $2.60 $650 0% 0.18 $3.64 $20 0% 0.03 $5.11 $5 1% 1.70 $4.90 $250 13% 21.95 $4.74 $3,120 10% 16.67 $0.20 $100 0% 0.40 $7.55 $90 0% 0.28 $0.60 $5 8% 13.89 $0.12 $50 16% 26.67 $0.50 $400 2% 2.63 $4.75 $375 45% 76.39 $0.48 $1,100 $5,790 -23% 19.1 50% 9.6 15.1 40% 6.0 10.0 25.6 54.0% 165.7 -2% 1% 1.92 $2.60 $150 0% 0.18 $3.64 $20 0% 0.03 $5.11 $5 1% 1.02 $4.90 $150 3% 5.63 $4.74 $800 10% 16.67 $0.20 $100 0% 0.35 $7.55 $80 0% 0.28 $0.60 $5 8% 13.89 $0.12 $50 16% 26.67 $0.50 $400 2% 2.81 $4.75 $400 58% 96.30 $0.45 $1,300 $3,060 -47% +22% +21%
Comments
+0% - Demographics expand patient population +0% +0% - Includes SAD, GAD, panic disorder, OCD +0% +0% - PMDD, bulimia, DPNP +0% - Flattening due to safety concerns +0%
-42% - Launched 9/2002; assume generic competition in 3/12 -42% - Clipped by generics beginning in 8/06 -28% -28% - Generics to Paxil introduced 9/03 -52% - Paxil CR generics launched in May 2008 - Manufacturing issues clipped in 2005 -52% - Leading SNRI; gaining share based on efficacy -44% - XR generics expected in July 2010 - More expensive due to dual mechanism -44% - Inhibits seratonin plus norepinephrine (SNRI) -19% - Approved 8/2004 - FMS approval June 2008 -19% - Lilly aggressively detailing - Barr Labs generic launched 10/01 -6% - Multiple additional generics launched 2/02 -2% - Clipped by Celexa generics - Generics clipped beginning in 10/01 -1% - Includes Prozac weekly -9% +6% - Generics clip starting in Oct 2004 +0% - Multiple generics launched 10/04 -9% +0% +10% -3% - Desvenlafaxine - Approved for MDD in 2/08; "approvable" for VMS - Priced at a discount to Effexor XR - Includes Sarafem, Fluvoxamine, Zoloft generics, Effexor XR generics, Lexapro generics
-19% - Growth clipped by generics of Paxil/CR, Celexa, Zoloft
Source: Company reports, IMS America, Cowen and Company estimates
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FDA SSRI/SNRI Advisories Have Not Affected Prescribing

In February 2006, an article in the New England Journal of Medicine (NEJM) highlighted the risk of neonatal persistent pulmonary hypertension (PPHN) when pregnant mothers took SSRIs after the 20th week of pregnancy. In the general population, the risk of a women giving birth to an infant affected by PPHN is approximately 1-2 per 1,000 live births. The retrospective analysis of 1,213 patients presented in the NEJM article indicated that women who took an SSRI after their 20th week of pregnancy were 6 times more likely to have an infant affected by PPHN than those women who did not take a SSRI. In July 2006, the FDA issued a health advisory on this subject. None of the existing SSRIs have been studied in well-controlled trials in pregnant women. The current labels indicate that physicians should weigh the risks and benefits when deciding whether or not to keep a woman on a SSRI during pregnancy. Preclinical studies have shown that SSRIs can result in lower birth rates, growth retardation, and increased mortality rates. At the FDAs request, manufacturers of SSRIs revised the labels for their products to highlight the risk of PPHN. In July 2006, the FDA also issued an advisory concerning the risk of using SSRI/SNRIs in combination with triptans (migraine). The alert was prompted by 27 reported cases of serotonin syndrome, which is a syndrome of changes in mental status, autonomic instability, neuromuscular abnormalities, and GI symptoms that could prove to be life threatening. The potential negative effects of combining a SSRI/SNRI with triptans are highlighted in the warnings section of the current SSRI/SNRI labels. Generally speaking, the risks associated with SSRI/SNRI use are well documented. Our physician consultants generally believe the benefits of antidepressants in patients outweigh the risks, if used in conjunction with counseling and/or monitoring. Total SSRI/SNRI prescriptions are up 3.5% over the trailing 12 months.
SSRI/SNRI Monthly Total Prescriptions
15,000,000
14,500,000
14,000,000
13,500,000
13,000,000
12,500,000
12,000,000
11,500,000
11,000,000
Mar-07 Mar-08 Sep-07 May-07 May-08 Sep-08 Feb-07 Feb-08 Dec-07 Nov-07 Aug-07 Aug-08 Nov-08 Dec-08 Apr-07 Apr-08 Oct-07 Oct-08 Jun-07 Jan-08 Jun-08 Jan-09 Jul-07 Jul-08
Source: IMS monthly Rx audit
355
Total Prescriptions
Forests Lexapro Is The Leading Branded Antidepressant

Lexapro (escitalopram) is an SSRI developed by Danish pharmaceutical company Lundbeck and is marketed in the U.S. by Forest. Lexapro is the s-enantiomer of citalopram (Forests Celexa) and was launched in August 2002. Forest ceased marketing Celexa immediately upon Lexapros launch. Celexa generics arrived in October 2004, and have since garnered 98%+ of the citalopram market. Lexapro has been experiencing modest market share losses and Celexa generics have been gaining market share in recent months. As of January 2009, Lexapro held a 17.4% total prescription share of the SSRI/SNRI market, down from 19.0% in January 2008. Lexapro is the most widely prescribed branded antidepressant since Zoloft generics entered the market in August 2006. In January 2004, Forest launched Lexapro for GAD, but received non-approvable letters for Lexapro in panic disorder and in social anxiety disorder in March 2005. The non-approvable letters were clear negatives for Lexapro, as both Paxil CR and Zoloft carry labeled indications for panic and social anxiety disorder. Management has not indicated the next steps in its pursuit of these indications. We estimate Lexapro sales of $2,335MM (+2%) in F2009, $2,375MM (+1%) in F2010, and $150MM in F2013, due to the anticipated arrival of generics in March 2012. Positive Results From Study Of Lexapro In Adolescents In November 2007, Forest and partner Lundbeck released positive top-line results from a Phase III study of Lexapro in adolescents (ages 12-17): complete data were presented at the APA meetings in May 2008. The 8-week, 316-patient, placebo-controlled study demonstrated a statistically significant (p=0.022) improvement in those patients treated with Lexapro via the Childrens Depression Rating Scale-Revised (CDRS-R). Forest filed for FDA approval of the adolescent depression indication in Q4:2008. Appellate Court Upheld Lexapro Patent In September 2007, the U.S. Court of Appeals for the Federal Circuit upheld the Lexapro patent (RE34,712 covering escitalopram oxalate), finding that Teva/Ivaxs appeal presented insufficient evidence to overturn the July 13, 2006 ruling of the Delaware District Court. The Federal Circuit Court agreed with the District Courts ruling that Tevas primary prior art reference (the Smith article) was not enabling and therefore not anticipatory of the Lexapro discovery; that the escitalopram discovery yielded unexpected therapeutic benefits and would not have been obvious to one of ordinary skill in the art at the time of Lexapros invention (1988); and that the correction of the optical rotation sign in the description of how to isolate escitalopram effected in the reissue patent did not broaden the scope of the patents claims. The 712 patent was set to expire in June 2009; however Forest/Lundbeck have been awarded a 27-month patent term extension for review time at the FDA and a six-month pediatric extension. As a result, the 712 patent will provide Lexapro exclusivity through March 13, 2012. Lundbeck/Forests settlement agreement with Alphapharm allows Alphapharm to launch its generic of Lexapro two weeks ahead of that date. In February 2009, the Supreme Court refused to consider Forests appeal of a lower court ruling related to Caracos challenge of the Lexapro patent. Forest had contended that Caraco lacked legal grounds to sue Forest to challenge the validity of the primary Lexapro patent, as Forest and Caraco had reached an agreement that Forest would not sue Caraco for patent infringement. The courts have ruled that Caraco does indeed have a right to sue Forest to challenge the validity of the Lexapro patent: the lawsuit now returns to the district court level for additional proceedings. Forest has sued Caraco on a second Lexapro patent. Our legal consultants continue to believe that
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despite this court ruling, the Lexapro composition-of-matter patent (RE34712, expires March 12, 2012) is robust enough to stand through expiration.
Eli Lillys Cymbalta Has Delivered Impressive Performance

Cymbalta (duloxetine; SNRI) is marketed for MDD (acute and maintenance treatment), diabetic peripheral neuropathic pain (DPNP), and GAD in the U.S. and Europe. As of January 2009, Cymbalta held a 9.8% total prescription share of the U.S. SSRI/SNRI market, up from 9.4% in January 2008. Lilly attributes the strong trends in Cymbalta to increased resources and the DTC campaign. This has increased Cymbalta brand equity, with 20% of patients asking physicians for Cymbalta by name. Formulary status has improved despite the availability of SSRI generics. Cymbaltas differentiation is aided by its indication for DPNP and fibromyalgia. Lilly estimates that 15-20% of prescriptions are for pain related indications and that approximately 2-3MM diabetic patients in the U.S. currently experience painful symptoms of DPNP. DPNP is a smaller market than depression, but is growing more rapidly (+15-20%). While the launch of Pfizers Lyrica for diabetic neuropathy has gone well, it does not appear to be impacting Cymbalta. Lilly suggests that this is due to Cymbaltas superior tolerability. In June 2008, Lilly received approval from the FDA for the fibromyalgia indication (discussed in more detail later in this report). Lilly is also seeking additional indications in lower back pain and knee pain due to osteoarthritis. Cymbalta has had its challenges ex-U.S. but was launched in all major European markets last year including France, and Germany. A five-year patent term extension has been granted, and extends protection through June 2013. We forecast worldwide Cymbalta sales of $3,150MM (+17%) in 2009 and $2,000MM in 2013, when the patent expires. Quintiles co-promotes Cymbalta for depression in the U.S. under a 5-year deal with Lilly. Quintiles contributes 500 reps to the promotional effort. Lilly pays Quintiles 8.25% of sales for the first five years and 3% of sales for the subsequent three years. Lillys Head-To-Head Study Of Cymbalta Vs. Lexapro A Net Neutral In December 2005, Lilly presented results from the first head-to-head study of Cymbalta vs. Lexapro at the American College of Neuropsychopharmacology (ACNP) meeting. The eight-week study enrolled a total of 684 patients. There was no statistically significant difference seen between Cymbalta and Lexapro via the following measures: percent of patients responding to treatment, percent of patients achieving remission, Clinical Global Impression of Severity scale, and Patient Global Impression of Improvement scale. Neither Cymbalta nor Lexapro achieved a statistically significant faster time-to-onset when compared to the other drug leading the authors of the study to conclude that Cymbaltas time-to-onset is at least as fast as Lexapros. Our clinical consultants have indicated that time-to-onset is a spurious measure of efficacy for antidepressants, instead pointing to maintenance of effectiveness and avoidance of relapse as more meaningful points of comparison. This study compared Cymbalta at its highest approved dose (60mg daily) to the lowest approved dose of Lexapro (10mg daily). While these are both recommended therapeutic doses, we believe the study design tipped the scale in Cymbaltas favor. Patients taking Cymbalta experienced more side effects than those taking Lexapro, the most prominent being nausea and dry mouth. However, dropout rates for both drugs due to side effects were the same.
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Wyeths Effexor XR Appears To Be On Firm Footing

Effexor XR (venlafaxine) is an SNRI indicated for the treatment of MDD, GAD, SAD, and panic disorder. In October 2005, Wyeth and Teva settled their Effexor XR patent litigation, materially changing the outlook for the Effexor XR franchise. Per the settlement agreement, Teva will be allowed to launch a generic Effexor XR in July 2010, or earlier if another generic challenger enters the market. Teva launched a generic version of Effexor (not XR) in June 2006; sales of Effexor were only approximately $120MM in 2005. Teva pays Wyeth a percentage of gross profits garnered from the sales of each generic product. The patent settlement eliminated the Teva patent challenge, providing longer exclusivity for Effexor XR and allows for any other challenges to be litigated in another venue. The final point is critical: Judge Martini in Wyeth vs. Teva placed Wyeth at a disadvantage with a narrow claim construction ruling. This deal appears to satisfy the conditions of the 11th Circuit decision an earlier generic entry than the latest expiring patent, which in Effexor XRs case is in September 2017. As of January 2009, Effexor XR held a 10.0% total prescription share of the U.S. SSRI/SNRI market, down from 11.4% in January 2008. We estimate worldwide Effexor/XR sales of $3.6B (-7%) in 2009 and $2.5BMM in 2010 due to the anticipated launch of XR generics in 2010. Additional Paragraph IV Filings Add Incremental Risk Since the Teva settlement, seven additional generic manufacturers have filed paragraph IV certifications against Effexor XR patents (U.S. # 120, 121, and 958), including Impax, Anchen, Osmotica, Lupin, Sandoz, Mylan, and Wockhardt. Impax was the first to file post the Teva settlement. In July 2008, Wyeth and Impax settled with Wyeth granting Impax a license that would permit Impax to launch its generic capsule formulation of Effexor XR on or after June 1, 2011, subject to earlier launch in limited circumstances, but in no event earlier than January 1, 2011. Impax will pay Wyeth a specified percentage of profit from sales of this generic product. The parties also have agreed that Impax will utilize its neurology-focused sales force to co-promote a product to be named by Wyeth. In November 2008, Wyeth settled with Anchen which had sought approval to market 37.5mg, 75mg and 150mg Effexor XR capsules. Under the terms of the settlement, it granted Anchen a license that would permit Anchen to launch a generic version of Effexor XR on or after June 1, 2011, subject to earlier launch in limited circumstances, but in no event earlier than January 1, 2011. In connection with the license, Anchen will pay Wyeth a specified percentage of profit from sales of the generic product. On June 26, 2008, Wyeth filed suit in the United States District Court for the District of Delaware against Biovail alleging that Biovails filing of an ANDA seeking FDA approval to market 37.5 mg, 75 mg and 150 mg Effexor XR capsules also infringes the same three patents at issue in the previously settled Teva litigation. The filing of that suit triggered a 30-month stay of FDA approval that expires on or about November 15, 2010 unless there is an earlier court decision holding the patents at issue invalid or not infringed. Wyeth and Osmotica settled the lawsuit filed by Wyeth alleging infringement of Osmoticas 505(b)(2) filing to market 37.5mg, 75mg, 150mg, and 225mg non-Ab rated tablets. In May 2008, Osmotica received full FDA approval and in October 2008, it launched all four strengths. So far, however, Osmoticas product has had negligible impact, on the market. Osmotica filed a Citizens Petition with FDA in attempt to garner market exclusivity. Osmotica is the first Effexor XR tablet approved by FDA and may be entitled to such exclusivity. If granted, the exclusivity will block a full approval of Suns
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non-AB rated Effexor XR tablet. Wyeth has entered into a covenant not to sue with Sun on their Effexor XR tablet.
GlaxoSmithKlines Paxil CR Faced With Generic Competition

Paxil CR (paroxetine CR) is an SSRI approved for MDD, panic disorder, SAD, and PMDD. Paxil generics entered the market in September 2003; GlaxoSmithKline highlighted Paxil CRs better gastrointestinal tolerability and lower adverse event rates compared to Paxil in an attempt to minimize the impact of generics. In addition to generics of Paxil, Paxil CR has faced competitive pressures via new anxiety indications for competing SSRIs, warnings related to the risk of suicide in pediatric patients, warnings related to birth defects if taken by expectant mothers, a change to the U.S. label which removed language stating that Paxil is not associated with symptoms of withdrawal following discontinuation of treatment, and most recently, generic competition. Paxil CRs U.S. prescription share declined precipitously following manufacturing compliance problems at GlaxoSmithKlines Puerto Rican manufacturing plant in March 2005, which subsequently led to a supply shortage. Paroxetine generics benefited from Paxil CRs troubles. In June 2005, GlaxoSmithKline resolved manufacturing issues and resupplied the market. However, Mylan received final FDA approval of its Paxil CR generics in June 2007. In October 2007, Mylan announced a settlement agreement with GSK and, in May 2008, launched the first Paxil CR generics. Additional Paxil CR generics are unlikely to launch in the near-term as any challenge with trigger a lawsuit requiring a 30-month stay. Therefore, the Paxil CR market likely will remain a two-player market for the foreseeable future. In January 2009, Paxil CR held 0.2% total prescription share of the SSRI/SNRI market, down from 1.4% in January 2008. We estimate worldwide Paxil franchise (Paxil/Paxil CR) sales of 470MM (-9%) in 2009 and 215MM in 2012.
GlaxoSmithKlines Wellbutrin XL Also Hitting Generic Competition

Wellbutrin XL works by inhibiting the reuptake of both dopamine and norepinephrine, and is sometimes prescribed in combination with an SSRI due to their complementary mechanisms of action. Wellbutrin XL is indicated for the treatment of MDD and seasonal affective disorder. Wellbutrin XL has two main advantages over Wellbutrin SR: 1) the convenience and compliance benefits of a once-daily dosage form and 2) a reduction in second-dose agitation, which leads to insomnia in some patients. Wellbutrin XL is now facing generic competition for both doses and the brand is substantially substituted. Wellbutrin XL received its first approvals in Europe (the Netherlands and Germany) in 2007. Wellbutrin XL is considered approvable in 21 additional countries and additional rollouts/launches are expected in 2008. We estimate worldwide Wellbutrin XL sales of 155MM (-45%) in 2009 and 50MM in 2012, which reflects continued franchise erosion due to generic competition. Wellbutrin XL Offers Reduced Sexual Side Effects And Less Weight Gain In November 2005, GlaxoSmithKline released top-line data from a sexual function study comparing Wellbutrin XL and Wyeths Effexor XR. The 12-week study demonstrated no impact on sexual function when patients were treated with Wellbutrin XL. In contrast, patients treated with Effexor XR demonstrated a statistically significant worsening in sexual function, including desire/interest, desire/frequency, and orgasm. These data buttress previous data comparing Wellbutrin XL and Lexapro, whereby the incidence of orgasm dysfunction was 15% with Wellbutrin XL compared to 30% for Lexapro. Weight loss during treatment with bupropion is more common than weight gain, which may be a consideration for some patients. The Wellbutrin XL label references data from a 459359
patient Wellbutrin SR study in which only 2% of patients receiving Wellbutrin SR 400mg daily gained more than five pounds, compared to 4% of patients receiving placebo. In contrast, 19% of patients receiving the same dose lost more than five pounds, compared to just 6% of patients on placebo.
Bristol-Myers Squibb/Somersets EmSam Is A Niche Player

Emsam is a transdermal patch formulation of selegeline (MAO inhibitor) that Somerset (Mylan) developed for the treatment of refractory MDD. Emsam was launched in the U.S. in May 2006. The rollout of Emsam was slow and it is now clear that Emsam is a niche product. Bristol-Myers Squibb markets Emsam in the U.S. Our consultants believe that Emsam could prove to be an effective treatment for refractory depression; however, Emsams FDA-approved indication is for MDD and our consultants indicate that Bristol-Myers Squibb is not positioning the drug as a treatment for refractory depression via its marketing efforts. Emsam is available in three patch strengths: 6mg, 9mg, and 12mg. Each patch is worn for 24 hours. The most commonly reported adverse event with Emsam was application site reaction (24% vs. 12% for placebo). We estimate flat Emsam sales of $20MM (+5%) in 2009 and beyond. In July 2008, Mylan acquired full rights to the Somerset joint venture by buying out Watsons 50% interest. Dietary Restrictions Not Required For Lowest Emsam Dose Oral MAO inhibitors, such as selegeline, have been shown to be effective in the treatment of depression; however, their systemic side effects are a significant concern. In addition to their antidepressant effects, MAO inhibitors also block the breakdown of tyramine in the gastrointestinal (GI) tract. Tyramine is a substance found in certain foods, including aged cheese and beer. If a large amount of tyramine is absorbed systemically and the body is prevented from processing it, a large, potentially lifethreatening increase in blood pressure may result. Therefore, use of MAO inhibitors is often accompanied by dietary restrictions. Since Emsam is a transdermal patch, the selegeline is absorbed directly into the bloodstream and bypasses the GI tract, reducing concerns over tyramine-related side effects. Emsams label indicates that the 6mg strength can be administered without tyramine-related dietary restrictions, but does require that patients using either the 9mg or 12mg strength avoid foods and beverages high in tyramine. The 6mg strength is the recommended starting dose for Emsam.
Pfizers Zoloft Has Succumbed To Generics

Zoloft (sertraline) is an SSRI indicated for the treatment of MDD, OCD, SAD, PMDD, PTSD, and panic disorder. Teva launched the first generic of Zoloft in August 2006. Teva held 180 days of market exclusivity on generic Zoloft, which expired in February 2007. While Teva tried a last minute legal maneuver in an attempt to block additional Zoloft generics from launching, Tevas tactics failed to hold up the final approval and subsequent launch of numerous additional generic competitors. As of January 2009, the generic substitution rate for Zoloft was 98%. Zoloft generics held a 19.8% total prescription share of the U.S. SSRI/SNRI market in January 2009, up 20BP from January 2008. We estimate worldwide Zoloft sales of $500MM (-7%) in 2009 and $270MM in 2013.
Pristiq Rollout For MDD Suggests Potential Only Moderate

Wyeths follow-on compound to Effexor, Pristiq (desvenlafaxine succinate) was approved for the treatment of MDD in the U.S. (02/08) and is in development for vasomotor symptoms associated with menopause (VMS). The MDD label is surprisingly
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clean, featuring an indication similar to that of Effexor XR and no significantly concerning side effect language. We view the latter as a victory for Wyeth. While Pristiq clearly is effective, clinical data suggest a potential side effect burden. FDA approval was subject to several post-marketing trials including conducting and submitting data from a new long-term maintenance (relapse prevention) study, a sexual dysfunction study, pediatric studies and a study exploring lower doses. FDA also requested an additional non-clinical toxicity study. Wyeth launched Pristiq mid-May 2008 at a modest discount to Effexor XR, and since then has increased Effexor XRs price. Wyeth has shifted its commercial focus away from Effexor XR to Pristiq. Despite what appears to be a solid label, Pristiq still faces commercial risks. Our physician experts do not believe it is distinguished from Effexor and thus do not prescribe it. Furthermore, launch of non-AB rated Effexor XR generics represent a challenge to Pristiq. Osmotica, with whom Wyeth has settled, has the only FDA approved non-AB rated Effexor XR tablet. Osmoticas launch has had a modest impact but its Citizen Petition with FDA claiming exclusivity for the tablet form appears to be holding up Suns launch. Pristiq has Tier 3 status on several formularies but no Tier 2. In October 2008 Wyeth withdrew its central European Marketing Authorization Application (MAA) for Pristiq for MDD in adults and has chosen not to pursue it at this time. Pristiq has been approved for the treatment of MDD in adults in Australia and Brazil, and applications currently are pending in 22 additional markets. We project Pristiq (MDD) sales of $170MM in 2009, $250MM in 2010 and $400MM in 2013. Pristiq VMS Timing Uncertain In July 2007, the FDA issued an approvable letter for the VMS indication. In the letter, the FDA requested an additional one-year, placebo-controlled trial of Pristiq to further investigate the cardiovascular and hepatic safety profile of the drug. Wyeth indicates that five serious cardiovascular adverse events were seen with Pristiq (none in the placebo arm) in one of the VMS trials. The approvable letter also noted cases of liver enzyme elevations in the VMS trials. Wyeth management believes that it will be able to address the FDAs concerns. Wyeth has commenced the confirmatory trial to address FDAs concerns which will take at least 18 months. In March 2008, Wyeth withdrew its VMS European Market Authorization application based on the need to conduct additional clinical studies given CHMPs questions regarding Pristiqs risk-benefit profile for the indication. We project Pristiq (VMS) sales of $25MM in 2011, $50MM in 2012, and $125MM in 2015. Pristiq For DPN Terminated In September 2008, Wyeth terminated development of Pristiq for diabetic peripheral neuropathy. Pristiq has a flat dose response from 100 to 400mg/day so two low-dose (50mg/day) MDD studies were conducted. The results were presented at the American College of Neuropsychopharmacology (ACNP) meeting in December 2007. One study was conducted in the U.S. (n=447) and one study was conducted outside the U.S. (n=483). Treatment with the 50mg/day dose achieved a statistically significant reduction in MDD symptoms vs. placebo as measured by HAM-D17 over eight weeks in both studies (U.S. p=0.002; international p=0.018). The discontinuation rates for Pristiq 50mg/day and placebo arms were the same in the U.S. study (3%), while in the international study the discontinuation rates were 3% and 5% for the placebo and Pristiq 50mg/day arms, respectively. While the adverse event profile for 50mg/day Pristiq was generally consistent with prior studies, the rates of nausea in the U.S. study (17% vs. 11% for placebo) were relatively low compared to the international study (27% vs. 11% for placebo).
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Pristiq Data In MDD Unimpressive; Nausea A Concern Data from several short-term studies and a 12-month study were presented at American Psychiatric Association (APA) meetings in May 2007. In a 235 patient, 8-week, randomized, double-blind, placebo-controlled, parallel-group, flexible-dose (200400mg), Phase III study, there was no significant difference between Pristiq and placebo in the change from baseline to final evaluation at 8-weeks in the HAM-D17 scores. Adverse events included nausea, dry mouth, insomnia, somnolence, sweating, anorexia and impotence. In a Phase III open-label, flexible-dose (200-400mg) study, 104 patients were evaluated for safety and efficacy. Nausea and headache were the most frequent treatment emergent adverse events, with the nausea usually resolving within the first week. Hypertension was seen in 9% of patients. One-third of the patients dropped out due to side effects. This occurred predominantly in the first week. HAM-D17 scores showed a decrease from baseline to Day 7 with a slow decline thereafter. In a doubleblind, open-label 12-week, 375 patient study versus placebo, Pristiq (200 to 400mg/day) demonstrated a significantly longer time to relapse of MDD and a greater remission rate by week 4. Discontinuation rates due to depression were 4% and 8% for Pristiq and placebo respectively. Pristiqs adverse events included nausea, headache and dizziness. A 10-week open-label study demonstrated that a switch from Effexor ER to Pristiq was well tolerated (16% discontinuation rate). This 517-patient switching study began as two 8-week double-blind placebo-controlled studies with patients either randomized to Effexor ER versus placebo or Pristiq versus placebo. In the open-label stage all patients were then switched to Pristiq. Discontinuation rates were the highest when switching from placebo to Pristiq (23%) and the lowest when no switch was involved (11%). The major cause for discontinuation was nausea. Pristiq Vasomotor Symptoms Application Requires Additional Study. Wyeth filed Pristiq in 6/06 for vasomotor symptoms (VMS) but supplemented its NDA filing with an additional study utilizing a 50mg 3 day titration regimen. The revised application was given an approvable letter in July 2007 because of FDA concerns with CV safety. As part of FDAs requirements, Wyeth is conducting one-year 2,000-patient (1,000 patients on Pristiq) VMS study with similar inclusion and exclusion criteria to the 315 study. The study, which began in spring 2008, is fully enrolled and will complete in 2010. Unfortunately, there is the potential for random CV events in this new trial given the similar design to the previous trial. Assuming Pristiq is eventually approved for VMS, Wyeth will position Pristiq as the first non-hormonal treatment of moderate to severe vasomotor symptoms. Pristiq's 3 Phase III studies presented at ACOG demonstrate inconsistent efficacy and significant nausea. The 24-week study showed statistical superiority with the 100 and 150mg doses. In the 52-week study, only the 100mg demonstrated consistent efficacy and there was a dose-related increase in blood pressure as well as an imbalance in acute ischemic events in the Pristiq groups. The 12week study failed to demonstrate a benefit over placebo. The high-placebo response rate is cited as a cause for missing the endpoint. However, Tibolone (HRT), a reference arm in that study, demonstrated superiority over placebo. Nausea was seen across all three studies and accounted for a high dropout rate in the Pristiq arms. The Pristiq VMS 50mg 3-day titration data presented at the American Society of Reproductive Medicine meeting in 2007 demonstrated Pristiq nausea rates of 25% versus 7% and discontinuation rates of 11% versus 7%. Phase II trials in fibromyalgia are completed and Wyeth is contemplating next steps.
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Sepracors Venlafaxine Analog SEP-227162 In Phase II

SEP-227162 (desmethylvenlafaxine) is an analog of venlafaxine, an SNRI antidepressant commercialized as Effexor and Effexor XR by Wyeth. Effexor and its active metabolite, Pristiq (desvenlafaxine), suffer from cardiovascular side-effects. Sepracor believes 162 may have a cleaner side-effect profile than Effexor and Pristiq. While we have not seen data from Sepracors Phase II trials of 162 in depression, management targets initiation of a Phase III program in Q4:09. We project a 2013 launch of 162 and launch-year sales of $30MM.
Forest Licenses F2695 From Pierre Fabre

In December 2008, Forest entered into a collaboration agreement with Pierre Fabre to develop and commercialize F2695 (levo-milnacipran) in the U.S. and Canada for the treatment of depression. F2695, the levo-isomer of milnacipran, is a selective norepinephrine and serotonin reuptake inhibitor that is being developed by Pierre Fabre for the treatment of depression and other central nervous system disorders. Forest/Pierre Fabre plan to initiate Phase III studies with F2695 in H2:2009. Under the terms of the agreement, Forest made an upfront payment to Pierre Fabre of $75MM and is subject to future milestone payments. Forest and Cypress Bioscience have developed milnacipran (Savella) for the treatment of fibromyalgia syndrome (FMS): a launch is planned in Q2:2009.
Sanofi-Aventis Leads Neurokinin Antagonist Race

Substance P is a naturally occurring neuropeptide that acts as both a neurotransmitter and a neuromodulator. Substance P has been implicated in the regulation of mood disorders, anxiety, stress, reinforcement, neurogenesis, neurotoxicity, nausea / emesis and pain. A number of companies are targeting the Substance P receptors (neurokinin receptors; NK-1-3) in order to develop novel treatments for depression. In general, our consultants are not enthusiastic about this mechanism. Early work with this class of molecules was completed in pain and asthma, with little success. GlaxoSmithKlines NK-1 antagonist, Casopitant, is in Phase II development for MDD and SAD. Pfizers CP122,721, also a NK-1 antagonist, was in Phase II trials for MDD, but development of this product has apparently been dropped. Sanofi-Aventis appears to have the most advanced clinical NK antagonist program, with Saredutant, a NK-2 receptor antagonist in Phase III trials for MDD and GAD. Mixed Data Keep Us Cautious On Sanofi-Aventis Saredutant Results from a 600-patient Phase IIb dose-ranging trial of Saredutant in severe depression yielded a bell-shaped dose-response curve, with only the 100mg dose demonstrating efficacy equivalent to fluoxetine (20mg). In this double-blind placebocontrolled study, patients suffering from recurrent severe depression episodes (as measured by HAM-D of 26 at baseline) were randomized to receive placebo (n = 121), fluoxetine 20mg (n = 128) or Saredutant 30mg, 100mg (n = 125) or 300mg. After a week-long placebo run-in period, patients were treated for six weeks. HAM-D and HAMA scores were used as efficacy outcome measures. Sanofi-Aventis is only testing the 100mg dose in the ongoing Phase III trials. In February 2007, Sanofi-Aventis released top-line Phase III data from four placebocontrolled Phase III studies; two studies reached statistical significance, two did not. Via the combined results, Saredutant demonstrated statistically significant efficacy via HAM-D17 and a benefit with respect to sexual function. In September 2007, Sanofi363
Aventis released additional Phase III results, supporting Saredutants longer-term (52weeks) efficacy and side-effect profile. Three trials of Saredutant in GAD: top-line data could be released in the coming months. While the breadth of the Phase III program signals Sanofi-Aventis confidence in the product, we remain cautious on the outlook for the product given the mixed clinical results. Sanofi-Aventis expects to file for U.S. and E.U. approval of Saredutant in H2:09 pending the outcome of ongoing trials of Saredutant in combination with SSRI/SNRIs. The results from the two ongoing trials are expected in 2009. We currently have no sales estimates for Saredutant.
SUMMARY OF SAREDUTANT PHASE III RESULTS
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GlaxoSmithKlines Casopitant In Development For MDD, SAD

Rezonic (Casopitant) is a NK-1 antagonist that is in Phase II trials for a number of different indications, including MDD, SAD, and post-operative/chemotherapy-induced nausea and vomiting (NDA for CINV filed in May). A 348-patient Phase II trial of Casopitant in MDD was initiated in January 2005. A 227-patient Phase II trial in SAD was initiated in August 2005. Our checks indicate both of these trials have been completed, so we could see data later this year. The Phase II trials used paroxetine as an active comparator. A Phase II trial of Casopitant in patients with SAD was terminated. We target a 2012 launch for Casopitant and project launch-year sales of 50MM.
Sanofi-Aventiss Amibegron Program Terminated

Amibegron (formerly SR58611A) is a highly selective agonist for atypical beta 3adrenoceptors. It also has been shown to inhibit intestinal motility, and it was initially developed as a potential treatment for irritable bowel syndrome. Amibegron was also investigated as a potential treatment for obesity and diabetes, as beta-3 adrenergic receptors are found in adipocytes. Sanofi-Aventis began developing Amibegron for mood disorders in late 2000. Sanofi-Aventis was in the process of completing a comprehensive Phase III program for Amibegron in both MDD and GAD. Two out of three trials completed in GAD achieved statistical significance. However, just one of the four trials in MDD had achieved statistical significance. Sanofi-Aventis announced the termination of the Amibegron program during the Q2:08 conference call.
Valdoxan Approved In Europe; U.S. Filing At Risk Because Of Liver Side Effects
Valdoxan (agomelatine, AGO178) is a melatonin (MT1 and MT2) receptor agonist and a 5-HT2C receptor antagonist in Phase III development for the treatment of depression. Valdoxan was originally discovered by Servier (France). Valdoxan is believed to be a modestly effective antidepressant, but offers potential because of its unique mechanism, devoid of side effects found with SSRI/SNRIs, including sexual dysfunction and weight gain. Data presented at several conferences have demonstrated Valdoxans efficacy in both placebo-controlled and active controlled studies (Paxil, Effexor). Valdoxan has also been shown to have a beneficial effect on patient sleep patterns.
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Many patients who suffer from depression also suffer from depression-related sleep disturbances. Our consultants believe that Valdoxans efficacy is modest and its sleep advantage slight. They are therefore unlikely to use Valdoxan as first line therapy and it would likely be reserved for 2nd or 3rd line. In addition, our consultants believe that its potential beyond MDD is limited but it possibly will have utility in GAD. Valdoxan was filed in the E.U. for depression in March 2005; however, in July 2006, the CHMP recommended against approval of the drug due to insufficient clinical data to support its long-term efficacy. Despite the negative CHMP approval in Europe, however, Valdoxan received approval in Europe in February 2009 for treatment of major depressive episodes. The key concern with Valdoxan in the U.S. is that liver toxicity was seen at doses of 50mg and greater at a mid-single-digit rate in the Phase II studies. Novartis has suggested that liver toxicity has also been seen in two Phase III studies that are in house and this finding could jeopardize the program; the other two Phase III studies have not reported. We believe that Novartis is unlikely to file Valdoxan in the U.S. and have therefore removed it from our models.
Initial Phase III Data For Clinical Datas Vilazodone Positive

Vilazodone is a SSRI and a 5-HT1A partial agonist in development for the treatment of depression. Vilazodone is being developed by Clinical Data, Inc. Vilazodone was originally developed by Merck KGaA. In December 2006, Clinical Data announced the completion of the manufacturing technology transfer from Merck KGaA. In September 2007, Clinical Data announced positive top-line results from the first Phase III trial of Vilazodone. The 410-patient, placebo-controlled, 8-week trial reached statistical significance via the primary (Montgomery Asberg Depression Rating Scale; MADRS; p=0.001) and secondary (HAM-D17 and HAM-A; p=0.02 and 0.03 respectively), endpoints. Additionally, there were more responders in the Vilazodone group versus placebo (p=0.02). Treatment-emergent adverse events were mild/moderate and included diarrhea, nausea, dizziness and somnolence. There was no difference between Vilazodone treated and placebo groups on the Arizona Sexual Experience Scale. Clinical Data also identified potential genetic biomarkers that appear to predict patients response to Vilazodone. Biomarker positive patients displayed significantly more improvement than biomarker negative patients (p=0.000013). As a result, Clinical Data is looking to develop a companion diagnostic as well. Clinical Data initiated a second Phase III trial in March 2008. This trial has a pre-specified analysis based on the presence or absence of the biomarker identified in the first Phase III trial. Assuming clinical success, Vilazodone could be filed for FDA approval in 2009.
GlaxoSmithKline/Fabre-Kramers Gepirone ER Receives Not Approvable Letter; GSK Terminates Agreement

Gepirone ER is an extended-release formulation of a 5-HT1A partial agonist under development for the treatment of MDD. The original NDA for Gepiron ER was submitted in May 2001 and the FDA issued a non-approvable letter for the product in August 2004. The product was originally partnered with Organon, but Organon walked away from it in June 2005. Fabre-Kramer indicated that the FDA requested one additional short-term Phase III study with the product. In June 2005, Fabre-Kramer released positive top-line results from two Phase III studies in MDD. In February 2007, Fabre-Kramer announced an exclusive worldwide licensing agreement with GlaxoSmithKline for Gepirone ER. Fabre-Kramer/GlaxoSmithKline re-filed the Gepirone ER NDA in May 2007 and in November 2007 the FDA issued a not approvable letter for the product. GSK terminated the agreement with Fabre-Kramer in early 2008.
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Consultants Warming Up To Triple Reuptake Inhibitors

Triple reuptake inhibitors (TRI) inhibit the reuptake of dopamine, in addition to the reuptake of serotonin and norepinephrine. Because their selectivity for various receptors is not optimal, our consultants view the TRIs as a modest advance. However, our consultants are enthusiastic about the potential of TRIs, assuming the profiles are optimized. Our consultants indicate that an ideal TRI would inhibit reuptake via the serotonin and norepinephrine receptors by approximately 80%, and reuptake via the dopamine receptor by approximately 30-40%. Preclinical studies indicate that the potential benefit of also inhibiting dopamine may be greater efficacy and a more rapid onset of action. However, our consultants indicate that the additional inhibition of dopamine reuptake may result in a less favorable side-effect profile and has abuse potential due to its cocaine-like activity. DOV Pharmaceuticals DOV 216,303 was the furthest TRI along in development. However, in December 2006, DOVs development partner Merck, terminated their DOV 216,303 collaboration agreement for undisclosed reasons. According to the DOV website, DOV 216,303 is no longer in development. However, DOV is actively developing DOV 21,947 (Phase II initiated in February 2008), which is the plus isomer of DOV 216,303. In August 2007, DOV released positive Phase I results for DOV 21,947. However, as of February 2009, clinicaltrials.gov indicates that this trial has been terminated. GlaxoSmithKline/NeuroSearchs NS2359 (GSK372475) entered Phase II trials for MDD in December 2006. In July 2007, GlaxoSmithKline initiated a Phase I bioequivalence study comparing two different salt forms of GSK372475, indicating that the salt form of GSK 372475 currently in Phase II trials may not be the optimal form. The two Phase II trials have completed. Data evaluation is ongoing and results are expected in the first half of 2009. NeuroSearch has also indicated that GlaxoSmithKline has initiated Phase III preparatory activities. We project a 2012 launch for GSK 372475 and estimate launchyear sales of 50MM. SEP-225289 is a novel triple reuptake inhibitor (TRI), currently in Phase II trials for the treatment of depression. Top-line Phase II results are expected to be reported in Q3:09. 289 is a wild card, given the challenging therapeutic index of TRIs. However, we expect Sepracor to have some success with one of the three TRIS in the pipeline. We target a 2013 launch for 289 and estimate 2013 sales of $50MM. Sepracor has two additional triple reuptake inhibitors in development: SEP-228432 and SEP-228425. Both entered Phase I in H1:08. Sepracor management indicated that the three triple reuptake inhibitors all have different selectivity profiles and that it is hopeful one of the three will prove optimal with respect to efficacy and tolerability.
CRF Still Promising; Ono And GSK Candidates Look Most Interesting
Our consultants remain optimistic about the potential for CRF (Corticotropin Releasing Factor) receptor antagonists and their role in treating depression and GAD. It appears that some compounds in development have shown toxicity issues (specifically liver toxicity) and may cause Addison-like symptoms with prolonged use. Despite this fact, our physician experts believe that, based on the mechanism of action, these agents likely will have efficacy similar to current antidepressants and better tolerability. Bristol-Myers Squibbs Pexacerfont was the leading CRF antagonist development candidate but was recently dropped. Other companies with CRF programs include
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GlaxoSmithKline (GSK876008; Phase II) and Ono (ONO-2333M; Phase II). Pfizer had a CRF antagonist in development, but the program was dropped.
Pfizers Elzasonan Discontinued

Elzasonan is a 5-HT1B/5-HT1D antagonist and was in Phase II trials for MDD. In July 2007, a 264-patient Phase II trial of Elzasonan was completed. Results of the trial were never publicly disclosed but Pfizer discontinued development of this molecule.
Sanofi-Aventis SSR149415 In Phase II

SSR149415 is a vasopressin V1b receptor antagonist in development for GAD, MDD, and bipolar disorder. Vasopressin has been shown to play a role in patients response to stress and it is thought that blocking the action of vasopressin may be a potential means to treat stress-related disorders. Two 8-week, 312-patient Phase II trials of SSR149415 in MDD and GAD are ongoing. Both trials are testing two doses of SSR149415: 100mg and 250mg BID. The primary endpoint for the MDD trial is HAMD17. The primary endpoint for the GAD trial is HAM-A14. A second 312-patient Phase II trial in MDD recently completed enrollment. The primary endpoint of this trial is HAMD17 and two doses (100 mg and 250mg BID) of SSR149415 are being tested. All three trials have been completed: Sanofi-Aventis expects to release Phase II results for SSR149415 in the coming months.
SUMMARY OF SSR149415 PRECLINICAL RESULTS
Fibromyalgia Syndrome Market Is Heating Up

Fibromyalgia syndrome (FMS) is one of the most common causes of chronic, widespread pain. Our clinical consultants estimate that FMS affects 0.5-4% of the U.S. population, or 1.5-12MM Americans. Predominantly affecting women, FMS is defined by widespread musculoskeletal pain and diagnosed by tenderness in at least 11 of 18 predefined anatomic sites, or trigger points, persisting for greater than 3 months (American College of Rheumatology criteria). Other associated symptoms include chronic fatigue, insomnia, headache, depression, and memory difficulties. An estimated 90% of FMS patients suffer from insomnia and an estimated 30% of FMS patients suffer from depression. FMS is difficult to definitively diagnose, as the symptoms often are similar to chronic pain and depression. Furthermore, specific FMS symptoms tend to vary person to person and there are no laboratory-type tests to diagnose FMS.
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FIBROMYALGIA SYNDROME (FMS) SYMPTOMS
A Polypharmacy Approach Is Often Required For FMS Pfizers Lyrica (pregabalin), Lillys Cymbalta, and Forests Savella are currently the only drugs with an FDA-approved indication for FMS. Cymbalta (duloxetine) was approved by the FDA for FMS in June 2008 while Savella (milnacipran) was approved in January 2009. Other currently available prescription medications (e.g., Wyeths Effexor XR, gabapentin), are often used off label for the treatment of FMS. NSAIDs are the most commonly prescribed drug for FMS, although they are largely ineffective. Low-dose tricyclic antidepressants are also prescribed frequently, but side effects are an issue. The use of opioids for the treatment of fibromyalgia is viewed as a problem by our consultants, as they are largely ineffective and can lead to addiction. Given the complexity of the disease, a polypharmacy approach is often applied. FMS patients are typically treated by general practitioners, or they are referred to a rheumatologist or psychiatrist, depending on their presenting symptoms. We conservatively project the U.S. FMS treatment market will be about $2B in 2015, assuming 6.5-7MM patients on drug therapy in that year.
Pfizers Lyrica First Drug Approved For FMS

Lyrica (pregabalin) was launched in September 2005 in the U.S. Lyrica received FDA approval for the treatment of FMS in June 2007. Lyrica is also approved for the treatment of neuropathic pain associated with diabetic peripheral neuropathy, postherpetic neuralgia, and as an adjunctive treatment of partial seizures in adults with epilepsy. Lyrica is classified as a Schedule V controlled substance, which increases the complexity of prescribing. Our consultants indicated that they were using Lyrica offlabel for the treatment of FMS prior to its receipt of the formal indication. Our consultants typically prescribe Lyrica monotherapy first-line in patients who present with FMS, but do not have depression or anxiety issues. In addition to helping with FMS-related pain, Lyricas sedating effects help treat insomnia. It is estimated that 90% of FMS patients suffer from insomnia. Lyrica is also used in combination with SNRIs (Cymbalta, Effexor XR) in FMS patients who are poorly controlled on a single agent. Our
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consultants use gabapentin off-label for the treatment of FMS and they indicate that gabapentin and Lyrica have similar efficacy. However, our consultants believe that, with a formal indication for FMS, Lyrica will be chosen over gabapentin by a majority of physicians. We forecast Lyrica sales of $3.0B (+15%) in 2009 and $3.9B in 2013. Lyrica Phase III Data Positive The Lyrica label includes the results from two FMS trials: a 14-week trial and a sixmonth trial. In the 14-week Phase III trial, Lyrica demonstrated a statistically significant effect via the: (1) VAS pain score, (2) PGIC, and (3) FIQ. The results are summarized in the table below. Three doses of Lyrica were tested: 300mg/day, 450mg/day, and 600mg/day. Responders to placebo during a one-week run-in phase were excluded from the trial. The 450mg/day and 600mg/day dose had similar effects on patient pain scores, with both appearing more potent than the 300mg/day dose. The Lyrica label recommends against dosing above 450mg/day for FMS. In the 14-week Phase III trial, the rates of dizziness (36% vs. 8%), somnolence (18% vs. 4%), and weight gain (13% vs. 2%) seen in the Lyrica-treated arms were noticeably higher versus the rates seen in the placebo group. Our consultants indicate that each of these is a known side effect of Lyrica and can sometimes be managed by titration of the drug.
SUMMARY OF 14-WEEK LYRICA PHASE III FMS TRIAL
14-week trial (n=750) Least Squares Mean Pain Score Lyrica dose 300mg/day 450mg/day 600mg/day p0.01 p<0.001 p<0.002 Patient Global Impression of Change p0.05 p0.05 p0.05 FMS Impact Questionaire p=0.1078 p=0.0041 p=0.0034
The 1,051-patient six-month trial utilized a randomized withdrawal design. The same three doses were tested as in the 14-week trial described above. Patients were treated with Lyrica for six-weeks during an open label phase and were deemed responders if they: (1) had a 50% reduction in their pain score; and (2) rated their PGIC as much improved or very much improved. Responders were then randomized to either continue to receive the same dose of Lyrica they had been on during the six-week open label phase or to placebo. Patients were treated for up to six months and efficacy was assessed by time to loss of therapeutic response (LTR). Loss of therapeutic response was defined as a less than 30% reduction in pain score (vs. baseline) during two consecutive visits or subjective worsening of FMS. The time to LTR was significantly (p<0.0001) longer for those patients treated with Lyrica versus those that received placebo. Approximately 25% of patients treated with placebo had a LTR by day 7: it took until day 34 for 25% of Lyrica patients to have an LTR. At the American Academy of Neurology (AAN) annual meeting in April 2008, Pfizer presented the results of a pooled retrospective analysis of Lyrica in FMS patients. The analysis contained data from three placebo-controlled clinical trials (8, 13, and 14 weeks long) in over 2,000 patients. Patients were randomized to receive Lyrica 150mg, 300mg, 450mg, 600mg or placebo. Pain was measured on a patient assessment scale of 0-10, 10 being the most severe pain. A score of 4-6.9 is considered moderate pain and 7.0 and above is considered moderate to severe pain. Baseline pain scores for the patients were 6.9 (150, 450 and 600mg) or 7.0 (300mg). In this analysis, Lyrica proved significantly more effective than placebo with dose dependent reductions in pain: 2.08
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at 600mg, 2.01 at 450mg, 1.76 at 300mg, 1.37 at 150mg versus 1.25 for placebo. This analysis also found an association between pain reduction and patient assessments related to sleep, fatigue, anxiety and depression with the greatest association with sleep. The most common side effects of Lyrica treatment were dizziness and somnolence followed by weight gain, blurred vision and dry mouth.
Eli Lillys Cymbalta Approved In June; Appears Poised To Continue Impressive Performance
Cymbalta was launched in 2004 and is indicated for the treatment of depression, diabetic peripheral neuropathic pain, and generalized anxiety disorder, and was approved for the treatment of FMS in June 2008. The sNDA package submitted in August 2007 included five clinical trials enrolling approximately 1,400 patients in total. Results from one of the pivotal registration studies (520 patients) were presented at the MYOPAIN meeting in August 2007 and the results from a failed 330-patient Phase III trial were presented at the ACR in November 2007 (both trials are described in detail below). This leaves approximately 550 patients for the remaining three trials. We assume the second pivotal registration study (results not released) likely enrolled 350450 patients, which is significantly smaller than the milnacipran and Lyrica Phase III trials. Lilly believes the fibromyalgia market is likely to be larger than expected given that there is a mood component in 80% and MDD in 30% of FMS patients. Pfizer has done significant work building the FMS market for Lyrica and thereby facilitating a Cymbalta launch; recent concerns with Lyrica and suicidality could benefit Cymbalta further. Lilly believes its current sales force will be able to cover the target physicians: primary care physicians; neurologists; psychiatrists; and rheumatologists. Since Cymbalta and Forest/Cypress milnacipran work via similar mechanisms, our consultants predict a pitched marketing battle between Forest and Lilly. 6-Month Pivotal Phase III FMS Study Mostly Positive Results from a six-month, 520-patient Phase III trial of Cymbalta in FMS were presented in August 2007 at the Congress of the International MYOPAIN Society meeting. Patients enrolled in the trial were randomized to receive placebo, Cymbalta 20, 60, or 120mg/day. Cymbalta was dosed once-daily (in the morning) during the trial. Patients diagnosed with depression were allowed to enroll; approximately 24% of the patients enrolled in the trial had been diagnosed with depression. At three months, patients treated with Cymbalta (60 or 120mg/day) achieved a statistically significant reduction in pain ( 30% reduction via BPI score). Statistically significant improvements in the PGI (Patient Global Impression) and FIQ (Fibromyalgia Impact Questionnaire) scores were seen at all three doses of Cymbalta tested. At six months, all three doses of Cymbalta achieved statistically significant reductions in pain versus placebo. None of the Cymbalta treatment groups achieved statistical significance via the FIQ endpoint at six months. At six months, 32.6%, 35.9%, and 21.6% of patients taking Cymbalta 60mg/day, Cymbalta 120mg/day, and placebo, respectively, achieved a 50% reduction in BPI score vs. baseline. Our consultants believe the results of this trial support Cymbaltas efficacy in FMS, despite the disappointing FIQ results. Discontinuation rates were similar: 45.3% for Cymbalta 60mg/day, 46.3% for Cymbalta 120mg/day, and 50% for placebo. The adverse event rate was significantly higher for those patients treated with Cymbalta 120mg/day (26.5%), versus 15.3% for Cymbalta 60mg/day, and 13.2% for placebo. The most common adverse events were nausea, constipation, somnolence, and fatigue (see table below).
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SUMMARY OF CYMBALTA FMS PHASE III ADVERSE EVENT DATA
Three Month Pivotal Trial Demonstrates Positive BPI Average Scores This 12-week, randomized, double-blind, placebo-controlled trial to assess the efficacy and safety of Cymbalta in 354 female patients with primary fibromyalgia, with or without current major depressive disorder, was published in Pain in 2005. Patients (90% Caucasian; mean age, 49.6 years; 26% with current major depressive disorder) received Cymbalta 60 mg once daily (QD) (N=118), Cymbalta 60 mg twice daily (BID) (N=116), or placebo (N=120). The primary outcome was the Brief Pain Inventory (BPI) average pain severity score. Response to treatment was defined as >or=30% reduction in this score. Compared with placebo, both Cymbalta-treated groups improved significantly more (P<0.001) on the BPI average pain severity score. A significantly higher percentage of Cymbalta -treated patients had a decrease of >or=30% in this score (Cymbalta 60 mg QD (55%; P<0.001); Cymbalta 60 mg BID (54%; P=0.002); placebo (33%)). The treatment effect of Cymbalta on pain reduction was independent of the effect on mood and the presence of major depressive disorder. Compared with patients on placebo, patients treated with Cymbalta 60 mg QD or Cymbalta 60 mg BID had significantly greater improvement in remaining Brief Pain Inventory pain severity and interference scores, Fibromyalgia Impact Questionnaire, Clinical Global Impression of Severity, Patient Global Impression of Improvement, and several quality-of-life measures. Both doses of Cymbalta were safely administered and well tolerated. In conclusion, both Cymbalta 60 mg QD and Cymbalta 60 mg BID were effective and safe in the treatment of fibromyalgia in female patients with or without major depressive disorder. Failed Phase III FMS Study Results Presented At ACR 2007 Lilly presented results from a failed six-month, placebo-controlled Phase III trial of Cymbalta at the ACR meeting in November 2007. This study was submitted as part of
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Cymbaltas sNDA, in support of the two pivotal registration studies. Patients were treated with either Cymbalta 60mg/day or 120mg/day. Approximately 84% of the patients initially assigned to the 60mg/day dose escalated to the higher Cymbalta dose during the trial. The co-primary endpoints for the 330-patient trial were reduction in pain via the Brief Pain Inventory Average Pain (BPI) score (p=0.053) and patient improvement via the PGI-I (p=0.064). The trial did not achieve statistical significance via either measure. Statistically significant improvement in patient function was seen via the Mental Component Summary of the SF-36 (p0.01), a secondary endpoint in this trial. Discontinuation rates were similar for the Cymbalta (37.7%) and placebo (38.7%) arms. The most common adverse event was nausea, which occurred in 26.5% of Cymbalta-treated patients and 9.5% of patients receiving placebo. There were significant increases in diastolic blood pressure (+1.68 mmHg versus -1.64 mmHg for placebo; p0.01) and pulse rate (+1.07bpm versus -1.64 bpm in placebo; p0.05) seen in the Cymbalta-treated patients.
One Year Safety And Efficacy Study Demonstrates Reasonable Safety Profile In FMS Results from the Phase III, 350 patients (95.7% female) 60-week safety study, which included an 8-week open-label period followed by a 52-week randomized double-blind period, demonstrated a reasonable long-term safety profile. Patients received Cymbalta 30 mg QD for 1 week or Cymbalta 60 mg QD for 7 weeks, and were then randomized to receive either 60 mg QD or 120 mg QD in a 1:2 ratio. At baseline, the patients had a mean Brief Pain Inventory average pain score of 6.7, Clinical Global Impression of Severity score of 4.1, and Patients Global Impression of Severity score of 4.1. The most common (15%) treatment-emergent adverse events (overall phase) were nausea (40.6%), headache (29.4%), insomnia (19.7%), dizziness (18.9%), constipation (17.4%), and dry mouth (17.1%), and 74 (21.1%) patients reported adverse events as a reason for discontinuation, most commonly for insomnia (2.6%), vomiting (2.0%), diarrhea (1.4%), dizziness (1.4%), and nausea (1.4%). The mean change (SD) in sitting systolic blood pressure (BP) (mm Hg) was -0.1 (14.4), in sitting diastolic BP was -0.2 (9.6), in sitting pulse rate was 1.9 (10.4) beats per minute (bpm), and in weight was 0.7 (4.3) kg. Thirteen (3.7%) patients had sustained elevation in BP. Six Month Extension Study Confirms Safety And Efficacy In FMS Patients from two randomized, double-blind, placebo-controlled clinical trials having 6month acute phases were randomized into a 6-month extension study. Patients had a diagnosis of fibromyalgia with or without current major depressive disorder. In Study 1, all patients received Cymbalta 120 mg/day after 28 weeks on placebo or Cymbalta 60
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or 120 mg/day. In Study 2, patients taking placebo were titrated to Cymbalta 60 mg/day after 27 weeks on treatment, while Cymbalta patients remained on their current dose of 60 or 120 mg/day. Safety and tolerability were assessed via discontinuation rates, treatment-emergent adverse events (TEAEs), and changes in vital signs and laboratory measures. Efficacy measures included the Brief Pain Inventory (BPI) average pain severity score, the Patient Global Impressions-Improvement (PGI-I), mean tender point pain thresholds, Sheehan Disability Scale, and SF-36. The percentage of patients completing the extension phase was 56.1% (156/278) for Study 1 and 68.6% (140/204) for Study 2. The percentage of patients that discontinued due to an adverse event was highest in the group titrating from placebo to Cymbalta in Study 1 (25.0%) and in Study 2 (19.4%). The most common TEAEs (10% in at least one patient group) were nausea, dry mouth, and insomnia in Study 1, and dry mouth, nausea, headache, hyperhidrosis, and muscle spasm in Study 2. TEAEs were highest in patients that had titrated from placebo to Cymbalta. The percentage of patients that reported at least 1 discontinuation-emergent adverse event was 30.8% in Study 1 and 20.9% in Study 2, with the most common adverse events being dizziness, pain, and nausea. No significant within-group changes occurred for either diastolic or systolic blood pressure in any of the patient groups. Significant within-group mean increases in pulse rate (beats per minute) occurred in the placebo/Cymbalta 120 group (3.7 [SD=11.2], P0.001) in Study 1 and placebo/Cymbalta 60 group in Study 2 (4.8 [SD=10.2], P0.001). A number of chemistry and hematology analyses demonstrated small but statistically significant mean changes, but they were not considered clinically relevant. Nearly all treatment groups showed small mean change improvements in the BPI average pain severity score over the 6-month period, including statistically significant within-group improvement (-0.94, P<.001) in the placebo/Cymbalta 120 group. The placebo/ Cymbalta groups in both studies showed significant improvement on the PGI-I and improvement on most other efficacy and health outcome measures, including significant improvement on several SF-36 measures.
Forests Savella (Milnacipran) Gains FDA Approval

Savella (milnacipran) is a norepinephrine-serotonin reuptake inhibitor (NSRI) being developed by Cypress Bioscience and partner Forest Labs for the treatment of FMS. Savella preferentially blocks norepinephrine with a higher potency than serotonin, while the activity of Cymbalta (duloxetine) and other serotonin-norepinephrine reuptake inhibitors (SNRIs) currently on the U.S. market are skewed towards the inhibition of serotonin reuptake. Savellas relative ratio of norepinephrine/serotonin reuptake inhibition is similar to some tricyclic antidepressants (TCA); however, Savellas lack of activity at other receptors (histaminergic and muscarinic activity) provides the drug with a better tolerability profile compared to TCAs. Norepinephrine and serotonin play a central role in the descending pain pathway and increasing the activity of both of these neurotransmitters via reuptake inhibition is believed to help treat the widespread pain and other symptoms associated with FMS.
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COMPARISON OF NOREPINEPHRINE/SEROTONIN ACTIVITY OF SELECT ANTIDEPRESSANTS
Source: Company reports; adapted from Vaishnavi SN et al. Biol Psychiatry 2004;55:320-22; Owens et al Biol Psychiatry
We Target Annual Sales Of $500MM In 2015 In January 2009, Forest and Cypress Bioscience announced the FDA approval of Savella for the management of fibromyalgia. Although the FDA action is consistent with Forest and Cypress management's guidance for an early Q1:09 approval, the Savella approval came 3-6 months ahead of our and consensus expectations. On the October 18, 2008 review deadline, the FDA extended the review to confirm 'a clinical data question related to the NDA submission'. In the meantime, positive data from a third Phase III trial were reported in early December and final data from a heart-rate monitoring trial were being prepared in February. We had expected the FDA to require submission of these data for formal review, delaying the final Savella approval into H2. While the January 2009 and Q2 launches are ahead of expectations, we expect Savella to face tough competitive headwinds from established fibromyalgia treatments Lyrica (PFE) and Cymbalta (LLY) and to see gradual uptake. In March 2009, Forest and Cypress announced that due to the ongoing FDA review of a cosmetic formulation change (change of tablet color), commercial shipments of Savella (milnacipran for FMS) will not be available in March and may be delayed until May. Forest indicates that the color/formulation change submission was made following the NDA approval in January and was expected to be cleared in time for a March commercial roll out. However, the FDA is taking a more formal approach with a 4-month review deadline, so commercial shipments now are expected to commence in April/May. This delay is minor and should not be an issue, but pushes the Savella rollout closer to the difficult new drug launch months of July and August, which could slow initial Rx trends. In particular, Savella's primary fibromyalgia treatment competition is LLY's Cymbalta, also an SNRI. Cymbalta and Savella will be used in the 30-40% of fibromyalgia patients with concomitant depression. Cymbalta will have an advantage as an established antidepressant with a known safety profile and QD dosing (Savella is dosed BID). We estimate Savella's 2015 sales potential at $500MM, assuming 20-22% Rx share of the fibromyalgia treatment market in 2015.
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Milnacipran Used As An Antidepressant Ex-U.S. Outside the U.S., milnacipran is approved in over 32 countries for the treatment of depression, including countries within the E.U. Milnacipran was originally developed and is currently marketed outside the U.S. by Pierre Fabre (France). Cypress licensed the U.S./Canadian rights to milnacipran from Pierre Fabre in 2001 and partnered with Forest to co-develop the product in 2004. Cypress is obligated to pay Pierre Fabre 5% of any milestones it receives from Forest. Forest will pay Pierre Fabre royalties on milnacipran net sales directly and also purchases the active pharmaceutical ingredient needed to manufacture milnacipran directly from Pierre Fabre. Cypress To Receive A Midteens Royalty On Savella Net Sales In January 2004, Cypress entered into a collaboration agreement with Forest to codevelop Savella for the U.S. market. In July 2007, Forest exercised an option to expand the agreement to cover the Canadian market as well. Forest is funding the development of Savella, although per an amendment to the agreement, Cypress shouldered some of the costs associated with the second Phase III trial. Cypress will be reimbursed for these costs assuming the results from the second Phase III trial ultimately support final FDA approval of Savella. Per the agreement with Forest, Cypress received $25MM upfront, and assuming the successful development and commercialization of Savella, the total upfront/milestones payable to Cypress could total $205-250MM. A majority of the milestones are tied to the commercial performance of Savella. Cypress will receive a midteens royalty on net sales of Savella; we estimate the royalty rate at 16%. We project Savella royalty revenues to Cypress of $2-3MM in 2009, $24MM in 2010, and $68MM in 2013. Safety Label Cleaner Than Anticipated Despite an association with palpitations, heart rate increase and hypertension in the 3 Phase III trials, Savella received standard label warnings for hypertension and heartrate elevations, a positive surprise given the FDA's focus on these issues. Savella has a black box warning for potential suicidal ideation in adolescent patients, similar to all SSRI and SNRI antidepressants. In the three U.S. pivotal trials, milnacipran caused palpitations, tachycardia, and hypertension in 5-7% (each) of patients, versus a 1-3% incidence rate for placebo patients. The incidence of palpitations in the milnacipran-treated patients in the three U.S. Phase III trials was 7%, compared to 2% for placebo. The incidence of heart rate increase in the milnacipran-treated patients was 6%, compared to 1% for placebo. The incidence of hypertension in the milnacipran-treated patients was 5%, compared to 2% for placebo. The average blood pressure increase was in the range of 2-3 mmHg. Palpitations are classified as a frequent adverse event in the Cymbalta label. Blood pressure increases in the range of 2-2.5mmHg were seen with Cymbalta in clinical trials. Our consultants view the minor blood pressure elevations and palpitations as consistent with milnaciprans SNRI mechanism, not of clinical concern, and in their view, not likely to be a significant issue for the FDA. Consistent with that view, the FDA agreed to standard label warnings for hypertension and heart-rate elevations, a positive surprise given the FDA's focus on cardiovascular safety.
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SUMMARY OF MILNACIPRAN PHASE III TRIAL RESULTS TRIAL FMS-031 At 3 Months: Completion rate: FMS Pain Composite (1): Number of patients (evaluable using BOCF): Responder rates: p-values: FMS Syndrome (2): Number of patients (evaluable using BOCF): Responder rates: p-values: At 6 Months: Completion rate: FMS Pain Composite (1): Number of patients (evaluable using BOCF): Responder rates: p-values: FMS Syndrome (2): Number of patients (evaluable using BOCF): Responder rates: p-values: TRIAL MLN-MD-02 (3 Months) Completion rate: FMS Pain Composite (1): Number of patients (evaluable using BOCF): Responder rates: p-values: FMS Syndrome (2): Number of patients (evaluable using BOCF): Responder rates: p-values: EUROPEAN TRIAL (3 Months) Completion rate: FMS Pain Composite (1): Number of patients (evaluable using BOCF): Responder rates: p-values: Fibromyalgia Impact Questionnaire: Number of patients (evaluable using BOCF): Responder rates: p-values: TRIAL MLN-MD-03 (3 Months) Completion rate: FMS Pain Composite (1): Number of patients (evaluable using BOCF): Responder rates: p-values: FMS Syndrome (2): Number of patients: Responder rates: p-values: Responder Definitions: (1) FMS Pain Composite Responder: 1,025 884 1,196 67.7% 262 25% 236 39% p<0.05 236 25% p<0.05 215 46% p<0.05 215 26% p<0.05 491 57.6% 140 28% 121 44% p<0.05 120 33% p=0.056 230 45% p<0.05 229 32% p<0.05 # patients 888 553 62.3% Placebo 100mg/day 200mg/day
158 27%
135 45% p<0.05 134 33% p<0.05
260 45% p<0.05 259 33% p<0.05
156 17%
139 19%
262 13%
446 15%
430 24% p=0.003 430 NA p=0.015
446 NA
509 NA
516 NA p<0.001 516 NA p<0.001
509 NA
Greater than or equal to a 30% reduction in pain (VAS) vs. baseline and a rating of "very much improved" or "much improved" on Patient Global Impression of Change (PGIC) The two criteria listed above and a >= 6 point improvement on the SF-36 physical component summary score (SF-36 PCS ) ADVERSE EVENT RATES Trials FMS-031, MLN-MD-02 Trial MLN-MD-03 Milnacipran 37% NA 15% 11% 11% 8% NA 7% 5% NA 5% 31% Placebo 21% NA 4% 4% 5% 1% NA 3% 1% NA 1% 30%
(1) FMS Syndrome Responder:
Most Frequent AE's Nausea Headache Constipation Hot Flushes Dizziness Hyperhidrosis Vomiting Palpitations Heart Rate Increase/Tachycardia Dry Mouth Hypertension AE-Related Discontinuations
Source: Company reports, Cowen and Company
Milnacipran 37% 18% 16% 12% NA 9% 7% 7% 6% 5% 5%
Placebo 20% 14% 4% 2% NA 2% 2% 2% 1% 2% 2%
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Extension Study Results Suggest Persistent Effect Following the completion of the six-month FMS-031 trial, patients were given the option to enroll in a six-month extension study. A total of 449 patients enrolled in the extension study and 67% of those patients who enrolled completed the study. During the extension study, patients were: (1) maintained at 200mg/day (n=209) of milnacipran; (2) maintained at 100mg/day (n=19); or (3) randomized from 100mg/day or placebo to either 100mg/day (n=29) or 200mg/day (n=192) of milnacipran. The endpoints were pain intensity, FIQ-PF, and PGIC. Patients who were on placebo and that were randomized to one of the two milnacipran doses during the extension trial experienced an average pain score improvement of 47%. Patients treated with milnacipran for the entire 12-month period demonstrated a persistent reduction in pain scores.
SUMMARY OF EXTENSION STUDY RESULTS
Forest and partner Cypress BioSciences (CYPB) announced in March 2009 that due to a minor cosmetic formulation change (change of tablet color) for Savella, the commercial shipments will be delayed until May-June 2009. Forest management indicates that the color change and FDA submissions were made in January 2009, but the FDA recently responded that this manufacturing adjustment to the already-approved NDA requires a slightly more formal and protracted review, with a four-month review deadline expiring in May 2009. This delay is minor, and does not impact the longer-term outlook for Savella.
Allergan/Acadias Alpha-Adrenergic Agonist In Phase II Trials For Fibromyalgia

Allergan licensed a series of selective alpha-adrenergic agonists from Acadia pharmaceuticals. The most advanced of these molecules is AGN 203818 which is in Phase II testing for the treatment of pain associated with fibromyalgia. At Allergans R&D day in June 2008 it disclosed preclinical data that demonstrated a >100 fold window between maximal efficacy with respect to pain and the start of sedative properties. Additionally, Allergan disclosed that in the Phase II trial it is seeing improvements in pain and secondary endpoints that are on par with those observed with Lyrica and Cymbalta.
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Jazz/UCBs Xyrem Likely To Be A Niche Player

Jazz Pharmaceuticals Xyrem (JZP-6; sodium oxybate) is in Phase III trials for FMS. Xyrem is delivered as an oral solution. UCB Pharma holds international commercialization rights to JZP-6. Xyrem is also known as GHB, or the date rape drug. Sodium oxybate is a DEA schedule III drug, while other forms of GHB are DEA schedule I. Xyrem is currently FDA-approved for the treatment of excessive daytime sleepiness and cataplexy in patients with narcolepsy. Xyrems label includes a black box warning associated with its CNS depressant capabilities and abuse potential. While our consultants believe that Xyrem may prove to be effective in FMS, they believe that the stigma associated with the drug will limit its use to more severe patients who have failed alternative therapies. We currently have no sales estimates for Xyrem in FMS pending improved visibility on its clinical profile in Phase III. Results from the first of two ongoing pivotal Phase III trials were released in November 2008. The randomized, double-blind, placebo-controlled study met its primary endpoints. Xyrem significantly decreased pain and fatigue, and improved daily function, in patients with fibromyalgia. The 14-week study included 548 patients with fibromyalgia randomized to one of three treatment arms: sodium oxybate 4.5 gm/night, sodium oxybate 6 gm/night or placebo. The primary outcome measure, which Jazz noted had the backing of both U.S. and E.U. regulatory authorities as a clinically meaningful endpoint, was the proportion of patients who achieved at least 30% reduction in pain from baseline to endpoint based on the Pain Visual Analog Scale (VAS). Of those patients receiving Xyrem, 46% percent of patients on 4.5 g/night and 39% percent of patients on 6 g/night reached the desired level of pain relief, compared with 27% percent of patients on placebo. These results were statistically significant. Jazz also noted that the E.U. considers the Fibromyalgia Impact Questionnaire (FIQ) data as equally relevant while the U.S. looks at the scale as supportive data. As measured by FIQ, patients' physical functioning and ability to perform daily taskswere significantly different from placebo for the 4.5 g/night dose. The 6 mg/night arm showed a trend towards significance. The most common adverse events, with incidence greater than or equal to 5 percent and at least twice the rate of placebo, were headache, nausea, dizziness, vomiting, diarrhea, anxiety, and sinusitis. The second Phase III study has enrolled 575 patients at centers in the U.S. and Europe. Jazz Pharmaceuticals anticipates submitting an NDA for sodium oxybate to the U.S. Food and Drug Administration by the end of 2009.
Pfizer Terminates Esreboxetine Development For FMS

S,S-reboxetine is a highly selective norepinephrine reuptake inhibitor (NRI) in development for FMS and DPN. S,S-Reboxetine is the optically pure isomer of reboxetine (brand name Edronax), which is approved outside the U.S. for the treatment of depression. In 2001, the FDA rejected Pharmacias bid to garner U.S. approval for reboxetine, issuing a non-approvable letter and citing insufficient efficacy support. In its letter the FDA requested that additional clinical trials be conducted prior to approval. S,S-reboxetine has been formulated to allow for once-daily dosing. Both the (R,R)-(-) and (S,S)-(+)-enantiomers of reboxetine are predominantly metabolized by the CYP3A4 isoenzyme. The primary metabolite of reboxetine is O-desethylreboxetine, and there are also three minor metabolitesPhenol A, Phenol B, and UK1, Phenol B being the most minor. In February 2009, Pfizer announced that it was terminating Phase III development of esreboxetine (norepinephrine reuptake inhibitor) for the treatment of fibromyalgia disorder (FMS). Pfizer stated that, after reviewing the existing data for
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esreboxetine in the treatment of FMSit was considered unlikely that [esreboxetine] would provide meaningful benefit beyond the current standard of care. Esreboxetine development was not terminated for safety reasons, according to Pfizer. Pfizer currently markets the leading fibromyalgia treatment, Lyrica (pregabalin), so the bar for Esreboxetines clinical profile likely was set high.
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U.S. FIBROMYALGIA MARKET BUILD-UP

Estimated U.S. FMS Sufferers (MM) % of FMS Sufferers Diagnosed And Seeking Treatment Target U.S. Patient Population (MM) Total Prescriptions (MM) % change Lyrica (PFE) Market Share TRx's (MM) Daily Cost Lyrica Sales ($MM) Cymbalta (LLY) Market Share TRx's (MM) Daily Cost Cymbalta Sales ($MM) Savella/Milnacipran (FRX/CYPB) Market Share TRx's (MM) Daily Cost Savella/Milnacipran Sales ($MM) Esreboxetine (PFE) Market Share TRx's (MM) Daily Cost Esreboxetine Sales ($MM) Other Market Share TRx's (MM) Daily Cost Sales ($MM) Total Sales ($MM) % change
2007 6.0 18% 1.1 0.5 NM 100% 0.5 $5.76 $90
2008 6.1 22% 1.3 2.0 +282% 75% 1.5 $5.61 $250 25% 0.5 $5.30 $80
2009E 6.2 30% 1.9 4.5 +127% 49% 2.2 $5.61 $375 44% 2.0 $5.30 $315 7% 0.3 $4.50 $40
FIBROMYALGIA SYNDROME - ESTIMATED U.S. MARKET BUILDUP 2010E 2011E 2012E 2013E 2014E 2015E 6.4 6.5 6.6 6.8 6.9 7.0 38% 2.4 7.5 +67% 39% 3.0 $5.61 $500 46% 3.5 $5.30 $550 15% 1.1 $4.50 $150 45% 2.9 9.9 +31% 36% 3.6 $5.61 $600 48% 4.7 $5.30 $750 16% 1.6 $4.50 $220 50% 3.3 13.3 +34% 31% 4.2 $5.61 $700 46% 6.1 $5.30 $975 17% 2.2 $4.50 $300 6% 0.7 $4.50 $100 54% 3.6 13.9 +5% 32% 4.5 $5.61 $750 23% 3.1 $5.30 $500 20% 2.8 $4.50 $375 11% 1.5 $4.50 $200 15% 2.1 $0.80 $50 56% 3.9 15.2 +9% 31% 4.8 $5.61 $800 10% 1.6 $5.30 $250 22% 3.3 $4.50 $450 15% 2.2 $4.50 $300 22% 3.3 $0.75 $75 $1,875 +0% 58% 4.1 17.6 +16% 29% 5.1 $5.61 $850 4% 0.8 $5.30 $125 21% 3.7 $4.50 $500 17% 3.0 $4.50 $400 29% 5.1 $0.65 $100
CGR +2% +17% +37%
Comments - Estimated at 0.5-4% of the US population; assume 2% annual growth - Increases as Forest, Lilly, and Pfizer ramp their marketing efforts - Vague symptoms, difficult diagnosis reduce treatment population
+19% +19%
Pregabalin; patents go out to 2018 Received FDA approval for FMS indication in June 2007 Price/day for 450mg/day dose FMS sales only Duloxetine; SNRI; last Orange Book listed patent expires in July 2014 Approved for FMS indication in June 2008 Blend of 60mg/day and 120mg/day prices FMS sales, but patients likely also suffer from depression Milnacipran; NSRI Expect 5-years of Hatch-Waxman exclusivity; multiple patents to 2023 Assume priced at a modest discount to Cymbalta Approved 1/09
+7% +7%
-Highly selective NERI
- Cymbalta generics
$90 NM
$330 +267%
$730 +121%
$1,200 +64%
$1,570 +31%
$2,075 +32%
$1,875 -10%
$1,975 +29% +5%
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Antipsychotics
Newer Agents Continue To Dominate Antipsychotic Market
Newer antipsychotic agents, such as Eli Lillys Zyprexa, J&Js Risperdal, AstraZenecas Seroquel, Bristol-Myers Squibbs Abilify, and Pfizers Geodon, have been adopted rapidly, given that they offer effectiveness comparable to haloperidol, but cause less tardive dyskinesia. For the trailing 12 months ending January 2009, total atypical antipsychotic prescriptions grew +4.8% compared to the preceding twelve months. Schizophrenia represents approximately 50% of the $11B+ antipsychotic market, while bipolar disorder (30% dollar share), depression (10% dollar share), and dementia (8% dollar share) also represent significant opportunities. Many studies have shown that the atypical agents can decrease length of hospital stay, increase compliance, and improve quality of life, compared with older typical agents. Our physician consultants view the efficacy of the atypical agents as similar, despite conflicting results from various company-sponsored clinical studies, while their relative side-effect profiles have provided means for differentiation. Our physician consultants expect continued market expansion driven by: (1) use of these agents outside of schizophrenia (bipolar disease, Alzheimers and Parkinsons disease-related psychoses); (2) favorable sideeffect profiles of newer atypical agents; and (3) the fact that newer atypical agents are considered first-line agents in consensus guidelines.
CATIE Results Had Little Impact On Prescribing

The National Institute of Mental Health (NIMH) and the University of North Carolina initiated CATIE (Clinical Antipsychotic Trials Intervention Effectiveness) to assess the efficacy, safety and cost of six currently marketed antipsychotics. CATIE, a randomized, double blind, crossover study, enrolled 1,493 patients between 18-65 years old, with a DSM-IV diagnosis of schizophrenia. The exclusion criteria included: (1) patients who were intolerant or failed to respond to treatment, (2) individuals with schizoaffective disorder, mental retardation, pervasive developmental disorder, delirium, dementia, or amnesia, (3) patients who had only had one episode of schizophrenia, and (4) women who were pregnant or breast feeding. Patients enrolled had 20 scheduled physician visits, comprised of two initial screenings and a monthly check-up for 18 months. The study drugs include Zyprexa 5mg (olanzapine), Geodon 40mg (ziprasidone), Seroquel 200mg (quietiapine), Risperdal 1.5mg (risperdone), Clozaril 12.5mg (clozapine), and Scherings Trilafon 8mg (perphenazine). Trilafon was not administered to patients with tardive dyskinesia. Abilify was not included in CATIE because the study began prior to its approval. The primary endpoint is time to allcause treatment failure marked by discontinuation. This endpoint was chosen given that it is considered a more rigorous and clinically significant endpoint than a symptoms-based measurement. Secondary endpoints include clinical and functional outcome measures, safety, neurocognition, health service utilization and cost. Because CATIE was conducted by NIH and devoid of drug company sponsorship, results are viewed as objective. The Phase I results of CATIE were released in September 2005. The key conclusions: Zyprexa has class-leading efficacy, is associated with significant weight gain and increased risk of metabolic syndrome, and Trilafon works nearly as well as the newer drugs. The results of CATIE have had little impact on antipsychotic prescribing, consistent with our physician consultants expectations.
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CATIE SCHIZOPHRENIA TRIAL DESIGN: PHASE I

1,493 Patients
Zyprexa
Seroquel
Risperdal
Geodon
Trilafon
Patients who stop therapy in Phase I will choose either Clozaril or Geodon randomization pathways (below) Clozaril or Zyprexa, Seroquel, Risperdal
Source: National Institute of Mental Health
Geodon or Zyprexa, Seroquel, Risperdal
Trilafon Performed Well In CATIE, Modest Increase In Use Thus Far Our physician consultants believe that, despite Trilafons (perphenazine) good performance, CATIE is unlikely to significantly impact psychiatrists prescribing habits. Perphenazine use has increased modestly since the publication of the CATIE Phase I results, but perphenazines overall prescription share of the U.S. antipsychotic market remains less than 1%. CATIE specifically chose Trilafon as the generic comparator due to a lower incidence of side effects than the standard comparator, Haldol. It also was studied at a relatively low dose in order to minimize the risk of extrapyramidal symptoms (EPS), particularly tardive dyskinesia (TDK). CATIE showed that, statistically, Trilafon was no different from any of the comparator drugs, but the comparison was somewhat underpowered (76% power to detect a statistically significant difference vs. comparator drugs) due to exclusion of patients with TDK. The discontinuation rate of 75% for Trilafon was numerically similar to Risperdal (74%) and better than Geodon (79%) or Seroquel (82%), and the average duration of treatment also was better than Risperdal, Geodon, and Seroquel (6.2 months vs. 3.4 to 4.9 months). However, our physician experts believe CATIE was skewed in favor of Trilafon on two counts: (1) patients with TDK were excluded from treatment with Trilafon; and (2) TDK typically is a longer-term effect. Perphenazine Treatment More Cost Effective As Expected While the Phase I results from CATIE focused on safety and efficacy, results from Phase II and Phase III of CATIE focused on outcome measures that are more relevant to reimbursement. The results from the economic implications portion of CATIE were published in the American Journal of Psychiatry in December 2006. The results demonstrated: (1) there was no significant difference in the final quality-adjusted life year (QALY) rating achieved by patients regardless of the medication they were initially treated with, and (2) the all-inclusive (drug, inpatient, and outpatient costs) treatment costs for those patients initially treated with perphenazine were significantly lower than for any other group. Worth noting, the cost differential between patients initially treated with perphenazine or one of the branded products was entirely due to the cost of the drug. While perphenazine performed well, an editorial published in the same issue of the journal pointed out key limitations of the study. The limitations highlighted were: (1) the study lasted only 18-months, which did not allow adequate time for the manifestation of key side effects that have plagued first-generation agents
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(e.g., tardive dyskinesia and metabolic syndrome), (2) the restriction of perphenazine to patients who did not have tardive dyskinesia at the start of the study limits the randomness of the study, (3) the comparison of the treatment costs based on the drug patients were initially treated with is of uncertain value given that many of the patients were not treated with the same drug for the entire study, (4) no difference in QALY was achieved via the various drugs, which may suggest that the measure was too crude to pick up a difference particularly in light of the fact that patients receiving Zyprexa initially stayed on Zyprexa longer than those receiving any of the other drugs tested, and (5) because CATIE was not a first-episode study, the results say nothing about which initial treatment for schizophrenia works best.
Antipsychotic Rxs Continue To Grow

In April 2005, the FDA issued a public health advisory pertaining to the use of antipsychotics for the treatment of dementia in the elderly. 15 of 17 placebocontrolled clinical trials performed with Zyprexa, Abilify, Risperdal, or Seroquel in elderly demented patients with behavioral disorders demonstrated a numerical increase in mortality in the drug-treated groups. In total, the studies enrolled 5,106 patients and the mortality rate was increased by 1.6-1.7-fold. Further examination of the specific causes of death revealed that they were most likely due to heart-related events or infections. The FDA viewed the increase in mortality as a potential risk for atypical antipsychotics (including aforementioned products, plus Clozaril, Geodon, and Symbyax). While all atypical antipsychotics are FDA approved for the treatment of schizophrenia, none are indicated for the treatment of behavioral disorders in patients with dementia. Because of the safety concerns, the FDA required a class-wide black box warning describing the risks of using atypicals in demented patients with behavioral disorders. The FDA is also considering extending the label change to earlier antipsychotic drugs, suggesting similar concerns, but timing is uncertain. The addition of the black box warning did not have a significant impact on atypical antipsychotic prescribing. As of January 2009, total atypical antipsychotic prescriptions were up +4.8% over the trailing 12 months.
Total Monthly Antipsychotic Prescriptions
4,600,000
4,400,000
4,200,000
4,000,000
TRxs
3,800,000
3,600,000
3,400,000
3,200,000
3,000,000 Feb-07 Dec-06 Dec-07 Feb-08 Feb-06 Dec-08 Jun-06 Jun-07 Aug-06 Aug-07 Jun-08 Oct-06 Oct-07 Aug-08 Oct-08 Apr-06 Apr-07 Apr-08
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Antipsychotic Market: Total Monthly Rx Share

Abilify 40.0% Clozapine generics/Clozaril Geodon Risperdal/Generics Seroquel Zyprexa
35.0%
30.0%
Rx Marketshare
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
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Broad Profile Of Seroquel/XR Expected To Drive Continued Growth

Seroquel, considered the most widely applicable anti-psychotic, continues to gain prescription share. As of January 2009, Seroquel/XR held a 33.2% U.S. prescription share of the antipsychotic market, relatively flat Y/Y. Over the past few years, Seroquel has benefited from a favorable side-effect profile and extensive use in bipolar disorder. Seroquel/XR is indicated for the treatment of schizophrenia and bipolar disorder including both manic, depressive episodes and maintenance (U.S.). Seroquels pharmacology is unique among atypicals. Specifically, Zyprexa, and Risperdal are relatively high-affinity antagonists of the D2 and 5HT2 receptors, whereas Seroquel has demonstrated a 15- to 50-fold lower affinity for the D2 and 5HT2 receptors. Seroquels lower affinity for the D2 receptor has been suggested as the reason why it has a lower incidence of extrapyramidal (EPS) side effects. Data from PET scans studies demonstrated that Seroquels active metabolite, norquetiapine acts on NET - the norepinephrine transporter - potentially explaining Seroquels activity in MDD and GAD. AstraZeneca has exploited this extensively in Seroquels marketing, and it is a key driver of Seroquels use in psychoses other than schizophrenia. Weight gain is an issue with Seroquel, but our physician consultants confirm that it does not impact patient compliance.
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Our physician consultants believe Seroquel XR is not a significant advance relative to the currently available formulation, but it will be an important component of AstraZenecas franchise extension strategy. Seroquel XR is approved in 39 countries for the treatment of schizophrenia, 10 countries for the treatment of bipolar mania, and five countries for the treatment of bipolar depression. In the U.S. it is also approved in bipolar maintenance. AstraZeneca filed an sNDA for GAD in June in the U.S. and a MAA in October in the E.U. In December, FDA issued a complete response letter asking for more information for the sNDA for MDD. In February 2009, it was disclosed that the FDAs Psychopharmacologic Drugs Advisory Committee would meet on April 8th, 2009 to discuss the potential indications for the treatment of major depressive disorder (MDD) and generalised anxiety disorder (GAD). Our consultants are excited about Seroquel XRs potential for MDD as it could be the first atypical antipsychotic to be approved as a monotherapy for MDD. It is unclear what is required to resolve the complete response letter, but it could be related to use in the elderly. The conversion from IR to XR has been lackluster, with XR representing only 3.4% of the combined Seroquel/XR TRxs in January 2009; modestly up from 1.6% in January 2008. However, Seroquel prescriptions have only been modestly impacted by the launch of risperidone generics. The FDA Orange Book-listed 288 patent covering Seroquel expires in September 2011; Seroquel XR is protected by a formulation patent that expires in May 2017. In July 2008, AstraZeneca announced that the U.S. District Court for the District of New Jersey granted the motion for summary judgement for no inequitable conduct. Teva and Sandoz had filed ANDAs citing inequitable conduct. The decision removed the need for a trial and upholds the validity of the patent through September 2011. We estimate Seroquel sales of $4.8B (+7%) in 2009, $1.75B in 2012, and $300MM in 2015. We factor in a decline in sales in 2012 given patent expirations in the U.S. (9/11) and foreign markets (3/12).
Seroquel: Life-Cycle Management
Formulation Filing IR Bipolar Maintenance Bipolar Depression 01/08 XR Bipolar Depression Bipolar Mania GAD MDD Bipolar Maintenance
Filing Date July 07 Q2:08
Territory U.S. E.U.
Expected/ Approval Approved Approved
E.U. U.S. E.U. U.S. E.U. U.S. E.U. U.S. E.U. U.S. E.U.
Approved Approved Approved Approved Approved
12/07 Q1:08 12/07 Q1:08 05/08 10/08 02/08 06/08 Q2:08 Q2:08
Complete response Approved
Side-Effect Profile A Major Driver Our psychiatric physician consultants in the U.S. and Europe believe that the main uses of Seroquel are for the treatment of psychosis and mood disorders in patients
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susceptible to EPS side effects and as adjunctive therapy to other atypicals. This population includes the elderly with Alzheimers or Parkinsons disease and adolescents with psychoses. We estimate that these populations account for up to 70% of Seroquel use in the U.S. Our physician consultants also note that Seroquels sedating effect is particularly useful in hospitalized non-schizophrenic psychosis patients. The U.S. National Economic Development Board suggests that over 60% of atypical antipsychotic sales are through Medicaid and over 50% are for off-label indications. Offlabel use represents a significant cost of treating the psychotic elderly. This use of Seroquel is supported by a plethora of small studies (10 to 20 patients from single centers) and a single 250-patient study looking at the safety and efficacy of Seroquel in elderly patients with Parkinsons disease, dementia and psychosis. Bipolar Indication For Seroquel Bolsters Franchise Seroquel is indicated for the treatment of patients with depressive episodes associated with bipolar disorder and bipolar maintenance (05/08), differentiating itself from most of the competition. This indication is supported by the BOULDER (BipOLar DEpRession) I and II studies. The two 8-week studies enrolled 1,045 patients. Patients treated with Seroquel demonstrated an improvement in their depression symptoms as early as one week following treatment initiation; the benefit persisted throughout the 8-week studies. Efficacy was demonstrated with 300mg and 600mg daily doses of Seroquel. No additional benefit was seen with the 600mg dose, so the recommended starting dose is 300mg.
Adverse Events Comparison Of Seroquel And Other Atypical Antipsychotics
Incidence Of Adverse Event Drug Risperidone placebo Olanzapine placebo Ziprasidone placebo Aripiprazole placebo Quetiapine placebo Paliperidone placebo Brand Name Risperdal Zyprexa Geodon Abilify Seroquel Invega Weight Gain >7% 18% 9% 29% 3% 10% 4% 8% 3% 23% 6% 9% 5% Warning ECG Prolongation No No Yes No No No Increased Prolactin Yes Yes Yes No No Yes Somnolence 8% 1% 29% 13% 14% 7% 11% 8% 18% 11% 11% 7% Discontinuing Therapy 10% 7% 5% 6% 4% 2% 7% 9% 4% 3% 5% 5%
Source: Product labels
Seroquel XR Approved In Bipolar, Receives Complete Response For MDD And Filed For GAD In October 2008, FDA approved Seroquel XR for the acute treatment of the depressive episodes associated with bipolar disorder, the manic and mixed episodes associated with bipolar I disorder and the maintenance treatment of bipolar I disorder as adjunctive treatment. In November 2008, Seroquel XR, under the European Mutual Recognition Procedure, was approved for the treatment of major depressive episodes associated with bipolar disorder and for the moderate to severe manic episodes in bipolar. The bipolar mania submission was based on a clinical study in 316 patients comparing Seroquel XR to placebo, with a primary endpoint of change in YMRS (Young Mania Rating Scale) total score (week 3). The bipolar depression submission was
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supported by a clinical study of Seroquel XR compared to placebo, with a primary endpoint of change from baseline in MADRS (Montgomery Asberg Depression Rating Scale) total score after 8 weeks of treatment, in 280 patients diagnosed with bipolar depression. Both studies met their primary endpoint. In December 2007, data from studies in major depressive disorder (MDD) and generalized anxiety disorder (GAD) were presented at the 7th International Forum on Mood and Anxiety Disorders (IFMAD). Two randomized, double-blind Phase III studies in MDD reported significantly reduced total scores on the MADRS after six weeks of treatment with Seroquel XR. In the MDD monotherapy study, mean MADRS score was significantly improved for patients receiving Seroquel XR 150 mg (-14.81; p<0.001) and 300 mg (-15.29; p<0.001) compared with placebo (-11.18). When given as adjunctive therapy in MDD to patients who were experiencing an inadequate response to their current antidepressant treatment, mean MADRS score was significantly improved for patients receiving Seroquel XR 150 mg (-15.26; p<0.01) and 300 mg (-14.94; p<0.01) compared with antidepressant alone (-12.21). AstraZeneca filed an sNDA for the treatment of major depressive disorder base on these data. In December 2008, AstraZeneca received a complete response letter from FDA requiring more information prior to approving the drug. As noted above, the FDAs Psychopharmacologic Drugs Advisory Committee will meet on April 8th, 2009 to discuss the potential indications for MDD and GAD. In a third study examining patients with GAD, mean Hamilton Anxiety scale (HAM-A) score was significantly improved after eight weeks of monotherapy for patients receiving Seroquel XR 50 mg (-13.95; p<0.05) and 150 mg (-15.96, p<0.001) compared with placebo (-12.30). In all three studies, Seroquel XR was generally well tolerated. The most common adverse events across all of the doses examined (50 300 mg/day) were dry mouth (15.938.2 %), sedation or fatigue (13.238.8%), somnolence (16.827%), and dizziness (9.219.1 %). The numbers of patients with blood glucose elevated above 126 mg/dL at study end for Seroquel XR 150 mg, 300 mg and placebo, respectively, were 2.9%, 6.3%, and 0.9% in the MDD monotherapy and 3.2%, 6.3%, and 3.3% in the adjunctive therapy study. In the GAD study the elevation was seen in 1.1% of patients (50mg Seroquel XR), 0.6% (150mg Seroquel XR), and 1.7% (placebo). Seroquel XR became the first antipsychotic to be filed for GAD in the U.S. (May 2008) and in the E.U. (October 2008). The submissions were based on a clinical development program involving more than 3,500 patients in five Phase III studies. Data from the program were presented at ECNP in September and at American Psychiatric Association (APA) in Washington, D.C. in May. In the data presented, significantly greater symptom improvements were seen in patients treated with Seroquel XR compared to those treated with placebo in short-term treatment, and Seroquel XR demonstrated a fast onset of action with improvement observed as early as day 4. This improvement was shown to be upheld during maintenance therapy. Seroquel XR was generally well tolerated and the safety and tolerability were consistent with previous studies. AstraZeneca Triumphs, As Expected, In Seroquel Patent Challenge Teva filed an ANDA for quetiapine (Seroquel) in September 2005 containing a Paragraph IV certification claiming non-infringement of the #4,879,288 composition-of-matter patent (expires September 26, 2011). Sandoz also filed a Paragraph IV. In November 2005, AstraZeneca filed a lawsuit against Teva and Sandoz alleging infringement and triggering the 30-month stay (expired April 2008). In July 2008, AstraZeneca announced that the U.S. District Court for the District of New Jersey granted the motion for summary judgement for no inequitable conduct. Teva and Sandoz had filed ANDAs
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citing inequitable conduct. The decision removed the need for the trial that was scheduled to begin August 11, 2008, and upholds the validity of the patent through September 2011. Teva alleged that the claims 1-8 of the '288 patent were invalid due to two pieces of prior art: patents 4,098,597 ('597) and 3,539,573 ('573), which describe molecules that are structurally similar to Seroquel. Our legal consultants believed that AstraZeneca properly disclosed all available prior art in prosecuting the '288 and therefore, there should be a presumption of validity once allowed. Our legal consultants noted that cases such as the Seroquel litigation typically turn on expert witness; Teva would have little chance of winning the litigation if the expert witness testimony in support of Seroquel were strong. Our scientific expert noted that AstraZeneca likely analyzed various structures before identifying Seroquel, which he believes was a truly novel discovery due to its reduced side effects. Our legal consultants believed that the '288 patent would hold.
Medicare Part D Plans Favor Seroquel

In 2007, all drugs in the antipsychotic class were included on Medicare Part D formularies. Generic clozapine has Tier 1 or generic position in all eight of the plans surveyed. Seroquel and Risperdal hold Tier 2 or preferred brand status on all eight of the plans surveyed. Zyprexa holds Tier 2 or preferred brand status on seven of the eight plans surveyed. Abilify and Geodon hold Tier 2 or preferred brand status on just three of the eight plans surveyed. Invega is on two formularies and is classified as a non-preferred brand on both.
Zyprexa Declining, But At More Tempered Pace

Lilly believes U.S. Zyprexa sales have stabilized due to its superior efficacy, use by a core group of schizophrenics who only benefit from Zyprexa, reorganization of the neuroscience sales force (fewer reps calling on each doctor with broader portfolio) and support from Medicare Part D. Zyprexas share in switches is slightly higher than in treatment-nave patients. Zyprexa NRx share in January 2009 was 10.7% which is down 1.0 pp from a year ago. In 10/07 Lilly announced that it updated the Zyprexa and Symbyax U.S. labels. Changes included new warning for weight gain and hyperlipidemia, and updated information on hyperglycemia including language on a greater association of increases in glucose levels with Zyprexa than other atypical antipsychotics. Lilly's Zyprexa vs. Abilify head-to-head study suffered mechanical problems and its status is unknown. Zyprexa has weathered the 6/08 risperidone generics launch relative well. In December 2008, Lilly won its German patent dispute which will result in generics being removed from the market. However, as result of lower pricing the value of the German market has been slashed. We forecast Zyprexa sales of $4.6B (-2%) in 2009, $2.6MM in 2011, the year of patent expiration in the U.S., and $400MM in 2013. The Zyprexa patent expires in October 2011in the U.S. (assuming pediatric extension) and in mid-2011 in major foreign markets. Generics have now been launched in Canada. LAI Receives 2nd Complete Response But Focus Is On REMS Plan. Zyprexas fourweek depot formulation, olanzapine long-acting injection (LAI), was filed with FDA and the EMEA in Q2:07 but in February 2008, received a non-approvable letter from FDA despite a positive recommendation from its Advisory Committee (February 2008). FDA said it needed more information to better understand the risk and underlying cause of
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excessive sedation events that have been observed in about 1% of patients in clinical trials. One case of excessive sedation began between 3 to 5 hours after injection but the majority occurred within three hours of injection. All patients fully recovered. Lilly met with FDA in May 2008 to discuss the path forward for LAI. Lilly is not required to do additional clinical studies and filed a complete response towards the end of Q2. In January 2009, FDA issued Lilly a 2nd complete response letter which requires Lilly to address questions on its REMS plan. Lilly confirmed that no additional studies are required. In September 2008, the CHMP recommended Zyphadera (Zyprexa LAI) for approval. Top-line LAI results shared at Lillys December 2007 analyst meeting demonstrated improved efficacy over placebo measured by the PANSS total score at 8 weeks when given twice monthly or monthly. This benefit was seen without oral antipsychotic supplementation, a differentiating feature over Risperdal Consta. Lilly believes that LAIs PK supports once-monthly dosing, another advantage over Consta, but the 300mg twice-monthly dose trended even more favorably than the 405mg monthly dose. Despite the non-approvable letter, our physician consultants would rather deal with the extrapyramidal side effects of Risperdal Consta over the metabolic disturbances associated with Zyprexa, in long-acting formulations. Consta and paliperidone palmitate can be given as gluteal and deltoid injections which is an advantage over the gluteal only route for LAI. Risperdal Consta has no hepatic clearance and can therefore be used in a broader patient population without concern. In addition, our consultants believe that Zyprexa LAI would have been clipped by J&Js true once-monthly paliperidone palmitate; JNJ recently resubmitted the sNDA for paliperidone palmitate and we expect approval by the end of the year. Zyprexa Patent Upheld In U.S. And Germany; Overturned In Canada. On December 26, 2006, the Court of Appeals for the Federal Circuit rendered a decision upholding the U.S. District Court for the Southern District of Indianas ruling that the Zyprexa patent was valid, enforceable and infringed by Dr. Reddys and Teva. On October 1, 2007, the United States Supreme Court denied the generic companies petition for certiorari, bringing this litigation to a close. In June 2007, the German Federal Patent Court invalidated the Zyprexa patent. Multiple generics were launched in Germany in Q4:07. In May 2008, the Court of Appeal in Dsseldorf granted an injunction against the first of these generic companies, STADA, as a result of which STADA had to withdraw its generic olanzapine product from the German market. Preliminary injunction actions were denied against eighteen other generic companies in Germany. In parallel Lilly had appealed the German Federal Patent Court ruling to the German Supreme Court and on December 16th the Supreme Court overturned the lower courts decision. This will require withdrawals by generic companies. However, there has been significant price erosion and, despite Germany previously representing about 4% of Zyprexa sales (~$300MM), the market likely is now worth $100MM. In June 2007, the Canadian Federal Courts ruled in favor of olanzapine generics. The Zyprexa patent was set to expire in 2011. Generics launched in Canada in Q3:07. We estimate Canada represents about 3% of Zyprexa sales. Lilly appealed the Canadian Federal Court ruling that Novopharms allegations of invalidity were justified and sued Novopharm for patent infringement. Lillys appeal was dismissed. The patent infringement suit tried in November 2008; no ruling has been issued yet. A hearing of the Canadian Federal Court ruling against Apotex is scheduled for March 2009.
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Lilly has received challenges to Zyprexa patents in many other countries as well, including the U.K., Spain, and other European countries. In Spain, Lilly defeated the generic manufacturers challenge, but the case has been appealed, and the decision is still pending. In the U.K., Dr. Reddys challenged the validity of Zyprexas compound and method-of-use patent (expiring in 2011). The Patent Court in the High Court, London ruled in Lillys favor. In countries where Zyprexas patent remains in force, there is unlikely to be legal spillover of olanzapine generics given the laws that protect the brands. Zyprexa has been generic in Poland for several years without impact on other Western European countries. Marketing And Promotional Practices Investigation Expanded. As of July 2008, Lilly received civil investigative demands or subpoenas from 30 states seeking documents regarding the companys marketing and promotional practices with respect to Zyprexa and remuneration of health care providers. In addition, Lilly was named as a defendant in a private suit in California State Court, which was removed to federal court, alleging violations of the California False Claims Act with respect to certain Zyprexa marketing and promotional practices. This suit was brought by an individual on behalf of the government, under the qui tam provision of the California False Claims Act. In October 2008, Lilly reached a settlement with 32 states and the District of Columbia. While there is no finding that it violated any provision of the state laws under which the investigations were conducted, Lilly will pay $62MM and undertake certain commitments regarding Zyprexa for a period of six years, through consent decrees filed in the settling states. The 32 states participating in the Multistate agreement are: Alabama, Arizona, California, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Maine, Maryland, Massachusetts, Michigan, Missouri, Nebraska, Nevada, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Dakota, Tennessee, Texas, Vermont, Washington, and Wisconsin.
Abilify Enjoying Continued Success

Abilify is indicated for long-term maintenance of schizophrenia, acute bipolar mania, bipolar maintenance, add-on treatment of MDD, and adolescent schizophrenia. In May 2008, FDA approved Abilify for adjunctive therapy for manic and mixed episodes associated with Bipolar I. In addition, FDA approved 15mg as a new starting and target doses for adult Bipolar I. In January 2009, Abilify achieved a 15% share of the U.S. antipsychotic total prescription market, up from 12% in January 2008. Abilify is viewed as the drug of choice for long-term treatment of schizophrenia given a tolerable sideeffect profile. However, Abilify also is viewed as less effective than alternative agents. Our psychiatric physician consultants believe share gains should continue, but that share in 12-18 months might be capped at 15-20%. Bristol seeks to increase market share driven by new indications, including the ongoing studies in autism. Abilify may be uniquely positioned in autism because its lack of weight gain and favorable metabolic profile are better suited for pediatric patients. The depot formulation appears to be a lower priority. Bristol believes it can retain Abilify share despite Risperdal generics, given that physicians will be uncomfortable with a switch in wellcontrolled schizophrenics. Bristol Has Exclusive Rights In International Markets Ex Japan Abilify has been launched for the treatment of schizophrenia in all major E.U. markets, and is available in an intramuscular formulation. We forecast Abilify revenues recorded
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by Bristol of $2.185B (+13%) in 2009 and $975MM in 2013. Bristol relinquishes rights to Abilify back to Otsuka in November 2012 in the U.S. and at the end of 2014 in the E.U. Otsuka records revenue in major markets while Bristol records approximately 65% as alliance revenue in major markets. Bristol records end-market sales in certain other countries. Abilifys patent expires in 2014. Abilifys contribution to Bristol revenue is depicted below:
BRISTOL-MYERS SQUIBB ALLIANCE REVENUE ANALYSIS ($MM) 2007 Abilify* Estimated share to BMY Alliance revenue to BMY Abilify sales recorded by BMY** Abilify total revenue to BMY $2,214 65% $1,438 221 $1,660 2008 $2,835 65% $1,842 310 $2,152 2009E $3,210 65% $2,085 350 $2,435 2010E $3,535 65% $2,300 430 $2,730 2011P $3,850 65% $2,505 500 $3,005 2012P $4,100 65% $2,665 575 $3,240 2013P $500 65% $325 650 $975 2014P $550 65% $360 725 $1,085 2015P $0 65% $0 0 $0 -29% 16% NM NM - Direct sales in certain markets 2008-13 -29% 2008-15 Comments NM - Schizophrenia and bipolar; 17.0% share12/08 - Rights revert back to Otsuka in 11/12 (U.S.) and end 2014 (EU)
Abilify Demonstrates Potential As Add-On Therapy In MDD Data from a double-blind, randomized, placebo-controlled, 6-week study in MDD with patients who had an inadequate response to one or more anti-depressant therapies were presented at the APA in May 2007. Patients receiving Abilify achieved a statistical improvement in their Montgomery-Asberg Depression Rating Scale (MADRS). Discontinuation rates were 3.3% on Abilify versus 2.2% in the control-arm. Akethisia (23.1% vs. 4.5%), insomnia (7.7% vs. 2.3%), restlessness (14.3% vs. 3.4%), URTI (8.2% vs. 4%) and blurred vision (6.6% vs. 1.7%) were the most frequent adverse events in the Abilify arm.
J&J Struggling To Extend Risperdal Franchise Via Invega

Risperdal (risperidone) continues to garner widespread use given its solid effectiveness and broad label. Risperdal is often used as first-line therapy and second line when cost is an issue. The FDA approved the first generic risperidone (Teva) in late June 2008. Five other generic manufacturers received FDA approvals for generics of Risperdal in September 2008. As of January 2009, branded Risperdal held a 2.9% total prescription share of the U.S. antipsychotic market, down from 23.8% share since January 2008 due to the launch of generics. Despite concern among some physicians, Risperdals propensity to raise prolactin does not appear to be an important issue in the majority of patients. JNJ launched Invega (oral paliperidone; active metabolite of risperidone) in January 2007, as part of its franchise extension strategy. Invega utilizes JNJs OROS drug delivery technology. Because of the similarities between Risperdal and Invega, JNJ has struggled to convert patients from Risperdal to Invega ahead of the Risperdal patent expiration. As of January 2009, Invega held just a 1.6% total prescription share of the U.S. antipsychotic market. However, longer term our consultants indicate Invega is unique when compared to Risperdal because it has limited orthostatic hypotension and excellent efficacy in delirium, where it is the drug of choice. We forecast combined U.S. Risperdal/Invega sales of $710MM (-55%) in 2009 and $675MM in 2012, aided by the growth in Invega sales. Risperdal Receives FDA Approval For Two Pediatric Indications In August 2007, Risperdal received final FDA approval for the treatment of schizophrenia in adolescents (ages 13-17) and for the short-term treatment of bipolar mania associated with manic or mixed episodes of bipolar disorder in children and adolescents (ages 10-17). Prior to Risperdals approval, there were no FDA-approved drugs for the treatment of schizophrenia for pediatric use and only lithium was approved for the treatment of bipolar disorder in adolescents ages 12 and older. Risperdals efficacy in adolescents with schizophrenia was demonstrated via two short-
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term (6 to 8 weeks), double-blind, controlled trials. Patients treated with Risperdal generally had fewer symptoms, including a decrease in hallucinations, delusional thinking, and other symptoms of their illness. Risperdals efficacy in children or adolescents with bipolar disorder was demonstrated in a three-week, double-blind, placebo-controlled, trial in patients who were experiencing a manic or mixed episode. Patients treated with Risperdal generally had fewer symptoms, including a decrease in their elevated mood and hyperactivity, and other symptoms of their illness.
JNJ/Alkermess Risperdal Consta Exceeding Expectations

Risperdal Consta is a two-week intra-muscular injection of Risperdal, and the first depot formulation of an atypical antipsychotic for the treatment of schizophrenia. Risperdal Consta was launched in the E.U. in 2002 and in the U.S. in December 2003, and is now marketed in over 70 countries worldwide by JNJs Janssen-Cilag division. Risperdal Consta is priced at a significant premium to oral Risperdal (roughly 150%). The labeled indication is for the treatment of schizophrenia, although there is some off-label use for bipolar disorder; for which oral Risperdal has an approved indication. Despite the need for greater compliance on atypical antipsychotics, the U.S. rollout of Risperdal Consta was protracted for multiple reasons: (1) there is a lack of treatment infrastructure (i.e., outpatient clinics for schizophrenia patients) in place to administer depot injections every two weeks; (2) schizophrenic patients resist intra-muscular injections; (3) reimbursement has been difficult; and (4) Risperdal Consta may be under-dosed for the more severe patient population. Our physician consultants note that JNJ has addressed many of the issues that slowed the rollout and that reimbursement has improved. We estimate Risperdal Consta sales of $1,330MM (+13%) in F2009, and $1,430MM (+8%) in F2010, and $1,450MM (+1%) in F2011, before declining to $1,100MM (-24%) in F2012 and $700MM in F2014. Alkermes yields approximately 10% of Risperdal Consta sales in manufacturing fees (7.5%) and royalties (2.5%). In February 2007, results from a one-year, 139-patient Phase 3 trial comparing Risperdal Consta plus standard therapy to standard therapy plus placebo for the management of frequently relapsing bipolar disorder was presented at a scientific conference in Switzerland. The data showed that time to relapse was significantly longer in patients receiving Risperdal Consta plus placebo (p=0.004) and the relative risk of relapse was reduced by 54% (22.2% vs 47.8%). In October 2008, the FDA approved the administration of Risperdal Consta via a deltoid injection. The previous Risperdal Consta label requires that the drug be injected into the buttocks. In April 2008, JNJ submitted an sNDA for the treatment of frequently relapsing bipolar disorder and followed with an sNDA in July for the treatment of bipolar-one disorder. In February 2009, JNJ announced the receipt of a complete response letter from the FDA for JNJs Risperdal Consta sNDA for the frequently-relapsing bipolar disorder indication. The FDA has requested additional information regarding the sNDA filing, but has not requested that additional studies be performed. JNJ did not provide an estimated timeline to resolve the questions, but we project FDA approval of the frequently-relapsing bipolar disorder indication for Risperdal Consta in H2:09. The sNDA for the treatment of bipolar-one disorder continues to be pending at FDA: we expect the FDA to raise similar questions for that application. Alkermes and JNJ are collaborating on the formulation of a 4-week depot injection version of Risperdal Consta (the current formulation is a 2-week depot injection, which has been an impediment to adoption in the U.S.). Lead formulations of the 4-week depot have been identified and a 26-patient, single-dose Phase I trial for the four week
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depot injection formulation of Risperdal Consta, was initiated in February. The study is expected to yield top-line results in H2:09. While potentially interesting, we believe that four-week Risperdal Consta may be a distant second priority for JNJ, behind paliperidone palmitate.
JNJ Submits Paliperidone Palmitate sNDA, Ahead of Target

JNJ is developing paliperidone (metabolite of risperdone and the active ingredient of Invega) as a depot injection formulation (paliperidone palmitate). Paliperidone palmitate (PP) likely will cannibalize sales of JNJ/Alkermes Risperdal Consta, at least in the U.S. market where the twice-monthly injection regimen of Risperdal Consta has been an impediment to market adoption. U.S. sales of Risperdal Consta account for an estimated 35-40% of worldwide Risperdal Consta sales. PP has multiple administration advantages over Risperdal Consta: most importantly, PP is a 4-week depot injection (vs. 2-weeks for Risperdal Consta), with a smaller-gauge needle than Risperdal Consta, and does not require reconstitution. Therefore we believe that, once launched, PP will enjoy strong market adoption in the U.S. In August 2008, JNJ received a complete response letter from the FDA on the PP NDA, requesting additional data but no additional clinical trials. JNJ had stated that their response to the FDA would include supplemental clinical data for the higher starting dose of PP, and would be filed as a supplement in H1:09. JNJ, however, was able to file the sNDA response in February 2009, a few months ahead of our expectations. JNJ has predicted a 6-month review period, leading to potential FDA approval of PP as early as Q3. We currently model for a PP launch in the U.S. in late-2009 or early-2010, but the launch and the Risperdal Consta cannibalization could come a few months earlier than we currently project.
RISPERDAL CONSTA VS. PALIPERIDONE PALMITATE Characteristic Onset Of Action Oral Rx Supplement Required? Duration of Single Injection Storage Pre-filled Syringe? Needle Size Injection Type Injection Site Risperdal Consta 3 weeks Yes 2 weeks Refrigerated No 20 gauge Intramuscular Buttocks Paliperidone Palmitate 8 days Likely No 4 weeks Room Temperature Yes 23 gauge Intramuscular Choice of buttocks or shoulder
Source: Company reports, Risperdal Consta label
Assuming final approval, our clinical consultants believe PP has the potential to supplant Risperdal Consta, as PPs administration advantages and efficacy profile imply little reason to start patients on Risperdal Consta. Paliperidone Palmitate Missed Non-Inferiority Mark By Small Margin The results of the two paliperidone palmitate (JNJ/ELN) trials were presented in December 2008 at the ACNP meetings. The two trials were: (1) the 700-patient, 53-week,
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double-blind non-inferiority trial of paliperidone palmitate (PP) vs. Risperdal Consta (JNJ/ALKS); and (2) a 13-week, placebo-controlled, dose-ranging trial to examine the efficacy and safety of a 150mg initiation dose of paliperidone palmitate followed by treatment doses of 25mg, 100mg, or 150mg. As disclosed by JNJ in Q2:2008, the PP vs. Risperdal Consta non-inferiority trial failed to demonstrate non-inferiority for PP. However, the unknown details were how close PPs efficacy came to Risperdal Constas efficacy, and how the safety and tolerability of PP compared to that of Risperdal Consta. In this trial, PP yielded efficacy and safety/tolerability results very similar to those of Risperdal Consta, which supports JNJs hypothesis that PP will successfully demonstrate non-inferiority to Risperdal Consta in the ongoing trials, which employ a 150mg PP starting dose. On the efficacy side, patients receiving both PP and Risperdal Consta had similar improvements in PANSS scores at the end of the 53-week trial. However the difference in the least square adjusted mean change in PANSS scores between the 2 arms was -2.6 points with a 95% confidence interval of (-5.84, 0.61). The 95% confidence interval limit for non-inferiority was -5.00, so non-inferiority of PP versus Risperdal Consta was not demonstrated. For perspective, the expected PANSS score change in most schizophrenia treatment trials is 20-30 points, depending on the severity of the patient population, so the difference in PANSS score changes for PP and Risperdal Consta is relatively small. This confidence interval difference is too small to conclude superiority of Risperdal Consta. And the confidence interval difference is small enough to raise conviction in the success of the ongoing PP vs. Risperdal Consta non-inferiority trial, which uses a 150mg initiation dose of PP, versus a 50mg initiation dose of PP used in this trial. And PPs Safety And Tolerability Data Look Very Similar To Consta On the safety side, AE rates and study terminations due to AEs were similar for patients receiving either PP or Risperdal Consta. The overall reported AE rates were 76% for PP patients and 79% for Risperdal Consta patients. Discontinuation rates for AEs were 7% for PP patients and 6% for Risperdal Consta patients, both relatively low rates for a 53week schizophrenia drug trial. The only notable AE rate differences between the two arms were schizophrenia (PP at 12%, Consta at 9%) and anxiety (PP at 10%; Consta at 15%). Our clinical consultant at the ACNP meetings attributes these differences to patient variability. PP 150mg Starting Dose Trial A Success, Although P-Value Not Robust In response to the disappointing non-inferiority trial result, JNJ conducted a 13-week, dose-ranging trial to examine the efficacy and safety of a 150mg loading dose of PP followed by PP treatment doses of 25mg eq, 100mg eq, or 150mg eq, against placebo. All three PP dosing arms demonstrated statistically significant efficacy relative to placebo as measured by PANSS score changes, and were well tolerated. The p-value of the difference in PANSS score changes for the treatment arms versus placebo was a less-than-robust p<=0.034, but statistical significance was achieved. The higher doses yielded better efficacy results, which is reassuring. On the safety side, the AE rates were similar to those reported in previous paliperidone palmitate trials no AE rates were remarkable. Paliperidone Palmitate Data Initially Presented At APA Three studies were presented at the APA meeting in May 2008 and all three showed a clean safety profile for Paliperidone Palmitate, which had been a question heading into
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the data presentations. One myocardial infarction and one case of ventricular extrasystoles (VE) were reported in one of the pivotal trials, but the MI was in the placebo arm and the VE case started in the maintenance phase of the trial. We and our clinical consultants at the poster presentations saw no evidence of cardiovascular side effects that would give the FDA or clinicians pause in evaluating Paliperidone Palmitate. A study examining the efficacy, safety and tolerability of paliperidone palmitate (PP) in a randomized, double-blind, placebo controlled study in 312 patients, including an initial 9-week transition period, followed by a 24-week treatment period was presented. Limited data from this trial had previously been disclosed at JNJs 2007 analyst day. PP doses of 25, 50 or 100mg eq (intramuscular injection administered every four weeks) were established in the maintenance period and carried into the randomized, doubleblind, treatment phase. The primary efficacy endpoint of this study was time to recurrence post randomization and treatment. An independent data monitoring committee recommended the study be terminated early because of significant interim efficacy results. Time to recurrence was significantly longer for drug treated patients (p<0.0001) and fewer drug treated patients experienced recurrence (10% vs. 34%). Safety and tolerability were similar in drug treated and placebo groups. There were 4 discontinuations, 1 in the placebo group (myocardial infarction) and 3 in the PP group (epilepsy, oculogyration, weight increased). An additional patient discontinued treatment due to an AE (ventricular extrasystoles) that began in the maintenance phase. Prolactin levels increased above normal high levels in both dose groups, although PP treated patients displayed higher levels versus placebo. There were 4 potential prolactin related AEs in the PP treated group versus 2 in the placebo group, but physicians at the poster were unconcerned. Investors raised concerns over the seemingly high dropout rate that was observed in the transition and maintenance phases of the prevention of recurrence study for paliperidone palmitate (PP) that was presented at the recent APA meeting. In these two phases of the study (all patients were on 25, 50 or 100mg eq PP) there was a 51.7% dropout rate (410 of the initial 849 patients entered the double-blinded portion of the study). We examined published dropout rates in clinical trials of two other long-acting antipsychotics, Risperdal Consta and Zyprexa LAI. In the efficacy trial that is referenced on the label of Risperdal Consta, there was a 68% dropout rate in the placebo arm and a 51% dropout rate in the drug treated groups. This is remarkably similar to the rate observed in the PP study, although the Risperdal Consta study was a 12-week trial while the transition and maintenance phases of the PP study occupied a cumulative 33 weeks. In light of this time frame difference, the PP dropout rate is actually favorable relative to Risperdal Consta. In the Zyprexa LAI trial results that were presented to the FDA the dropout rate was considerably lower at 32.7% for all drug treated patients (pooled results from two trials, 8 and 24 weeks). However, the placebo dropout rate in the 8-week trial was lower than that observed in the Risperdal Consta study. Based upon these data, we believe that patient dropout rate is a non-issue with respect to paliperidone palmitates development and ultimate approval.
DROPOUT RATES FROM CLINICAL STUDIES OF LONG-ACTING ANTIPSYCHOTICS
Paliperidone Palmitate* Placebo Drug treated N/A 51.7%
Risperdal Consta 68.0% 51.0%
Zyprexa LAI 43.0% 32.7%
* From transition and maintenance phase of prevention of recurrence study, results presented at 2008 APA Meeting (9 and 24 weeks respectively, no placebo group). Am J Psychiatry, 2003, 160(6), 1125-1132. 12-week study. From FDA advisory committee materials, 8-week and 24-week studies. Pooled results of all doses.
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SUMMARY OF PALIPERIDONE PALMITATE TIME TO RECURRENCE EFFICACY TRIAL
Source: JNJ analyst Day slides, June 2007
A study was presented at APA examining the efficacy, safety and tolerability of paliperidone palmitate (PP) with a primary efficacy endpoint of mean change in PANSS total score from baseline through the 13-week treatment period. A total of 514 patients were randomized to one of four treatment groups: placebo, 25, 50, and 100mg eq PP. The PP doses were administered via intra-muscular injections once every four weeks during the treatment phase of the trial. All three PP dose groups demonstrated statistical significance versus placebo on the primary efficacy endpoint of reduction of recurrences (p = 0.02 (25 and 50 mg eq), p < 0.001 (100 mg eq)). The rate and severity of treatment emergent adverse-events (TEAEs) was similar across all four dose groups. Rates of extrapyramidal symptoms (EPS) were similar across all dose groups. Increases in prolactin levels were observed in a dose dependent manner. Prolactin-related adverse events were similar between drug treated and placebo groups. A double-blind, crossover trial examined the safety, tolerability and pharmacokinetic profile of paliperidone palmitate injected in either the deltoid or gluteus muscle in 252 patients with schizophrenia. PP doses of 50, 75 or 100mg eq were administered via intramuscular injection into either the deltoid or gluteous muscle every four weeks. The results indicated there were no statistically meaningful differences in safety, tolerability and pharmacokinetics between deltoid or gluteus injection. Additionally, the crossover design indicated that switching injection sites could be reasonably tolerated with little effect on safety, tolerability and pharmacokinetics.
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COMPARISON OF RISPERDAL, INVEGA, RISPERDAL CONSTA, AND PALIPERIDONE PALMITATE
Source: JNJ analyst day slides, June 2007
Geodon Maintaining Market Share

Geodon, indicated for schizophrenia and bipolar mania, claimed 5.9% total prescription share of the U.S. atypical antipsychotic market in January 2009. Geodons prescription share has been essentially flat since September 2006. Geodon offers a good label, with no black box warning, no EKG monitoring, and attractive pricing. However, Phase I CATIE data were at best neutral and at worst clipped Geodons prospects. The Phase I CATIE results support Pfizers current marketing message for Geodon of better efficacy at higher doses, no QTc prolongation, and potential for weight loss. Patients treated with Geodon showed no QT prologation and on average lost weight (-1.6 lbs vs. +0.8 to 9.4 lbs for other atypicals). Geodon also was the only product to show improvements in mean HbA1c, total cholesterol, and triglycerides. However, the Phase I CATIE results demonstrated that Geodon was no better than generic perphenazine. Geodon is on all state Medicaid formularies and is used in more than 1,200 hospitals/clinics. Pfizer received final E.U. approval for the acute mania indication for Geodon in October 2005. The immediate-release intramuscular injection form of Geodon was launched in September 2003 and allows for use of the product to treat acute agitation in schizophrenic patients. We estimate Geodon sales of $1.1B (+11%) in 2009 and $500MM in 2012 due to the anticipated launch of generics in March 2012, and $400MM in 2013.
Novartiss Clozaril Limited By Side Effects, Clipped By Generics

Use of Clozaril (clozapine) and the generic formulations has been limited due to the possibility of a life-threatening side effect (agranulocytosis). As of January 2009, Clozaril plus generics held a 3.0% total U.S. prescription share of the antipsychotic market, down 20BP since March 2007. Generics currently comprise greater than 93% share of the total clozapine prescriptions written. Approximately 1% of patients who take clozapine will get a potentially lethal side effect know as agranulocytosis, which is a significant reduction in the white blood cell count. Because of this risk, patients taking clozapine are required to have a blood test once a week for the first six months they are on the drug. This greatly limits clozapines utility, as schizophrenia patients are notoriously difficult to monitor. Pharmacokinetic data on generic clozapine
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demonstrate that the bioavailability of generic clozapine results in lower peak plasma concentrations compared to Clozaril; suggesting that generic clozapine may result in fewer side effects versus the brand. We estimate U.S. Clozaril/clozapine sales of $150160MM annually during 2009-2013.
Asenapine (Saphris) Finally Receives Complete Response

In January 2009, FDA issued a complete response letter for Saphris sublingual tablets in the acute treatment of schizophrenia and in the acute treatment of manic or mixed episodes associated with bipolar I disorder as monotherapy. The action letter is to have come six months after the estimated July 2008 PDUFA date and included proposed labeling for both indications and a request for supplemental data from the existing asenapine database. FDA requested no additional clinical trials. Our consultants view the asenapine data presented at APA 2008 favorably. Schering believes that asenapines QTc effect is more favorable than Geodon, and the NDA includes active comparators, including haloperidol, Zyprexa, and risperidone; Iloperidones (Vanda) trials did not include reasonable controls and received a non-approvable letter from FDA in July 2008. Asenapine has less weight gain than Zyprexa, a smaller effect on prolactin than risperidone, and is well tolerated overall. Schering believes that the BID sublingual formulation may be an advantage but we envisage it as a potential commercial hurdle that will require both physician and patient education. However, our consultants are encouraged that this formulation did not appear to result in an increased drop-out rate in the clinical program, although admittedly clinical trial conditions are different from the real world. Our consultants believe that it is unlikely that asenapine can be formulated to be absorbed in the GI but there may be the potential for a QD version. Schering has responded to the action letter but it is unknown whether this will trigger a three or six month delay. We estimate Saphris sales of $75MM in 2009, $300MM in 2012, and $600MM in 2015. Review Of APA 2008 Data Encouraging In acute schizophrenia, asenapine 5mg BID was more effective than placebo and no less effective than Zyprexa.
Efficacy And Safety Of Asenapine In Patients With Acute Schizophrenia Asenapine 5mg BID LS mean change from baseline to day 42 on PANSS total score p value vs placebo Where p< 0.05 PANSS positive subscale PANSS negative subscale PANSS general psychopathology Treatment related adverse events Hyperprolactinemia EPS -7.5 -4.5 -9.6 44% 4% 15% 52% 5% 18% 57% 10% 34% -6.9 -5 -3 -6.8 41% 2% 10% 10mg BID Haloperidol Placebo
-21.3 p=0.004
-19.4 p=0.038
-20 p=0.02
-14.6
Source: APA 2008 Abstracts
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Asenapine Versus Olanzapine In Patients With Predominant, Persistent Negative Symptoms Of Schizophrenia Asenapine from baseline to week 26 in NSA-16 Subgroup of patients with negative symptoms >2 years PANSS negative subscale PANSS negative symptom Marder factor Treatment related AEs Weight gain EPS
Zyprexa -12.5 -11.6 -6.6 -7.4 55% 21% 3%
-12.2 -12.1 -7.1 -8 55% 5% 8%
In bipolar mania, our consultants confirmed that asenapine fared well versus placebo but was no different from Zyprexa with respect to effectiveness.
Double-Blind Extension Studies Of Asenapine In Patients With Bipolar Asenapine 9-week extension (N=504) Mean change from baseline in YMRS 40-week extension (N=218) Response rate (YMRS score reduced by >50%) Remission (YMRS score <12) Treatment-related AEs Source: APA 2008 Abstracts 93% 93% 65.7% 66% 66% 61.7% -24.4 -23.9 Zyprexa
Our consultants highlight that asenapine 10mg BID in the acute treatment of bipolar depression (a more resistant disease than bipolar mania) demonstrated a statistical difference from placebo; Zyprexa performed comparably.
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Post-Hoc Analysis: Effects Of Asenapine On Depressive Symptoms In Patients With Bipolar Disorder Group MADRS > 20 MADRS Day 7 Day 21 CGI-BP-D Day 7 Day 21 CGI-BP-D > 4 MADRS Day 7 Day 21 CGI-BP-D Day 7 Day 21 Mixed Symptoms MADRS Day 7 Day 21 CGI-BP-D Day 7 -0.71 -0.29 0.007 Day 21 -1.02 -0.68 NS * Corresponding changes with Zyprexa were also numerically or significantly greater than with placebo
Asenapine
Placebo
-11.3 -13.6
-4.48 -6.99
0.002 0.009
-1.00 -1.43
-0.036 -0.65
0.011 0.02
-7.70 -9.90
-3.61 -5.41
0.023 0.030
-1.17 -1.56
-0.58 -1.18
0.015 NS
-6.69 -8.29
-3.63 -5.73
0.011 NS
Asenapines metabolic profile is more favorable than Zyprexa but less so compared to Geodon. However, the akathisia rate was noted to be higher on asenapine. A QTc study presented at APA 2008 with doses up to 20mg BID (twice the expected clinical dose) demonstrated no abnormality. There were no instances of QTc increase >60ms.
Vanda Pharmaceuticals Iloperidone Not Approvable

Iloperidone (brand name Fiapta) is an atypical antipsychotic that had been sluggishly making its way through Phase III clinical trials over the years. Developed by Titan Pharmaceuticals, the product was originally partnered with Novartis. Novartis subsequently shelved the product after an EKG study in 2002 indicated that QTc interval issues would likely limit the market potential of the product. Vanda Pharmaceuticals licensed the product in 2004 and moved forward with Phase III development. Vanda released positive top-line data from a Phase III trial of Iloperidone in December 2006. The double-blind, placebo-controlled, 4-week inpatient study enrolled 604 patients. Iloperidone achieved a statistically significant (p=0.006) effect via Positive and Negative Symptom Scale (PANSS; primary endpoint). Iloperidone also achieved statistically significant effects via the positive (p=0.0009) and negative (p=0.027) subscales of PANSS. Iloperidone was dosed at 12mg twice daily during the trial. An interesting twist to the Iloperidone story is Vandas development of a genetic diagnostic test that screens for a polymorphism, which occurs in approx. 70% of
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patients. The polymorphism appears to be associated with the pathogenesis of schizophrenia and appears to be correlated to patients response to Iloperidone. The Phase III trial evaluated Iloperidones efficacy in patients with the polymorphism. Patients who had the polymorphism and were treated with Iloperidone achieved a statistically significant (p=0.002) effect via the PANSS, with a magnitude of response greater than that seen in the overall patient population treated with Iloperidone. Vanda did measure Iloperidones effects on the QT interval: the mean prolongation seen was consistent with prior experience and no patients experienced QT intervals in excess of 500 msec, a threshold of concern to the FDA. Vanda was also able to confirm via another genetic marker that the QT prolongation was shorter in the majority of patients who were identified as good Iloperidone metabolizers. In December 2007, Vanda presented detailed results from a pooled analysis (n=1,553) of three of the Iloperidone Phase III trials and detailed results from a fourth (n=604) Phase III trial. The 604-patient placebo-controlled Phase III trial contained a Geodon arm as an active comparator. Iloperidone (24 mg/day) demonstrated comparable efficacy to Geodon (160 mg/day) via improvements in the PANSS-T scores. While the rate of akathisia seen with Iloperidone was similar to the rate seen in the placebo arm, Geodon was associated with a significant worsening of akathisia, with 26% of patients experiencing a worsening of akathisia. Vanda filed an NDA for Iloperidone in late September 2007 and in July 2008 received a not-approvable letter from the FDA. The FDA cited concerns about Iloperidone efficacy as compared to risperidone. The FDA has requested an additional trial comparing Iloperidone to placebo and an active comparator, either Zyprexa or Risperdal. Vanda has placed Iloperidone development on hold pending additional conversations with the FDA.
Wyeth Drops Solvays Bifeprunox

Bifeprunox is a partial dopamine agonist/antagonist, as well as a serotonin receptor agonist. Bifeprunoxs partial dopamine agonist action has beneficial effects for positive, negative, and cognitive symptoms, while the serotonergic agonist action may help alleviate some side effects and possibly combat depression and anxiety that can accompany schizophrenia treatment. In April 2004, Wyeth licensed rights to codevelop Bifeprunox in the U.S., Canada, Mexico and Japan from Solvay. In August 2007, the FDA issued a non-approvable letter for Bifeprunox. The reasons cited for the nonapprovable letter were inferior efficacy in the acute setting and an inadequate maintenance package. Bifeprunox failed to demonstrate statistically significant efficacy in four acute studies and also missed significance in a placebo-controlled maintenance study. In February 2008, Wyeth announced that it had decided to end its collaboration with Solvay. A couple of earlier-stage agents (schizophrenia, bipolar disorder, and other CNS disorders) were also part of Wyeths collaboration with Solvay. Solvay is developing Bifeprunox in collaboration with Lundbeck for the E.U. and other markets. In November 2005, Solvay and Lundbeck announced that additional clinical trials required by the EMEA would delay an E.U. regulatory filing for Bifeprunox until 2008.
Forest/Gedeon-Richters Cariprazine (RGH-188) Has A Differentiated Profile Via D3 Selectivity

In November 2004, Forest and Gideon Richter signed an agreement to develop Cariprazine, an atypical antipsychotic, for the treatment of schizophrenia and bipolar disorder. Forest and Gedeon Richter claim that Cariprazine has unique receptor binding properties, which may translate into efficacy and tolerability advantages over existing
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agents. Cariprazine acts as a selective antagonist of the dopamine D3 and D2 receptors, with a particular affinity for the D3 receptor. Cariprazine has little/no activity on the 5HT2 (serotonin) receptors, so will be less effective treating the depression symptoms of bipolar disorder, but also lacks the weight-gain and sexual dysfunction side effects of leading atypical antipsychotics. We currently estimate Cariprazine sales of $25MM in F2012, rising to $150MM in F2013, and $200MM in F2015. These essentially are placeholder estimates pending better visibility on the profile. Our clinical consultants view Cariprazine as similar to Bristol-Myers Squibb/Otsukas Abilify. Should the efficacy and tolerability profile hold up through Phase III development, we estimate Cariprazines sales potential of $400-500MM in F2015. Statistically Significant Efficacy Achieved In Bipolar Mania PII Study In September 2008, Forest and Gedeon Richter announced positive top-line results from a 236-patient, placebo-controlled, 5-week Phase II trial of RGH-188 (cariprazine) in bipolar mania. The Phase II trial was a double-blind, placebo controlled, flexible-dose study to evaluate the safety, efficacy and tolerability of cariprazine monotherapy in patients with acute mania associated with bipolar I disorder. The trial enrolled 236 patients age 18-65 meeting the DSM-IV criteria for bipolar I disorder. They were randomized to receive cariprazine, 3-12mg/day or placebo. Treatment lasted 3 weeks following a four day, no-treatment wash out period. The primary endpoint of this trial was change from baseline to week 3 on the Young Mania Rating Scale (YMRS) using last observation carried forward (LOCF) analysis. On this measure, cariprazine achieved statistically significant improvement (-15.0 cariprazine vs. -8.9 placebo, p<0.0001). Cariprazine also achieved significance in the mixed model repeated measure (MMRM) analysis of YMRS (-15.5 vs. -8.5 placebo, p<0.0001) and the observed-cases (OC) analysis of YMRS (-19.1 vs. -13.6 placebo, p<0.0001). Discontinuation rates (all causes) were 36% for patients receiving cariprazine and 38% for patients receiving placebo. The most common AEs observed were headache, extrapyramidal disorders, nausea, akathisia and constipation. Cariprazine was generally well tolerated with discontinuations due to AEs observed in 14% of the cariprazine groups versus 10% of the placebo group. Schizophrenia Phase II Trial Missed Due To Poor Dose Response In October 2007, Forest and Gedeon-Richter released top-line results from a six-week, 389-patient, placebo-controlled Phase IIb trial of RGH-188 in patients with schizophrenia. Two flexible fixed dosage ranges of RGH-188 were tested: low dose (1.54.5mg/day) and high dose (6-12mg/day). RGH-188 was dosed once-daily at bedtime. The primary endpoint of the trial was change from baseline on the Positive and Negative Syndrome Scale (PANSS). A nominally statistically significant effect was seen for the low dose RGH-188 arm. A numerical improvement, but not a statistically significant effect, was seen for the high dose RGH-188 arm. Combining the arms yielded a numerical trend in favor of RGH-188, but not a statistically significant treatment effect. Our consultants indicate that, based on RGH-188s mechanism of action, the lack of a dose response was not unexpected. Forest/Gedeon-Richter currently are planning the next schizophrenia trial at a lower dosage range of RGH-188. RGH-188 appeared to be well-tolerated in the Phase IIb trial. Dropout rates in the low dose, high dose, and placebo groups were 47%, 46%, and 47%, respectively. Animal data show lower weight gain and EPS side effects for RGH-188 than for comparable atypical anti-psychotics. Weight gain and EPS side effects associated with RGH-188 in the Phase IIb trial (versus placebo) have not been released. Forest and Gedeon-Richter also planned to conduct a complete analysis of the patient database to determine if there
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were differences among the study populations (treatment arms) that might account for the disappointing efficacy in the higher-dose RGH-188 arm. But Development Continues In Both Schizophrenia And Bipolar Mania Based on the initial positive results for the low-dose RGH-188 treatment arm, Forest and Gedeon-Richter have continued development of RGH-188 in schizophrenia. Forest and Gedeon-Richter have initiated enrollment in a second schizophrenia Phase IIb trial at the 1.5-4.5mg/day dose range and perhaps a lower dose. We believe Forest and Gedeon-Richter will power the second Phase IIb trial at 360-400 patients in order to use it as a pivotal trial if successful (as was the case with this Phase IIb trial). We also believe Forest and Gedeon-Richter will keep the trial patients hospitalized for the full six weeks of treatment, which should improve the statistical powering, although potentially slowing the patient enrollment process.
AstraZeneca/Targacepts AZD3480 Enters Phase IIb

AZD3480 (TC-1734) is a neuronal nicotinic receptor modulator in Phase II trials for cognitive deficits associated with schizophrenia and Alzheimers disease. In December 2005, Targacept entered a worldwide collaboration agreement with AstraZeneca to develop and commercialize AZD3480. Per the agreement, AstraZeneca is funding the development of AZD3480. Targacept has retained an option to co-promote AZD3480 in the U.S. In August 2007, Targacept announced the initiation of a 400-patient Phase IIb trial of AZD3480 in cognitive deficits in schizophrenia. The primary endpoint of the trial is a cognitive battery test that includes assessments of cognitive functions across nine different domains. This trial was completed in November 2008 but data are yet to be presented. We project a 2012 launch for AZD3480. We estimate AZD3480 sales of $100MM in 2012 and $200MM in 2013. Early AZD3480 Clinical Results Have Been Encouraging In March 2006, Targacept announced positive top-line results from a 168-patient, multidose Phase II trial of AZD3480 in patients with age associated memory impairment (AAMI). The 16-week, placebo-controlled trial tested two doses of AZD3480: 25mg/day and 50mg/day. The three co-primary endpoints were: (1) change from baseline on the power of attention and episodic memory factors included in a computer-based cognitive test battery at 16 weeks; (2) a patient global impression score; and (3) an overall cognitive performance self-rating scale at 16 weeks. The 50mg/day (once-daily) achieved statistically significant results via all three co-primary endpoints. AZD3480 was well tolerated.
Lillys mGlu2/3 Receptor Agonist Prodrug Phase II Data Potentially In 2009 But Filing Timeline Unclear
Lillys mGlu2/3 agonist (LY2140023) is a novel compound in Phase II development for schizophrenia. LY2140023 is a peptide prodrug of the mGlu2/3 agonist LY404039. Preclinical studies suggest that agonists selective for the mGlu2/3 receptors can decrease the release of glutamate in the brain and have a beneficial impact on cognitive deficits and psychotomimetic features seen in the PCP (phencyclidine) exposure animal model. LY2140023 is the first non-dopamine or serotonin-blocking compound to show efficacy and tolerability in schizophrenia. In December 2006, results from a 118patient, 28-day Phase II study were presented at the ACNP meeting and detailed results from this trial were published in Nature Medicine in September 2007. Patients enrolled in the study were treated with placebo, LY214003 (40mg 2x daily), or Zyprexa (15mg
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daily). The primary endpoint of the trial was PANSS. LY214003 demonstrated statistically significant efficacy versus placebo (p<0.001), with significant effects seen as early as one week following treatment initiation. The efficacy of LY2140023 looked comparable to that of Zyprexa; however, the trial was not designed to directly compare the two active treatment arms to one another since there were significantly fewer patients in the Zyprexa arm. Our consultants indicate that a 15mg dose of Zyprexa is less than optimal and that the inability of LY2140023 to distinguish itself from 15mg of Zyprexa from an efficacy perspective was a modest disappointment. However, our consultants continue to believe the mechanism has promise and believe that, if ultimately approved, LY2140023 will likely be used in combination with other agents. In the Phase II trial, patients treated with LY2140023 on average experienced a 0.51kg weight reduction versus baseline (not significantly different than placebo); Lilly believes LY2140023 will be weight neutral. In contrast, patients treated with Zyprexa on average gained 0.74kg, which was statistically significant versus placebo (p=0.017). The most common adverse events seen with LY2140023 were insomnia, affect lability (p=0.038 vs. placebo), nausea, headache, somnolence, and blood creatine phosphokinase increase. Given the relatively small size of the study, Lilly management indicated that it is not overly concerned by the increase in creatine levels and affect lability seen with LY2140023. LY2140023 did not increase prolactin levels or the occurrence of extrapyramidal symptoms in the Phase II study. A comprehensive Phase II dose ranging study began in Q4:07. Lilly has completed this study with no issues and the 12 month non-clinical toxicology study did not demonstrate seizures. Lilly is confident that the therapeutic margin supports ongoing evaluation in schizophrenia. mGlu2/3r agonist prodrug appears to have a favorable effect side effect profile with limited impact on weight but potentially would be used in combination therapy. The Phase II data are likely to be presented in 2009 but the registrational timeline is unclear. Lilly likely will not develop mGlu2/3r agonist prodrug for GAD but believes that its metabotropic and ionotropic receptor platforms provide significant potential and a unique intellectual property position. We have placeholder estimates of $100MM in 2012 and $200MM in 2013.
SUMMARY OF LY2140023 PHASE II RESULTS
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Sanofi-Aventis Looking At AVE1625 As An Add-On Treatment

AVE1625 is a selective CB1 antagonist in Phase IIb trials as a potential add-on treatment for the treatment of cognitive impairment in patients with schizophrenia. Preclinical studies suggest that AVE1625 can help improve episodic memory and reduce weight gain seen with olanzapine. In February 2007, Sanofi-Aventis initiated the approximately 700-patient, 24-week CONNECT trial. The primary endpoint is the MATRICS (Measurement and Treatment Research to Improve Cognition in Schizophrenia) cognitive battery. Three doses of AVE1625 are being tested. Patients enrolled in the study will maintain background therapy with olanzapine, risperidone/paliperidone, quetiapine, or aripiprazole. Results from the CONNECT trial are expected to be released in 2009.
SUMMARY OF CONNECT TRIAL DESIGN
SUMMARY OF AVE1625 PRECLINICAL RESULTS
Corcepts Corlux Tripped Up In Phase III

Corlux (mifepristone) is a cortisol receptor antagonist (GR-II) and progesterone receptor antagonist under development for the treatment of psychotic major depression. In August 2006, Corcept released negative top-line results from the first Phase III trial of Corlux. The primary endpoint of the trial was proportion of patients with at least a 50 percent improvement in the Brief Psychiatric Rating Scale Positive Symptom Subscale (BPRS PSS) at both Day 7 and Day 56. The effect seen with Corlux was not statistically different than that seen with placebo on both primary and secondary endpoints.
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Management indicated that the placebo response rate in the trial was unusually high. In September 2006, disappointing top-line results from the second Phase III trial of Corlux were released. The primary endpoint for the second Phase III trial was the same as the first Phase III trial; Corlux failed to demonstrate a statistically significant effect. In March 2007, Corcept released disappointing results from the third Phase III trial of Corlux. The 443-patients trial failed to reach statistical significance via its primary endpoint, which was the same primary endpoint as the two prior Phase III studies. However, a statistically significant correlation between plasma levels of Corlux and the clinical outcome achieved was seen. Corcept is planning to run an additional Phase III trial, whereby it plans to focus on a dose level of 1,200mg/day; the dose level at which 80% of patients in the third Phase III study achieved drug plasma levels sufficient for a clinical response. Corlux Mitigates Weight Loss Associated With Zyprexa Use Corcept, in collaboration with Eli Lilly, investigated the potential effectiveness of Corlux in mitigating weight gain associated with Zyprexa. In June 2007, top-line results from a 57-patient, two-week pilot study were released. The study was conducted in an institutional setting and enrolled lean, healthy men. Patients were treated with Zyprexa plus Corlux, Corlux plus placebo, or Zyprexa plus placebo. Subjects treated with Zyprexa alone gained an average of 2.5 pounds more than subjects in the Zyprexa plus Corlux arm and 2.2 pounds more than subjects in the Corlux alone arm (p<0.001). Lilly has no plans to pursue the use of Corlux in combination with Zyprexa.
KEY PATENT EXPIRATIONS IN ANTIDEPRESSANT/ANTIPSYCHOTIC CATEGORIES

Drug Risperdal Effexor XR Seroquel Zyprexa Invega Lexapro Geodon Abilify
* Exclusivity Source: Cowen and Company
Manufacturer Johnson & Johnson Wyeth AstraZeneca Eli Lilly Johnson & Johnson Forest Laboratories Pfizer Bristol-Myers Squibb
Patent Expiration 6/08 7/10 (via settlement) 9/11 10/11 12/11 3/12 (via settlement) 3/12 10/14
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U.S. ATYPICAL ANTIPSYCHOTIC MARKET DYNAMICS 2007 Total Rx's (MM) Rx Growth Rate Zyprexa (LLY) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Risperdal/Invega (JNJ) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Risperdal Consta (JNJ/ALKS) Rx Share Rx's (MM) Average Monthly Cost Sales ($MM) Paliperidone Palmitate (JNJ/ELN) Rx Share Rx's (MM) Average Monthly Cost Sales ($MM) Seroquel/XR (AZN) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Abilify (BMY/Otsuka) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Geodon (PFE) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Saphris (SGP/Organon) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Clozapine (IVX, MYL,TEVA) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Others Rx Share Rx's (MM) Average Daily Cost Sales ($MM) 3% 1.55 $3.34 $155 7% 3.14 $1.27 $120 3% 1.56 $3.31 $155 15% 7.71 $1.04 $240 33% 15.65 $6.10 $2,863 11% 5.47 $10.35 $1,700 6% 2.91 $8.05 $702 33% 16.67 $6.03 $3,015 13% 6.66 $12.02 $2,400 6% 2.96 $9.29 $825 48.0 +6% 13% 6.36 $11.71 $2,236 25% 12.06 $6.54 $2,366 2% 0.88 $445 $393 2008 50.5 +5% 12% 6.13 $11.98 $2,203 15% 7.78 $6.69 $1,562 2% 0.99 $445 $442 2009E 50.9 +1% 12% 5.97 $12.00 $2,150 7% 3.64 $6.50 $710 2% 1.07 $445 $475 0% 0.0 $445 $15 34% 17.47 $6.20 $3,250 15% 7.78 $12.00 $2,800 7% 3.43 $9.00 $925 1% 0.3 $9.00 $75 3% 1.54 $3.35 $155 19% 9.72 $1.20 $350 $10,905 +1% 2010E 52.7 +3% 11% 5.56 $12.00 $2,000 6% 3.08 $6.50 $600 2% 1.15 $445 $510 1% 0.3 $445 $125 35% 18.68 $6.20 $3,475 15% 8.06 $12.00 $2,900 7% 3.80 $9.00 $1,025 1% 0.5 $9.00 $125 3% 1.52 $3.40 $155 19% 10.14 $1.20 $365 $11,280 +3% 2011E 54.0 +3% 8% 4.44 $12.00 $1,600 6% 3.21 $6.50 $625 1% 0.67 $445 $300 1% 0.5 $445 $210 36% 19.35 $6.20 $3,600 16% 8.86 $12.00 $3,190 8% 4.07 $9.00 $1,100 1% 0.7 $9.00 $200 3% 1.52 $3.40 $155 20% 10.69 $1.20 $385 $11,365 +1% 2012E 43.5 -19% 1% 0.56 $12.00 $200 8% 3.33 $6.50 $650 1% 0.45 $445 $200 1% 0.6 $445 $284 12% 5.38 $6.20 $1,000 21% 9.28 $12.00 $3,340 3% 1.48 $9.00 $400 3% 1.1 $9.00 $300 4% 1.57 $3.30 $155 45% 19.72 $1.20 $710 $7,239 -36% 2013E 42.3 -3% 1% 0.42 $12.00 $150 8% 3.46 $6.50 $675 1% 0.34 $445 $150 2% 0.8 $445 $340 10% 4.03 $6.20 $750 22% 9.28 $12.00 $3,340 3% 1.20 $9.00 $325 4% 1.5 $9.00 $400 4% 1.57 $3.30 $155 47% 19.72 $1.20 $710 $6,995 -3% +0% +0% +21% +24% -8% - Risperdal generics clip in 2008, Zyprexa, Seroquel generics in 2011 - Includes Risperdal generics starting in 2008, Seroquel generics in 201 - Includes Haliperidol, Loxapine, etc. - Zyprexa generics in 2011; Geodon generics in 2012 -25% -24% +7% +7% -16% -17% - Aripiprazole - Improved profile compared to Zyprexa (less weight gain) - Some agitation reported - Better label than expected; no black box warning - Indicated for first and second line usage - Assume generics in 2012 - No associated weight gain and no EKG monitoring required - NDA filed 11/07 - Looks undifferentiated CGR 08-13 -3% Comments - Moderate market growth projected - Improved profile of new products increases penetration - Olanzapine - Target US/EU filings for depot formulation in Q2:07 - Patent expires 4/11 - Weight gain issues, competition clip - Risperidone and Invega (paliperidone; risperidone metabolite) - Paliperidone rollout has been slow; launched 1/07 - Generics clipped Risperdal in H2:08 - JNJ's Paliperidone Palmitate could clip - Launched 12/03 - Priced at a significant premium to standard Risperdal - Paliperidone palmitate - New clinical data submission in response to 8/08 CR letter - Submission may include new non-inferiority trial data (vs. Consta) - Administration advantages over Risperdal Consta - Quetiapine; approved for schizophrenia and bipolar disorder - Seroquel patent expires in 9/11; SR formulation protected until 2017 - XR formulation launched July 2007 in U.S.
-42% -42% -15% -15% -19% -19%
- Includes Clozaril - Strong in Medicaid populations
Total Market Sales (MM) $10,535 $10,841 % Growth +13% +3% Source: Company reports, IMS America, Cowen and Company estimates
U.S. ATYPICAL ANTIPSYCHOTIC MARKET DYNAMICS - DEPOT FORMULATIONS 2007 Total Rx's (MM) Rx Growth Rate Risperdal Consta (JNJ/ALKS) Rx Share Rx's (MM) Average Monthly Cost Sales ($MM) Paliperidone Palmitate (JNJ) Rx Share Rx's (MM) Average Monthly Cost Sales ($MM) Zyphadera (LLY) Rx Share Rx's (MM) Average Monthly Cost Sales ($MM) Other Depot Formulations Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) $393 $442 % Growth +31% +12% Source: Company reports, IMS America, Cowen and Company estimates $515 +17% 0.88 +31% 100% 0.88 $445 $393 2008 0.99 +12% 100% 0.99 $445 $442 2009E 1.16 +17% 92% 1.07 $445 $475 3% 0.0 $445 $15 5% 0.1 $445 $25 2010E 1.71 +48% 67% 1.15 $445 $510 16% 0.3 $445 $125 13% 0.2 $445 $100 3% 0.06 $445 $25 $760 +48% 2011E 1.69 -1% 40% 0.67 $445 $300 28% 0.5 $445 $210 19% 0.3 $445 $140 13% 0.22 $445 $100 $750 -1% 2012E 1.83 +8% 25% 0.45 $445 $200 35% 0.6 $445 $284 22% 0.4 $445 $180 18% 0.34 $445 $150 $814 +8% 2012E 1.84 +1% 18% 0.34 $445 $150 41% 0.8 $445 $340 22% 0.4 $445 $180 18% 0.34 $445 $150 $820 +1% +13% CGR 08-13 +13% Comments - Rapid market growth projected - Improved profile of new products increases penetration - Established franchise ($1.0B WW sales), but bigger ex-US - Launched 12/03 - Priced at a significant premium to standard Risperdal - Paliperidone palmitate - FDA approval decision expected in late August - Assume priced in-line with Risperdal Consta - Administration advantages over Risperdal Consta - Olanzapine - Deemed not approvable" by FDA in Feb 2008 - Second complete response letter received in January 2009 - Potential Seroquel, Abilify depot formulations - Assumed priced at parity
-19% -19%
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Addiction Therapies: Alcohol Abuse And Smoking Cessation

A National Institute on Alcohol Abuse and Alcoholism (NIAAA) survey suggests that approximately 7-8MM individuals in the U.S. are alcohol dependent. Of these patients, approximately 1-2MM seek some form of treatment (professional counseling, drug therapy). Our consultants estimate that less than 5% of alcohol dependent patients receive drug therapy for the disease. Patients receiving drug therapy, stay on the therapy for an average of 3-4 months. SSRIs, benzodiazepines, naltrexone (oral and Alkermes/Cephalons Vivitrol), Forests Campral, and Odyssey Pharmaceuticals Antabuse (disulfiram) are commonly prescribed drugs for the treatment of alcohol dependence. Only oral naltrexone, Campral, Vivitrol, and Antabuse carry FDA-approved indications for alcohol dependence. Our physician consultants believe there is a significant market opportunity available for an effective, aggressively marketed, drug therapy for the treatment of alcohol dependence. Our consultants note that Forest Labs expanded market awareness via Campral, but has been handicapped by Camprals difficult dosing (6 large tablets daily). The rollout of Vivitrol (once-monthly naltrexone depot injection; launched in June 2006) has been disappointing, due to low acceptance by physicians and patients. Data from the U.S. Centers for Disease Control and Prevention (CDC) indicate that 21% of U.S. adults, or 45 million people, are current smokers. Data also suggest that 70% of adults in the U.S. who smoke want to quit, but that only about 1MM, or 8%, of the more than 15MM who tried to quit were successful. It is estimated that there are 1.3B smokers worldwide. Smokers in countries outside the U.S. do not appear as eager to quit smoking. It is estimated that only 38% of international smokers want to quit. Therapeutic options to treat smoking cessation have been limited. Over-the-counter nicotine replacements (patches, gum, etc.) are used to help patients gradually wean themselves off of nicotine. GlaxoSmithKlines Zyban (buproprion) is a prescription medication used to help control the urge to smoke. Pfizers Chantix (varenicline) was launched in the U.S. in August 2006 but has been significantly hampered by side effects related to suicidal ideation and depression.
Alkermess Vivitrol Disappoints; Cephalon Returns Rights

Vivitrol is a 28-day depot injection formulation of naltrexone. Naltrexone is an opioid receptor antagonist which blocks the uptake of endorphins in the brain by opioid receptors. Studies have demonstrated that alcoholics have lower-than-normal endorphin levels. Alcohol provides these patients with a relatively larger endorphin release than it does for non-alcohol dependent drinkers. Naltrexone stabilizes the endorphin uptake, which in turn stabilizes dopamine release in the brain. Vivitrol provides steady blood levels of naltrexone over 28 days. The Medisorb encapsulation enables constant release, avoiding high blood levels that cause nausea, and subtherapeutic levels, which allows endorphins to rise with alcohol consumption. Cephalon acquired 50% of U.S. commercial rights to the compound via a 2005 agreement with Alkermes. Vivitrol was launched in June 2006 and has experienced limited uptake owing in part to logistical issues. For example, many psychiatrists do not have in-office capabilities for delivering Vivitrol via intramuscular injection. Starting in September 2006, Cephalon began to detail more aggressively Vivitrol to addiction specialists, which did not help bolster its sales ramp (sales in 2006 of $3MM and 2007 of $17MM).
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In December 2008, Cephalon announced that it terminated its Vivitrol U.S. copromotion agreement with Alkermes. This decision was based on a portfolio review by Cephalon and is not unexpected given Vivitrols disappointing performance. Cephalon will reimburse Alkermes $11MM in lieu of performing certain obligations and will receive $16MM from Alkermes for the purchase of manufacturing equipment and capital improvements. Cephalon will assist Alkermes through May 31, 2009 to ensure a smooth transition.
VIVITROL PHASE III RESULTS SUMMARY Vivitrol Dose 190mg (1x monthly) 380mg (1x monthly)
Source: Company reports * Six-month trial; n=624 ** All patients underwent counseling *** Heavy Drinking Day: 5 drinks/day for men; 3 drinks/day for women
Reduction In Heavy Drinking Rate (%) vs. Placebo Overall Males Females 17% (p<0.10) 25% (p<0.03) 25% (p<0.03) 48% (p<0.0001) Not Significant Not Significant
Pivotal Trial Data For Vivitrol In Opioid Dependence Expected In H2:2009 In June 2008, Alkermes initiated a 200 subject, placebo-controlled Phase III trial designed to assess the safety and efficacy of Vivitrol (naltrexone 4=week depot injection) in detoxified and abstinent opioid dependent subjects. The pivotal trial is expected to yield top-line data in H2:2009. Our clinical consultants believe Vivitrol has superior market potential in the opioid dependence indication (relative to the current alcohol dependence indication), but they also note that Vivitrol currently is being used for treatment of opioid dependence which could limit the upside potential. Subjects in this Phase III trial are being randomized to receive once monthly injections of Vivitrol or placebo in combination with counseling for six months. The primary efficacy endpoint is response profile based on the rate of positive urine drug test results. A seven month open-label extension phase will be eligible to participants that complete the randomized portion of the study to assess the long-term durability of effect, health economics and quality of life outcomes with once-monthly Vivitrol. We project a potential sNDA filing in H1:2010 and approval in late-2010. We estimate Vivitrol sales of $18MM in F2009, of which $14MM will be recorded by Cephalon and $4MM by Alkermes. We estimate sales of $20MM in F2010, and $40MM in F2014.
Merck KGaA/Forests Campral Hindered By Dosing Profile

Campral (acamprosate) is a non-competitive NMDA receptor antagonist which acts to reduce the effects of excitatory glutamate activity. This mechanism appears to be effective in reducing the symptoms of alcohol withdrawal. Forest launched Campral in January 2005 and it was the first new drug to be launched into the alcohol dependence market in 20+ years. Campral is indicated for the maintenance of abstinence, which means patients must be abstinent prior to beginning treatment. Camprals activity is complementary to that of naltrexone, thus combination use is a possibility. Campral is a difficult drug to take (three-times daily dosing of two large tablets for each dose); therefore, our expectations are modest. We forecast Campral sales of $30MM (-3%) in F2009 and $37MM in F2013.
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Odysseys Antabuse Targets A Different Mechanism

Antabuse (disulfiram) is an oral drug indicated as a treatment for chronic alcoholics who want to remain in a state of enforced sobriety so that supportive and psychotherapeutic treatments can be most effective. Antabuse works by blocking a patients ability to metabolize alcohol, specifically inhibiting the oxidation of alcohol at the acetaldehyde stage. As a result, if patients taking Antabuse consume even small amounts of alcohol, they have a highly unpleasant reaction that includes flushing, throbbing in the head and neck, respiratory difficulty, sweating, nausea, and vomiting. Antabuse is dosed daily, but the effects from a single dose can be seen for as long as 14 days. Antabuse is recommended only for patients that are highly committed to maintaining their sobriety. Compliance with the drug is an issue, as patients who wish not to fall ill upon consuming alcohol can simply not take the drug. Odyssey Pharmaceuticals is a subsidiary of Pliva, which was acquired by Barr and subsequently by Teva in 2008. We estimate U.S. Antabuse sales of approximately $5-10MM per year.
Elbion AG Acquires Drug Abuse Sciences Naltrexone Depot

In January 2007, Elbion AG acquired the rights to Drug Abuse Sciences (DAS) oncemonthly depot injection formulation of naltrexone (Naltrexone Depot; similar to Vivitrol). Naltrexone Depot uses the Lactiz technology, a microsphere technology based on polylactide polymers, to achieve its sustained-release effect. The Lactiz technology was licensed from Brookwood Pharmaceuticals. Naltrexone Depot has been formulated to allow for the sustained-release of naltrexone over 30 days. Results from the first 315-patient Phase III trial of Naltrexone Depot were released in January 2003 and failed to show efficacy. The primary endpoint of the trial was cumulative days of non-heavy drinking at three months. Elbion expects to initiate follow-on Phase III studies later this year.
SUMMARY OF NALTREXONE DEPOT FIRST PHASE III TRIAL: PROPORTION OF SUBJECTS ABSTINENT AT THE THREE- AND SIX-MONTH ENDPOINTS BY TREATMENT GROUP Group Three-Months: All subjects randomized (N=315) Subjects abstinent at randomization (n=148) Six-Months: All subjects randomized (N=315) Subjects abstinent at randomization (n=148)
Source: www.drugabusesciences.com
Naltrexone Depot 28/158 (18%) 28/83 (34%)
Placebo 15/157 (10%) 15/65 (23%)
P-value 0.16
15/158 (9%) 15/83 (18%)
2/157 (1%) 2/65 (3%)
0.005
JNJs Topamax Shows Promise For Alcohol Dependence

A pilot Phase II study at the University of Texas Health Sciences Center at San Antonio demonstrated the potential of Topamax (topiramate) for the treatment of alcohol dependence. Topiramate decreases the release of dopamine via its interaction with the GABA-A receptor. Dopamine is released during alcohol consumption and is responsible for alcohols rewarding effects, including cravings. The 12-week, placebo-controlled study enrolled a total of 150 patients; 50% of which were randomized to receive a gradually escalating daily dose (25-300mg) of topiramate over the entire twelve-week study period. The efficacy endpoints of the study were self-reported drinking measures (subjective) and an objective measure of alcohol consumption via analysis of patient plasma samples. Patients receiving topiramate consumed 2.88 fewer drinks per
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day (p=0.0006), 3.10 fewer drinks per drinking day (p=0.0009), had 27.6% fewer heavy drinking days (p=0.0003), and 26.2% more abstinent days (p=0.0003). An objective measure of patient plasma supported the subjective findings. Patients were also required to attend counseling sessions one time per week while participating in the study. The results from this pilot study look promising, particularly the 27.6% reduction in heavy drinking days (>5 drinks/ day). The reduction in heavy drinking days is the primary endpoint used in the Vivitrol Phase III program. Vivitrol achieved a 25% reduction in heavy drinking days over a twelve-month trial.
SUMMARY OF PILOT ALCOHOL DEPENDENCE STUDY OF TOPIRAMATE Outcome measure Self-Reported drinking Drinks/ day Drinks/ drinking day Heavy drinking days (%) Days abstinent (%) Log plasma -glutamyl transferase ratio
Source: Lancet 2003; 361: 1677-85
Chg. vs. placebo -2.88 -3.10 -27.61 26.21 -0.07
p-value 0.0006 0.0009 0.0003 0.0003 0.005
In October 2007, the results from a 371-patient 14-week study of Topamax (up to 300 mg/day) in alcohol dependence were published in JAMA. The primary endpoint of the trial was a self-reported measure of heavy drinking days. All patients also received weekly counseling and study dropouts were treated as relapse to baseline. Patients treated with Topamax achieved a statistically significant (p=0.002) reduction in heavy drinking days over the 14-week trial. At baseline, patients randomized to the Topamax and placebo groups experienced 81.9% and 82% heavy drinking days per week. At week 14, patients treated with Topamax experienced 43.8% heavy drinking days per week, while those patients treated with placebo experienced 51.8% heavy drinking days per week. Topamax is approved for initial monotherapy and adjunctive treatment of generalized seizures, partial onset seizures and Lennox Gastaut syndrome. Generics of Topamax are expected to hit the U.S. market in 2009, so we do not expect JNJ to pursue the alcohol dependence indication.
U.S. ALCOHOL TREATMENT MARKET BUILD-UP 2006 Alcohol Dependent Patients Total Patients Seeking Treatment (MM) Total Patients Seeking AA Counseling (MM) Total Patients In Treatment Clinics (MM) Total Rx's (MM) Rx Growth Rate Campral (FRX) Rx Share Patients (MM) Rx's (MM) Average Daily Cost Sales ($MM) Vivitrol (ALKS/CEPH) Rx Share Patients (MM) Rx's (MM) Average Daily Cost Sales ($MM) Antabuse (Odyssey) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Naltrexone (various) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth 7.7 1.6 1.1 0.5 0.50 +14% 56% 0.07 0.28 $3.50 $29 1% 0.00 0.00 $23.17 $3 17% 0.1 $3.25 $8 26% 0.1 $3.00 $12 $53 +22% 2007 7.7 1.6 1.1 0.5 0.76 +52% 39% 0.07 0.30 $3.50 $30 20% 0.04 0.15 $23.17 $17 23% 0.2 $3.25 $8 17% 0.1 $3.00 $12 $67 +27% 2008 7.8 1.7 1.1 0.5 0.72 -5% 38% 0.07 0.27 $3.50 $31 19% 0.03 0.14 $23.17 $18 25% 0.2 $3.25 $8 18% 0.1 $3.00 $12 $69 +3% 2009E 7.9 1.7 1.1 0.6 0.55 -24% 52% 0.07 0.29 $3.50 $30 5% 0.01 0.03 $23.17 $18 19% 0.1 $3.25 $10 24% 0.1 $3.00 $12 $70 +2% 2010E 8.0 1.7 1.1 0.6 0.55 +1% 52% 0.07 0.29 $3.50 $30 5% 0.01 0.03 $23.17 $20 19% 0.1 $3.25 $10 24% 0.1 $3.00 $12 $72 +3% 2011E 8.0 1.7 1.1 0.6 0.58 +6% 54% 0.08 0.31 $3.50 $33 6% 0.01 0.03 $24.17 $25 18% 0.1 $3.25 $10 23% 0.1 $3.00 $12 $80 +11% 2012E 8.1 1.7 1.2 0.6 0.61 +4% 55% 0.08 0.33 $3.50 $35 7% 0.01 0.04 $25.17 $30 17% 0.1 $3.25 $10 22% 0.1 $3.00 $12 $87 +9% 2013E 8.2 1.7 1.2 0.6 0.62 +1% 54% 0.08 0.33 $3.50 $35 8% 0.01 0.05 $25.17 $35 17% 0.1 $3.25 $10 22% 0.1 $3.00 $12 $92 +6% +0% +5% - Driven by new product launches +1% - Primarily Barr Labs and Eon Labs - Pricing at a discount to Antabuse +5% - Little marketing support +12% - Subsidiary of PLIVA/Barr -10% - Disulfiram +3% - Launched June 2006 -24% - Marketed by Cephalon - Alkermes povides incremental marketing support - $695 per monthly injection - Priced at a discount to Vivitrol, but t a premium to oral naltrexone +2% - Launched March 2005 CGR Comments +1% - NIAAA survey 7-8MM patients +1% - Studies estimate 18-23% of patients get treatment +1% - Currently estimated at 1MM patients +1% - Currently estimated at 0.52MM patients -4% - New drug therapies and promotion boost penetration
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GlaxoSmithKlines Zyban Helps Control Smoking Urges

Zyban (buproprion SR) is Wellbutrin SR (antidepressant) repackaged as a treatment for smoking cessation. Zyban is not a nicotine substitute, but works by controlling patients urges to smoke. Zyban is dosed similar to Wellbutrin SR; 300mg/daily b.i.d. Patients can initiate Zyban treatment while they are still smoking. The Zyban label recommends patients seek a target quit date of approximately one week following treatment initiation, to allow adequate time for the drug to reach steady-state blood levels. Annual sales of Zyban have been clipped since the introduction of multiple Wellbutrin SR generics in 2004. Our checks indicate that Zyban is generally viewed as effective and does help reduce patients urges to smoke; however, side effects such as headache, insomnia, and dizziness are a problem for some patients. We estimate combined Zyban/generic sales of $20-25MM per year.
Pfizers Chantix Up In Smoke On Safety Findings

Chantix (varenicline; Champix in Europe) is an oral, partial agonist of the alpha-4 beta2 nicotinic receptor. Chantix was launched in the U.S. in August 2006 and the rollout has been solid. Chantix received final E.U. approval in September 2006 and Japanese approval in January 2008. Chantixs growth is keyed to: 1) excellent efficacy, with a 44% quit rate at 8 weeks; 2) a DTC campaign; and 3) international launches, particularly Asia. In the U.S., out of 45MM smokers, 25MM are motivated to quit and world-wide, there are 1.3B smokers. However, in November 2007, FDA notified healthcare professionals of post-marketing reports of suicidal thoughts and aggressive and erratic behavior, including one death, in patients who have taken Chantix. A preliminary assessment showed that many of the cases "reflect new-onset of depressed mood, suicidal ideation and changes in emotion and behavior within days to weeks" of starting treatment. However FDA said the role of the selective nicotinic acetylcholine alpha(4)beta(2) receptor partial agonist in these cases is not clear. In February 2008, FDA issued an early warning with respect to the November findings and was working with Pfizer to finalize a Medication Guide for patients. In May 2008, FDA announced that it was convinced that there was a real association between Chantix and the serious neuropsychiatric side effects which resulted in an additional label change. The agencys review of Chantix continues but, in the interim, FAA banned the use of Chantix for pilots and air controllers and there have also been recommendations to prohibit its use in truck drivers. Given limited visibility on the ex-U.S. reaction to the new Chantix warnings, we estimate Chantix sales will decline to $625MM (-26%) in 2009 and remaining flat at about $600MM through 2015. Phase III Demonstrates Chantixs Impressive Efficacy Over Bupropion The results from the Chantix Phase III trials were published in JAMA in July 2006. The primary endpoint for both trials was continuous abstinence from smoking during the last four weeks of treatment (weeks 9-12) and through the follow-up periods (weeks 924 and 9-52). Chantix was compared to buproprion SR and placebo. Chantix demonstrated a statistically significant improvement in continuous abstinence at all time periods in both trials vs. placebo. The efficacy of Chantix was significantly better than buproprion at all time periods in both trials, except the week 9-52 period in Phase III trial #1, which just missed statistical significance with a p-value = 0.057. Weight gain seen (approximately 2-3kg over 12 weeks) was comparable among the treatment arms. Chantix was generally well tolerated, although the incidence of nausea was substantially higher in those patients treated with Chantix vs. those who received either placebo or buproprion SR. The Chantix label recommends a one week titration
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phase at the beginning of treatment, which is expected to help minimize the rate of nausea. Chantix Liability Suits Aplenty In August 2008, an action was filed against Pfizer in the U.S. District Court for the Southern District of Illinois seeking to represent a nationwide class consisting of all individuals in the United States who have purchased and ingested Chantix. The suit alleges that Pfizer disseminated inaccurate sales and marketing information about Chantix that failed to fully disclose Chantix's safety and efficacy profile. In addition, a number of individual lawsuits have been filed against Pfizer in various federal and state courts alleging suicide, attempted suicide and other personal injuries as a result of ingesting Chantix, as well as economic loss. Plaintiffs in these individual actions seek compensatory and punitive damages and the disgorgement of profits resulting from the sale of Chantix.
GlaxoSmithKlines GW468816 Is In Phase II

GW468816 is a novel, non-nicotinic-based NMDA receptor antagonist under development for smoking cessation. GW468816 is specific for the glycine site on the NMDA receptor. In Phase I/II trials GW468816 has been shown to be effective and well tolerated. In a 317-patient, four week trial GW468816 (150mg) delivered 57% weekly abstinence versus 36% for placebo. GW468816 showed no adverse cardiovascular, sedation, insomnia, or CNS-related effects. GW468816 entered Phase II trials in August 2006. The primary endpoint of the trial is time to relapse to smoking, as confirmed by patient self-report or carbon monoxide testing. The final data collection data for the completed trial was December 2008 and we anticipate that the data will be presented later this year. We project a 2012 launch for GW468816 and estimate launch-year sales of 50MM.
Sanofi-Aventis Terminates Development Of Dianicline

Sanofi-Aventis was developing Dianicline (SSR591813), a selective alpha-4 beta-2 nicotinic partial agonist, for smoking cessation. However, in February 2008, SanofiAventis announced that it had decided to terminate development of Dianicline. Management suggested that Dianicline was not adequately differentiated from Chantix and that recent CNS side effects associated with Chantix made Dianicline a less compelling candidate. Dianicline works via the same mechanism as Chantix.
Novartis Acquires Cytoss Nicotine Vaccine

In April 2007, Novartis announced the acquisition of exclusive worldwide rights to Cytos Biotechnolgy AGs NIC002 (formerly CYT002-NicQb). NIC002 is a therapeutic vaccine in development for smoking cessation. Developed using Cytos proprietary Immunodrug technology, NIC002 harnesses the bodys immune system to generate anti-nicotine antibodies, which bind to circulating nicotine molecules and prevent them from crossing the blood-brain barrier. The sequestration of the nicotine prevents patients from experiencing the stimulatory effects associated with smoking. Novartis expects to advance NIC002 into Phase III trials in 2009. Early Clinical Results With NIC002 Encouraging Phase I studies have demonstrated that NIC002 is safe, well-tolerated, and highly immunogenic. A 40-patient Phase I trial achieved a 100% immunological response rate.
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The most common adverse events were injection site reaction and flu-like symptoms. A 341-patient, placebo-controlled Phase II study has also been completed with NIC002. Patients enrolled in the trial received five monthly injections (NIC002 or placebo). All patients received counseling as well. Efficacy measures were continuous abstinence from smoking during weeks 8-26 and weeks 8-52. Abstinence was determined via patient self-report and biochemical testing. The six-month results were originally released in May 2005 and 12-month results were released in November 2005. Patients were grouped based on the robustness of their antibody response to the vaccine (i.e. low, medium, and high responders). At six-months, high responders achieved a continuous abstinence rate of 57% (p=0.004 vs. placebo). At 12 months, high responders achieved a continuous abstinence rate of 42% (p=0.012 vs. placebo). Low and medium responders did not achieve abstinence rates significantly different than placebo. Flu-like symptoms (approx. 70%) and fever (approx. 40%) were two common adverse events in the Phase II trial. As a follow-up to the Phase II study, Cytos ran dose, regimen, and formulation optimization studies in healthy volunteers to improve the profile of NIC002. The vaccine dose was increased three-fold (100 to 300 micrograms). Cytos also tested two new dose regimens: weekly and bi-weekly injections. As would be expected, more frequent dosing and the greater vaccine dose resulted in a more robust immune response, as measured by antibody titers. A new formulation was also tested and significantly reduced the incidence of flu-like symptoms (to approx. 10%) and fever (to almost zero).
SUMMARY OF NIC002 PHASE II RESULTS
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Pediatric ADHD Market Growth Has Stabilized

Attention Deficit Hyperactivity Disorder (ADHD) is a chronic neurobehavioral disorder characterized by three major patterns: inattention (inability to focus on one activity at a time); hyperactivity (excess energy); and impulsivity. ADHD is one of the most commonly diagnosed psychiatric disorders in children and is prevalent in 4-7% of pediatric patients. While it is largely considered a childhood disorder, symptoms of ADHD may be life long. Long-term follow-up studies indicate that ADHD persists into adulthood in 30-66% of cases. The most common subtype in childhood is inattention/ hyperactivity, while inattention is more common in adults.
ADHD Market Y/Y Monthly Total Prescription Growth 16%
14%
12%
10%
8%
6%
4%
2%
0%
Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09
Recent prescription trends indicate that the growth of the U.S. ADHD market has stabilized. After double-digit growth through 2004, monthly Y/Y growth of total ADHD prescriptions slowed to mid to high single-digits in 2005 through 2008. Our physician consultants believe the ADHD market will continue to grow by 5-10% over the next 12 months.
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ESTIMATED U.S. ADHD MARKET DEMOGRAPHICS

US population # of adults (>18 yrs old) # of children # of adults with clinically diagnosable ADHD # of children with clinically diagnosable ADHD # of adults being treated* # of children being treated* Untreated adult ADHD population Untreated children ADHD population
Source: US Census, Company data, Cowen and Company
295MM 225MM 70MM 10MM (or 4% of adults) 5.0MM (or 7% of children) 2.5MM (or 25% of adult ADHD pop) 4.0MM (or 80% of children ADHD pop) 7.5MM 1.0MM
European Market Untapped, But Remains Elusive Reported rates of ADHD across European countries vary widely, from less than 1% to close to 20%. Although different rates might be expected in different settings, these differences may be more a function of the diagnostic system employed to classify the syndrome, the methods of ascertainment, and other cultural differences. Our European physician consultants believe that ADHD is grossly under-diagnosed in the E.U. Additional barriers include limited willingness on the part of parents and physicians to use stimulants, and the reluctance of the child psychiatric community in the E.U. to use drug treatment for ADHD.
Adult ADHD Market Significantly Less Penetrated

The adult ADHD market is significantly less penetrated compared to the pediatric market. Assuming a current prevalence of about 5% of the total U.S. adult population of 225MM, there are approximately 10MM adult ADD sufferers in the U.S. Of these only about 25% are treated, leaving an estimated 7-8MM patients untreated. In contrast, about 80%+ of pediatric and adolescent patients are treated, leaving less than 1MM pediatric/adolescent patients available. This opportunity in adults which we have validated via numerous clinician checks appears significant. It is estimated that, of the approximately 9MM adults affected by ADHD in the U.S., 85-90% are either undiagnosed and/or untreated. Key challenges to diagnosing and treating adult ADHD include: (1) current diagnostic criteria (DSM-IV) do not apply to the adult population, as the diagnosis has to be made before the age of 7; (2) adult ADHD requires the presence of both symptoms and impairment as a child and as an adult, making diagnosis as an adult more challenging due to the retrospective requirements for diagnosis; (3) an adult day requires longer treatment duration; (4) co-morbidities, estimated to occur in at least 60% of adults with ADHD, increase the challenge of proper diagnosis and treatment; and (5) substance abuse is prevalent in adults with ADHD. Despite these challenges, our physician consultants believe that there is increasing recognition in the community that there is a likely significant under-diagnosis of adult ADHD. Co-morbidities with ADHD in adults such as depression can often blur the proper diagnosis, initiatives are being taken to develop protocols for better diagnosis and treatment. Our physician consultants believe that adult ADHD may be the fastest growing indication in the CNS category over the next 3-5 years.
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AHRQ/FDA To Investigate Safety Profile Of ADHD Drugs

In September 2007, the FDA announced that researchers at the FDA and the Agency for Healthcare Research and Quality (AHRQ) will be conducting a comprehensive study of prescription medications used to treat ADHD, specifically focusing on the potential for the increased risk of heart attack, stroke, or other cardiovascular problems. The FDA expects to analyze data from approximately 500,000 children and adults who have taken ADHD medications during a seven year period ending in 2005. The analysis is expected to take approximately two years to complete and will include all ADHD drugs marketed during the aforementioned timeframe. FDA Has Warned Of Risks Associated With ADHD Drugs The use of stimulants in ADHD has always been a concern, despite their status as the mainstay therapy. In February 2006, the FDAs Drug Safety and Risk Management Advisory Committee voted in favor of a black box warning for all ADHD stimulants highlighting increased cardiovascular risk. The specific label language added to the black box warning was as follows: Misuse of amphetamines may cause sudden death and serious cardiovascular adverse events. As a non-stimulant, Eli Lillys Strattera was excluded from the committees recommendation; however, warnings of liver toxicity and suicide for Strattera have limited its use. The FDAs Pediatric Advisory Committee met in March 2006 to discuss neuropsychiatric adverse events related to ADHD drug use. The committee did not feel a black box warning was necessary in this instance and felt that additional warning language in either the warning or precaution sections of the labels would suffice. In February 2007, the FDA directed that the manufacturers of ADHD drugs develop a Patient Medication Guide to alert patients and parents to possible cardiovascular and adverse psychiatric symptom risks that are believed to be associated with the medicines.
Once-Daily Stimulants Remain The Gold Standard

Most current treatments for ADHD are stimulant based, so are classified as Schedule II controlled substances (subject to abuse) by the Drug Enforcement Agency (DEA). Stimulants act by promoting the release of noradrenaline in the brain. Stimulants such as methylphenidate and dextroamphetamine have been used to treat ADHD for over 30 years. Immediate-release methylphenidate is dosed 2-3 times daily and administration must be controlled by a school official or nurse, which adds to the inconvenience and stigma of ADHD therapy in children. Our physician consultants are unanimous in their preference for long-acting stimulants, such as JNJs Concerta, Novartiss Ritalin LA and Focalin XR, UCB Pharmas Metadate CD, and Shires Adderall XR and Vyvanse, to treat ADHD.
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ADHD Market Total Rx Share: Key Products

Adderall XR Strattera 30.0% Vyvanse Generic Methylphenidate Concerta Generic Amphetamine IR Focalin XR
25.0%
Monthly TRx Share
20.0%
15.0%
10.0%
5.0%
0.0%
De c06 Ja n07 Fe b07 Ma r07 Ap r07 Ma y07 Ju n07 J ul07 Au g07 Se p07 Oc t07 No v07 De c07 Ja n08 Fe b08 Ma r08 Ap r08 Ma y08 Ju n08 J ul08 Au g08 Se p08 Oc t08 No v08 De c08 Ja n09
Shires Adderall XR Is The Market Leader But Generic Expected In April

Adderall XR (amphetamine) is a once-daily capsule designed to provide effective treatment for 12 hours using Shires proprietary Microtrol technology. Due to solid promotional effort and the perception of greater efficacy among physicians, Adderall XR established itself as a leader in the category. Adderall XR held a 21.2% total U.S. prescription share of the ADHD market as of January 2009, down 270 basis points since January 2008. Share has declined as Shire is no longer promoting the drug and has raised the price in an attempt to convert patients to Vyvanse (approved June 2007). Adderall XRs composition-of-matter patent expired in April 2005 (with pediatric extension), but the product is protected by three patents (U.S. #6,322,819, 6,605,300 and 6,913,768), two of which (the 819 and 300) are listed in the Orange Book. Shire signed settlement agreements with Impax and Barr in January 2006 and August 2006, respectively, removing a key overhang from the franchise. With Tevas pending acquisition of Barr, Teva/Barr hold first-to-file exclusivity on all doses. Per the settlement agreements, Barr will be allowed to launch its Adderall XR generics on April 1, 2009 and Impax will be allowed to launch its Adderall XR generic on October 1, 2009. As noted above, Shire is pushing aggressively to switch patients from Adderall XR to its recently launched Vyvanse, which is patent protected out to 2023. We estimate Adderall XR sales of $485MM (-56%) in 2009 and $45MM in 2015.
Timing Of Generics To JNJs Concerta Uncertain

Concerta (methylphenidate) held a 19.4% total U.S. prescription share of the ADHD market in January 2009, down 150 basis points since January 2008. Vyvanses launch in June 2007 appears to have taken modest share away from Concerta. Concertas success in the ADHD market has been driven by its differentiated true once-daily dosing profile and its proven safety/efficacy profile. Concerta employs a dual
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compartment OROS osmotic pump technology, generating an immediate-release component followed by gradually increasing plasma concentrations of methylphenidate (peaks at 6-8 hours), and a gradual decline in concentration over the final 2-3 hours of activity. This release profile mimics the efficacy of immediate-release methylphenidate dosed three-times daily, while providing the convenience and safety of true once-daily dosing. While alternative sustained-release formulations of methylphenidate are marketed, Concerta is the only formulation to have 12-hour duration of activity. We estimate worldwide Concerta sales of $1,115MM (-11%) in 2009, growing modestly to $1,239MM by 2013. The specific timing of Concerta generics remains uncertain and is a risk to our sales projections. The ANDAs currently pending are on hold at the FDA awaiting a ruling on JNJs Citizens Petition, which was filed on March 19, 2004. At issue is JNJs assertion that, given the unique delivery profile of Concerta, generics should be required to prove that their respective products properly mimic the drug release profile of the brand product. Our consultants believe this argument has merit. While Andrx (acquired by Watson) has claimed that it has successfully mimicked Concertas release profile, no supporting data have been released to date. International sales, predominantly from Japan, should help support the franchise if exclusivity is lost in the U.S. Additionally, FDA approved Concerta for adult ADHD in June 2008 and this should provide a nice boost in a growing market.
Shires Vyvanse Could Be Best In Class

Vyvanse (lisdexamfetamine dimesylate; formerly NRP-104) is pro-drug of amphetamine in which the active drug is covalently bound to a lysine, and remains pharmacologically inactive until the lysine group is cleaved off via an enzymatic reaction in the body. Since the enzyme responsible is exclusive to the GI tract, parenterally-administered Vyvanse would not be expected to yield active amphetamine, and studies have shown essentially no free amphetamine when Vyvanse is given intranasally or intravenously. Also, since the rate of this transformation is relatively slow, this step governs the bioavailability of circulating amphetamine that is free to exert its CNS effects, and has been shown to blunt the spike that normally results from a high initial dose of drug. While increasing the amount of ingested Vyvanse may accelerate the enzymatic step somewhat, a point is reached at which the enzyme becomes saturated and additional Vyvanse simply builds up and gets eliminated by the kidneys. This approach of conditional bioreversibility is appealing, since it uncouples the actual dose of a drug from the quantity that is ingested, potentially serving as a vehicle to reduce abuse. Treatment of the compound either with strong acid or base to hydrolyze off the lysine appears to yield no conversion to amphetamine, implying that Vyvanse may be very resistant to would-be abusers. Vyvanse received final FDA approval in February 2007, with Schedule II DEA scheduling and reduced likeability data in the label. Vyvanse was launched in July 2007. Vyvanse also received approval for treatment of adult ADHD in April 2008. Shire continues to maintain that a co-promotion agreement for Vyvanses adult indication could occur, although the company stresses that such an agreement is not necessary. As discussed earlier, the adult ADHD market is significantly less penetrated compared to the pediatric market. We estimate Vyvanse sales of $525MM (+65%) in 2009, rising to $950MM in 2013. Phase III Data Indicate A Solid Profile In May 2005, positive Phase III results for Vyvanse were released. The primary efficacy endpoint in this study was the ADHD Rating Scale (ADHD-RS). The secondary endpoint was the Conners' Parent Rating Scale (CPRS), assessed in the morning, afternoon and evening. The study results indicated that each of the Vyvanse doses demonstrated
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efficacy when compared to placebo on both primary and secondary endpoints (p <0.0001). The trial enrolled 230 patients, 6 to 12 years of age. The Phase III results studied 30, 50 and 70mg doses, which achieved average reductions in ADHD-RS scores of 51% (21.8 points), 54% (23.4 points) and 59% (26.7 points), respectively, compared to baseline. All three Vyvanse doses produced significant average differences in the scores during the first week of treatment (p<0.0001 versus placebo for each dose). Of the participants, 36% had previously received treatment for ADHD. Importantly, there was sufficient duration of action as each of the doses demonstrated efficacy in the morning (10:00 am); afternoon (2:00 pm); and into evening (6:00 pm), compared to placebo, as demonstrated by CPRS. Most adverse events were mild to moderate and occurred in the first week. The most common adverse events were decreased appetite, insomnia, headache, and upper abdominal pain. A second Phase III study compared Vyvanse to Adderall XR, and demonstrated equivalent efficacy with a similar side-effect profile.
Vyvanse Has Converted 36% Of Adderall XR Market

For the week ending February 20th, Vyvanse recorded 98,414 total prescriptions. Its market share stands at 11.7% while the Adderall XR conversion rate is at 36%. As we approach April, 1 2009, which is the date of introduction of generic Adderall XR, we expect Vyvanse to have converted about 35-37% Adderall XR prescriptions and garnered roughly 11.5% to 12.0% of the total ADHD market. Feedback from ADHD specialists across the country suggests that physicians are gradually becoming comfortable with Vyvanse and believe that Vyvanses profile is differentiated from Adderall XR. Physicians have not been aggressive in converting existing well controlled Adderall XR patients and therefore Vyvanse has been relegated to primarily gaining in new patient starts. As of January 2009, at least two of our physician consultants that had previously been relatively skeptical have a more favorable view of the drug: they both agreed that Vyvanse shows longer duration of action and consistency than Adderall XR. When there have been conversions from Adderall XR to Vyvanse, it has mostly been in the case of patients that were not wellcontrolled on Adderall XR, or if an additional dose of Adderall was needed to obtain coverage throughout the full day. Physicians also reported that the intermediate doses of Vyvanse introduced towards the end of 2008 have given them greater flexibility in their prescribing choices, especially when it comes to younger children. Physicians were divided in their opinion of whether generic Adderall XR might have an impact on Vyvanse prescriptions. Most doctors do not believe that the co-payments would be an impediment and that the availability of a lower co-paying generic would unlikely alter theirs or the patient/parents decisions. However, the prospect of prior authorization is a greater concern to clinicians. Each clinician indicated that if managed care required prior authorization for Vyvanse once generic Adderall XR was introduced, it would have an adverse impact on their prescribing. However, the impact of prior authorization was highly dependent on whether physicians were handling paperwork themselves or had office support to deal with the interaction with the plans. Overall, however, Shire seems to have done a good job of establishing Vyvanse as differentiated relative to Adderall XR.
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UCB Pharmas Metadate CD Likely To Remain A Small Player

Metadate CD (methylphenidate) is a once-daily, modified-release formulation of methylphenidate that contains both immediate-release (30%) and sustained-release beads (70%). Metadate CD utilizes the two-pulse release Diffucap system that mimics the delivery pattern of a drug given two times a day while providing the convenience of once-daily (9-hour duration) dosing. Since its U.S. launch in 2001, Metadate CD has been a niche player, holding just a 2.4% total U.S. prescription share as of January 2009, down 50 basis points since January 2009. Metadate CDs total prescription share has been essentially flat over the past three years. We expect Metadate CD to remain a marginal player. We estimate Metadate CD U.S. sales of $110MM in 2009, declining to $90MM in 2013.
Novartiss Ritalin Franchise Clipped By Generics And OnceDaily Competitors

Norvartiss Ritalin franchise is comprised of Ritalin (now generic; twice-daily), Ritalin LA (once-daily), Focalin (twice-daily), and Focalin XR (once-daily). Ritalin (methylphenidate) has been clipped by the introduction of multiple generics. Ritalin LA is a once-daily, long-acting formulation of Ritalin that uses Elans SODAS drug delivery technology, designed to deliver an immediate release and a second equal release approximately 4 hours after administration (mimicking twice-daily Ritalin). Our physician consultants believe the release profile of Ritalin LA is inferior to the 12-hour profile offered by Concerta, therefore we believe the outlook for Ritalin LA remains modest. Novartis/Celgenes Focalin is a single isomer of methylphenidate, and is sold in twice-daily (Focalin) and once-daily (Focalin XR) formulations. Focalin was launched by Novartis in January 2002, but was hindered by its twice-daily dosing profile. Focalin XR was launched in the U.S. in June 2005, and has fared better. We estimate Norvartiss worldwide Ritalin franchise sales of $500MM (+12%) in 2009, $600MM in 2013.
Declines For Strattera Expected During 2009-15

Strattera (atomoxetine) prescription share erosion has been stemmed somewhat and Lilly hopes to temper the erosion further. This is keyed in part to more careful patient selection, specifically in teens and adults. Lilly is focusing on high-risk behavior in inattentive teens, which occurs outside of school, representing a potential advantage for Stratteras 24-hour control. ADHD patients that also suffer from anxiety may be an attractive market niche for Strattera, given that stimulant use is contraindicated for patients suffering from anxiety. Strattera marketing efforts targeting adults focuses on patients with a prior history of abuse and/or impulsive behavior, where stimulants frequently are avoided. In May 2008, Strattera was approved for the maintenance treatment of ADHD in children and adolescents. Strattera has been launched in 66 countries including all major E.U. markets. Our E.U. physician experts view foreign markets as an opportunity, and they believe Strattera is viewed as best-in-class given a cultural aversion to stimulants in the E.U. However, market penetration has been slow as ADHD is under-diagnosed in the E.U. Several generic companies submitted ANDAs in the U.S. alleging that the patent is invalid. In August 2007, Lilly filed a lawsuit against Actavis in the U.S. District Court for the District of New Jersey. Sandoz filed a declaratory judgment action in the same court, but its case has been dismissed. In September 2007, Lilly amended the complaint in the New Jersey lawsuit to add Glenmark, Sun, Sandoz, Mylan, Teva, Apotex, Aurobindo, Synthon, and Zydus as defendants. It filed a second action against Synthon in the U.S. District Court for the Eastern District of Virginia. Synthon filed a motion to dismiss Lillys lawsuit in New
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Jersey. In December 2007, Zydus agreed to entry of a consent judgment in which Zydus conceded the validity and enforceability of the patent and agreed to a permanent injunction. In June 2008, Synthon notified Lilly that it has withdrawn its ANDA and agreed to a stipulated dismissal of all outstanding claims. For the remaining defendants, trial is anticipated for as early as December 2009. We forecast worldwide Strattera sales of $550MM (+6%) in 2009, and $410MM in 2013.
Shire/Novens Daytrana Plagued By Manufacturing Issues

Daytrana (methylphenidate transdermal system), a once-daily transdermal patch, uses Novens DOT Matrix patch technology and has been licensed on a worldwide basis by Shire. Shire launched Daytrana in June 2006. As of January 2009, Daytrana held a 1.6% total prescription share of the U.S. ADHD market, down from 1.9% in January 2008. The transdermal delivery of methylphenidate bypasses the digestive system and increases bioavailability while reducing the required dosage for comparable efficacy. Moreover, the chemical penetration enhancers appear to cause less skin irritation compared to conventional patches. The outlook for Daytrana has been a bit mixed as there have been concerns about skin reactions, weight loss, and insomnia in the clinical studies. Our clinical consultants have differing expectations for Daytrana. Most of our consultants believe that 10-15% of their patients have problems swallowing pills and therefore could benefit from an easier dosing profile of methylphenidate. However, they mainly cite that the real key advantage is the ability of parents to control dosing via removal of the patch. Daytrana has been facing manufacturing issues over the past year. In July 2007, the FDA completed an onsite inspection of Novens manufacturing facilities and issued a Form 483 that included several observations related to the difficulties experienced by some patients in removing the release liner of the Daytrana patch. In August 2007, Noven submitted a formal response to the FDAs request. In September 2007, Shire announced that it was voluntarily recalling a limited number of Daytrana product lots due to difficulties experienced removing the release liners. Until these issues are resolved, it appears that Shire is not promoting the drug aggressively. We estimate Daytrana sales of $90MM (+13%) in 2009, $115MM in 2010, $160MM in 2013, and $180MM in 2015.
Shires Intuniv Re-Submission Expected Within Months

Shires SPD-503 (Intuniv) is a once-daily extended release reformulation of guanfacine for ADHD, which received an approvable letter from the FDA in June 2007. The approvable was unsurprising, as Shire had indicated that this was the likely initial outcome. Shire is already working with the FDA to address the agency's issues, which we believe are primarily related to labeling and addition of Oppositional Defiant Disorder-specific language. Shire expects to re-submit the Intuniv NDA in the next few months and a launch is still planned for Q4:2009 (following a six-month review). Although largely overshadowed by the Vyvanse opportunity, our consultants believe that Intuniv could have solid niche potential as either combination or monotherapy treatment. Guanfacine is an alpha-2 noradrenergic agonist currently used for hypertension. However, it has been used off-label in its immediate release form (2-3 times daily) by some clinicians for those few patients who do not respond to the standard first-line stimulants and/or as an additive product. It is believed that guanfacine can calm and reduce aggression. Importantly - because guanfacine is a non-stimulant - if approved it would be non-scheduled, similar to Lillys Straterra, which is a major positive attribute in the ADHD market. Our clinician checks have consistently indicated that once-daily Intuniv could have potential similar to Eli Lilly's Strattera, which exceeds $500MM in
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U.S. sales. We do not believe that Intuniv will reach such levels, but following multiple conversations with our consultants, it does appear that there is at least the potential for $200-300MM (5-10% share). Our model has peak sales eventually reaching $170MM by 2015 (3-4% share), which we believe could be conservative. Alternatively, we do not believe that the Street has been focused on this product because of the attention given to Vyvanse. Our consultants remain enthusiastic about Intunivs potential. According to our consultants, guanfacine should have a role in treating patients with hyperactive ADHD. In their view, about 30% of children can be classified as having inattentive ADHD, 60% as having both inattentive and hyperactive ADHD, and 10% having only hyperactive ADHD. They indicate any child with a hyperactive component is a potential target for Intuniv. Therefore, the target population for a drug like guanfacine would be about 70% of the overall market. However, our physicians believe that at the outset Intuniv will be a niche therapy and much of its success will be determined based on the experience gained from using it in combination with stimulants. Currently, our consultants use guanfacine to treat about 5% of hyperactive patients. Clonidine, another generic, which is closely related to guanfacine, is used in another 5% of patients. The key difference between clonidine and guanfacine is that clonidine possesses stronger sedating properties and therefore, is most often used in children at the end of the day nearer to bedtime. If guanfacine shows improved non-sedating properties in clinical practice, then clinicians may be further encouraged to utilize it in hyperactive children during school hours, thereby increasing its potential target market in conjunction with stimulants. Additionally, our consultants note that clonidine causes weight gain while guanfacine does not appear to carry this attribute. Given these impressions, we believe that 5-10% of the ADHD market is available to Intuniv as either mono or combination therapy. Our estimate of $110MM by 2012 is predicated on Intuniv achieving only 3-4% share. Phase III Results Presented At APA Results from two short-term, double-blind, randomized Phase III clinical trials of Intuniv were presented at the APA meetings in May 2007. In two short-term trials, the primary endpoint was a reduction in ADHD symptoms as measured by the ADHD Rating Scale (ADHD-RS-IV). Overall, the data show promising efficacy, although with some side effects, primarily related to sedation and somnolence. However, given the extensive history of guanfacine and the profile of Strattera, the data suggest that it is a relatively safer drug than Strattera. In the first trial, 301, investigators compared 2 mg, 3 mg or 4 mg Intuniv doses to placebo during an eight-week treatment period. Initially, the participants were randomized to Intuniv at the 1 mg dose and were then titrated at weekly visits in 1 mg increments over the first four weeks to achieve the randomized dose. The doses were then tapered down weekly so that all participants randomized to Intuniv received the 1 mg dose at week eight. Participants achieved overall significant mean reductions from baseline in ADHD-RS-IV total scores by study end, -16.7 points vs. -8.9 for placebo (P <.0001). Investigators observed improvement in ADHD-RS-IV scores as early as two weeks after dosing began, with significant improvement in all Intuniv dose groups occurring at the third week. Effect sizes, calculated using results from the ADHD-RS-IV scores and evaluated using weight-adjusted actual doses, were 0.44 (0.01 to 0.04 mg/kg), 0.58 (0.05 to 0.08 mg/kg), 1.19 (0.09 to 0.12 mg/kg), and 1.34 (0.13 to 0.17 mg/kg). In the second short-term trial, 304, investigators examined 1 mg, 2 mg, 3 mg and 4 mg doses and placebo during nine weeks of treatment. During the first three weeks,
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patients started at 1 mg with doses escalating in once-weekly 1 mg increments to achieve their randomized dose at week three. Then, participants maintained their assigned dose for three weeks, followed by three weeks of decreased dosing, so that all participants were taking 1 mg doses during week nine. Participants achieved overall significant mean reductions in ADHD-RS-IV total scores by study end, -19.6 points vs. 12.2 for placebo (P <.0001). In trial 301, sedation-related adverse events were among the most common adverse events. Treatment related adverse events greater than 10 percent included somnolence (32 percent), fatigue (18 percent), upper abdominal pain (14 percent) and sedation (13 percent). In trial 304, common treatment related adverse events greater than 5 percent included somnolence (27 percent), fatigue (9.4 percent) and nausea (5.1 percent). Small to modest changes in blood pressure, pulse rate, and ECG were observed. Results from two longer-term trials were also presented: Study 303 was a long-term, open-label, safety follow-up study of 240 participants enrolled in trial 301. The objective was to assess the long-term safety of 2 mg, 3 mg, and 4 mg doses. Patients were optimized to a dose ranging between 2 mg to 4 mg. Doses could be adjusted by 1 mg per monthly visit. The most common treatment-emergent adverse events were somnolence (30.4 percent), headache (26.3 percent), fatigue (14.2 percent) and sedation (13.3 percent). Somnolence, sedation and fatigue typically occurred early in the study. The incidence of syncopal events was less than 1 percent. In some of the patients who did experience syncope, potential contributing factors were noted (such as dehydration, sudden change in body position, and hot environment). For all doses, the mean ADHD-RS-IV total scores and subscale scores showed significant improvement from baseline to endpoint: -18.1 points on the ADHD-RS-IV total; -8.5 points on the ADHD-RS-IV hyperactive/impulsive subscale and -9.5 points on the ADHD-RS-IV inattentive subscale (P <.001). In study 505, the most commonly reported treatment emergent adverse events greater than 10 percent were somnolence (29.9 percent), headache (19.7 percent), upper respiratory tract infection (15.1 percent), fatigue (12.4 percent) and sedation (11.2 percent). The incidence of syncopal events was less than 2 percent. Interim results from trial 305 showed that for all doses, the mean ADHD-RS-IV total scores showed significant improvement of -21.6 points from baseline to endpoint (P <.001).
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2007 Total Rx's (MM) Growth Adderall XR Rx Share (SHPGY) Rx's (MM) Daily Cost Sales ($MM) Vyvanse Rx Share (SHPGY) Rx's (MM) Daily Cost Sales ($MM) Concerta Rx Share (JNJ) Rx's (MM) Daily Cost Sales ($MM) Strattera Rx Share (LLY) Rx's (MM) Daily Cost Sales ($MM) Daytrana Rx Share (SHPGY) Rx's (MM) Daily Cost Sales ($MM) Ritalin/LA Rx Share (NVS) Rx's (MM) Daily Cost Sales ($MM) Metadate/CD Rx Share (UCB) Rx's (MM) Daily Cost Sales ($MM) Focalin/XR (NVS) Rx's (MM) Daily Cost Sales ($MM) Adderall Rx Share (BRL) Rx's (MM) Daily Cost Sales ($MM) Intuniv Rx Share (SHPGY) Rx's (MM) Daily Cost Sales ($MM) Generic Adderall Rx Share Rx's (MM) Daily Cost Sales ($MM) Generic Adderall XR Rx Share Rx's (MM) Daily Cost Sales ($MM) Generic Methylphen Rx Share Rx's (MM) Daily Cost Sales ($MM) Other Rx Share Rx's (MM) Daily Cost Sales ($MM) 6% 2.3 $0.32 $22 8% 2.8 $0.65 $55 12% 4.6 $0.64 $88 37.3 +6% 26% 9.5 $3.61 $1,031 2% 0.7 $3.77 $77 21% 7.9 $3.35 $798 9% 3.5 $5.37 $569 2% 0.8 $2.70 $64 3% 1.1 $3.38 $110 3% 1.2 $3.45 $120 7% 2.6 $2.64 $204 1% 0.2 $5.65 $42
2008 40.0 +7% 23% 9.1 $4.05 $1,102 8% 3.3 $3.22 $319 20% 7.9 $3.49 $830 8% 3.2 $6.10 $580 2% 0.7 $3.70 $79 2% 0.9 $2.95 $82 3% 1.1 $3.47 $110 7% 2.7 $3.05 $245 1% 0.2 $5.34 $33
2009E 43.7 +9% 8% 3.4 $4.71 $485 12% 5.3 $3.30 $525 20% 8.6 $3.31 $850 7% 3.1 $5.87 $550 2% 0.7 $4.34 $90 2% 0.9 $3.11 $80 2% 1.0 $3.50 $110 7% 2.9 $3.09 $270 0% 0.2 $5.46 $30 1% 0.3 $3.00 $30
U.S. ADHD MARKET BUILD-UP ($MM) 2010E 2011E 2012E 2013E '08-13 45.8 +5% 1% 0.6 $6.46 $110 14% 6.6 $3.50 $690 18% 8.3 $3.50 $870 7% 3.0 $5.70 $510 2% 0.9 $4.50 $115 2% 0.8 $3.00 $75 2% 1.0 $3.50 $100 7% 3.2 $3.15 $300 0% 0.2 $5.00 $30 2% 0.8 $3.20 $80 15% 6.7 $0.45 $90 17% 7.9 $2.10 $495 5% 2.4 $0.35 $25 8% 3.7 $0.50 $55 $2,750 -6% 46.8 +2% 1% 0.5 $4.70 $70 15% 6.9 $3.75 $780 17% 7.8 $3.80 $890 6% 2.7 $5.90 $470 2% 1.0 $4.50 $130 2% 0.8 $3.00 $75 2% 0.9 $3.50 $90 7% 3.2 $3.30 $320 0% 0.2 $5.00 $30 2% 1.1 $3.40 $110 15% 7.0 $0.45 $95 18% 8.2 $1.60 $395 5% 2.4 $0.35 $25 9% 4.1 $0.45 $55 $2,820 +3% 48.3 +3% 1% 0.4 $4.70 $55 15% 7.3 $4.00 $880 16% 7.5 $4.00 $905 5% 2.4 $6.10 $440 2% 1.1 $4.50 $145 2% 0.8 $3.00 $75 2% 0.9 $3.50 $90 8% 3.8 $3.00 $340 0% 0.2 $5.00 $30 3% 1.3 $3.60 $140 15% 7.0 $0.45 $95 18% 8.6 $1.15 $295 5% 2.4 $0.35 $25 9% 4.6 $0.40 $55 $2,940 +4% 49.0 +2% 1% 0.3 $4.70 $45 16% 7.9 $4.00 $950 15% 7.6 $4.00 $910 5% 2.2 $6.10 $410 2% 1.2 $4.50 $160 2% 0.8 $3.00 $75 2% 0.9 $3.50 $90 8% 3.8 $3.00 $340 0% 0.2 $5.00 $30 3% 1.6 $3.60 $170 14% 7.0 $0.45 $95 17% 8.6 $1.15 $295 5% 2.4 $0.35 $25 9% 4.6 $0.40 $55 $3,020 +3% 1% 1% 8% 5% 1%
Comments
+4% - Growth driven by increased/improved compliance and adult market growth - Significant pricing increases have helped -49% - Generics expected in 4/09 -47% - Launched July 2007 19% - Currently stands at 11% share as of January 2009 - Pricing increases likely 24% - We believe reasonable sales figures assumed -1% - Timing of generics uncertain; no generic assumed through 201 - Waxman-Hatch exclusivity expired 8/03 2% -7% - Launch 1/03; first non-scheduled approved for treating ADHD
- Liver toxicity warning added 10/05 clips -7% - Suicide warning added 9/05 also clips - Methylphenidate transdermal system
11%
- Launched in June 2006 15% - Manufacturing issues have clipped - LA launched Q3:02; Novartis' once-daily MPH -2% - Ritalin clipped by generics - Newer products clips growth -2% - CR launched Q2:01 -4% - Medtadate clipped by generics - Newer products clips growth -4% - Focalin XR once-daily launch in 6/05 7% - Isomer of Ritalin 7% - Clipped by conversion to Adderall XR, generics -1% - Divested to Barr in 8/06 -2% - Modified release guanfacine; should be non-scheduled - Should be niche opportunity given likely label advantage - FDA "approvable" letter issued in June 2007 - Increased utilization and availability of once-daily formulations clips
14% 5.5 $0.54 $90
15% 6.5 $0.46 $90 11% 4.9 $2.30 $340
- Increased utilization and availability of once-daily formulations clips
6% 2.3 $0.35 $24 8% 3.2 $0.58 $55
6% 2.5 $0.34 $25 8% 3.4 $0.53 $55
- Increased utilization and availability of once-daily formulations clips
- Includes older generic stimulants
0% - Includes Dextroamphetamine, Methylin -2% - Adderall XR generics clip in 2009; newer products help offset
U.S. Market Sales ($MM) $2,980 $3,300 $2,920 % Growth +15% +11% -12% Source: Company reports and Cowen and Company estimates
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Triptans Continue To Dominate Migraine Market

The American Medical Association estimates that more than 26MM people in the U.S. suffer from migraine headaches. Diagnosis of migraine is based entirely on symptoms, which consist of a characteristic headache (unilateral, severe throbbing lasting 4 to 72 hours) often accompanied by nausea or vomiting, sensitivity to light (photophobia), and sensitivity to sound (phonophobia). Up to 20% of migraine sufferers may also experience visual and other nervous system disturbances (known as an aura) prior to the headache. Migraines that are accompanied by an aura are known as classic migraine headaches while those without are known as common migraine headaches. Typical aura features include flashing lights, zig-zag lines, bright spots, visual blind spots, or sensory disturbances in the hands or face. Frequency of migraine varies considerably, ranging from only one or two a year to one or two per week. Migraine headaches can be quite disabling for patients. Our consultants estimate that roughly 13% of the population experiences 2-4 days per month with migraine headache and could be considered candidates for prescription therapy. The frequency of migraine headache attacks in a given migraine sufferer commonly increases over time, and each year 3% of sufferers progress to >15 attacks per year while 9% progress to >24 attacks per year. Migraine headache is listed in the top 20 causes of disabling conditions and in the top 4 neurologic disabling conditions by the WHO. Migraine headaches are poorly diagnosed and under-treated by the general medical community our consultants attribute this to a lack of adequate education in medical training programs. Our consultants estimate that while 45% of migraine sufferers are appropriate candidates for drug therapy, less than 25% actually receive prescription medications. Patients with moderate to severe migraine headaches have limited pharmacologic options for acute attacks. Treatment options include triptans, NSAIDs, ergot drugs, caffeine-based drugs, and other pain-relief options, including acetaminophen and opiates. Triptans are considered first-line therapy for migraines and the cost of oral triptan meds is roughly $25/day. Novel treatment approaches, such as the off-label use of Allergans Botox, have also been tried successfully. Triptans are typically reserved for patients with persistent headaches despite treatment with traditional NSAIDs. Prophylactic options are also available for patients. Physicians recommend patients keep a headache diary to identify potential triggers in order to avoid migraine stimuli. Patients with frequent attacks are able to reduce the number of attacks by up to 50% by using options such as beta blockers, calcium channel blockers, vitamins, and antidepressants.
FDA Cautions Usage of Triptans With SSRI/SNRIs

In July 2006, the FDA issued a public health advisory warning against taking triptans and SSRI/SNRIs simultaneously due to the potential onset of a life-threatening syndrome called serotonin syndrome. Serotonin syndrome occurs when the body has too much serotonin, which may lead to restlessness, hallucinations, loss of coordination, rapid heart beat, nausea, vomiting, and diarrhea. Serotonin syndrome is most likely to occur when either starting or increasing the dose of the triptan, SSRI, or SNRI that a patient might be taking. The FDA recommended that physicians be aware of which patients may be combining these medications, and carefully weigh the risks/benefits of using these drugs together. Our consultants indicate that the FDA warning letter has not had a negative impact on their triptan prescribing.
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MIGRAINE MARKET MONTHLY TOTAL PRESCRIPTION SHARE

50.0% 45.0% 40.0% 35.0%
TRx Share (%)
30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% May-06 May-08 Mar-06 Mar-08 Jan-06 Jan-08 Sep-06 Nov-06 Mar-07 Sep-08 May-07 Nov-07 Nov-08 Jan-07 Sep-07 Jan-09 Jul-06 Jul-07 Jul-08
Imitrex Axert
Zomig/ZMT Frova
Maxalt/MLT Migranal
Relpax Treximet
Amerge
Managed Care Has Taken An Active Role To Limit The Use of Triptans
Our consultants indicate that managed care plans are becoming increasingly restrictive with triptan reimbursement, primarily by reducing the number of pills allowed per monthly triptan prescription. Historically, migraine specialists have estimated the average number of pills per triptan prescription at approximately 12. Many managed cared plans now are moving to reduce the number of pills allowed per prescription to nine, with some plans reducing the cap to as low as four pills per prescription. Our consultants generally are able to override the limits if a patient requires more than the allowable number of pills, but patients may be required to pay two co-payments to obtain the necessary number of pills.
TRIPTANS COMMERCIALLY AVAILABLE IN THE U.S.
Drug Imitrex Zomig Maxalt Amerge Frova Axert Relpax Treximet Generic name sumatriptan zolmitriptan rizatriptan naratriptan frovatriptan almotriptan eletriptan Sumatriptan/naproxen Company GlaxoSmithKline Astra Zeneca Merck GlaxoSmithKline Endo JNJ Pfizer GlaxoSmithKline/Pozen Approved 1997 1997 1998 1998 2001 2001 2002 2008 Formulations Oral, nasal, inject. Oral, nasal Oral Oral Oral Oral Oral oral
Source: Company reports, IMS
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GSKs Imitrex Hit Significantly By Generics

As the first to market triptan (launched in 1995) with the most extensive range of formulations (oral, injectable, nasal and rapid-release), Imitrex (sumatriptan) has maintained leadership in the otherwise undifferentiated migraine market. Despite the relatively low growth of the migraine market (estimated 2-3% per annum), and physician concerns regarding the cardiovascular safety of the triptans, GlaxoSmithKline believes that the low diagnosis rate for migraine continues to be an opportunity for growth, and has focused its marketing efforts in this area. For instance, it is estimated that up to 90% of cases of sinus headache could be migraine related; therefore GlaxoSmithKline is encouraging nurses to pre-screen headache patients for migraine. As of January 2009, Imitrex held just above a 13.5% total prescription share of the U.S. migraine market, down from 29.5% in January 2008, due to the launch of generics in November 2008. We estimate worldwide Imitrex sales of 510MM in 2009 (26%), 300MM in 2010, 25MM in 2013, and 5MM in 2015. Imitrex Generics Launched In Late 2008 In October 2006, GlaxoSmithKline and Dr. Reddys announced a settlement agreement whereby Dr. Reddys was allowed to launch generics of Imitrex in November, 2008. Our consultants expect managed care organizations will make it very difficult for physicians to prescribe a branded triptan for first line use now that generics of Imitrex are available. Our consultants believe that managed care organizations will require that patients fail to respond to treatment with generic Imitrex before approving the use of a branded triptan.
Mercks Maxalt Shows Modest Growth

As of January 2009, Maxalt/MLT (rizatriptan) held a 17.5% total U.S. prescription share of the migraine market, up from 16.5% in January 2008. A rapid-dissolve (MLT) formulation now accounts for over 50% of total Maxalt prescriptions. Maxalt MLT utilizes R.P. Scherers Zydis technology, and offers improved convenience, but a therapeutic profile equivalent to the original Maxalt oral tablet formulation. The fastdissolve formulation is useful for patients who do not want to swallow a tablet because of nausea caused by a migraine attack. Maxalt crosses the blood brain barrier, similar to Zomig, although the importance of this is debatable. Maxalts efficacy appears to be on par with competitive triptans; although Merck has presented data demonstrating Maxalts superiority to Imitrex in terms of relief: 31% more patients experienced pain relief at one hour; 23% more patients were free of pain at two hours; 28% more patients were functioning normally at two hours; and 21% fewer patients had adverse drugrelated events - competitors also have compiled similar data and physicians view these data skeptically. Merck has run studies testing Maxalt efficacy in treating menstrualrelated migraine (MRM). These trials have completed enrollment, and we could see topline data in 2009. Worldwide Maxalt/MLT sales reached $529MM in 2008 and we estimate worldwide sales of $565MM (+6%) in 2009, $605MM in 2010, peak sales of $725MM in 2013, and declining sales estimates of $250MM in 2015.
MAXALT: EFFICACY AND SIDE-EFFECTS AT TWO DIFFERENT DOSES (% OF PATIENTS)
Maxalt 5mg Headache relief at 2 hours Dizziness Somnolence (drowsiness)
Maxalt 10mg 71% 7.8 8.5
Imitrex 100mg 61% 9.0 7.2
62% 5.5 7.3
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AstraZenecas Zomig Undifferentiated Among Triptans

Zomig (zolmitriptan) is comparable to the triptan therapies Maxalt (Merck) and Imitrex (GlaxoSmithKline). It differs from Imitrex in that it penetrates the central nervous system (CNS) receptors, in addition to peripheral receptors, so it may theoretically have a faster onset of action. Zomig has cardiovascular class warnings, similar to Imitrex, in its label. AstraZeneca also markets a fast-dissolve Zomig-ZMT tablet (utilizing Cephalon/CIMA Labs Durasolv technology) and a nasal spray formulation. The fastdissolve tablet does not alter the delivery profile of Zomig. AstraZeneca presented data at AAN 2007 from a double-blind, placebo-controlled, multi-center study that demonstrated efficacy of both the 10mg and 5mg doses in the nasal spray formulation in cluster headache. The 10mg dose was more effective in people with cluster headache. The incidence of mild side effects, while not statistically different from placebo, appears to be numerically worse in both the 10mg and 5mg doses. Zomig is available in the U.S. and all major European markets. As of January 2009, the Zomig/ZMT franchise held a 9.3% total prescription share of the U.S. migraine market. We estimate Zomig/ZMT franchise sales of $450MM (flat Y/Y) in 2009, $465MM in 2010 (+3%), $510MM in 2013, and $540MM in 2015.
Triptans Commercially Available In The U.S.
Drug Imitrex Zomig Maxalt Amerge Frova Axert Relpax Generic name sumatriptan zolmitriptan rizatriptan naratriptan frovatriptan almotriptan eletriptan Company GlaxoSmithKline AstraZeneca Merck GlaxoSmithKline Endo JNJ Pfizer Approved 1997 1997 1998 1998 2001 2001 2002 Formulations Oral, nasal, inject. Oral, nasal Oral Oral Oral Oral Oral
Source: Company reports, IMS
Pfizers Relpax Shows Slow Growth As Well

As of January 2009, Relpax (eletriptan) held a 10.6% total U.S. prescription share of the migraine market, down from 11.7% in January 2008. Relpaxs label states that the drug is effective at doses of 20mg, 40mg and 80mg, but that the maximum recommended single dose is 40mg due to cardiovascular concerns at higher doses. Pfizer has completed two studies, one using an 80mg dose and another using a 40mg dose, demonstrating Relpaxs superiority to Imitrex. A Phase IV study of Relpax for the treatment and prevention of MRM is ongoing. We estimate Relpax sales of $330MM (+3%) in 2009, $340MM in 2010, $300MM in 2013 and $200MM in 2015.
GSKs Amerge Retains Migraine Niche For 2009

Amerge (naratriptan) has a higher oral bioavailability, a longer half-life (6 hours vs. 2.5 hours for Imitrex), and increased lipophilicity compared with Imitrex. Given its kinetic profile, GlaxoSmithKline conducted trials with Amerge looking at peak headache relief at 4 hours, rather than the standard 2 hours. Amerge is associated with fewer adverse reactions than Imitrex; however, it takes longer to work (onset of relief at 60 minutes vs. 30 minutes for Imitrex tablets), therefore Amerge is only useful in patients with migraines that build over several hours. Amerges label includes cardiovascular class warnings and additional contraindications in severe renal or hepatic impairment not in Imitrexs label, which has clipped use of the drug. As of January 2009, Amerge held a 1.7% total U.S prescription share of the migraine market, down 10 basis points from
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January 2008. Amerge loses U.S. patent protection in July 2010. We estimate annual U.S. Amerge sales of $65MM in 2009, falling to $2MM in 2012 due to the anticipated launch of generics.
J&Js Axert Is Undifferentiated

Axert (almotriptan) was launched in 2001 for the treatment of migraine with or without aura, and relieves pain from migraine within two hours post dosing. The side-effect profile is similar to other triptans. Given lack of differentiation, Axert use has been limited. As of January 2009, Axert held a 2.3% total U.S. prescription share of the migraine market, flat Y/Y since January 2008. We estimate annual U.S. sales of $5055MM in 2009-2013 for Axert.
FDA Rejects Frova For MM Indication

Frova (frovatriptan) is a long-acting triptan indicated for the treatment of acute migraine attacks in adults. Frova is differentiated by a longer half-life than the competitive agents (23 hours, 3-4 times that of other triptans), which results in longer duration of action and a lower migraine recurrence rate. In 1,600 patients studied in Frovas Phase II/III clinical package, the reported migraine recurrence rate for Frova is 9-14%, versus 17-40% for other triptans. This low recurrence rate could carve a niche for Frova as an earlier-use agent, as a migraine prophylaxis for patients subject to migraine aura prior to onset of the headache. The downside to Frova is its relatively slow onset of action, so patients with a pre-migraine aura are the most suitable treatment candidates. In July 2006, Endo submitted the sNDA for Frova for the short-term (6 days/month) prevention of menstrual migraine (MM). In October 2007, Endo/Vernalis announced the receipt of a non-approvable letter from the FDA for the MM indication. The sNDA was supported by two pivotal studies conducted in women suffering from MM - the results from both of these trials were positive. The FDA also noted that, although serious cardiovascular events were not observed in the MM Phase III trials, an increased risk of cardiovascular events in a chronic-use dosing regimen (relative to the approved acute-use dosing regimen) could not be ruled out. Endo has abandoned the development of Frova for the MM indication. As of January 2009, Frova held a 2.6% share of the U.S. migraine market, flat since January 2008. We estimate Frova sales of $62MM (+6%) in 2009, $65MM in 2009, $70MM in 2011, and $80MM in 2013.
GSK/Pozens Treximet Off To A Slow Start

GlaxoSmithKline (GSK) and Pozen received FDA approval of Treximet for the acute treatment of migraine attacks with or without aura in adults in April 2008. Treximet is a co-formulation of 85 mg sumatriptan (Imitrex) and 500 mg naproxen sodium. Treximet has demonstrated superiority over its individual components in two large Phase III migraine trials. Treximet provided a significantly greater percentage of patients migraine pain relief at two hours compared to Imitrex 85 mg or naproxen sodium 500 mg alone. In addition, Treximet provided more patients sustained migraine pain relief from two to 24 hours compared to the individual components. The Treximet coformulation utilizes GlaxoSmithKlines proprietary Rapid Release Technology (RT) and is protected by Pozen patents covering combination triptan/NSAID products. Treximet previously received two approvable letters from FDA with questions regarding cardiovascular and genotoxicity respectively, which required resolution prior to this approval. GSK launched Treximet in mid-May and has 6-7 months to build a market ahead of the late-November launch of generic sumatriptan (Imitrex) by Dr Reddys under a
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settlement agreement. (Dr. Reddys will have approximately two months of exclusivity prior to additional generics arriving in mid-January 2009.) GSK has priced Treximet at a 10% discount to Imitrex (AWP of $165.32 per 9 pills for Treximet versus $183.79 for Imitrex). That price discount has not been enough to entice formulary coverage of Treximet within 6-7 months of the arrival of generic Imitrex. Indeed, managed care reimbursement resistance has slowed the Treximet rollout: we project Treximet sales of 50MM in 2009, 100MM in 2010, 250MM in 2013, and 350MM in 2015. Pozen receives a mid-single-digit royalty (est. at 5%) on Treximet sales through 2009 and a high-teens royalty (est. at 18%) starting in 2010. We project Treximet royalty revenues of $6MM (+62%) in 2009, $27MM in 2010, and $41MM in 2013. Reflecting its concerns about the cardiovascular safety profile of Treximet (given known cv risks of sumatriptan and naproxen), the FDA imposed a black box cardiovascular risks warning on the Trexima label, in addition to the gastrointestinal warning for the naproxen component (see following text). While this black box warning language is common for naproxen and other NSAIDs, Imitrex does not contain a black box warning. Therefore the warnings may add to managed care reimbursement resistance for Trexima.
TRIMEXET BLACK BOX WARNING
WARNINGS Cardiovascular Risk: TREXIMET may cause an increased risk of serious cardiovascular thrombotic events, myocardial infarction, and stroke, which can be fatal. This risk may increase with duration of use. Patients with cardiovascular disease or risk factors for cardiovascular disease may be at greater risk (see WARNINGS: Cardiovascular Effects). Gastrointestinal Risk: TREXIMET contains a nonsteroidal anti-inflammatory drug (NSAID). NSAID-containing products cause an increased risk of serious gastrointestinal adverse events including bleeding, ulceration, and perforation of the stomach or intestines, which can be fatal. These events can occur at any time during use and without warning symptoms. Elderly patients are at greater risk for serious gastrointestinal events (see WARNINGS: Risk of Gastrointestinal Ulceration, Bleeding, and Perforation With Nonsteroidal Anti-inflammatory Drug Therapy).
Source: Treximet Label
Treximet Phase III Data Demonstrated Advantage Of Combination In February 2005, Pozen announced results from the 1,400-patient Phase III 301 study of Treximet which randomized patients 1:1:1:1 to Treximet, Imitrex, naproxen or placebo. Treximet demonstrated superiority over Imitrex and naproxen in the primary endpoint of sustained 24-hour pain-free response (p<0.001). In addition, aside from the rate of nausea relief at two hours, all other regulatory endpoints (including pain relief, photophobia, and phonophobia) were met (p<0.001). Treximet did surpass the placebo arm for nausea at three hours and maintained superiority through 24 hours, although the benefit at two hours was not statistically significant. In April 2005, Pozen announced results from the second 1,400-patient Phase III 302 study that randomized patients 1:1:1:1 to Treximet, Imitrex, naproxen, or placebo. Treximet demonstrated superiority over Imitrex and naproxen in the individual components of the primary endpoint and met the regulatory endpoints for a new migraine product. Specifically, sustained 24-hour pain-free response was superior for Treximet versus Imitrex (p=0.009) and naproxen (p<0.001). Treximet was also superior to placebo at two hours
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with regard to pain relief (p<0.001), nausea (p=0.007), photophobia (p<0.001), and phonophobia (p<0.001).
SUMMARY OF TREXIMET STUDY 301 RESULTS

Sumatriptan 85mg (n=361) 55% Naproxen Sodium 500mg (n=356) 44%
TREXIMET (n=364) 2-hour pain relief Vs. placebo Vs. sumatriptan Vs. naproxen sodium 24-hour pain relief Vs. placebo Vs. sumatriptan Vs. naproxen sodium 2 hour nausea* Vs. placebo Vs. sumatriptan Vs. naproxen sodium 2-hour photophobia Vs. placebo 2-hour phonophobia Vs. placebo 65% p<0.01 p<0.05 NS 25% p<0.01 p<0.01 p<0.01 NA NS NS NS NA p<0.01 NA p<0.01
Placebo (n=360) 28%
16%
10%
8%
NA
NA
NA
NA
NA
NA
NA
NA
NA
Source: Package insert, Company data * None of the treatment groups beat placebo in the 2-hour nausea endpoint
SUMMARY OF TREXIMET STUDY 302 RESULTS

Sumatriptan 85mg (n=362) 50% Naproxen Sodium 500mg (n=364) 43%
TREXIMET (n=362) 2-hour pain relief Vs. placebo Vs. sumatriptan Vs. naproxen sodium 24-hour pain relief Vs. placebo Vs. sumatriptan Vs. naproxen sodium 2 hour nausea* Vs. placebo Vs. sumatriptan Vs. naproxen sodium 2-hour photophobia Vs. placebo 2-hour phonophobia Vs. placebo 57% p<0.01 p<0.05 NS 23% p<0.01 p<0.01 p<0.01 NA p<0.05 NS NS NA p<0.01 NA p<0.01
Placebo (n=382) 29%
14%
10%
7%
NA
NA
NA
NA
NA
NA
NA
NA
NA
Source: Package insert, Company data
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Treximets Managed Care Adoption Likely To Remain Modest

FDA approved Treximet for the acute treatment of migraine attacks with or without aura in adults in April 2008. Treximet, a co-formulation of 85 mg sumatriptan (Imitrex) and 500 mg naproxen sodium uses GlaxoSmithKlines RT Technology. Treximet has demonstrated superiority over its individual components in two large Phase III migraine trials. Treximet provided a significantly greater percentage of patients migraine pain relief at two hours compared to Imitrex 85 mg or naproxen sodium 500 mg alone. In addition, Treximet provided more patients sustained migraine pain relief from two to 24 hours compared to the individual components. The Treximet coformulation is protected by Pozen patents covering combination triptan/NSAID products. Treximet previously received two approvable letters from FDA with questions regarding cardiovascular and genotoxicity respectively, which required resolution prior to this approval. GlaxoSmithKline launched Treximet in May 2008, 6-7 months ahead of the lateNovember launch of generic Imitrex (25mg, 50mg, and 100mg) by Dr. Reddys under a settlement agreement. Dr. Reddys had approximately two months of exclusivity prior to additional generics in mid-Jaunary 2009. While GlaxoSmithKline priced Treximet at a discount to Imitrex, managed care reimbursement resistance has slowed the Treximet rollout.
Valeants D.H.E. 45 And Migranal Remain Second-Line Therapies

D.H.E. 45 is an injectable, and Migranal is a nasal spray formulation, of dihydroergotamine (D.H.E.). D.H.E. has been available since 1945 as an injectable. In head-to-head trials, D.H.E. 45 has been shown to be as effective as injectable Imitrex, and patients who cannot tolerate Imitrex sometimes tolerate D.H.E. 45. Clinical trial data suggest that Imitrex has a 40% migraine recurrence rate while DHE has an 18% recurrence rate. Valeant Pharmaceuticals acquired the rights to both products via its March 2005 acquisition of Xcel Pharmaceuticals. The nasal formulation provides broad receptor coverage, acting on central and peripheral pain-related areas of the brain. In clinical trials, Migranal demonstrated resolution of migraine within 30 minutes of treatment in 27% of patients, with 86% of patients reporting no recurrence of migraine for 24 hours following treatment. As of January 2009, D.H.E. 45/Migranal held a 0.4% total U.S. prescription share of the migraine market. We project combined annual sales of $15-20MM annually in 2009-2013.
Telcagepant (MK-0974) A Novel Approach For Migraine

Telcagepant is a first-in-class oral CGRP receptor antagonist in Phase III development. Telcagepant demonstrates significant migraine relief two hours post dosing compared to placebo, with sustained relief at 24-hours. An NDA filing is anticipated in 2009. Calcitonin-gene related peptide (CGRP) and its receptors are found in areas of the central and peripheral nervous system that are important for the transmission of migraine pain. During migraine attacks, CGRP activates these receptors and facilitates the transmission of pain impulses. Triptans (e.g., Maxalt, Zomig, Imitrex, etc) block the release of CGRP while telcagepant blocks the binding of CGRP to receptors within these areas and thereby is believed to inhibit the transmission of pain signals that lead to migraine headaches. Triptans, however, have affinity for 5-HT1B 1D, and 1F which not only results in cerebrovascular vasoconstriction but also cardiovascular vasoconstriction resulting in changes in blood pressure and heart rate. CGRP receptor antagonists are
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reported to only act centrally and therefore have a potential safety advantage over the triptans. Our physician consultants are very excited about MK-0794s efficacy and safety. The lack of dose-response at high doses is probably a result of CGRP receptor saturation at 300 mg with other pathways likely also playing a role in migraine. The Phase III program is assessing 50, 100, and 150mg doses with the Phase III study in acute migraine honing in on the 150 and 300 mg doses. Merck is conducting Phase I treadmill studies with high-risk CV patients to demonstrate no CV impact. These data will be submitted as part of the NDA filing. Should telcagepant eventually be approved, a label without a black box warning for CV side effects will be essential at a time when generic triptans are available. Our clinical consultants do not know of any dose-limiting toxicity, and abnormal skin sensations seen with Boerhinger-Ingelheims intravenous CGRP antagonist have not been replicated. This safety profile, together with telcagepants superior efficacy at 24-hours, may expand the migraine treatment market, taking share from 1st line opiates. In addition, telcagepant will capture significant share from triptans and be used in triptan failures. In December 2008, Merck revealed MK3207, a follow-on CGRP receptor antagonist, a distinct molecule, significantly more potent, and has central CGRP receptor activity. The improved potency would support multiple formulation and single-tablet combinations. A Phase III program is planned for 2009 but Merck will evaluate the clinical relevance of MK-3207s central CGRP receptor activity to determine whether to advance. We forecast telcagepant sales of $50MM in 2010, $250MM in 2011, $750MM in 2013, and $1.25B in 2015. New Phase III Data Confirm Profile New Phase III data were presented at the European Headache/Migraine Trust International Congress in September 2008. The data confirmed telcagepants effectiveness (table below) and safety profile. Rates of overall adverse events observed (within 14 days post-dose) in patients treated with telcagepant 300 mg (36.2%) or 150 mg (32.0%) were similar to placebo (32.2%). The most common side effects reported in patients treated with telcagepant were fatigue (6.8 %/300 mg and 3.9%/150 mg vs. 3.8%/placebo), dizziness (5.4%/300 mg and 2.4% for 150 mg vs. 3.3%/placebo), dry mouth (5.1%/300 mg and 4.5% for 150 mg vs. 5.2%/placebo), nausea (5.1%/300 mg and 3.4%/150 mg vs. 5.5%/placebo), upper abdominal pain (3.2%/300 mg and 1.0%/150 mg vs.1.6%/placebo) and somnolence (2.7%/300 mg and 3.7%/150 mg vs. 3.0%/placebo). There were no reports of serious drug-related adverse events in the study.
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Phase III Telcagepant Migraine Data Telcagepant 300mg 371 Telcagepant 150mg 381 Telcagepant 50mg* 177 placebo 365
N Primary endpoints (2 hour post dose) Pain freedom Pain relief Two-hour pain freedom (%) Absence of phonophobia (%) Absence of photophobia (%) Absence of nausea (%)
55.6 23.8 55.8 48.5 69.9
53.9 23.2 50.5 46.3 68.6
NG NG NG NG NG NG
10.7 32.9 10 41.6 32.6 53.7
significantly greater than placebo for all five primary endpoints in the study p<0.001 significantly greater than placebo for all five primary endpoints in the study p<0.001 except p<0.050 on phonophobia * Not significant NG = not given
Phase III Data Confirm Telcagepants Robust Efficacy In this randomized, double-blind, Phase III clinical trial presented at AHS 2008, patients (age 18 yrs) with IHS migraine were allocated to treat a single moderate or severe migraine attack with oral telcagepant 150 mg, telcagepant 300 mg, Zomig 5 mg, or placebo. The primary endpoints were pain relief (reduction to mild or none) and freedom from pain, photophobia, phonophobia, and nausea, all at 2 hours post dose. In addition, 2-24 hour sustained pain free (pain-free from 2-24 hours postdose without REMOVE SPACE use of a second study dose or rescue medication) was assessed. Tolerability was evaluated by adverse event reports. The numbers of patients treated were: telcagepant 150 mg: N=333; telcagepant 300 mg: N=354; Zomig 5 mg: N=345; and placebo: N=348. Based on the pre-specified testing strategy, telcagepant 300 mg was significantly more effective than placebo on all five primary 2 hour endpoints (p = 0.006 for freedom from nausea and p<0.001 for all other primary endpoints and 2-24 h sustained pain free).
P h a s e III T e lc a g e p a n t M ig r a in e D a ta T e lc a g e p a n t 300m g 354 55 27 58 51 65 Z o m ig 345 56 31 55 50 71 p la c e b o 348 28 10 37 29 55
N P a in r e lie f a t tw o h o u r s ( % ) T w o -h o u r p a in fr e e d o m (% ) A b s e n c e o f p h o n o p h o b ia (% ) A b s e n c e o f p h o to p h o b ia (% ) A b s e n c e o f n a u s e a (% )
Source: AHS; Company data
Significant differences were also seen for telcagepant 150 mg versus placebo (p 0.005) and Zomig 5 mg versus placebo (p 0.001). The efficacy of telcagepant 300 mg was comparable to that of Zomig 5 mg; telcagepant 150 mg was slightly less effective than both telcagepant 300 mg and Zomig 5 mg. Both doses of telcagepant and Zomig were generally well tolerated. For telcagepant 150 mg, 300 mg, Zomig 5 mg and placebo respectively, the overall rates of adverse events were 31.4%, 37.2%, 50.7% and 32.1%; the rates of drug-related adverse events were 21%, 24.7%, 40.9%, and 18.6%. The most common side effects occurring in patients treated with telcagepant were dry mouth (6
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percent), dizziness (5 percent), somnolence (5 percent), nausea (5 percent) and fatigue (4 percent). There were no reports of serious adverse events in the telcagepant or Zomig treatment arms. Telcagepants CV Safety Profile Encouraging Data from a 28-patient study with a history of stable CAD disease were presented at AHS 2008. Patients received two double-blind doses of telcagepant 300 mg 2 hours apart or placebo, with a minimum 5-day washout between periods. In addition to clinical and laboratory evaluations, spontaneous ischemic events were quantified using continuous high-fidelity digital 12-lead ECG monitoring during each treatment period and analyzed in a blinded eECG core laboratory. Each patient was their own control; ST event = >1mm ST deviation lasting >1 minute. There were 13 (46.4%) prior PCI, 10 (35.7%) prior MI and 8 (28.6%) prior CABG patients. Ischemic ST events occurred in 3 patients, in 2 during the placebo period (total duration 16.98 and 33.02 minutes) and in 1 patient following administration of telcagepant (total duration 16.00 minutes). No patients experienced an SAE during the conduct of this study. There were no AEs of chest pain on the day of dosing telcagepant or placebo. There were no consistent treatment-related changes in laboratory, vital-signs or ECG safety parameters. Interaction With Nitroglycerine Not Significant Twenty-two healthy male volunteers participated in a randomized, double-blind, 2period, cross-over study. Subjects received a single dose of 500 mg telcagepant or placebo orally followed, 1.5 hours later, by 0.4 mg sublingual NTG. To assess the hemodynamic response to NTG, central augmentation index (AIx), a measure of arterial stiffness, and brachial artery diameter (BAD) were measured. Measurements were performed pre-NTG (i.e. 1.5 hours after telcagepant /placebo) and post-NTG: at 6 and 8 minutes for AIx and at 2, 3, 4 and 5 minutes for BAD, respectively. For further analysis, the measurements from the time-point with maximal NTG effect were used. For AIx, the mean decrease from baseline (pre-NTG) and corresponding 95% confidence interval (95% CI) were calculated, whereas for BAD the mean fold-change from baseline with 95% CI was used. Results were as follows:
Source: Cowen and Company reports
Zogenix Sumatriptan DosePro Seeking FDA Approval in 2009

In August 2006, DosePro (formerly Intraject) sumatriptan (needle-free injection) was acquired by privately-held Zogenix from Aradigm. The DosePro drug-device combination delivers sumatriptan subcutaneously for the treatment of migraine and cluster headache. In December 2007, Zogenix filed an NDA for DosePro sumatriptan. In June 2005, Aradigm released positive top-line results from a self-injection study of DosePro sumatriptan. The trial demonstrated that patients could successfully treat themselves using the DosePro delivery approach, and that bioequivalent blood plasma
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levels achieved using DosePro sumatriptan were equivalent to the currently marketed subcutaneous needle-injected product. Zogenix anticipates FDA approval and launch for sumatriptan DosePro in 2009.
Botox Phase III Migraine Data Looks Promising

Allergans Botox is in Phase III development for the chronic treatment of migraine. Botoxs method of action is the suppression of the release of neurotransmitters, many of which are believed to be responsible for pain associated with headache. Our consultants indicate that Botox is already commonly used off label for the treatment of chronic daily headache (CDH). It is estimated that 12 to 15MM people in the U.S. suffer from CDH, which is defined as disabling headaches occurring on 16 or more days per month. There are no FDA-approved treatments with an indication for the prophylactic treatment of CDH. Classes of existing drugs often used off label for the treatment of CDH include beta-blockers, Ca-channel blockers, serotonin antagonists, antidepressants, NSAIDs, and antiepileptics. Our consultants believe Botox has significant potential in this area, and could become the first-line therapy for those patients with chronic daily headache or chronic migraine. Allergan plans to submit a supplemental BLA for Botox in this indication by mid-2009. Two Phase III studies have been conducted, with each trial enrolling 650 patients. For inclusion in the studies, patients needed to have had 15 headache days per month the previous month, or on average suffered from at least one migraine every other day. Patients were randomly assigned to treatment with Botox or placebo injections every 12 weeks. In September 2008, Allergan released top-line Phase III clinical trial data of Botox for the prophylactic treatment of chronic migraine and showed a statistically significant decrease in the number of headache days at 24 weeks. In the first trial, the primary endpoint was a reduction in the frequency of headache episodes. The study failed to meet its primary endpoint but met its secondary endpoint of frequency of headache days. The primary analysis was performed at week 24, following two treatment cycles. In the second study, Allergan switched the primary endpoint from frequency of headache episodes to number of days of headache prior to unblinding the results. Allergan indicates that the second study met this new primary endpoint and showed a decrease in the number of headache days that was significantly greater in patients receiving Botox than in patients receiving placebo (p<0.001). Allergan has indicated that it believes the FDAs preferred endpoint has been number of days of headache rather than the frequency and therefore, this transition of endpoints should not be problematic. Our physician consultants agree that number of days of headache is a better endpoint. However, they remain cautious on how the FDA will approach the first trial, even though it met the secondary endpoint of the number of days of headache. Given the regulatory environment, they believe the FDA might require a study similar to the second trial, which would take about 12-15 months. Our consultants believe that the data would provide an important look at whether the statistical significance achieved in the Botox study is clinically relevant rather than only statistically significant. For example, hypothetically speaking, our consultants note that a change in headache days from 22 to 18 (note: hypothetical only, not reflective of what might happen in the trial) might be statistically significant while a change in headache days from 22 to 14 might be clinically relevant (again, our consultants are using these numbers only to highlight a point). Allergan met with the FDA in December 2008 to seek further guidance on its regulatory strategy but we do not have clarity on the filing timing or the nature of the discussions with the agency. At this point we have no opinion on the likely outcome of that meeting but believe from our consultants perspective that the studies should indeed be sufficient.
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Phase II Results Were Positive In April 2005, Allergan released top-line results from a pilot Phase II study. The results from a 355-patient, double-blind, placebo-controlled Phase II study were mixed. Patients experiencing CDH for 16 or more of the past 30 days, and at least one of those headaches was a migraine, were enrolled in the trial. Patients were randomized to receive either Botox (dose range 106 to 260 units) or placebo; receiving one treatment every three months. Each patient received three treatments and the entire trial lasted nine months. The Botox treatments were generally well tolerated, with 2.3% (4/173) of patients dropping out due to treatment-related adverse events; the most common being muscular weakness (22%) and neck pain (13.3%). The primary efficacy measure was change from baseline in the number of headache-free days. Botox did not reach statistical significance on the primary endpoint (Botox = 6.7 days and placebo = 5.2 days; p=0.3). However, Botox did achieve statistical significance on a number of secondary endpoints, including the absolute number of headaches, frequency of headache-free days, and reduction in the use of acute medications to treat headache symptoms. At day 180, Botox-treated patients experienced significantly (p=0.001) fewer headaches (average of 7.1 fewer headaches per 30 days) compared to those on placebo (3.7 fewer headaches per 30 days). Some factors, such as simultaneous use of other headache medications, make achieving statistical significance in headache/ migraine trials difficult. Allergan is already gaining some initial experience in marketing in the migraine indication. In June 2005, Allergan entered into an agreement with GlaxoSmithKline to co-promote GSK's Imitrex STATdose and Amerge in the U.S. The agreement is for a 5year period. Imitrex STATdose is approved for the treatment of acute migraine in adults and for the acute treatment of cluster headache episodes, while Amerge tablets are approved for the acute treatment of migraine attacks with and without an aura in adults. Allergan is receiving both fixed and performance payments from GSK. This marketing effort will serve as the base if and when Botox is approved in this indication.
Why Botox May Be An Effective Migraine Treatment
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Minsters Tonabersat Is In Phase II

In January 2007, Minster Pharmaceuticals plc released positive top-line Phase IIa results for tonabersat, a novel gap junction blocker. In October 2007, Minster initiated a Phase IIb study of tonabersat. Tonabersat acquired worldwide development rights of tonabersat from GlaxoSmithKine. Tonabersat was originally in development as an anticonvulsant, and Minster has obtained the rights to the product in epilepsy and pain, as well as migraine. In the 3-month Phase IIa study, tonabersat achieved a 62% response compared to 45% for placebo (p<0.05). The need for rescue medication was reduced by 60% for those patients taking tonabersat vs. 34% for those patients receiving placebo (p=0.02). Migraine with aura is characterized as migraine headache followed by visual disturbances and compromises to hearing and speech. Approximately 30% of migraine patients are afflicted with aura symptoms. In February 2009, Minster announced that while tonabersat was well tolerated, it did not meet its Phase IIb primary endpoint in the reduced number of migraine attacks suffered during the final 2 months of treatment for the study. Data pertaining to the secondary endpoints, including a reduction in mean monthly migraine attacks during the final 4 months of treatment, have not been reported. Minster will continue to evaluate tonabersat for the treatment of migraine with aura as well as two new potential indications, epilepsy and neuropathic pain.
Phase IIb Initiated For Addexs Migraine Treatment ADX10059

In April 2007, Addex Pharmaceuticals announced positive top-line Phase IIa results for ADX10059, a novel, selective, negative allosteric modulator (NAM) of the metabotropic glutamate receptor-5 (mGluR5). The 129-patient placebo-controlled Phase IIa study achieved its primary endpoint, the absence of pain at two hours post dosing. At two hours post-dose, 16.1% of patients treated with ADX10059 were pain-free compared to 4.1 of those patients receiving placebo (p=0.039). Subsequent to the completion of the Phase IIa trial, Addex decided to develop ADX10059 as a first in class prophylactic treatment for migraine rather than an acute treatment. Addex believes that inhibiting mGluR with an allosteric modulator has the potential to address the cause of migraine before an attack comes on, versus offer a treatment to relieve the symptoms of migraine. In December 2008, Addex initiated a dose-ranging, placebo-controlled Phase IIb study of ADX10059 for the prevention of migraine in 300 patients that suffer 3 or more migraine attacks per month. The primary endpoint for the trial will compare migraine intensity and frequency in the final month of treatment to baseline. Secondary endpoints of the study will measure migraine severity, migraine duration, occurrence of aura, and functional impairment. Results of the trial are expected in Q1:2010.
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ESTIMATED U.S. MIGRAINE TREATMENT MARKET DYNAMICS 2007 Migraine - TRx's (MM) TRx Growth Imitrex (GSK) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Treximet (GSK/POZN) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Imitrex Generics Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Maxalt/MLT (MRK) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Zomig (AZN) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Relpax (PFE) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Frova (ENDP) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Amerge (GSK) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Axert (JNJ) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Telcagepant (MRK) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Others Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth 11% 1.5 $14.94 $200 $2,403 +28% 5% 0.7 $15.50 $100 $2,518 +5% 6% 0.9 $15.50 $120 $1,707 -32% 15% 2.0 $20.03 $361 10% 1.3 $15.41 $179 12% 1.6 $15.43 $217 2% 0.3 $18.60 $52 2% 0.3 $24.57 $61 3% 0.4 $18.43 $63 13.2 +1% 45% 5.9 $23.90 $1,269 2008 14.6 +10% 42% 6.1 $23.00 $1,260 2% 0.3 $18.00 $45 7% 1.0 $11.00 $100 16% 2.3 $20.00 $419 10% 1.4 $15.00 $193 12% 1.7 $14.50 $220 2% 0.3 $18.50 $58 2% 0.3 $22.00 $63 3% 0.4 $18.00 $60 2009E 14.4 -1% 3% 0.4 $21.00 $75 5% 0.7 $18.00 $120 39% 5.6 $7.50 $375 19% 2.8 $18.00 $450 11% 1.6 $15.00 $210 12% 1.7 $14.50 $225 3% 0.4 $18.50 $62 1% 0.2 $18.00 $30 2% 0.2 $18.00 $40 2010E 14.1 -2% 1% 0.2 $20.00 $30 7% 0.9 $18.00 $150 30% 4.3 $6.50 $250 22% 3.1 $17.00 $480 12% 1.6 $15.00 $220 13% 1.8 $14.50 $235 3% 0.4 $18.50 $65 1% 0.1 $14.00 $15 2% 0.2 $18.00 $38 3% 0.4 $15.00 $50 8% 1.1 $15.50 $150 $1,683 -1% 2011E 14.6 +3% 1% 0.1 $20.00 $15 8% 1.1 $18.00 $180 23% 3.3 $6.00 $180 23% 3.3 $17.00 $510 12% 1.7 $15.00 $230 13% 1.9 $14.50 $245 3% 0.4 $18.50 $70 0% 0.0 $14.00 $5 1% 0.2 $18.00 $35 11% 1.6 $15.00 $210 6% 0.9 $17.00 $140 $1,820 +8% 2012E 15.5 +6% 0% 0.0 $20.00 $5 8% 1.3 $18.00 $210 17% 2.7 $5.00 $120 23% 3.5 $17.00 $540 12% 1.8 $15.00 $240 13% 2.0 $14.50 $255 3% 0.5 $18.50 $75 0% 0.0 $14.00 $2 1% 0.2 $18.00 $35 18% 2.8 $16.00 $400 5% 0.7 $18.00 $120 $2,002 +10% 2013E 16.0 +4% 0% 0.0 $20.00 $5 9% 1.4 $18.00 $225 14% 2.2 $5.00 $100 23% 3.8 $17.00 $575 12% 1.9 $15.00 $250 11% 1.8 $14.50 $230 3% 0.5 $18.50 $80 0% 0.0 $14.00 $2 1% 0.2 $18.00 $30 22% 3.5 $16.00 $500 5% 0.9 $15.50 $120 $2,117 +6% 2014E 16.3 +2% 0% 0.0 $20.00 $5 9% 1.5 $18.00 $250 14% 2.2 $5.00 $100 19% 3.2 $14.00 $400 12% 1.9 $15.00 $260 9% 1.5 $14.50 $200 3% 0.5 $18.50 $85 0% 0.0 $14.00 $2 1% 0.2 $18.00 $25 25% 4.0 $16.00 $575 7% 1.2 $13.00 $140 $2,042 -4% 2015E 16.1 -1% 0% 0.0 $20.00 $5 11% 1.7 $18.00 $275 14% 2.2 $5.00 $100 13% 2.0 $11.00 $200 12% 2.0 $15.00 $270 8% 1.3 $14.50 $165 3% 0.5 $18.50 $90 0% 0.0 $14.00 $2 1% 0.1 $18.00 $20 28% 4.5 $16.00 $650 10% 1.7 $10.00 $150 $1,927 -6% CGR 08-15 Comments +1% - Modest decline projected - Sumatriptan; 5-HT1 agonist - Generics clip in Q4:08 via settlement with Dr. Reddy's - Assume GSK ramps price to push Trexima conversion
-54% -55%
- Sumatriptan/naproxen co-formulation +29% - Approved 4/2008, Launched 5/2008 - Priced at a 10%+ discount to Imitrex +29% - Sumatriptan +12% - Settlement with Dr. Reddy's allows for launch in late Q4:08 - Add'n generics expected in Feb. 2009 (exclusivity expires) +0% -2% -10% +5% +5% - Eletriptan -4% -4% +6% +6% -35% -39% - Almotriptan -15% -15% - Calcitonin gene-related peptide antagonist - In Phase III trials - Long duration of action; clean CV profile - Naratriptan - Patent expires July 2010 - Frovatriptan - Menstrual migraine sNDA "non-approvable" - Zolmitriptan - Includes tablet, ODT, and nasal spray formulations - Approved 10/06 - Rizatriptan - Includes oral disintegrating tablet formulation
+13% - Includes multiple other brand/generic migraine products +6% -4% - Imitrex generics clipped Q4:08
Source: Company reports, IMS Health, Cowen and Company
KEY PATENT EXPIRATIONS: MIGRAINE CATEGORY

Drug Amerge Zomig Relpax Maxalt Axert Frova Manufacturer GlaxoSmithKline AstraZeneca Pfizer Merck JNJ Endo Patent Expiration 7/10 4/13 8/13 2/14 5/15 11/15
Source: FDA Orange Book
U.S. CENTRAL NERVOUS SYSTEM MARKET

Total Prescriptions (000's) 1987* 112,211 40,194 6,215 543 34,033 204,327 2008 252,617 219,566 110,982 80,973 19,920 93,287 777,345 2009E 252,000 221,000 110,000 80,000 25,000 90,000 778,000 2013P 189,000 139,000 56,000 82,000 33,000 56,000 555,000 1987* 55% 20% 3% 17% 100% % Market Share 2008 2009E 32% 32% 28% 28% 14% 14% 10% 10% 3% 3% 12% 12% 100% 100% CGR 2013P '87-08 '08-13 34% NA -6% 25% +3% -9% 10% +5% -13% 15% +13% +0% 6% NA +11% 10% +5% -10% 100% +7% -7%
SSRI's/SNRI's Tranquilizers Other Antidepressants Antipsychotics Migraine Other CNS Total
* 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates
441
CENTRAL NERVOUS SYSTEM R&D PIPELINE

Company Eisai Product Rufinamide PC I II III NDA . MKT Comments E2080; adjunctive treatment of seizures associated with Lennox-Gastaut Eli Lilly Symbyax Q3:06 Syndrome in patients 4 years and older Treatment-resistant depression without psychotic features; additional data required Eli Lilly Zyprexa Q2:07 Adolescent schizophrenia and bipolar disorder; complete response in Q2:08 to FDA's non-approvable decision for long-acting injection GlaxoSmithKline Lunivia Jul-07 Insomnia; in the EU; CHMP positive opinion on October 24, 2008; with Sepracor Johnson & Johnson Johnson & Johnson Mitsubishi Tanabe Tanabe Novartis Extavia Jun-08 NVF-233; betaseron; multiple sclerosis; from Chiron; approved in EU; U.S. filing June 2008 Sanofi-Aventis ScheringPlough Ciltyri Bridion . Q4:07 insomnia (Sugammadex) First "selective relaxant binding agent" neuromuscular block; non-approvable letter from FDA August 2008, SGP to address hypersensitivity/allergic Sepracor Lunesta . Jul-07 Insomnia; positive EMEA ruling, (SRBA), a new class of agents to reverse Eplivanserine; 5HT2 antagonist; chronic Mitsubishi Paliperidone palmitate IM Ceredist Modiodal Jul-08 May-08 Feb-09 Dapoxetine Dec-07 SSRI; premature ejaculation; refiled in U.S.; first EU approvals in February 2009 Schizophrenia; resubmitted in U.S. February 2009 Taltirelin hydrate; spinocerebellar degeneration Modafinil; obstructive sleep apnea
reactions issues at FDA; from Organon partnered with GSK; Phase III trials in Japan initiated in 2007; partnered with Eisai in Japan, filing targeted for 2010/2011 Shire Intuniv Aug-06 SPD-503; modified release of guanfacine, a non-stimulant; nonscheduled treatment for ADHD; FDA approvable letter June 2007 Wyeth Johnson & Effexor XR Carisbamate . 2007 Oct-08 Major depressive disorder; Japan Epilepsy; licensed from SK-Bio
442

Company Johnson AstraZeneca Seroquel . Feb-08 Product PC I II III NDA MKT Comments Pharmaceuticals Filed In EU for bipolar maintenance, depression; filed in U.S. for treatment of schizophrenia and bipolar I disorder in adolescent patients AstraZeneca GlaxoSmithKline Seroquel XR Lamictal XR . . Jan-08 Nov-06 Sustained release formulation; filed in U.S. and EU for GAD and MDD Epilepsy - once daily; approvable 9/07, (PIII); complete response filed July 10, 2008 Johnson & Johnson Johnson & Johnson Invega (Paliperidone ER OROS) Risperdal Consta . Apr-08 . Sep-08 Bipolar mania; filed in EU but submission pulled Long-acting injectable filed for bipolar maintenance; with ALKS; deltoid injection ScheringPlough Wyeth Saphris . Nov-07 Asenapine; antipsychotic for schizophrenia and bipolar disorder; via Organon; good tolerability profile Pristiq . . Desvenlafaxine; approved for MDD; filed for treatment of vasomotor symptoms (approvable); EU application withdrawn Eisai Aricept (Donepezil) . . . Alzheimers (acetylcholinesterase inhibitor); filed in U.S for vascular and formulations Pfizer, Inc. Lyrica . . May-08 Pregabalin; filed in Japan for postherpetic neuralgia; filed in EU for fibromyalgia; PIII for epilepsy dementia; PII-III additional indications
partial generalized tonic-clonic seizures
monotherapy; generalized anxiety disorder; post operative pain; PII for restless leg syndrome Takeda Rozerem (TAK375) GlaxoSmithKline Solzira . Jan-09 . Feb-08 Insomnia; approved in U.S.; filed in Europe and Japan; PII in U.S. for circadian rhythm sleep disorder 1838262; gabapentin prodrug; restless leg syndrome (refiled with FDA January 2009), neuropathic pain, migraine prophylaxis Alkermes Astellas Vivitrol - opioid dependence FK-199B . . addiction Zolpidem; modified release; insomnia 28-day depot naltrexone; opioid
443

Company AstraZeneca Bayer Schering Pharma Squibb Daiichi Sankyo SUN Y7017 . Memantine hydrochloride; NMDA receptor antagonist; Alzheimer's disease Eisai Eisai Elan SEP-190 Zonegran Gamma secretase inhibitor Eli Lilly Eli Lilly Eli Lilly Endo Pharmaceuticals Forest Savella . . . . . . 2010 2011 Cymbalta Semagacestat Strattera Pagaclone . . . . H1:09 decade End of Chronic pain LY450139; gamma secretase inhibitor; Phase III Q1:08; Alzheimer's disease Adult indications; EU GABA-A agonist; in development by Teva for treatment of stuttering; from Indevus (Milnacipran) Almorexant Retigabine Rosiglitazone XR Vanquix Dimebon Disease Treatment of fibromyalgia syndrome Insomnia; GSK entered into an agreement with Actelion in July 2008 GlaxoSmithKline GlaxoSmithKline King Pharmaceuticals Medivation Alzheimer's Neuronal potassium channel opener; epilepsy partial seizures Alzheimer's disease Diazepam auto-injector; treatment of acute, repetitive epileptic seizures Positive data from Phase II study conducted in Russia; Phase I U.S. trial in progress; offers symptomatic benefits NMDA receptor antagonism; Pfizer to co-develop and market Merck Mitsubishi Tanabe MK-0974 Anplag (telcagepant) . . 2009 Migraine; CGRP inhibitor; sustained pain free profile; better CV profile Sarpogrelate hydrochloride; 5HT2 antagonist; prevention of recurrence of cerebral infarction
444
Product PN-400 Alemtuzumab Abilify
PC
II
III .
NDA H2:09
MKT
Comments Naproxen + esomeprazole; OA, RA and AS symptoms; with Pozen Multiple sclerosis Autism
. .
Bristol-Myers
. . .
Insomnia; Japan Epilepsy monotherapy; pediatric indication; generalized epilepsy; Europe Alzheimer's disease; with Eli Lilly
Laboratories GlaxoSmithKline
(FMS) in combination with pregabalin
via acetylcholinesterase inhibition and

Company Novartis Product Agomelatine PC I II III . NDA 2009 MKT Comments AGO178; major depressive disorder; U.S. rights only; liver toxicity may block in development to avoid first pass Novartis FTY720 . Q4:09 Multiple sclerosis; FREEDOMS and data solid Novartis Pfizer, Inc. Sanofi-Aventis Stalevo Geodon Saredutant (SR48968) . . . H2:08 Parkinson's disease in patients requiring initiation of levodopa therapy bipolar depression Bipolar relapse prevention; adjunct NK2 antagonist; depressive disorders and GAD; results from MAGENTA study confirmed product's good long-term safety; however relapse was not Sanofi-Aventis Sanofi-Aventis Volinanserin . . 2010 5-HT2A antagonist; insomnia Modified release of Zolpidem (Stillnox/Ambien); sleep disorders; Japan ScheringPlough Sepracor Shire Shire Dainippon Sumitomo Eisai Eisai E-0302 E-2007 . . . . Stedesa Daytrana Vyvanse SM-13496 . . . . . Q1:09 2010 Exlicarbazepine; Phase III complete; epilepsy via Bial Adolescent ADHD - U.S. Nicotine addiction, U.S.; ADHD EU Lurasidone; schizophrenia; bipolar disorder Amytrophic lateral sclerosis; Japan AMPA receptor antagonist; multiple sclerosis, epilepsy, migraine prophylaxis Eli Lilly Dirucotide . . MBP-8298; multiple sclerosis; PIII for secondary progressive multiple sclerosis (SPMS); PII for relapsing-remitting multiple sclerosis (RRMS); in Mitsubishi Tanabe Sanofi-Aventis Teriflunomide (HMR 1726) . . FTY-720 . . ORG 50081 . Insomnia; from Organon significantly reduced vs. placebo (M100,907) TRANSFORMS programs; TRANSFORMS approval; transdermal and buccal forms
Zolpidem MR
collaboration with BioMS Medical Corp. Sphingosine-1 phosphaste receptor modulator; multiple sclerosis; with NVS Relapsing remitting multiple sclerosis; mono and adjunctive therapy; enrollment in 1,080 patient TEMSO PIII
445

Company Takeda Product SNT-MC17 PC I II . III . NDA MKT Comments trial in monotherapy now complete Idebenone; mitochondria targeted antioxidant; PII in EU for Duchenne muscular dystropy; resubmission under consideration In EU for Friedreich's ataxia; with Santhera Teva Elan Laquinimod Bapineuzumab . . . . . Relapsing multiple sclerosis; PII Crohn's disease; PC lupus nephritis AAB-001; monoclonal antibody; mild to moderate Alzheimer's disease; PIII intravenous formulation; U.S. PIII trial enrollment expected to complete in H1:09; subcutaneous injection formulation in PII trial Mitsubishi Tanabe NeuroSearch Pfizer, Inc. Radicut ACR16 Dimebon . . . . . . 200910 201011 Edaravone; free radical scavenger; treatment of cerebral infarction Astellas for schizophrenia Huntington's disease; Phase I with Positive data from PII study conducted in Russia; PI U.S. trial in progress; offers symptomatic benefits via acetylcholinesterase inhibition and NMDA receptor antagonism; Alzheimers disease (NDA 2010); Medivation Takeda Wyeth Lu AA21004 Bapineuzumab . . . . Bisarylsulphanylamine; mood and anxiety disorders; with Lundbeck AAB-001; anti-A-Beta antibody; with Elan Eli Lilly Abbott Laboratories Alkermes Astellas AstraZeneca AstraZeneca AstraZeneca AstraZeneca Undisclosed ABT-089 ALKS 29 ASP8825 AZD 1940 AZD 2624 AZD 3480 AZD 6765 . . . . . . . . 2012 Migraine Cognition; attention deficit disorder; terminated for Alzheimer's disease alcohol dependence neuropathy Nociceptive and neuropathic pain NK receptor antagonist; schizophrenia Neuronal nicotinic receptor agonist; Alzheimer's disease NMDA receptor antagonist; depression Undisclosed oral combination product; Prodrug of gabapentin; RLS; diabetic
Huntingtons disease (NDA 2009); with
Alzheimer's Disease; PI SC formulation;
446

Company AstraZeneca Bayer Schering Pharma Squibb Daiichi Sankyo Dainippon Sumitomo Elan Elan ACC-001 ELND-005 . . Immunoconjugate vaccine; Alzheimer's disease Beta-amyloid (beta) oligomerization interim look at PII data in Q3:09 Eli Lilly Eli Lilly LY2140023 LY2624803 . . mGlu2/3 prodrug; schizophrenia HY 10275; insomnia; dual mechanism of action; promotes better sleep onset and sleep maintenance; from Hypnion Eli Lilly Eli Lilly Eli Lilly Forest Laboratories OpRA II Solanezumab Undisclosed Cariprazine (RGH-188) . . . . F2011 F2012 Alcoholism A-beta antibody; Alzheimer's disease Migraine D2/D3 receptor antagonist; schizophrenia and bipolar disorder; via Gedeon Richter; PII schizophrenia data mixed; PIIb trial underway; PII bipolar study ongoing Forest Laboratories Levomilnacipran (F2695) . Levo-isomer of milnacipran, being developed for depression and other indications; via Pierre Fabre; entering PIII for depression in H2:09 Forest Laboratories Forest Namenda ER (Memantine) RGH-896 . NMDA antagonist; neuropathic pain; PIII results for ER formulation positive in Q1:08; preparing NDA submission Laboratories GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline . Neuropathic pain; via Gedeon Richter; antagonist 239512 468816 561679 . . . Histamine H3 antagonist; dementia Glycine receptor antagonist; smoking cessation CRF1 antagonist; depression and anxiety NR2B (NMDA receptor subtype) receptor Bristol-Myers Product AZD 7325 Spheramine PexacerfontCRF Antagonists SUN 11031 AC-3933 . . PC I II . . . III NDA 201213 MKT Comments GABA receptor subtype partial agonist; anxiety Parkinson's disease Corticotropin Releasing Factor Receptor Subtype 1 (CRF R1) Antagonist; affective disorders nervosa Human ghrelin; cachexia; anorexia GABA (A) BZ inverse agonist; dementia
inhibitor; with Transition Therapeutics;
447

Company GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline King Pharmaceuticals Medivation Product 649868 681323 742457 856553 T-62 Dimebon Huntington's Disease Merck Merck Merck Mitsubishi Tanabe Tanabe Mitsubishi Tanabe NeuroSearch NeuroSearch NeuroSearch Novartis Novartis Novartis Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pozen Roche Roche Roche Sanofi-Aventis Sanofi-Aventis ABT-894 NS2359 Tesofensine AFQ056 ATI355 CAD106 PD-200390 PF-217830 PF-2545920 PF-3654746 PF-4494700 Lornoxicam R1594 R1678 R3487 AVE-1625 Nerispirdine (HP-184) . . . . . . . . . . . . . . . . . 2012 >2012 >2012 >2012 >2012 Nicotinic receptor; pain, ADHD; with Abbott Laboratories Obesity PII Parkinson's disease; PI anxiety Spinal cord injury Alzheimer's disease Gabapentinoid; sleep disorders; alpha 2 delta ligand Schizophrenia Schizophrenia ADHD TTP-488; Alzheimer's disease Injectable NSAID Humanized anti-CD20 monoclonal antibody; RRMS; with Genentech transporter 1; schizophrenia Nicotinic alpha-7 agonist; Alzheimer's; with Memory Pharmaceuticals Schizophrenia Potassium/sodium channel blocker; multiple sclerosis Small molecule; inhibitor of glycin Depression and ADHD; with GSK MP-214 . Mitsubishi MK-0249 MK-4305 MK-5757 MKC-231 MKC-242 . . . . . PC I II . . . . . . 2009 2010 III NDA MKT Comments Orexin antagonist; sleep disorders p38 kinase inhibitor; neuropathic pain 5HT6 antagonist; dementia p38 kinase inhibitor; depression Adenosine analog; neuropathic pain Potential neuroprotective effects may offer benefits in HD; Pfizer to codevelop and market impairment Alzheimer's disease; ADHD; cognitive Neurologic indication Psychiatric disease Neurogenesis enhanced; depression; anxiety 5-HT1A receptor agonist; GAD, depression, insomnia D3/D2 antagonist; schizophrenia
448

Company Sanofi-Aventis Sanofi-Aventis ScheringPlough ScheringPlough ScheringPlough Plough ScheringPlough Preladenant . ScheringORG 26576 ORG 34517 . . ORG 25935 . Product SSR 180575 SSR-411298 Farampator PC I II . . . III NDA MKT Comments PBR ligand; diabetic polyneuropathies FAAH inhibitor (depression, anxiety) AMPAkine; depression; schizophrenia; from Organon Glycine transporter 1 (GlyT-1) inhibitor; neuroprotective; from Organon AMPAkine; from Organon GRII antagonist; depression; from Organon Adenosine 2a receptor antagonist; severe Parkinson's disease and other movement disorders; monotherapy in patients with mild/moderate disease; combo with L-Dopa or dopamine agonists; oral Sepracor Sepracor SEP-0227018 SEP-225289 . . 201112 New formulation of Lunesta to improve tolerability, reduce next-day effects Depression; seratonin, norepinephrine reuptake inhibitor) Sepracor Teva Teva Teva Teva Teva Transition Therapeutics SEP-225441 Edratide (TV4710) Glatiramer acetate Rasagiline mesylate Talampanel TV-1102 ELND005/AZD-103 . . . . H2:11 H2:12 Alzheimer's Disease; MAO-B inhibitor; with Eisai diseases Relapsing-remitting MS Alzheimer's disease; inhibits/reverses beta-amyloid aggregation; partnered with Elan; Phase II trial completed enrollment in October 2008; interim H2:09 Wyeth Eli Lilly Takeda Vabicaserin NERI Lu AA24530 . . . . . SCA-136; schizophrenia Depression (PII); ADHD (PII) Monoamine modulator; mood and anxiety disorders; PI in Japan; with Lundbeck
449
and dopamine reuptake inhibitor (triple
. . .
Low-dose eszopiclone (Lunesta) for anxiety (GAD); GABA-A agonist Systemic lupus erythematosus ALS
Epilepsy, ALS and other neurological
look for Phase III planning expected in

Company Abbott Laboratories Abbott Laboratories Alkermes ABT-834 ALKS 33 . . Cognition Addiction and other CNS disorders; undisclosed oral opioid receptor modulator Aradigm Astellas Astellas Astellas AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca Elan ARD-1600 ASP2314 ASP2535 ASP2905 AZD 1446 AZD 2327 AZD 3241 AZD 5904 AZD 6280 AZD 7268 AZD 8529 TC-5619 Gamma . . . . . . . . . . . . . Smoking cessation; undisclosed pharma partner licensed related IP Schizophrenia Alzheimer's disease; schizophrenia Alzheimer's disease; schizophrenia Neuronal nicotinic receptor agonist; Alzheimer's disease Enkephalinergic receptor modulator; anxiety and depression Parkinson's disease Inhibitor of myeloperosidase (MPO); multiple sclerosis GABA receptor subtype partial agonist; anxiety Enkephalinergic receptor modulator; depression, anxiety Glutamatergic modulator; schizophrenia Neuronal nicotinic receptor agonist; cognitive disorders in schizophrenia secretase inhibitor Eli Lilly Eli Lilly Eli Lilly Eli Lilly Eli Lilly Eli Lilly Eli Lilly GlaxoSmithKline GlaxoSmithKline antagonist IL-23 antagonist Undisclosed Undisclosed Undisclosed Undisclosed 1014802 1018921 NK-1 iGluR5 receptor . . . . . . . . . Pain Multiple sclerosis Alcohol dependence Alcohol dependence Alzheimer's Agitation in Alzheimer's Schizophrenia Sodium channel inhibitor; bipolar disorder Type 1 glycine transport inhibitor; Alzheimer's disease; "notch-sparing" inhibitor; unpartnered Inhibitor of myeloperosidase (MPO); Product ABT-239 PC I . II III NDA MKT Comments Cognition
450

Company GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Merck Merck Merck Merck Merck Mitsubishi Tanabe Tanabe Neurosearch Neurosearch NeuroSearch Neurosearch NeuroSearch Novartis Novartis ABT-107 ABT-560 ACR325 ACR343 NSD-788 BAF312 . . . . . . . . . >2012 Schizophrenia, dementia; with Abbott Laboratories Cognitive dysfunctions; with Abbott Laboratories Parkinson's; bipolar disorder Parkinson's disease Anxiety; with GSK Multiple sclerosis Epilepsy Multiple sclerosis With Edison Pharma; orphan drug status Mitsubishi Product 1034702 1144814 163090 249320 424887 586529 598809 618334 729327 933776 Firategrast (683699) Orvepitant MK-0594 MK-5395 MK-8368 MK-8998 V-950 MCI-186 MP-124 . . . . . . . . PC I . . . . . . . . . . . II III NDA MKT Comments schizophrenia Muscarinic acetylcholine agonist; dementia NK1/NK3 antagonist; schizophrenia Presynaptic mixed 5HT1 antagonist; depression and anxiety Monoclonal antibody; stroke NK1 antagonist/SSRI; depression and anxiety anxiety CRF1 antagonist; depression and Dopamine D3 antagonist; drug dependency Dopamine D3 antagonist; drug dependency AMPA receptor modulator; schizophrenia disease Dual alpha4 integrin antagonist (VLA4); multiple sclerosis (also IBD) NK1 antagonist; depression and anxiety Psychiatric disease Neurologic disorders Psychiatric disease Psychiatric disease Alzheimer's Disease Free radical scavenger; acute cerebral infarction PARP inhibitor; acute inchemic stroke Monoclonal antibody; Alzheimer's
BGG492
KRP203 EPI-A0001
Novartis
Penwest
451

Company Product PC I II III NDA MKT Comments in U.S.; inherited mitochondrial respiratory chain diseases Penwest Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche Roche Roche Roche Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis ScheringPlough Sepracor PW-4153 PF-2400013 PF-3049423 PF-3084014 PF-3463275 PF-3654764 PF-4360365 PF-4447943 PF-4802540 Anti-Abeta R1450 R1578 R4996 AVE-8112 SAR 501788 SAR-102779 SAR-115740 SSR-103800 SSR-125543 SSR-180711 ORG 26041 SEP-227162 . . . . . . . . . . . . . . . . . . . . . . 2011 Parkinson's disease Schizophrenia Neurorestoration; cell survival enhancer Alzheimer's disease Schizophrenia Cognition in schizophrenia Alzheimer's disease; biologic Alzheimer's disease Schizophrenia Monoclonal antibody; Alzheimer's disease Monoclonal antibody; anti-amyloid B Alzheimer's disease Alpha 7 nicotinic acid; Alzheimer's disease PDE IV inhibitor; Alzheimer's PBR ligand, sensory and motor neuron degeneration NK2 antagonist; backup saredutant; depression, IBS TRPV1 antagonist; chronic inflammatory and neuropathic pain GLYT1 inhibitor; schizophrenia CRF1 antagonist; depression, anxiety Alpha 7 nicontinic agonist; Alzheimer's, schizophrenia Glycine transporter 1 (GlyT-1) inhibitor; neuroprotective; from Organon (Effexor metabolite); seratonin, Sepracor Sepracor SkyePharma Takeda Wyeth Wyeth SEP-228432 Undisclosed SKP-1041 TAK-065 ACC-001 PAZ-417 . . . . . . Depression; odesmethylvenlafaxine norepinephrine reuptake inhibitor Undisclosed; depression/ADHD DAAO inhibitors; schizophrenia Sleep maintenance; with Somnus Neurogeneration enhancer; Alzheimer's disease; Parkinson's disease Active immunotherapeutic; Alzheimer's disease Disease modifier; Alzheimer's disease peptide antibody; Alzheimer's disease
452

Company Wyeth Alkermes Product SAM-531 ALKS 36 . PC I . II III NDA MKT Comments Enhanced cognition; Alzheimer's disease Pain; selective oral mu opioid I planned in H2:09 Bristol-Myers Squibb Squibb Bristol-Myers GABA-A Gamma Modulator Secretase Inhibitor Bristol-Myers Squibb Squibb Elan Forest Bristol-Myers Microtubule Stabilizer Inhibitor AAB-002 mGLUR1/5 Receptor Program Medivation Dimebon other NeuroSearch NeuroSearch NeuroSearch NeuroSearch Sanofi-Aventis Sanofi-Aventis ScheringPlough ScheringPlough SCMP Sepracor ORG 52186 . indications NSD-708 NSD-721 NSD-761 NSD-847 SAR-110894 SAR-130479 ORG 50189 . . . . . . . . . . Monoclonal antibody; mild to moderate Alzheimer's disease Laboratories Depression; anxiety; other CNS candidates being evaluated Investigating other indications, including ALS, stroke, dry AMD Anxiety; with GSK Anxiety; epilepsy, pain; with GSK Schizophrenia; with GSK Psychosis; with GSK H3 antagonist; schizophrenia; attention deficit disorder, Alzheimer's schizophrenia a7 Nicotine partial agonist; CB1 cannabinoid receptor antagonist; obesity; from Organon V1b/V3 vasopressin receptor disorders; from Organon SPI-017 Alpha 2,3 GABA-A agonists Sepracor Sepracor Transition SEP-227900 Undisclosed Minozac-II . . .
453
antagonist; improved tolerability; Phase
. .
Anxiety Alzheimer's disease
. .
Alzheimer's disease Depression
Triple Reuptake
disorders; multiple potential product
antagonist; treatment of mental
. .
Alzheimer's disease; company plans to initiate Phase I trial in 2009 Anxiety/panic disorder
Neuropathic pain Triple re-uptake inhibitors; depression TTI-189; via NeuroMedix;

Company Therapeutics Product PC I II III NDA MKT Comments neuroprotective properties; efficacy seen in P/C models of Alzheimer's disease and traumatic brain injury; second generation compound; Phase I trials planned in 2009 Wyeth Wyeth Wyeth Wyeth Wyeth Wyeth Wyeth AAB-002 GSI-136 ILS-920 MMS-255 NRI-992 NSA-789 PDE-551 Total Drugs In Development 28 83 74 47 25 258 . . . . . . . IV injection Disease modifier; Alzheimer's disease Stroke - IV Multiple sclerosis Neuropathic pain Cognitive impairment associated with schizophrenia Schizophrenia Disease modifier; Alzheimer's disease -
454
Dermatology
Dermatology & Aesthetics

Fragmented Market With Several Opportunities

Therapeutic dermatology (as opposed to aesthetic or +7% 2008-13 CGR cosmetic dermatology) is a diverse specialty encompassing disorders and diseases of the skin, mucous membrane, hair and nails. Diseases in this category include acne, warts, multiple inflammatory dermatoses, skin cancers, autoimmune diseases, occupational dermatoses and contact dermatitis. In dermatology, physicians have typically relied on antibiotics and corticosteroids for several diseases, and generics have tended to dominate prescriptions. Nevertheless, physicians share widespread dissatisfaction with these treatments as complaints include poor efficacy, challenging safety profiles with chronic use, and low patient compliance of prescribed regimensall indicating that a vast and unmet need exists for improved, safer, and cost-effective treatments. This category is the purview of niche public and private companies with focused specialty forces.
Dermatology Category Market Share By $ Sales
2008 $6.4B
WYE/AMGN 32%
Other 15% NVS 2% Graceway 4% Dermik 4% JNJ 4% MRX 6% Generics 6%
NVS 1% Graceway 2% Dermik 3% MRX 3% Generics 4% Galderma 5% WCRX 7% Stiefel 5%
Other 14%
2013 $9.0B
WYE/AMGN 31%
Stiefel 6%
ABT 7%
Galderma 7%
WCRX 6%
ABT 17% JNJ 9%
PARTICIPANTS
In 2008, Wyeth/Amgen led the therapeutic dermatology category with 32% share due to Enbrels success in psoriasis. This share should remain about stable as Enbrel makes further inroads in both U.S. and international markets. Novartis, which enjoyed a dominant position in dermatology in prior years due to the success of Lamisil in onychomycosis, has lost share following generic competition to Lamisil. Other key players in 2008 were Warner Chilcott, Galderma, Abbott, Steifel, and Medicis all with market shares between 5-10%. In 2013, we estimate that Abbott and JNJ will gain share through the growth of biologics in psoriasis. Overall, the market will continue to be populated by either pure plays with specialty sales forces or larger companies with significant psoriasis franchises. The psoriasis market is poised to double from $3B in 2007 to $6B in 2013 as the anti-TNFs gain ground. Enbrel remains the mainstay of therapy but will lose share in a growing market. Abbotts Humira, approved in January 2008 for psoriasis, presents the biggest threat to Enbrel given encouraging data from the REVEAL and CHAMPION studies. JNJs Ustekinumab will be another strong entrant into the psoriasis market in 2009. For topical therapy, Taclonex is in the
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process of displacing Dovonex as the topical of choice. Allergans Tazorac should continue to be a useful niche therapy for plaque psoriasis.
Antibiotics such as doxycycline and minocycline remain the mainstay of acne treatment. However, Medicis launch of Solodyn in 2006 showed that improvements to antibiotics could be well received and showed high pricing flexibility in the acne market. Solodyn scrips have flattened after its hectic launch and await a second wind. Additionally, several ANDA filers against Solodyn raise the possibility of a generic. Doryx continues to recover well with increased promotional spending, although it is also under similar pressure from generics. Topical therapies, particularly combination products such as Medicis Ziana, Steifels Duac and Sanofi-Aventis/Dermiks Benzaclin, should see steady growth as they begin to take patients away from retinoids and topical clindamycin. Rosacea, often misdiagnosed as acne vulgaris, is gradually getting visibility with the launch of Galderma/Collagenexs Oracea, a low-dose version of doxycycline. We estimate peak sales for Oracea of $120MM in 2013. Actinic keratosis is a $1B+ market dominated by procedures such as cryosurgery and in-house procedures. Graceways Aldara is the topical of choice when cryosurgery is not used. Long-term scarring and potential for localized irritation and pain during cryosurgery present opportunities for topical therapies. Novartis faces a declining presence in dermatology due to generic competition to Lamisil in onychomycosis (nail fungus) but nevertheless should maintain a presence in dermatology through Elidel, its treatment for atopic dermatitis. Astellas Protopic and Elidel should see limited growth given the black box warning in 2005 for potential cancer risk.
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ESTIMATED WORLDWIDE MARKET FOR DERMATOLOGY DRUGS BY CLASS ($MM)

2008 Market % Total $3,625 56% 1,484 209 1,128 23% 3% 17% 2013P Market % Total $6,294 70% 1,564 251 852 $8,961 17% 3% 10% 100% $ 08-13 CGR 12% 1% 4% -5% 7%
Drug Class Psoriasis Acne Rosacia Other Oral Agents
Comments - AMGN/WYE's Enbrel, JNJ'sRemicade, ABT's Humira, WCRX's Taclonex, AGN's Tazorac - MRX's Solodyn, Ziana; WCRX's Doryx; Stiefel's Duac; Dermik's BenzaClin - Collagenex's Oracea - Includes Graceway's Aldara, Novartis's Lamisil - Driven by biologics for psoriasis
Total Market $6,446 100% Source: Cowen and Company estimates
Dermatology Is A Large, Yet Fragmented Market Opportunity

DETAILED DISCUSSION
Dermatology is a highly fragmented therapeutic category and market. The key subtherapeutic areas under dermatology are acne, rosacea, psoriasis, dermatitis and other disorders. Of these, acne and psoriasis are the main categories, with over $1B+ in sales. Market expansion can be attributed to the entry of new biologic agents (psoriasis) and the addition of improved reformulations of existing therapeutics (acne and rosacea). Market growth due to these products likely will be stemmed partially by the introduction of generics to Novartis Lamisil, which dominated the onychomychosis market and recorded peak sales of approximately $1B.
Acne Not Well Understood

Acne is not a completely understood disorder. It appears that follicles, often called pores, sometimes get obstructed, trapping sebum (oil), which normally drains to the surface. This allows Propionibacterium acnes (P. acnes) bacteria to grow, which in turn attracts white blood cells and causes an inflammatory response. By eliminating the bacteria and/or the inflammation it is believed that acne can be controlled or eliminated. Nearly all of the available products focus on these targets. The Department of Health & Human Services estimates that 45 million people in the United States have acne vulgaris, with a prevalence of approximately 85 percent in the population 15-24 years of age. The disease is more common and more severe in males than in females. Morbidity primarily comes from the lesions themselves, which may be painful and tender, as well from scars left by nodules and cysts. Morbidity may be generated by adverse effects of treatments as well. The $1.5-2.0B acne market can be divided into two sub-markets: topicals (estimated at approximately $1.0B) and oral medications ($500-1,000MM).
Several Players In Topical Acne

Topical therapies dominate acne treatment and account for nearly two-thirds of the market. Several types of prescription topical medicines are used to treat acne. They include: (1) Antibiotics, which help stop or slow the growth of bacteria and reduce inflammation. (2) Vitamin A derivatives (retinoids), which unplug existing comedones, allowing other topical medicines, such as antibiotics, to enter the follicles. Topicals also often contain an altered form of vitamin A, such as tretinoin (Retin-A2), adapalene (Differin), and tazarotene (Tazorac). And (3) other therapies, which may either destroy P. acnes and reduce oil production or help stop or slow the growth of bacteria and reduce inflammation. Some examples are Benzoyl peroxide, sodium sulfacetamide/sulfur-containing products, or Azelaic acid (Azelex).
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Topical Acne Products
Market
Moving
Towards
Combination
In general, combination products have enjoyed successful launches in the topical acne market. Dermiks (Sanofi-Aventis) BenzaClin, which was approved in December 2000, is now recording sales of over $200MM, according to IMS. Additionally, Steifel/Conneticss Duac (adapalene) sold about $130MM in 2008, according to IMS. In January 2009, Galderma announced the approval of a Differin/Benzoyl peroxide combination. Our consultants indicate that part of the reason for the increased use of combination therapy is that the co-pay of the combination is generally less than the co-pay of the individual products. Additionally, physicians believe that their patients are more compliant when it comes to taking combination products.
U.S. Market For Topical Acne Treatments
2007 Total Rx's (MM) Rx Growth Rate Adoxa (doxycycline, Nycomed) Rx's (MM) Average Daily Cost Sales ($MM) Doryx (doxycycline, WCRX) Rx's (MM) Average Daily Cost Sales ($MM) Dynacin (MRX) Rx's (MM) Average Daily Cost Sales ($MM) Doxycycline (Various) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Minocycline (Various) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Tetracyclin (Various) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Solodyn (MRX) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Other orals agents Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth 12.0 +4% 0% 0.04 $4.17 $5.0 3% 0.30 $12.87 $115.8 0% 0.02 $3.33 $2.0 47% 5.64 $0.15 $25.0 13% 1.54 $0.65 $30.0 14% 1.67 $0.10 $5.0 5% 0.60 $11.39 $203.3 11% 1.33 $3.00 $120.0 $506 +9% 2008 11.5 +4% 1% 0.09 $8.87 $25.0 6% 0.64 $8.22 $158.9 0% 0.01 $15.92 $5.0 51% 5.94 $0.14 $25.0 18% 2.07 $0.56 $35.0 9% 0.99 $0.17 $5.0 7% 0.78 $11.35 $266.0 9% 1.00 $4.00 $120.0 $640 +26% 2009E 11.6 +3% 1% 0.09 $9.00 $25.0 6% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 48% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 10% 1.11 $0.15 $5.0 9% 1.05 $11.00 $345.0 9% 1.00 $4.00 $125.0 $737 +15% 2010E 11.7 +3% 1% 0.09 $9.00 $25.0 6% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 48% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 10% 1.11 $0.15 $5.0 10% 1.14 $11.00 $375.0 9% 1.00 $4.00 $125.0 $767 +4% 2011E 12.1 +3% 1% 0.09 $9.00 $25.0 5% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 46% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 9% 1.11 $0.15 $5.0 9% 1.03 $11.00 $340.0 12% 1.50 $4.00 $175.0 $782 +2% 2012E 12.0 +3% 1% 0.09 $9.00 $25.0 5% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 46% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 9% 1.11 $0.15 $5.0 3% 0.41 $11.00 $135.0 17% 2.00 $4.00 $200.0 $602 -23% 2013E 11.8 +3% 1% 0.09 $9.00 $25.0 5% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 47% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 9% 1.11 $0.15 $5.0 3% 0.30 $11.00 $100.0 17% 2.00 $4.00 $200.0 $567 -6% CGR Comments
+1% - Anticipating consistent market growth
-0%
- Antibiotic; approximately 80% of total written for acne
+0% - Hit by generics; authorized generic launched Dec. 2005 - Antibiotic; approximately 50% of total written for acne
+0% +2%
- MRX has increased price of Dynacin recently -17% - Declining franchise as scrips go to Solodyn - Antibiotic; approximately 50% of total written for acne
+5%
-1% +0%
+0%
+0% - Generics clipped by Solodyn - Antibiotic; approximately 50% of total written for acne
+2% +0%
-17%
- Modified release minocycline; once-daily
- Premium to Dynacin, other branded generics -18% - Recent prescription trends have been solid - Includes Accutane, Claravis, Amnesteem and oral contraceptives - Average cost is high due to isotretinoin and isotretinoin generics
+15% +11%
-2% - Solodyn drives sales growth
Besides BenzaClin and Duac, the other major participant in the combination product space, Medicis Ziana, was approved in November 2006 for once-daily use for the topical treatment of acne vulgaris in patients 12 years or older. Medicis launched Ziana with its 100-person therapeutic sales force as second-line detail to Solodyn. While there are combinations of clindamycin and benzoyl peroxide (such as Duac and Dermixs BenzaClin), Ziana is the only product that combines a tretinoin with a topical antibiotic. Zianas main competitors are BenzaClin, Duac, generic versions of clindaycin, tretinoins and other topical brands such as Galdermas Differin/Epiduo (another tretinoin; sales of roughly $200MM in 2008 according to IMS). BenzaClin and Differin are twice-daily medications, and therefore, Ziana should have a convenience advantage over these products. Duac, however, is once-daily and our
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consultants note that their use of Ziana or Duac would depend on whether they preferred benzoyl peroxide or tretinoin. Some physicians may prefer a benzoyl peroxide/clindamycin formulation (BenzaClin or Duac) to Ziana because the potential for the development of resistance to clindamycin is reduced with benzoyl peroxide. Medicis claims that an additional advantage of Ziana is that doctors are not receiving complaints from their patients, which often occurs with retinoid therapy (due to the dryness and irritation around the eyes and mouth as well as scaling).
Moderate To Severe Acne Widely Treated With Oral Antibiotics

As acne becomes more severe, oral medications are most often utilized. For patients with moderate-to-severe and persistent acne, oral antibiotics have been a mainstay of therapy. Like topical antimicrobials, oral antibiotics work to reduce the P. acnes population, which, in turn, decreases inflammation. Treatment with oral antibiotics usually begins with a higher dosage, which is reduced as acne resolves. Our consultants indicate that antibiotics generally are prescribed for six months. Over time, the P. acnes bacteria can become resistant to the antibiotic being used to treat it. When resistance occurs, acne is no longer controlled. Under such a circumstance, another antibiotic or alternative treatment would need to be prescribed. The two most widely prescribed antibiotics are doxycycline and minocycline. According to our consultants, doxycycline is especially effective in treating inflammatory acne, but can cause sun sensitivity in some patients. Minocyline has a long history of use in treating acne. It is often effective in treating acne that has not responded to other oral antibiotics and also seems to produce fewer incidents of antibiotic resistance.
Antibiotics For Acne: Starting & Maintenance Doses And Side Effects
Antibiotic Tetracycline Doxycycline Minocycline
Typical Starting 500 mg twice a day 100 mg twice a day 100 mg twice a day
Maintenance Dose 250-500 mg daily 50-100 mg daily 50-100 mg daily
Side Effects Calcium decreases absorption. Photosensitizing. Calcium decreases absorption. Photosensitizing. Erosive esophagitis. More expensive. More side effects including a potential to cause blue discoloration of teeth and skin. Sustained release less irritating to gastrointestinal tract.
Erythromycin
500 mg twice a day
500 mg daily
Source: Medscape
Medicis Solodyn Is Enjoying A Highly Successful Launch But Generics Loom

Solodyn was approved and launched in June 2006, and has been one of the most successful launches in dermatology. It is the only oral minocycline officially approved for acne, although off-label use of minocycline has been rampant for many years. Specifically, Solodyn is indicated for once daily dosage in the treatment of inflammatory lesions of non-nodular moderate to severe acne vulgaris in patients 12 years of age and older. Given Solodyns strong launch, we expect sales will reach $345MM (+29%) in 2009 and rise to $340MM in 2010, before declining to $135MM in 2011 due to generic competition. The potential for generic competition could be
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imminent due to uncertainty on how the FDA will rule on a regulatory matter pertaining to pending ANDAs for generic Solodyn. Impax disclosed to Medicis in early January 2008 that it had filed an ANDA for Solodyn ($300MM+ in U.S. brand sales). Solodyn is protected by the 5,908,838 patent but the 838 was initially not listed in the Orange Book because Solodyn is an antibiotic, which was legislated out of the original Hatch-Waxman regulations. However, new legislation enacted in October 2008 allowed for the listing of the antibiotic patents and provided generic challengers 120 days (or until February 8, 2009) to change their original filings to Paragraph IV. While Impax re-certified, it was not sued by Medicis. On December 1, 2008, Impax and Medicis settled pending Solodyn litigation under which Impax will market generic Solodyn no later than November 2011. There are a handful of other challengers to Solodyn including Mylan, Teva/Barr and Sandoz. Impaxs generic has received approval but it is unclear if the FDA will grant approval to the other challengers or enact 30-month stays on approvals. Solodyn Is Premium Priced But Differentiated Solodyn is priced at around $12-15/day, which implies a cost of about $300-325 for a 30-day prescription (including a smart-card discount). Medicis indicates that it has established Tier III status in most formularies, although it has penetrated deeper in a few plans. This status means that patient co-payments are roughly $60-70, although Medicis is providing coupons (at roughly $25-35), which bring the average cost for those that utilize the program to about $35-40 per month. In comparison, generic minocycline and doxycycline are significantly cheaper, at the standard generic co-pay rate of $5-10/prescription. Since patients can receive two or three pills a day, the cost of a generic could be higher depending on the dosing recommended by the dermatologists (it may be necessary to receive two prescriptions and thus two co-pays). Nevertheless, Solodyn enjoys a high premium, even to existing branded doxycyclines and minocyclines. Our dermatology consultants believe that Solodyn is differentiated from the other tetracyclines used for acne (mainly doxycycline and minocycline). Our consultants indicate that the market for oral antibiotics appears to be split evenly between doxycycline and minocycline. In general, our consultants are split on whether they prefer doxycycline or minocycline as their first-line oral antibiotic choice. Consultants who prefer minocycline believe that Solodyn has an attractive side-effect profile and might offer better convenience than generics. Minocycline is typically dosed at 100mg twice daily while Solodyn is once daily. Additionally, Solodyns weight-based dosing schedule offers the potential for a lower dose than the standard 200mg dose of generic minocycline. Therefore, the potential for side effects is less, which our consultants note is a distinct advantage. Additionally, our consultants indicate that Solodyn has a food-effect advantage, which may be able to differentiate it from the other products. Our consultants note that food typically reduces absorption of minocycline by about 10%, and milk typically by 33%. However, the Solodyn label states that when Solodyn tablets are administered concomitantly with a meal that included dairy products, the extent and timing of absorption of minocycline did not differ from that of administration under fasting conditions. According to our consultants, patients typically are required to take minocycline 2-3 hours before or after taking any food. Obviously, meeting this condition is problematic in the morning and, therefore, clinicians see Solodyn as offering a more convenient alternative. Additionally, among consultants whose first-choice
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antibiotic is doxycycline, there is the ongoing concern regarding phototoxicity (severe sunburn). Among these patients, Solodyn might also prove to be an attractive option given its favorable profile in the Phase III program. Despite these advantages (once-daily, lack of food effect and lack of phototoxicity), our consultants note that preferences by dermatologists for doxycycline versus minocycline are fairly strongly entrenched and therefore any conversion would likely take time.
U.S. Market For Oral Acne Treatments
2007 Total Rx's (MM) Rx Growth Rate Adoxa (doxycycline, Nycomed) Rx's (MM) Average Daily Cost Sales ($MM) Doryx (doxycycline, WCRX) Rx's (MM) Average Daily Cost Sales ($MM) Dynacin (MRX) Rx's (MM) Average Daily Cost Sales ($MM) Doxycycline (Various) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Minocycline (Various) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Tetracyclin (Various) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Solodyn (MRX) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Other orals agents Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth 12.0 +4% 0% 0.04 $4.17 $5.0 3% 0.30 $12.87 $115.8 0% 0.02 $3.33 $2.0 47% 5.64 $0.15 $25.0 13% 1.54 $0.65 $30.0 14% 1.67 $0.10 $5.0 5% 0.60 $11.39 $203.3 11% 1.33 $3.00 $120.0 $506 +9% 2008 11.5 +4% 1% 0.09 $8.87 $25.0 6% 0.64 $8.22 $158.9 0% 0.01 $15.92 $5.0 51% 5.94 $0.14 $25.0 18% 2.07 $0.56 $35.0 9% 0.99 $0.17 $5.0 7% 0.78 $11.35 $266.0 9% 1.00 $4.00 $120.0 $640 +26% 2009E 11.6 +3% 1% 0.09 $9.00 $25.0 6% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 48% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 10% 1.11 $0.15 $5.0 9% 1.05 $11.00 $345.0 9% 1.00 $4.00 $125.0 $737 +15% 2010E 11.7 +3% 1% 0.09 $9.00 $25.0 6% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 48% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 10% 1.11 $0.15 $5.0 10% 1.14 $11.00 $375.0 9% 1.00 $4.00 $125.0 $767 +4% 2011E 12.1 +3% 1% 0.09 $9.00 $25.0 5% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 46% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 9% 1.11 $0.15 $5.0 9% 1.03 $11.00 $340.0 12% 1.50 $4.00 $175.0 $782 +2% 2012E 12.0 +3% 1% 0.09 $9.00 $25.0 5% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 46% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 9% 1.11 $0.15 $5.0 3% 0.41 $11.00 $135.0 17% 2.00 $4.00 $200.0 $602 -23% 2013E 11.8 +3% 1% 0.09 $9.00 $25.0 5% 0.65 $9.00 $175.0 0% 0.01 $5.00 $2.0 47% 5.56 $0.15 $25.0 18% 2.12 $0.55 $35.0 9% 1.11 $0.15 $5.0 3% 0.30 $11.00 $100.0 17% 2.00 $4.00 $200.0 $567 -6% CGR Comments +1% - Anticipating consistent market growth
-0%
+0% - Hit by generics; authorized generic launched Dec. 2005 - Antibiotic; approximately 50% of total written for acne
+0% +2%
- MRX has increased price of Dynacin recently -17% - Declining franchise as scrips go to Solodyn - Antibiotic; approximately 50% of total written for acne
+5%
-1% +0%
+0%
+0% - Generics clipped by Solodyn - Antibiotic; approximately 50% of total written for acne
+2% +0%
-17%
- Modified release minocycline; once-daily
- Premium to Dynacin, other branded generics -18% - Recent prescription trends have been solid - Includes Accutane, Claravis, Amnesteem and oral contraceptives - Average cost is high due to isotretinoin and isotretinoin generics
+15% +11%
-2% - Solodyn drives sales growth
Warner-Chilcotts Doryx Enjoying Second Life But, Like Solodyn, Generics Loom
Doryx is an extended-release version of doxycycline indicated as an oral adjunctive therapy for severe acne. Warner Chilcott first launched Doryx in 2000 having acquired it from FH Faulding as enteric-coated capsules. In 2005, Warner Chilcott launched delayed-release tablets. Warner Chilcott executed a successful switch of Doryx from the capsules to the tablets in late 2005 and early 2006. Warner Chilcott has indicated that another line extension for Doryx could be launched in the coming months. Doryx prescription growth declined as Warner-Chilcotts dermatology sales force shifted its focus to Taclonex, which was launched in April 2006. However, since the second half of 2007, Warner Chilcott has placed greater emphasis on Doryx and Doryx appears to have rebounded. Although Doryx has been relatively stable since the launches of Solodyn and Oracea in July 2006, the new launches stifled its momentum. Solodyn has a broader
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indication in acne, with clinical trial data which has allowed it to differentiate itself even though it is priced substantially higher than Doryx. Additionally, sales of Doryx in Rosacea the condition for which Oracea is indicated are negligible. However, off-label use of Oracea in acne appears to have impacted Doryx. Our consultants note that dermatologists tend to be fairly entrenched in their prescribing habits and chose between either doxycycline or minocycline. These trends indicate that Doryx, will likely maintain its current run rate. We estimate sales of $180MM (+13%) in 2009. In June 2008, Warner Chilcott received approval for the 150mg strength of Doryx, providing greater dosing flexibility within the franchise. From litigation initiated by Warner Chilcott in January 2009, it appears that there are four generic first filers against Doryx. These first filers are Impax, Mutual, Mylan and Sandoz. These challengers face similar regulatory 30-month stay questions as in the case of generic challengers to Solodyn. In the Solodyn situation, the key difference is that Impax was not sued by Medicis and was able to settle with Medicis to secure a date-certain launch while the other generic manufacturers may face 30month stays. In the case of Doryx, because there is no settlement, all generic challengers may be subject to 30-month stays on approvals of their ANDAs. Warner Chilcotts patent in the Orange Book expires only in 2022 but we believe that the company is likely to settle with the various companies involved. Doryx sales were approximately $160MM in 2008. Warner Chilcott has filed a Citizen Petition with the FDA requesting that 30-month stays hold against the generic challengers and the FDA is yet to decide on this petition.
Nycomed/Bradleys Adoxa Facing Generic Competition

Nycomed markets Adoxa, another branded doxycycline, via acquisition of Bradley Pharmaceuticals. While Adoxa met with some success in dermatology, it faced generic competition for the 150mg dose in June 2007 and other doses in 2005. In 2007, Bradley launched a new line-extension of Adoxa 150mg capsules to help offset sales declines from generic competition for the 150mg tablets. Bradley launched its authorized generic for the tablets through Par Pharmaceuticals. Bradley also markets 50mg, 75mg and 100mg Adoxa tablets.
Galderma/Collagenexs Incyclinide Program In Acne Discontinued

Incyclinide is a chemically modified tetracycline that is being studied for acne. Galderma/Collagenexs clinical program for Incyclinide, which was in Phase II for the treatment of acne vulgaris, has been discontinued. CollaGenex discontinued treatment of enrolled patients participating in the 40mg cohort of its Phase II dosefinding study of Incyclinide in acne following a second case of phototoxicity. Initially, the study was designed to evaluate three dosage strengths of Incyclinide and a placebo over a 12-week period to determine an optimal dose for Phase III testing. The four arms of the study test were the 5mg, 10mg, and 20mg doses and placebo. The 20mg arm showed promising efficacy. Nevertheless, the issues of phototoxicity would have proven a barrier to FDA approval given the patient population and the widespread nature of the condition.
Roches Accutane/Generics (Mylan, Barr And Ranbaxy) Plagued By Side Effects, Limited By Risk Management Program
For the most severe forms of acne, isotretinoin (Roches Accutane, Barrs Claravis, Ranbaxys Sotret and Mylans Amnesteem both of which are branded generics) is the preferred medication. Accutane was approved in 1982. The first generic version of Accutane was approved in November 2002. The exact mechanism of action of isotretinoin is not known; however, it may reduce acne by lowering the secretion of sebum. Isotretinoin is believed to be particularly effective in preventing scarring.
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Dermatology
After 15 to 20 weeks of treatment with isotretinoin, acne is usually totally or near totally resolved in most patients. However, isotretinoin has been associated with birth defects in the developing fetus of pregnant woman and there is a strict patient registry required. Each of the generic drug makers were required to provide an isotretinoin teratogenicity risk-management plan that requires pharmacists to dispense a 30-day supply of the drug only when presented with prescriptions bearing qualification stickers. In August 2007, an FDA advisory committee voted that the FDA should modify the isotretinoin iPLEDGE risk management program to increase patient accessibility to Roche's Accutane and generic versions of the treatment for severe recalcitrant nodular acne. At a joint meeting of the Dermatologic and Ophthalmic Drugs and the Drug Safety and Risk Management Advisory Committees, members unanimously agreed to recommend incremental improvements to iPLEDGE by removing some restrictions. In September 2008, the FDA disclosed the issuance of a Warning Letter to Ranbaxy due to deficiencies at two of Ranbaxys manufacturing sites based in India. Among products that were affected is Ranbaxys generic Accutane. As a result of this deficiency, other manufacturers such as Mylan and Teva/Barr have gained market share.
Oral Contraceptives Have Role To Play In Acne

In addition to the indicated drugs, oral contraceptives have been shown to effectively clear acne in women. Oral contraceptives suppress the overactive sebaceous glands and can be used as long-term acne therapy. OCs have been shown to be very helpful in treating and ameliorating menstrual cycle associative symptoms, acne, and hirsutism. A few OCs have been approved by the FDA for the treatment of mild-to-moderate acne. These include include JNJs Ortho Tri-Cyclen containing norgestimate and Warner-Chilcotts Estrostep, which is an estrophasic norethindrone acetate preparation. In January 2007, the FDA approved a new indication for a 24-day active-hormone regimen of drospirenone/ethinyl estradiol 3mg/20-g tablets (Yaz, made by Bayer Schering Pharma), allowing its use for the treatment of moderate acne in women who choose to use an oral contraceptive for birth control. The approval was based on data from two 6-month multicenter, double-blind, placebo-controlled, randomized clinical trials (n > 1000), showing that the use of the drospirenone/ethinyl estradiol regimen yielded significantly decreased total inflammatory and noninflammatory lesion counts. Yaz is slated to go generic in 2011 due to a patent settlement between Bayer and Barr/Teva.
Rosacea Is An Underdiagnosed & Underserved Market

In rosacea, bumps and pimples may develop and in severe cases the nose may grow swollen from excess tissue. Rosacea presents a significant challenge to dermatologists because - much like acne - it is a common and chronic disease with potential for disfigurement. However, unlike acne, rosacea tends to be less known. In fact, many dermatologists are known to frequently confuse the disease for acne. Rosacea affects about 14MM Americans; of these patients, only about 1.4MM are treated. Our physician consultants note that almost 75% of people over the age of 50 have some form of rosacea. As a comparison, it is estimated that 45MM people suffer from acne. In total, rosacea is estimated to be a $500MM market - which we believe is understated as multiple generic products are available at low prices, which likely depresses the normalized, brand market value.
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Dermatology
Women appear to get rosacea more frequently than men, and some cases of this disorder have been associated with menopause. In a survey conducted by the National Rosacea Society, nearly 70% of rosacea patients said rosacea had lowered their self-confidence and 41% reported that it had caused them to avoid public contact or cancel social engagements. Among rosacea patients with severe symptoms, nearly 70% said the disorder had adversely affected their professional interactions. Since there is no cure for rosacea, treatment is largely focused on managing the disease. Our dermatology consultants note that they have few options in preventing relapses. Most current therapy is off-label and few studies (with the exception of topical agents and Oracea) have been conducted in the area. Therefore, we believe that rosacea presents a potentially large and underserved market.
Topicals Are Mainstay Of Mild-To-Moderate Rosacea Treatment

Our dermatology and primary care consultants note that they typically treat mild-tomoderate patients with topical drugs. The leading drug in this category is metronidazole, an ointment that is available as a generic. The exact mechanism by which the metronidazole improves the symptoms of rosacea is unknown, but the effects are believed to be related to metronidazoles anti-inflammatory and immunosuppressive nature. Metronidazole is available as a cream (MetroCream 0.75%, Noritate 1%, generic metronidazole), gel (MetroGel 1%, MetroGel 0.75%), and lotion (MetroLotion 0.75%). For more severe rosacea, physicians usually initiate their patients on oral tetracyclines such as doxycycline (50-100 mg twice a day) or minocycline (50-100 mg twice a day). Our dermatology consultants use doxycycline in the majority of their rosacea patients requiring treatment with an oral antimicrobial. For more potent cases, our physician consultants prefer to use minocycline. Often, they practice polypharmacy, where they use a combination of the two agents. In patients with moderate cases, dermatologists that are more aggressive in their therapy prefer potent antimicrobials while the more cautious doctors appear to start patients on the topicals.
Galdermas Oracea Data Support Differentiation Based On Side Effects

The FDA approved Galderma/Collagenexs Oracea in June 2006. Oracea continues to perform relatively well. The patient retention rate remains at 55%+, indicating not only that patients do not appear cost sensitive but most importantly that they appear satisfied with their initial efficacy results. The FDAs approval of Oracea was based on data from two Phase III studies in 537 patients that showed that the use of doxycycline capsules yielded a significant decrease in inflammatory lesions at 16 weeks relative to placebo (61% and 46% vs. 29% and 20% in studies 1 and 2 respectively; p<0.001 for both). These data were presented at the Fall Clinical Dermatology Conference in October 2005. Adverse events related to the study drug were similar to that for placebo. Our dermatology consultants believe that Oracea has good efficacy for its low dose. Since oral tetracyclines have not been explicitly studied in clinical trials for rosacea, it is difficult to make a head-to-head efficacy comparison. Our dermatology consultants note that the main takeaways from the Oracea data are that it shows strong efficacy and appears to be relatively safe after 16 weeks of treatment. Oraceas safety profile, therefore, could support a modestly longer duration of treatment than doxycycline generics, which are typically used for 3-6 weeks. In January 2008, Galderma/Collagenex released results of a Phase IV dose-comparison study of Oracea vs. doxycycline 100mg dosed once-daily that showed comparable efficacy between the two products for the treatment of rosacea.
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Dermatology
Psoriasis Is A Lifelong Skin Disease

Psoriasis is a non-contagious lifelong skin disease that is primarily a result of an overproduction of skin cells. The extra skin cells become red, inflamed and scaly patches. Like in the case of acne, the severity of psoriasis can vary from person to person; however, for most people, psoriasis tends to be mild. According to the National Psoriasis Foundation, a little over 2% percent of American adults have psoriasis.Topicals are the mainstay of drug therapy for mild-to-moderate psoriasis while biologics are used to treat severe psoriasis. We estimate that the market for topical psoriasis is about $600MM, while the market for biologics is over $1B.
Corticosteroids Mainstay Of Mild-to-Moderate Psoriasis Therapy

Our physician consultants indicate that about 65-70% of patients diagnosed with psoriasis, even in large practices, have mild-to-moderate psoriasis. Therefore, there is a significant demand for topical treatments. Both over-the-counter and prescription medications are available to treat psoriasis. Two over-the-counter medications, salicylic acid and coal tar, are commonly used medications. The most widely used prescription topicals are Dovonex, Taclonex, Tazorac and corticosteroids. Corticosteroids such as clobetasol (Galdermas Clobex) and bethamethasone are widely viewed as the first line of therapy; they are easy to use and tend to work relatively quickly. Often physicians tend to use Dovonex or Tazorac in combination with corticosteroids. Steroids, however, are generally not conducive to long-term use and side effects can be significant. For example, excessive use of steroids on the skin will lead to skin thinning and will expose the patient to the potential for internal absorption of the steroid. Additionally, psoriasis may also get worse if topical steroids are discontinued suddenly, an effect called psoriasis rebound. Also, doctors are generally careful not to use steroids in areas with sensitive skin, such as the face. Therefore, there is ample opportunity for efficacious, yet tolerable products in the mild-to-moderate topicals space. Among topicals that are widely used, our consultants indicate that Dovonex slows down the rate of skin cell growth, flattens psoriasis lesions and removes scale. Taclonex contains calcipotriene (the active ingredient in Dovonex) and the potent steroid betamethasone dipropionate. The calcipotriene slows down the rate of skin cell growth and removes scale, while the steroid helps reduce inflammation. Tazorac is a vitamin A derivative and is also known as a topical retinoid and presents another viable topical. However, Tazorac seems to have acquired a niche role as a treatment for plaque psoriasis.
Warner-Chilcotts Dovonex Is Standard Of Care

Our consultants indicate that Warner-Chilcotts Dovonex is the standard of care topical to treat mild-to-moderate psoriasis. In 2007, Dovonex recorded $145MM in sales, relatively flat Y/Y. While Dovonex slows the rate of skin cell growth, it is not effective at decreasing inflammation. Additionally, Dovonex does not work as quickly as potent topical steroids and therefore does not provide immediate efficacy. For these reasons, our consultant dermatologists indicated that they would start patients on a steroid to control the inflammation and then put them on Dovonex for maintenance therapy. Often these patients end up on a combination of a lower-dose steroid and Dovonex. Our consultants indicate that about a third of the people who try Dovonex do not see an effect, while the rest do very well with it. In May 2007, Warner-Chilcott pulled the ointment formulation, which was facing patent expiration in December 2007, from the market. Instead, Warner Chilcott encouraged a switch to the cream formulation. The cream formulation remains patent protected
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until 2015. Since pulling the ointment formulation, Warner-Chilcott has been successful in transitioning patients to Dovonex cream. In the second quarter of 2008, Warner Chilcott faced generic competiton to the solution formulation, which historically has accounted for about 10% of the Dovonex franchise.
But Taclonex Displacing Dovonex As #1

Warner Chilcott launched Taclonex in April 2006. Taclonex is a once-daily combination of calcipotriene, the active ingredient in Dovonex, and the corticosteroid betamethasone diproprionate, in a single ointment. It is indicated for the topical treatment of psoriasis vulgaris in adults 18 years of age and above for up to 4 weeks. Taclonex is marketed in Europe and Canada by Leo Pharma as Dovobet and Daivobet. In September 2005, Warner Chilcott acquired U.S. rights to Taclonex. Under its agreement with Leo, Warner Chilcott pays a supply fee of 20-25% of net sales and a royalty of 10-15% of net sales. Currently (as of August 2008) Taclonex represents about 55% of the Dovonex/Taclonex franchise sales and remains on track to do $175MM+ in sales in 2009.
A Growing Opportunity For Biologics In Moderateto-Severe Psoriasis

U.S. biologic sales for moderate to severe psoriais are estimated to grow at a 16% 2007-2013 CAGR. Consultants estimate that 300-400K patients are candidates therapy but that less than 100K patients are currently prescribed biologics. Physicians believe that the market penetration of biologics will grow steadily but slowly as more dermatologists become more comfortable prescribing systemic therapy sooner in the treatment paradigm. Two key drivers that will promote market penetration include 1) the accumulation of long-term anti-TNF safety data in psoriasis patients and 2) the need to treat patients sooner as psoriasis is being recongmized as a systemic disease that can increase the risk of cardiovascular disease. Cowen and Companys Health Care team estimates that the market opportunity for biologics in moderate-to-severe psoriasis is in excess of $4B and that current penetration is below 25%. We believe the overall psoriasis market will grow from $1.6B in 2008 to $3.3B in 2013.
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U.S. Psoriasis Biologics Market Model ($MM)

p p Market Assumptions: U.S. Patient Population Assumptions: # of patients in U.S with Psoriasis % Prevalence (of total U.S. population) % Moderate-to-severe % Requiring Add-On Therapy Total Psoriasis Anti-TNF Population ("Add-On" Therapy) U.S. Market Penetration: # of Psoriasis Patients on Biolgics % penetration of potential "Add-On" market % penetration of total Psoriasis market % Y/Y growth Sales Analysis: Total Sales U.S. (MM): Growth (Y/Y) % Remicade (JNJ): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Remicade U.S. Sales (MM) Growth (Y/Y) % Enbrel (AMGN): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Enbrel U.S. Sales (MM) Growth (Y/Y) % Humira (ABT): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Humira U.S. Sales (MM) Growth (Y/Y) % Amevive (BIIB): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Amevive U.S. Sales (MM) Growth (Y/Y) % Raptiva (DNA): Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Raptiva U.S. Sales (MM) Growth (Y/Y) % Ustekinumab (JNJ) Avg # Pts per year Penetration of "Add On" Market Annual cost of therapy Estimated Raptiva U.S. Sales (MM) Growth (Y/Y) % 2008 2009E, , 2010E, , 2011E, , 2012E, , 2013E, , '08/13E CAGR
4,657,200 1.5% 22.0% 35.0% 358,604
4,717,743 1.5% 22.0% 35.0% 363,266
4,779,074 1.5% 22.0% 35.0% 367,989
4,841,202 1.5% 22.0% 35.0% 372,773
4,904,137 1.5% 22.0% 35.0% 377,619
4,967,891 1.5% 22.0% 35.0% 382,528
82,950 23.1% 1.8% 15.4%
94,400 26.0% 2.0% 13.8%
114,050 31.0% 2.4% 20.8%
132,650 35.6% 2.7% 16.3%
151,450 40.1% 3.1% 14.2%
171,450 44.8% 3.5% 13.2%
$1,615 18.8%
$1,835 13.6%
$2,195 19.6%
$2,540 15.7%
$2,915 14.8%
$3,295 13.0%
13%
5,000 1.4% $16,200 $80 -11.1%
4,700 1.3% $16,200 $80 0.0%
4,400 1.2% $16,200 $70 -12.5%
4,100 1.1% $16,200 $70 0.0%
3,000 0.8% $16,200 $50 -28.6%
3,050 0.8% $16,200 $50 0.0%
-8%
54,150 15.1% $21,347 $1,160 17.2%
56,300 15.5% $21,347 $1,200 3.4%
60,700 16.5% $21,347 $1,300 8.3%
64,850 17.4% $21,347 $1,380 6.2%
70,250 18.6% $21,347 $1,500 8.7%
73,850 19.3% $21,347 $1,580 5.3%
5%
13,950 3.9% $16,000 $225 73.1%
21,800 6.0% $16,800 $365 62.2%
31,300 8.5% $16,800 $525 43.8%
41,000 11.0% $16,800 $690 31.4%
49,100 13.0% $16,800 $825 19.6%
57,400 15.0% $16,800 $965 17.0%
27%
4,850 1.4% $16,100 $80 0.0%
4,700 1.3% $16,100 $80 0.0%
4,400 1.2% $16,100 $70 -12.5%
4,450 1.2% $16,100 $70 0.0%
3,800 1.0% $16,100 $60 -14.3%
3,850 1.0% $16,100 $60 0.0%
-5%
5,000 1.4% $14,000 $70 0.0%
5,100 1.4% $14,000 $70 0.0%
5,150 1.4% $14,000 $70 0.0%
5,200 1.4% $14,000 $70 0.0%
3,800 1.0% $14,000 $50 -28.6%
3,850 1.0% $14,000 $50 0.0%
-5%
0.0% $20,000 $0
1,800 0.5% $20,000 $40
8,100 2.2% $20,000 $160 300.0%
13,050 3.5% $20,000 $260 62.5%
21,500 5.7% $20,000 $430 65.4%
29,450 7.7% $20,000 $590 37.2%
NM
Amgen/Wyeths Enbrel #1 In Psoriasis, But Losing Share

Enbrel continues to dominate the biologic market for moderate-to-severe psoriasis with approximately 65% share. However, Abbots Humira is experiencing strong uptake by dermatologists, and our consultants believe that, over the next 12 months, Enbrels share could decline to 55-60%. Despite market share loss to Humira, Enbrel sales in psoriasis are likely to remain relatively stable as 1) patients who are well cared for on Enbrel are unlikely to switch, 2) Enbrel still benefits from the perception of superior safety, a concept that could gain further support via a
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Dermatology
potential label in pediatric psoriasis, and 3) the market for biologics will continue to grow with greater promotional support. Most of our consultants prefer Humira to Enbrel for new patients. This preference is attributed to Humiras superior efficacy as compared to Enbrels required step-down dosing regimen. Physicians indicate that they are forced to use step-down dosing (50 mg twice weekly for 12 weeks followed by 50 mg once weekly). Unfortunately, the step down from 100mg/week to 50mg/week is problematic for up to one half of patients who perform less well on the lowered dose. Third-party payors have kept tight rein over use of Enbrel at the higher, more efficacious dose owing to its substantially higher cost (approximately $36K/year vs. $18K/year). Consultants would rather try Humira first given its superior efficacy than try Enbrel which, especially in patients with severe disease, tends to have a suboptimal response. Our dermatologists anticipate that 25-33% of currently treated patients will be switched from Enbrel to Humira due to inadequate response. Physicians believe that Enbrel has a better safety profile than Humira and Remicade. They feel that psoriatic patients have more skin and soft tissue infections with Humira and Remicade than Enbrel. In terms of new patients, those with more moderate disease or those with positive latent tuberculosis skin tests will likely be prescribed Enbrel. Physicians note that Amgens direct-to-consumer advertising campaign (which was restarted in Q4:08) has garnered attention among psoriatic patients, and that such patients have been coming into their offices specifically requesting Enbrel for their psoriasis. Pediatric Psoriasis Indication For Enbrel Held Up On REMS Program In June 2008, the FDA's Dermatologic and Ophthalmic Drugs Advisory Committee (DODAC) recommended approval for Enbrel in moderate-to-severe pediatric psoriasis (8 in favor, 5 against). FDA approval of the label expansion was delayed past the PDUFA date in August 2008 pending further work on a risk management program. We are hopeful for approval in 2009. An approval in pediatric psoriasis would give Enbrel a notable advantage in the increasingly competitive market. While the market opportunity for Enbrel in pediatric psoriasis (an orphan condition) is very modest, our consultants believe Enbrel could gain a significant commercial advantage by becoming the only biologic in psoriasis with a label in children. They assert that community dermatologists who have yet to buy into biologics due to lingering safety concerns might be persuaded by such a label and inclined to use Enbrel.
Abbotts Humira Impresses, Gains Market Share

In January 2008, Abbotts Humira was approved for moderate-to-severe chronic plaque psoriasis in the U.S. With this approval, Humira has emerged as the biggest potential threat to Enbrels dominance in dermatology. Commentary by our consultants indicates that Humiras share of the market is likely to be >25% as the drug is being aggressively used on a growing population of Enbrel failures, and the more specialists physicians adopt Humira as a first-line drug for new patients. Pivotal data for Humira suggest superior efficacy to Enbrel. Results from the Phase III REVEAL and CHAMPION studies were presented at scientific meetings in October 2006 and January 2007, respectively. REVEAL was a placebo-controlled, multi-center trial. Primary endpoints were percentage of patients achieving 75% improvement (PASI 75) in skin clearance after 16 weeks and proportion of patients who lost
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Dermatology
adequate response through week 52 after stopping treatment with Humira at week 33. The following table summarizes key results: Humira 71% 45% 52% Placebo 6.5% 1.8% 9%
% of Patients at PASI 75 @ 16 weeks % of Patients at PASI 90 @ 16 weeks Avg. Improvement @ 4 weeks

Source: Abbott
The following table summarizes results from REVEAl in patients who achieved PASI 75 at 16 weeks and then continued on Humira (open label) through week 33 and then post-week 33 were randomized to receive placebo or Humira:
% of Patients Below PASI 50 (wk 33-52)
Source: Abbott
Humira 5%
Placebo 28%
CHAMPION was a 16 week, 271-patient study evaluating the efficacy and safety of Humira compared to methotrexate and placebo. The primary endpoint was the percentage of patients achieving at least 75% reduction in disease activity at 16 weeks as measured by PASI 75. The secondary endpoint was physician assessments of patient psoriasis (clear or minimal) at week 16. The following table summarizes results:
Primary Endpoint PASI 75 ~80% 35.5% 18.9% PASI 75 -P<0.001 P<0.001 Secondary Endpoint Physician Assessment p-value 73% -30% 11% p<0.001 p<0.001
Humira MTX Placebo

Source: Abbott
J&Js Remicade, DNA Raptiva Have More Niche Opportunities

J&Js Remicade (infliximab), a chimeric anti-TNF monoclonal antibody, was approved for the treatment of psoriasis and psoriatic arthritis in September 2006. We anticipate that Remicade will continue to be used in patients who fail Enbrel and/or Humira given the ability to dose escalate and to increase compliance. Genentech/Xoma's psoriasis therapy Raptiva was approved by FDA in October 2003. Raptiva is dosed once-weekly by subcutaneous injection. Consultants view Raptiva as a niche therapy that is reserved mostly for patients who are refractory to or contraindicated for anti-TNF therapy (<10% of patients). While some patients respond very well and quickly to Raptiva, the potential for serious rebound flares, a lack of efficacy in psoriatic arthritis, and a concern for developing PML will continue to limit the drugs use.
J&Js Ustekinumab Looks Like A Blockbuster (Over Time)

Ustekinumab is a fully human monoclonal antibody targeting IL-12 and IL-23 that is currently under at the FDA for the treatment of moderate to severe plaque psoriasis.
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Dermatology
In June 2008, the FDA's Dermatologic and Ophthalmic Drugs Advisory Committee unanimously recommended approval of ustekinumab. The panel also voted 7 to 4 for this injectable to only be administered in the physician's office. The FDA has asked JNJ to compile a REMS program prior to ustekinumabs approval, which now appears likely in H2:09. Our consultants view the efficacy profile as superior to the currently available antiTNF agents, and the dosing profile (administerd every 3 months) as a significant advantage. Though still early, the safety of the drug to date is viewed as equal to, if not better than, the currently available anti-TNF inhibitors. No opportunistic infections have been seen thus far. Although a lack of long-term safety data is likely to keep the typically conservative community dermatologist on the sidelines in the near term, our physician consultants expect to move anti-TNF failures to the drug aggressively and will likely use ustekinumab first line in some new patients. However, the requirement for in-office administration (leading some payors to charge higher co-pays) may restrict its use in the near term, even in more aggressive practices. Ustekinumabs Phase III pivotal trials were PHOENIX I and II. In PHOENIX I, 766 patients were randomized to receive placebo or 45 mg or 90 mg of subcutaneous ustekinumab at weeks 0 and 4 of the study, and then every 12 weeks thereafter. At the 12-week mark, those in the placebo group crossed over to receive 45 mg or 90 mg of ustekinumab, with additional doses on week 16 and then every 12 weeks thereafter. At 40 weeks, the 160 patients who were in the 45-mg treatment group from baseline and the 161 in the 90-mg treatment group from baseline who achieved a PASI 75 response at weeks 28 and 40 were further randomized to receive either ongoing treatment or placebo every 12 weeks. Of those in the ongoing treatment groups, 96% maintained at least a PASI 50 score through week 76, compared with just over 30% in the placebo groups. PASI 75 and 90 scores were also maintained in more patients in the ongoing treatment groups compared with the placebo groups. The results PHOENIX II showed that ustekinumab was effective and safe in more than two-thirds of 1,230 patients with moderate to severe disease who received two subcutaneous doses of the drug. A 75% improvement in the PASI 75 score was achieved in 67% of patients randomized to receive 45-mg doses, 76% of those randomized to receive 90-mg doses, and 4% of those in the placebo group.
Phase III Efficacy Results At 12 Weeks
Source: FDA
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Dermatology
Head-To-Head Study Demonstrates Superiority To Enbrel J&J also sponsored a Phase III head-to-head trial of ustekiunumab versus Enbrel. 903 patients were randomized to either ustekiunumab (on week 0 and 4: 209 patients received 45mg dose, 347 patients received 90mg dose) or Enbrel (347 patients 50mg twice weekly for 12 weeks). Ustekiunumab demonstrated a statistically significant benefit over Enbrel for the primary (PASI 75) and secondary (PASI 90 and Physician Global Assessment). Both biologics were well tolerated and had similar adverse event and serious adverse event profiles.
Phase III Efficacy And Safety Results
PASI 75 PASI 90 Physician Global Assessment 1+ Adverse Event 1+ Serious Adverse Event AEs Leading To Discontin. Injection Site Erythema Ustekiunumab 45mg Ustekiunumab 90mg 68% 74% 36% 45% 65% 71% 66% 68% 1.9% 1.2% 1.9% 1.2% 0.7% (combined both doses) Enbrel 57% 23% 49% 69% 1.2% 2.3% 14.7% p Value for 45mg dose p=0.012 p<0.001 p<0.001 p Value for 90mg dose p<0.001 p<0.001 p<0.001
Source: J&J
Abbotts ABT-874 Could Also Be A Major Player

Abbott is also developing ABT-874, a fully human interleukin 12/23 monoclonal antibody. Abbott presented Phase II data on ABT-874 in patients with psoriasis in May 2007. Our consultants view the Phase II data on ABT-874 as equal to JNJs ustekinumab in terms of efficacy and safety, although the drug is being developed using a slightly more frequent dosing schedule (200 mg on weeks 0 and 4 and 100 mg on week 8). A Phase III program is currently underway. Two randomized double-blind placebo controlled studies are enrolling a total of 700 patients to ABT-874 (200 mg on weeks 0 and 4 and 100 mg on week 8), Enbrel (50 mg twice weekly), or placebo for 12 weeks. Primary endpoints are Physician Global Assessment and PASI 75 score. The secondary endpoint is PASI 100 score. Data are expected in mid-09. Unlike J&Js ustekiunumab, ABT-874 will be self administered by patients and not dosed in doctors offices, a, important potential point of differentiation between the two products that could facilitate greater uptake of ABT-874.
Celegenes Apremilast Shows A Signal, But More Work Needed

In May 2007, Celgene reported positive top-line proof-of-concept data for CC-10004, an oral TNF-alpha inhibitor, in psoriasis, followed by the final data presentation at the AAD meeting in 2008. The trial was a randomized, double-blind study comparing twice-daily apremilast (CC-10004) to placebo over 12 weeks in 260 moderate-tosevere psoriasis patients. The safety data describe apremilast as being well tolerated. On the standard PASI-75 psoriasis metric, apremilast achieved a 14% placebo-corrected improvement in 20mg 2x/day group, which was statistically significant. However, this benefit fell short of data generated for the best dose of AMGN's twice-weekly Enbrel, which demonstrated a placebo-corrected benefit of 43% for PASI-75 at 12 weeks in two large Phase III trials. CELG is currently conducting a placebo controlled 348-patient Phase II study of 10 mg, 20 mg, and 30 mg apremilast in moderate to severe psoriasis, and data will likely be available in H2:09.
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Dermatology
The primary endpoint is the PASI 75score at week 16. Apremilast's efficacy is not as impressive as twice-weekly Enbrel, and consultants believe that, even though apremilast is dosed orally, CELG will still need to show significantly more robust efficacy data (in line with methotrexate) to be considered as a treatment option.
UCBs Cimzia Data In Psoriasis Are Encouraging

In July 2006, UCB Pharma reported positive top-line data from a 12-week Phase II study of Cimzia (PEGylated anti-TNF) in patients with moderate-to-severe chronic plaque psoriasis. The co-primary endpoints of the study were the proportion of patients achieving a 75% decrease from baseline in PASI scores. The 176-patient, dose-ranging study achieved statistical significance (p<0.001) at both doses of Cimzia tested (200 and 400mg every two weeks). UCB Pharma plans to provide an update on next steps for the psoriasis indication in the near future.
Pfizers JAK 3 In Phase II Psoriasis Trials

Janus kinase (JAK) inhibitors have potential for autoimmune diseases including psoriasis. Efficacy and toxicity are mechanism related and possible side effects include infections, liver function test, hematologic, and lipid abnormalities. Establishing an approvable therapeutic index will be key to success.
CP-690,550 is Pfizers mixed JAK-1 and JAK -3 antagonist that is in a Phase IIb trial for patients with moderate-to-severe plaque psoriasis. The 12-weel randomized double blind placebo controlled study has enrolled 200 patients with a primary endpoint of the PASI 75 score. Data are expected in Mid:09. Several companies are developing NMEs that could compete directly or indirectly (e.g. Arrays MEK, Rigels SYK, and IncytesJAK 2 inhibitors) with CP-690,550.
Actinic Keratosis Caused By Exposure To Sun

Actinic Keratosis is a dermological precancerous skin condition that is caused by excessive ultraviolet light exposure from the sun. Characterized by dry, scaly, rough-textured areas of skin in sun-exposed regions such as the face, head, neck, and hands, actinic keratosis manifests itself in a variety of colors and sizes ranging
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Dermatology
from skin colored to redish brown and the size of pinhead to larger than a quarter. Actinic Keratosis is easily diagnosed by physicians at office visits and prompt treatment is always recommended since the lesions are considered the earliest form of skin cancer that has the potential to become squamous cell carcinoma. People with Actinic Keratosis already have sun-damaged skin, making them more prone to the other various skin cancers such as Melonoma. The cause of Actinic Keratosis is years of sun damage to the keratinocytes, which are the cell line that makes up most of the epidermis. The UV light from the sun causes structural mutations in the cells ultimately altering their size, shape, and organization. It is this disorganized growth of cells in Actinic Keratosis that is worrisome since cancer, simply uncontrolled cell growth, is one of the next physiological steps in progression. The populations most at risk for Actinic Keratosis are fair skined people who are over exposed to UV light from the sun and the immunocompromised. Having a history of cumulative sun exposure is clearly a risk factor and very prevalent in populations that live closer to the equator. A survey by the American Academy of Dermatology found that the publics behavior regarding sun exposure has not changed much over the decades despite educational efforts. It is for this reason that millions of people worldwide have diagnosed Actinic Kartosis and even millions more are undiagnosed. One study in Australia showed that over over 60% of the population over the age of 40 had Actinic Keratosis.
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Dermatology
Cryosurgery In-Office Procedure Generally Regarded As Quick And Cheap

The market for actinic keratosis treatments is estimated to be over $1.0B. Current treatments for Actinic Keratosis include cryosurgery (freezing), surgical excision, curettage (scraping), laser surgery, chemical peels, and various topical creams. Cryotherapy is generally regarded as quick and cheap, with attractive reimbursement. In addition, it is well established in dermatology practices. However, it has significant limitations. Patients generally experience long-term scarring and there is a potential for localized pain and irritation. Another option for patients is Dusas Levulan Kerastick for Topical Solution. The topical application plus blue light illumination is a two-step (drug plus blue light). While this procedure requires just a single topical application, patients have to experience irradiation 14 to 18 hours later. Additionally, patients feel burning and stinging. In lieu of these procedures, topical therapies present viable options for treatment of actinic keratosis. Topical therapies include various fluorouracil formulations, imiquimod 5% cream (Aldara), and diclofenac 3% gel (Solaraze). Other topical agents such as colchicine and tretinoin have been been used but there are no clinical trials to substantiate their use. Fluorouracil is available in 5% (Efudex), 1% (Fluoroplex), and 0.5% (Carac) formulations.
Graceways Aldara Is Current Market Leader For AK But Has Limitations

Graceway Pharmaceuticals/3M's Aldara first cleared FDA in 1997 for external genital and perianal warts and was approved in March 2004, for the treatment of actinic keratoses (AK) on the face or scalp. It is the first immune response modifier (IRM) approved for AK. The approval was based on the positive results from two doubleblind, randomized, placebo-controlled clinical trials involving 436 patients with multiple AK lesions. Patients were treated with Aldara Cream or placebo twice a week for 16 weeks. Nearly half of the patients treated with Aldara Cream achieved complete clearance of all lesions, compared to just three percent in the placebo group. A majority of patients experienced lesion clearance of 75 percent or more. Aldara received a supplemental approval for the treatment of superficial basal cell carcinoma in July 2006. FDA approval was based on two placebo-controlled trials involving 364 patients. Twelve weeks after treatment, 75% of patients on Aldara had no clinical or biopsy evidence of sBCC, compared to 2% on placebo. Graceway is also performing a five-year open-label follow-up study. According to 1labeling, 79% of patients remained clinically clear after 24 months. The challenge of using Aldara is that it is used twice per week for 16 weeks, which is a significant duration of therapy. Therefore, patients often prefer in-office procedures to Aldara. According to IMS, Aldara recorded sales of $330MM (+21%) in 2008. Aldara could face generic competition in February 2010, given the expiration of an Orange Book-listed patent.
Schwarz/Nycomeds Solaraze Effective Topical Treatment

Solaraze is a topical treatment for actinic keratosis. Solaraze uses hyaluronic acid gel technology to maximize the concentration of the active drug (diclofenac) in the upper layers of the skin. Solaraze is licensed to Bradley Pharmaceuticals (which was acquired by Nycomed) in the U.S., Canada & Mexico and to Shire in Europe and Australia. Solaraze is used daily for a 90-day period. Our consultants believe that the need to use Solaraze for an extended period of time will likely limit its potential
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and maintain its status as a niche therapy. According to IMS, Solaraze recorded sales of $47MM (+21%) in 2008.
Lamisil Generics Dominate Onychomycosis Market

A fungal nail infection, referred to in medical terms as onychomycosis, occurs when fungi (a kind of microorganism) infect nails. Patients first notice the infection as a white or yellow spot under the tip of the nail. Symptoms of a fungal infection may include brittleness, discoloration, thickening and crumbling of the nail, as well as debris under the nail itself. In some cases, the nail can detach from the nail bed. Approximately 50 percent of all nail disorders are fungal infections. Medical literature places prevalence rates among adults at between 2% to 4%. There are many contributing causes, including physical damage to the nail, a weakened immune system due to conditions such as diabetes and cancer, and overexposure to water or detergents. Novartis Lamisil has been the leading product to treat onychomycosis. However, the FDA approved the first generic versions of Rx Lamisil tablets in June. FDA approved applications from multiple generic drug manufacturers for terbinafine hydrochloride tablets in 250-milligram formulations. In addition to terbinafine tablets, FDA also approved an application for a generic version of overthe-counter Lamisil cream (terbinafine hydrochloride, 1 percent). The cream is manufactured by Taro. Generic versions of Lamisils competitor itraconazole were approved in 2005.
Atopic Dermatitis Market Relies On Immunosuppressants, Corticosteroids

Atopic dermatitis (AD) is a disease of unknown origin that usually starts in early infancy and is typified by pruritus, eczematous lesions, xerosis (dry skin), and lichenification on the skin (thickening of the skin and increase in skin markings). It is also known as eczema and atopic eczema. AD is associated with other atopic diseases (eg, asthma, allergic rhinitis, urticaria, acute allergic reactions to foods, increased immunoglobulin E production) in many patients. Our physician consultants indicate that treatment of atopic dermatitis relies primarily on the use of topical formulations (corticosteroids and immunosuppressants). Antihistamines also appear to be useful agents for atopic dermatitis. The two topical immunosuppressants pimecrolimus (Novartiss Elidel) and tacrolimus (Astellas's Protopic) are the leading branded products in this segment. Protopic (tacrolimus) was approved in 2000 as a non-steroidal topical ointment for the treatment of the signs and symptoms of atopic dermatitis. Elidel was approved in 2001. In 2005, a black box warning for potential cancer risk was added to the labeling of Novartis' Elidel and Fujisawa's Protopic, causing a decline in sales for both drugs. KEY PATENT EXPIRATIONS
Drug Aldara Dovonex Cream Solodyn Taclonex Oracea Manufacturer Graceway Warner Chilcott Medicis Warner Chilcott Collagenex Patent Expiration 2/10 6/2015 2018* 1/2020 2022 U.S. Sales in Year Patent Expires ($MM) 200 ---------
* December 2008 patent settlement with Impax allows for November 2011 launch
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Dermatology
Cosmetic Procedures: A Significant Opportunity

Plastic surgery encompasses both cosmetic and reconstructive surgery. Cosmetic surgery is a subspecialty of medicine and surgery that is entirely elective and is intended to enhance ones appearance. Cosmetic surgeons typically complete their specializations in dermatology, general surgery, otolaryngology or obstetrics or have received continuing medical education in cosmetic surgery. Plastic surgery is differentiated from cosmetic surgery in that it is typically medically indicated and reconstructive in nature while cosmetic surgery is elective. The focus of this section is on elective aesthetic procedures. The overall aesthetic/cosmetic surgery market is estimated to be about $2B, with approximately 5MM procedures conducted annually in the U.S. alone. Cosmetic surgery procedures can be either invasive or non-invasive. Key procedures relevant to the aesthetic market are Botulinum toxin (non-invasive), dermal fillers (noninvasive), breast augmentation (invasive) and lipoplasty (invasive). According to the American Society of Aesthetic Plastic Surgery, people aged 35-40 had the most number of procedures (46%) followed by people aged 19-34 had the second most (21%).
Market For Aesthetic Procedures
Top Non-Invasive Cosmetic Procedures
3,000,000 500,000 450,000
Top Surgical Cosmetic Procedures
Annual Number of Procedures
2,500,000
Annual Number of Procedures
400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000
2,000,000
1,500,000
1,000,000
500,000
0 Botox Hyaluronic Acid (Dermal Fillers) Laser Hair Removal Microdermabrasion Laser Skin Resurfacing 0 Liposuction Breast Augmentation Eyelid Surgery Abdominoplasty Breast Reduction
Source: American Society of Aesthetic Plastic Surgery (2007) Aesthetics Market: Consumer Demographics By Age & Sex
<18 years, 2% 65+ years, 6%
Men, 9%
51-64 years, 25% 35-40 years, 46%
19-34 years, 21%
Women, 91%
Source: American Society of Aesthetic Plastic Surgery (2007)
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Dermatology
Botox Is The Leading Franchise In The Aesthetics Market

The market for botulinum toxin worldwide is estimated at about $600MM+, with the U.S. market accounting for approximately $400MM in 2008 sales. Of this market, the leader is Allergans Botox (botulinum toxin type A), which is a purified, injectable neurotoxin approved for the the temporary treatment of glabellar lines (frown lines; marketed as Botox Cosmetic). Outside of the cosmetic arena, Botox is also a treatment of strabismus (ocular muscle spasm causing cross eye), blepharospasm (eyelid spasm and closure), cervical dystonias (movement disorders associated with muscle spasms or paralysis in the upper neck and back), and severe primary axillary hyperhidrosis (excessive sweating). However, we estimate that Botox Cosmetic currently accounts for 50% of Botox sales (and therefore 15% of total Allergan revenues). This percentage likely will fluctuate slightly, given the current economic downturn and as new therapeutic indications for Botox are granted approval. While reimbursement for other indications, including hyperhidrosis and headache (offlabel), is common, treatment with Botox Cosmetic for gabellar lines is not reimbursed by third-party payers. Checks with our dermatology consultants indicate that patient satisfaction with Botox Cosmetic treatment is extremely high. Our consultants estimate that 90-95% of Botox patients are women, 40 to 60 years of age, and indicate that 70%+ of patients receiving their first Botox treatment will return for additional treatments. The average Botox Cosmetic treatment takes approximately 15 minutes, and since the effects of Botox are temporary, patients typically receive 3-4 treatments per year. While sideeffects such as temporary eyelid paralysis have been reported, our consultant indicated that overall side effects are rare, with eyelid paralysis occurring in less than 1% of patients. Allergan indicates that Botox international sales account for about 35% of the franchise. Botox is the sole product for the cosmetic indication approved in a few major Europe markets and competes with Ipsens Dysport in other countries. But Medicis Reloxin Set To Enter Botoxs Turf Similar to Botox, Reloxin is a purified, injectable botulinum toxin type A. The U.K.based company Ipsen markets Reloxin in more than 70 countries worldwide for a variety of indications under the brand name Dysport. In July 2006, Medicis acquired the U.S. cosmetic rights to be marketed under the name Reloxin. While Medicis has the U.S. rights to Reloxin, the filing for the cosmetic use continues to be under Ipsens name. In January 2009, Ipsen announced that the FDA had extended the PDUFA date for Reloxin for cosmetic use to April 13, 2009, which was a delay of three months. Ipsen noted that the FDA did not make any specific request in its notification, although it appears to us that the agency is not going to rule on this filing until it makes a judgment on Ipsens Dysport for a therapeutic indication. The FDA has confirmed that the manufacturing facility for Reloxin in Wrexham (Wales) is in compliance with current FDA standards. We continue to believe that both Dysport and Reloxin will garner approval and launch by mid-year 2009. Ipsen is also seeking to market its botulinum toxin A for cervical dystonia under the brand name Dysport. Ipsen filed with the FDA to market Dysport for the therapeutic indication of cervical dystonia in December 2007. In September 2008, Ipsen announced that the FDA had moved the PDUFA date for Dysport to December 28, 2008. At that time, the FDA indicated that it wanted Ipsen to develop a Risk Communication Plan in order to ensure the proper use of the product. Ipsen also indicated to us that this risk plan would need to be applied to Mediciss Reloxin
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filing. On December 29, 2008, Dysport noted that the FDA had further extended the regulatory review for Dysport via a Complete Response. It appears that the FDA has not requested any new clinical studies prior to approval. Rather, the FDA is awaiting the finalization of the risk management program and draft labeling, as well as a safety update report. Our understanding is that a safety update report is typically part of the FDA post marketing requirements. Ipsen indicated that it would file the requested information in Q1:2009. Once approved, Reloxin will challenge Botoxs monopoly in the cosmetic market although this task will be exceedingly difficult given the Botox brand name, early advantage, and physician and patient comfort with the product. Although our physician consultants do not believe that there is any meaningful differentiation between Reloxin and Allergans Botox, they did indicate that modestly faster onset of action for Reloxin and physicians negative sentiment towards Allergan created by their continual price increases could be positive factors accelerating uptake. Although they indicated that favorable pricing by Medicis could lead to more rapid share gains, Medicis has consistently indicated that it is very unlikely to price discount which is sensible given Allergan would likely just respond in kind. One point of concern of our consultants is that Reloxins dosing units differ from Botox without any simple linear relationship and therefore there will need to be some initial physician education. As for adverse events, it appears that Reloxins ptosis rate (droopy eyelids) may be marginally better than Botox, which is labeled at 3%. Our consultants indicate that this could serve as an important marketing distinction for Reloxin. We estimate Reloxin sales of $150-200MM in 2012, or roughly 15-20% of the treatment market.
U.S. Botulinum Toxin Cosmetic Market
2007 Total U.S. Neurotoxin Sales (MM) Growth Rate Cosmetic Neurotoxin Use % of Total Total Cosmetic Neurotoxin Sales (MM) Growth Rate Boxtox U.S. Cosmetic Share (AGN) Procedures (000) Average Cost Sales ($MM) Reloxin U.S. Cosmetic Share (MRX) Procedures (000) Average Cost Sales ($MM) Others Share Procedures (000) Average Cost Sales ($MM) Total Cosmetic Market Sales (MM) % Growth $395 +30% $425 +8% $400 -6% $465 +16% $785 +17% 50% $395 +30% 100% 878 $450 $395.0 2008 $850 +15% 50% $425 +8% 100% 944 $450 $425.0 2009E $800 -6% 50% $400 -6% 94% 833 $450 $375.0 6% 56 $450 $25.0 2010E $925 +16% 50% $465 +16% 85% 878 $450 $395.0 15% 156 $450 $70.0 2011E $1,020 +10% 54% $550 +18% 74% 900 $450 $405.0 21% 256 $450 $115.0 5% 120 $250 $30.0 $550 +18% 2012E $1,090 +7% 55% $600 +9% 69% 922 $450 $415.0 26% 344 $450 $155.0 5% 120 $250 $30.0 $600 +9% +13% - Growth accelerating with newer products - Rapidly growing category +6% - Licensed from Ipsen; filed in 2008; approval likely in mi - May have faster onset of action - Likely to be priced in-line with Botox -6% - Leading treatment - market creator - Procedure growth should continue to steadily grow - Princing continues to increase - Currently 50% of procedures is for cosmetic - Assumes the largest factor in total neurotoxin growth CGR Comments +10% - Consistent growth assumed - 65% of WW Botox in '07
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JNJ/Mentors Puretox, Merzs Xeomin In Development In U.S. In addition to Botox and Reloxin, other Type A toxins are in development. Two products appear to be future competitors Merz Pharmaceuticals Xeomin (NT 201) and JNJ/Mentors Puretox (JNJ is in the process of acquiring Mentor). Both of these products are initiating their Phase III programs. Merzs Phase III program was initiated in October 2006 and is currently enrolling patients, with a total expected enrollment of about 250 patients. The study is investigating the efficacy and safety of NT 201 in the treatment of glabellar frown lines. NT-201 is also in trials for blepharospasm and cervical dystonia. Mentors Puretox has entered Phase III. Our consultants indicate that there is little to differentiate Reloxin/Botox from Puretox and Merzs Xeomin. However, unlike Medicis and Allergan, the ultimate pricing decisions by Mentor and Merz Pharma may be less disciplined in their attempt to gain share, which may become a concern.
Market For Dermal Fillers Getting More Competitive

Over the last 10 years, there has been a significant increase in the use of dermal fillers in the U.S. and globally. Medicis was one of the early leaders in dermal fillers with its hyaluronic acid filler product line (Restylane, via Q-Med). Allergan established a major presence in the dermal filler space via its acquisition of Inamed in 2005. Through the acquisition, Allergan gained Cosmoderm/Cosmoplast and Zyderm/Zyplast, fillers that use collagen rather than hyaluronic acid. In 2007, Allergan launched Juvederm, a competitor to Restylane. Since its launch, Allergan has increasingly drawn share away from Restylane primarily by bundling Juvederm with Botox for high-volume prescribers, which lowers cost, therefore increasing profitability to the practice. Overall, the dermal filler space has become increasingly crowded and competitive. In recent months, it has also been suffering from the difficult economic environment. Our consultants note that cosmetic procedures are down significantly across the U.S. In some parts of the country, such as in the MediSpa (medical spas that offer traditional spa services and medical age-reduction treatments, including facials and massages) market, cosmetic procedures are believed to be down by roughly 50%. In addition, the dermal filler space is seeing newer entrants. While over 30 companies worldwide offer more than 75 different types of dermal fillers, only a handful of these products are available in the U.S. In recent months, JNJ has introduced Evolence, a filler similar to Restylane and Juvederm, and Mentor has introduced Purvell. These products should continue to erode share; however, we believe increasing marketing could also grow the total market opportunity. Although we believe the macro environment may stay challenging through 2010, we assume market growth for dermal fillers will indeed resume that year. Dermal fillers can be classified in three broad categories: (1) temporary biodegradable, (2) semi-permanent bio-degradable, and (3) permanent bio-degradable filler materials. Allergans Juvederm (described in detail below) and Medicis Restylane/Perlane are temporary bio-degradable fillers. These remain the fillers of choice due to their ease of use, temporary nature and the lack of animal-sourced materials, which obviates the need for allergy testing. Clinicians remain hesitant about permanent fillers because of the lack of flexibility with use and the lack of exposure to such products. Therefore, although we see a likely more competitive environment for Juvederm in the future, we do not believe that there will be a significant market shift.
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Dermatology
Juvederm Has Become A Tough Competitor To Medicis Restylane

Juvederm, manufactured by the Corneal Group, is marketed by Allergan in the U.S. Allergan obtained the right to market it in the U.S. via the acquisition of Inamed. Allergan also has rights to market Juvederm in Canada and Australia and has nonexclusive rights in a few other countries. Worldwide, Juvederm comes in three strengths: (1) Juvederm 18, the least dense product used for filling fine lines and wrinkles such as crow's-feet or smile lines; (2) Juvederm 24, a denser version used to treat forehead lines, eyebrow furrows, and cheek wrinkles; and (3) Juvederm 30, the thickest formulation used for the deepest folds and wrinkles and to fill facial depressions and to shape lips. Our physician consultants believe that Juvederm may be just modestly better than the market leader Mediciss Restylane, which is also a hyaluronic acid-filler and the same active ingredient as in Juvederm. However, these differences are extremely small. From a technical standpoint, our clinicians note that Juvederm is in fact slightly easier to work with than Restylane. They note that Juvederm is particularly well-suited for the lips, where people normally want softer fillers. However, in general our consultants note that despite this modest advantage, in reality there appears to be little to differentiate Juvederm and Restylane. It is possible that Juvederm could have a slight advantage when it comes to new physicians, but this is typically a smaller market. In recent weeks, our consultants have noted that the dermal filler market has been experiencing some drop in overall demand given the economy. Additionally, our consultants note that factoring in Allergans Botox/Juvederms bundling, Juvederm is acquired at a noticeable discount to Restylane for many high-volume users. Our consultants note that generally the use of Juvederm or Restylane will depend on brand loyalty and the actual cost of Juvederm versus Restylane, since Allergan has the capability to bundle Juvederm with Botox. While Allergan is not able to discount Botox (because of its therapeutic indications and government best-price rebating), our physicians believe that the cost of Juvederm is flexible. Currently, Juvederm is priced at a slight premium to Restylane. Juvederm is approximately $240 for a 0.8 mL syringe, while Restylane is about $235 for a 1.0mL syringe. However, plastic surgeons who are high-volume Botox users note that after bundling, the effective cost of Juvederm is often as low as $100 per syringe. This has caused some of the early and dramatic share gains versus Restylane. As a rule of thumb, our consultants note that the cost for the patient is approximately double the cost to the physician. Our physician consultants point out that for a similar price they are getting less Juvederm (as a 0.8ml syringe) versus Restylane (1.0ml). Our consultants say that for high-volume users, the difference of 0.2ml is ultimately large which would benefit Restylane unless Allergan corrects the discrepancy. Additionally, our consultants indicate that Restylane is available in a 0.5ml syringe, which is of great use when it comes to performing touch-up procedures. Juvederm does not come in a 0.5ml syringe. Therefore, physicians have to manage their use of the 0.8ml syringe in order to get the most efficient dosing out of Juvederm. Overall, our consultants believe that Juvederm and Restylane are essentially undifferentiated. They expect that much of Juvederms uptake will continue to depend on how it is bundled with Botox. Once Reloxin is approved, they anticipate that it will level the playing field since Medicis will have the capability to offer similarly bundled packaging. However, that approval is at least one year away. In two years, our consultants expect Juvederm to have about 20%+ of the dermal filler market. Over a period of five years, our consultants anticipate that Juvederm and
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Restylane will split the market evenly. They note that these estimates could have modest upside if Allergan (1) introduces a 1.0mL syringe; and (2) introduces a 0.5mL touch-up syringe. Juverderm/Lidocaine Could Be Growth Driver Allergan is expecting approval of its Juvederm/Lidocaine filler in 2009. Our consultants indicate that, despite the low levels of pain normally experienced during a filler procedure, they believe that Allergans Juvederm plus Lidocaine formulation which could be launched by year-end 2009 could provide enough differentiation to alter the competitive landscape. We found this surprising. Q-Med and Medicis are also reportedly working on a Restylane plus Lidocaine formulation, although its development status remains unclear.
Breast Implant Market Also Under Pressure

Breast implants are used in augmentation procedures to enhance breast size and shape, correct breast asymmetries and aid in restoring fullness after breast feeding. In reconstruction procedures, implants provide a surgical solution to create a breast mound following a mastectomy due to breast cancer. According to the American Society of Aesthetics and Plastics Surgery, there were 390,000 breast augmentation procedures and 150,000 breast reduction procedures in 2007. There are two types of breast implants, saline and silicone. Two main differences between saline and silicone filled breast implants are the material that fills the inside of the breast implant and the technique used to implant them during surgery. Saline-filled breast implants are filled with saline, or a salt water solution that is compatible with the human body. During breast implant surgery, the empty breast implant shell is placed inside the womans body and then filled with saline until the desired result is obtained. On the other hand, silicone gel-filled breast implants already contain silicone gel before being implanted and cannot be adjusted during surgery. Of the breast augmentation procedures, about 60% used saline implants and 40% used silicone implants. Most breast reconstruction patients (85%+) get silicone implants. A set of silicone implants sells for approximately $1,600, or double the $800 price for the saline filled devices. Physicians fees for the two types of implants are largely similar at about $3,500-$4,500. In addition to rising patient demand, therefore, the value of the implant market is also being driven by the transitioning mix between silicone- and saline-filled implants. While silicone implants have been used in reconstruction patients in the U.S. for many years, the use of silicone for cosmetic augmentation was not formally approved by the FDA until late 2006. Silicone-filled implants were only available in the U.S. to women seeking breast reconstruction and revision surgery through clinical studies. In 2006, the FDA lifted a 14-year ban on the use of silicone gel breast implants in the U.S. after decades of contentious debate and litigation over their safety. The FDA approved Inameds silicone implants but limited cosmetic use to women ages 22 and older. Prior to that decision, there was widespread controversy that silicone implants leaked and had the potential to cause several diseases. The controversy had also led to the bankruptcy of Dow Corning. The relative proportion of sales by type of implant also varies by geographic region. Overseas, approx. 80% of patients receive silicone implants. In the U.S., we estimate that 40-50% of patients are now receiving silicone implants and that this fraction is rising as more augmentation patients choose silicone over saline.
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Surgeons Indicate Slowdown In Breast Implant Procedures Our plastic surgery consultants note that breast implant procedures in their practices have been declining dramatically over the past few months. Our consultants also express views that any rebound in the market for breast implants could be several months away. Over the past few years, our consultants have been increasingly using Allergan products, largely due to a marketing advantage for Allergan (versus Mentor), which has been able to effectively bundle discounted breast implants with high-volume usage of Botox. However, Mentor has been offering some discounts to preserve business. Our consultants also expressed the opinion that the ultimate penetration of silicone implants in the U.S. could peak between 60-70%, rather than the 80-85% seen in Europe. This differential could cost $150MM+ in market size. Current penetration is about 40% silicone in the breast augmentation market, so there is still room for significant growth if the economy recovers.
Allergans Style 410 Silicone Breast Implant Pending U.S. Approval Style 410 is a special line of implants from Allergan that has been sold in Europe since the mid-1990s, where it is the company's most popular brand. Style 410 is filled with a cohesive silicone gel that is believed to leak less frequently and to be much more resistant to developing folds or ripples than non-cohesive fillers, such as the typical silicone gel or saline. Inamed performed studies on Style 410 in 2001 and 2007, and supplemented those trials with additional data for the FDA in 2005. In October 2006, Style 410 implants were approved in Canada. Approval is pending in the U.S. Allergan indicates that it could occur in 2009. While the entire breast implant industry is under pressure given the reduction in procedures in the economic slowdown, our consultants indicate that Style 410 could enhance Allergans franchise when approved.
Allergans Latisse (Bimatoprost) Approved For Eyelash Growth

In December 2008, the FDA approved Allergans Latisse (bimatoprost) for use in eyelash growth. Bimatoprost is also the underlying compound in Allergans Lumigan and has been approved for glaucoma since 2001. Allergan estimates that the global mascara market is about $3.7B and estimates global peak sales for Bimatoprost in this indication could be around $500MM. Our consultants indicate that there is already some modest level of Lumigan off-label use in this indication. Additionally, there have been instances where Bimatoprost has been featured in other unlicensed products. In November 2007, the FDA reportedly seized several tubes of an eyelash product made by Jan Marini Skin Research. Allergan has since sued and settled with Jan Marini. Allergan has indicated that it will target aesthetic dermatologists as prescribers of the eyelash indication. We estimate Bimatoprost for eyelash growth sales of $40MM in 2009 and $70MM in 2010. These estimates could prove conservative.
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Diabetes
Diabetes
Diabetes: Under-Treated And Widespread
Diabetes is a disease in which the body does not produce or properly use insulin. Insulin is a hormone that is needed to convert sugar, starches and other food into +12% CGR 2008-13 energy needed for daily life. The cause of diabetes continues to be a mystery, although both genetics and environmental factors such as obesity and lack of exercise appear to play roles. If left unregulated, abnormally high glucose levels can result in organ damage involving the nervous system, kidneys, eyes, and cardiovascular system. There are 24MM children and adults in the United States, or 8% of the population, who have diabetes. An estimated 17.9MM (75%) have been diagnosed with diabetes. About 90% of patients with diabetes have Type 2 diabetes. It is estimated that by 2030 the worldwide Type 2 prevalence will have grown from 190MM to 330MM patients. In Type 2 diabetes, often both the secretion of insulin from the pancreas and the action of insulin on tissues such as fat and muscle are abnormal. Patients continue to produce insulin, sometimes in excessive amounts, but the ability to use the insulin and the amount secreted deteriorate over time. Many patients with Type 2 diabetes are obese and this adversely affects insulins ability to work. Type 2 diabetics are currently managed with diet, exercise, oral antidiabetic agents, and insulins when necessary. The use of insulins is increasing among Type 2 patients as oral agents fail to get patients to goal (HbA1c <7%) and insulins become easier to administer. Five to ten percent of diabetics have Type 1 diabetes, which is a state of absolute insulin deficiency stemming from autoimmune destruction of the insulin-producing cells in the pancreas. Patients with Type 1 diabetes produce little or no insulin and are dependent on daily insulin injections for survival. The mainstay of Type 1 diabetes treatment is insulin. A small percentage of diabetics who appear to have Type 2 diabetes actually have a slowly progressing form of Type 1 diabetes and require insulin therapy. Most patients with Type 2 diabetes also require insulin treatment later in the course of their disease.
Diabetes Category Market Share By $ Sales
PARTICIPANTS
Other 12% ABT 3% GSK 7%
2008 $21B
NVO 27% Other 24%
2013P $36B
NVO 27%
GSK 3% TDCHF 16% SNY 18% LLY 17% BMY 3% TDCHF 7%
SNY 19% LLY 17%
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Diabetes
MAJOR TRENDS &

ISSUES
In 2008, Novo Nordisk, Sanofi-Aventis, Eli Lilly, and Takeda led the diabetes category. In 2013, we forecast that Novo Nordisk (insulins; GLP-1 inhibitor) and Sanofi-Aventis (Lantus) again will lead the market. Eli Lilly and Takeda will also continue to be major players in the market. GlaxoSmithKlines position is suffering from declining Avandia sales. Insulin will remain the cornerstone of treatment. Sales growth will be driven by increased penetration of insulin analogs, resulting in compound growth of 10% to $16B+ in 2013. Sanofi-Aventis Lantus appears poised to retain its position as the leading basal insulin. Eli Lillys Humalog and Novos Novalog split the shortacting market; new competitors have had very little impact. Oral DPP-IV inhibitors, which reduce the breakdown of GLP-1, are shaping up to be the next oral diabetes blockbusters. The rollout of Mercks Januvia (sitagliptin) has been strong and may be competitor free in the near term. While Novartis Galvus (vildagliptin) has been approved by the EMEA, it has been held up indefinitely in the U.S. on safety concerns. There are questions on both Takedas alogliptin (PDUFA: 6/26/09) and Bristol-Myers/AstraZenecs Onglyza (PDUFA: 4/30/09) safety profiles. Many other DPP-4 inhibitors are in clinical development. This class is benefiting from heightened safety concerns about glitazones. Eli Lilly/Amylins Byetta sales growth has slowed since the launch of MRKs Januvia and safety concerns surrounding drug-induced pancreatitis (2008 revenues +7% Y/Y). Data from a 300-patient Phase II/III trial of the once-weekly formulation of Byetta (Byetta LAR) were positive, and could support a FDA approval. Byetta LAR is expected to hit the U.S. market in 2010. Other GLP-1 analogs that look promising include Novo Nordisks liraglutide (could be launched in the U.S. in H2:09) and Roche/Ipsens BIM 51077 and Sanofi-Aventiss AVE0010 (both in Phase III development). Use of Avandia (GSK), a thioglitazone, has been significantly impacted by the findings of potential increase in cardiovascular risk beyond heart failure. Takedas Actos appears to have a safer profile and is the benefactor of the switch away from Avandia. The discontinued commercialization of Pfizer/Nektars Exubera following a disappointing launch calls into question the size of the inhaled insulin market opportunity. Novo Nordisk/Aradigm and Eli Lilly/Alkermes dropped development of their inhaled insulins, but MannKind continues to pursue this opportunity. Our scatter plot shows that, through 2013, Novo Nordisk, Sanofi-Aventis, Eli Lilly, and Merck should dominate the diabetes segment and this category is critical to their growth.
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Diabetes
DETAILED DISCUSSION
% Of Company 2008-13 Sales Growth From Category 150% 130% 110% 90% 70% 50% 30% 10% -10% -30% -50% -70% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 2013 Sales Contribution By Company To Category ($ In B) NVS PFE ABT LLY BMY MRK SNY
NVO
GSK
ESTIMATED WORLDWIDE MARKET FOR DIABETES/METABOLIC DRUGS BY CLASS ($MM)

2008 Market % Total $11,659 57% 1,075 1,792 3,991 1,358 206 441 5% 9% 19% 7% 1% 2% 2013P Market % Total $18,388 51% 7,857 4,970 1,249 1,024 140 2,412 $36,040 22% 14% 3% 3% 0% 7% 100% $ 08-13 CGR 10% NM NM -21% -5% -7% 40% 12% NRx 87-08 CGR Comments 1% - LLY, NVO and SNY dominate NM - LLY/AMLN's Byetta NM - MRK's Januvia, NVS' Galvus, BMY/AZN's Saxagliptin NM - GSK's Avandia, Takeda's Actos NA - Various therapies 25% - ABT's Synthroid, KG's Levoxyl 12% - Glucophage/metformin 9% - Driven by insulins and glitazones
Drug Class Insulins GLP-1 Analogs DPP-IV Inhibitors Glitazones Sulfonylureas Thyroid Drugs Other Oral Agents
Injectable Insulin Will Remain The Cornerstone Of Therapy

There are an estimated 11-12MM Type I diabetics worldwide (approximately 1.6MM in the U.S.), and most are on insulin therapy. In addition, approximately 35-40% of the 13-14MM Type II diabetics in the U.S. require insulin therapy at some point. According to 2007 CDC statistics, 14% of all U.S diabetics. are on insulin alone and another 13% are on a combination of insulin and oral therapy. Patients with Type II diabetes require higher doses of insulin than patients with
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Type I diabetes because of their resistance to its action. Given the enormous population of Type II diabetics worldwide (90MM+), the market for insulin is large and should continue to grow, even with the availability of newer agents that may delay or reduce the need for insulin. The insulin market has changed substantially following the introduction of Sanofi-Aventis Lantus, a once-daily basal insulin analog, which has become the basal insulin of choice for Type I diabetics and the dominant add-on therapy for Type II patients failing oral antidiabetic agents. Worldwide insulin sales were $11.7B in 2008, dominated by Eli Lilly, Novo Nordisk, and Sanofi-Aventis. We anticipate increased use of insulin over the next 4-5 years. We forecast injectable insulin sales will grow at a 10% compounded annual rate in 2008-13, driven by growth of the overall patient population and increased use of premium-priced formulations.
Short-Acting Insulins Offer Important Benefits

Short-acting or fast-acting insulin analogues are important and useful because, when used properly, they produce less nocturnal hypoglycemia; can be used immediately before meals; assist treatment of children; and enhance quality of life. Fast-acting insulins reduce the glucose spikes that occur after meals, which are linked to the progressive development of diabetic complications (blindness, kidney failure and gangrene requiring limb amputation). Eli Lillys Humalog and Novo Nordisks Novolog (NovoRapid outside the U.S.) essentially split the shortacting insulin analog market in the U.S. Fast-acting insulin products account for about 40% of the total insulin prescriptions written in the U.S. We forecast worldwide Humalog sales of $1,875MM in 2009 +8%), $2,200MM in 2012, and $2,500MM in 2015. Sanofi-Aventis Apidra (insulin glulisine), launched in a fastacting Opti-click pen formulation, holds <1% prescription share of the U.S. shortacting analog insulin market. Biodels Viaject, a very rapid-acting form of injectable human insulin, recently missed its Phase III primary endpoint in Type 1 patients. Earlier data suggested that the VIAject formulation promotes a more rapid absorption, which more closely mirrors the effects of naturally produced insulin in non-diabetics, thereby providing more effective blood glucose control. Biodel believes that the Phase III data that were presented at EASD 2008 missed the primary endpoint because of aberrant results from the Indian cohort of patients. When excluding these patients, the trial met the non-inferiority endpoint. The Phase III trial in Type II patients, presented at EASD (and also included an Indian patient cohort), met its primary endpoint. Biodel is in discussions with FDA and will provide an update on the filing in March 2009; an additional Phase III trial is likely to be required.
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Diabetes
Premixed Insulin Growth Clipped By Lantus

Premixed insulin products combine fast-acting insulin with long-acting or basal insulin. These are viewed cautiously by U.S. doctors because they reduce flexibility and are easy to prescribe inappropriately, but they are used more broadly in Europe. Eli Lillys premixed insulin, which utilizes Humalog, had early success, but the availability of Lantus has reduced the attractiveness of all premixed insulin products given Lantus once-daily dosing advantage with similar glycemic control and a reduced risk of hypoglycemia.
US INSULIN MARKET
40.0%
35.0%
30.0%
25.0% Market Share
20.0%
15.0%
10.0%
5.0%
0.0% Oct-06 Oct-07 Jan-06 Jan-07 Jan-08 Oct-08 Apr-06 Apr-07 Apr-08 Jul-06 Jul-07 Jul-08 Jan-09 Exubera
Humulin Group
Humalog Group
Novolin Group
Lantus/Solostar
Novolog Group
Apidra
Levemir
Source: IMS Health
Sanofi-Aventis Lantus: A Fast-Growing Blockbuster

Lantus (insulin glargine) is a once-daily, long-acting basal insulin injection used in Type I (adults and children) and Type II diabetics (adults). Lantus offers lower hypoglycemia risk and improved metabolic control, given 24-hour basal insulin coverage, with no pronounced peak concentrations. The efficacy benefits provided by Lantus (dosed via a once-daily subcutaneous injection) in combination with mealtime fast-acting insulin injections have raised the benchmark for glucose control in Type I diabetics. Lantus is the leading branded insulin in the U.S. and in many major European markets. Our physician consultants remain enthusiastic about Lantus, given its differentiated pharmacokinetic profile. Our consultants indicate that they have switched Type I patients who are not well controlled on NPH (standard long-acting insulin) to Lantus. Lantus also is becoming the add-on treatment of choice in patients with Type II diabetes failing oral agents. An estimated 80% of current U.S. Lantus patients are Type II diabetics. Lantus cannot be mixed with short-acting insulin, but this has proven to be only a minor issue thus far. Lantus has been launched in over 50 countries, including Japan. Novo Nordisks Levemir (insulin detemir), launched in the U.S. in March 2006, has not done particularly well in markets where it competes with Lantus. This is
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despite weight-gain data presented at the 2006 ADA that may be differentiating. Sanofi-Aventis pays Novo Nordisk an undisclosed royalty on Lantus sales due to cross-licensing of patent rights. Eli Lilly/Amylins Byetta GLP-1 analogue and Mercks Januvia (DPP-IV inhibitor) have not had a significant impact on Lantus growth, and not surprisingly so. Sanofi-Aventis GLP-1 analog, AVE5000 is being developed also for use in combination with Lantus. Lantus Plus Oral Agents More Effective Than Short-Acting Insulin Plus Orals At the ADA in June 2006, Sanofi-Aventis presented results from the APOLLO study: A Parallel design comparing an OAD combination therapy with either Lantus once daily or Lispro at mealtime in Type II diabetic patients failing Oral treatment. The 44-week trial demonstrated that Lantus and short-acting insulin were equally effective at reducing A1c levels to below the target level of 7%. However, Lantus provided significantly better control of fasting blood glucose (p<0.0001) and nocturnal glucose (p=0.0017) compared to short-acting insulin. Short-acting insulin did provide significantly better post-prandial blood glucose control (p<0.0001). The overall number of hypoglycaemic events seen was four times greater in patients treated with short-acting insulin compared to those receiving Lantus (24.4 vs. 5.4 events/patient-year).
Novo Nordisks Levemir Share Modest In The U.S.; Effects On Body Weight May Be A Differentiator
Levemir (insulin detemir) is a long-acting basal insulin used once- or twice-daily in adult patients with diabetes Types 1 and 2 who require basal insulin for the control of hyperglycemia. Levemir was launched in the U.S. in March 2006. As of January 2009, Levemir held just a 5.1% total prescription share of the U.S. insulin market. Levemir is also available in Australia, Switzerland, the U.K., Ireland, Denmark, Sweden, Norway, Finland, the Netherlands, Austria, and Germany, and Japan. The Levemir molecule is modified to include a long-chain fatty acid sidechain that binds to albumin in the blood. The albumin-binding properties extend the circulating half-life of the insulin detemir molecule: Novo claims a circulating duration of at least 20 hours. Clinical evidence suggests that Levemir may be superior to other insulin formulations with regard to weight gain effects, as most recently suggested by data presented at 2006 ADA. Six-month results from the PREDICTIVE trial demonstrated that Levemir does not lead to weight gain in type 2 diabetics. Data from the prospective French ADAPT study of Levemir plus short-acting insulin in type 1 diabetics showed that weight gain was not related to the dose of Levemir used. Like Lantus, Levemir labeling says it should not be mixed with other insulins. The ultimate success of Levemir will likely depend on marketing.
Anti-CD3 Mabs Advancing For Type 1 DM

Experimental evidence strongly suggests that T cellmediated beta-cell killing is relentless once underway. In 1994, there were reports that antibody specific for mouse CD3 could permanently restore normal blood sugar levels in most nonobese diabetic (NOD) mice, when administered shortly after disease onset. Much subsequent NOD mouse studies suggested that the CD3-specific antibody worked, at least in part, by promoting the function of protective regulatory T cellsthereby shielding islets from autoimmune destruction long after the animals cleared active drug. In 2002 the first open-label study of CD3-specific
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antibody maintained insulin-producing capacity in 21 individuals with earlyonset disease for up to a year, in contrast to untreated control subjects. Treated subjects also showed continuing, although decreasing, efficacy at 2 years without any apparent signs of chronic immune suppression. The risks of CD3specific antibody treatment are similar to most chronic immunosuppressive therapy and include the risk of malignancies and reactivation of latent viruses such as Epstein-Barr virus (EBV). Nonetheless, the question remains whether the preserved pancreatic insulin function reflects restored tolerance to beta cells, or, less desirably, persistent immune modulation. In the latter case, the long-term positive effects of the CD3-specific antibody on autoimmunity could at the same time dampen immune surveillance and certain host defense functions. Experts believe that a CD 3-specific antibody alone is unlikely to be sufficient to halt disease progress but could be part of a combinatorial chemistry approach. If successful, such combination therapies may enhance efficacy while lowering risks.
Lillys Teplizumab Proof Of Concept Encouraging

Teplizumab, the humanized anti-CD3 monoclonal antibody for type 1 diabetes licensed from MacroGenics, demonstrated a significantly prolonged C-peptide response for up to two years and solid HbA1c control after only 14 days of therapy in recently diagnosed type 1 DM patients. A global, pivotal Phase II/III clinical trial, PROTEGE, is evaluating the safety and efficacy of three teplizumab dosing regimens administered at the start of the study for 14 days and again at six months for another 14 days in individuals with recent-onset type 1 diabetes ages 8 to 35 who are up to 12 weeks from their diagnosis. Lilly believes teplizumab to have potential beyond diabetes in psoriasis, Crohns, and rheumatoid arthritis. Our consultants are cautious about this approach and unsure whether it will work. We forecast teplizumab sales of $100MM in 2012 and $400MM in 2015.
GlaxoSmithKline Partners With Tolerx On Otelixizumab

Otelixizumab has been evaluated in Type 1 diabetes in two Phase II studies and in psoriasis in two Phase I studies. In clinical trials, otelixizumab has been shown to preserve the function of insulin-producing beta cells in the pancreas in patients with Type 1 diabetes, reducing the amount of administered insulin needed to control blood glucose levels. Tolerx continues to evaluate otelixizumab in its ongoing Phase II study, TTEDD (TRX4 Therapeutic Evaluation of Different Dosing Regimens). A principal purpose of TTEDD is to evaluate different dosing regimens in an effort to reduce side effects and to acquire additional information about otelixizumab's clinical activity. In August 2008, the companies announced that they had initiated a pivotal Phase III study, DEFEND (Durable Response Therapy Evaluation For Early Or New Onset Type 1 Diabetes). DEFEND is a randomized, placebo controlled Phase 3 trial designed to enroll approximately 240 adult patients, age 18 to 35, with newly diagnosed autoimmune type 1 diabetes. DEFEND is being conducted at multiple centers in North America and Europe. The trial will evaluate whether a single course of otelixizumab, administered not more than 90 days after the initial diagnosis of autoimmune Type 1 diabetes, will reduce the amount of administered insulin required to control blood glucose levels by inhibiting the destruction of beta cells. The primary endpoint will be a measurement of C-peptide, a surrogate measure of beta cell function. We estimate otelixizumab sales of 50MM in 2012 and 200MM in 2015.
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Diabetes
Oral Antihyperglycemic Agents Have Broad Acceptance, But TZDs Have Been Impacted By Safety Concerns
Oral agents have enhanced the ability to control the symptoms of Type 2 diabetes and have improved patients quality of life. Metformin (Bristol-Myers Squibbs Glucophage franchise and generics) works by reducing the amount of glucose the liver excretes. While metformin is still prescribed widely, Glucophage brand sales declined precipitously post the arrival of generic competitors. Sulfonylureas were the first widely used oral hypoglycemic medications before the introduction of the TZDs and DPP-IV inhibitors. They are insulin secretagogues, triggering insulin release by direct action on the KATP channel of the pancreatic beta cells. They work best with patients over 40 years old, who have had diabetes mellitus for under ten years. They can not be used with type I diabetes, or diabetes of pregnancy. They can be safely used with metformin or glitazones. The primary side effect is hypoglycemia. GlaxoSmithKlines Avandia and Takedas Actos (thioglitazones, TDZs) modulate the PPAR gamma (peroxisome proliferator-activated receptor gamma), producing substantial reductions in fasting blood glucose. The TZDs are used as secondand third-line therapy after metformin. Avandias use has declined significantly given a potential CV signal based on several meta-analyses. Actos has not demonstrated an increased CV risk. However, the addition of black-box warnings to both Avandia and Actos labels related to heart failure risk may cause many physicians to prefer the newer DPP-4 inhibitors (MRKs Januvia launched in October 2006), which also offer advantages to the TZDs on weight effects (the DPP-4s are weight-neutral, while the TZDs tend to increase weight). Sulfonylureas were the first widely used oral hypoglycemic medications. They are insulin secretagogues, triggering insulin release by direct action on the KATP channel of the pancreatic beta cells. Eight types of these pills have been marketed in North America, but not all remain available. The "secondgeneration" drugs are now more commonly used. They are more effective than first-generation drugs and have fewer side effects. All may cause weight gain.
New FDA Guidelines Likely To Increase Development Timelines, Cost, And Postmarketing Requirements
In December 2008, FDA provided updated guidance for the development of drugs and therapeutic biologics for the treatment of diabetes mellitus. Specifically, this guidance makes recommendations about how to demonstrate that a new antidiabetic therapy to treat type 2 diabetes is not associated with an unacceptable increase in cardiovascular risk. The guidance is a result of draft guidance put forward in March 2008 and an ensuing Endocrinologic and Metabolic Drugs Advisory Committee for the Food and Drug Administration (FDA) convened in July 2008. A Nissen meta-analysis of Avandia clinical trials pointed to an increased risk of myocardial ischemia fueled the debate over whether long-term cardiovascular outcome trials should be part of the approval process for diabetes drugs. Some have also questioned the safety of older therapies particularly sulfonylureas, which have been linked to increased cardiovascular risk by both early trials and active surveillance of insurance databases. Meanwhile, the recent Action to Control Cardiovascular Risk in Diabetes (ACCORD) trial found that a treatment strategy designed to lower blood glucose to near-normal levels was associated with increased mortality; of note, there were no apparent adverse cardiac effects of rosiglitazone. In contrast, no change in the rates of death or cardiovascular events was demonstrated in the
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Action in Diabetes and Vascular Disease (ADVANCE) trial. Thus, both macrovascular effects of antidiabetes agents and the optimal glycemic goals, as well as other aspects of combined treatment strategies, remain incompletely understood. Nonetheless, the new guidance which focuses on the macrovascular risk is likely to increase development costs, timelines and postmarketing requirements: sponsors should establish an independent cardiovascular endpoints committee to prospectively adjudicate, in a blinded fashion, cardiovascular events during all Phase II and III trials sponsors should ensure that Phase II and Phase III clinical trials are appropriately designed and conducted so that a meta-analysis can be performed at the time of completion of these studies that appropriately accounts for important study design features and patient or study level covariates sponsors should provide a protocol describing the statistical methods for the proposed meta-analysis. It is likely that the controlled trials will need to last more than the typical 3 to 6 months duration to obtain enough events and to provide data on longer-term cardiovascular risk (e.g., minimum 2 years) for these chronically used therapies sponsors should perform a meta-analysis of the important cardiovascular events across Phase II and Phase III controlled clinical trials and explore similarities and/or differences in subgroups (e.g., age, sex, race), if possible sponsors should compare the incidence of important cardiovascular events occurring with the investigational agent to the incidence of the same types of events occurring with the control group to show that the upper bound of the two-sided 95 percent confidence interval for the estimated risk ratio is less than 1.8. This can be accomplished in several ways. The integrated analysis (meta-analysis) of the Phase II and Phase III clinical trials can be used. Or, if the data from all the studies that are part of the meta-analysis will not by itself be able to show that the upper bound of the two-sided 95 percent confidence interval for the estimated risk ratio is less than 1.8, then an additional single, large safety trial should be conducted that alone, or added to other trials, would be able to satisfy this upper bound before NDA/BLA submission. Regardless of the method used, sponsors should consider the entire range of possible increased risk consistent with the confidence interval and the point estimate of the risk increase. For example, it would not be reassuring to find a point estimate of 1.5 (a nominally significant increase) even if the 95 percent upper bound was less than 1.8 if the premarketing application contains clinical data that show that the upper bound of the two-sided 95 percent confidence interval for the estimated increased risk (i.e., risk ratio) is between 1.3 and 1.8, and the overall risk-benefit analysis supports approval, a postmarketing trial generally will be necessary to definitively show that the upper bound of the two-sided 95 percent confidence interval for the estimated risk ratio is less than 1.3. This can be achieved by conducting a single trial that is adequately powered or by combining the results from a premarketing
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safety trial with a similarly designed postmarketing safety trial. This clinical trial will be a required postmarketing safety trial if the premarketing application contains clinical data that show that the upper bound of the two-sided 95 percent confidence interval for the estimated increased risk (i.e., risk ratio) is less than 1.3 and the overall risk-benefit analysis supports approval, a postmarketing cardiovascular trial generally may not be necessary.
How Low To Go, Probably Not Less Than 7%...

According to results of the largest tight-control randomized trial, the ADVANCE (Action in Diabetes and Vascular Disease) study, that were presented at ADA 2008, intensive glucose lowering strategies reduce nephropathy but not major cardiovascular outcomes for patients with type 2 diabetes. Keeping glycosylated hemoglobin levels at 6.5% reduced the combined rate of cardiovascular death, nonfatal stroke, nonfatal MI, nephropathy, and retinopathy by 10% at five years (P=0.01) compared with the standard 7% target. However, there was a lack of benefit for macrovascular events (P=0.32) and overall mortality (P=0.28). The results add fuel to the debate on the role of glucose lowering and macrovascular disease. These findings affirm the lack of cardiovascular benefit with intensive glucose control reported in the similarly-designed Action to Control Cardiovascular Risk in Diabetes (ACCORD) trial, although not the increased mortality risk that led to termination of that trial. The ADA continues to recommend an HbA1c goal of less than 7%. The ADVANCE trial included 11,140 patients with type 2 diabetes and a history of major macrovascular or microvascular disease or another risk factor for vascular disease. For the glucose control part of the study, participants were randomly assigned to standard glucose control with a target of 7% HbA1c or less or to intensive glucose control aiming for 6.5% HbA1c or less through use of the sulfonylurea gliclazide along with other drugs. Gliclazide is not available in the U.S., but the effects are likely generalizable across the SUs. Compared with patients in the standard-treatment group, those in the intensive-control group used more oral hypoglycemic drugs, including thiazolidinediones (16.8% versus 10.9%), and insulin (40.5% versus 24.1%) during the study. Average glycosylated hemoglobin levels fell from 7.5% at baseline to an average of 6.5% in the intensive glucose control group and 7.3% in the standard therapy group. During five years of follow-up, intensive control was associated with fewer major macrovascular or microvascular events (18.1% versus 20%, HR 0.90, P=0.01). The number needed to treat with intensive glucose control to prevent one vascular event of either type in five years was 52 (95% CI 30 to 213). Compared with standard glucose management, intensive control significantly reduced major microvascular events (9.4% versus 10.9%, HR 0.86, P=0.01). This was driven by a 21% reduction in nephropathy (4.1% versus 5.2%, HR 0.79, P=0.006) but not retinopathy (P=0.50). Intensive control had no effect on the combined rate of cardiovascular death, nonfatal stroke, and nonfatal MI events (HR 0.94, P=0.32). Nor were there benefits for death from cardiovascular causes (HR 0.88 with intensive control, P=0.12) or from any cause (HR 0.93 with intensive control, P=0.28). However, the trend was in the right direction for macrovascular events and it could take five to 10 years of follow-up for mortality benefits to appear. But tight glucose control increased severe hypoglycemia (2.7% versus 1.5%, HR 1.86, P<0.001) as well as hospitalizations
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overall (44.9% versus 42.8% P=0.03) and hospitalizations due to severe hypoglycemia (1.1% versus 0.7%, P=0.04).
Actoss (Takeda) Untainted CV Profile Provides The Edge

Despite the differing efficacy results from numerous clinical studies with the glitazones, our physician consultants believe that Avandia and Actos are remarkably similar in efficacy profile. Differences in clinical data are due to variations in study design and patient characteristics. Avandia is convincingly more effective administered twice-daily versus once-daily, although the most commonly used dose is 4mg once-daily. Post the May 2007 Nissen NEJM publication highlighting Avandias potential CV risk in a meta-analysis and the ensuing FDA advisory committee meeting, both Actos and Avandia have had their labels updated but Avandias association with an increased CV risk has resulted in significant share erosion. In August 2007, the FDA announced that the manufacturers of all thiazolidinedione (TZD) class of drugs would need to add a black box warning for the risk of congestive heart failure (CHF). The upgraded black box warning highlights that TZDs may cause or worsen heart failure in certain patients. Heart failure is a well-described side effect of the TZD class. In November 2007, the boxed warning for Avandia (only) was revised to include language indicating that an increase in myocardial ischemic events is associated with the drug, but states that the data on this risk are inconclusive. HbA1C REDUCTIONS OF THIAZOLIDINEDIONES*
Monotherapy 0.9 1.2 1.5 1.2 -1.9 Combination With Sulfonylurea Insulin Metformin 0.6 --1.0 0.6 1.0 -1.1 1.2 0.9 1.3 -0.7 1.0 --0.8 --
Avandia 2mg Avandia 4mg Avandia 8mg Actos 15mg Actos 30mg Actos 45mg
*HbA1c levels at baseline lower in Avandia than Actos clinical trials.
RELATIVE SAFETY OF THIAZOLIDINEDIONES IN CLINICAL STUDIES

Weight Gain Edema Anemia Adverse Impact On Lipids Cardiovascular Events Hepatotoxicity
Source: Package inserts
Avandia ++ + ++ +/? ??? No
Actos ++ ++ + No No No
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MAJOR OUTCOME STUDIES INVOLVING AVANDIA AND ACTOS Study ACCORD SPONSOR NHLBI DRUG Insulin sensitizers PATIENTS 10,000 Timing 2006 Comment Assess whether major cardiovascular events in type 2 diabetes can be prevented by decreasing insulin resistance and intensively controlling glycemia (glitazones), lipids (statins), and blood pressure (various antihypertensives) Assess progression to diabetes in patients with impaired glucose tolerance, and evaluate insulin sensitivity, beta cell function, body composition, and cardiovascular risk factors Cumulative incidence of monotherapy failure of 15% with Avandia, 21% with metformin and 34% with glyburide at 5 years. Glyburide had a lower risk of CV events than Avandia.
ACT-NOW
Takeda
Actos
600
2007
ADOPT
GSK
Avandia
4,380
12/06
BARI 2D
NIH
Insulin vs. Insulin sensitizers
2,800
2009
Assess whether treatment of insulin resistance can arrest or retard progression of CAD vs. treatment targeted to the same level of glycemic control with insulin; also designed to compare morbidity/mortality impact of early revascularization in type 2 diabetics with mild and stable cardiac symptoms Assess impact of Actos vs glimepiride on atherosclerosis as measured by carotid artery intima thickness (CIMT) and electron beam tomography (EBT) in type 2 diabetics Avandia prevented type II diabetes in patients with impaired glucose tolerance Effect of Actos vs. glimepiride on coronary artery disease (CAD) as measured by intravascular ultrasound (IVUS) Evaluate whether Actos reduces total mortality and macrovascular morbidity in high-risk type 2 diabetics Evaluate cardiac safety of Actos vs. glyburide in type 2 diabetics with mild to moderate cardiac disease (NYHA Class II/III) Evaluate the impact of Avandia on the development and progression of cardiovascular disease in patients with type 2 diabetes; compare the effects on glycemic control of traditional combination therapy (sulphonylurea plus metformin) to Avandia in combination with sulphonylurea or metformin
CHICAGO
Takeda
Actos vs. glimepiride Avandia and Altace Actos vs. glimepiride Actos Actos vs. glyburide Avandia plus metformin or sulfonylurea
400
2007
DREAM PERISCOPE PROACTIVE PURE II RECORD
GSK Takeda Takeda Takeda GSK
4,600 600 5,238 600 3,966
9/06 2007 2005 2006 2008
VADT
Veterans Administration
Determine whether glycemic control, achieved through intensification of treatment, is effective in preventing clinical macrovascular complications in patients with type 2 diabetes who are no longer responsive to oral agents alone Source: Diabetes Care, www.clinicaltrials.gov, Company reports, Cowen and Company Insulin, Avandia, metformin, glimepiride
1,700
2008
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Avandia Rebound Unlikely

Avandia prescriptions have declined significantly since the May 21, 2007 release of a New England Journal of Medicine article (Nissen, et al) that used a metaanalysis to demonstrate a 43% increase in risk of heart attack and a 64% increase in heart-related death in patients on Avandia. Our specialist endocrinologists indicate that Avandia has always been used sparingly in their clinics (less than 5% of patients) due to prior concerns about the cardiovascular profile, and the vast majority of Avandia use currently is by primary care physicians. Primary care physicians have shifted prescribing away from Avandia in response to the Nissen meta-analysis and the lack of clarity offered by the RECORD trial. With no new Avandia data forthcoming to counter these findings and Takedas Actos available as a probably safer substitute, GlaxoSmithKline has been unable to stem the decline. We forecast Avandia franchise sales of 670MM (-17%) in 2009, 230MM in 2012, and 80MM in 2015 post the Q1:12 generic launch.
MONTHLY NEW PRESCRIPTION MARKET SHARE FOR DIABETES DRUGS
14.0%
12.0%
10.0%
8.0%
Actos (Takeda) Avandia (GSK)
6.0%
Byetta (AMLN/LLY) Januvia (MRK)
4.0%
2.0%
0.0% Apr-06 Apr-07 Apr-08 Oct-06 Oct-07 Oct-08 Jul-06 Jul-07 Jul-08 Jan-06 Jan-07 Jan-08 Jan-09
Source: IMS
FDA Revised Avandias Label. In July 2007, FDA's Joint Endocrinologic and Metabolic Advisory Committee and Drug Safety and Risk Management Committee voted overwhelmingly to keep Avandia on the market (22 yes; 1 no) but with significant changes to its label given the vote (20 yes; 3 no) recognizing Avandia's increased risk for cardiac ischemia in type 2 DM patients. However, limitations with the available data on Avandia, including the meta-analysis methodology, limited data on other agents including Actos, and concerns with the ongoing Avandia trials (including RECORD) to provide clarity on the CV risk, restricted the Committees ability to assess fully the clinical risk. Based on the FDA's sub-group analyses highlighting differential risk, the Committee recommended changes to the label, including black-box warnings and restricted use in high-risk groups. In August 2007, FDA recommended that manufacturers of TZDs, including both Avandia and Actos, add a black-box warning to their labels because of the risk associated with congestive heart failure. In November
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2007, in line with our expectations, GlaxoSmithKline announced that it had reached agreement with FDA on the Avandia label. The existing boxed warning was revised to add the FDA meta-analysis of short-term studies mostly against placebo that showed an association between Avandia and an increase in myocardial ischemic events. The black box warning states that the available data on the risk of myocardial ischemia are inconclusive. The new label also includes a statement on the lack of macrovascular risk reduction with Avandia and other oral antidiabetic agents. Patients on insulin or nitrates are also not recommended to be put on Avandia. Post the new Avandia label, liability-shy physicians might feel freer to prescribe Avandia. On the other hand, patients fears have been stirred by unbalanced media attention. E.U. Label Reflects Similar Concerns. In January 2008, the CHMP adopted a scientific opinion recommending the inclusion of a new warning stating that the use of Avandia in patients with ischemic heart disease and/or peripheral arterial disease is not recommended. The CHMP also adopted an opinion recommending the addition of a new contraindication stating that Avandia must not be used in patients with an acute coronary syndrome, such as angina or some types of myocardial infarction, because the medicine has not been studied in controlled trials in this specific patient group. The recommended changes to the product information were made as a follow-up measure to the re-assessment of the benefits and risks of Avandia and Actos. This re-assessment was finalized by the CHMP in October 2007, concluding that the benefits of both medicines continued to outweigh their risks in their approved indications, but that the product information for Avandia should be changed. Rosiglitazone XR Advancing In Alzheimers Disease Rosiglitazone XR is currently in Phase III studies for the symptomatic treatment of Alzheimers disease. While a Phase II study failed to show a benefit on 6month ADAS-cog scores, a genotype analysis using the ApoE4 resulted in a statistical difference in the 8mg dose versus placebo. A Phase III program consisting of two studies of 1,500 patients each, evaluating rosiglitazone XR 2 and 8mg on top of acetylcholinesterase inhibitors stratified by ApoE4 status, will report in 2009. A separate 600-patient monotherapy trial using Aricept as a control also should report in 2009. Avandia Patent Litigation With Teva Settled In September 2007, Glaxo and Teva settled the patent challenge dispute allowing Teva to enter the market with its Avandia, Avandamet, and Avadaryl generics in Q1:12. Both Teva and Dr. Reddys had filed ANDAs for generic versions of Avandia, with the former receiving tentative FDA approval in December 2004. The Paragraph IV filings claim non-infringement of two patents which expire in 2015 (patent 5,741,803; maleate salt) and 2017 (patent 6,288,095). GlaxoSmithKline has not asserted the 095 patent. Teva challenged the validity of Avandias composition-of-matter patent, which expires in August 2012 (patent #5,002,953), as well as the maleate salt patent (patent #5,741,803). Dr. Reddys is only challenging the 803 patent. The 953 patent was granted patent term restoration in 2005, adding four years of marketing exclusivity.
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Takedas Actos Benefitting From Avandias Woes

Data presented by GlaxoSmithKline in 2007 suggest that, of the patients who were taken off Avandia, 50% received no therapy, 15% were started on Actos, 6% on metformin, 6% on SU, 4% Januvia, 3% on injectables. 15% were lost to follow up. The safety concerns related to Avandia have not had a negative impact on Actos, as previously available data show Avandia to have an inferior lipid profile and less favorable glycemic effects relative to Actos. In September 2007, a metaanalysis published in the Journal of the American Medical Association by Nissen et al. concluded that Actos is associated with a significantly lower risk of heart attack, stroke, or death among diabetics versus control. This meta-analysis incorporated results from PROactive, a trial of patients with type 2 diabetes at high risk for cardiovascular events. Such a conclusion may mitigate the effects of the black box warning to Actoss label regarding heart failure risk, and make Actos a preferred agent to Avandia. The PERISCOPE IVUS data which were presented at ACC 2008, and published in JAMA have been viewed with much skepticism despite the trial meeting its primary endpoint. PERISCOPE demonstrated the use of Actos resulted in 0.16% decrease in atheroma volume versus 0.73% increase for glimepiride (p=0.02); potentially fortifying Actos safer CV profile. However, in an editorial accompanying the publication, the authors cautioned over interpretation of the results noting that more than a third of the patients did not have a second IVUS and that there is a distinct difference between slowing or preventing progression of mild coronary stenoses and improving cardiovascular outcomes. PROactive Targeted A Challenging Patient Population The results of the first of several TZD outcomes studies, Takedas PROactive, were presented at EASD in September 2005. PROactive was a randomized, double-blind outcomes study in 5,238 patients with Type 2 diabetes managed with diet and/or oral blood glucose lowering drugs (including combination of oral agents with insulin) who had a history of cardiovascular disease. Patients were randomized to Actos (titrated from 15mg to maximum tolerable dose 45mg) or placebo in addition to existing therapy. Approximately 90% of patients were successfully titrated to Actos 45mg. The primary endpoint was time to first event of a composite of all-cause mortality, non-fatal MI, acute coronary syndrome, cardiac intervention, stroke, major leg amputation, bypass surgery, or revascularization of the leg. The addition of Actos 45mg resulted in a 10% reduction in the primary composite endpoint, missing statistical significance (p=0.09), but Actos achieved a 16% reduction in the secondary composite endpoint of death, non-fatal MI, and stroke (p=0.02). The primary endpoint was negatively impacted by a slightly higher number of leg revascularizations in the Actos arm. But Subset Analysis Suggests Little Efficacy Beyond Statins Actos 45mg showed efficacy across nearly all subsets, including several lipid and blood glucose parameters, which suggests that no single subset drove the event benefit. However, a subset analysis suggests the cardiovascular benefit was only evident in patients not on statins. Actos did reduce progression to insulin-dependence by 50%. Heart failure was a side effect in the trial, but an independent evaluator of the trial presenting at the EASD suggested that the benefits of using Actos in high-risk diabetic CVD patients outweighed the risks.
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PERISCOPE Meets Endpoint But Misses On Clinical Relevance The findings of the PERISCOPE (Pioglitazone Effect on Regression of Intravascular Sonographic Coronary Obstruction Prospective Evaluation) study were presented at ACC 2008 and simultaneously published online in the Journal of the American Medical Association. Actos led to a significant slowing of atherosclerosis, albeit small, as measured by intravascular ultrasound (IVUS), compared with glimepiride. Mean percent atheroma volume increased to 0.73% (95% CI 0.33% to 1.12%) with glimepiride versus a 0.16% decrease with Actos (95% CI -0.57% to 0.25%) (P=0.002). PERISCOPE, a double-blind trial, randomized 543 patients with coronary artery disease and type 2 diabetes to glimepiride at 1 to 4 mg or Actos at 15 to 45 mg for 18 months. Patients were titrated to the maximum tolerated dose. All patients had IVUS before randomization and 360 patients had a repeat IVUS at 18 months. The mean glycosylated hemoglobin (HbA1c) was 7.4% in both groups and declined by an average of 0.55% in the Actos group versus 0.36% in the glimepiride group (P=0.03). In the Actos arm, HDL increased by an average of 5.7 mg/dL versus 0.9 mg/dL in glimepiride patients and triglycerides decreased by 16.3 mg/dL versus an increase of 3.3 mg/dL in the glimepiride group (P<0.001 for both). Median fasting insulin levels decreased with Actos and increased with glimepiride (P<0.001).
Dual PPAR Agonists Not Making Much Headway

Building on the initial success of the PPAR gamma receptor agonists, some companies are developing dual agents targeting PPAR gamma and alpha, and delta. This profile provides lipid benefits in addition to glucose regulation capabilities. PPAR alpha receptor activation is associated with increased HDL and decreased LDL, free fatty acids, and triglycerides. PPAR gamma receptor activation is associated with increased insulin sensitivity and decreased glucose levels. Although efficacy has been demonstrated in the clinic, safety issues have tripped up several late-stage clinical candidates, including Merck/Bristol-Myers Squibbs Pargluva and AstraZenecas Galida. Dr. Reddy's/Novo Nordisk, Merck/Kyorin, and Eli Lilly have all discontinued dual PPAR programs due to safety issues. Takedas dual PPAR agonist, TAK-654, had advanced into Phase II development in Japan, the U.S., and Europe. However, based on a thorough review of its prior data, Takeda concluded that TAK-654 does not show sufficient safety and efficacy to warrant further investigation.
Novo Nordisks Prandin U.S. Trends Continue To Be Lackluster

Prandin (repaglinide) is a short-acting insulin release promoter designed to be taken before meals to control post-prandial glucose spikes. Prandin is viewed as a sulfonylurea by physicians, although it is chemically different from the class. The pre-meal administration is easy for diabetes patients who are prone to skipping meals or missing doses. Additionally, Prandin is excreted through the bile rather than the kidney, an advantage to diabetics with kidney problems. Prandin was initially thought to prompt weight gain, which also occurs in patients on sulfonylureas, but further research suggests that weight can be managed or even reduced. Despite the desirable attributes of Prandin, sales have been disappointing in the U.S. Sales of Prandin (Novonorm in Europe) are doing better in Europe where diabetes treatment practices are more aggressive.
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Prandin is protected by patents which expire in 2009, but a paragraph IV certification was made against Prandin in February 2005.
Novartiss Starlix Disappointing

Starlix (nateglinide) is a rapidly absorbed and short-acting oral drug designed to control post-prandial blood glucose levels in Type 2 diabetes. Originally discovered by the Japanese company Ajinomoto, Starlix is licensed to Novartis for all countries outside Asia except the U.K. and Ireland. In Japan, nateglinide is licensed to Yamanouchi. Starlix is an insulin secretagogue that selectively blocks potassium channels in the beta cells in the pancreas, thereby increasing their response to glucose in the bloodstream. Starlix, like Prandin belongs to a class of drugs called the meglitinides, which are unrelated to the SUs. Starlix has a rapid onset of action and fast clearance and has the property of lowering blood glucose proportional to blood glucose levels. The short duration of action means that there is a low risk of hypoglycemia, and Starlix also has little effect on potassium channels in cells involved in the cardiovascular system. Furthermore, it does not cause patients to gain weight, a problem with most oral drugs for diabetes. Despite these positives, U.S. adoption of Starlix has been disappointing. Our U.S. physician experts note that, in their clinical experience, the efficacy of Starlix has been disappointing. In Europe, uptake of Starlix has been somewhat better given superior overall management of diabetes versus the U.S. NAVIGATOR Study Could Bolster Starlix Trends Novartis is studying Starlix in combination with Diovan (valsartan) as preventive therapy for patients with impaired glucose tolerance. The NAVIGATOR trial is studying whether this combination slows or prevents progression to Type II diabetes and/or reduces the risk of cardiovascular disease (the major cause of death in diabetics). The study enrolled over 9,000 patients recruited from 600800 centers worldwide. Patients are randomized to Starlix 60mg before meals, Diovan 160mg once daily, both drugs, or placebo. The study has two phases: (1) after three years patients will be evaluated based on their progression to diabetes, and (2) in the extension phase, the drugs effect on cardiovascular disease will be assessed. The first results (in delaying diabetes progression) are expected in 2009 but presentation is not expected until 2010.
Sulfonylureas Still Widely Used In Type II Diabetes

Other oral diabetes agents, such as sulfonylureas, which lower blood sugar levels by stimulating the pancreas to produce insulin, have been used widely in Type II diabetes. Newer compounds appear to effect a similar change in glycosylated hemoglobin (a measurement of long-term glucose control) while avoiding troubling side effects, and some of the newer agents prompt favorable lipid profiles. This is critical in Type II patients given susceptibility to cardiovascular disease. Sulfonylurea prescriptions are predominantly generic. Sanofi-Aventis Amaryl accounted for the majority of branded sulfonylurea prescriptions until its patent protection expired in 2005.
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Bayers Precose Delays Carbohydrate Digestion

Precose (acarbose) is approved for the treatment of Type II diabetes and is taken with meals in doses of 50 and 100mg. It delays the absorption of glucose from the intestine, and has utility in a subset of patients, particularly in combination therapy, although gastrointestinal side effects are troubling. Precose is contraindicated in patients with significant kidney disorders.
Oral Therapies for Type II Diabetes
Approx. Mechanism Type of Therapy of Action Insulin secretagogues Sulfonylureas Insulin secretion Insulin secretion Hepatic glucose production, weight loss, glucose utilization Examples Diabeta Glucotrol XL Amaryl Meglitinide Prandin Starlix Glucophage Glucophage XR Metformin generics 1-2 1-2 Short onset, lower postprandial glucose Weight loss, improved lipid profile, no hypoglycemia Lactic acidosis, diarrhea, nausea, possible increased cardiovascular mortality Serum creatine >1.5 mg/dL (men), > 1.4 mg/dL (women), radiographic contrast studies, seriously ill, acidosis Glitazones Insulin sensitivity Rezulin Actos Avandia -Glucosidase inhibitors GI absorption of glucose and carbohydrates Diet and Exercise Insulin resistance 0.5-2.0 Precose Glyset 0.5 -1.0 0.5-1.5 Insulin and sulfonylurea requirements, triglycerides No risk of hypoglycemia Edema, weight gain, frequent hepatic monitoring Flatulence, GI discomfort, weight gain, liver function tests Injury, compliance difficult, longterm success low
Source: Harrisons Principles of Internal Medicine, Nathan in 10/24/2002 New England Journal of Medicine, Cowen and Company
Reduction in HbA1c, % 1-2 Advantages Lower fasting blood glucose Disadvantages Hypoglycemia, weight gain, hyperinsulinemia Hypoglycemia
Contraindications Renal/liver disease Liver disease
Biguanides
Liver disease, congestive heart failure Liver/renal disease
Sweet Revenue Opportunity For GLP-Is

The prevalence of diabetes is increasing in the United States, and our consultants note a need for new therapies. Thus far, incretin mimetics, like Amylins Byetta (glucagon-like peptide 1 analog), and amylin mimetics, like Amylins Symlin, are the only therapies that are able to both control HbA1c and reduce weight. Because diabetes and obesity are linked, our consultants believe that drugs that can control both blood sugar and weight should capture a larger and larger share of the Type II diabetes market over the next several years. Moreover, physicians believe that Avandias troubles will greatly diminish use of the TZDs and that incretins will be among the beneficiaries. Our consultants
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estimate that up to 30% of all Type II diabetes will be prescribed an agent from this new class, which equates to a $2-5B opportunity.
Byetta Is A First-In-Class Treatment For Type II Diabetes

Amylins Byetta (exenatide), a glucagon-like peptide-1 (GLP-1) analog, was approved by the FDA in April 2005, and by the EMEA in November 2006, for use as an adjunctive therapy in patients with type 2 diabetes who are not achieving adequate control of their blood sugar levels with metformin, sulfonylureas, or both. Byetta is an incretin mimetic, and represents a novel strategy for diabetes management. The sheer size of the diabetes market and the possibility that a once-weekly formulation (LAR) will be available in 2010 suggest that the franchise has real potential to grow to $2B+ over the long term. Efficacy Of Byetta Demonstrated In Multiple Phase III Trials Byetta has been tested in five Phase III trials, as well as in several Phase I and II studies, that together have dosed more than 2,000 patients. Together the trials have demonstrated Byetta to be a safe and effective therapy that provides additional long-term glycemic control for those patients not well managed by oral therapies. Byettas four AMIGO pivotal trials were randomized, triple-blind, placebo-controlled multicenter studies in which Byetta or placebo were added to the maximally-effective doses of metformin and/or sulfonylurea and/or TZDs in patients with type 2 diabetes. Together, the four trials demonstrated that Byetta improved glucose control in combination with metformin and/or sulfonylurea and/or TZDs, and that improved control was accompanied by weight loss. In all four trials Byetta was generally well tolerated. Nausea was the most frequent adverse event, although it was generally mild, occurred more frequently upon initiating therapy, and led to only infrequent discontinuations. Hypoglycemia was also mild to moderate in the combined studies. Three-year data on 217 patients taking Byetta were presented at the 2007 ADA annual meeting. Patients on average had A1C reduction of 1.0% from baseline, demonstrating sustained efficacy over the three-year period. Forty-six percent of patients reached an A1C of 7% and 30% achieved an A1C of 6.5%. Average weight loss improved to 11.7 lbs from the average of five lbs seen after 30 weeks. Fasting blood glucose was reduced 24 mg/dL. Additionally, this study demonstrated that HOMA-B, a clinical measurement of beta-cell function, showed 17% improvement from study start to end after three years. Weight Loss Driving Use A In Wide Variety Of Patients To get a sense of attitudes toward Byetta among doctors, Cowen and Company has conducted periodic surveys of physicians to better understand their enthusiasm for and expected level of use of Byetta. Physicians have been enthusiastic about Byettas ability to help patients lose weight. Given the comorbidities of diabetes and obesity, as well the tendency for several oral diabetes drugs and insulin to increase weight, the favorable effect of Byetta on body weight has led physicians in our survey to view this property as a key differentiating element. In fact, the majority of physicians have consistently said that Byettas ability to reduce weight is the products biggest attribute, and physicians have ranked Byettas weight loss effects above its ability to control A1C as the reason that they prescribe it.
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Byetta Associated With Pancreatitis In post-marketing use, Byetta has been associated with pancreatitis, including hemorrhagic and necrotizing pancreatitis. To date 36 cases (6 being hemorrhagic and necrotizing) and 6 deaths have been reported. Amylin has suggested that Byetta may not have been the cause of pancreatitis in at least five of the fatal cases. One patient was obese (>400lbs) with gallstones, one stopped Byetta months before, two died from complications of gallbladder surgery, and one from leukemia relapse. No information on the cause of the sixth death is known. The FDA is working with Amylin to add stronger and more prominent warnings in Byettas label (expected in late Q1:09) about the risk of acute hemorrhagic and necrotizing pancreatitis. Data cited by Amylin imply that the risk of pancreatitis, and severe pancreatitis, for patients on Byetta is not all that different than the general population. However, the language in the FDAs August 2008 update implies the FDAs own data more strongly suggests an association ("Consider antidiabetic therapies other than Byetta in patients with a history of pancreatitis."). The differences between the analyses are unclear.
Byetta Sales Are Stuck In The Mud, And Likely To Stay That Way
Byettas sales growth has decelerated significantly over the past several quarters. Our consultants report that their use has leveled off over the past 18 to 24 months, for several reasons. First is Mercks Januvia, an oral incretin option. Our specialists note that most patients would rather try an orally administered medication first as a matter of convenience. Second, our physicians believe that Byetta has largely captured the low hanging fruit. Byetta is widely used among patients who are both willing to try a twice-daily injectable, and who are meaningful responders to therapy. One barrier to maintaining patients on longterm therapy with Byetta is that many patients have unrealistic expectations about the amount of weight loss Byetta will induce and the tolerability of the nausea. Thus, our specialists state that even though more patients are offered or try Byetta, 30-50% of patients stop using it due to either non compliance (twice daily injectable/nausea) and or patient discontent with its ability to lower weight. Third are the safety concerns surrounding Byetta-induced pancreatitis/hemorrhagic and necrotizing pancreatitis. Sixty percent of experts (n=10) polled by Cowen and Company believe that Byetta can cause pancreatitis. Our specialists believe that Byetta is associated with a 1:3000 rate of pancreatitis. They feel that the pancreatitis issue needs to be considered when prescribing Byetta. On the other hand, the physicians noted that more information is needed before coming to a firm conclusion, and 50% of the polled physicians, including our panelists, have not altered their prescribing of Byetta since its association became known. However, our consultants note that primary care physicians, who see 80% of all patients, may be more cautious. Other issues that plague Byetta include the complexities surrounding reimbursement (Byetta is only reimbursed by Medicare/Medicaid for those patients with HbA1C >8%), and the extensive amount of coaching and discussion required for initiating a patient on Byetta. Eighty percent of total prescriptions are now being written by PCPs versus endocrinologists. Thus, throughout 2008, Amylin has done several things to try and jump start Byettas growth. These include an increase in the sales force to
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target PCPs and providing PCPs with assistance in patient education of Byetta, including reading materials, educators, and a 1-800 number (for patients to contact a trained professional). Amylin was hopeful that these strategies would reinvigorate prescription growth. However, through the end of Q4:08, this does not appear to be the case.
New And Total Scrips: Byetta Versus Januvia
Byetta and Januvia New and Total Scrips

140000 120000 100000 80000 60000 40000 20000 0 11/27/2005 11/27/2006 11/27/2007 11/27/2008 5/27/2005 8/27/2005 2/27/2006 5/27/2006 8/27/2006 2/27/2007 5/27/2007 8/27/2007 2/27/2008 5/27/2008 8/27/2008 Byetta NRx Januvia NRx Byetta TRx Januvia TRx
Source: IMS Health
LARs Once-Weekly Profile Looks Solid

Eli Lilly, Amylin, and Alkermes are developing a Medisorb formulation of Byetta, called Byetta LAR, which should enable more convenient once-per-week administration. Amylin and Lilly conducted a 30-week open-label non-inferiority pivotal study to assess whether Byetta LAR is at least as effective in improving glucose control as twice-daily Byetta. This trial randomized approximately 295 type II diabetics who are not achieving adequate glucose control using diet and exercise with or without oral agents to either once-weekly Byetta LAR 2mg (23 gauge needle size) or twice-daily Byetta 10mcg. The primary endpoint was a noninferiority comparison of reduction in HbA1C, with noninferiority margins of a 0.4% difference between the arms. Secondary endpoints include fasting blood glucose, body weight, and safety parameters. In October 2007, Amylin, Lilly, and Alkermes announced that the trial succeeded. Full data were presented at ADA 2008. At baseline, patients had A1C of 8.31.0%, fasting plasma glucose of 16941 mg/dL, weight of 10220 kg, BMI of 355.0 kg/m2 and diabetes duration of 6.75.0 years. 15% of patients were on only diet and exercise, 45% were on 1 oral agent and 40% were on 2 oral agents. Our consultants had wanted to examine the baseline characteristics of patients in the trial to try to surmise a reason why the HbA1C effect of Byetta was so much greater in this study than in previous. However, no explanation was evident from the baseline characteristics of the patients. The abstracts presenting author was asked what could account for Byettas performance in the trial, and he said that,
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although he had examined the data closely to come up with an explanation, none was obvious. For the primary endpoint, LAR produced a statistically superior reduction in A1C vs. Byetta, 1.9%0.08 vs. 1.5%0.08, p=0.002. 77% of patients on LAR achieved HbA1c <7% versus 61% of patients on Byetta. 49% of patients on LAR achieved HbA1c<6.5% compared to 42% of patients on Byetta. LARs weight loss was 8 lbs, or 3.6 kg, equal to that produced by Byetta. There were no cases of pancreatitis in the trial. Rates of nausea were lower in the LAR arm while 35% of Byetta patients experienced nausea, 26% of LAR patients did. There was no major hypoglycemia in either arm, and 90% of patients completed 30 weeks of treatment. On antigenicity, LAR appeared significantly more immunogenic than Byetta. Similar to the Phase IIa data, about two-thirds of LAR patients had some level of antibodies against exenatide. Antibody titers peaked at week 10, and then decreased afterwards. There was an inverse correlation between a patients antibody titers and HbA1c, with those patients having the highest antibody titers having on average less of a reduction in A1C. On LARs PK, LAR was shown to have an approximate 70pM mean Cmax at peak concentrations. However, the Cmax was very variable, with the 95% confidence interval around the mean encompassing approximately 200pM. While the trial was positive, we believe that the difference between LAR and Byetta was somewhat below expectations. Although LARs A1C reduction of 1.9% is on the high end of expectations, most assumed that Byetta would reduce A1C by 0.8% - 1.0%. Therefore the delta is actually less than anticipated. Similarly, LARs weight loss of 8 lbs, or 3.6 kg, was ahead of the Streets expectations for about a 3 kg weight reduction. However, Byetta produced the exact same weight loss, whereas most assumed there would be a 1-2 kg difference between the two. Net-net, LARs profile looks solid, but LAR is perhaps not as large of an improvement in glucose control and weight loss as anticipated. Based on these data, Amylin, Lilly, and Alkermes expect to file for approval of LAR by the end of H1:09 and believe that this open-label trial will be sufficient to support an FDA approval. LARs Extension Data Demonstrate Persistent Efficacy After 30 weeks of treatment with either LAR or Byetta, patients on Byetta were put on LAR, and all patients continued on therapy for an additional 22 weeks to assess safety and efficacy. At weeks 52 patients had an A1C reduction of approximately 2.0%, and on average patients had just over 4kg of weight loss. This suggests that LAR's effects at 30 weeks were maintained through 52 weeks. While this is certainly solid data, some may have hoped the weight loss would have been progressive. On the positive side, two side effects seen during the 30week study - antibodies and injection site pruritis - decreased in incidence. Whereas pruritis was seen in 18% of patients during the first 30 weeks, it was seen in a low single-digit percentage during weeks 30-52. Similarly, although antibody titers were seen in a high percentage of patients through week 30, by week 52 only about 10% of patients had them. Overall, the 52-week data are solid, but mostly consistent with the previously released 30-week data so unlikely to change anyone's opinion of LAR.
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Additional Trials Pit LAR Against Other Therapies Three additional LAR superiority studies are underway. Two were initiated in H1:08 and will compare LAR vs. TZD's vs. DPP-IVs, (DURATION-2: open label; data in Q2:09) and LAR vs. insulin glargine (DURATION-3: open label; data in Q3:09). A third study, initiated in Q4:08, will compare LAR vs. metformin vs. TZDs vs. DPPIVs (DURATION-4: blinded; monotherapy; data in 2010). The first two trials will enroll 400-500 patients each while the third study will enroll 800 patients. Amylin does not believe that these studies are necessary for FDA approval.
H1:09 Filing Dependent On Comparability Data

Before LAR can be filed with the FDA, Amylin must produce comparability data showing that the LAR manufactured at the commercial-scale Ohio facility is sufficiently similar to that produced at Alkermes intermediate-scale facility. Amylin expects to produce these data in late Q1:09, and to file for approval by the end of H1:09. At first, Amylin was hopeful that non-clinical data could be used. However in November 2008, Amylin indicated that the FDA reviewed the data from LARs in vitro in vivo correlation (IVIVC) studies and decided that they do not meet the FDAs requirements for demonstrating comparability. Subsequently in December 2008, Amylin, Eli Lilly, and Alkermes announced that an agreement was reached with the FDA to use extension data from DURATION-1 to analyze comparability.
Risks To LARs 2010 Approval Remain

With LAR to be filed for FDA approval by the end of H1:09, a 2010 approval is likely. Nonetheless, risks to a 2010 launch remain. First, there is the possibility that the FDA concludes that commercial-scale and trial-scale LAR are not comparable after analyzing the DURATION data. That in turn would mean Amylin would be required to conduct a bridging study. Second, Amylins filing strategy relies upon the FDA classifying LAR as a line extension of Byetta, and therefore allowing LARs filing to reference all of Byettas safety and efficacy data. Should the FDA no longer consider LAR a line extension, it is possible that LARs data package, made up predominantly of one 295-patient, open label Phase III trial, would not be sufficient to support approval. In this case, data from DURATION-2, 3, and or 4 might be needed to support approval. Results from these trials are expected in 2009-10. Last, the new cardiovascular guidelines for antidiabetic agents issued by the FDA in December 2008 could pose a hurdle. The FDA document titled Guidance For Industry: Diabetes Mellitus Evaluating Cardiovascular Risk in New Antidiabeteic Therapies to Treat Type 2 Diabetes has two components one which has recommendations for new clinical studies in the planning stage, and one which has guidelines for completed studies before the submission of an NDA or BLA. We believe that the latter recommendations have most relevance for Byetta LAR. Specifically, the pre-NDA guidelines suggest that Sponsors should compare the incidence of important cardiovascular events occurring with the investigational agent to the incidence of the same types of events occurring with the control group to show that the upper bound of the two-sided 95 percent confidence interval for the estimated risk ratio is less than 1.8. Amylin believes that the guidelines are mostly consistent with the suggestions of the FDAs advisory committee. Moreover, Amylin expects to satisfy the cardiovascular
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event requirement using a meta-analysis of Byettas trials. The guidelines do allow meta-analysis to be used to characterize the cardiovascular risk, and Amylin believes that, since LAR is a line extension of Byetta, Byettas safety database is relevant. However, should the FDA determine that LAR and Byetta have different profiles, Amylin and Alkermes would need to more fully characterize LARs cardiovascular profile. Physicians Have Mixed Opinions On Sufficiency Of 300-Patient Trial For FDA Approval Although our consultants are excited about LAR and view once-weekly dosing as a major development, they have mixed opinions about LARs prospect of getting approved by the FDA based on one 300-patient noninferiority study vs. Byetta. Some physicians believe this will be sufficient, while others think in this current environment the FDA will want substantially more data. Our consultants who think the trial will support LARs approval argue that LAR is simply an extended version of Byetta that as far as they know has no additional safety concerns above Byetta. Moreover, they note that just as exenatide has already been approved by the FDA, so has ALKS Medisorb technology, and therefore they dont expect the FDA to have a lot of questions about LAR. They argue that there is precedence for an abbreviated pathway for the approval of extended release medicines based on marketed products, and in particular cited several oral therapies that have followed the same route. Physicians who think approval is unlikely think the FDA will want: (1) efficacy data from more patients and/or (2) more long-term data on LARs safety. Since LAR is long acting, these physicians are nervous about LAR causing higher rates of persistent hypoglycemia and pancreatitis. These specialists also believe that the FDAs renewed conservative approach in approving medications (in light of events such as Mercks Vioxx and GlaxoSmithKlines Avandia), as demonstrated by the recently released guidelines for developing novel anti-diabetic therapies, may handicap LARs ability to be approved without additional efficacy and safety data in more patients. We believe that the higher levels of antibodies produced by LAR, and the high variability in its pK profile, suggest that the FDA may want more clinical data, either from a bioequivalence trial or formal Phase III efficacy/ safety studies. LAR Expected To Increase The Market Opportunity, But Consultants Differ On The Degree If LAR is approved, our specialists anticipate LAR will grow the Byetta franchise by somewhere between 20-40% and two-to-four fold. They believe that once weekly dosing would make patients more amenable to trying and remaining on LAR as compared to twice-daily Byetta. While physicians are generally optimistic, there is clearly much uncertainty about LARs place in the treatment paradigm. Because initial LAR use would likely be in patients already on Byetta, we would expect mostly cannibalization during its first several quarters on the market. Longer term, we expect LAR to extend Byettas franchise into earlier patients. Alkermes will receive an estimated 10% royalty and manufacturing fee upon commercialization. Our model projects Byetta/LAR will achieve 6% penetration of type 2 diabetics by 2012, and $2+B in U.S. sales.
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U.S. Byetta and Symlin Revenue Model

Q1:08A Type 1 # Type 1 patients (MM) % Growth in # of Type 1 patients % of Type 1 Patients on Insulin Number of Type 1 patients on insulin % of Type 1 Patients Not Well Managed, Suitable for Symlin Number of Type 1 Patients Not Well Managed % Symlin Penetration Number of Type 1 Patients On Symlin (MM) ($)Price per patient U.S. Symlin Type 1 Sales ($MM) Y/Y growth Type 2 # Total Number Of Type 2 Patients (MM) Growth in # of Type 2 Patients % Of Type 2 Patients Diagnosed Number of Type 2 Patients Diagnosed (MM) % Of Diagnosed Patients On Oral Therapy # of Diagnosed Type 2 Patients On Oral Therapy (MM) Patients Still On Oral Therapy Starting Byetta: % of Patients Making At Least One Change To Regimen # of Type 2 Patients Making At Least One Change Byetta % Penetration Of Patients On Orals Number of Patients On Orals Starting Byetta (MM) Patients Failing Oral Therapy Starting Byetta: % Patients Failing Oral Therapy # Of Patients Failing Oral Therapy (MM) Byetta % Penetration Of Patients Failing Orals Number of Patients Failing Orals Starting Byetta (MM) Patients Rolling Off Byetta: % of Patients Who Fail Byetta Number of Patients Rolling Off Byetta Onto Insulin (MM) Total Number of Patients On Byetta (MM) % Penetration of Overall Type 2 Market ($)Price per patient U.S. Byetta Sales ($MM) Total U.S. Symlin Sales ($MM) y/y growth Total U.S. Byetta Sales ($MM) 1.4 1% 100% 1.4 20% 0.3 22.8% 0.06 $321 $20 Q2:08A 1.4 1% 100% 1.4 20% 0.3 25.5% 0.07 $321 $23 Q3:08A 1.4 1% 100% 1.4 20% 0.3 23.9% 0.07 $321 $22 Q4:08A 1.4 1% 100% 1.4 20% 0.3 24.5% 0.07 $321 $22 2008A 1.4 1% 100% 1.4 20% 0.3 24.2% 0.07 $1,285 $87 33% Q1:09E 1.4 1% 100% 1.4 20% 0.3 25.2% 0.07 $350 $25.1 Q2:09E 1.4 1% 100% 1.4 20% 0.3 26.0% 0.07 $334 $24.9 Q3:09E 1.4 1% 100% 1.4 20% 0.3 26.6% 0.08 $334 $25.6 Q4:09E 1.5 1% 100% 1.5 20% 0.3 27.2% 0.08 $334 $26.4 2009E 1.4 1% 100% 1.4 20% 0.3 26.3% 0.08 $1,401 $102.0 18% 2010E 1.4 1% 100% 1.4 20% 0.3 27% 0.1 $1,457 $115.0 13% 2011E 1.5 1% 100% 1.5 20% 0.3 28% 0.1 $1,515 $125.0 9% 2012E 1.5 1% 100% 1.5 20% 0.3 29% 0.1 $1,576 $135.0 8% 2013E 1.5 1% 100% 1.5 20% 0.3 29% 0.1 $1,639 $142.0 5%
18.6 0.5% 70% 13.0 80% 10.4 60% 6.2 0% 0.00
18.7 0.5% 70% 13.1 80% 10.4 60% 6.3 0% 0.00
18.7 0.5% 70% 13.1 80% 10.5 60% 6.3 0% 0.00
18.8 0.5% 70% 13.2 80% 10.5 60% 6.3 0% 0.00
18.7 2.0% 70% 13.1 80% 10.5 60% 6.3 0% 0.00
18.9 0.5% 70% 13.3 80% 10.6 60% 6.4 0% 0.00
19.0 0.5% 70% 13.3 80% 10.7 60% 6.4 0% 0.00
19.1 0.5% 70% 13.4 80% 10.7 60% 6.4 0% 0.00
19.2 0.5% 70% 13.5 80% 10.8 60% 6.5 0% 0.00
19.1 2.0% 70% 13.4 80% 10.7 60% 6.4 0% 0.00
19.5 2.0% 70% 13.6 80% 10.9 60% 6.5 2% 0.14
19.8 2.0% 70% 13.9 80% 11.1 60% 6.7 2% 0.10
20.2 2.0% 70% 14.2 80% 11.3 60% 6.8 1% 0.06
20.6 2.0% 70% 14.5 80% 11.6 60% 6.9 1% 0.06
9% 0.9 0% 0.00 80% 0.05 0.266 2.0% $596 158.5 $20 $158
14% 1.4 3% 0.05 28% 0.02 0.30 2.3% $596 177.5 $23 $177
8% 0.8 2% 0.01 12% 0.01 0.30 2.3% $596 179.9 $22 $180
4% 0.4 1% 0.00 43% 0.03 0.27 2.1% $596 162.7 $22 $163
8% 0.9 6% 0.02 41% 0.03 0.285 2.2% $2,385 678.6 $87 $679
7% 0.7 1% 0.01 30% 0.02 0.262 2.0% $644 168.4 $25 $168
8% 0.9 3% 0.02 19% 0.01 0.27 2.1% $644 175.8 $25 $176
8% 0.8 3% 0.02 18% 0.01 0.28 2.1% $644 183.5 $26 $183
8% 0.9 3% 0.03 18% 0.01 0.30 2.2% $644 192.3 $26 $192
7.5% 0.8 10.0% 0.02 21% 0.01 0.280 2.1%
8% 0.8 10% 0.09 18% 0.05 0.455 3.3%
8% 0.8 13% 0.11 11% 0.05 0.618 4.5%
8% 0.9 17% 0.14 9% 0.06 0.765 5.4%
8% 0.9 17% 0.15 9% 0.07 0.911 6.3%
$2,575 $2,679 $2,786 $2,897 $3,013 720.0 1220.0 1722.0 2215.0 2745.0 $102 18% $720 $115 13% $1,220 $125 9% $1,722 $135 8% $2,215 $142 5% $2,745
LARs Formulation Should Not Be A Hindrance Our consultants believe that LARs 23 needle gauge size will be acceptable to physicians and patients. They think that its once-per-week administration will drive broad adoption of the drug, and that its needle size, while not ideal, will not be a major hurdle to adoption. They also believe that patients will tolerate some discomfort in a weekly injection since it leads to substantial weight loss. Our experts think LARs success will only be heightened if it can be delivered via a small gauge pen. This is partly because of the needle size, but they also note that the preparation of LAR by the patient is somewhat cumbersome. They say the current formulation must be dissolved, mixed, put into a syringe, and injected. They think this will be unattractive to some. In fact, they note that liraglutides pen is superior to LARs system. However, in general they think LARs once-per-week administration and more compelling A1C control and weight loss will make it the preferred agent over liraglutide.
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Byetta/LAR Have Plenty Of Competition

While Byetta is the first incretin mimetic to receive approval, there are several drugs in development that also work through the GLP-1 pathway. Novo Nordisks liraglutide (NDA pending) and Roches R1583 (in Phase III trials) are the biggest threats to the Byetta/LAR franchise. Sanofis AVE0010 is also in Phase III development.
Liraglutide Vying For Approval

The closest GLP-1 competitor to Byetta/LAR is Novo Nordisks liraglutide, which was filed with the FDA and E.U. in Q2:08, suggesting a possible H2:09 launch (FDA panel scheduled for April 1, 2009 with an expected delayed PDUFA date of May/June, 2009). Liraglutide binds serum albumin, thereby prolonging its effects and making a once-daily formulation possible. The half-life of liraglutide is about 12 hours and Novo indicates that the effects on blood glucose persist for 24 hours following one injection. Liraglutides Phase III Program Consisted Of Six Trials The LEAD 1 trial investigated liraglutide in combination with glimepiride. Patients were randomized to placebo, rosiglitazone or liraglutide. Liraglutide lead to a statistically significant improvement in glucose control compared to rosiglitazone, with HBA1c reductions on the order of 1 to 1.5 percentage points. Around 40% of patients on liraglutide achieved HbA1c levels of <7%. At the end of LEAD 1 patients on liraglutide had a weight difference of 2kg compared to rosiglitazone. The LEAD 2 trial investigated liraglutide in combination with metformin. Patients were randomized to placebo, glimepiride or liraglutide. Again, liraglutide reduced HbA1c by 1 to 1.5%, and again more than 40% of patients achieved HbA1c of <7%. In LEAD 2 patients on liraglutide had hypoglycemia rates similar to placebo. At the end of LEAD 2 patients on liraglutide had a weight difference of 4kg vs patients on glimepiride. In both LEAD 1 and 2 the rate of nausea was between 5% and 20%. The LEAD 3 trial compared liraglutide as a monotherapy to patients on glimepiride over one year. At both doses tested, liraglutide provided statistically significantly better glucose control that glimepiride, with patients on liraglutide lowering HbA1c by an average of 1%. More than 50% of liraglutide patients achieved HbA1c <7%. Patients on liraglutide had a reduction in body weight of between 3 and 4kg compared to patients on glimepiride. Liraglutide resulted in mild to moderate nausea at a cumulated absolute level of below 30% over the full year. The LEAD 4 trial compared liraglutide vs placebo, both on a background of metformin and rosiglitazone. Liraglutide reduced HbA1c by 1.5%, and decreased weight by 2.5kg compared to placebo. At the end of the study, more than 50% of the patients in the liraglutide-treated group achieved HbA1c < 7%. Nausea was reported by 30-40% of subjects on liraglutide, and a low incidence of hypoglycemia was reported. The LEAD 5 trial compared liraglutide with insulin glargine, both in combination with metformin and glimepiride. More than 50% of the liraglutide patients
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achieved HbA1c < 7%, and the HbA1c reduction in the liraglutide group was 0.2 percentage points better than in the insulin glargine group (a statistically significant difference). The average weight at the beginning of the study in both groups was 85kg, while at the end the difference between groups was 3.5kg favoring liraglutide, also statistically significant. The liraglutide group reported nausea at a rate of 10% - 15%. The LEAD 6 trial was a 26-week Phase III study that randomized 464 Type II diabetics (taking metformin, sulfonylurea, or both) to either once daily liraglutide or twice daily Byetta (10 micrograms twice daily). Liraglutide statistically significantly reduced hemoglobin A1C greater than Byetta (1.1% vs. 0.8% respectively) and allowed more patients to reach the American Diabetes Association and American Association of Clinical Endocrinologists hemoglobin A1C target of <7% (55% of patients taking liraglutide vs. 45% of patients taking Byetta) and <6.5% respectively (35% of patients taking liraglutide vs. 25% of patients taking Byetta). Patients taking liraglutide and Byetta experienced a similar 3kg weight loss (average weight in the beginning of the study was 9095kg). The weight loss data are particularly important - some consultants had suggested that liraglutide might have produced less weight loss in the LEAD studies than Byetta and LAR did in their head-to-head trial. With head to head data, most will now conclude that liraglutide, Byetta and LAR all produce equivalent weight loss. Nausea was similar between Byetta and liraglutide (25%) and, although the overall rates of hypoglycemia were low and equal between the two treatment groups, liraglutide had lower rates of minor hypoglycemia.
LEAD6 Results
Change in HbA1C from baseline % HbA1C <7% % HbA1C 6% Weight change from baseline (kg) % change in HOMA-B from baseline Change in FPG from baseline (mmol/L) Minor hypoglycemic events/subject/yr
Source: Novo Nordisk, Cowen and Company
Liraglutide 1.8mg Daily -1.12 54% 35% -3.24 32.1% -1.61 1.9
Byetta 10 micrograms Twice Daily -0.79 43% 21% -2.87 2.7% -0.6 2.6
p Value p<0.05 p<0.05 p<0.05 p<0.05 p<0.05 p<0.05
Liraglutide Is A Viable Competitor Novo filed for approval in the U.S. and Europe in Q2:08 (FDA panel scheduled for April 1, 2009 with an expected delayed PDUFA date of May/June, 2009). Thus, liraglutide could be on the U.S. market in H2:09. Our consultants expect liraglutide to be a viable competitor in the GLP-1 market. Important attributes of liraglutide include Novos once-daily formulation in a well-developed advanced delivery pen, Novos solid reputation in the diabetes community, and the data suggesting that liraglutide results in somewhat less nausea compared to Byetta. Detractors point out that LARs once-weekly administration will ultimately be preferred by many patients. In the period when liraglutide and Byetta are the only two GLP-1s on the market, consultants do not envision switching patients already well managed by Byetta unless patients request such a change for convenience. However, they do expect to start most new patients during this period on liraglutide. Once LAR is approved, the physicians expect its onceweekly formulation will be preferred by the majority of patients, but that
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liraglutides administration through a simple insulin pen will be preferred by some. Ultimately, they expect LAR to capture 60-70% share of the market, with liraglutide getting the remaining 30-40%.
Roches Taspoglutide (R1583) In Phase III Program

The first data from the Phase IIb trials of Roches taspoglutide were presented at ADA in 2008. Its attractiveness is in its once-weekly subQ delivery by an insulinlike needle. If efficacy and safety of this compound is equivalent to Byetta and liraglutide, Roches insulin-like needle delivery could prevent this GLP-1 analogue from being a me too. The Phase IIb trial enrolled 306 patients with inadequately controlled HbA1c (79.5%) on metformin daily doses of greater than 1.5g. The baseline BMI was 32.7 5.0 kg/m2, HbA1c was 7.90.7%, and the average duration of diabetes was 5 5 yrs. Patients were randomized to 8 weeks of placebo, or R1583 at a dose of either 5, 10, 20 mg weekly, or 10 and 20 mg once every two weeks. At all doses taspoglutide reduced HbA1C at 8 weeks: -1.0 0.1 % (5mg QW), -1.2 0.1% (10 mg QW), -1.2 0.1% (20mg QW), -1.0 0.1% (10mg Q2W) and -1.0 0.1% (20 mg Q2W) compared to placebo (-0.2 0.1%). Body weight decreased in a dose dependent fashion. All decreases were progressive, with no sign of a plateau at 8 weeks. Significant reductions from baseline were seen in the 10mg QW (-2.0 0.3kg, p<0.05), 20mg QW (-2.8 0.3kg, p<0.0001), and 20mg Q2W (-1.9 0.3kg, p<0.01). The most significant side effect was nausea, and it increased with dose up to 52% of patients on 20mg QW experiencing it. However, most nausea was mild to moderate, it appeared to decrease after the first day, and only 4% of patients in total withdrew because of side effects. Importantly, in this trial patients were not titrated up in dose, suggesting that the rate of nausea could be decreased if, like Byetta, patients are initially on a lower dose, and are stepped up over time. There were no cases of acute pancreatitis, and no ECG or lab abnormalities. A very small fraction of patients developed antibodies, although the exact proportion was not disclosed. In August 2008, taspoglutide began its Phase III program, which will enroll 3,270 Type II diabetics and will include head to head comparisons against Januvia, Byetta, and Lantus. Two doses of taspoglutide will be tested, 10mg weekly, and 10mg weekly for 1 month followed by 20mg weekly. With an expected FDA filing in 2010 (data are anticipated in late 2009 through mid:2010), this places taspoglutide 12-18 months behind LAR, about one year closer than most had assumed. Based on its good efficacy, solid weight loss, once-per-week formulation, and convenient administration (via a pen with a 29 gauge needle), taspoglutide seems to be another viable competitor in the GLP-1 space.
Sanofi-Aventiss AVE0010 And GSK/HGSIs Syncria Jump Into Phase III

AVE0010 is Sanofi-Aventiss once daily GLP-1 analog (by injection pen) that recently entered into a broad Phase III program. Seven double blind placebo controlled trials will enroll a total of 3,815 Type II diabetics and have a primary endpoint of change in HbA1C with secondary endpoints including change in fasting blood glucose, change in weight, and safety and tolerability. One study is 12 weeks while the others are 24 weeks and Sanofi will also examine a dose titration regimen and a morning versus evening regimen. Data are expected in
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Mid:09 through Mid:10. AVE0010s commercial opportunity will be challenging as the GLP-1 space is quite crowded with more advanced agents including Byetta LAR, liraglutide, and taspoglutide. Syncria (30mg subQ weekly) is GlaxoSmithKline and Human Genome Sciences GLP-1 analog. Syncria entered a large Phase III program in Q1:09 and will be tested against both placebo and active comparators including metformin, sulfonylurea, TZD, insulin, and a DPP-IV inhibitor. The primary endpoint in all trials will be the change in baseline HbA1C of patients receiving Syncria versus those administered placebo or the active comparator. Data are expected in 2011 and 2012.
ConjuChems PC-DACT(TM): Exedin-4 Phase II Data Look Encouraging

In December 2008, ConjuChem announced that its GLP-1 agonist PC-DAC: Exendin-4 statistically significantly reduced HbA1C and weight loss in two Phase II trials. As a once- or twice-weekly GLP-1, PC-DAC Exendin-4 is another potential competitor. The two studies randomized 224 diabetic patients not well controlled on metformin to different doses and titration schedules of PC-DAC: Exendin-4 (1.5 mg weekly, 1.5 mg biweekly, or 2mg weekly) or placebo. PC-DAC: Exendin-4 was delivered in a small volume (0.2 mL) via a 31 gauge subcutaneous injection. Patients treated with 3 mg, 2 mg, and 1.5 mg experienced a statistically significant HbA1C reduction (versus baseline and placebo) of 1.4%, 0.8%, and 0.8% respectively versus 0.4% for placebo. Patients taking 3 mg weekly also lost a statistically significant 1.2 kg (80% of patients experienced some weight loss) vs. baseline (patients taking placebo lost 0.4 kg). Side effects included nausea (23% vs. 10% for placebo), vomiting (11% vs 6% for placebo), and diarrhea (10% vs. 8% for placebo). Injection site reactions in the placebo group were actually greater than in the treatment arms. 16% of patients developed antibodies against PC-DAC: Exendin-4. PK data showed that PC-DAC: Exendin-4 achieved dose-dependant steady state levels with good reproducibility across patients. Although PC-DAC: Exendin-4s data suggest it is perhaps somewhat less potent than Byetta LAR, it appears close enough to potentially be competitive. ConjuChem hopes to partner PC-DAC: Exendin-4 and begin a large Phase III program in 2009.
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Company GLP-1 Agonists Amylin Novo Nordisk
Name
Developmental Stage
Route/Frequency
Byetta Liraglutide
Commercialized Filed with FDA Q2:08
SubQ 2x/day SubQ 1x/day; Injection pen SubQ 1x/week; needs preparation; 25 gauge needle SubQ 1x/week; 29 gauge needle SubQ 1x /day; Injection pen SubQ 1x/week
Amylin
Byetta/LAR
Phase III; FDA filing H1:09
Roche
R1583
Phase III
Sanofi-Aventis
AVE0010
Phase III
Human Genome/ GlaxoSmithKline ConjuChem
Syncria
Phase III
CJC-1134
Phase III
SubQ 1x/week; 30 gauge needle SubQ 1x/week SubQ; frequency to be determined SubQ 1x/week SubQ 1x /week SubQ 1x/week
Eli Lilly Transition Therapeutics / Eli Lilly Novo Nordisk Sanofi-Aventis Eli Lilly DPP-IV Inhibitors Merck Takeda Bristol-Myers/ AstraZeneca Boehringer Ingelheim Phenomix/Forest Kyorin Amgen/Servier Novartis
LY2189265 GLP1-I.N.T.
Phase II Phase II
Completed Phase I Phase I LY2428757 Phase I
Januvia Alogliptin Saxagliptin
Commercialized PDUFA 6/27/09 PDUFA 4/30/09
Oral 1x/day Oral 1x/day Oral 1x/day
Ondero PHX1149 KEP-104 AMG 222 Galvus
Phase III Completed Phase III Phase IIa completed Phase IIa FDA approvable letter; requires addtl trials
Oral 1x/day Oral 1x/day Oral 1x and 2x/day Oral 1x/day Oral 2x/day
Source: Cowen and Company; company data; clinicaltrials.gov
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DPP-IVs Have Blockbuster Potential But Is It A One Horse Race?

Feedback from physicians suggests that the DPP-IVs likely will become blockbuster add-on therapies, most likely as add-on therapy to metformin. Some physicians believe that the DPP-IVs will have appeal as first-line therapy (ahead of metformin) among primary care physicians due to more manageable GI side effects and no titration (in contrast to metformin), and very low rates of hypoglycemia (in contrast to sulfonylurea). Our physicians do not believe that there is significant difference in efficacy across the DPP-IV class with HbA1c lowering expected to be between 0.5-0.7pp. This has been borne out in the clinical data presented at ADA and EASD 2008 where Takedas alogliptin (filed; PDUFA date now Q3:09) and Bristol-Myers/AstraZenecas Onglyza (filed; PDUFA date April 30, 2009) appear to have efficacy similar to Mercks Januvia (approved 2006). However, the safety profiles may vary as is evident with Galvuss (Novartis: approved E.U.; not approvable U.S.) liver and skin toxicity, and questions about Onglyzas effect on white cells versus Januvia which appears relatively safe. The focus on achieving the ADA treatment goal of HbA1c of <7%, supports earlier/more aggressive use of combination therapy, and our physician experts expect the DPP-IVs to become the add-on treatment of choice before either sulfonylureas or TZDs, and increased safety concerns on this latter class may support earlier DPP-IV adoption. Preclinical data continue to suggest potential beta-cell-sparing effects of the DPP-IVs, and their profile makes them ideal candidates for treating pre-diabetes, a large new market, but this is several years away.However, the DPP-IVs are weight neutral/mild increase, and therefore unlikely to challenge the GLP-1 mimetics in patients who are obese and willing to inject themselves. Thus, the more convenient less frequently administered GLP-1 agonists like Byetta LAR and Liraglutide could clip the DPP-IV inhibitors growth.
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DPP-IV Inhibitor Comparison

Name Generic Name Company Stage of Development MRK Approved Januvia sitagliptin NVS Approved EU; Approvable U.S. Galvus vildagliptin Takeda Filed U.S. 12/07 Alogliptin Saxagliptin BMY/AZN NDA and MAA filed mid-2008 Onglyza
Dose
100 mg QD 25- 50mg QD for renal failure
50mg BID
12.5mg and 25mg QD
5mg QD Potential for one downward dose-adjustment in RF patients
ADME Toxicology /Adverse Events
Renal excretion Post-marketing allergic Skin reaction seen in 3Pruritis; three deaths ? reactions and Stevens- month monkey study. relationship to Johnson syndrome 100mg associated with liver alogliptin toxicity
Metabolized by liver CYP3A4 Preclinical skin findings; cardiovascular signal; lymphocytes decrease at higher doses; earlier reports of thrombocytopenia
Trials Monotherapy Initial combination with metformin Add-on: metformin Add-on: TZDs Add-on: sulphonylureas Add-on: SU + metformin Versus SU Add-on: to insulin -0.6 to -0.8 -1.3 to -1.8 -0.5 to -0.8 -0.5 to -0.8 -0.3 to -0.8 -0.7 to -1.1 -0.5 vs. -0.6 Phase III -0.8 to -1.4 -0.4 to -0.9 -0.4 to -0.9 -0.1 to -1.1
HBA1C Reduction -0.56 -2.5 -0.6 -0.66 -0.38 -0.4 to -0.56 -0.9 -0.6
Withdrew EMEA application due to minimal difference
-0.63
Fixed dose combinations
Janumet (Januvia + met) Eucreas (Galvus +metformin) approved EU approved U.S.
Once-daily fixed dose combination in development
Source: company data; ADA; EASD; www.januiva.com
Mercks Januvia Continues To Gain Share Of Overall Diabetes Market

Januvia, a once-daily DPP-IV inhibitor, has benefited in the U.S. from Galvuss indefinite delay and Avandias (GlaxoSmithKline) cardiovascular concerns but could face competition from alogliptin (Takeda) and Onglyza (Bristol-Myers Squibb/AstraZeneca). Janumet, a twice-daily fixed-dose combination with metformin, was approved in the U.S. in 2007 and the E.U. in 2008. In October 2007, Januvias label was expanded to include monotherapy and combination therapy with concomitant use with SUs. In addition, as a result of post-marketing reports of serious allergic and hypersensitivity reactions including StevensJohnson syndrome, these were added to the warnings and precautions section. However, in a pooled analysis of 6,139 patients in clinical trials up to two years presented at EASD 2008, there were no excess cases of allergic reactions versus control suggesting Januvias safety profile continues to be robust and the allergic reactions are unlikely associated with Januvia. Efficacy data presented at EASD 2008, demonstrated continued glycemic improvements out to two years as an initial combination with metformin. Januvia is dosed 100mg daily. 50mg is
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recommended for patients with moderate renal insufficiency and 25mg with severe renal insufficiency or ESRD. To date, more than 6.7MM prescriptions have been dispensed worldwide for Januvia and 1.3MM for Janumet. Januvia is approved in 80 countries. Janumet is approved in more than 50 countries. In the U.S. 200MM+ lives are covered under Tier 2 status. Merck is developing a Janumet extended-release formulation that will consist of two pills dosed oncedaily and could be filed in 2011. Two other fixed-dose formulations, MK-0431C (Januvia+pioglitazone) and MK-0431D (Januvia+simvastatin), will be filed in 2010. TECOS, a 14,000 outcome study in type 2 diabetes, will look at a combined CV endpoint. TECOS will be managed by Duke Clinical Research and the Oxford Diabetes Trial Unit and it began in December 2008. Enrollment will take two years and patients will be followed for between four and five years. We forecast Januvia/Janumet sales of $2.6B in 2009, $3.15B in 2010, $3.75B in 2012, and $4.5B in 2015. Januvia Effectiveness Robust Merck continues to publish data supporting Januvias effectiveness in combination or as an add-on therapy across a variety of different Type II diabetes populations. However, as a result of the focus on the safety profiles of the DDP-IV class specifically and oral antidiabetes agents more generally, Merck presented a pooled analysis of clinical studies up to two years in duration, at EASD 2008. The safety and tolerability of Januvia were evaluated by pooling data from 12 large, double-blind, randomized, completed Phase IIb and III studies of 18-weeks to two years duration that included 6,139 patients receiving either Januvia once-daily (n=3,415) or placebo or an active comparator (n=2,724; non-exposed group). The studies assessed Januvia as monotherapy, initial combination therapy with metformin or add-on therapy to oral antihyperglycemic agents (metformin, Actos, a sulfonylurea, a sulfonylurea plus metformin or metformin plus Avandia). For clinical adverse experiences (AEs), the incidence of AEs overall, serious AEs and discontinuations due to AEs were similar between the Januvia and the non-exposed groups. The incidence of drugrelated AEs and discontinuations due to drug-related AEs were higher in the nonexposed group primarily due to events of hypoglycemia in sulfonylurea-treated patients. Clinical AEs that occurred at a higher incidence in the Januvia group and for which the 95 percent confidence intervals around the between-group difference excluded zero were as follows: atrial fibrillation, asthenia, chest discomfort, tooth abscess, osteoarthritis, acne and contact dermatitis. Eleven AEs occurred at a higher incidence in the non-exposed group for which the 95% confidence intervals around the between-group difference excluded zero and were as follows: bradycardia, goiter, change in bowel habit, blood glucose decreased, blood glucose increased, weight increased, hypoglycemia, sinus headache, prostatitis, balanitis and hyperkeratosis. Importantly, there were no cases of Steven-Johnsons syndrome. A closer look at the overall and serious cardiac and ischemic event rates revealed that the AEs in this group were similar between cohorts, with the overall incidences of serious AEs being 1.2% in the Januvia group and 1.5% in the non-exposed group (between-group difference [95% CI] = -0.3% [-1.0, 0.3]). In an analysis in which ischemia-related AEs were assessed, the incidences were 2.0% in the Januvia group and 2.3% in the nonexposed group (between-group difference [95% CI] = -0.2% [-1.0, 0.5]). There were 3 patients (0.09%) in the Januvia group (2 with ischemic stroke and 1 with myocardial infarction) with a fatal ischemic event compared with 7 patients (0.26%) in the non-exposed group (4 with myocardial infarction, 1 with myocardial ischemia, and 2 with sudden cardiac death).
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Two-Year Data Demonstrate Robust Response With Metformin Combination In a study of initial combination therapy with Januvia and metformin, glucoselowering was assessed by measuring the mean change from baseline HbA1C levels at one year and two years. The mean HbA1C reductions from baseline in this study were 1.8% at one year (n=153) in patients treated with Januvia 50 mg/metformin 1000 mg twice-daily. In the extension study at two years, the mean HbA1C reduction was 1.7% (n=105; baseline HbA1C of 8.6%) for this group. Additionally, mean HbA1C reductions from baseline were 1.4% (at one year, n=147 and two years, n=96) in patients treated with Januvia 50 mg/metformin 500 mg twice daily, 1.3% (at one year, n=134 and two years, n=87) in patients treated with metformin 1000 mg twice daily, 1.0% (at one year, n=117) and 1.1% (at two years, n=64) in patients treated with metformin 500 mg twice daily. For patients treated with Januvia, there was a 0.8% reduction in HbA1C levels from baseline at one year (n=106) and a 1.2% reduction from baseline at two years (n=50).
Bristol-Myers/AstraZeneca Onglyza Filed; Is Safety An Issue?

Onglyzas (saxagliptin, Bristol-Myers/AstraZenecas oral once-daily DPP-IV inhibitor) NDA was submitted to FDA on June 30, 2008 and a Marketing Authorization Application to the EMEA on July 1. This was subsequently accepted for review. Onglyza and has an April 30, PDUFA date. Takedas Alogliptin PDUFA date was extended to Q3:09 potentially paving the way for Onglyza to be the 2nd DPP-IV inhibitor approved in the U.S. However, despite reassurance from the companies, cardiovascular and potentially off-target effects may delay an approval. Onglyza appears the most potent inhibitor of the class but its efficacy appears in line with the class based on Phase III data presented at ADA and EASD 2008. The companies registrational program includes Phase I/ II data with subjects exposed to 20-80x the proposed 5mg dose for up to 6 weeks. In addition, 670 subjects received 2-10x the 5mg dose for up to 12 weeks. The companies believe that this together with the Phase III program confirms that there are no clinical correlates to the preclinical primate skin findings (similar to what was seen with Galvus). The Phase III program is in line with the FDA guidance and includes over 1,000 patients treated with 10mg for more than two years and over 3,000 patients treated at any dose. The companies have conducted an internal meta analysis that has demonstrated an acceptable cardiovascular risk; however, it is unclear whether this has been shared with FDA and what the hazard ratio is. Onglyzas safety profile has some question marks, with reports of lymphocytopenia and thrombocytopenias and potentially a cardiovascular signal. The thrombocytopenia was seen at doses not used in the Phase III trials, and the lymphocytopenia did not result in any clinical side effects. The companies have emphasized that they are extremely confident that there is no cardiovascular signal. Onglyza is renally excreted but may only have one downward dose adjustment in renal impairment, unlike Januvia which has two adjustments depending on the severity of the renal disease. The Phase III data presented included monotherapy, initial combinations with metformin, add on to TZD, and SU studies. Bristol believes that fixed-dose combinations should benefit from
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Onglyzas efficacy at a low dose, enabling a two-pill once-daily combination with metformin. We estimate Onglyza sales of $100MM in 2009, $600MM in 2012, and $1.2B in 2015. In January 2007, AstraZeneca and Bristol-Myers Squibb announced a collaboration to develop and commercialize Onglyza and dapagliflozin (SGLT-2 inhibitor) for the treatment of Type 2 diabetes. Both compounds were discovered by Bristol-Myers Squibb. The agreements included an up-front payment of $100MM by AstraZeneca to Bristol-Myers Squibb. From 2007 through 2009, the majority of development costs will be funded by AstraZeneca. Any additional development costs will be shared equally. Bristol-Myers Squibb may also receive additional payments of up to $650MM based on development and regulatory milestones for the two compounds. In addition, potential sales milestones up to $300MM per product are also possible. The companies will jointly develop the clinical and marketing strategy of the compounds, and postlaunch, will share commercialization expenses and profits/losses equally on a global basis, excluding Japan. Bristol-Myers Squibb will manufacture both products and book sales. EASD 2008 Showcased Onglyza But Profile Remains Undifferentiated Bristol-Myers and AstraZeneca presented several Phase III studies at EASD 2008: initial combination with metformin; add-on SU; and add on TZDs. These studies were in addition to the monotherapy data presented at ADA 2008. Initial Combination With Metformin Meets Endpoint The 24-week, randomized, double-blind, active-controlled study of 1,306 people with type 2 diabetes who were treatment naive and whose HbA1C levels were greater than or equal to 8% and less than or equal to 12% was designed to assess Onglyza as an initial combination therapy with metformin versus each agent alone. After a one-week placebo lead-in phase, individuals were randomized to one of four separate treatment arms: Onglyza 5 mg + metformin 500 mg (n=320), Onglyza 10 mg + metformin 500 mg (n=323), Onglyza 10 mg + placebo (n=335) or metformin 500 mg + placebo (n=328), given daily. From Week 1 to Week 5, in the Onglyza 5 mg + metformin, Onglyza 10 mg + metformin and metformin + placebo treatment arms, metformin was up-titrated weekly in 500 mg increments, as tolerated, to a maximum total daily dose of 2,000 mg, based on levels of FPG. After 24 weeks, individuals in the Onglyza + metformin treatment arms demonstrated a significant adjusted mean change in A1C from baseline of 2.5% for Onglyza 5 mg + metformin and -2.5% for Onglyza 10 mg + metformin, compared to -1.7% for Onglyza 10 mg + placebo and -2.0% for metformin + placebo (p-value less than 0.0001 for both treatment arms). Over 24 weeks, the incidence of adverse events was: 55.3% for Onglyza 5 mg + metformin, 57.3% for Onglyza 10 mg + metformin, 53.4% for Onglyza 10 mg + placebo and 58.5% for metformin + placebo. The percentages of the most commonly reported (greater than or equal to 5%) adverse events for Onglyza from the Onglyza 5 mg + metformin, Onglyza 10 mg + metformin, Onglyza 10 mg + placebo and metformin + placebo treatment arms, respectively, were: nasopharyngitis (6.9, 2.5, 4.2, 4.0), headache (7.5, 9.9, 6.3, 5.2), diarrhea (6.9, 9.6, 3.0, 7.3) and hypertension (4.7, 5.3, 4.5, 3.4).
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The reported hypoglycemic events were: 3.4 percent for Onglyza 5 mg + metformin, 5.0 percent for Onglyza 10 mg + metformin, 1.5 percent for Onglyza 10 mg + placebo and 4.0 percent for metformin + placebo. The occurrence of confirmed hypoglycemia (symptoms of hypoglycemia with a fingerstick glucose less than or equal to 50 mg/dL) was: two cases (0.6 percent) in the Onglyza 10 mg + metformin group and one case (0.3 percent) in the metformin + placebo monotherapy group, with no cases of confirmed hypoglycemia in the Onglyza 5 mg + metformin or the Onglyza 10 mg + placebo groups. SU Add On Study Successful This was a 24-week, randomized, double-blind, placebo-controlled, three-arm, parallel-group, multi-center international study of 768 people with type 2 diabetes (ages 18-77) whose HbA1C levels were greater than or equal to 7.5% and less than or equal to 10% after at least two months on a submaximal dose of a sulfonylurea at enrollment. After a four-week, open-label, lead-in phase, where all individuals received glyburide (GLY) 7.5mg, individuals were randomized to one of three separate treatment arms: Onglyza 2.5mg + GLY 7.5mg (n=248), Onglyza 5 mg + GLY 7.5mg (n=253), or placebo (PBO) + GLY 10mg (n=267), given daily. In the PBO + GLY10 mg group, blinded up-titration of GLY was allowed to a maximum total daily dose of 15 mg (UP-GLY). Approximately 92% of individuals in the UP-GLY group reached the maximum total daily dose during the study. After 24 weeks, individuals in the Onglyza + GLY treatment arms demonstrated a significant adjusted mean change in A1C from baseline of -0.5% for Onglyza 2.5mg + GLY and -0.6% for Onglyza 5 mg + GLY, compared to +0.1% for UP-GLY (p<0.0001 for both treatment arms). Over 24 weeks, the reported hypoglycemic events were: 13.3% for Onglyza 2.5mg + GLY, 14.6% for Onglyza 5mg + GLY and 10.1% for UP-GLY (p-value equals NS). The occurrence of confirmed hypoglycemia (symptoms of hypoglycemia with a fingerstick glucose less than or equal to 50 mg/dL) was: 2.4% for Onglyza 2.5mg + GLY, 0.8% for Onglyza 5mg + GLY and 0.7% for UP-GLY.
Incidence of adverse events are listed below
Most Common (5%) Adverse Events SAXA 2.5 mg + Adverse Events GLY (n=248) Total patients with AEs 186 (75.0) Adverse Events (5%)* Urinary tract infection 13 (5.2) Nasopharyngitis 14 (5.6) Upper respiratory tract infection 11 (4.4) Influenza 13 (5.2) Diarrhea 14 (5.6) Back pain 12 (4.8) Pain in extremity 11 (4.4) Headache 19 (7.7) Cough 13 (5.2) Hypertension 9 (3.6) *Excludes hypoglycemia. Source: Company data; EASD 2008 During 24-Wk Treatment Period SAXA 5 mg + All SAXA + GLY GLY (n=253) (n=501) 183 (72.3) 369 (73.7) 27 (10.7) 15 (5.9) 16 (6.3) 10 (4.0) 10 (4.0) 15 (5.9) 9 (3.6) 19 (7.5) 10 (4.0) 16 (6.3) 40 (8.0) 29 (5.8) 27 (5.4) 23 (4.6) 24 (4.8) 27 (5.4) 20 (4.0) 38 (7.6) 23 (4.6) 25 (5.0) PBO + UPGLY (n=267) 205 (76.8) 22 (8.2) 18 (6.7) 18 (6.7) 16 (6.0) 14 (5.2) 12 (4.5) 15 (5.6) 15 (5.6) 13 (4.9) 6 (2.2)
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Onglyza When Added To TZD Impressive In a 24-week, multinational, randomized, placebo-controlled, three-arm, parallel group, double-blind study of 565 people with Type 2 diabetes who were receiving stable TZD monotherapy (Actos) for at least twelve weeks prior to screening, patients in the Onglyza + TZD treatment arms demonstrated a significant adjusted mean change in HbA1C from baseline: -0.7 percent for Onglyza 2.5mg + TZD and -0.9 percent for Onglyza 5mg + TZD, compared to -0.3 percent for PBO + TZD (p-value < 0.0007 for both treatment arms). A greater percentage of individuals treated with Onglyza + TZD achieved an A1C of less than 7% at Week 24: 42.2% for Onglyza 2.5mg + TZD and 41.8% for Onglyza 5 mg + TZD, compared to 25.6% for PBO + TZD (p-value < 0.0013 for both treatment arms). One case of confirmed hypoglycemia (symptoms of hypoglycemia with a fingerstick glucose less than or equal to 50 mg/dL) was reported in the Onglyza 2.5 mg + TZD treatment arm. There were no cases of confirmed hypoglycemia in the Onglyza 5 mg + TZD or PBO + TZD treatment arms. Reported hypoglycemic events were: 4.1 percent for the Onglyza 2.5 mg + TZD, 2.7 percent for Onglyza 5 mg + TZD and 3.8 percent for PBO + TZD. Over 24 weeks, the incidence of adverse events was: 62.1 percent for Onglyza 2.5 mg + TZD, 74.2 percent for Onglyza 5 mg + TZD and 66.8 percent for PBO + TZD. The percentages of the most commonly reported (greater than or equal to 5 percent) adverse events from the Onglyza 2.5 mg + TZD, Onglyza 5 mg + TZD and PBO + TZD treatment arms, respectively, were: upper respiratory tract infection (7.7, 9.1, 7.1); urinary tract infection (3.6, 6.5, 6.5); nasopharyngitis (3.1, 4.8, 6.0); arthralgia or joint pain (5.6, 2.7, 2.7); headache (4.6, 5.4, 3.8); dizziness (2.6, 3.2, 5.4); peripheral edema (3.1, 8.1, 4.3); and hypertension (5.6, 4.3, 4.9). Monotherapy Study Fails To Differentiate. . . One efficacy study, a 6-month, multiple dose (2.5mg, 5mg, and 10mg), 467 treatment-nave type 2 diabetes patient study was presented at ADA. Our physician consultant believes that Onglyzas efficacy appears in line with the DPP-4 inhibitor class with HbA1c reductions of 0.43 to 0.54 versus a 0.19 increase in the placebo arm when baseline HbA1cs were 8%. A greater reduction was seen in the 66 patient open-label 10mg cohort who had starting HbA1cs of greater than 10.7%. There were no statistically different adverse events between the pooled Onglyza and placebo arms although there were unfavorable trends in headaches, UTI, and sinusitis. Individual dose-related side effects were not given other than a mean decrease in lymphocytes in the 10mg arm. Onglyza weight changes were similar to placebo.
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Saxagliptin 2.5mg N = 100 A1C (%) Baseline (mean) Change from baseline (adjusted mean) Difference from placebo (adjusted mean) (95% CI) Patients (%) achieving A1C <7% FPG (mg/dL) Baseline (mean) Change from baseline (adjusted mean) Postprandial glucose-area under the curve Adj mean change of baseline (mg*min/dL) Weight LS mean change from baseline (Kg) 2-hour PPG (mg/dL) Baseline (mean) Change from baseline (adjusted mean) Adverse events Total patients with AEs (%) Headache Upper respiratory tract infection Nasopharyngitis Sinusitis Urinary tract infections Hypoglycemia 7.9 0.10 -0.43 -0.62 35% N = 101 1784.1 -15 450301368.1 -6868 -1.2 N = 78 2798.7 -45
24-Week Study Saxagliptin 5mg Saxagliptin 10mg N = 103 N = 95 7.9 0.09 -0.46 -0.64 38% N = 105 1714.1 -9 456911209.8 -6896 -0.1 N = 84 2788.1 -43 8.0 0.11 -0.56 -0.73 41% N = 97 1774.4 -17 446141394.0 -8084 -0.1 N = 75 27110.6 -54
Placebo N= 92 7.9 0.09 0.19 24% N = 92 1724.8 6 460301397.8 -647 -1.4 N = 71 2838.9 -6
10mg open-label N = 64 10.7 0.10 -1.9
N = 64 2416.2 -33 606872312.4 -11078 0.1 N = 25 35815.3 -66
231 (75.5) 25 (8.2) 27 (8.8) 18 (5.9) 17 (5.6) 21 (6.9) no cases of hypoglycemia at 50mg/dL
68 (71.6) 7 (7.4) 11 (11.6) 6 (6.3) 3 (3.2) 4 (4.2)
Intent to Treat Population using last observation on study prior to metformin Least squares means adjusted for prior antihyperglycemic therapy status and baseline value
Source: ADA 2008
But Onglyzas ADME Profile Raises Questions Onglyza is metabolized in the liver by CYP3A4 into its active metabolite BMS510849. Onglyza and BMS-510849 both appear to be cleared by the kidney and BMS-510840 by the biliary system too. There is little safety data on BMS-510849, but it appears to have 50% of the potency of Onglyza. A hepatic impairment study with Onglyza 10mg demonstrated that there was a less-than two-fold increase in either Onglyza or BMS-510849 in hepatically impaired patients, suggesting that no dose adjustment will be required. However, drug interaction studies will be key given the CYP metabolism. A single dose PK study suggests that Onglyza 10mg can be administered without regard to age and gender.
Takedas Alogliptin Safety Profile May Raise Questions

In December 2008, Takeda announced that Alogliptins PDUFA date had been extended to June 26, 2009; 9 months after the original October 2008 date. The reason for the delay is unclear but possibly due to pruritis and cardiovascular signals. Multiple alogliptin posters and abstracts were presented at ADA and EASD 2008 which represented a significant component of the January 2008 NDA filing. There have been over 2,400 patient exposures, the majority at the oncedaily 12.5mg and 25mg clinical doses. Aloglitpins effectiveness at 12.5mg and 25mg QD appears modest but not inferior to the class. Takeda has conducted a 48-patient renal impairment study and monkey toxicology study. As part of the 120 day safety update, additional data on the one-year and 18 month exposures were submitted, likely satisfying FDA requirements for duration of exposure. Despite a clean monkey skin toxicity study (30X human 25mg dose) and no adverse events seen in the renal impairment study, three deaths, unfavorable
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trends in headache, and pruritis are likely to raise safety concerns; it is unclear whether the pruritis is in any way similar to the skin finding seen in the Galvus studies. Deaths in the insulin and metformin add-on studies, both in the 12.5mg arm, were attributed to underlying cardiovascular disease but the death in the 12.5mg arm in the add-on Actos study was possibly attributed to alogliptin. In the Phase II dose-ranging study, rash was noted at 50mg but the pruritis may be a dose-dependent phenomenon. Takeda is developing a fixed-dose alogliptin/Actos combination, but this is likely several years away. Multiple Alogliptin Studies Support Efficacy Data from monotherapy and add-on therapy studies with insulins, sulphonylureas, metformin, and pioglitizone, together with a renal insufficiency study and a monkey skin study, were presented at ADA 2008. The 26-week monotherapy Phase III study demonstrated reasonable efficacy with statistical HbA1c reductions compared to placebo. The absolute reduction is in line with Januvia. There were neither statistical differences in any adverse events nor dose-dependent relationships. Weight loss trended favorably in alogliptin patients.
Alogliptin 26-Week Monotherapy Study 26-Week Study ALO 12.5mg ALO 25mg N= 133 N=131 A1C (%) Baseline (mean) Change from baseline (adjusted mean) Patients (%) achieving A1C <7% FPG (mg/dL) Change from baseline (adjusted mean) Weight LS mean change from baseline (Kg) Adverse events Total patients with AEs (%) Headache Upper respiratory tract infection Nasopharyngitis Sinusitis Urinary tract infections Hypoglycemia * p=0.001 **p=0.008 p<0.001 compared to placebo 7.7 -0.56 47* -10.3 -0.09 91 (68.4) 10 (7.5) 5 (3.8) 12 (9.0) 7 (5.3) 4 (3.0) 7.8 -0.59 44** -16.4 -0.22 89 (67.4) 9 (6.8) 6 (4.5) 10 (7.6) 5 (3.8) 2 (1.5)
Placebo N= 65 7.9 -0.02 23 11.3 0.18 45 3 6 6 (70.3) (4.7) (9.4) (9.4)
3 (4.7) 1 (1.6)
Source: ADA 2008; company data
Galvuss U.S. Destiny Uncertain; E.U. Launch Underway

Novartis filed Galvus (vildagliptin) 50 and 100mg doses with the FDA in 3/06 and received an approvable letter on its February 2007 PDUFA date. FDAs major concerns included necrotic cutaneous lesions in monkeys at three fold the proposed human dose, acute and symptomatic peripheral edema in humans at 46 fold the proposed clinical dose, and potential patient populations who are likely to be at risk for increased drug exposure. FDA initially requested a 24week safety study in patients with moderate-to-severe renal impairment that are predisposed to high plasma levels with standard Galvus doses. FDA also requested additional preclinical characterization of a renally excreted metabolite, LAY151 which has subsequently resolved. Mechanistic studies are underway to better understand the toxicity in primates and potentially explain off-target effects, but Novartis does not believe this to be a DPP-VII or VIII issue; however, our clinical consultants have mixed opinions. Separately, FDA has required a separate study to address a liver toxicity signal found as part of a
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Novartis safety review. Novartis stated that this 6-month study may require 1020,000 patients and is now evaluating the cost-benefit of moving forward with Galvus in the U.S. On February 1, 2008 the EMEA approved a new Galvus label in combination with metformin, thiazolidinediones (both 50mg twice-daily), or sulphonylureas (50 mg once-daily). The association of the 100mg dose with liver toxicities required the need for relabeling in the E.U. post the original 9/07 approval. Eucreas (Galvus/metformin fixed-dose combination) was approved in 02/08 for patients who are inadequately controlled with metformin alone, or are being treated with Galvus and metformin as separate tablets. While there is continued commercial and R&D support for Galvus, including multiple abstracts presentated at EASD, we believe that its safety overhang will remain a continued impediment. We therefore forecast Galvus sales of $40MM in 2008, $60MM in 2009, $120MM in 2012 and $180MM in 2015.
Amlyns Symlin Is A Novel Adjunct To Insulin

Symlin is Amylins other marketed product, having been approved in March 2005 as an adjunctive treatment for both type 1 and type 2 diabetes patients who are failing to achieve adequate mealtime glucose control despite optimal insulin therapy. A sizable percentage of patients on insulin do not achieve satisfactory glycemic control after meals, and Symlin helps to control post-meal glucose levels by controlling glucagon secretion, nutrient delivery, and food intake. Symlin completed an extensive clinical development program, including six Phase III trials, as well as numerous Phase II and Phase I trials, altogether involving more than 5,000 type-1 and insulin-using type-2 patients. While the drug has produced strong efficacy data in all trials, it has also been shown to cause hypoglycemia in some patients, and this latter problem made Symlins regulatory path long and tortuous. Amylin has deployed a focused marketing strategy to target about 1,000 endocrine and diabetes specialists whose practices are weighted toward the care of type 1 patients. However, Symlin uptake has been modest, possibly due to its risk of hypoglycemia. Our model projects 2009-13 Symlin sales of $102MM, $115MM, $125MM, $135MM, and $142MM respectively. Amylin owns all rights to Symlin.
Medically-Assisted Hypoglycemia Rates In Symlins Clinical Trials
Patient Population Type 1 Type 1 Type 1 Type 1 Type 2 Type 2 Type 2 Type 2 Clinical Trial(s) Pivotal Trials Induction Phase Pivotal Trials Maintenance Phase Clinical Use Open Label Study Induction Phase Clinical Use Open Label Study Maintenance Phase Pivotal Trials Induction Phase Pivotal Trials Maintenance Phase Clinical Use Open Label Study Induction Phase Clinical Use Open Label Study Maintenance Phase Placebo Rate 0.19 0.24 NA NA 0.06 0.07 NA NA Symlin Rate 0.50 0.27 0.10 0.04 0.09 0.02 0.05 0.03
Source: Amylin Pharmaceuticals
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SGLT-2s Look Promising But Safety Profile Requires Scrutiny

Sodium glucose co-transporter-2 (SGLT-2) inhibitors are a promising new class in clinical development. Dapagliflozin (Bristol-Myers/AstraZeneca; Phase III), AVE2268 (SanofiAventis; Phase II), GSK869682 (GlaxoSmithKline; Phase II), JNJ28431754 (JNJ; Phase II) and GSK189075 (GlaxoSmithKline; Phase I) are the most advanced. Besides dapagliflozin, only the JNJ compound appears to be in active development. In addition to robust HbA1c lowering, SGLT-2s appear promising because of their insulin-independent glucose lowering and potential for weight loss as a result of calorie loss in the urine. Dapagliflozin, currently in a pivotal Phase III program, has generated the most data, initially creating concern because of a high rate of urinary tract infections in a small Phase I study. The infection rate can be explained mechanistically as SGLT-2s increase urinary glucose concentration, increasing susceptibility to infections. In diabetic patients, infections can be more aggressive and difficult to treat. However, in a larger Phase II study presented at ADA 2008 the UTI rate was marginally raised, although there were other concerns.
DEPICTION OF THE SODIUM GLUCOSE CO-TRANSPORTER MECHANISM
Source: company reports
Bristol-Myers/AstraZenecas Dapagliflozin Weight Loss Intriguing But Safety Requires Close Scrutiny Dapagliflozin, a sodium-glucose cotransporter-2 (SGLT2) inhibitor, is currently in Phase III development. Dapagliflozin works primarily by inhibiting glucose reabsorption in the kidneys, through an insulin-independent mechanism. Dapagliflozin appears to have promising glucose and weight lowering capability but its side-effect profile requires elucidation. Lower urinary tract infections and electrolyte changes have been seen. The December 2008 FDA guidance on defining macrovascular risk for anti-diabetic medications in development and on the market likely will effect dapagliflozin but it is unclear whether this will affect its time to market. The Phase III metformin combination study evaluated 2.5mg, 5mg, and 10mg daily dapagliflozin doses for 102 weeks. It completed in 11/08 but the results are not available. Several other Phase III studies are
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ongoing, including a 252 patient Phase II/III moderate renal impairment study. Data from several of the Phase III trials are likely to be presented in H2:09. We forecast dapagliflozin sales of $100MM in 2012 and $400MM in 2015. Phase II Data Relatively Impressive In a 12-week, double-blind, parallel-group, dose-ranging, placebo-controlled trial, 389 treatment-nave type 2 diabetes patients with inadequate blood glycemic control and low mean glucosuria at baseline were randomized in equal ratios to once-daily dapagliflozin 2.5, 5, 10, 20, or 50 mg, metformin XR 750 mg titrated to 1500 mg or placebo. Dapagliflozin treatment led to consistent and sustained increases in urinary glucose excretion, rising to mean glucosuria values between 51.8 and 85.0 grams per day (g/d) at week 12 in the dapagliflozin study arms from baseline means between 5.8 and 10.9 g/d. Mean glucosuria with placebo and metformin both remained at 5.7 and 5.6 g/d, respectively, at week 12. Mean percent reductions for body weight and absolute changes in body mass index (BMI) over 12 weeks are shown below. A higher proportion of patients in each of the dapagliflozin groups achieved a 5% weight reduction versus placebo. Mean daily 24-hour urine volumes at baseline were between 1.9 and 2.2 L per day; small dose-related increases in 24-hour urine volumes were observed at week 12 from +107 mL (2.5-mg dose) to +470 mL (50-mg dose) compared with -112 mL for placebo and -96 mL for metformin. There was no apparent effect of dapagliflozin treatment on appetite, as assessed by a visual analogue scale. Adverse events of polyuria/pollakiuria were reported by 4 (1.4%) subjects in the dapagliflozin groups and there were no reports of nocturia. There were small dose-dependent increases in serum magnesium +0.07 0.18mEq/L (versus +0.04 mEq/L for placebo); serum phosphate +0.20-0.24 mg/dl (highest two doses; versus +0.08mg/dl for placebo); and hematocrit increases of +1.5-2.9% (versus 0.1% for placebo). There were decreases at all doses of uric acid of -0.98 to -1.14 (versus -0.16 for placebo). There were no reports of clotting. It is unclear whether these electrolyte changes are mechanistic or off target effects but will require further evaluation. The significant adverse events are reported in the table below. Increased infection rate and changes in electrolytes are of concern but efficacy and weight loss are impressive. We therefore believe that this class may hold promise but will require close scrutiny.
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Dapagliflozin Phase II Weight Loss And Safety Data Dapagliflozin dose (mg) 5 10 20 n=58 n=47 n=59 89 (17) 86 (17) 88 (18) -2.5 -2.7 -3.4 [-3.3, -1.8] [-3.5, -1.8] [-4.1,-2.6] 31 (5) 30 (5) 31 (5) -0.8 -0.8 -1 [-1.2, -0.4] [-1.1, -0.5] [-1.2, -0.8] 5 (8.6) 4 (6.9) 3 (5.2) 1 (1.7) 3 (5.2) 2 (3.4) 6 (10) 0.27 5 (9) 0.72 1 (2) 1 0 0.48 5 (10.6) 3 (6.4) 2 (4.3) 0 1 (2.1) 1 (2.1) 3 (6) 0.66 5 (11) 0.47 1 (2) 0.47 0 0.48 4 (6.8) 2 (3.4) 2 (3.4) 3 (5.1) 3 (5.1) 2 (3.4) 4 (7) 0.68 7 (12) 0.33 4 (7) 0.12 0 0.48
Baseline weight - kg (SD) Mean reduction (LOCF) in weight - % [95% CI] Baseline BMI - kg/m (SD) Mean reduction in BMI [95% CI] Adverse Events n (%) UTI Dizziness Headache Fatigue Back pain Nasopharyngitis Hypoglycemia p-value Infections of the urinary tract p-value Genital infections p-value Hypotension p-value
Source: Company data; ADA 2008
2
2.5 n=59 90 (20) -2.7 [-3.4, -1.9] 31 (5) -0.9 [-1.1,-0.7] 3 (5.1) 3 (5.1) 4 (6.8) 3 (5.1) 2 (3.6) 3 (5.1) 4(7) 0.68 3 (5) 1 2 (3) 0.5 0 0.48
50 n=56 91 (19) -3.4 [-4.1, -2.6] 32 (4) -1.1 [-1.3, -0.9] 4 (7.1) 3 (5.4) 5 (8.9) 1 (1.8) 0 1 (1.8) 4 (7) 0.68 5 (9) 0.72 4 (7) 0.12 1 (2) 1
PBO n=54 89 (19) -1.2 [-2.0, -0.4] 32 (6) -0.3 [-0.5, 0.0] 3 (5.6) 3 (5.6) 1 (1.9) 6 (11.1) 2 (3.7) 2 (3.7) 2 (4) 3 (6) 0 1 (2)
Met n=56 88 (20) -1.7 [-2.4, -0.9] 32 (5) -0.5 [-0.8, -0.3 4 (7.1) 6 (10.7) 2 (3.6) 2 (3.6) 3 (5.4) 2 (3.6) 5 (9) 5 (9) 1 (2) 2 (4)
Status Of Sanofi-Aventiss AVE 2268 Unclear

AVE 2268 is an SGLT-2 inhibitor in Phase II. A four-week, multi-dose, 300-patient Phase IIb trial has completed but it is unclear when the results will be released. The AVE 2268 dosing groups in the Phase IIb trial are 300 or 600 mg twice daily (dosed at breakfast and lunch), and 1,200mg once-daily (dosed at breakfast). Patients enrolled in the trial were being treated with metformin, but their blood glucose levels were poorly controlled. The primary endpoint is the change in mean plasma glucose levels at four weeks vs. baseline. There are no other clinical trials ongoing that are listed on clinicaltrials.gov.
Ultimate Inhaled Insulin Opportunity Unlear

Pfizer/Nektars Exubera suffered a disappointing launch and its commercialization was discontinued in October 2007. Physicians and patients complained of the poor dosing flexibility and extensive training required for Exubera. Novo Nordisk/Aradigm terminated development of AERx iDMS with the belief that this product offered little advantage over conventional options, and Eli Lilly/Alkermes stopped development of AIR Insulin with what appear to be similar concerns. MannKinds Technosphere Insulin continues in Phase III trials. We believe the next-generation inhaled insulin products will need to demonstrate clinical differentiation from subcutaneous insulin (e.g., faster onset, less weight gain, etc.) to be successful and demonstrate no untoward effects on the lungs.
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MannKinds Technosphere Insulin May Offer A Differentiated Profile

MannKinds inhaled insulin consists of a proprietary dry powder formulation of insulin (Technosphere) delivered to the deep lung using the companys MedTone inhaler. MedTone is a palm-sized dry powder inhaler designed for use with proprietary, single-use, disposable, plastic cartridges. Technosphere insulin is in Phase III trials a summary of the ongoing registration trials is in the table below. MannKind plans to run special population studies with Technosphere Insulin in patients with asthma, COPD, smokers, patients with renal insufficiency, and patients with liver insufficiency. MannKind has not indicated when these special population studies will be conducted, but they are not required for an approval filing. MannKind believes Technosphere Insulin is differentiated from other inhaled insulin products (and injected insulin) via its pharmacokinetic profile, which appears to more closely mimic physiologic insulin secretion. MannKind believes that the Technosphere Insulin enters the patients blood stream primarily in its monomeric form (compared to the hexameric form of competing products), which enables the insulin to be absorbed and used by the body more rapidly. In September 2008, MannKind released top-line data from the Type 1 study indicating that patients on the Technosphere experience better blood sugar levels between and after meals, steady lung function and stable weight or weight loss. Fewer patients experienced incidents of hypoglycemia. In September 2006, MannKind announced that enrollment was complete in the ongoing two-year safety study of Technosphere Insulin. In July 2008, in a preNDA meeting FDA requested several follow ups: 1) MannKind complete a bioequivalence study comparing the clinical device to the proposed commercial device - the study and reports were completed in January 2009; 2) additional analysis of hypoglycemia, which involved analysis and collection of data from previous trials; and 3) metaanalysis to assess for CV risk the results were favorable and did not require the need for additional studies. MannKind plans to submit the NDA by the end of Q1:09. While MannKind has been trying to partner the product, it has encountered resistance and does not expect to secure a partner in the near term. We project a 2010 launch for Technosphere Insulin. Phase III Data In Type 1 Top Lined In September 2008, MannKind released top-line data from the Type 1 study. In the study, 293 patients received the inhaled Technosphere Insulin, and 272 patients received injectable insulin over a period of 52 weeks. The goal was to compare the effectiveness of both in regulating blood sugar and Technosphere proved as effective as the injectable treatments. Fewer patients on Technosphere experienced hypoglycemic events and there was more weight loss associated with the inhaled product as opposed to weight gain with the injectable treatment. It was also suggested that Technosphere did not impact lung function. Phase III Data Presented At EASD 2006 In September 2006, MannKind presented results from a 24-week Phase III trial of Technosphere Insulin at the EASD meetings. This 308-patient study demonstrated that Type 2 diabetics treated with Technosphere Insulin achieved comparable improvements in HbA1C control vs. patients who were treated with NovoLog. All patients enrolled in the study were using basal insulin, and were
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Diabetes
randomized to either Technosphere Insulin or NovoLog treatment arms. Pulmonary function tests did not reveal a difference between the treatment groups after six months. Patients using Technosphere Insulin experienced significantly fewer hypoglycemic events compared to those patients on NovoLog. After six months, patients treated with Technosphere Insulin experienced an average weight loss of 0.76kg, vs. an average weight gain of 0.23kg for those patients on NovoLog (p=0.0007). However, a total of 27 patients terminated in the Technosphere Insulin treatment arm of the trial, an 18% dropout rate. That is 2-3 times the dropout rate in the Exubera clinical trials.
Metabasiss MB07803 Lowers FPG In Phase IIa For Type 2 Diabetes

A novel inhibitor of fructose 1,6-bisphosphatase, MB07803s unique mechanism of action has the potential to differentiate it from currently marketed therapies like metformin. MB07803 has completed four Phase I studies, including a single-dose, doseescalation trial and a 14-day multi-dose study. In April 2007, it entered a 28-day Phase IIa trial (baseline A1C was 8.2%, fasting plasma glucose was 187). This double-blind, placebo-controlled study randomized 105 type 2 diabetics to one of four daily doses of MB07803 (10, 50, 100, or 200mg) or placebo, and evaluated the change in fasting plasma glucose levels from baseline at day 28. Metabasis announced in April 2008 that the 200mg dose lowered fasting plasma glucose statistically significantly with a p=0.0177 Based on data from this trial, Metabasis plans on additional Phase II trial that will evaluate higher doses of 7803 (400mg, possibly as high as 1000mg). 7803 is wholly owned by Metabasis and management intends to partner the program after Phase II. Metabasis has indicated that MB07803 is superior to first-generation candidate CS-917 as it has a PK profile that will support once-daily administration with better bioavailability and less GI toxicity. To the extent that dosing or PK issues may have tripped up CS-917s development, and led to the failure of its Phase IIb trial, 7803 could be a superior molecule. It is also possible that MB07803 will not have a drug-drug interaction with metformin.
Glucokinase Activators Now In Clinical Development

Lillys Glucokinase Activator Well Tolerated In Phase I LY2599506, the lead compound from the glucokinase activator program licensed from OSI, demonstrated dose-dependent fasting glucose reduction in healthy non-diabetic males. It was well tolerated in Phase I studies. Roche Advances Its Glucokinase Activator Roches RO4389620 has advanced into Phase I clinical trials. Results of a 15 patient acute study were presented at EASD 2008. Single-dose administration of the glucokinase-activator RO4389620 lowered both fasting and post-challenge glucose in patients with Type 2 diabetes, by improving -cell function, endogenous glucose output and glucose utilization. Fifteen patients with diettreated Type 2 diabetes received a single oral dose of placebo, 25 mg, or 100 mg RO4389620 120 min before an oral 75 g glucose load labeled with 1-2H-G, in a randomized, double-blind, 3-period crossover study. Fasting glucose was lower with RO4389620 (7.50.3 vs. 6.70.4 vs. 5.40.3 mM, p<0.001) due to a decline in
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Diabetes
endogenous glucose output (31412, 26615, 11720; p<0.01) and a tiny increase in glucose utilization (34013, 34111, 38316; p<0.05). Data from the single ascending dose study were presented at EASD. RO4389620 administered to healthy male subjects as a single oral dose of 5 mg, 10 mg, or 25 mg was well tolerated. Oral administration of RO4389620 consistently showed dosedependent exposure and significant, dose-dependent reduction of fasting plasma glucose, demonstrating potential utility in the treatment of type 2 diabetes.
Numerous Complications Stem From Diabetes

The CDC estimate the direct costs of treating diabetes to be $116B in the U.S., with the majority spent on treating the complications of diabetes. If left unregulated over a long period, abnormally high and/or variable glucose levels result in microvascular and macrovascular complications. Microvascular complications include those involving the nervous system (neuropathy), kidneys (nephropathy), and eyes (macular edema and proliferative retinopathy). Macrovascular complications involve the vascular system (heart disease). Proliferative retinopathy is growth of new blood vessels on the retina. These new vessels are weak and prone to leakage. According to the ADA, patients with diabetes are up to twenty times more likely to become blind than healthy people. The latter stages are not unique to diabetes, but are consistent with hypoxia. Nonetheless, proliferative retinopathy occurs in roughly half of all diabetics, but the incidence is slightly lower in Type I diabetes (40-50% in these patients). Severe proliferative retinopathy is treated with laser photocoagulation (use of laser to destroy unwanted blood vessels), which prevents blindness in about 95% of patients. Drawbacks of photocoagulation include blurred vision, unequal pupil size post surgery, loss of peripheral and night vision, and cost. Macular edema is leakage of blood or fluid into the macula (center of the retina) of the eye. The macula allows for detailed vision (i.e., reading, driving, facial recognition). The majority of patients with poorly controlled diabetes develop macular edema. Neuropathy is nerve damage, characterized by diminished sensation. Many different types of neuropathy exist and diagnosis can be difficult, making study design challenging. Diabetes usually affects the peripheral nervous system, rather than the central nervous system. Neuropathy can prompt pain/tingling, foot ulcers, muscle weakness, and sexual dysfunction. Foot ulcers may lead to amputation to prevent the spread of life-threatening infection. The ADA estimates that neuropathy occurs in up to 60-70% of diabetics, and an estimated 5MM Americans are affected by diabetic peripheral neuropathic pain. Nephropathy occurs when capillaries in the kidney are damaged by uncontrolled glucose levels, and are unable to filter toxins from the blood. Over time, this leads to renal insufficiency and ultimately end-stage renal disease (ESRD) or kidney failure. The ADA estimates that diabetics are 20 times more likely to develop ESRD. About one-third of Type I and 10-20% of Type II diabetics develop nephropathy after about fifteen years. While ACE inhibitors and angiotensin receptor blockers have been shown to slow the progression of diabetic kidney disease, there remains a real need for more therapeutic options, as diabetic nephropathy continues to be one of the major causes of kidney failure in the United States.
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Diabetes
Protein Kinase C Is A Vital Enzyme

PKC is an enzyme vital to life in all mammals, given that it is involved in 10% of all life processes, and is associated with the growth of new blood vessels. At least twelve isoforms of PKC exist and it is expressed widely throughout the body. The beta and delta isoforms are found in higher concentrations in diabetics. PKC is activated in patients that have impaired glucose tolerance, which is a precursor of diabetes. Lilly is believed to have more than 15 patents covering PKC inhibitors, including a patent covering use in all vascular diseases given the antiangiogenic activity of these compounds. Arxxant selectively inhibits the activation of protein kinase C beta in hyperglycemic patients.
And Linked To Vascular Complications

Vascular endothelial growth factor (VEGF) is involved in the development of macular edema and proliferative retinopathy. PKC mediates the phosphorylation and subsequent activation of the VEGF receptor. PKC inhibitors, such as Arxxant, inhibit the growth of new blood vessels in the eye by disrupting VEGF activation.
Bruchs M embrane OK
VEGF Receptor Inactive

Tyr
ATP
PKC Inhibitor
VEGF
Protein kinase C
Retinal Pigm ent Epithelium
Tyr~P
ADP
Bruchs M embrane Dam aged

Bruchs Membrane Damaged Undamaged Capillary in Choroid
VEGF Receptor Active
Neovascularization
Capillary in Choroid
Source: New England Journal of Medicine; Source: Macular Degeneration Foundation
Arxxant Still Being Pursued For Diabetic Retinopathy

In 2005, data for Arxxant (Ruboxistaurin; LY333531), a protein kinase C beta inhibitor, were revealed for the treatment of diabetic neuropathy and nonproliferative retinopathy. The neuropathy trial failed to achieve significance. The non-proliferative retinopathy trial did achieve its endpoint, although at p=0.036. Lilly then advanced Arxxant into Phase III studies in diabetic retinopathy, data from which were presented at the SOE meeting in Germany in September 2006. The study looked at patients with moderately severe to severe non-proliferative retinopathy. The primary endpoint was SMVL (sustained moderate visual loss), which is the loss of 15 letters or 3 lines of vision independent of baseline for six months or longer between 30-36 months of treatment or the last 6 months in which the patient was involved in the study. 5.5% of 340 patients treated with Arxxant suffered SMVL versus 9.1% of 340
529
Diabetes
patients on placebo (p=0.034). 237 patients on Arxxant completed months 3-36 versus 236 patients on placebo. Twice as many patients gained 15 letters of vision on Arxxant, but the absolute numbers were small: 4.5-5% of patients on Arxxant versus 2-2.5% on placebo (p=0.027). The mean visual acuity from 18 months onward was greater in Arxxant patients than placebo patients, but specifics were not provided. In the more severe SMVL subgroup, patients treated with Arxxant benefited more than those treated with placebo, but specifics were not provided. Lilly states that no significant adverse events were seen in the study. The SMVL endpoint in the Phase III trial is a higher hurdle than the MVL endpoint measured as a secondary outcome in the Phase II/III study, although SMVL also was assessed in the earlier trial. In the Phase II/III study, Ruboxistaurin 32mg showed a 32% risk reduction (P = .029) of MVL compared with placebo although it failed to achieve the primary endpoint of retinopathy progression. As a result, the primary endpoint of the Phase III study, which initially had been progression to retinopathy, was changed to SMVL. Because SMVL excludes those patients that have improved vision within six months, SMVL is a more rigorous standard to meet. The Phase II/III study included patients with retinopathy severity between 47B and 53E (moderately severe to very severe nonproliferative diabetic retinopathy). The entry criteria in the Phase III study were expanded to include patients with retinopathy classified as 47A. Patients with a 47A classification have vision loss less frequently and therefore the inclusion of this subset drove down the per-patient event rates. Arxxant has demonstrated a relatively clean safety profile, and it is notable for not requiring an injection into the eye, a characteristic shared by all other treatments for retinopathy except laser treatment. Based on the Phase II/III data, Lilly filed for FDA approval of Arxxant for moderate to severe nonproliferative diabetic retinopathy in 2005. Following an approvable letter in August 2006, Lilly announced in September that the agency requested an additional Phase III trial be conducted to support the potential approval of Arxxant. Given that Lillys NDA for Arxxant included results from only one Phase III trial as supplemented with Phase II data, we had a cautious eye on prospects for approval. In March 2007, Lilly withdrew an EMEA filing for Arxxant in this indication. However, the company continues to pursue Arxxant in the U.S. for this indication (diabetic retinopathy). Lilly is hopeful that data from a three-year Phase III in diabetic macular edema which is due in 2010 could support an approval.
Keryxs Sulonex Failed In Phase III For Diabetic Nephropathy

Sulonex (sulodexide) is an orally-bioavailable glycosaminoglycan compound that is structurally similar to heparins and low molecular weight heparins. Despite data from several small Phase I and II trials which supported Sulonexs potential to slow the progression of diabetic kidney disease, a Phase III trial for this indication recently failed. In March 2008, Keryx announced that it had ended development of Sulonex.
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Diabetes
U.S. DIABETES MARKET

Total Prescriptions (000's) % Market Share 2008 2009E 2013P 1987* 2008 2009E Insulin (conventional) 16,651 19,000 18,000 41% 6% 6% 81,000 17% 17% Analogues/New Formulations 43,737 50,000 Total Insulin 15,920 60,387 69,000 99,000 41% 23% 23% Glucophage/metformin 78,067 89,000 135,000 30% 30% PPARs 19,197 21,000 45,000 7% 7% 54,259 91,200 171,000 59% 40% 40% Other Oral Antidiabetics 22,684 Total Oral Antidiabetics 22,684 197,785 229,000 351,000 59% 77% 77% Total Diabetes 38,604 258,172 298,000 450,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates 1987* 15,920 CGR 2013P '87-08 '08-13 4% +0% +2% 18% NA +13% 22% +7% +10% 30% NA +12% 5% NA +19% 43% +4% +26% 78% +11% +12% 100% +9% +12%
KEY PATENT EXPIRATIONS Drug Actos Avandia Lantus Humalog Prandin Manufacturer Takeda GlaxoSmithKline Sanofi-Aventis Eli Lilly Novo Nordisk Patent Expiration 2011 2012 2014 2014 2018 U.S. Sales in Year Patent Expires ($MM) $329 $6,254 $2,200
Source: IMS Americas; Cowen and Company Estimates
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Diabetes
DIABETES R&D PIPELINE Company Astellas AstraZeneca Product YM-086 Onglyza (Saxagliptin) PC I II III NDA Jun-06 Jul-08 MKT Comment A2 receptor antagonist; Type 2 diabetic nephropathy DPP-4 inhibitor; with Bristol-Myers Squibb; filed July 2008 in U.S. and EU; PDUFA 4/30/09 Bristol-Myers Squibb Onglyza (Saxagliptin) Jul-08 DPP4 inhibitor; diabetes; oral; qd; monotherapy and combination therapy trials underway; co-
development/co-promotion with AZN; filed July 2008 in U.S. and EU Dainippon Sumitomo GlaxoSmithKline Novartis Avandia Galvus (LAF237) Dec-08 Mar-06 Q3:07 EU PPAR gamma agonist; prevention of diabetes progression; filed in EU Vildagliptin; type 2 diabetes; oral DPP-IV inhibitor; single agent and FDC approved in EU; FDA requested additional studies for liver and skin toxicity; resubmission for U.S. Novo Nordisk Sanofi-Aventis Takeda Takeda NovoMix 50 and 70 Apidra Basen (AO-128) KAD-1229 Jun-05 . Dec-07 Apr-07 approval not expected before 2010 Type I and Type II diabetes; rapid acting, long acting insulin mixture Pediatric extension, Japan Alpha glucosidase inhibitor for impaired glucose tolerance; Japan SMP-862 . Diabetes; licensed from Merck Sante
Short-acting insulin secretagogue Japan
with insulin sensitizer; with Kissei;
Eisai Eli Lilly
Glufast Arxxant
. .
. Feb-06
Combination with pioglitizone; filed in Asia Ruboxistaurin; diabetic macular edema (Phase III); diabetic withdrawn retinopathy (filed); EU application
Eli Lilly Novo Nordisk
Byetta Liraglutide (NN-2211)
. .
Q1:08 May-08
Long-acting release (PIII); filed for monotherapy Type II diabetes, filed May 2008; obese non-diabetics; PIII in obesity; injectable glucagon-like peptide; from Scios extended release patents licensed
532
Diabetes
DIABETES R&D PIPELINE Company Sanofi-Aventis Takeda Product Lantus AD-4833 PC I II III . . NDA . Oct-08 MKT Comment Reduction in CV morbidity and mortality; filed for retinopathy Combination with metformin filed in Europe; Phase III for combination with insulin Takeda SYR-322 . . Dec-07 DPP-4 inhibitor; diabetes mellitus; filed in U.S., Japan; fixed-dose combination with Actos Alkermes Byetta LAR . H1:09 2010 Type II diabetes; once-weekly exenatide; Medisorb formulation for sustained-release; with Amylin Pharmaceuticals and Eli Lilly AstraZeneca Dapagliflozin . H2:10 Sodium-glucose cotransporter-2 Squibb AstraZeneca AstraZeneca Dapagliflozin/Metformin FDC (saxagliptin)/Metformin FDC Dainippon Sumitomo Eisai Eli Lilly Forest Laboratories GlaxoSmithKline Avandamet XR . SMP-508 AS-3201 Teplizumab Dutogliptin . . . . Diabetes; licensed from Novo Nordisk Diabetic neuropathy Humanized, non-Fc receptor binding anti-CD3; Type 1 diabetes DPP-IV inhibitor for Type II diabetes; PIII trials underway; via Phenomix PPAR gamma agonist plus metformin; type 2 diabetes extended release GlaxoSmithKline GlaxoSmithKline Avandia + simvastatin Otelixizumab . . diabetes Humanized anti-CD3 monoclonal antibody; type 1 diabetes, psoriasis, other immune-mediated diseases; WW collaboration with Tolerx GlaxoSmithKline Syncria . Albiglutide (716155); glucagon-like peptide 1 agonist; type 2 diabetes; PIII initiated February 2009 Merck Roche Daiichi Sankyo MK-0431C R1583 Rivoglitazone .
533
(SGLT2) inhibitor; with Bristol-Myers
. .
2011 200910
SLGT2 + biguanide FDC Diabetes; fixed dose combination
Onglyza
PPAR gamma agonist + statin; type 2
. . .
2011 2010
Januvia plus Actos combination GLP-1 analogue; type II diabetes; via opt-in with Ipsen CS-011; PPAR gamma agonist;
Diabetes
DIABETES R&D PIPELINE Company Product PC I II III NDA MKT Comment insulin sensitizer; co-developed with Pfizer; PI Japan, PII U.S., PIII Europe Dainippon Sumitomo Astellas Astellas AstraZeneca AstraZeneca Bristol-Myers Squibb AS-3201 ASP1941 YM-543 AZD 1656 AZD 6370 Dapagliflozin . . . . . . . H1:2010 . Diabetic neuropathy; co-developed with Kyorin Pharmaceutical with Kotobuki SGLT2 inhibitor; Type 2 diabetes; with Kotobuki GK activator; diabetes/obesity GLK activator; diabetes Sodium glucose cotransporter-2 (SGLT2) inhibitor; diabetes; coAZN; PI Japan Eli Lilly Eli Lilly GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GLP-1 analog TT-223 184072 756050 Remogliflozin etabonate (189075) Merck Merck Merck Mitsubishi Tanabe Novo Nordisk Novo Nordisk Novo Nordisk Pfizer, Inc. Roche MK-0893 MK-0941 MK-8245 MCC-257 NN-1250 NN-5401 NN-9535 PF-734200 R1439 . . . . . . . . . >2012 . . . . . Type 2 diabetes Gastrin; Type 2 diabetes; with Transition Therapeutics SIRT1 activator; type 2 diabetes Bile acid receptor agonist; diabetes Sodium dependent glucose transport (SGLT2) inhibitor; type 1 and 2 diabetes Diabetes Diabetes Diabetes Neutrophin enhanced; diabetic neuropathy Type I and Type II diabetes Next-generation insulin analogue; Type I and Type II diabetes II diabetes Type 2 diabetes Aleglitazar; PPAR co-agonist; cardiovascular risk reduction; type II diabetes Takeda Takeda Transition TAK-085 TAK-428 E1-INT . . . EPA/DHA agent; hypertriglyceridemia; Japan Diabetic neuropathy; PII in Europe and the U.S. hold Gastrin plus EGF; development on Once-weekly GLP-1 analogue; Type development/co-promotion with SGLT2 inhibitor; Type 2 diabetes;
Therapeutics
534
Diabetes
DIABETES R&D PIPELINE Company Transition Therapeutics Product T-223 PC I II . III NDA MKT Comment Gastrin analog; partnered with Eli Lilly; Phase II trial started September 2008; enrollment completed in February 2009 Wyeth Mitsubishi Tanabe Tanabe Tanabe Mitsubishi Tanabe Sanofi-Aventis TA-7284 AVE-0010 . . . . 2010 SGLT-2 inhibitor GLP-1 receptor agonist; type 2 diabetes; PI prolonged release formulation; Zealand pharma license Takeda Takeda Takeda AstraZeneca Chugai Daiichi Sankyo Dainippon Sumitomo Sumitomo Sumitomo Eli Lilly Eli Lilly Eli Lilly Eli Lilly Eli Lilly GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Basal insulin GLP-1 PEG IL-1B antibody LY2599506 Undisclosed 1292263 1614235 2245840 962040 . . . . (3) . . . . Diabetes Diabetes Diabetes Glucokinase activator (GKA); Type 2 diabetes; from OSI Diabetes Gastrin-releasing peptide (GRP) receptor agonist; type 2 diabetes Sodium dependent glucose transport (SGLT1) inhibitor; type 2 diabetes SIRT1 activator; type 2 diabetes Delayed gastric emptying; motiline Dainippon Dainippon SYR-472 TAK-379 TAK-875 AZD 4017 CSG452 CS-1036 DSP-3235 DSP-7238 DSP-8658 . . . . . . . . . . . . DPP-4 inhibitor; PI Japan Insulin sensitizer; diabetes mellitus; PI Japan, PII U.S., EU Glucose-dependent insulin secretagogue; PI Japan, PII U.S., EU Mitsubishi Mitsubishi PPM-204 Cholebine MP-513 TA-6666 . . . . . . . Type II diabetes; oral Type II diabetes (PII); DPP-IV inhibitor DPP IV inhibitor hyperphosphatemia (PI)
11BHSD inhibitor; diabetes, obesity Type II diabetes Antidiabetic agent SGLT1 inhibitor; diabetes; with Kissei Pharmaceutical Diabetes; DPP-IV inhibitor Diabetes; PPAR modulator
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Diabetes
DIABETES R&D PIPELINE Company Merck Pfizer, Inc. Roche Roche Roche Roche Roche Sanofi-Aventis Sanofi-Aventis Takeda Transition Therapeutics Sanofi-Aventis Bristol-Myers Squibb Bristol-Myers Squibb Bristol-Myers Squibb Sanofi-Aventis ScheringPlough Wyeth HSD-016 Total Drugs In Development 6 28 33 16 17 100 . Glucokinase Activator SAR-474832 ORG 211559 . . . Diabetes Low abs. SGTL1 inhibitor; type 2 diabetes Insulin receptor agonist; blood glucose regulator; from Organon Oral anti-diabetic DPP4 Inhibitor Backup . Diabetes SAR-351034 11bHSD Inhibitor . . Product MK-4074 PF-3882845 R1511 R4929 R7089 R7201 R7234 AVE-0897 SAR-7226 TAK-100 TT-223 + GLP-1 analog PC I . . . . . . . . . . . II III NDA MKT Comment receptor agonist Diabetes Diabetic nephropathy GK activator; type II diabetes Small molecule; type 2 diabetes Type 2 diabetes SGLT2 inhibitor Small molecule; type 2 diabetes Balanced PPAR alpha/gamma agonist SGLT1/SGLT2 inhibitor; Type 2 diabetes DPP-4 inhibitor; diabetes mellitus Gastrin analog plus GLP-1 analog; now partnered with LLY; Phase II trial could start in mid-09 dyslipidemia PPAR delta agonist; Type 2 diabetes, Diabetes
536
Epilepsy
Epilepsy
New Therapies And Increased Diagnosis Drive Market Despite Patent Expirations
Epilepsy is a disorder of the brain characterized by sudden, recurrent seizures. Seizures occur when the normal electrical activity of the brain is disturbed by an excessive discharge of neurons, which can affect a persons consciousness, muscle -7% CGR 2008-13 movements, or sensations. An epileptic attack can happen spontaneously or be triggered by various stimuli, from repetitive sounds and flashing lights to low levels of oxygen or sugar in the blood. In approximately 70% of cases, the cause of epilepsy is not known. Where the cause is known, maternal injury, trauma, tumors, infection, or poisoning are the most frequently cited catalysts. The Epilepsy Therapy Development Project estimates that as many as 60MM people worldwide have epilepsy; it is estimated that more than 2.5MM Americans are affected. Most sufferers are young (20% of cases present before the age of 5, 50% before age 25), although epilepsy can still strike at any age and becomes increasingly prevalent after age 55 as the incidence of stroke, brain tumors and Alzheimers disease increases. The market for anti-epilepsy drugs (AED) is small relative to other chronic treatment therapeutic categories, comprising less than 2% of the worldwide pharmaceutical market, and an even smaller part of the US market.
Epilepsy Category Market Share By $ Sales-2008 $11.3B
PFE 27%
Other 9%
2013P $7.9B
Generics, other 21%
PARTICIPANTS
UCB 9%
NVS 7%
ABT 2% UCB 5% GSK 5% JNJ 24% JNJ 6% NVS 6% PFE 55%
GSK 12%
ABT 12%
Four major pharmaceutical companies dominated the $11.3B anti-epilepsy drug therapy market in 2008: Pfizer, J&J, GlaxoSmithKline, and Abbott. However, patent expirations will continue to pressure the category through 2013. Pfizer will likely maintain the leadership position with 55% share, as Lyrica tempers generic competition to Neurontin. Abbotts Depakote IR franchise has generic competition, and Depakote ER faces generic competition in early 2009. J&J will attempt to stem the loss of its Topamax franchise to generics in 2009 with the addition of Carisbamate, which we expect to be launched in late 2009. Newer therapies have increased the effective seizure control rate to between 70 and 80%; 50-60% of adults will be seizure-free after using their first anticonvulsant. Patients with refractory epilepsy (approximately 40% of sufferers) often require treatment with multiple AEDs. Most anti-convulsant compounds are also efficacious for other CNS disorders, which has fueled
537
Epilepsy
growth for several products in the category - especially agents such as Pfizers Lyrica (pregabalin; neuropathic pain), and JNJs Topamax (topiramate; migraine, bi-polar disorder, obesity). However, due to numerous patent expirations, we forecast that anticonvulsant sales peaked in 2008. New agents from UCB (Keppra XR; approved in September 2008 and Vimpat; approved in October 2008); Eisai (Banzel; approved in November 2008 for Lennox-Gastaut syndrome) appear set to be niche therapies. GlaxoSmithKline/Valeants Retigabine (Phase III) and J&Js Corfyde (pending at FDA) look promising and are expected to be launched over the next 1-2 years. Generics have been a controversial topic for the epilepsy community, with many physicians believing that the variability of drug in the bloodstream could cause seizures. Therefore, despite being a highly genericized category, there is still opportunity for newer agents to gain ground in this community. Our scatter plot shows that, through 2013 the epilepsy category will be dominated by Pfizer, and will be a drag on growth for all the other major participants.
Epilepsy
50%
30% % Of Company 2008-13 Sales Growth From Category PFE 10%
-10% ABT
GSK NVS
-30%
-50%
-70%
-90%
-110% JNJ -130% $0.0 $0.3 $0.6 $0.9 $1.2 $1.5 $1.8 $2.1 $2.4 $2.7 $3.0 $3.3 $3.6 $3.9 $4.2 $4.5 2013 Sales Contributed By Company To Category ($ In B)
ESTIMATED WORLDWIDE MARKET FOR EPILEPSY DRUGS BY CLASS ($MM)

2008 2013P Market % Total Market % Total $11,321 100% $7,856 100% $11,321 100% $7,856 100% $ 08-13 CGR -7% -7% NRx 87-08 CGR Comments 12% - ABT's Depakote, PFE's Neurontin/Lyrica, GSK's Lamictal/CR, UCB's Keppra 12% - Declining due to patent expirations
Drug Class Anticonvulsant Agents Total Market
538
Epilepsy
U.S.EPILEPSY MARKET BUILD-UP

U.S. EPILEPSY MARKET BUILDUP ($MM) 2007 33.0 -38% 4% 1.3 $5.13 $200 11% 3.6 $3.89 $420 8% 2.5 $8.33 $620 0% 0.1 $7.06 $25 11% 3.5 $8.47 $900 1% 0.3 $4.43 $40 10% 3.2 $5.73 $550 3% 1.1 $1.16 $40 1% 0.4 $4.60 $50 12% 4.0 $0.55 $300 2008 33.9 +3% 5% 1.6 $5.13 $250 9% 3.1 $4.07 $380 8% 2.6 $9.01 $700 0% 0.1 $7.00 $10 12% 4.1 $8.17 $1,000 1% 0.2 $4.35 $30 6% 2.0 $6.67 $400 3% 0.9 $1.16 $30 0% 0.1 $4.60 $20 13% 4.4 $0.55 $300 4% 1.4 $1.00 $50 9% 3.1 $0.30 $30 9% 3.0 $0.30 $30 1% 0.3 $2.00 $75 2009E 37.7 +11% 5% 2.0 $5.00 $300 4% 1.7 $4.00 $200 3% 1.1 $9.00 $300 0% 0.0 $7.00 $5 4% 1.7 $8.00 $400 1% 0.2 $4.35 $30 3% 1.3 $6.45 $250 2% 0.6 $1.16 $20 0% 0.1 $4.60 $10 12% 4.4 $0.55 $275 22% 8.3 $1.00 $250 9% 3.3 $0.30 $30 7% 2.6 $0.65 $50 0% 0.1 $6.00 $25 1% 0.3 $5.50 $50 2010E 39.7 +5% 6% 2.3 $5.00 $350 2% 0.8 $4.00 $100 0% 0.2 $9.00 $50 0% 0.0 $7.00 $5 3% 1.0 $8.00 $250 1% 0.2 $4.35 $30 3% 1.0 $6.45 $200 1% 0.4 $1.16 $15 0% 0.1 $4.60 $10 11% 4.4 $0.55 $250 26% 10.4 $0.40 $125 8% 3.3 $0.30 $30 10% 4.2 $0.40 $50 1% 0.3 $6.00 $50 2% 0.6 $5.50 $100 0% 0.2 $5.50 $25 1% 0.2 $5.50 $35 30% 10.0 $0.67 $200 $3,375 -1% 29% 10.0 $0.67 $200 $3,475 +3% 26% 10.0 $0.67 $200 $2,395 -31% 25% 10.0 $0.67 $200 $1,875 -22% 2011E 40.4 +2% 7% 2.7 $5.00 $400 2% 0.8 $4.00 $100 0% 0.0 $9.00 $10 0% 0.0 $7.00 $5 3% 1.1 $8.00 $275 1% 0.2 $4.35 $30 3% 1.3 $6.45 $250 0% 0.1 $1.16 $5 0% 0.0 $4.60 $5 11% 4.4 $0.55 $225 25% 10.0 $0.30 $90 8% 3.3 $0.30 $30 10% 4.2 $0.40 $50 1% 0.4 $6.00 $75 2% 0.9 $5.50 $150 1% 0.5 $5.50 $75 1% 0.4 $5.50 $65 25% 10.0 $0.67 $200 $2,040 +9% 2012E 41.6 +3% 7% 3.0 $5.00 $450 1% 0.4 $4.00 $50 0% 0.0 $9.00 $5 0% 0.0 $7.00 $5 3% 1.3 $8.00 $300 1% 0.2 $4.35 $30 4% 1.6 $6.45 $300 0% 0.1 $1.16 $5 0% 0.0 $4.60 $5 11% 4.4 $0.55 $200 24% 10.0 $0.30 $90 8% 3.3 $0.30 $30 10% 4.2 $0.40 $50 1% 0.6 $6.00 $100 3% 1.2 $5.50 $200 2% 0.7 $5.50 $120 1% 0.5 $5.50 $90 24% 10.0 $0.67 $200 $2,230 +9% 2013E 42.4 +2% 7% 3.2 $5.00 $475 0% 0.2 $4.00 $25 0% 0.0 $9.00 $5 0% 0.0 $7.00 $5 3% 1.4 $8.00 $325 1% 0.2 $4.35 $30 4% 1.7 $6.45 $325 0% 0.1 $1.16 $5 0% 0.0 $4.60 $5 10% 4.4 $0.55 $200 24% 10.0 $0.30 $90 8% 3.3 $0.30 $30 10% 4.2 $0.40 $50 2% 0.7 $6.00 $120 3% 1.4 $5.50 $225 2% 0.9 $5.50 $150 2% 0.7 $5.50 $120 23% 10.0 $0.67 $200 $2,385 +7% CGR Comments +5% - Moderate growth - Pregabalin - Launched in the U.S. in Q3:05; 15% of all Lyrica Rxs - Indicated for PHN, neuropathic pain, partial onset seizures +14% -Est. sales for partial onset seizure use only - Divalproex; indicated for bi-polar disorder, epilepsy, and migraine - Includes all formulation: ER, sprinkle, etc. - Generics clip Depakote IR in 1/08; ER in 1/09 epilepsy accounts for ~30-35% of u -42% - ER formulation accounted for approx. 50% of franchise Rx's - Topiramate; indicated for epilepsy and migraine Total Prescriptions (MM) % Change Lyrica (PFE) Rx Share TRx's (MM) Avg Daily Cost Sales Depakote/ER Franchise (ABT) Rx Share TRx's (MM) Avg Daily Cost Sales Topamax (JNJ) Rx Share TRx's (MM) Avg Daily Cost Sales Zonegran (Eisai) Rx Share TRx's (MM) Avg Daily Cost Sales Keppra/XR (UCB) Rx Share TRx's (MM) Avg Daily Cost Sales Gabitril (CEPH) Rx Share TRx's (MM) Avg Daily Cost Sales Lamictal/XR (GSK) Rx Share TRx's (MM) Avg Daily Cost Sales Dilantin (PFE) Rx Share TRx's (MM) Avg Daily Cost Sales Trileptal (NVS) Rx Share TRx's (MM) Avg Daily Cost Sales Gabapentin Generics Rx Share TRx's (MM) Avg Daily Cost Sales Depakote/ER Generics Rx Share TRx's (MM) Avg Daily Cost Sales Carbamazepine Generics Rx Share TRx's (MM) Avg Daily Cost Sales Keppra Generics Rx Share TRx's (MM) Avg Daily Cost Sales Banzel (Eisai) Rx Share TRx's (MM) Avg Daily Cost Sales Vimpat (UCB) Rx Share TRx's (MM) Avg Daily Cost Sales Retigabine (VRX) Rx Share TRx's (MM) Avg Daily Cost Sales Eslicarbazepine (SEPR) Rx Share TRx's (MM) Avg Daily Cost Sales Other TRx's (MM) Avg Daily Cost Sales Total Market ($MM) % Change Source: IMS; Cowen and Company estimates
- Approximately 30% of use in epilepsy patients

-63% - Generics expected to clip beginning in early 2009 - Zonisamide
-13% - Clipped by generics in early 2006 - Levetriacetam - XR formulation launched in Q3:08 -20% - Keppra generics in November 2008; XR franchise stems erosion - Tiagabine
- CEPH has withdrawn marketing support - Lamotrigine; indicated for epilepsy and bi-polar disorder - XR formulation received Approvable Letter Q3'07; GSK action pending - Epilepsy indication accounts for ~40% of use, use in bi-polar growing -4% - Lamictal generic chewables in 6/05; solid tab in 7/08 - Phenytoin
-30% - Clipped by generics - Oxcarbazepine - Generics expected in H2:06 -24% - Est. sales for partial onset seizure use only - Generics of PFE's Neurontin
-8% - Generics of ABT's Depakote - Depakote ER patent settlement; generics in January 2009
- Generics of NVS's Tegretol
+0% - Generics of UCB's Keppra - Patent settlement;$750MM product; generic launched in 11/1/08 -8% - NDA approved for Lennox-Gastault syndrome
- Approved for partial onset seizure; neuropathic pain indication will be tough
- Yet to launch as of 1/09

- 3x daily dosing a hurdle but MR formulation in the works - Also developing for neuropathic pain - Q1:09 NDA filing targeted
- Licensed from Bial (Portugal)

- Phase III trials - H1:09 NDA filing targeted; assume H1:10 launch - Multiple generics, Neurontin - Topamax generics in 2009 +0% -7% - Generics clip
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Patent Expirations Expected To Clip Market Growth

DETAILED DISCUSSION
Worldwide sales of AEDs were $11.3B in 2008 and are projected to decline to $7.9B in 2013, due to several high-profile patent expirations, including JNJs Topamax, ABTs Depakote (IR/ER), Eisais Zonegran, and UCB Pharmas Keppra. A handful of new AED drugs are in late-stage clinical development, but at this point it is unclear if these newer agents will be significantly differentiated from the branded AEDs expected to go off patent over the next four years. Most epilepsy patients require chronic medication for their disease. In the U.S., approximately 2MM people with epilepsy benefit from AEDs. The vast majority of epilepsy sufferers reside outside the U.S. (approximately 40-60MM individuals); however, the rate of epilepsy patients actually seeking treatment is significantly lower outside of the U.S. An estimated 75% of the total worldwide epilepsy population is untreated. High cost and poor access to AEDs are significant and persistent challenges to foreign market penetration.
Seizure Types Define Treatment Regimen

Electroencephalogram (EEG) results, family history, neurologic findings, and the type of seizure (classified as partial or generalized) are important determinants of relapse risk and the decision to commence drug therapy. Seizure type also plays a role in determining the type of AED prescribed, because a drug effective in treating one type of seizure may have no effect, or even exacerbate, another seizure type. Once two seizures have occurred, a patient generally is placed on a single AED (monotherapy is preferable). A few different drugs may be tried, given that patients react and respond differently to different AEDs. The majority of AED patients are well controlled by drug therapy. The VA Epilepsy Cooperative found that as many as 60% of patients respond to a single AED. However, up to 40% of patients develop refractory epilepsy, requiring treatment with multiple AEDs. Drug therapy is ineffective for seizure control in 20-30% of patients with epilepsy. A small number of patients undergo surgery to treat epilepsy, most of them refractory to drug therapy.
Numerous Types Of Seizures Exist
Seizure Type Partial Explanation Patients with partial (or focal) seizures are about twice as likely to have a recurrence than patients with generalized seizures. Partial seizures originate in one hemisphere of the brain and often are preceded by an aura. Generalized Generalized seizures simultaneously involve both hemispheres consciousness. of the There brain. are Patients several types lose of Explanation of Subtypes Patients with simple partial seizures experience abnormal movements, sensations, or psychic aberrations without the loss of consciousness. Patients who have complex partial seizures generally lose consciousness. Absence seizures, also called stop and stare or petit mal seizures, are not dramatic; although attacks may occur repeatedly, recovery is prompt. Absence seizures most often present during childhood (around the age of 5-10). Tonic-clonic seizures, formerly known as grand mal attacks, are dramatic: during the tonic phase, limbs become rigid and stiff, breathing stops; the clonic phase follows, when the body is shaken by violent, rhythmic muscle contractions. Other generalized seizure types include myoclonic seizures, atonic seizures, and infantile spasms.
Source: Merck Manual, U.S. Pharmacist
generalized seizures, including absence and tonicclonic seizures.
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Most Patients Well Controlled By Drug Therapy

Many patients continue to experience seizures while on drug therapy. It is estimated that 25-50% of patients experience a 50%+ reduction in the frequency of seizures, and many patients experience a reduction in seizure severity. About 60-70% of patients are well controlled by drug therapy. Once seizures are controlled, drug therapy continues chronically for at least one seizure-free year. Typically, once a patient is controlled under a particular regimen, the physician may not be inclined to switch that patient to a new therapy or regimen. There are different medical opinions on when AED therapy should be discontinued: the range is one to five years. Studies suggest that more than half of patients who were well controlled on AEDs remained seizure free after termination of AED therapy.
AED Therapy Varies In its Effectiveness Depending On Seizure Type
Seizure Type Partial Subtype Simple Partial Complex Partial Generalized Absence Tonic-Clonic Mixed Refractory Total 20% 25% 60-90% 30%+ 30% 100%* 60-70% 40-75% 50-85% % Total Epilepsy Patient Population % Controlled on AED Therapy
* Numbers do not sum to 100% because many sufferers have more than one seizure type. Source: BMJ, Merck Manual, Postgraduate Medicines Seizure Management Symposium, U.S. Pharmacist.
Major Epilepsy Brand Drugs Lyrica 16.0% 14.0% Share of Epilepsy Market 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Keppra/XR Topamax Depakote IR/ER Lamictal
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Epilepsy
UCBs Keppra XR Launched In The Face Of Keppra Generics

UCBs Keppra (levetiracetam) has been marketed in the U.S. since May 2000. Keppra is indicated for the adjunctive treatment of partial onset seizures and is in Phase III for the monotherapy indication. Keppra has faced generic competition since November 2008 from Mylan. In January, following expiration of pediatric exclusivity, multiple generics to Keppra entered the market. In September 2008, the FDA approved Keppra XR (levetiracetam extended-release tablets) for use as an add-on to other antiepileptic treatments for people with partial onset seizures who are 16 years of age and older. So far, UCB has attempted to convert patients from generic Keppra to the extended-release version by offering discount cards that reduce the co-pay for patients. As of December 2008, Keppra generics accounted for 60% of the Keppra/XR franchise. Our consultants have a favorable opinion of Keppra XRs efficacy but believe that a once-daily version is of modest benefit over existing therapies. Therefore, we believe that Keppra XR will have modest success. As of December 2008, the Keppra franchise, including Keppra XR, held a 7.4% total prescription share of the U.S. seizure disorder category, down from 12.4% in December 2007. Keppra XR has demonstrated efficacy that is on par with the 40% reduction in partial seizures that our consultants note is now the bar for anti-epilepsy medications. In a 158-patient Phase III Study in refractory epilepsy patients with partial onset seizures, Keppra XR reduced seizures by 46% at 12 weeks, compared to 33% for a placebo (p = 0.038). Seizure frequency was reduced by over 75% in 24% of the Keppra XR patients, but just for 11% of the patients on placebo. Overall, Keppra XR was well tolerated with the most commonly reported adverse events of somnolence, flu, nausuea and dizziness. We estimate U.S. Keppra sales in epilepsy of $1,000MM (+11%) in 2008 declining to $250MM in 2010 following generics to Keppra and the growing modestly to $325MM in 2013 due to Keppra XR.
Generics Of J&Js Topamax Expected In March 2009

Topamax (topiramate) is currently approved as monotherapy for epilepsy, adjunctive therapy for epilepsy, and for the treatment of migraine headache. Topamax also garners significant off-label use for an array of disorders including bipolar disorder, pain, obesity, and alcohol dependence. JNJ indicates that roughly 50% of Topamax use is for migraine, with epilepsy and off-label use accounting for the other 50%. As of December 2008, Topamax had garnered 7.8% share of the U.S. seizure disorder category, down 20BP from 8.0% in December 2007. In December 2004, J&J discontinued development of Topamax CR (OROS), as the OROS controlledrelease delivery formulation of Topamax did not provide better tolerability than immediate-release Topamax. In addition to the disorders mentioned above, Topamax is being studied in essential tremor, ALS, PTSD, and substance abuse. The Topamax composition-of-matter patent expired in September 2008; but with six additional months of pediatric exclusivity, we expect the launch of multiple Topamax generics in March 2009. We estimate Topamax sales in epilepsy of $300MM (-57%) in 2009 due to the introduction of generics.
Small Window for JNJ To Transition To Comfyde, A Promising Drug

The planned successor to Topamax, Comfyde (Carisbamate), is currently pending at the FDA. In 1998, the compound was in-licensed from SK Pharma (currently SK Holding), a South Korean company. JNJ filed an NDA, in October 2008, for an indication in partial onset seizures in patients 16 years of age or older. The filing is supported by data from three placebo-controlled clinical trials. Results from the
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first study were presented at the Ninth EILAT Conference on Antiepileptic Drugs in June and results from two additional studies were presented at the annual meeting of the American Epilepsy Society towards the end of 2008. Results from two identical placebo-controlled clinical trials investigating the efficacy, safety and tolerability of carisbamate as an adjunctive treatment for patients with POS were presented at the AES meeting in December along with results of a pharmacokinetic/pharmacodynamic (PK/PD) analysis. Patients with an established diagnosis of uncontrolled partial-onset seizures for one year or more were eligible to participate in the study. The subjects remained on stable doses of a prescribed antiepileptic drug (AED) for 8-weeks (baseline phase) and were then randomized to receive carisbamate 200mg/day, carisbamate 400mg/day, or placebo on top of existing AEDs. Efficacy endpoints were median percent reduction in seizure frequency in the double blind phase compared to the baseline phase, and the proportion of patients with 50% or greater reduction in POS frequency during the 12-week double blind phase. Results showed that treatment with carisbamate 400 mg resulted in significant improvement in both efficacy measures versus placebo in Study 1, but not in Study 2. Carisbamate 200 mg/day did not differ from placebo in either study. Carisbamate was well tolerated, with a few CNS-related adverse events and a low discontinuation rate. The most common adverse events were dizziness and somnolence. The rate of treatment-emergent adverse events resulting in discontinuation from carisbamate was 3% in each study. A second poster showed results of an analysis of three studies, which evaluated the efficacy of carisbamate, using a PK/PD model to predict the effect of carisbamate over a dose range of 400 mg/day to 1200 mg/day. The study investigated the relationship between percent reduction of partial-onset seizures from baseline and steady state trough concentration. The model showed that seizure reduction increased with greater drug exposure levels. Carisbamate pharmacokinetics were influenced by the co-administration of enzyme-inducing AEDs, which reduced carisbamate exposure by about 33-40%.The PK/PD simulations predicted that treatment with 400 mg/day provides clinically meaningful effects for all subjects, with further increase in effect with dosages of 800 mg and 1200 mg/day for patients on enzyme-inducing or non-enzyme inducing AEDs. Although JNJ has secured a pediatric extension for Topamax, Carisbamate likely will not make it to market prior to the topiramate patent expiration in March 2009. JNJ has noted that the opportunity for the drug is clearly dependent on its success in non-epilepsy indications such as neuropathic pain and impulse disorders. New data on a number of follow on indications will be released over the course of the year. Our consultants believe that Carisbamate has a novel profile and expect it to be as effective as Topamax with a potentially cleaner side-effect profile. Additionally, our consultants indicate that there is a buzz in the community that Carisbamate potentially has disease modifying activity. A Phase II trial of 537 patients with partial-onset seizures demonstrated favorable efficacy vs. placebo. The 300, 800 and 1600 mg doses all exhibited statistically significant median percent reduction of seizures from baseline (p<0.001, p<0.007, p<0.001, respectively), while also displaying a favorable side-effect profile. A broad spectrum anti-epilepsy drug with low CNS side effects would certainly have the potential to become a best-in-class compound, and given its lack of titration and BID dosing, Carisbamate would normally be one such compound. However, the expected
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launch likely will occur after the launch of generic versions of Topiramate and, therefore, it may be difficult for J&J to gain significant share. We currently estimate worldwide sales of $15MM, $155MM, $320MM and $495MM in 2009-2013, but these estimates are not in our Epilepsy model and are fueled by non-epilepsy indications.
GlaxoSmithKlines Lamictal Sees Generic Competition; XR Awaiting FDA Action

Lamictal (lamotrigine) has been marketed in the U.S. since January 1995; Lamotrigine is available in roughly 60 countries. In July 2008, Teva launched generic Lamictal and generics now account for about 75% of the Lamictal franchise. Tevas launch followed a February 2005 settlement whereby Teva was allowed to launch its generic version of the lamotrigine chewable tablets ($45MM in brand sales) in June 2005 and was allowed to launch the solid dose tablets ($2.2B in brand sales) in July 2008. The launch occurred during Lamictals composition patent (4,602,017) pediatric exclusivity, which expired on January 22, 2009. We currently estimate generic Lamictal sales for Teva of $350MM in 2008, although that figure could be low given our assumptions for generic penetration (only 30%) and pricing (down 40% from brand). Lamictal has been proven particularly effective in treating partial-onset and generalized-onset epilepsy. However, Lamictal needs to be titrated carefully since many patients develop a serious skin rash if the dose is escalated too quickly; physicians often titrate Lamictal over the course of months before achieving the appropriate treatment dose. Lamictal is indicated for the treatment of epilepsy (monotherapy and adjunctive therapy) and bipolar disorder, but is also used for neuropathic pain and the prevention of migraine headaches. In September 2006, Lamictal received final FDA approval for the adjunctive treatment of primary generalized tonic-clonic seizures, adding to its already broad label for the treatment of epileptic seizures. Lamictal XR Pending At FDA
GlaxoSmithKline filed Lamictal XR, a once-daily version of Lamictal, for the treatment of epilepsy in November 2006. Lamictal XR received an Approvable Letter in September 2007; GlaxoSmithKline filed its response in July and is awaiting action by the FDA. We believe that, given the already genericized Lamictal market, GlaxoSmithKline might have little incentive to push the XR formulation. We estimate Lamictal XR sales of 50MM in 2009 and 250MM in 2012. Lamictal already is prescribed once-a-day for the treatment of bipolar disorder and GlaxoSmithKline does not plan to pursue a bipolar indication for the XR version. Bipolar disorder has been the primary driver of Lamictal sales growth and accounts for roughly 50% of Lamictal sales in the U.S. In September 2006, the FDA issued a warning concerning the increased risk of babies developing a cleft lip or cleft palate if their mothers use Lamictal during the first three months of pregnancy. We estimate worldwide Lamictal franchise sales of 310MM (-63%) in 2009, and 275MM in 2013. At the American Academy of Neurology in May 2007, GSK presented data from two clinical trials on Lamictal XR. Patients treated with Lamictal XR in the 326 patient ARMOR study exhibited a 46% median reduction in partial seizures, while patients on placebo exhibited a 24% reduction over 19 weeks. The COMPASS study compared the pharmacokinetics of once-daily Lamictal XR to twice-daily Lamictal immediate release (IR). The study showed steady state trough concentrations for Lamictal XR that were equivalent to or higher than those of Lamictal, demonstrating patients
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could be switched from the IR to the XR while maintaining comparable plasma levels of drug.
Pfizers Lyrica Differentiated By Superior Dosing Profile

Lyrica (Pregabalin) was launched in September 2005 in the U.S. for three indications: 1) neuropathic pain associated with diabetic peripheral neuropathy; 2) postherpetic neuralgia; and 3) adjunctive treatment of partial seizures in adults with epilepsy. Despite classification as a Schedule V controlled substance (which increases the complexity of prescribing) and the availability of inexpensive and similar gabapentin generics, Lyrica has enjoyed an impressive rollout. Lyrica achieved 4.8% total prescription share of the U.S. seizure disorder category in December 2008, relatively flat Y/Y. Lyricas initial uptake was driven in part by the perception of superior pain benefits vs. Neurontin. Pfizer states that Lyricas superior dosing profile and pharmacokinetics achieves more consistent blood levels without pushing the dose. However, in recent months, this market share appears to have flattened. Since gaining approval for the initial three indications, Pfizer also gained approval for Lyrica in Fibromyalgia in June 2007, and plans to expand Lyricas target market in several other indications. We estimate that approximately 15% of Lyrica sales come from the epilepsy indication and this will become a smaller percentage of the franchise given that the Fibromyalgia indication will be a major driver of sales in 2009 and beyond. We estimate U.S. epilepsy sales for Lyrica of $300MM (+20%) in 2009 and $475MM in 2013.
Eisais Banzel Likely A Niche Therapy For Lennox-Gastaut

Banzel (Rufinamide) is a triazole derivative developed as an adjunctive treatment for patients with partial onset seizures and Lennox-Gastaut syndrome (LGS; a rare, but severe form of epilepsy). Banzel was approved for Lennox-Gastaut syndrome in December 2008. IMS data suggest that Banzel is yet to be fully launched. Our consultants estimate that the LGS indication could account for up to 15% of patients in specialist physicians practices, depending on whether the setting is a tertiary care center or not. In partial seizures, our consultants believe Banzel showed relatively poor efficacy (20% mean reduction in partial seizures) compared to existing medications (40%) and therefore, Banzel likely will have limited impact if approved. Eisai acquired Banzel from Novartis AG in February 2004. Banzel was awarded orphan drug status by the FDA, and an NDA for the product was submitted in November 2005. At that time, Eisai was seeking both partial onset seizure and LGS indications. In January 2007, the EMEA granted marketing approval in Europe for Banzel as adjunctive therapy for LGS. In December 2005, Phase III data on Banzel were presented at the American Epilepsy Society meeting. Data from a Phase III trial of Banzel in LGS patients demonstrated that treatment with Banzel resulted in a 32.7% median reduction in total seizure frequency per 28 days relative to baseline. Data from a Phase III trial of Banzel in patients suffering from partial onset seizures were also presented. Patients treated with Banzel (titrated up to a 3200mg/day dose) demonstrated a 20.4% median reduction in partial seizures relative to baseline. Banzel appeared to be well tolerated in both trials. We estimate U.S. Banzel sales of $25MM in 2009 and $120MM in 2013.
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UCBs Vimpat Approved In U.S. And Europe

UCB/Schwarz Pharma acquired the rights to Vimpat (lacosamide) from Harris FRC. In October 2008, FDA approved Vimpat for use as an add-on therapy for the treatment of partial-onset seizures in people with epilepsy who are 17 years and older. UCB intends to launch the drug in the second quarter of 2009. Vimpat is being rolled out into Europe and UCB will launch in the U.S. as soon as the FDA publishes the scheduling for the drug, which has been recommended as a Schedule V substance (similar to Pfizers Lyrica). In September 2008, the EMEA had approved the drug for a similar indication. UCB is positioning Vimpat as a convenient twice-daily dosing that has little drug-drug or food interaction. It will be available in tablet, syrup and I.V. formulations. Our physician consultants indicate that they will initially use Vimpat in highly refractory patients. They view Vimpat as having good efficacy, on par with existing agents, and a relatively good side-effect profile. Additionally, one of our consultants believes that Vimpat might do well in extremely young patients are there is signal of greater efficacy in this subpopulation. In July 2008, UCB received a not approvable letter from the FDA for the neuropathic pain indication. While the adjunctive therapy indication is pending in the U.S., UCB is also conducting studies in Vimpat as monotherapy. A Phase IIb/III trial is ongoing in the U.S. with results expected in 2010. Top-line results from the first Phase III trial of Vimpat were reported in March 2006 and results from the second Phase III in neuropathic pain were announced in December 2007. UCBs Phase III adjunctive therapy trial enrolled 485 patients with partial onset seizures. The trial had a 4-week titration phase, followed by a 12-week maintenance phase. The primary endpoints of the trial were reduction in seizure frequency and a 50% response to treatment for those patients with at least a 50% reduction in seizures (responders). Both doses of Vimpat tested (200mg/day and 400mg/day) significantly reduced the frequency of seizures vs. baseline. The 400mg/day dose achieved statistical significance in the analysis of responders. Overall, Vimpat appeared to be well tolerated. Data from an open label extension of the Phase III study was presented at the European Federation of Neurological Societies in August 2008 and continues to suggest that Vimpat is well-tolerated and reduced seizures by more than 50% in almost half of patients who took it as adjunctive therapy for medication-refractory partial seizures. The open-label extension study comprised 370 adults (mean age 40 years) who had previously participated in placebo-controlled studies of the drug. The mean follow-up time was 5.5 years. At baseline, all patients had partial seizures that remained uncontrolled despite numerous medication trials; more than half of the cohort had tried seven or more drugs during their lifetime. The mean duration of their epilepsy was 25 years. Study protocol allowed titration of up to 800 mg/day; Vimpat could be used as either add-on therapy or monotherapy at the clinicians' discretion. The most commonly used dosage was 400 mg/day (24%). Overall, 46% of patients taking the drug experienced a reduction in seizures of at least 50%. This response rate was apparent by 6 months and continued to improve, with 65% responding by 30 months. We target an U.S. launch for Vimpat in Q2:09 for partialonset seizures. We estimate Vimpat U.S. sales of $50MM in 2009 and $225MM in 2013.
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Epilepsy
Sepracors Eslicarbazepine Differentiated By Once-Daily Protocol And Tolerability

Sepracor licensed U.S./Canadian commercialization rights to BIA 2-093 (eslicarbazepine acetate) from Bial, a Portugal-based pharmaceutical company, in January 2008. Sepracor targets an NDA filing for eslicarbazepine acetate in the first half of 2009, followed by an early 2010 launch (assuming FDA approval). Familiarity of esclicarbazepine among our physician consultants is low. Those consultants indicate that the drug showed efficacy comparable to existing therapies in the clinical trials. Overall, it seems like eslicarbazepines once-daily dosing and favorable tolerability may provide a hook in the competitive epilepsy market. We project a 2010 launch for eslicarbazepine and estimate sales of $35MM in 2010 and $120MM in 2013, assuming just 2% TRx share of the U.S. anti-epilepsy market in 2013. In June 2008, Sepracor announced the presentation of the combined Phase III data on eslicarbazepine acetate (ESL, an eslicarbazepine pro-drug) at the ninth Eilat Conference on New Anti-Epileptic Drugs in Spain. The top-line efficacy data for eslicarbazepine are similar to other leading anti-epileptics. The highest tolerated dose of Novartiss Trileptal (oxcarbazepine) demonstrated a 40.2% reduction in seizure frequency over a 24-week period as an adjunctive therapy. However, Trileptal is dosed twice-daily and Trileptal carries warnings for severe skin reactions and hyponatremia. No incidents of skin reactions or hyponatremia were observed in the eslicarbazepine Phase III trials. Patients (n=1,049, 18 years or older) were enrolled in three large-scale, randomized, double-blind, placebo-controlled, multi-center, add-on Phase III trials in partial epilepsy. Treatment groups included eslicarbazepine acetate 400mg qd, eslicarbazepine acetate 800mg qd, eslicarbazepine acetate 1200mg qd and placebo. In the intention-to-treat (ITT) population, percent relative reduction in seizure frequency over the 12-week treatment period was 35.4% (p=0.0002) and 38.8% (p=0.0001) for the 800 and 1200mg treatment groups respectively. In the pooled data, the 400mg dose did not achieve statistical significance. Additionally, 36.3% (p=0.0001) of patients on 800mg ESL and 43.5% (p<0.0001) of patients on 1200mg ESL experienced a 50% or greater reduction in seizure frequency over the 12-week maintenance period. Follow up in a one year open-label study indicated that this reduction in seizure frequency was maintained. Improvements in mean quality of life as measured by Quality of Life in Epilepsy Inventory-31 (QOLIE-31) reached significance for ESL treated patients in the 52-week follow on study when compared to baseline measures. In general, eslicarbazepine acetate was well-tolerated, with dizziness and somnolence the most common treatment-emergent adverse events. The AE-related discontinuation rate was 19.3% in the 1200mg dose group compared to 4.5% in the placebo group, a high number but favorable relative to the high doses of competitive anti-epileptic agents. As per Sepracors licensing agreement, Bial will receive $75MM upfront, and various development and regulatory milestones that could total up to $100MM through FDA approval. Sepracor will be responsible for the U.S. NDA filing and commercialization. Bial will manufacture BIA 2-093 for Sepracor in return for manufacturing fees (but will not receive royalties) and will receive additional milestones for FDA approval of indications beyond adjunctive use for epilepsy. Sepracor is considering U.S. clinical development of eslicarbazepine for neuropathic pain, a common application for this class of drugs.
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Epilepsy
GSK/Valeant Retigabine Limited By Dosing Profile, But MR Formulation In The Works

Retigabine is being developed as an adjunctive treatment for partial onset seizures. Valeant acquired Retigabine via its 2005 acquisition of Xcel Pharmaceuticals. Retigabine is a selective potassium channel opener and potentiates the effects of GABA. In late August 2008, GlaxoSmithKline announced a tie-up with Valeant for the Retigabine in a deal worth $125MM upfront and more than $500MM in potential milestones. Valeant plans to seek approval with the FDA and EMEA for Retigabine in refractory partial onset seizures in H2:2009. Our consultants note that Retigabine has no particular advantages but its mechanism of action is a novelty and will draw physicians to the drug. On the other hand, its major drawback is that it is currently being developed for dosing three-times-daily. Our consultants note that the dosing will clearly be inconvenient but that Glaxo and Valeant are working on reformulating the drug. Valeant released Phase III results from RESTORE 1 in February 2008, and the lower dose RESTORE 2 trial in May 2008. The two trials were initiated in 2005. RESTORE 1 (Retigabine Efficacy and Safety Trial for partial Onset Epilepsy) was conducted in the Americas (U.S., Central/South America) and RESTORE 2 was conducted in Europe. RESTORE 1 evaluated a 1200 mg daily dose of retigabine (the highest dose in the RESTORE program) versus placebo, and RESTORE 2 evaluated a 600 mg and 900mg daily dose of retigabine versus placebo as adjunctive therapy in patients taking stable doses of one to three additional AEDs. The primary endpoint for the Phase III trials was reduction in seizure frequency per four weeks from baseline and the proportion of responders (those patients with at least a 50% reduction in seizures over four weeks). At all three doses tested, retigabine demonstrated statistically significant (p<0.01) results on the primary endpoint. In RESTORE 1, the median reduction in 28-day total partial seizure frequency was 44.3% (n=151) and 17.5% (n=150) in the retigabine 1200 mg arm and placebo arms, respectively. The responder rate, defined as a 50% reduction in 28day total partial seizure frequency during maintenance (the dual primary efficacy endpoint required for the European submission) was 55.5% (n=119) and 22.6% (n=137) in the retigabine 1200 mg group and the placebo group of the trial, respectively. In RESTORE 2, the median reduction in 28-day total partial seizure frequency was 39.9% (n=178), 27.9% (n=181) and 15.9% (n=179) in the retigabine 900 mg group, retigabine 600 mg group and the placebo group of the trial, respectively. The 50% responder rate during the maintenance phase was 47.0% (n=149), 38.6% (n=158) and 18.9% (n=164) in the retigabine 900 mg, retigabine 600 mg and the placebo arms of the trial, respectively. We target a 2010 U.S. launch for Retigabine and estimate sales of $25MM in 2010 and $150MM in 2012.
UCB Pharmas Brivaracetam In Phase III Trials

UCB Pharma is investigating the potential of two levetiracetam derivatives for the treatment of epilepsy: Brivaracetam (Rikelta TM) and Seletracetam. Both compounds are similar in structure to levetiracetam, but are believed to work via different mechanisms of action. Brivaracetam is a SV2A ligand. The Phase III program started in October 2007 with results expected in the third quarter of 2009. The program will enroll nearly 1300 patients between the ages of 16-70 years in three separate trials. One trial will consist of 5, 20, and 50 mg/day dosing, the second trial will dose at 20, 50 and 100 mg/day, while the third will use flexible dosing in patients with uncontrolled partial onset or primary generalized seizures.
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Epilepsy
UCB Pharma released top-line results from two Phase II dose-ranging trials of Brivaracetam in September 2006. The trials tested Brivaracetam in patients suffering from partial onset seizures, which were not fully controlled despite treatment with one or two concomitant anti-epileptic drugs. In the first Phase II trial, three doses of Brivaracetam were tested: 5mg/day, 20mg/day, and 50mg/day. Brivaracetam (50mg/day) reduced seizure frequency by 53% compared to a 22% reduction seen in patients receiving placebo. Similar efficacy was seen in the second trial; patients receiving 50mg/day of Brivaracetam experienced a reduction in seizure frequency of 38% vs. 19% for those patients on placebo. The second trial tested a 150mg/day dose of Brivaracetam, but the higher dose did not confer added efficacy. Brivaracetam was generally well tolerated in both studies.
Visibility Is Low On Tevas Talampanel

Talampanel is an oral, non-competitive AMPA antagonist which Teva acquired from Ivax. At its R&D day in 2006, Teva noted that it is in the process of analyzing the results of a Phase II trial in epilepsy. The company showcased the ALS indication for the drug, perhaps suggesting that the epilepsy indication might have taken a back seat. A go/no-go decision is expected following the pivotal Phase IIb ALS study in Q1:09. Additionally, Teva has completed enrolling patients in a Phase II trial in brain tumors that it is conducting with the NABTT (New Approaches to Brain Tumor Therapy) CNS consortium. The study is a single-arm Phase II study adding Talampanel onto standard of therapy. Talampanel also is in Phase II trials for the treatment of dyskinesia associated with Parkinson's disease and glioblastoma (funded by the NIH). In smaller Phase II trials, Talampanel has proven to be efficacious and well tolerated. We have no sales estimates for Talampanel in our model pending improved visibility on the clinical profile of Talampanel.
Abbotts Depakote ER Generics Launched

Abbotts Depakote franchise (Depakote/ER, Depakene, and Depacon) is indicated for the treatment of epilepsy (monotherapy and adjunctive therapy), bipolar disorder and migraine headaches. In epilepsy, our consultants believe that Depakote is used in patients with general seizures, which accounts for about 30% of the market, rather than partial seizures. Use in bi-polar disorder and migraines has driven growth over the last several years. Abbott estimates that approximately one-third of use of the franchise is in epilepsy patients. In June 2008, Abbott settled pending Depakote ER litigation with Mylan. Under the agreement, Mylan launched the 500mg formulation and 250mg dose with exclusivity. Additional competitors are likely to enter towards the end of 2009. As of December 2008, the Depakote ER/IR franchise held a 7.2% share of the U.S. seizure category, down from 12.1% in December 2007, reflecting the entry of generics to Depakote IR. We estimate Depakote franchise sales in Epilepsy of $380MM (-48%) in 2009 and $25MM in 2013.
Generics Of Novartis Trileptal Launched Q4:07

Trileptal (oxcarbazepine) is indicated for the treatment of partial seizures (monotherapy and adjunctive therapy), but it is also used off-label for the treatment of neuropathic pain, and to a lesser extent bi-polar disorder. Trileptals composition of matter patent expired in 2006, and numerous generic versions were approved by the FDA in October 2007. Approximately 70% of Trileptal use is for epilepsy, 10-15% is for neuropathic pain, 5% is for bipolar disorder and the remainder for various other neurological indications. In April 2005, additional warnings over serious skin reactions were added to Trileptal's label. Severe dermatological reactions, including
549
Epilepsy
Stevens-Johnson syndrome (SJS) and toxic epidermal necrolysis (TEN), have been reported in children and adults in association with Trileptal use. Such serious skin reactions may be life-threatening, and some patients have required hospitalization, with very rare reports of fatal outcome. Recurrence of the serious skin reactions following re-challenge with Trileptal has also been reported. The reporting rate of TEN and SJS associated with Trileptal use (generally accepted to be underestimated due to under-reporting) exceeds the background incidence rate estimates by a factor of 3 to 10 fold compared to the 0.5 to 6 cases per million person years generally estimated. Prescriptions in the U.S. have been sluggish since the warning. We estimate WW Trileptal sales of $280MM (-16%) in 2009 and $115MM in 2013.
Cephalons Gabitril No Longer Being Promoted

Gabitril (tiagabine) is indicated as an adjunctive therapy for partial seizures. Gabitril is the only GABA re-uptake inhibitor on the market with an epilepsy indication. Cephalon acquired Gabitril from Abbott Laboratories in 2000 for $100MM. In February 2005, Cephalon issued a Dear Doctor letter warning that Gabitril may increase the risk of seizures in patients without a history of epilepsy. Subsequently, Cephalon stopped promoting Gabitril. With no sales and marketing support, prescription trends for Gabatril have been on the decline. Gabitril held less than a 1% prescription share of the U.S. seizure disorder category in August 2008. Although Cephalon had been hopeful that general anxiety disorder (GAD) might offer a new indication for Gabitril as supported by positive Phase II data, a Phase III trial in GAD failed to achieve its primary endpoint. Cephalon will consider the development of Gabitril in other therapeutic areas. We estimate U.S. Gabitril sales of $30MM in 2009-2013.
Eisais Zonegran Clipped By Generics

Zonegran (zonisamide) was developed by Dainippon in Japan, and is chemically distinct from the other leading epilepsy drugs. Eisai acquired the rights (North America and E.U.) to the product in 2004 from Elan for $130MM. Elan continues to manufacture Zonegran for Eisai. Zonegran is indicated as adjunctive therapy for the treatment of partial seizures. Zonegran generics have now almost completely substituted the brand.
Generics Dominate Gabapentin Market

Pfizers Neurontin (gabapentin) is indicated for adjunctive therapy in the treatment of partial seizures and neuropathic pain. As of August 2008, generic Neurontin accounts for 22.6% of total prescriptions written in this market, up from 21.5% in August 2007. The American Academy of Neurology guidelines recommends gabapentin as one of four drugs (Topamax, Lamictal, and Trileptal are the others) that should be considered as monotherapy for patients who have been recently diagnosed with epilepsy. Generics to gabapentin were first launched in 2004, and the generic substitution rate is now 96%+. We estimate worldwide Neurontin sales of $350MM (-13%) in 2008 and $150MM in 2013.
550
Epilepsy
Pfizers Dilantin Continues To Decline

Generics and newer medications have clipped sales of Pfizers Dilantin (phenytoin). We estimate U.S. Dilantin sales of $20MM (-30%) in 2008 and $5MM in 2013. Mylan discontinued its marketing efforts behind its branded generic products in mid-2005, so Phenytek is likely to remain a minor player.
Key Patent Expirations
Drug Topamax Lyrica Vimpat Banzel Manufacturer J&J Pfizer UCB Eisai Patent Expiration 3/09 3/18 3/17 11/15** 2008 U.S. Sales ($MM)* 700 250 -
**Epilepsy indication only; estimated **Orphan drug exclusivity Source: Cowen and Company estimates
U.S. EPILEPSY MARKET

Total Prescriptions (000's) % Market Share 1987* 2008 2009E 2013P 1987* 2008 2009E Other seizure drugs 4,832 115,745 84,000 92,000 29% 69% 69% 52,202 37,000 23,000 71% 31% 31% Neurontin, Dilantin, Depakote 11,652 Total 16,484 167,947 121,000 115,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates CGR 2013P '87-08 '08-13 80% +16% -4% 20% +7% -15% 100% +12% -7%
EPILEPSY R&D PIPELINE

Company Eisai GSK UCB Pharma Schwarz Pharma Valeant JNJ Ovation UCB Pharma UCB Pharma Teva Icagen Vistagen Valeant Product Banzel Lamictal XR Keppra XR Vimpat Retigabine Carisbamate Clobazam Brivaracetam Seletracetam Talampanel ICA-105665 AV-101 Pre-clinical Total Drugs In Development . 2 1 2 4 4 . . . P-C I II III NDA Sept-05 2006 2007 2007 2008 2008 MKT 2009 2009 2008 2008 2009 2009 Comments Orphan drug status for LGS; also partial onset seizures Lamotrigine; once-daily formulation Levetriacetam; once-daily formulation. Partial onset seizures; neuropathic pain Selective K+ channel opener Topamax follow-on Adjunct therapy for LGS Levetiracetam derivative; SV2A ligand Levetiracetam derivative Non-competitive AMPA antagonist KCNQ ion channel activator NMDA antagonist Retigabine follow-on; IND filing in 2008 13
551
Epilepsy
Notes
552
Mature Market With A Few Growth Opportunities

Peptic ulcer disease is a chronic but curable condition of the stomach (gastric ulcer) or duodenum (duodenal ulcer) in which -5% 2008-13 CGR the mucosal tissue is eroded and inflamed from exposure to gastric acids. In most cases, the culprit is the bacteria Helicobacter pylori, although long-term use of nonsteroidal anti-inflammatory drugs (NSAIDs) and, very infrequently, cancerous tumors of the stomach/pancreas can cause a peptic ulcer. H. pylori accounts for 80% of gastric and 90%+ of duodenal ulcers. Symptoms may present only 50% of the time, but can include intermittent pain, nausea/vomiting, appetite/weight loss, and bloody stools. Approximately 1 in 10 Americans suffer from a peptic ulcer at some point, and a slightly higher ratio could be applied to the population worldwide. An estimated 44%, of adults in the U.S., or 61MM adults, suffer at least once a month from gastroesophageal reflux disease (GERD), the regurgitation of contents from the stomach into the esophagus that causes heartburn. Irritable bowel syndrome (IBS) affects 15-20% of the adult population, but with few effective, available therapies. The total IBS patient population is comprised of about one-third constipation-dominant, one-third diarrhea-dominant, and one-third mixed IBS. More severe inflammatory bowel conditions, such as ulcerative colitis and Crohns disease, affect an additional 1MM patients in the U.S., and approximately 4MM worldwide.
Gastrointestinal/Ulcer Category Market Share By $ Sales
2008 $13B
Other 18% Generics, Other 37% AZN 49%
2013P $10B
PARTICIPANTS
GSK 2% TAKEDA 6% WYE 7%
AZN 41%
SCMP 1% JNJ/EISAI 18%
WYE 3% TAKEDA 6%
JNJ/EISAI 11%
Overall gastrointestinal/ulcer drug market sales are expected to decline in 2008 through 2013, due to generic erosion of the proton pump inhibitor (PPI) class. AstraZeneca led the ulcer market in 2008 with a 49% dollar share, driven by the continued success of Nexium. AstraZeneca is expected to continue to lead the GI/ulcer category in 2013 with a 41% dollar share. JNJ/Eisais dollar share will decline from 18% in 2008 to 11% in 2013 as its PPI Aciphex will remain secure from generic approvals until 2012. Wyeths dollar share is expected to decline from 7% in 2008 to 3% in 2013 due to generic competition to Protonix. Takedas dollar share is expected to remain at 6% through 2013 as the launch of Prevacid generics in 2009 is offset by the launch of Kapidex and continued growth of Takeda/Sucampos Amitiza.
553
Worldwide PPI sales should continue to decline in 2009, due to the limited introduction of generics to Protonix in 2008. The PPI market should decline further into 2010 following the introduction of generic Prevacid (November 2009) and Prevacid OTC. A potential at-risk launch of AstraZenecas Nexium in mid-2008 was averted via AstraZenecas settlement with Ranbaxy and should provide some respite to the class. Takedas Kapidex (TAK-390MR) looks like a promising new candidate for the class in 2009. PPI pricing pressure appears to be continuing in 2009 and brand products are losing out to generic omeprazole. Volume gains from Medicare Part D appear to have stabilized. J&Js Remicade should remain the leading treatment for moderate-to-severe Crohns disease but the recent approval of Abbotts injectible anti-TNF, Humira, presents a challenge. UCBs Cimzia, another injectable like Humira, was approved in April 2008 and should provide additional competition. Overall, injectable products are expected to take share away from Remicade and grow the market. Anti-IL-12 antibodies from Abbott and J&J are promising for Crohns. Other autoimmune-related GI disorders, such as ulcerative colitis, offer additional opportunities for growth. Shires Lialda (extended-release mesalamine), with its dosing convenience, presents better convenience over existing therapies and has taken share from P&Gs Asacol in the mild-tomoderate ulcerative colitis category. Generic competition to Salixs Colazal hit the 5-ASA market in 2008, but the category should rebound, largely driven by Lialda. Pentasa appears relatively unaffected by both the Lialda launch and Colazal generics due to its significant use in patients with Crohns Disease. Disorders of motility are becoming more widely recognized and understood. Takeda/Sucampos Amitiza, a novel chloride channel activator, is approved for treatment of chronic idiopathic constipation and IBS-c. Amitiza has benefitted from Novartis pullback of Zelnorm in March 2007. Our scatter plot shows that, through 2013, AstraZeneca will retain the largest sales base. The GI/ulcer category is expected to be a drag on most companies projected sales, but represents an emerging area for Sucampo and Takeda.
554
SCMP
70%
20% ABT GSK WYE -30% JNJ
-80% AZN -130% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 $5.0 2013 Sales Contributed By Company To Category ($ In B)
ESTIMATED WORLDWIDE MARKET FOR GASTROINTESTINAL DRUGS BY CLASS ($MM)

2008 2013P Market % Total Market % Total $10,961 86% $6,649 68% 783 1,034 6% 8% 470 2,630 $9,750 5% 27% 100% $ 08-13 CGR -10% -10% 21% -5% NRx 87-08 CGR Comments NM - AZN's Prilosec/Nexium, TAP's Prevacid, JNJ/Eisai's Aciphex, WYE's Protonix 0% - MRK's Pepcid, GSK's Tagamet and Zantac, LLY's Axid, impacted by generics -3% - SCMPs Amitiza, FRX's Linaclotide 6%
Drug Class Proton Pump Inhibitors H2 Blockers Other GI/Ulcer Drugs
555
Proton Pump Inhibitors The Mainstay Ulcer Treatment

DETAILED DISCUSSION
An ulcer is a sore that forms on the lining of the stomach or duodenum. According to the National Digestive Diseases Information Clearinghouse, about 4MM people in the U.S. will develop an ulcer during each year, causing roughly 6,000 deaths. Ulcers are caused by infection (H.pylori) and stomach acid and are treated with H2 antagonists and PPIs. H2 antagonists block histamine receptors, reducing the production of acid in the stomach. PPIs act within the cell to suppress acid. PPIs are effective in treating gastric/duodenal ulcers and GERD and displaced H2 antagonists as the standard of care for treating gastrointestinal disorders when they emerged in the early 1990s. Gastroesophageal reflux disease (GERD), caused by the presence of stomach acid in the esophagus, is characterized by recurrent heartburn, and causes esophageal damage in about 2% of Americans. The incidence of GERD increases significantly over the age of 40. About 70% of proton pump inhibitor usage is for GERD and 30% for symptomatic abdominal discomfort or peptic ulcer. Strong efficacy data exist for PPIs in the eradication of H. pylori, and Abbott has an advantage here, given proven efficacy of Biaxin (clarithromycin) in combination with PPIs. However, according to the CDC, Biaxin-resistant H. pylori is reported in 10-20% of cases. The H. pylori eradication market is relatively small, primarily due to the fact that eradication does not result in chronic treatment. Recognition and testing for H. pylori infection have improved since approval of PPI plus Biaxin combinations in 1996, although increasing antimicrobial resistance is limiting the effectiveness of treatment.
Generics Pressure Already Competitive Market

PPI prescription sales are forecast to decline 9% through 2013 because of generic competition to several of the PPI agents. U.S. sales in this category were down 21% in 2008, primarily because of Tevas at-risk introduction of generics to Wyeth/Altanas Protonix. The introduction of generic Prevacid and Novartis OTC version of the drug likely will negatively impact branded PPI sales. In 2009, we forecast a 24% decline in U.S. PPI sales this year. Of the branded PPIs, Nexium and Prevacid experienced modest sales declines in 2008, while Protonix was hit hard by generic pantoprazole. AstraZeneca has drawn parallels between the PPI market and the market for statins, where the first line choice for low-risk patients is the low-cost generic, followed by a second-line choice among branded prescriptions for patients at a higher level of risk. Therefore, most promotional efforts within the category appear to be focused on differentiating among branded products for second line use rather than seeking to make these products first line. From our perspective, the rollout of Takedas Kapidex, which our consultants indicate is being heavily promoted, will be interesting to monitor.
556
ESTIMATED U.S. BRANDED PPI MARKET DYNAMICS 2007 Total Rx's (MM) Rx Growth Rate Nexium (AZN) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Prevacid (TAP) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Protonix (WYE) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Prilosec (AZN) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Aciphex (JNJ) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Prilosec Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Zegerid (SNTS) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Others Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales ($MM) % Growth 114.8 +6% 27% 30.45 $3.70 $3,383 19% 22.36 $3.88 2008 109.5 -5% 28% 30.54 $3.70 $3,101 18% 19.80 $3.70 2009E 112.1 +2% 23% 26.13 $3.70 2010E 114.4 +2% 21% 23.87 $3.70 2011E 120.2 +5% 18% 21.62 $3.70 2012E 124.4 +4% 16% 19.37 $3.70 2013E 125.7 +1% 14% 17.12 $3.70 2014E 124.6 -1% 12% 14.86 $3.70 2015E 117.6 -6% 6% 6.76 $3.70 CGR +1% Comments - Market growth moderating in 2008-2011
-19% -18% -58% -59% -34% -38% -17% -16% -10% -10% +6% -2% +6%
$2,900
6% 7.21 $3.70
$2,650
0% 0.45 $3.70
$2,400
0% 0.09 $3.70
$2,150
0% 0.05 $3.70
$1,900
0% 0.05 $3.70
$1,650
0% 0.05 $3.70
$750
0% 0.05 $3.70
Esomeprazole (s-isomer of omeprazole) AZN has successfully differentiated from Prilosec Teva & Ranbaxy challenging patent; 30-month stay expires 5/08 & 9/08 Formulary changes clipped in 2007 Lansoprazole Follow-on enantiomer included Generics assumed in 2009; OTC launch expected post-generics Clipped by generic and OTC Prilosec
$2,600
17% 19.53 $4.44
$2,500
4% 4.50 $3.30
$800
4% 4.20 $3.30
$50
3% 3.54 $3.30
$10
2% 2.02 $3.30
$5
1% 1.01 $3.30
$5
1% 0.76 $3.30
$5
0% 0.51 $3.30
$5
0% 0.25 $3.30
- Pantoprazole; oral and IV an advantage - Teva "at risk" launch in late 2007 - Patent expires Jan 2011 (pediatric extension) - Omeprazole - Includes OTC
$2,600
7% 7.53 $1.08
$689
6% 6.18 $1.00
$525
5% 5.33 $1.00
$350
3% 4.00 $1.00
$200
2% 2.67 $1.00
$100
1% 1.67 $1.00
$75
1% 1.67 $1.00
$50
1% 1.67 $1.00
$25
1% 1.67 $1.00
$244
6% 7.37 $2.92
$170
7% 7.39 $3.00
$160
5% 5.09 $3.00
$120
4% 4.79 $3.00
$80
4% 4.54 $3.00
$50
3% 4.32 $3.00
$50
3% 4.10 $3.00
$50
3% 3.89 $3.00
$50
3% 3.56 $3.00
- Rabeprazole - Solid performance despite being #4 to market
$645
23% 26.73 $0.79
$665
26% 28.10 $0.70
$458
34% 38.00 $0.50
$431
36% 40.74 $0.45
$409
37% 45.00 $0.40
$389
36% 44.17 $0.40
$369
34% 43.33 $0.40
$350
34% 42.50 $0.40
$320
35% 41.67 $0.40
- Omeprazole - Clipped by price competition; OTC Prilosec
$630
1% 0.86 $2.67
$590
1% 1.09 $3.25
$570
1% 1.16 $3.30
$550
1% 1.27 $3.40
$540
1% 1.38 $3.50
$530
1% 1.44 $3.60
$520
1% 1.53 $3.60
$510
1% 1.62 $3.60
$500
1% 1.71 $3.60
$69
0% 0.05 $0.74
$96
11% 11.90 $0.70
$115
22% 25.00 $0.40
$130
31% 35.71 $0.35
$145
36% 42.86 $0.35
$155
42% 52.38 $0.35
$165
45% 57.14 $0.35
$175
48% 59.52 $0.35
$185
53% 61.90 $0.35
+10% +27%
- Omeprazole plus sodium bicarbonate - Capsule launched in 3/06 - Aggressive price discounting - Powder-for-suspension launched in 10/04
- Prevacid generics in 2009; Protonix generics in 2008 +15% -15% - Generics clip
$1
$10,172 +8%
$250
$8,061 -21%
$300
$5,828 -28%
$375
$4,656 -20%
$450
$4,234 -9%
$550
$3,929 -7%
$600
$3,684 -6%
$625
$3,415 -7%
$650
$2,485 -27%
Sources: Company reports, IMS America, Cowen and Company estimates
Nexium In Modest Decline, But Settlement Removes Overhang

AstraZeneca leads the peptic ulcer market with its Nexium/Prilosec proton pump inhibitor (PPI) franchise. AstraZeneca supports Nexium with clinical data showing improvements over other PPIs. Our physician consultants believe that Nexium is a modest advance over omeprazole (Prilosec) and has advantages over other PPIs in healing rates for esophagitis and ulcers. AstraZeneca has indicated that discounting for Nexium is likely to become more aggressive and that there will be a wider spread between volume growth and revenue growth. Nexiums total market share in January 2009 was 20.0% with new prescriptions up 4% from January 2008. Nexium faces declines in Western Europe. Generic Protonix is likely to further temper sales in 2009. In 2009, the likely introduction of generics of J&J/Eisais Aciphex and TAPs (Abbott/Takeda) and Novartis OTC version of Prevacid are expected to negatively impact branded PPI sales. Takedas Kapidex, a modified release once-daily pro-drug of lanzoperazole, was launched in Q1:2009. Kapidex will likely impact Nexium, as our physician consultants believe it has the potential to offer a full 24 hours of symptomatic relief. Many patients on Nexium require an additional dose or another agent at night to provide relief for night-time reflux. In August 2007, the FDA published preliminary findings that discredit an observed difference in risk of heart attacks and other heart related problems seen in early analyses of the two small long-term studies with omeprazole/Nexium. The studies comparing omeprazole/Nexium to surgery in patients with severe GERD were submitted to the FDA in May 2007. The safety analyses initially raised concern due to an increased MI risk. Subsequently, AstraZeneca provided a large amount of additional data, more information on patient follow-up from the two long-term studies mentioned above, and pooled
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analyses of other controlled clinical studies, including placebo-controlled trials of up to two-years duration. In Europe, AstraZeneca managed to defend both the MUPS (multiple unit pellets) formulation and process patents securing the MUPS patent expiration date of August 2015. The MUPS process and formulation are used for both Nexium and Losec tablets. In April 2008, AstraZeneca announced that it had entered into a settlement agreement with Ranbaxy. We estimate worldwide Nexium sales of $4.8B (-8%) in 2009, $3.75B in 2012, and $2.05B in 2015. This implies a 2008-15 Nexium revenue decline of 12% worldwide.
PPI Market: Key Franchise Shares (% of Total Rxs)
US PPI Market Total Monthly Rx Share: February 2006-January 2009
Aciphex 35.0% Nexium Prevacid Protonix Generic Prilosec Generic Protonix
30.0%
25.0%
20.0% TRxs 15.0% 10.0% 5.0% 0.0% Oct-06 Feb-06 Feb-07 Feb-08 Oct-07 Aug-06 Aug-08 Oct-08 Jun-06 Jun-08 Dec-06 Dec-07 Dec-08 Apr-06 Apr-07 Apr-08 Jun-07 Aug-
Source: IMS America
Takedas Kapidex Looks Promising

Prevacid, a proton pump inhibitor for GERD and gastric/duodenal ulcers, has lost market share since 2001 due to competition from cheaper branded products (Wyeths Protonix, J&Js Aciphex, Nexium) and following the introduction of generic and OTC omeprazole in 2003. Although Takeda/TAP has aggressively worked to improve the products formulary status, Prevacid has not benefited from a more competitive formulary positioning. In March 2008, Takeda and Abbott announced that they would conclude the TAP partnership and that the rights to Prevacid would fall in the hands of Takeda.
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The launch of NapraPAC, a combination naproxen/Prevacid package targeted at arthritics taking NSAIDs who wish to prevent ulcers has not provided a boost and has accounted for about 0.2-05% of total Prevacid prescriptions since launch. As of January 2009, Prevacid had a 12.6% share of total prescriptions, down from 14.9% in January 2008. Our physician consultants remain positive on the potential of PPIs plus NSAID combinations as alternatives to COX-2 inhibitor therapy, but formulary acceptance has been slow due to the availability of Prilosec OTC. We continue to expect the Prevacid franchise to struggle. We forecast Prevacid sales to rapidly decline to $800MM in 2009 and $50MM in 2010, due to generic competition as Prevacids composition-of-matter patent expires in May 2009. Assuming Takeda secures a pediatric extension for the product, we anticipate generic entry in November 2009. Takeda is pursuing two separate and distinct franchise extension strategies in the PPI arena. Takedas Kapidex was launched in the U.S. in Q1:2009. Kapidex is a single enantiomer delayed-release pro-drug formulation of lansoprazole, designed to provide extended exposure to the drug and increased intragastric pH control, which suggests that potentially it can be administered regardless of the timing of food intake. Our physician consultants believe Kapidex potentially can provide 24-hour symptomatic relief. Takeda presented data from three Kapidex Phase III trials at the Digestive Disease Week (DDW) annual meeting in San Diego in May 2008. Two studies looked at healing of erosive esophagitis, and one study looked at maintenance of erosive esophagitis. In the studies that evaluated the treatment of erosive esophagitis, the primary objective was to assess overall healing rates over eight weeks of once-daily administration of Kapidex (60mg or 90mg) or Prevacid (30mg). A total of 4,092 patients were enrolled in the two studies. Results from these trials demonstrated that Kapidex (both 60mg and 90mg) produced higher healing rates for patients with erosive esophagitis. For the primary endpoint, both of the doses were at least equivalent to lansoprazole for healing of erosive esophagitis at 8 weeks in each of the studies. In particular, the healing rates for Kapidex (90mg) were significantly higher (statistically) than lansoprazole (30mg) in both studies using crude rate analysis. In the first study, the crude rate analysis showed that 87 percent of 60mg Kapidex patients and 89 percent of 90mg Kapidex patients experienced healing versus 85 percent of 30mg lansoprazole patients. In the second study, the crude rate evaluation showed that 85 percent and 86 percent of patients treated with Kapidex (60mg and 90mg, respectively) experienced healing versus 79 percent of patients taking lansoprazole (30mg). Novartis Targets Prevacid OTC Switch In 2009 Novartis has licensed the switch rights to Prevacid (lansoprazole) from Takeda and targets an OTC switch later this year. Takeda plans to continue to market prescription Prevacid until November 2009, when the patent for the compound expires. Novartis will handle all duties related to the "multi-year OTC development initiative," including oversight of clinical studies, product development, regulatory submissions and launch.
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Protonix In Limbo Post At-Risk Generic Launch

In January 2008, Wyeth announced that, together with its partner Nycomed (which acquired Altana, the original Protonix patent holder), it had authorized Prasco to launch generic Protonix. After Tevas December 2007 at-risk launch, the companies had been negotiating a settlement on Protonix, under a standstill agreement that was set to expire on January 31. The launch of the authorized generic terminated the standstill agreement. It appears that an economically viable, durable and defendable patent litigation settlement could not be reached. Wyeth is continuing the pursuit of both the appeal of the preliminary injunction decision (decision expected soon) and the patent litigation; Wyeth expects the trial to occur no earlier than in Q4:2009. Given the significant branded Protonix erosion since Tevas at-risk launch, Wyeth believes that by launching its own generic, it does not handicap the damages claim at trial. A settlement with Teva now is unlikely. The appeal of the preliminary injunction decision was heard in July. Our legal consultants could not ascertain from the court documents whether the Judge was going to overturn the PI decision but the odds were against such action. However, the appellate court decision may provide insight for framing the odds at trial. Our legal consultants believe Wyeth has a good chance of prevailing at trial, but do not believe that Teva would be liable for treble damages. Tevas generic launch triggered its 180-day exclusivity but the other shared exclusivity holder (Sun) launched in January 2008. Kudco, the next generic manufacturers 30-month stay expired on January 25, 2009, but it has not launched yet. We forecast Protonix family sales of $525MM in 2009, $350MM in 2010, $100MM in 2012, and $25MM in 2015.
Protonix Brand vs. Generic Market Dynamic

900 800 700 600 NRxs '000 500 400 300 200 100 0 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Protonix Sep-08 Oct-08 Nov-08 Dec-08 Jan-09
Sun Protonix Generic
Teva Protonix Generic
Wyeth Protonix Generic
Prilosec OTC Faced With Generic Competition

Prilosec OTC, indicated for the prevention of frequent heartburn symptoms, is priced at around $0.60-0.70 per day, modestly below the preferred copay ($2030/month) and less than half the retail cost of generic omeprazole. Prilosec OTC had a robust launch despite some differences between it and the prescription version, including different labeled indications, recommended duration of therapy (14 days of treatment every four months), and different dosage strengths. Typically, patients without prescription drug coverage benefit by having access to a cheaper
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OTC alternative. Hatch Waxman exclusivity for Prilosec OTC expired in June 2006. In December 2007, the FDA approved privately-held Israeli company Dexcel Pharmas ANDA to market a generic version of Prilosec OTC. Perrigo, which has licensed the U.S. marketing rights for Dexcels generic version of Prilosec OTC, is putting significant energy into marketing the Prilosec OTC equivalent, which it launched in March 2008. The firm expects OTC omeprazole to reach $150MM to $200MM in annual sales; this figure would imply 15-25% of the branded Prilosec OTC market. Current IMS trends (as of January 2009) suggest that Omeprazole OTC generics account for about 23.2% of the Prilosec OTC franchise. P&G has been promoting Prilosec OTC over prescription competitors as a way to help Medicare Part D users avoid "the coverage gap" in their prescription costs. According to IMS sales figures, Prilosec OTC recorded 2008 sales of $270MM (-19%). Although Prilosec OTC faces generics, we believe there is little, if any, impact on the prescription PPI market. Fewer plans are removing branded PPIs from their formularies as branded pricing has come down significantly.
J&J/Eisais Aciphex/Pariet Stabilizing

Aciphex/Pariet (rabeprazole), a once-daily PPI for the treatment of GERD, duodenal, and gastric ulcers, is co-marketed by J&J and Eisai in the U.S. and E.U. Eisai markets Pariet in Japan. Aciphex is available in over 70 countries. We estimate that J&J books 65-70% of Aciphex sales and over 90% of E.U. sales. According to IMS, Aciphex share of total prescriptions was 4.7% in January 2009, down from 5.6% in January 2008. In 2007, according to J&J, sales in the U.S. grew 3%, with market growth aided by a modest increase in market share (from 6.4% total prescription share in 2007 to 6.8% total prescription share in 2008). Operational sales growth outside the U.S. was flat due to increased competition from generic PPIs in certain regions, partially offset by strong growth in other regions. In contrast to the genericizing PPI landscape, however, Aciphex should retain its exclusivity for the coming few years. In May 2007, the Southern District Court of New York ruled that the patent for Aciphex (rabeprazole sodium 20 mg tablets, used for the treatment of persistent heartburn and other symptoms associated with acid reflux disease) is enforceable. In an earlier ruling, the Court confirmed the validity of the Aciphex composition-ofmatter patent. The court ruling ensures that the patent is protected and that FDA approved generic versions of rabeprazole sodium will be available no earlier than the date of the patent expiration, May 2013. We have forecast Aciphex/Pariet WW sales of $916MM (-21%) in 2009, $843MM in 2010, and $670MM in 2013.
Zegerid Gaining Traction

Zegerid is a combination of omeprazole (PPI; GERD) and sodium bicarbonate (an antacid). The combination produces a more rapid onset of action relative to standard controlled-release proton pump inhibitors (PPIs). Zegerid was initially launched as a powder-for-suspension formulation in October 2004. Sales of Zegerid powder-for-suspension were disappointing due to a poor dosage form, premium pricing, and a relatively small sales force in a highly competitive market. A capsule formulation of Zegerid was launched in March 2006, and prescription trends have been much more favorable. The uptake of the capsule formulation has benefited from managements decision to price Zegerid capsules at a discount to other branded PPIs, and to negotiate aggressively with managed care formularies. As of January 2009, Zegerid accounted for just less than 1% of the PPI category. Zegerid is currently supported by Santarus 200-rep proprietary specialty sales force, supplemented by a 150-rep contract sales force via inVentiv. In August 2007, Santarus acknowledged receipt of a paragraph IV certification and ANDA filing
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against Zegerid (capsules) by Par Pharmaceuticals. We believe the combination formulation patents covering Zegerid are at risk, given the lower obviousness standards in place post the April 2007 U.S. Supreme Court ruling in KSR v. Teleflex. Generics of Zegerid cannot be launched until February 2010 at the earliest, due to the 30-month stay on ANDA approvals. Santarus also filed an NDA for a new tablet formulation of Zegerid and Schering-Plough received a complete response letter from the FDA for Zegerid OTC in January 2009: both moves may extend the Zegerid franchise. We estimate Zegerid prescription franchise sales of $117MM in 2009, $132MM in 2010, and $165MM in 2013.
Xenoports XP19986 For GERD

XP19986 is a transported pro-drug of R-baclofen for the treatment of gastroesophageal reflux disease (GERD) and spasticity. In 2006, Xenoport presented data from a single dose study of 986 in 50 subjects with a history of GERD symptoms demonstrating that 986 induces reduction in reflux and heartburn events. In September 2007, Xenoport presented data for a new formulation of 986 which suggests q.d. dosing in GERD and b.i.d. dosing in spasticity. In January 2008, Xenoport advanced this new formulation of 986 into two Phase 2 studies. The study in patients with spasticity associated with spinal cord injury is expected to report in 1H09. Data from the GERD trial were mixed showing activity in patients partially responsive to the standard of care PPIs, but failing to demonstrate a statistically significant results overall. Gastroesophageal reflux disease (GERD) occurs when gastric contents leak back in the esophagus causing mucosal damage and symptoms including heartburn, regurgitation, pain in the chest and trouble swallowing. One of the major causes of GERD is believed to be relaxations in the transient lower esophageal sphincter (TLES) (65% to 90% according to our consultants), but also poor esophageal clearance and delayed gastric emptying. Current GERD treatments primarily focus on the suppression of acidity in the stomach with proton pump inhibitors and/or H2 receptor blockers. Our consultants and review of the literature suggest that approximately 30%-40% of all GERD patients have an incomplete resolution of symptoms with a standard dose of PPI treatment. Persistent symptoms in these patients could be 1) GERD related and mediated by non-acid gastric contents or by acid content, or 2) non-GERD related and associated with functional heartburn, hiatal hernia, delayed gastric emptying, duodenogastroesophageal/bile reflux, functional bowel disorders to name a few. About half of patients with persistent symptoms take an increased PPI dose with the majority of them responding. In general, PPIs are well tolerated and physicians are extremely comfortable prescribing this class of drugs. Minor concerns with PPIs cited in the literature include slight increase in risk of hip fractures and C. difficile infection, and some records of pneumonia and vitamin B12 deficiency. Real World Use Support Baclofen Efficacy In GERD Despite the efficacy of PPIs, there have been attempts to target other aspects of reflux disease physiology, such as basal lower esophageal sphincter pressure, esophageal body motility, gastric emptying or transient relaxations of esophageal sphincter (TLOSR). Most these agents have been disappointing so far in clinic (atropine, cholecystokinin receptor antagonists, morphine, and nitric oxide synthase inhibitors) due to their unfavorable pharmacological profile. However, baclofen, which is a generic GABA B agonist approved for the treatment of spasticity, was shown to reduce the rate of TLOSRs and reflux events in several small studies in
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healthy subjects as well as in GERD patients. However, baclofen has a major drawback of frequent t.i.d. or q.i.d. dosing schedule and unfavorable tolerability profile with a high rate of somnolence and dizziness (15-20%) associated with peak plasma concentrations. A sustained release formulation has not been possible due to its poor absorption in the lower GI tract. Despite this profile, several thought leaders we spoke to indicated that they have been using baclofen now for several years in some of their patients with residual GERD symptoms while on PPIs or refractory to PPIs either as an add-on to PPIs or monotherapy. XP19986 Is An Improved Version Of Baclofen XP19986 as a prodrug of baclofen is designed to overcome its shortcomings with delayed time to peak R-baclofen blood concentration levels which supports q.d. or b.i.d. dosing. In addition, a smoother pK profile should reduce CNS side effects. Initial pK studies of 986 demonstrated that 986 produces plasma concentrations of R-baclofen comparable to baclofen, with dose proportional pharmacokinetics, suggesting 986 should exhibit a similar to baclofen clinical benefit in GERD patients. In a small single dose Phase 2a study, 986 was shown to significantly reduce reflux episodes and heartburn events in GERD patients with a safety profile similar to placebo. XP19986 Phase 2a Demonstrates Reduction In Reflux Events XP19986 was evaluated in a single dose cross-over Phase 2a trial in 50 patients with a history of GERD symptoms. The study showed that 986 decreased reflux episodes for as long as 10 hours post dose, decreased heartburn events associated with reflux episodes, and was well tolerated in GERD patients.
Phase 2a Data for '986 in GERD With First Generation Formulation
n=44, all doses Placebo '986 over 12 h over 12 h 50.5 41.0 39.0 29.5 Treatment difference n=12 n=12 n=11 10mg 20mg 40mg -2.0* -11.5* -10.0*
P=0.4575 P=0.2100 P=0.0508
CE: n=44/50 Total reflux events (median) Acid reflux events (median)
n=44 all doses -9.5*

P=0.005
n=9 60mg -10.0*

P=0.0547
-9.5*
P=0.0027
NA
NA
-4.0*
P<0.05
-12.0*
P<0.05
Reductions in non-acid reflux were not significant, possibly due to the low number of non-acid reflux episodes.
Source: Castel, et al, 2006 ACG Poster Presentation
Heartburn Events in Phase 2a Study

10 mg 20mg 40mg 60mg Placebo '986 Placebo '986 Placebo '986 Placebo '986 Total number of events 23.8 27.5 26.1 21.5 18.2 22.2 18.3 9.3* (p=0.0508) 18.5 17.8 18.9 12.2 13.3 12.5 15.3 7.8* (p=0.0352) Events related to reflux * Mean reduction was statistically significant for all dose groups combined and for the 60mg group.
Source: Castel, et al, 2006 ACG Poster Presentation
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GERD Phase 2 Study: The Good and The Bad In January 2008, Xenoport announced the initiation of the Phase 2 study of 986 (prodrug of baclofen) in reflux disease (GERD). This trial is a placebo-controlled, dose-ranging study that evaluated 20 mg, 40 mg, and 60 mg doses of 986 q.d. and 30 mg b.i.d. over four weeks in 156 GERD patients nave to PPIs or with a partial response to PPIs. The primary endpoint is the difference in the total number of heartburn events experienced by each patient over the entire 4-week treatment period for the combined 986 dose groups vs. placebo. Mixed results from the GERD study were announced in December 2008 showing activity in patients partially responsive to the standard of care PPIs, but failing to demonstrate a statistically significant result overall. The most encouraging data in our view is the relatively modest increase in adverse events for '986 over placebo during the 4 week study. As expected, mild to moderate somnolence (13-16% vs 3% placebo) and dizziness (1320% vs 10% placebo) were the most frequent AEs, and withdrawals due to adverse events were moderately higher for higher doses of '986 compared to placebo (9-10% vs 6% placebo, the difference of one patient). Most disappointing was that '986 did not show efficacy trends in patients who were PPI nave, and while XNPT speculated these patients may not have had true GERD and/or there may have been an imbalance from 1-2 sites, we find those arguments less than satisfactory without more data. That said, efficacy data in the pre-specified proton pump inhibitor (PPI) experienced subset looked compelling, and '986's unique mechanism of action could be additive to PPIs. Whats Next For 986 Based on the results from the Phase 2 GERD study, we believe further study of 986 is warranted. Xenoport plans to study 986 as an add-on to a PPI compared to a PPI plus placebo. This design makes sense given that a third of GERD patients have only partial resolution of symptoms on PPIs alone. A proportion of these patients could benefit from an addition of 986 to their PPI regimen or 986 as monotherapy could be used in patients refractory to PPIs. XP19986 is a relatively early stage asset, but if successful, conservatively could record $1 billion in WW sales in 2017. This estimate assumes 20% peak penetration into the estimated 15% of patients not responding to standard/high dose PPI therapy, and 1.5% penetration into the remaining PPI market. We also expect a second formulation of 986 to be highly effective in spasticity given the current baclofen usage in the market place is primarily for spasticity. Assuming 986s superior safety profile is proven, this is an attractive market as well.
IBS, CIC Opportunities Could Reinvigorate G.I. Category

Irritable bowel syndrome (IBS) affects 8-22% of the general population and is the second most common cause of sick leave after the common cold. IBS patients comprise 4% of all primary care visits and 50% of all visits to gastroenterologists. IBS is a chronic, life-long disease, requiring long-term treatment. Of all IBS patients, about one-third have constipation-dominant, one-third have diarrhea-dominant, and the remainder have mixed disease. Our physician consultants note that patients with diarrhea-dominant IBS may seek medical attention and complain more often than patients suffering from other forms, but these distinctions are blurred in clinical practice. The criteria for diagnosis have improved substantially, allowing more patients to be identified. The diagnosis of IBS is based on symptoms of greater than three months duration and consisting of abdominal pain or discomfort, altered
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bowel frequency, altered form of stool, altered passage of stool, passage of mucus, and bloating or feeling of abdominal distension. Chronic idiopathic constipation is characterized by infrequent and difficult passage of stool. The condition becomes chronic when symptoms persist for over 12 nonconsecutive weeks within a 12-month period. The disorder is idiopathic when it is not caused by another disease or by use of certain medications. Estimates show that approximately 12MM Americans suffer from CIC. Factors contributing to CIC include a diet low in soluble and insoluble fiber, inadequate exercise, bowel disorders, and muscular weakness. First-line treatments for CIC include adjustments to patients diet and exercise regimens. If such changes do not work an OTC or prescription laxative is used.
ESTIMATED U.S. PRESCRIPTION LAXATIVE/IBS MARKET DYNAMICS
ESTIMATED U.S. PRESCRIPTION LAXATIVE/IBS MARKET DYNAMICS 2007 Est. # Of Constipation Patients (MM) % change Est. # Of Idiopathic Constipation Patients % of total Assumed Average Rxs/Year Total Annual Rxs (MM) Est. # Of IBS Patients (MM) % change Est. # Of IBSc Patients (MM) % of total Est. # Of IBSc Patients (MM) - Women % of total Assumed Average Rxs/Year Total Annual Rxs (MM) Penetration Rate Total Prescription's (MM) TRx Growth Amitiza (SCMP/Takeda) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Linaclotide (FRX/Ironwood) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Zelnorm (NVS) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) PEG Generics Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Glycolax (Schwarz/UCB) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Lactulose Generics Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Enulose (Actavis) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Miralax (Braintree) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Other Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth 6% 0.81 $3.63 $88 22% 2.96 $0.37 $33 40% 5.40 $0.42 $68 10% 1.38 $0.47 $20 11% 1.53 $0.19 $9 1% 0.07 $0.34 $1 4% 0.50 $0.94 $14 $384 -47% 3% 0.46 $3.65 $50 19% 2.50 $0.40 $30 42% 5.56 $0.45 $75 11% 1.48 $0.45 $20 12% 1.58 $0.19 $9 1% 0.10 $0.35 $1 4% 0.53 $0.95 $15 $392 +2% 0% 0.00 $3.65 $0 20% 2.50 $0.40 $30 41% 5.19 $0.45 $70 12% 1.48 $0.45 $20 12% 1.58 $0.19 $9 1% 0.10 $0.35 $1 4% 0.53 $0.95 $15 $370 -6% 0% 0.00 $3.65 $0 19% 2.50 $0.40 $30 40% 5.19 $0.45 $70 12% 1.48 $0.45 $20 12% 1.58 $0.19 $9 1% 0.10 $0.35 $1 4% 0.53 $0.95 $15 $405 +9% 42.4 +1% 12.3 29.0% 6.0 73.8 58.6 +1% 19.3 33.0% 13.0 67.0% 4.0 51.8 10.8% 13.6 -15% 7% 0.92 $5.50 $151 2008 42.8 +1% 12.4 29.0% 6.0 74.5 59.2 +1% 19.5 33.0% 13.1 67.0% 4.0 52.3 10.5% 13.3 -2% 8% 1.11 $5.75 $192 2009E 43.3 +1% 12.5 29.0% 6.0 75.3 59.8 +1% 19.7 33.0% 13.2 67.0% 4.0 52.8 9.9% 12.6 -5% 10% 1.28 $5.85 $225 2010E 43.7 +1% 12.7 29.0% 6.0 76.0 60.4 +1% 19.9 33.0% 13.3 67.0% 4.0 53.4 9.9% 12.8 +1% 11% 1.47 $5.90 $260 2011E 44.1 +1% 12.8 29.0% 6.0 76.8 61.0 +1% 20.1 33.0% 13.5 67.0% 4.0 53.9 10.0% 13.0 +2% 13% 1.68 $5.95 $300 1% 0.30 $5.50 $50 0% 0.00 $3.65 $0 19% 2.50 $0.40 $30 40% 5.19 $0.45 $70 11% 1.48 $0.45 $20 12% 1.58 $0.19 $9 1% 0.10 $0.35 $1 4% 0.53 $0.95 $15 $495 +22% 2012E 44.6 +1% 12.9 29.0% 6.0 77.6 61.6 +1% 20.3 33.0% 13.6 67.0% 4.0 54.5 9.8% 12.9 -1% 15% 1.94 $6.00 $350 2% 1.21 $5.50 $200 0% 0.00 $3.65 $0 19% 2.50 $0.40 $30 37% 4.81 $0.45 $65 11% 1.48 $0.45 $20 12% 1.58 $0.19 $9 1% 0.10 $0.35 $1 4% 0.53 $0.95 $15 $690 +39% 2013E 45.0 +1% 13.1 29.0% 6.0 78.4 62.2 +1% 20.5 33.0% 13.7 67.0% 4.0 55.0 9.6% 12.8 -1% 17% 2.17 $6.15 $400 4% 2.12 $5.50 $350 0% 0.00 $3.65 $0 20% 2.50 $0.40 $30 35% 4.44 $0.45 $60 12% 1.48 $0.45 $20 12% 1.58 $0.19 $9 1% 0.10 $0.35 $1 4% 0.53 $0.95 $15 $885 +28% +0% +0% - PEG 3350 -4% -4% - Multiple generics available +0% +0% - Lactulose +0% +0% - PEG 3350 +0% - Generics, OTC clip +0% - Includes Generlac, Kristalose +0% +0% +18% - Zelnorm withdrawal clips in 2007 CGR 08-13 Comments +1% - Assume modest growth +1%
+1% +1% - IBS (Irritable Bowel Syndrome) - Assume modest growth +1% - IBS with constipation +1% - Women comprise 65-75% of the patient population
+1% - Room to expand prescribing via DTC promotion -1% - Modest growth; Zelnorm withdrawal and OTC Miralax clip in 2007-08 +14% +16% Chloride channel activator; induces fluid secretion from small intestine Launched April 2006;with Takeda in US/Canada; approved for adults Idiopathic constipation indication; IBS-c indication PDUFA in April '08 Phase III trials in opioid-induced bowel dysfunction patients started 9/0 Guanylate cyclase Type C receptor agonsist Developed by Ironwood; Phase III in H2:08 Similar efficacy and safety to Amitiza; locally acting Peak sales potential of $400MM+
- 5-HT4 agonist - Discontinued marketing in U.S. on 3/30/07; CV safety issues - Only approved for use in adults under 65 yrs. of age - Only available in U.S. via treatment IND currently - Generics launched in early 2005
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5-HT4 Targeted Drugs Face Uphill Battle

The U.S. market for prescription laxatives used to treat constipation was approximately $270MM (-30%) in 2008, down sharply from $720MM in 2006. The overall market was clipped by the withdrawal of Novartiss Zelnorm in March 2007 and the shift of Braintrees Miralax to the OTC market. However, by 2012, we project that the market will expand to $900-950MM. The prescription side of chronic constipation and IBS-c markets currently are dominated by older laxatives and Takeda/Sucampos Amitiza. Zelnorm was pulled due to cardiovascular safety concerns in March 2007, re-launched in July 2007 under a treatment IND with a restrictive label, and finally pulled completely from the market in early 2008. We expect the FDA to be cautious with the multiple other IBS treatment candidates currently in development that act on the serotonin receptor, leaving a $750MM market opportunity for efficacious and safe, locally-acting agents. Our consultants indicate that 5-HT (serotonin receptor) targeted drugs in development are likely to face increased cardiovascular safety scrutiny due to Zelnorms market withdrawal. Recent development of this category, in any case, has been plagued by setbacks: Theravances TD-5108 (5-HT4 agonist) has completed Phase II trials in CIC but Theravance has de-prioritized the program. GSK had the option to co-develop TD5108, but decided in September 2007 not to exercise the option. Alizymes Renzapride (5-HT4 agonist; 5-HT3 antagonist) showed limited efficacy in Phase III trials for IBS-c and was discontinued.
Zelnorm Pulled For Good In 2008

Zelnorm was pulled from the U.S. market in March 2007 due to cardiovascular safety concerns. In July 2007, the FDA allowed Zelnorm to re-enter the U.S. market under a treatment investigational new drug protocol to treat irritable bowel syndrome and chronic idiopathic constipation in women younger than 55 years whose physicians decide Zelnorm is medically necessary. However, in April 2008, less than a year after limiting access to Zelnorm (tegaserod maleate) to patients qualifying under the FDA-approved investigational new drug protocol, the FDA further restricted Zelnorm to patients only in emergency situations. At the time of its market withdrawal, Zelnorm was the top-selling CIC/IBS-c prescription product in the U.S. and growing rapidly, achieving U.S. sales of $488MM (+37%) and worldwide sales of $561MM (+34%) in 2006. We do not forecast sales of Zelnorm beyond 2008.
Amitiza Seeking To Become The Rx Laxative Of Choice

Amitiza is a type-2 chloride channel (ClC-2) activator and was launched in the U.S. in April 2006 for the treatment of chronic idiopathic constipation (CIC) by Sucampos marketing partner, Takeda. Sucampo receives scaled (18-23%) royalties on Takedas U.S. Amitiza sales and co-promotes Amitiza via its 38-rep proprietary sales force. Takeda stepped up its Amitiza selling efforts following the U.S. market withdrawal of Novartiss Zelnorm in March 2007: monthly prescription volume has trebled since February 2007. In late-April 2008, Sucampo received FDA approval for an 8mcg dose of Amitiza (1/3rd the CIC dose) for the treatment of IBS-c in women. The 8mcg dose significantly improves Amitizas tolerability profile and, with the IBS-c indication, is expected to drive a second leg of growth in 2008-2012. However, Amitiza prescription trends have been essentially flat over the past six months. Sucampos U.S. Amitiza sales partner, Takeda restructured its U.S. sales force following the acquisition of the TAP joint venture last year, and the restructuring apparently led to territory disruptions, delays in promotional programs, and inconsistent marketing
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efforts. Takeda completed the restructuring activities in Q4:2008. Improving physician awareness of Amitizas IBS-c indication should drive an acceleration in Amitiza prescribing over the next several months, but Takedas sales force currently is focused on the Kapidex rollout. Amitza 8mcg Making Progress As of January 2009, Amitiza 8mcg accounted for 16.3% of total Amitiza prescriptions, so adoption of the IBS-c indication remains relatively light. We expect that adoption to accelerate as physician and patient awareness of Amitizas safety profile improves. Amitiza is the only prescription product approved in the U.S. for IBS-c and prior to Novartiss Zelnorm being pulled from the U.S. market in March 2007, we estimate that Zelnorm sales reached $350MM+ for the IBS-c indication, growing at 20-30% annually. Therefore, we see strong acceleration potential for Amitiza sales as physician and patient awareness improves. Amitiza has unrestricted managed care access to 90% of covered lives, although most of that is Tier 3 formulary coverage (the average Amitiza co-pay is $30 per month). Managed care plans push OTC laxatives as first-line therapy for constipation and IBS, but Amitizas efficacy and safety profile are superior to laxatives. We estimate U.S. Amitiza sales of $225MM in 2009, $260MM in 2010, and $400MM in 2013. Our 2013 sales estimate assumes that Amitiza captures a 15-18% prescription share of the U.S. prescription laxative/IBS market. Sucampo yields a scaling royalty of 18-23% of Amitiza sales in the US, plus minor co-promotion revenues.
AMITIZA WEEKLY PRESCRIPTION TRENDS
30,000 DTC started 25,000 Zelnorm withdrawal IBS-c indication
# of Prescriptions
20,000
15,000
10,000
5,000
0
Nov-07 Jan-07 Jul-07 Nov-06 Nov-08 Mar-07 Sep-07 Jan-08 May-07 Mar-06 Mar-08 Sep-06 May-06 May-08 Sep-08 Jan-09 Jul-06 Jul-08
TRx
NRx
Amitiza U.S. Phase III Results Show Strong Efficacy In IBS-c Sucampo presented the pooled results from the two, 12-week Phase III IBS-c trials of Amitiza at the Digestive Diseases Week (DDW) meetings in May 2007. The Phase III trials tested just a single dose (8 micrograms, twice daily) of Amitiza. The two
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placebo-controlled trials together enrolled 1,171 patients, with 783 patients receiving Amitiza. 91.6% of the patients enrolled in the Phase III trials were female. The primary endpoint was the same for both trials: the subjective assessment of the patients overall relief from the symptoms of IBS-c. When the Phase III results were combined, 17.9% (p<0.009) of patients treated with Amitiza achieved overall relief, compared to 10.1% of patients receiving placebo. The results of each of the individual Phase III trials also were statistically significant, achieving p-values of p=0.009 and p=0.031, respectively. Via the combined results, Amitiza also achieved statistical significance via the secondary endpoints: abdominal discomfort and pain; stool consistency; straining; constipation severity; and quality of life (individual trial data were not presented). Amitiza was generally well-tolerated, with overall adverse event rates consistent with placebo (21-22%). The most common adverse events were nausea (8% with Amitiza, 4% for placebo) and diarrhea (6% with Amitiza, 4% for placebo).
AMITIZA PHASE III RESULTS: WEEKLY NUMBER OF SPONTANEOUS BOWEL MOVEMENTS
Japanese Phase II Trial Of Amitiza On The Mark In September 2008, Sucampo released positive top-line data for Amitiza in Japanese patients suffering from CIC (chronic idiopathic constipation). Amitiza has been approved in the U.S. for CIC (24mcg, twice-daily) since February 2006 and for Irritable Bowel Syndrome with Constipation (8mcg, twice-daily) since April 2008, so the trial was expected to be a success. In February 2009, Abbott-Japan paid Sucampo $10MM upfront for exclusive Japanese development and marking rights to Amitiza 24mcg for the CIC indication. Sucampo will manage the Phase III clinical development in Japan and intends to initiate the Amitiza Phase III program for the CIC indication by mid-2009. The Japanese market for constipation and IBS treatments currently is dominated by OTC laxatives, so Amitiza could gain
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acceptance as a more efficacious treatment for CIC: We estimate sales potential of $100-150MM, following a potential 2012 launch. Amitiza marketing applications also are pending in multiple European countries. The Phase II trial was a randomized, double-blind, placebo-controlled Phase IIb doseranging study in 170 Japanese patients. Patients were randomized to receive Amitiza (8, 16, or 24mcg twice-daily) or placebo. The 24mcg dose achieved significance on the primary endpoint of mean change in spontaneous bowel movements (SBM) from baseline after one week (p=0.0001). This dose also achieved significance on secondary endpoints of change in SBM after week 2, degree of straining and stool consistency, abdominal bloating, abdominal discomfort, global assessment of severity of constipation, global assessment of treatment efficacy, and quality of life evaluation of treatment satisfaction. The middle dose, 16mcg twicedaily, hit significance on the primary endpoint and some of the secondary endpoints but details on these results were not provided. The press release did not address the lowest dose (8mcg twice-daily), but we assume that the 8mcg dose was insufficient to achieve consistent efficacy in a CIC patient population. Amitiza was generally well tolerated with diarrhea, nausea, and stomach discomfort being the most common reported AEs, which is consistent with Amitizas U.S. label.
Linaclotide Has $400MM+ Peak Sales Potential

In September 2007, Forest licensed North American co-development and commercialization rights to linaclotide from privately-held Ironwood Pharmaceuticals. Linaclotide is a novel guanylate cyclase type-C receptor agonist currently in Phase IIb development for the treatment of chronic constipation (CC) and irritable bowel syndrome with constipation (IBS-c). Linaclotide is a locally-acting agent, which induces fluid secretion in the small intestine. Our clinical consultants who are familiar with linaclotide indicate that, similar to Sucampos Amitiza, linaclotide should be free of systemic side effects. Cardiovascular and other systemic side effects caused the withdrawal of Novartiss Zelnorm and dampened the outlook for other serotonin-based IBS agents. Forest and Ironwood will share future development expenses for linaclotide and will split U.S. profits 50/50 once linaclotide is commercialized. Forest will hold exclusive marketing rights in Canada and Mexico, and will pay Ironwood an undisclosed royalty in those markets. In Q4:2008, Forest and Ironwood initiated Phase III trials of linaclotide in CC and plan to initiate IBS-c Phase III trials in H1:2009. Assuming success in Phase III, we project a U.S. commercial launch in H2:2011. We project linaclotide sales of $50MM in F2012, $200MM in F2013, and $350MM in 2014. We believe there is an unmet need and depending upon Linaclotides ultimate clinical profile, we believe linaclotide annual peak sales could exceed $500MM, based on 10-12% share of the prescription laxative and IBS-c treatment market in the U.S. Linaclotide Phase II Data Presented At DDW Meetings Forest and partner Ironwood Pharmaceuticals released positive top-line results from two Phase II trials of Linaclotide in March 2008: (1) a 4-week, 310-patient trial in patients with chronic constipation (CC); and (2) a 12-week, 420-patient trial in patients with irritable bowel syndrome with constipation (IBS-c). The trial of linaclotide in chronic constipation patients was presented in May 2008 at the Digestive Disease Week meetings in San Diego. In the CC trial, all of the four doses tested reached statistical significance. In the IBS-c trial, interim data suggested that three out of four doses reached significance.
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Linaclotide Shows Good Efficacy In Moderate Chronic Constipation The primary endpoint of the CC trial was change from pre-treatment in weekly spontaneous bowel movement (SBM) frequency rate. The average baseline weekly SBM across all treatment arms was 2.31. Linaclotide was dosed once-daily and four different doses were tested: 75, 150, 300, and 600 mcg. Patients in the ITT population who received linaclotide demonstrated statistically significant change in weekly SBM frequency of 2.6 (75 mcg, p<0.05), 3.3 (150 mcg, p<0.01), 3.6 (300 mcg, p<0.001) and 4.3 (600 mcg, p<0.001) compared to 1.5 for placebo. This is similar to the effect seen with Amitiza (3.9-4.1@ 24 mcg vs. 1.3-1.9 for placebo). Patient improvement was also seen via multiple secondary endpoints with at least two of the doses tested, including abdominal pain, bloating, and straining. Linacotide was generally well-tolerated. The most common adverse event was diarrhea, which was dose-dependent and ranged from 4.8-14.3% in the Linaclotide-treated patients (vs. 2.9% for placebo). The discontinuation rates due to diarrhea were 2.5% in the Linaclotide-treated arms and 0% in the placebo arm.
Change In Weekly SBM Frequency 75 2.6* linaclotide (mcg) 150 300 3.3** 3.6*** Placebo 600 4.3*** 1.5
Weekly SBM frequency

* p<0.05, ** p<0.01, *** p<0.001 source: Forest Press Release
Interim Data In IBS-c Also Look Good The primary endpoint of the 12-week IBS-c trial was change in weekly complete spontaneous bowel movement frequency (CSBM). Via the interim analysis, Linaclotide-treated patients achieved a statistically significant increase in weekly CSBM at all doses, except the 150mcg dose. Patient improvement was also seen via multiple secondary endpoints with at least two of the doses tested, including abdominal pain, bloating, and stool consistency. Only one serious adverse event was seen in the Linaclotide-treated patients, but it was determined not to be drug related, and the most common adverse event was diarrhea.
Rezular, AGI Therapeutics First-in-Class IBS-d Treatment

IBS-d represents a significant market and unmet medical need as approximately onethird of all IBS cases are characterized as IBS-d. AGI Therapeutics is developing the oral intestinal regulator rezular, which has entered Phase III for the treatment of IBSd. The double-blind placebo-controlled Phase III study will assess the safety and efficacy of three doses of rezular in 680 patients over a 12-week treatment period. Rezular is composed of arverapamil, the R-enantiomer of the established racemic cardiovascular drug verapamil, a vasodilator and L-type calcium channel blocker that has been prescribed by physicians for over 30 years. The single enantiomer rezular demonstrated an enhanced activity in treating IBS-d symptoms compared to the racemic mixture and does not exhibit verapamils cardiovascular mechanism of action. Rezular was well tolerated and established efficacy in a Phase II study for IBSd. Preliminary results from the Phase III study are expected in H1:2009. The second arm of the trial will be a one-year open-label safety extension study that will continue to treat 300 patients over a 6-month period and 100 patients for one year. Results from the second study are expected in H1:2010.
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Solvays Calmactin Rejected By FDA

Solvay is developing Calmactin (cilansetron), a 5HT3 antagonist for the treatment of IBS. A 6-month Phase III study randomized 358 men and 434 women meeting the Rome criteria to receive Calmactin 2mg three times daily or placebo for six months. Results showed that 60% of patients with diarrhea-predominant IBS (IBS-d) treated with Calmactin experienced significant relief of abdominal pain/discomfort and abnormal bowel habits including diarrhea and urgency. A pooled subset analysis of 563 males who participated in the 3-month Phase III U.S. and the 6-month Phase III global study also demonstrated significant treatment benefit. In April 2004, Solvay filed for E.U. marketing authorization using the U.K. as the reference state. Solvay and development partner Quintiles Transnational filed Calmactin for the treatment of men and women diagnosed with IBS-d in the U.S. in June 2004. Solvay submitted the Cilansetron Appropriate Use Program as part of its NDA. However, the FDA issued a not-approvable letter in March 2005 and the Medicines and Healthcare products Regulatory Agency (MHRA) in the U.K. also rejected Calmactin. Solvay reportedly has decided to no longer seek FDA approval for cilansetron to treat irritable bowel syndrome with diarrhea predominance (IBS-d) because of the clinical trial data requested by the agency in its not-approvable letter.
Alizymes Renzapride Discontinued

Renzapride is a 5HT4 agonist and 5HT3 antagonist formerly in Phase III for the treatment of IBS. Phase II clinical data showed up to 25% improvement on relief of overall IBS symptoms over placebo. Alizyme studied Renzapride in a Phase III study of over 1,800 female IBS-c patients. Headline results from the Phase III study in April 2008 showed Renzapride to be safe and well tolerated, but demonstrated limited efficacy. As a consequence, Alizyme has discontinued further clinical development of renzapride.
Theravances TD-5108 Needs QTc Data To Proceed

Theravances TD-5108 is a potent and highly selective agonist for a proven GI motility target, 5-HT4. A 400-patient ACCORD Phase 2 study confirmed activity in chronic constipation and met all the primary and secondary endpoints. The data are summarized below.
Summary of Phase 2 Efficacy Data
Endpoint
Baseline average number of SBM/week Average number of SBM over 4-week treatment Mean SBM change from baseline Placebo-adjusted mean SBM change from baseline Baseline average number of CSBM/week Average number of CSBM over 4-week treatment Mean CSBM change from baseline Placebo-adjusted mean SBM change from baseline Patient responders
Source: Company presentation
Placebo n=107 1.3 2.8 1.4 0.2 0.8 0.6 22%
TD-5108 TD-5108 TD-5108 15mg 30mg 50mg n=101 n=96 n=97 1.2 1.1 1.2 4.8 4.4 4.6 3.6 3.3 3.5 2.2 1.9 2.1 0.3 2.6 2.3 1.7 60% 0.2 2 1.8 1.2 42% 0.3 2.6 2.3 1.7 61%
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Reports of diarrhea, nausea, vomiting, and abdominal pain were generally higher in the treated arms than in placebo. Occurrence of diarrhea, nausea, and vomiting was highest in the 50mg/day arm, and headache showed dose dependence across all doses. The two lower doses appeared better tolerated, with a similar rate of nausea and headache to placebo. Adverse events are summarized below.
Summary Of Phase 2 Safety Data
Group Placebo (n=107) 15mg/day (n=101) 30mg/day (n=96) 50mg/day (n=97)
Diarrhea 1% 12% 11% 15%
Nausea 3% 5% 4% 15%
Vomiting 1% 4% 2% 7%
Abdominal pain 1% 4% 4% 2%
Headache 6% 6% 10% 21%
Source: Company presentation.
Next Steps For TD-5108 We do not view TD-5108 coming to market as a slam dunk given the storied regulatory history of 5-HT4 class. However, we take comfort in the following points: (1) the FDA indicated that the current data package is sufficient to advance TD-5108 into Phase 3 for chronic constipation, (2) the risk/benefit ratio with TD-5108 is improved relative to Zelnorm, in our opinion, because the efficacy appears better with TD-5108; (3) TD-5108 is highly selective for the 5-HT4 receptor, so to the extent that Zelnorms safety issues stem from off-target effects, TD-5108 should be distinct; (4) TD-5108 does not activate the hERG pathway and there have been no cardiovascular signals in human or animals studies. Theravance does not plan to advance TD-5108 and/or TD-1792 into Phase 3 trials without a partnership to offset the cost of trials. In early 2008, Theravance announced that a QTc study that it had conducted would need to be redone, as the positive control in the study had failed to demonstrate the expected results. Thus, the timing of a Phase 3 start for TD-5108 remains gated by: (1) signing a partnership around this program, and (2) the successful completion of standard thorough QTc study.
Inflammatory Bowel Disease (IBD)

IBD Affects 1MM+ Americans And 4MM Patients Worldwide
Inflammatory bowel diseases (IBD) are autoimmune disorders involving an immune reaction to the bodys own intestinal tract. The two major IBDs are ulcerative colitis and Crohns disease. Over 1MM people in the United States suffer from these two conditions, and an estimated 4MM people worldwide are affected. Patients with IBD are typically diagnosed by the age of 30 and symptoms are highly variable in frequency and intensity. Ulcerative colitis affects an estimated 750,000 patients in the U.S., and Crohns disease affects over 500,000 U.S. patients. There are approximately 250,000 moderate to severe Crohns patients in the U.S., of whom approximately 15% have fistula and an additional 20% are refractory to oral medications (aminosalicylates, 6-MP, methotrexate, azathioprine, and corticosteroids).
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Remicade Should Grow Despite Heightened Competition

Remicade (infliximab) is a chimeric anti-TNF monoclonal antibody approved for the treatment of RA (signs and symptoms, inhibition of disease and radiographic progression), ankylosing spondylitis, psoriasis and psoriatic arthritis, Crohns disease (acute and maintenance use; fistula closure or prevention), and ulcerative colitis. Schering-Plough markets Remicade outside the United States. Remicade sales in Europe have increased substantially, driven by new indications and broader marketing. However, Abbott's Humira and Wyeths Enbrel are formidable competitors in Europe. Humira's main advantages relative to Remicade are the more convenient bi-weekly dosing regimen and cleaner safety profile. Near term, we expect Humira to compete with Remicade in RA, psoriatic arthritis, ankylosing spondylitis, and psoriasis. Our Remicade sales forecasts are $2.16B (+15%) in 2008, $2.36B in 2009, and $2.4B in 2012, and $1.4B in 2015 after the 8/2014 patent expiration. We believe that golimumab (Simponi), Schering-Ploughs/JNJs nextgeneration, subQ monthly MAb, will take time to cannibalize Remicade given challenges changing prescribing habits in Europe. In December 2007, Centocor/JNJ and Schering-Plough revised the Remicade distribution agreement regarding the development, commercialization, and distribution of both Remicade and golimumab. The revised agreement extends Scherings rights to market Remicade beyond 2014 with marketing rights to both products ending 15 years after the first golimumab EU commercial sale. In addition, Centocor/JNJ will receive a progressively increasing share between 2010 and 2014, but remaining fixed thereafter. Schering-Plough also garnered rights to independently develop and market golimumab for Crohns disease in its territories. Schering-Plough and Centocor/JNJ agreed to develop golimumab using JNJs autoinjector device. A change of control involving Schering could result in Remicade reverting back to Centocor/JNJ, at no cost to Centocor/JNJ.
Injectable Products Expected To Take Share, Expand The Category

Our consultants believe that significant growth is possible in the IBD category over the next 5 years, given the availability of self injectable products combined with growing clinical evidence which supports earlier use of biologic therapy in moderate to severe Crohns/UC patients. In particular, our consultants believe the onslaught of injectables will result in two things: 1) They expect the majority of patients currently on Remicade will transition to an injectable (85%) over a 3-year period; and 2) the convenience of self injection will help drive the category and result in earlier and earlier use of the drugs. While it is generally hard for our physician consultants to discuss the market in terms of patient numbers and penetration because the patient population is a group presenting with a non-heterogeneous inflammatory bowel disorders, the current underlying dynamics support continued market expansion and growth. We believe Crohns/UC is highly likely to become a $2B category for biologics by 2011-12. We estimate the total market for biologics in Crohns/UC WW is well in excess of $5B.
Abbotts Humira Making Inroads As Treatment For Crohns

Abbotts Humira, a fully human anti-TNF monoclonal antibody, has demonstrated statistical significance in inducing and maintaining clinical remission in patients with moderate-to-severe Crohns disease. In February 2007, Abbott received final
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FDA approval for Humira in Crohns disease, in line with our expectation. Of the estimated $2B+ market for biologics in Crohns/IBD specified above, our forecast for Humira sales in the category is roughly $500MM WW, which we view as conservative. Self injectable administration represents a notable differentiation versus market leading Remicade. In fact, Abbott has indicated a strong launch for Humira in Crohns with more than one in three biologics patients in the U.S. now receiving the drug. Data from the Phase III CHARM study, presented at DDW 2006, reaffirmed the results of previous CLASSIC and CLASSIC II studies which demonstrated HUMIRAs ability to manage Crohns disease. Our physician consultants estimate that 30-35% of moderate to severe Crohns disease patients are intolerant of Remicade or are experiencing declining efficacy, which is attributed to anti-HACA (human anti0chimeric antibodies) neutralizing antibodies. Therefore, Humira could serve as an important treatment for moderate to severe Crohns disease - use will be driven by superior safety and tolerability, and more convenient subcutaneous dosing. Depending on the dose needed to achieve efficacy rates similar to Remicade, cost could become an issue (i.e., a 160/80mg dose regimen could run up to $30K/year). We forecast worldwide Humira sales of $4,428MM (+45%) in 2008, growing to $7,874MM in 2012. We believe Crohns disease represents a greater than $1B opportunity for biologics, in which HUMIRA is poised to take significant share and drive market expansion given the products dosing convenience. CHARM Study Reaffirms HUMIRAs Efficacy. A Phase III double-blind, placebocontrolled, multi-center study designed to assess the efficacy and safety of adalimumab in maintaining clinical remission (CDAI <150) at week 26 and 56 in patients with moderate-to-severe Crohns disease (CDAI 220-450) who responded to open-label induction therapy. The data demonstrated significantly higher remission rates at weeks 26 and 56 versus placebo. Of the 170 patients in placebo group, 12% maintained remission at week 56. By week 56, 23% of patients with Crohns disease who took HUMIRA weekly and 29% of patients who took HUMIRA every other week were able to discontinue the use of steroids and maintain remission, compared to 6% in placebo group (p less than or equal to 0.008).
Humira CHARM Study (40mg) Clinical Remission (1) at Week 56 Once Every Other Week Dosing (n =172) Weekly Dosing (n =157) Placebo (n=170) Proportion Able to Discontinue Steroid Use Once Every Other Week Dosing (n =172) Weekly Dosing (n =157) Placebo (n=170)
(1) Measured by decrease in CDAI - Crohns's Disease Activity Index.
36% 41% 12%
p<0.001 p<0.001
29% 23% 6%
P<0.008
Humira Induction Data Support Activity In Crohns. The CLASSIC (CLinical assessment of Adalimumab Safety and Efficacy Studied as an Induction therapy in Crohn's) study was a Phase III double-blind, placebo-controlled study of 299 TNFnave patients. The results showed rapid and impressive induction of response and remission with Humira, which is unique relative to Enbrel and other non chimeric
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anti-TNF biologics studied to date. Patients with a Crohns disease activity index (CDAI) of 220 to 450 received two subcutaneous injections at week zero and week two of either placebo or Humira according to one of three different Humira regimens (n = 75): 160/80mg, 80/40mg, 40/20mg. The primary endpoint of clinical remission (CDAI <150) was assessed at week four. Clinical response defined as greater than or equal to 70 point change, and 100 point change was also assessed. Although all dose arms showed a higher remission rate than placebo, only the high-dose arm (160/80mg) showed statistical significance. A pooled analysis of all three treatment arms showed a statistically significant 30% rate of remission at 4 weeks versus 12% in patients in the placebo arm. Also significant was the 50% clinical response rate (>100 point drop in the CDAI) versus 25% on placebo.
Two Dose Humira in Moderate to Severe Crohn's - wk 0, wk 2 n=299, randomized to placebo/placebo, 160mg/80mg, 80mg/40mg, 40mg/20mg
Week 4 clinical response (70pt change) p value Week 4 clinical response (100pt change) p value Week 4 clinical remission p value Source: DDW 2004
Placebo 35%
40mg/20mg 51% NS 32% NS 18% NS
80mg/40mg 55% <0.05 37% NS 24% NS
160mg/80mg 58% <0.05 49% <0.05 36% <0.05
23%
12%
Humiras ability to rapidly induce remissions is particularly impressive given that many other anti-TNF agents have failed to show a statistically significant increase in remission at 10 weeks; however, results were not significant in the target dose of 80/40mg. Response rates do not appear to be as strong as those seen in a Remicade induction study of 108 patients where a single 5 mg/kg bolus (high dose) induced remission of 48% vs. 4% for placebo, and a clinical response (70 point drop) in 81% of patients vs. 16% for placebo (p<0.001). CLASSIC II Finds Long-Term Treatment Induces Remissions. CLASSIC II was the open-label extension of the CLASSIC study designed to evaluate long-term efficacy and safety of Humira. The trial included 222 patients who had participated in the CLASSIC study, but were not in remission at week 0 and week 4. Patients were treated with Humira 40mg every other week (eow). Patients experiencing flares or persistent non-response to the standard dose were given 40 mg of Humira every week. Of the 221 patients entering this cohort, at one year nearly half (43%) achieved clinical remission. Furthermore, more than two-thirds (69%) of the patients in the open-label cohort achieved a clinical response, with a decline in CDAI of at least 70 points, and 61 percent achieved a CDAI decline of at least 100 points, compared to their baseline CDAI scores. Efficacy In Remicade-Refractory/Intolerant Patients Promising. GAIN, a small open-label trial of Humira 80/40mg in Remicade-refractory/ intolerant patients, showed good efficacy at just four weeks. Clinical response was defined as a decrease in the CDAI of 100+ points (note: clinical response is most often defined as a 70+ point drop in the CDAI), clinical remission was a CDAI of 150 points or less, and fistula improvement was defined as 50%+ closure of open fistulas. Humira demonstrated a clinical response in 6 (46%) of the 13 patients with a CDAI of >220, 1 (8%) patient achieved clinical remission, 4 (67%) of 6 patients with fistulizing disease had improvement, and 3 patients had complete fistula closure at week 4. Of the 8
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patients who had previously experienced Remicade hypersensitivity reactions, none experienced these reactions when treated with Humira. Our physician consultants believe these data suggest that Humira is at least as effective as Remicade and much easier for patients to tolerate.
UCB Pharmas Cimzia Rolling Out In Crohns Disease

UCB Pharmas Cimzia is a pegylated anti-TNF alpha antibody fragment under development for the treatment of Crohns disease, rheumatoid arthritis, and psoriasis. Cimzia is dosed via a self-administered subcutaneous injection every four weeks, compared to JNJs Remicade, which is delivered via an intravenous infusion every eight weeks and requires a visit to the physicians office. UCB filed for approval of the Crohns indication in both the U.S. (February 2006) and E.U. (April 2006). In April 2008, the FDA approved UCB's Cimzia for reducing the signs and symptoms of Crohn's disease and maintaining clinical response in adult patients with moderate to severe active disease who have an inadequate response to conventional therapy. In November 2007, the EMEAs CHMP issued a negative opinion on Cimzia. We estimate Cimzia sales of $100MM in 2009, rising to $350MM in 2012. We estimate Nektars royalty rate at 3.5% of net sales. PRECiSE 2: Detailed results from PRECiSE 2 were presented at the United European Gastroenterology Week meeting in October 2005. The placebo-controlled, 26-week, 668-patient study demonstrated that Cimzia (400mg; every four weeks dosing) was efficacious at decreasing or controlling the signs and symptoms associated with Crohns disease. 62.8% of patients receiving Cimzia maintained an overall clinical response at week 26, compared to 36.2% on placebo (p<0.001). A clinical response was defined as at least a 100-point decrease in a patients Crohns Disease Activity Index (CDAI). These data appear to compare favorably to data from the ACCENT I trial for JNJs Remicade. In ACCENT I, Remicade achieved a 46% clinical response rate at the highest dose tested at week 30. 47.9% of patients treated with Cimzia were in clinical remission at week 26, compared to 28.6% receiving placebo (p<0.001). Overall, Cimzia appeared well tolerated.
Schering-Ploughs Golimumab Looks Competitive

Golimumab (CNTO 148), a next-generation, fully human monoclonal anti-TNF antibody, is being studied for rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, and other therapeutic indications. Golimumab will be the first anti-TNF available in both IV and subcutaneous formulations. CNTO 148 is effective at lower dosages than Remicade which will lower the manufacturing costs significantly. Schering acquired international rights to match Remicades from J&J for Golimumab. Phase III trials in methotrexate-nave, methotrexate refractory, and TNF-refractory RA and in the treatment of psoriatic arthritis and ankylosing spondylitis are underway. Golimumabs subcutaneous dosing places it on a level field with Humira and Enbrel. Once-monthly dosing also may be an advantage, but the safety and efficacy of such a regimen have yet to be determined. A dispute between Schering and JNJ was resolved in August 2006 in Scherings favor: Scherings rights to market Golimumab will extend for 15 years after launch. Golimumab should allow Schering to remain a dominant player in the international anti-TNF market for the foreseeable future. In December 2007, Schering and JNJ revised their agreement giving ScheringPlough the right to independently develop and market Golimumab for the Crohn's disease indication in territories outside the U.S., with an option for Centocor to participate in the program.
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Simponi (Golimumab) Filed In EU For Three Indications

In March 2008, an MAA was submitted for the treatment of adult RA, psoriatic arthritis, and ankylosing spondylitis. Simponis subcutaneous dosing utilizes the SmartJect Auto-Injector which places it on a level field with Humira and Enbrel. Once-monthly dosing also may be an advantage but there is competition with longer acting agents especially for psoriasis, including Centocor/JNJs ustekinumab (IL-12, Il-23; positive CHMP recommendation 11/08) which is dosed every three months. Simponis efficacy and safety appear robust; however, due to a flat dose response (50 and 100mg) in a psoriatic arthritis study presented at ACR 2007, a question has been raised whether the regulatory agencies will want to see data at lower doses. Clinical trials in ulcerative colitis and an intravenous formulation are ongoing. We forecast Simponi sales of $50MM in 2009, $300MM in 2012, and $1.4B in 2015.
Abbotts MAb ABT-874 Is One To Watch

ABT-874 is a fully human monoclonal antibody (MAb) targeting interleukin-12 (IL12), a protein associated with a number of chronic inflammatory autoimmune disorders, including Crohn's disease. ABT-874 is in Phase II clinical trials in Crohn's disease and multiple sclerosis and is in Phase III for psoriasis. Abbott is currently conducting a Phase II dose ranging study comparing intravenous ABT-874 versus placebo in moderately to severely active Crohn's disease. The study, which started in November 2007, has an estimated enrollment of 420 patients and will be complete towards the end of 2010. Results from a Phase II study of 79 patients with active Crohns disease showed significant differences in response and remission rates. Patients received 7 weekly subcutaneous injections of ABT-874 (1 mg/kg or 3 mg/kg or placebo) either with a four week interval between the first and second injection or with no interruption. Patients were followed for 18 weeks after the final injection of study drug. Patients who received ABT-874 3mg/kg without interruption showed the most substantial benefit from treatment. At the end of 7 weeks of therapy, the clinical response rates (reduction in CDAI of >100 points) were 75% and 25%, respectively, for patients treated with ABT-874 3 mg/kg or placebo (P = .032), and the rates of remission were 38% and 0%, respectively (P = 0.066).
JNJs IL-12/IL-23 MAb Ustekinumab

Ustekinumab is a first in class, new molecular entity for the treatment of moderate to severe plaque psoriasis and is a fully human monoclonal antibody directed against the p40 subunit of the inflammatory cytokines IL-12 and IL-23. Our current forecast for worldwide Ustekinumab sales is $40MM in 2009, $165MM in 2010, and $590MM in 2013 which assumes that the drug remains second line behind the established anti-TNF biologics (Amgens Enbrel and Abbotts Humira). However, the lack of longer term safety data may prevent initial widespread adoption.
Tysabris Potential In Crohns Still Uncertain

Elan and Biogen Idec received FDA approval for use of Tysabri as a treatment for moderately to severely active Crohns disease in January 2008 and launched Tysabri for the Crohns indication in March 2008. However, following the occurrences of three new PML cases in Tysabri patients, Elan suspended the active marketing of Tysabri in Chrons. The U.S. NDA was supported by three Phase III trials: (1) ENCORE (Efficacy of Natalizumab in Chrohns Disease Response and Remission), (2) ENACT-1
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(Efficacy of Natalizumab as Active Crohns Therapy), and (3) ENACT-2 (Evaluation of Natalizumab As Continuous Therapy. In ENACT-2, 339 responders from the negative ENACT-1 induction trial were rerandomized to Tysabri or placebo for 12 months. Tysabri failed to show a significant benefit in the ENACT-1 induction trial. The patients randomized in ENACT-2 included those patients who had a documented clinical response to either Tysabri or to placebo. In ENACT-2, maintenance therapy with Tysabri showed a greater than 30% reduction (versus placebo) via the Crohn's Disease Activity Index (CDAI) score at six months (primary endpoint). Elan and Biogen Idec believe that different pathophysiological mechanisms may be behind Tysabris observed ability to maintain Crohns disease remissions, but not induce them. A third pivotal trial (ENCORE, n=510) of Tysabri in Crohns in patients with active inflammation (as measured by CRP score) was initiated, but was halted early following Tysabris withdrawal from the market in early 2005. In ENCORE, patients were randomized 1:1 to receive Tysabri or placebo at weeks 0, 4, and 8, with safety and efficacy assessments taken at weeks 4, 8, and 12. Despite being halted early, the number of patients who completed the study was sufficient to conduct a final analysis. The top-line results from ENCORE were released in June 2005, and showed that patients treated with Tysabri achieved a 70 point decline (vs. baseline) in their Crohns Disease Activity Index score at weeks 8 and 12 compared to placebo (primary endpoint). The study also successfully achieved its secondary endpoint, a CDAI score 150 at both weeks 8 and 12. No difference in adverse events was observed between the placebo and Tysabri treatment arms. Headache, nausea, abdominal pain, and nasopharyngtis were the most common side effects. While Tysabri is arguably an effective treatment for Crohns disease, we believe the risk/reward profile of Tysabri is a significant regulatory hurdle in this patient population. Therefore, we project modest use of Tysabri in the Crohns disease setting, especially without active promotion, with peak sales potential estimated at just $200MM.
Ulcerative Colitis Market Is Poorly Served

Ulcerative colitis is a serious chronic inflammatory disease of the colon. Ulcers form where inflammation has killed the cells that usually line the colon, then bleed and produce pus. Inflammation in the colon also causes the colon to empty frequently, causing diarrhea. Typically patients go through periods of relapse and remission over a number of years. The symptoms for UC are similar to those for Crohns disease. Crohns disease differs because it causes inflammation deeper within the intestinal wall and can occur in other parts of the digestive system including the small intestine, mouth, esophagus, and stomach. According to the National Institutes of Health, ulcerative colitis can occur in people of any age, but it usually starts between the ages of 15 and 30, and less frequently between 50 and 70 years of age. It affects men and women equally and appears to run in families, with reports of up to 20 percent of people with ulcerative colitis having a family member or relative with ulcerative colitis or Crohns disease. The choice of treatment for ulcerative colitis is based on the clinical severity of disease.
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5-ASA-Based Treatments Are Mainstay For Mild-To-Moderate UC

The most common first-line treatment for mild-to-moderate ulcerative colitis is 5aminosalicylic acid (5-ASA) based products which act mainly as an antiinflammatory. 5-ASA can be effective in treating ulcerative colitis if properly formulated to be delivered directly (in fact topically) onto the inflamed colon lining without absorption first in the stomach and upper intestine. Corticosteroids are generally held to second line, and given their safety profile, are mostly relegated to short-term use. The 5-ASA products come in a number of varying formulations given the difficulty of appropriate levels and location of drug release in the colon. The total U.S. 5-ASA market is roughly $1B. Proctor & Gambles Asacol consists of mesalamine formulated in an enteric coating and is the leading 5-ASA treatment, with 48% total prescription share of the ulcerative colitis market in 2007. Asacol is typically dosed utilizing two separate tablets, three times daily (and sometimes more) for a total of 2400mg per day. Despite the high pill volume, Asacols U.S. sales were roughly $600MM in 2008. The other 5-ASA products have moderate use: generic Sulfasalazine has the second leading prescription share at approximately 21% and Shires Pentasa has about 13% share. In 2009, we anticipate that total sales in the 5-ASA market will continue to decline 10-15% following the impact of generic competition to Colazal in 2008, which recorded sales of $29MM in 2008. However, the category should rebound to sales of $1B in 2013, driven primarily by gains made by Lialda.
Lialda Continues To Perform Well; Likely To Be Drug Of Choice For First-Line Treatment
In January 2007, the FDA approved Shires Lialda (reformulated mesalamine, 5-ASA) for the treatment of mild-to-moderate ulcerative colitis. Lialda appears differentiated in its dosing profile (2400mg of mesalamine) delivered throughout the colon in a once-daily dose (two 1200mg pills taken simultaneously). Shire is executing very well on its launch of Lialda (reformulated mesalamine, 5-ASA). In March 2008, Shire entered a three-year deal with Takeda to co-promote Lialda. The deal added over 500 Takeda field sales representatives to Shire's existing Lialda sales force, which consisted of about 120 reps. Our physician consultants believe that Lialda can ultimately replace P&Gs Asacol given its dosing advantages. Mild-to-moderate patients account for about 70-80% of our physician consultants practices. In the long term, physicians estimate that a meaningful percentage of Asacol patients (50%+) likely will be switched to Lialda and a majority of new patient starts will start on the drug. Also, our physician consultants noted that there has been meaningful patient interest in Lialda, which could also drive initial use. Lialda has been granted three years of Hatch-Waxman protection and Shire has been issued a single formulation patent, 6,773,720, which expires in June 2020. Although there is no composition-of-matter patent on Lialda, we believe that the difficulties in formulating the release profile will act as a significant impediment. We believe that many companies have tried to properly formulate a once-daily mesalamine with the quantity of drug necessary and our guess is that all have failed. Additionally, mesalamine is delivered topically in the GI and therefore proving bioequivalence should be exceedingly difficult. Also, because Lialda has the issued patent it can garner a 30-month stay and beyond its legal defenses - does provide a potential settlement opportunity with any generic challenger that could successfully formulate. We estimate Lialda sales of $230MM in 2009, $330MM in 2010 and $430MM in 2013. We have based our assumption on the U.S. treatment market,
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however, Lialda has been launched in various European countries under the trade name Mezavant and therefore our estimates may prove conservative. Specifically, our sales figures equate to 13% share of the U.S. market in 2009, rising to 28% share by 2013.
ESTIMATED U.S. ULCERATIVE COLITIS FIRST-LINE TREATMENT MARKET
ESTIMATED U.S. ULCERATIVE COLITIS FIRST-LINE TREATMENT MARKET 2007 Total Rx's (MM) Rx Growth Rate Asacol (P&G) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Lialda (SHPGY) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Pentasa (SHPGY) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Colazal (Salix) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Rowasa Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Balsalazide Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Sulfasalazine Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Mesalamine Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Others Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Market Sales (MM) % Growth 21% 0.88 $0.48 $12.7 3% 0.13 $0.95 $4.0 6% 0.25 $0.26 $2 $954 +19% 4.3 +2% 47% 2.03 $9.29 $565.0 3% 0.12 $14.00 $50.5 12% 0.53 $11.12 $176.4 8% 0.35 $12.35 $130.0 0% 0.01 $13.00 $13.0 2008 4.4 +2% 43% 1.89 $10.56 $599.0 8% 0.37 $12.88 $143.0 12% 0.53 $11.00 $185.0 2% 0.09 $11.29 $29.0 0% 0.01 $13.00 $7.0 2% 0.23 $6.00 $25.0 19% 0.85 $0.50 $12.1 3% 0.13 $0.95 $2.0 7% 0.31 $0.40 $4 $1,006 +5% 2009E 4.5 +2% 28% 1.27 $10.00 $380.0 13% 0.59 $13.00 $230.0 6% 0.60 $11.50 $200.0 1% 0.08 $11.00 $25.0 0% 0.01 $13.00 $5.0 3% 0.28 $3.00 $25.0 5% 0.67 $0.50 $10.0 2% 0.07 $0.95 $2.0 21% 0.92 $0.40 $5 $882 -12% 2010E 4.6 +2% 24% 1.10 $10.00 $330.0 19% 0.85 $13.00 $330.0 6% 0.63 $12.00 $225.0 1% 0.08 $11.00 $25.0 0% 0.01 $13.00 $5.0 3% 0.28 $3.00 $25.0 5% 0.67 $0.50 $10.0 2% 0.07 $0.95 $2.0 20% 0.89 $0.40 $5 $957 +9% 2011E 4.7 +2% 22% 1.03 $10.00 $310.0 21% 0.97 $13.00 $380.0 6% 0.60 $12.50 $240.0 1% 0.08 $11.00 $25.0 0% 0.01 $13.00 $5.0 3% 0.28 $3.00 $25.0 5% 0.67 $0.50 $10.0 2% 0.07 $0.95 $2.0 20% 0.94 $0.40 $5 $1,002 +5% 2012E 4.7 +2% 21% 1.00 $10.00 $300.0 22% 1.03 $13.00 $400.0 6% 0.60 $13.00 $250.0 1% 0.08 $11.00 $25.0 0% 0.01 $13.00 $5.0 3% 0.28 $3.00 $25.0 5% 0.67 $0.50 $10.0 2% 0.07 $0.95 $2.0 21% 1.02 $0.40 $5 $1,022 +2% 2013E 4.8 +2% +30% 0.83 $10.00 $250.0 28% 1.08 $13.00 $420.0 7% 0.60 $13.00 $255.0 1% 0.08 $11.00 $25.0 0% 0.01 $13.00 $5.0 3% 0.28 $3.00 $25.0 5% 0.67 $0.50 $10.0 2% 0.07 $0.95 $2.0 26% 1.22 $0.40 $5 $997 -2% +6% -0% - Growth clipped by generic pricing +32% -7% - Generics launched in Q1:2008 - Should remain widely used +11% -16% - Reformulated mesalamine; once-daily 1200mg +24% - Should easily command in-line pricing - if not premium +24% - Continued strong growth assumed - Mesalamine in controlled-release spheres +3% - Multiple dosing +7% - Moderating growth - Formulated 5-ASA to inert moleculre for delivery only in bow -2% - Receiving premium pricing -3% - Impacted by generics - Mesalamine in an enema formulation -7% - Mesalamine, surrounded by an acrylic resin coating - Two 400-mg tablets three times daily CGR Comments +2% - Consistent market growth
molecule -5% - Should remain widely used -4% - Multiple doses; Asacol currently dominates market -12% +0% - Small other brand/generic products
Source: Company reports, IMS America, Cowen and Company estimates
Lialda Phase III Results Were Solid; Convenience Is Key Differentiation

The Phase III program compared once-daily Lialda vs. P&Gs Asacol (extended release mesalamine) and placebo. Asacol is the current leading 5-ASA treatment for ulcerative colitis. The 8-week double-blinded study involved 343 patients with mild to moderate disease. Asacol was administered 0.8g three times daily; Lialda was dosed at 2.4g once daily or 4.8g once daily. The study design defined remission as a disease activity index score of no more than 1 for rectal bleeding and 0 for stool frequency score. After week 8, remission was achieved in 40.5% of patients on the 2.4g daily dose of Lialda, 41.2% of those on 4.8g daily of Lialda, 32.6% of Asacol subjects, and 22.1% of placebo subjects. These results were significant for the two Lialda doses (p<= .033) but not for Asacol. Clinical remission was observed in 41.7%
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of those on Lialda at the 2.4g dose and 41.2% on the 4.8g dose, and 33.7% of those on Asacol, compared to 22.1% for placebo. The results were significantly superior for Lialda (p </= .033) but not for the comparator arm. All three treatment arms had a higher rate of clinical improvement than placebo, with a rate of 60.7%, 64.7%, and 55.8%, respectively, compared to 39.5% for the placebo group (P </= .033). Similarly, the treatment groups had significantly higher rates of sigmoidoscopic improvement (70.2%, 76.5%, 60.5%, and 41.9%; P </= .033). Treatment failures occurred more frequently in the placebo group (47.7%), compared to the treatment groups (21.4%, 20.0%, 27.9%; P </= .033). Four patients, two in the placebo group, withdrew from the study due to adverse events related to their ulcerative colitis, but not due to the treatment.
Salixs Apriso Approved To Launch In Q1:2009

Apriso is indicated for the maintenance of remission of ulcerative colitis in adults. Apriso is dosed once-daily and the pH-dependent coating initiates release at a pH of 6, providing for release in the bowel, followed by a polymer matrix core, which enables release throughout the colon. In October 2007, Salix received FDA approval to market Apriso (granulated mesalamine). Results from a 300-patient, double-blind, randomized pivotal study showed that a statistically significant number of patients dosed once-a-day with 1.5 grams of granulated mesalamine remained relapse-free over six months of treatment compared to those on placebo. Salix plans a Q1:2009 launch for Apriso.
Pentasa Has Had Modest Success In Crohns & UC

Shire currently markets Pentasa, its other controlled release mesalamine formulation. As Pentasa moves down the gut, mesalamine is slowly released into the intestines. Unlike Asacol or Lialda, the mesalamine in Pentasa is released into the small intestine as well as the colon, making Pentasa effective in the upper GI, which is actually a better treatment for Crohns disease. And indeed management indicates that roughly 70% of Pentasa use is for the Crohns indication. We believe that the launch of Lialda has not affected Pentasa due to its Crohns use. Pentasa sales reached $185MM (+5%) in 2008. We forecast 2009 sales of $200MM growing modestly through 2013 to $255MM.
Remicades Has Potential In Moderate-To-Severe UC

Remicade was approved for treatment of Ulcerative Colitis in the U.S. in September 2005, and in Europe in March 2006, based on the results of the ACT I and ACT II clinical trials. The product is specifically indicated for reducing the signs and symptoms, achieving clinical remission and mucosal healing, and eliminating corticosteroid use in patients with moderately to severely active ulcerative colitis who have had an inadequate response to conventional therapy. Data from ACT I and ACT II showed that Remicade improved clinical response, clinical remission, and mucosal healing. ACT I included patients treated with steroids and/or 6mercaptopurine/azathioprine. The clinical response rate was 32% and 24% higher than placebo with Remicade 5mg/kg and 10mg/kg, respectively. ACT II enrolled patients who were refractory to at least one treatment with immunosuppressants, corticosteroids, or 5-aminosalicylic acid. Patients receiving Remicade 5mg/kg and 10mg/kg achieved statistically superior clinical responses vs. placebo (5mg/kg=64%; 10mg/kg=69%; placebo=26%; P < .001) and the percentage of patients discontinuing steroid while in clinical remission at 30 weeks was superior in both Remicade groups (5mg/kg=18%; 10mg/kg=27%; placebo=3%; P < .001). It is estimated that 40% of UC patients have moderate-severe disease. Our physician experts estimate that
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30% of moderate-severe patients, roughly 90-100K patients in the U.S., are candidates for biologic therapy. Assuming annual treatment cost of $15,000/year, this represents a $1.5B market opportunity.
Post-Operative Ileus Opportunity May Be Modest

Despite the large number of candidate procedures performed annually (600K hysterectomies and 550K invasive bowel procedures per year in the U.S.), we believe a number of considerations will limit the perioperative opportunity for peripheral opioid antagonists. These include the falling number of POI cases as laparoscopic procedures become more prevalent, the lack of an established role of peripheral opioid antagonist prophylaxis in laparoscopic procedures, and the preference of surgeons to use these agents for treatment after POI develops, with only sparing use as prophylaxis. We estimate the U.S. opportunity for peripheral opioid antagonists in POI to be $150MM.
GSK/Adolors Entereg Rollout Modest

Entereg is an oral peripheral -opioid antagonist that alleviates the constipating effects of opioids while sparing their central analgesic effects. Entereg (alvimopan), has high affinity for the opioid receptor, variable but minimal oral bioavailability (<6%), and it does not cross the blood brain barrier. Thus, it has very low potential to antagonize the central analgesic effects of opioids or cause withdrawal symptoms in patients receiving chronic opioid therapy. Adolor partnered Entereg with GSK in 2002, and Entereg was approved following a challenging development path. The original NDA for the prevention of POI was filed in June 2004, and in July 2005 the FDA issued an approvable letter. While the results of several trials included in the NDA filing demonstrated an advantage when bowel resection patients were analyzed separately, these trials either enrolled mixed populations of bowel resection and hysterectomy patients, or in one case, hysterectomies alone. The hysterectomy-only trial failed, and the other trials gave mixed results when all patients were considered in the analyses. After receiving the approvable letter, Adolor submitted data from a sixth placebo-controlled study (Study 314) for FDA review, which enrolled only patients undergoing bowel resection. This trial showed a statistically significant benefit in the primary endpoint (GI2, or toleration of first solid food or time to first bowel movement) as well as time to discharge. Despite this success, a second approvable letter for POI was issued in November 2006 following a cardiovascular safety signal seen at interim in a chronic outpatient trial of Entereg for opioid-related bowel dysfunction (Study 014). The FDA requested full safety data from that 12-month trial as well as a risk management plan (riskMAP) from Adolor and GlaxoSmithKline for POI. A complete response was accepted by FDA in August 2007, and a Gastrointestinal Drugs Advisory Committee meeting held in January 2008 voted 9-6 in support of Entereg in POI. However, the GIDAC panel voted 14-0 against the adequacy of the submitted riskMAP, with concerns on the potential for off-label use in the chronic outpatient setting. GlaxoSmithKline/Adolor subsequently submitted a revised riskMAP, and a few days prior to the PDUFA date, the FDA announced a three-month delay to review the new plan. On May 20, the FDA approved Entereg for the acceleration of GI recovery following partial large or small bowel resection with primary anastomosis. Entereg for POI is provided as 12mg capsules, one which is to be taken shortly ahead of the surgical procedure, and is indicated thereafter as twice-daily dosing for up to seven days (15 doses maximum).
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Entereg was launched for POI in early June 2008 under a U.S. co-promotional agreement. GlaxoSmithKline is utilizing its >250-person critical/supportive care field force in this effort, with Adolor deploying approximately 20 sales managers. GlaxoSmithKline/Adolor will increase awareness of Entereg and POI via targeted marketing initiatives, including hospital and physician education and appearances at key medical meetings. Distribution To Be Controlled Via E.A.S.E. Program Although Entereg has posted a record of clean safety in its development in POI, a cardiovascular safety signal observed in a 12-month chronic trial (Study 014) led to a boxed warning on its label as well as a requirement for distribution under a Risk Evaluation and Mitigation Strategy (REMS). Both of these aim to constrain use to only the short-term, in-hospital setting. Per the REMS requirement, Entereg cartons are stamped Hospital Use Only, and Entereg is to be made available only to hospitals that perform bowel resections and are enrolled in the GlaxoSmithKline/Adolors E.A.S.E. Program. This program requires that educational materials related to safety be provided to selected hospital personnel, and that hospitals have measures in place to limit Entereg use to no more than 15 doses and in-hospital use only. E.A.S.E. also forbids hospitals from dispensing Entereg for outpatient use or transfer of the drug to non-registered hospitals. As of February 2009, approximately 78% of all targeted institutions were certified via the E.A.S.E. program but GlaxoSmithKline suggested that meaningful sales (which will only be recorded upon re-order) would likely only transpire in H2:2009. In September, GlaxoSmithKline returned to Adolor worldwide rights related to Entereg for chronic opioid bowel dysfunction (OBD). We estimate Entereg POI sales of 5MM in 2009, 10MM in 2010, 25MM in 2013, and 35MM in 2015. Use In Other Surgeries May Provide Upside To Our Estimates While Enteregs label indicates that it is only for patients who have undergone bowel resection, based on consultant input, we believe surgeons and hospitals will have an interest in using Entereg in any surgery that is associated with meaningful rates of ileus (mainly other abdominal surgical procedures, e.g., radical prostatectomies, hysterectomies, abdominal aortic aneurysm repair). As the E.A.S.E. program does not appear to specify any limitations with regard to the kind of patients in which Entereg is used, we see use in other surgeries as likely.
Chronic Opioid-Induced Bowel Dysfunction, A Large Market

With approximately 240MM opioid scrips written annually in the U.S. according to IMS data, of which roughly 20% are for use in the chronic pain setting, we believe the chronic opioid-induced bowel dysfunction commercial opportunity will prove to be 5-10x larger than the POI indication. Pain specialists note that opioid-induced constipation is nearly universal in their practices, although published surveys report constipation rates in chronic opioid users closer to 50%. Pain specialist consultants expect to use peripheral opioid antagonists for OBD initially in patients who do not experience adequate relief with current laxative and stimulant options, and estimate that 15-30% of patients may initially be suitable candidates for therapy. However, based on general lack of satisfaction with current constipation treatment options, they believe that peripheral opioid antagonists could easily move into the front-line setting, particularly in the general practitioner setting. Consultants indicate an overwhelming preference for an oral peripheral opioid antagonist in the OBD indication. Multiple peripheral opioid-receptor antagonists
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are in clinical development for opioid-induced bowel dysfunction, including Wyeth/Progenics methylnaltrexone (subcutaneous formulation under review at FDA), Adolors ADL-7445, and Nektars PEG-naloxol (NKTR-118).
Wyeth/Progenics Relistor Potential Capped Pending Visibility On Its Oral Formulation

Relistor (methylnaltrexone) is a novel peripheral opioid receptor antagonist that is being developed in collaboration with Progenics as s.c., i.v. and oral formulations to treat opioid-related side effects. Subcutaneous (s.c.) Relistor was approved in April 2008 in the U.S. and July 2008 in the EU to treat opioid-induced constipation in the palliative care setting. Full commercial launch began in August 2008. In November 2008, Wyeth and Progenics announced positive results from a pivotal non-cancer pain study with the s.c. formulation. Wyeth and Progenics plan to meet with FDA to review these data likely in an effort to determine whether they are suitable for a sNDA. Intravenous (i.v.) Relistor is in development for the prevention of postoperative ileus (POI) in bowel resection patients, but prospects appear dim following the failure of two pivotal trials. While an initial oral formulation of Relistor for the relief of constipation in patients with chronic opioid-induced constipation demonstrated insufficient activity, recent results from a Phase II trial of at least one new oral form appears to support continued development. Nonetheless, the paucity of available data from the oral program fuels our conservatism on later-stage success, and this program remains several years away from market. We forecast Relistor sales of $30MM in 2009, $150MM in 2012, and $300MM in 2015. Relistor S.C. Phase III Trials Show Benefit In AMI The NDA filing for the subcutaneous form of Relistor included results of two Phase III studies. The 301 study was a placebo-controlled single-dose trial of 154 patients with AMI who were suffering from opioid-induced constipation. Patients were evenly randomized to receive s.c. Relistor (0.15 or 0.30 mg/kg) or placebo. The study was performed at hospice and palliative care centers as well as in patients own homes. On an ITT basis, laxation response within four hours of dosing was achieved by 62% and 58% of subjects in the 0.15 and 0.30 mg/kg arms, respectively, vs. 13% of the placebo group (p<0.0001 for both treatment arms vs. control) and hence met the primary endpoint. The 302 study was a 1:1 placebo-controlled two-week trial of 133 patients receiving s.c. Relistor 0.30 mg/kg. Relistor induced laxation in four hours in 51% of treated patients vs. 16% on placebo over the two weeks (p=0.0001). In both studies, Relistor was well tolerated, with minor flatulence and transient abdominal cramping. No cases of systemic opioid withdrawal were reported. Most patients from the 301 and 302 studies continued on in their respective one- and three-month extension phases. But Represent A Modest Opportunity There are 1.6MM AMI patients in the U.S., and our physician consultants estimate that up to 70% of them are on opioids, with nearly all experiencing opioid-related constipation. However, palliative care providers are well aware of the constipating effects of opioids, and they routinely use aggressive prophylactic bowel regimens. As a result, they note that only 10-15% of patients on opioids are inadequately treated. We believe that a lack of eagerness by care providers to use an s.c. injection will likely lead physicians to use s.c. Relistor mainly as a last resort prior to manual disimpaction, with only a fraction of a percent of patients in the AMI setting
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disimpacted on any given day. Maintenance use of s.c. Relistor is expected to be minimal. In addition, we note that end-of-life care falls under a per diem reimbursement scheme (approximately $100/day), and palliative care providers are extremely sensitive to cost containment. The potential for Relistor to spill over into the general population on chronic opioids (an off-label use, as this is outside of palliative care) is likely negligible given the bar presented by an injectable format. Hence, although positive data of Relistor in the chronic pain setting could broaden the label outside of palliative care, we are not optimistic on significant sales outside of the end-of-life setting. An sNDA for a pre-filled syringe version is expected to be filed in 2009. Wyeth will draw >1,700 reps from its primary care, hospital, and oncology sales forces to detail physicians and centers involved in end-of-life care. In the U.S., Relistor is priced at $40 per single-use vial (for injection with a 28-gauge insulin syringe) and is packaged as 7-vial cartons ($280/box) for outpatient use.
Adolors Entereg Hits A Snag In Phase III In OBD

Adolor is working with the FDA on a potential path forward for Entereg in OBD, an indication which we believe offers $500MM-$1B+ sales potential. In September 2008, GSK walked away from the rights to the OBD indication. Adolor will now regain the rights to Entereg in opioid bowel dysfunction and will likely need to find another partner to advance Entereg in that indication. Additionally, the FDA has lifted a clinical hold on Entereg for OBD and Adolor is considering conducting another study under a special protocol assessment. Adolor also is developing a next-generation opioid antagonist for OBD, ADL-7445, which is in pre-clinical development. In September 2006, Adolor/GSK announced mixed results from the Phase III studies of Entereg for OBD. The unexpected change in the primary endpoint to treatment responders (defined as having a weekly average of 3+ sBMs/week and an increase from baseline of 1+ sBMs/week) rather than change in weekly sBM, as had been used in prior successful trials, led to inconsistent results. The primary endpoint of treatment responder was met in only one of the two Phase III studies, although the secondary endpoint of change in average weekly sBMs was positive in both trials. The 518-patient 012 study in non-cancer patients met its primary endpoint for the higher dose Entereg arm. The primary endpoint was reached by 72% of patients in the Entereg 0.5 mg twice daily arm versus 48% of patients in the placebo arm (p<0.001) and 61% in the 0.5 mg once daily arm (p= 0.065, NS). Additionally, the average weekly change from baseline in sBM was improved in both groups, increasing by 3.5 sBM/wk and 3.4 sBM/wk for patients in the 0.5 mg twice daily and once daily groups, respectively, versus 2.0 sBM/wk for the placebo group (p<0.001 for both dose groups). The 485-patient 013 study in non-cancer patients failed to meet its primary endpoint for either Entereg arm, defined as the proportion of patients with a weekly average of 3+ sBMs and an increase from baseline of 1 sBM/wk over 12 weeks. The primary endpoint was reached by 63% of patients in the Entereg 0.5 mg twice daily arm versus 56% of patients in the placebo arm (p= 0.214, NS) and 63% in the 0.5 mg once daily arm (p= 0.259, NS). The average weekly change from baseline in sBM was improved in both groups, increasing by 3.1 sBM/wk and 3.2 sBM/wk for patients in the 0.5 mg twice daily and once daily groups, respectively, versus 2.2 sBM/wk for the placebo group (p<0.005 for both dose groups).
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The 233-patient Phase IIb 008 study in cancer patients had a slightly different primary endpoint; change in frequency of spontaneous complete BM (scBM), defined as sBM that provides the subject with a feeling of complete evacuation. The average weekly change from baseline in scBM over 3 weeks was 1.9, 1.8, 2.1 and 1.6 for the Entereg 0.5 mg twice daily, Entereg 1 mg once daily, Entereg 1 mg twice daily and placebo, respectively. None of the treatment groups were statistically significant in this study.
Sucampos Amitiza OBD Phase III Trials On Track For Mid09 Completion
Sucampo and Takeda are conducting Phase III trials of Amitiza in opioid-induced bowel dysfunction, a severe form of constipation caused by high doses of opioid analgesics, particularly in the post-operative setting. More than 400 patients are enrolled in the Phase III trial, at 189 sites (the trial was initiated in September 2007). Sucampo indicates that the trial is on track for completion in mid-2009, and top-line results could be reported in Q3:2009. Management targets an early-2010 sNDA filing for the OBD indication. Sucampo has completed preclinical studies of Amitiza in a morphine-induced constipation mouse model and the results suggest Amitiza may have efficacy in opioid-induced bowel dysfunction. Amitiza was shown to improve intestinal transit time and not result in a reduction of the analgesic effect of morphine. Questions have been raised about Amitizas efficacy in OBD patients, as Amitizas mechanism of inducing fluid secretion in the small intestine to soften the stool may not relieve constipation if the small intestines motility has been effectively shut down by the opioid. However, our clinical consultants have used Amitiza in OBD patients and indicate that it has efficacy in patients on lower doses of opioids, in whom the small intestine retains some motility.
Nektars PEG-Naloxol (NKTR-118) Phase II Data Were Positive

Nektar announced top-line results in March 2009 from its Phase II study of NKTR118 for the treatment of opioid-induced constipation (OIC) in 208 patients. NKTR118 is an oral pegylated formulation of naloxol (derivative of naloxone), a peripherally acting opioid antagonist. The pegylation prevents naloxol from crossing the blood-brain-barrier and countering the analgesic effects of the opioid agonist. The Phase II study was halted early due to strong dose-dependent improvements in the rate of spontaneous bowel movements (SBMs) at both the 25mg dose and 50mg dose administered once daily. The 5mg QD dosing cohort apparently did not achieve significant efficacy. Patients on the 25mg dose of NKTR-118 demonstrated on average 5.1 SBMs during the first week of treatment compared to 1.5 SBMs at the baseline level. Patients on the 50mg dose had on average 5.7 SBMs compared to the baseline level of 1.6 SBMs. The increased SBM activity was sustained for the 28 days of treatment compared to placebo (p < 0.01). Importantly, over the 28-day period, NKTR-118 also achieved its secondary endpoints demonstrating no increase in opiate use and no reversal of analgesia, as measured by pain scores. Study patients were concomitantly treated with 30-1,000 morphine equivalent units.
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Out-License Deal Now Possible In H1:2009 Complete results of the study are expected to be reported at 2009 scientific and medical conferences and will provide the platform for evaluation of NKTR-118 in a Phase III study. We expect that Nektar will out-license development and commercialization rights to NKTR-118 prior to moving into Phase III trials: the data reported could yield an out-license deal in H1:2009. We estimate NKTR-118 sales of $40MM in 2012 and $100MM in 2013: We estimate that Nektar will realize a 20-25% royalty on NKTR-118 sales. Data Also Validate Proof-Of-Concept For Oral Pegylation Technology The NKTR-118 results represent the first significant clinical data for a candidate employing Nektars oral pegylation technology and the first data set for a compound employing pegylation to prevent CNS effects. The strong efficacy results combined with the lack of a negative impact on analgesic efficacy of the concomitant morphine could be a very important proof-of-concept and validation for Nektars pegylation technology platform.
U.S. ULCER MARKET
Total Prescriptions (000's) % Market Share 2008 2009E 2013P 1987* 2008 2009E Proton Pump Inhibitors 183,541 172,000 140,000 0% 80% 80% H2 Blockers 36,943 33,409 30,000 9,000 56% 14% 14% Other Antispasmodics 28,627 13,615 13,000 26,000 44% 6% 6% Total 65,569 230,565 215,000 175,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates ` 1987* CGR 2013P '87-08 '08-13 80% NA -5% 5% -0% -23% 15% -3% +14% 100% +6% -5%
KEY PATENT EXPIRATIONS Drug Prevacid/Zoton* Protonix Aciphex Asacol Nexium Apriso Lialda
N/A = Not available * Includes pediatric extension; + indicates pediatric extension pending Source: Company data and Cowen and Company estimates
Manufacturer Abbott/Wyeth/Takeda Wyeth Johnson and Johnson/Eisai Proctor & Gamble AstraZeneca Salix Shire
Patent Expiration 11/2009 1/2011 2013 2013 2017 2018 2020
U.S. Sales in Year Patent Expires ($MM) $800 $200 -----------
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GASTROINTESTINAL R&D PIPELINE Company Dainippon Sumitomo Takeda Febuxostat (TMX 67) AstraZeneca SCMP Nexium Amitiza . . . . . Jun-07 Dec-04 Product Gasmotin PC I II III NDA . MKT Comments Combination use with Niflec for pretreatment of colon pre examination by barium enema and X-ray Xanthine oxidase inhibitor for gout; approved in EU; NDA still pending in U.S. Multiple indications and formulations IBS-C sNDA under review; Phase III OD CIC; Phase IIb in Japan for CIC Wyeth Relistor (Methylnaltrexone) Entereg Linaclotide . . Mar-07 Opioid-induced constipation; post operative ileus; SQ approved in Canada, U.S. and EU; from Progenics; SQ, IV, oral Adolor Forest Laboratories . . F2011 F2012 Management of postoperative ileus (POI Guanylate cyclase C receptor agonist for IBS-c and CC; PIII in CC initiated with Ironwood GlaxoSmithKline (alvimopan) Entereg . Mu-opioid antagonist for management of bowel dysfunction associated with opioid pain relief post surgery; trial concerns Shire Takeda Lialda Amitiza . . Prevention of recurrence of diverticulitis Chloride channel opener; opioidinduced bowel dysfunction; with Sucampo Takeda Takeda Wyeth Astellas Eisai Abbott Laboratories Astellas Astellas AstraZeneca Irribow YM-060 AZD 3355 . . . 2011 5HT3 antagonist; IBS; Europe 5HT3 antagonist; IBS; Europe Reflux inhibitor; inhibitor of transient MLN0002 Takepron Protonix YM-443 Aciphex ABT-224 . . . . . . . . a4b7 integrin inhibitor; ulcerative colitis, Crohn's disease Risk reduction of NSAID-induced gastric ulcer Oral pediatric formulation Acetylcholine level enhancer; functional dyspepsia Proton pump inhibitor; extendedConstipation Q3:2008; PIII in IBS-c starting Q1:2009; trials ongoing; under review at EMEA for
suspended pending resolution of safety
release formulation; PII pediatric use
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GASTROINTESTINAL R&D PIPELINE Company Product PC I II III NDA MKT Comments lower esophageal sphincter relaxations; GERD Chugai Mitsubishi Tanabe MRA MCI-225 . . Crohn's disease Norepinephrine reuptake inhibitor + 5HT3 receptor antagonist; diarrheapredominant IBS Novartis DNK333 . Treatment of diarrhea-predominant irritable bowel syndrome (IBS-D) in female patients Pfizer, Inc. Roche SCMP PF-885706 GM-611 SPI-8811 . . . GERD Motilin agonist; gastroparesis; IBS; with Chugai In Phase II for NSAID-induced ulcers, portal hypertension; multiple other inhaled formulations Chugai Mitsubishi Tanabe Shire SPD-550 . GM-611 MKC-733 . . . . Motilin agonist; gastroparesis, IBS 5-HT3 receptor antagonist; constipation-predominant IBS; PI for nighttime GERD Treatment of celiac disease (PII); treatment of Crohn's disease and irritable bowel syndrome; type 1 diabetes (PI) AstraZeneca AstraZeneca Bayer Schering Pharma GlaxoSmithKline Mitsubishi Tanabe Pfizer, Inc. Pfizer, Inc. Roche Takeda PF-2391677 PF-4548043 rhuMAb Beta7 TAK-438 Total Drugs In Development 0 9 12 11 5 37 . . . . AZD 1386 AZD 2066 Lipoxin 1399686 sTU-199 . . . . . Vanilloid receptor antagonist; GERD Metabotropic glutamate receptors subtype 5; GERD Inflammatory bowel disease Anti-inflammatory macrolide conjugate (oral); inflammatory bowel disease Tenatoprazole; proton pump inhibitor; GERD; EU GERD GERD Monoclonal antibody; ulcerative colitis Potassium-competitive acid blocker; GERD, peptic ulcer indications being looked at; oral and
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Infectious Disease
Infectious Diseases Are A Perpetual Opportunity

Antibiotic, antiviral, and antifungal drugs treat infectious diseases, which occur when microorganisms either release +6% 2008-13 CGR toxins or provoke the immune system, harming otherwise healthy cells. Antiinfectives work either by killing the organism (bactericidal) or by preventing it from multiplying, allowing the patients immune system to clear the remaining bacteria (bacteriostatic). Bacteria and viruses often mutate over time to become resistant to an agents action. The development of resistance creates a perpetual opportunity for the drug industry, as new antiinfectives are constantly needed to target resistant organisms. Hospitals are notorious breeding grounds for the most resistant infections. The major opportunity in antibacterial drug development is in the nosocomial (hospital acquired) infections which are becoming more resistant and associated with significant mortality and morbidity. Convenience is key in HIV treatment and the dawn of the new classes of HIV therapies could result in a paradigm shift in treatment. The vaccine landscape has changed dramatically with the advent of the HPV vaccines. Current HCV treatment is plagued by poor efficacy and intolerable side effects but the direct antivirals in clinical development are poised to dramatically change this.
Infectious Disease Category Market Share By $ Sales
PARTICIPANTS
NVS 4% JNJ 4% AZN 4% ABT 5% RHHBY 5% SGP 6% GILD 7% SNY 7%
2008
$53B
GSK 19% RHHBY 4% AZN 5% NVS 6% MRK 11% JNJ 7%
SGP 4%
2013P
$71B
GSK 18%
MRK 12%
WYE 8% PFE 7%
SNY 7% GILD 8% WYE 9% BMY 8% PFE 8%
BMY 7%
GlaxoSmithKline led the antibiotic/antiviral drug category with a 19% dollar share in 2008, and this dominance is expected to be maintained through 2013. Mercks share should increase by one percentage point, to 12% in 2013, driven by its vaccine franchise (Gardasil, Zostavax).
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Quinolones (Bayer, Johnson & Johnson) and macrolides (Pfizer, Abbott) have been impacted by generics and we forecast a decline during 2009-13 due to patent expirations, side-effects, and emerging resistance. A number of new anti-MRSA antibiotics are in late-stage development (Theravance, Pfizer, Targanta, Basilea, JNJ, Arpida, Forest); however, the hightened regulatory risks make it difficult to predict the timing of the drug approvals. Novel antivirals hold varying degrees of promise. HIV, hepatitis, and influenza offer large market opportunities for new drugs. Driven by an increase in new patient diagnoses and healthy price increases, the HIV market is poised to grow by 10-15% annually for the next several years. Mercks Isentress is in the midst of a strong launch, and we project sales will reach $1B in 2012. Protease inhibitors for chronic hepatitis C infection are the most advanced new drugs in development for this disease, led by Vertex/JNJs telaprevir. Pandemic flu is a wild card opportunity. A number of companies have thrown their hats in the ring, including GlaxoSmithKline, Sanofi-Aventis, Novartis, Solvay, Baxter, and AstraZeneca/MedImmune. Sanofi-Aventis leads the U.S. race with the 02:07 FDA approval of its A/Vietnam/1203/2004 flu vaccine and GSK leads the European race with the approval of Prepandrix. Novel vaccines present significant market opportunities. HPV vaccines, including Mercks Gardasil and GlaxoSmithKlines Cervarix, could achieve combined worldwide sales of $3.3B in 2013. Mercks ZostaVax has $1B potential. Mercks staphylococcal vaccine could demonstrate positive trends in its Phase II/III CABG study but, the possibility of success to market is low. Our scatter plot shows that, through 2013, GlaxoSmithKline should dominate this category with its broad antibacterial and antiviral pipeline. The antibiotic/antiviral category is a key contributor to the projected sales growth of many companies.
255% % Of Company 2008-13 Sales Growth From Category 230% 205% 180% 155% 130% 105% 80% 55% 30% 5% -20% $0.0 $3.0 RHHBY ABT AZN NVS JNJ GILD
SNY
BMY MRK
WYE PFE GSK
LLY
$6.0
$9.0
$12.0
$15.0
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ESTIMATED WORLDWIDE MARKET FOR INFECTIOUS DISEASE DRUGS BY CLASS ($MM)

2008 2013P Market % Total Market % Total $30,734 58% $43,649 62% 2,489 1,790 2,726 2,017 1,154 161 35 11,984 $53,090 5% 3% 5% 4% 2% 0% 0% 23% 2,956 1,534 1,380 553 518 225 10 17,658 4% 2% 2% 1% 1% 0% 0% 25% 100% $ 08-13 CGR 7% 3% -3% -13% -23% -15% 7% -22% 8% 6% NRx 87-08 CGR Comments 13% - Various therapies; GSK, RHHBY and BMY lead 3% - MRK's Cancidas, PFE's Vfend, NVS' Lamisil, SGP's Noxafil 3% - Generics dominate 0% - Generics dominate NM - JNJ's Levaquin, BAY/SGP's Avelox NM - PFE's Zithromax, ABT's Biaxin, generics NM - LLY's Xigris 1% - Generics dominate 5% - Predominantly vaccines; MRK's Gardasil, Zostavax, Rotateq 3% - Driven by newer quinolones and antivirals
Drug Class Antivirals Antifungals Cephalosporins Penicillins Quinolones Macrolides Sepsis Tetracyclines Other Therapies Total Market
100% $70,814
GSKs Augmentin Franchise Successful Outside U.S.

Penicillins and cephalosporins are expected to remain the most frequently prescribed class of antibiotics through 2012. Although this class is mostly generic in the U.S., the leading brand product continues to be GlaxoSmithKline's Augmentin, a combination of amoxicillin and the beta lactamase inhibitor, clavulanate potassium. Internationally, patents covering Augmentin have expired in major markets. However, Augmentin IR is growing in some international markets, despite loss of patent protection. We estimate Augmentin franchise sales of 550MM in 2009, 520MM in 2010, and 370MM in 2015.
Wyeths Zosyn, A Widely Used Critical Care Antibiotic

Zosyn is an IV antibacterial combination product consisting of the symisynthetic antibiotic piperacillin and the beta-lactamase inhibitor tazobactam. Zosyn has activity against many Gram-positive (excluding MRSA) and Gram-negative pathogens including Pseudomonas aeruginosa and is approved for the treatment of moderate-to-severe infections including CAP, HAP, urinary tract, uncomplicated and complicated SSSI intraabdominal infections and septicemia. Zosyn was first approved in the U.S. in 1993 and is now a widely used critical care antibiotic and likely is a top-10 drug in terms of total drug expenditure at tertiary care hospitals. The perceived advantages of Wyeths newer formulation ability to be co-administered with Lactated Ringers solution and aminoglycoside antibiotics are not significant. Use of Zosyn with aminoglycosides is not common. Additionally, while use of Ringers Solution is more widespread, patients that require both typically have multiple I.V. lines, although the drugs still should not be co-administered. Overall, our consultants note that Zosyn is a critical component of drug spending. Hospitals seek to lower this spending, and would generally favor the generic old formulation over the branded reformulated version. Zosyn Generics More Likely Than Not, Although Timing Unclear. Our legal consultants believe that the FDA likely is formulating its response to Sandozs pending Citizens Petition and Wyeths rebuttal to this petition, and that FDA could issue its response and decision on generic approvability at any time. Patent no. 4,562,073 which expired on February 9, 2007 protects the original Zosyn formulation. The FDA could even consider a generic to the old form AA-rated to the new form that Wyeth sells,
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although this point is not particularly relevant. Our pharmacy consultant suggested that even if the FDA approved generics as non-AA rated to reformulated Zosyn, hospital P&T committees would simply add the generic to the formulary as a separate listing rather than as an automatic substitution. The lack of an AA rating likely would not impede the adoption of generics. Adoption Of Zosyn Generics May Hinge On Whether They Meet USP Standards For Particulate Counts. While our consultants believe that generic Zosyn likely will be approved, they believe that the ability of generics to meet USP particulate matter standards will dictate generic adoption. USP standards were revised relative to particulate counts in the mid-1990s. It is not a violation of the Food and Drug Act for FDA to approve generics not meeting USP standards or for a company to market a product that does not meet USP standards. The FDA did not force withdrawal of Zosyn in its old formulation despite a level of particulates in violation of USP standards. However, our consultants believe that USP standards are likely to play an important part in the decision making of hospital P&T committees. In particular, liability concerns might drive P&T committees to lean cautiously when considering generics that do not adhere to the particulate standards. It is unclear whether the pending generics adhere to the particulate standards. In its response to Sandozs Citizens Petition, Wyeth has argued that the absence of EDTA and citric acid monohydrate (both of which are present in Wyeths reformulated Zosyn) is likely to affect a generic product's ability to comply with the USP particulate standards. However, Abraxis claims its generic meets USP particulate standards. Zosyns Convenient Packaging May Diminish Generics Cost Advantage. Our pharmacy consultant notes that his institution purchases Zosyn in a pre-mixed, frozen package that is easy and convenient to use. It is unclear whether generics will be sold in similar convenient formulations. If generics do not offer convenient, ready-to-use formulations, then some degree of compounding would be required by the hospital. This would add to the cost and require a deeper generic discount. A hospital might consider a generic Zosyn regardless of packaging if its discount to brand were 30%+. Risk Management Programs Not Likely To Be Onerous. Our consultants believe that the FDA likely would require a risk management program along with possible approval of generics. However, a risk management program likely would not be onerous. Our consultants believe such a program likely would stress administration differences between Wyeths brand Zosyn and possible generics and could include prominent disclosures or paperwork. Our Zosyn sales forecasts are $1,050MM (-17%) in 2009, $850MM (-19%) in 2010, and $250MM in 2015.
Brand Quinolones Have Been Impacted by Generics

Quinolones have a broad spectrum of activity and have benefited from bacterial resistance to macrolides, oral cephalosporins, and penicillins. Post introduction of generics in the category, branded products like J&Js Levaquin, the leading brand product in the category - have ceded share (currently 34% of total quinolone Rx). Total Rx of the quinolone category including generics in 2008 was 46MM flat with 45MM in 2007; however, it appears to be declining on a month to month basis. Due to less overlap in urinary tract infections and higher use in respiratory infections, Bayer/Schering-Ploughs Avelox had less of an impact from generics entry. That said, Rx declined 30% from January 2008 to January 2009, which we suspect is due to safety concerns raised in 2008. We expect underlying prescription volume for the quninolone category to continue to decline and anticipate generic versions of Cipro and other brands (including Levaquin in 2011) to reduce overall revenue for the category over the next 5 years.
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Johnson & Johnsons Levaquin Ceding Share

J&Js Levaquin (levofloxacin) is the single active isomer of Floxin, with roughly twice Floxins potency. Levaquin has a broad spectrum of activity a wide variety of both aerobic gram-positive and aerobic gram-negative pathogens: Staphylococcus aureus (not MRSA), Streptococcus pneumoniae (including multiple drug-resistant), Streptococcus pyogenes, Eschericia coli, Haemophilus influenzae, Haemophilus parainfluenzae, Klebsiella pneumoniae, Moraxella catarrhalis, Chlamydia pneumoniae, Legionella pneumophila, Proteus mirabilis, and Mycoplasma pneumoniae. Although competition in the category remains intense and the introduction of generic Cipro has had a negative impact on share, Levaquin continues to be a differentiated brand with several unique indications, particularly multi-drug resistant strains of community acquired pneumonia, acute bacterial sinusitis, acute bacterial exacerbation of chronic bronchitis, nosocomial pneumonia, complicated skin infections, pyelonephritis and prostatitis. While sales and share contracted in 2008, the drug was down only modestly despite less promotion (-3% to $1,591MM). We estimate 2009 sales of $1,549MM (-3%) worldwide, which assumes continued share erosion in the U.S. market (95%+ of sales). Levaquin is covered by a composition-of-matter patent through December 20, 2010 from Daiichi, which includes a three-year HatchWaxman extension; this same patent also covers method of manufacture and antimicrobial use. Pediatric extension was granted by the FDA and effectively extends the patent protection out to June 2011. The company has defended Levaquin in multiple legal acations (12/04 decision against Mylan) and a 3/06 summary judgment against ANDAs for various levofloxacin formulations by Teva, Sicor, Hi-Tech, and American Pharmaceutical Partners. Based on these decisions, we expect Levaquin to remain patent protected through the mid part of 2011. We estimate worldwide sales dropping to $845MM in 2011, and declining to $60MM 2013.
Bayer/Schering-Ploughs Avelox Growing

Avelox (moxifloxacin) offers once-daily, five-day dosing for the treatment of acute exacerbation of chronic bronchitis, versus seven-day therapy with Tequin and is indicated for skin and skin structure infections. As of January 2009, Avelox had 10% share of total quinolone prescriptions. Avelox carries stronger labeling regarding heart rhythm disturbances than do competitive products in this class, but Avelox is not associated with phototoxicity. Penetration of ciprofloxacin generics has been less successful in the U.S., given that Cipro is used mainly for urinary tract infections and Avelox for respiratory tract infections (although 10-15% of Cipro usage is for respiratory tract infections, usually within hospitals). Avelox is labeled for treatment of skin and skin structure infections, increasing the market opportunity for Avelox by approximately 2530%. Avelox is also labeled for the treatment of intra-abdominal infections, further increasing the addressable market opportunity. In July 2008, FDA required manufacturers of quinolones (including Cipro and Avelox) to add a black-box warning to their labels after confirming that the class increases the risk of tendon rupture. This is likely to have a negative impact on sales of quinolones. We project Avelox sales of $400MM in 2009, $425MM in 2010, and $500MM in 2013 before declining due to the 3/14 patent expiration. Schering pays a substantial royalty out of its COGS lineestimated at 50%to Bayer on the sales of this product.
Oscients Factive Has Limited Appeal

Oscient licensed North American and European marketing rights to Factive (gemifloxacin) from L.G. Life Sciences, a leading Korean chemical company. Factive is the first antibiotic
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specifically indicated for the treatment of mild-to-moderate CAP due to multi-drug resistant S. pneumoniae. Factive was launched in September 2004, and is currently supported by 250 sales reps. Oscient submitted sNDAs for Factive for an ABS indication and a five-day dosing regimen for CAP. (Factive is currently approved for a seven-day dosing regimen for CAP.) The FDA issued an approvable letter for the CAP indication, pending additional interpretation of data. Oscients response to this action was accepted by the FDA in November 2006, and it approved the 5-day CAP treatment in May 2007. Following a negative FDA panel review for use of Factive in ABS, Oscient withdrew its sNDA filing due to the FDAs request for placebo-controlled trials to support approval of this indication. Currently, Factive is only approved for two indications (acute exacerbations of chronic bronchitis and mild-to-moderate CAP), which significantly limits its market potential compared to other quinolones. Also Factive is only available as an oral formulation, which additionally limits its use against other quinolones which are available both in an oral and I.V. form. Oscient entered into a commercialization agreement with Abbott for Factive in Canada in August 2006, where the product was launched in March 2007, and in January 2007, the company granted European marketing rights to Menarini Group, an Italian pharmaceutical company. Pfizer began promoting Factive in Mexico in October 2006. Factive sales reported by Oscient in 2007 were $21MM.
Macrolides Highly Genericized in the US

Macrolide antibiotics enjoy broad use, driven by spectrum, potency and safety profiles, especially in community-acquired respiratory tract infections, CA-RTIs. However, sales of the branded macrolides have been clipped substantially in recent years by the launch of generics in the U.S. to leading brands Zithromax (PFE) and Biaxin/Biaxin XL (ABT), and safety issues with Sanofi-Aventis Ketek, a ketolide, that was launched in 2001. Underlying Rx volume grew single digits over the last couple of years. New classes of macrolides or structurally similar ketolides have been developed to overcome this resistance and enhance the spectrum. Advanced Life Sciences cethromycin is a ketolide currently on track for an NDA filing in CAP indication. In Phase 3 mild-to-moderate CAP studies cethromycin demonstrated efficacy and safety comparable to Abbotts Biaxin. EDP-420 is a novel bridged bicyclic macrolide antibiotic with activity against resistant S. pneumoniae and potential 3 to 5-day treatment duration being developed by Enanta (a private company) and Shionogi for respiratory infections. In addition, Enanta has earlystage, potentially oral bicyclolides (bicyclic macrolides) with anti-MRSA and anti-VRE activity, which is an unexpected finding given traditional macrolides do not work against these bacteria. However, high regulatory hurdles for community-acquired infections and large clinical trials make approvability a challenge. Newer Macrolides/Ketolides/Bicyclolides Market And Pipeline
Branded Generic Company Status 2008 WW Sales Zithromax azythromycin Pfizer Marketed/generic $429 MM Biaxin clarithromycin Abbott Marketed/generic $651 MM Ketek telithromycin Sanofi-Aventis Marketed $264 MM in 2005[1] NA cethromycin Advanced Life Sciences July 31, 2009 PDUFA NA NA EDP-420 Enanta/Shionogi Phase 2 NA NA EDP-322 Enanta Phase 1a NA [1] Sanofi-Aventis stopped disclosing sales in 2006, but we estimate the sales declined dramatically due to the regulatory restrictions
Source: Company reports and presentations, Cowen and Company estimates
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Pfizers Zithromax In Rapid Decline Post Patent Expiration

Zithromax (azithromycin) and its generics are the most prescribed macrolide antibiotics due to broad spectrum and convenience. The Infectious Diseases Society of America, American Thoracic Society, and Center for Disease Control recommend Zithromax as first-line therapy for CAP. Zithromax is administered as a three-day regimen in the U.S. and as a single dose for the treatment of otitis media, based on efficacy that is equivalent to a 10-day regimen of GlaxoSmithKlines Augmentin twice daily. Zithromax also has a sinusitis indication. Zithromax rapidly declined post the launch of generics in November 2005. As of February 2007, Pfizers Greenstone held a 52% share of the U.S. azithromycin market, followed by Teva with 11% and Sandoz with 5%. The Pfizer Zithromax brand franchise (including Zmax, a sustained-release formulation of Zithromax) held a 1.4% share in February 2007, versus 4.4% in August 2006. Worldwide Zithromax sales were $429MM in 2008 with only $10MM of it in the U.S. and we estimate 2013 sales of $205MM, as the franchise is clipped by generics.
Abbotts Biaxin Hit Hard By Generics in U.S.

Biaxin (clarithromycin) is a macrolide antibiotic, and is considered to have the strongest gram-positive activity in the category. There is an immediate-release (IR) formulation, and an extended-release (XL) formulation. Biaxin XL is generally administered twice daily (versus four times per day for Biaxin IR), and in 2007, accounted for close to 95% of total Biaxin prescriptions in the U.S. (following the introduction of Biaxin IR generics in May 2005), but a far lower percentage internationally. (We estimate less than 25%; IR marketed as Klaricid OUS.) Indications for Biaxin XL include treatment of pharyngitis/tonsillitis; acute maxillary sinusitis; chronic bronchitis; CAP; uncomplicated skin infections; and disseminated mycobacterium avium or mycobacterium intracellulare. When used in conjunction with Prevacid or Prilosec as triple therapy, the drug is also indicated for the eradication of H. pylori (duodenal ulcer). The composition-of-matter patent on clarithromycin expired in May 2005, and several European patents began expiring in November 2004. Multiple generic companies are selling Biaxin now, including Teva, Ranbaxy, and Dava, and a Biaxin XR at risk version was launched late in Q4:06. Biaxin franchise sales in 2008 were $650MM (-10%) with the lions share of sales (98%) outside the U.S. We estimate sales in 2013 of $308MM, reflecting our expectation of additional inroads by generics internationally.
Sanofi-Aventis Ketek Hit By Regulators

Ketek, telithromycin, is the first in a new class of antibiotics called ketolides, which similarly to Zithromax and Biaxin, is a derivative of an older macrolide erythromycin. Ketek may deliver efficacy similar to the quinolones, including efficacy against resistant bacteria, and a side-effect profile similar to macrolides. Ketek is effective against a wide spectrum of bacteria, notably S. pneumoniae, including strains that are less susceptible to penicillin and CAP. In Europe, Ketek was approved in July 2001 for the treatment CAP, AECB, ABS, pharyngitis and tonsillitis. Ketek has been launched in all major European markets and Canada. In Japan, Ketek was approved and launched in December 2003 by Astellas/Sankyo. Sanofi-Aventis launched Ketek in the U.S. in August 2004 after a lengthy regulatory history, where it is supported by a 2,000-rep primary care sales force. Ketek offers a differentiated spectrum of coverage versus the older macrolides, a key factor given that one out of three respiratory tract infections is caused by resistant bugs. Clinical trials suggested no induction of macrolide resistance. In its marketing efforts, Sanofi-Aventis is targeting Biaxin, Zithromax, and Augmentin. Ketek is priced at a slight premium to branded Zithromax. Competitive ketolides are not expected until 2009 at the earliest. Ketek is included in the current practice guidelines. The 2003 update of Practice
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Guidelines for the Management of Community-Acquired Pneumonia in Immunocompetent Adults was published by the Infectious Diseases Society of America (IDSA), which benefited early adoption of Ketek. However, in January 2006, an article published in the Annals of Internal Medicine warned of the risk of liver damage. The review highlighted three cases: one death from liver failure, one requiring liver transplant, and a case of drug-induced hepatitis. In December 2006, an FDA Advisory Committee recommended that Keteks risk/benefit profile in AECB and ABS is not adequate and that approval for these indications be withdrawn. In February 2007, Sanofi-Aventis announced that in consultation with the FDA it had revised the Ketek label. The following revisions were made: (1) the AECB and ABS indications were removed; (2) a black-box warning was added to highlight that Ketek is contraindicated in patients with myasthenia gravis; and (3) the warnings section was updated to include language about potential visual disturbances and loss of consciousness. Ketek remains on the market with a label for CAP. Ketek WW sales were $264MM in 2005 with the vast majority coming from the U.S. Sanofi stopped disclosing the sales in 2006 after Ketek was hit by regulatory restrictions, but we estimate that sales declined dramatically.
Carbapenems
Carbapenems Market And Pipeline
Branded Generic Company Status Merrem meropenem AZN Marketed Invanz ertapenem Merck Marketed Doribax doripenem JNJ Marketed NA faropenem Asubio (Replidyne previously) Development on hold [1] Doribax was approved in the U.S. in 2007 and JNJ does not separate its sales thus far
2008 WW Sales $897 MM $265 MM NA [1] NA
Parenteral Carbapenem Comparison

CARBAPENEM COMPANY SPECTRUM GRAM POSITIVE GRAM NEGATIVE DOSING FORMULATION + ++ 1 G Q8 H IV ++ + 1-2G Q6H IV/IM +++ + 1G QD IV/IM + +++
CONSTANT
MERREM AZN
PRIMAXIN MRK
INVANZ MRK
DORIPENEM JNJ
IV
Source: Cowen and Company, Package Inserts
AstraZenecas Merrem Continues To Grow

Merrem (meropenem) is a broad-spectrum, I.V. carbapenem antibiotic that was approved by the FDA in 1996. Originally it was developed by Sumitomo Pharmaceuticals and now is marketed by AstraZeneca outside Japan. The drug is used to treat a wide variety of infections including intra-abdominal infections, skin infections and bacterial meningitis, urinary tract infection, pneumonia and other mild-to-moderate infections. Merrem competes with Primaxin (Merck) and Invanz (Merck). Doripenem (JNJ) is a newer generation carbapenem that has not been approved but potentially can treat resistant P. aeruginosa infections, in nosocomial and ventilated associated pneumonias, the infections of greatest unmet need. It is likely that Doripenem will be given as a constant
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infusion in this setting. In July 2008, Cubist announced that it signed an exclusive agreement with AZN to promote and provide other support to Merrem in the U.S. Cubist sells anti-MRSA antibiotic Cubicin and the deal allows CBST to leverage its existing U.S. hospital-based sales force. Merrem WW sales were $897MM (+16%) in 2008. The key patent for Merrem expires in 2010, although CBST believes there will be protection from secondary patents that extend through 2012. We project Merrem sales of $1B in 2009.
Mercks Invanz Rolling Out Slowly

Invanz (ertapenem) is a broad-spectrum, parenteral carbapenem antibiotic that offers high activity against cephalosporin-resistant bacteria and good activity against anerobes. Compared to the older carbapenems imipenem and Merrem (meropenem), Invanz is a narrower spectrum with less activity for P. aeruginosa, Acinetobacter and Gram-positive bacteria. The major benefit of Invanz over other carbapenems is that it has a long half-life and can be administered once daily. Invanz was approved by the FDA in November 2001. Carbapenems have traditionally been reserved for nosocomial infections especially extended-spectrum betalactamase (ESBL) producing Klebsiella species. There is an increasing incidence of these gram negative bacteria which are resistant to beta-lactam antiinfectives including cephalosporins. However Invanz is being promoted as a first-line agent. Invanz appears effective for prophylaxis and treatment of abdominal surgery and infections of the urinary tract, lower respiratory tract, and skin/skin structure infections. Invanz was approved for the treatment of adult diabetic foot infections without osteomylitis in November 2005. Our physician consultants have a mixed opinion on compounds in this class. The carbapenems share some of the positive attributes of cephalosporins but were associated with severe nephrotoxicity, notably imipenem. Invanz WW sales in 2008 were $265MM (+39%), and we estimate sales of $350MM in 2009, and $590MM in 2015.
JNJs Doribax FDA Panel Mixed On HAP

Doribax (dorimenem) is the newest carbapenem approved by the FDA in 2007 for treatment of complicated urinary tract and intra-abdominal infections. JNJ has rights to Doribax from Shionogi which markets the drug in Japan. Doribax has a similar spectrum of activity to Merrem, but appears to have more potent in vitro activity against P. aeruginosa. This comes in handy in light of the IDSA noting that multiple novel approaches to antipseudomonal drug therapy are desperately needed. In July 2008, the FDA held an advisory meeting to discuss Doribax for the treatment of hospital-acquired pneumonia (HAP), and the FDA issued a complete response letter in August requesting additional information on Doribax prior to approval for HAP. Doribax clinical package for HAP included two multicenter, open-label, randomized, active-controlled Phase 3 trials DORI-09 and DORI-10. The feedback from the panel was mixed with voting 7:6 that the clinical efficacy of Doribax had been adequately demonstrated in HAP including VAP. The panels criticisms of Doribax data centered around lack of clarity in diagnosis of HAP, open label design and concomitant/step down therapies. In addition, the panel was concerned with the mortality imbalance in DORI-09 with 9 pneumonia-related deaths occurring in Doribax arm vs. 1 in the comparator arm. The panel also overwhelmingly voted that there is no justification to support the 20% non-inferiority margin in the Doribax studies and was leaning towards the 10% margin for future trials, though admitting that there is no scientific justification for this level either. It is worth noting that margin selection was not one of the key criticisms of the Doribax studies design but rather a point of general HAP discussion. Based on the results of the FDA Advisory panel, we are assuming that JNJ will need to conduct additional studies for Doribax to gain approval in HAP. The company is currently running a trial in VAP (7d
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course vs. 10d course of imipenem) that is expected to be completed by Febuary 2010. We estimated 2008 Doribax sales of $40MM and project Doribax WW sales of $515MM in 2013.
Replidyne Gives Up On Faropenem

Faropenem medoxomil is the only penem that is orally formulated. Faropenem has undergone broad Phase III clinical testing. Replidyne licensed ex-Japan rights to faropenem medoxomil from Daiichi in March 2004. Bayer had initially licensed faropenem from Daiichi, and completed Phase III trials between 2000 and 2002 in preparation for NDA filing. However, Bayer returned faropenem rights to Daiichi after mixed Phase III results. In late 2005, Replidyne filed for FDA approval of faropenem for treatment of four community-acquired infections: (1) acute bacterial sinusitis (ABS); (2) communityacquired pneumonia (CAP); (3) acute exacerbation of chronic bronchitis (AECB); and (4) uncomplicated skin and soft tissue infections (uSSTI). However, the FDA issued a nonapprovable letter in October 2006, requesting additional trials for all four indications, including placebo-controlled trials for the ABS and AECB indications. Based on the discussion with the FDA prior to receiving an approvable letter, Replidyne initiated a Phase III placebo-controlled AECB trial that also included a Ketek arm. The study was temporarily suspended in December 2006 after a negative FDA advisory committee review of Ketek for this indication, but then continued enrolling patients. Replidyne had entered into a U.S. commercialization agreement with Forest Labs for faropenem, however in February 2007 the two companies announced that this agreement was terminated with all rights reverting to Replidyne. Until a new commercialization partner was identified, Replidyne was not planning to initiate enrollment in clinical trials for faropenem in acute bacterial sinusitis and community-acquired pneumonia. In April 2007, Replidyne announced that it discontinued enrollment in the AECB Phase 3 study as it was taking actions to conserve its cash assets and support initiatives that include pursuing strategic transactions and maintaining its research programs. In June 2007, Replidyne terminated its faropenem agreements with the original rights holder as part of its restructuring initiative, and we have a very low conviction that faropenem will make it to the market any time soon.
Anti-MRSA Antibiotics
Methicillin-resistant Staph. aureus or MRSA is a bacterium responsible for difficult-totreat infections in humans. By definition MRSA is resistant to a large group of betalactams which include penicillins and cephalosporins. An epidemiology paper in the high-profile JAMA estimated overall serious MRSA incidence of 31.8 per 100,000 persons, with the vast majority of infections originating in the healthcare setting. There are currently four drugs approved for MRSA infections in the U.S. generic vancomycin, Pfizers Zyvox, Cubists Cubicin and Wyeths Tygacil. On a patient-day basis, vancomycin remains the market leader, but gradually is giving grounds to the newer antibiotics. We estimate that the total U.S. market for MRSA drugs was over $1B in 2008 (including oral and IV formulations). Until recently, there were a number of late-stage antibiotic therapies that have/had a potential to enter the anti-MRSA market including THRXs telavancin, Pfizers dalbavancin, Targantas oritavancin, Basilea/JNJs ceftobiprole, Arpidas iclaprim and Forests ceftaroline. Regulatory hurdles in the last couple of months cleansed the competitive landscape significantly and no new entries aside from telavancin are expected on the market until 2010 at the earliest.
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Overview of Marketed MRSA Antibiotics

Cubicin Antibiotic Class Company FDA Approval 2008 U.S. Sales ($MM) Dosing: Frequency Formulation Price per day (WAC) Efficacy in cSSSI (ITT): Staph. Aureus MRSA cyclic lipopeptide Cubist Sep-03 $415 once daily IV only $199 85% (191/226) 75% (21/28) CPK elevations, muscle toxicity; risk increases with longer duration and higher doses bacteriocidal; possible efficacy advantage over vancomycin in bacteremia Zyvox oxazolidinone Pfizer Apr-00 $670 [2] every 12 hours oral/IV $178 88% (73/83) 67% (2/3) Tygacil glycylcycline Wyeth Jun-05 $133 every 12 hours IV only $130 NA NA significantly higher rates of nausea and vomiting relative to comparator good coverage for mixed gram positive/negative infections vancomycin glycopeptide generic Nov-64 $167 [1] every 12 hours IV only [1] $12 84% (205/236) [3] 69.4% (25/36) [3]
Safety Concerns:
thrombocytopenia with dosing >14 days
renal toxicity, "red man's syndrome", allergy
Advantages
oral formulation convenience over home infusions bacteriostatic; should not be used for long term treatment; increased rate of death in patients with gram-negative infections
inexpensive and well established in clinical practice concerns over resistance; MRSA efficacy seen as suboptimal
Limitations
cannot be used in pulmonary infections
nausea limits tolerability
[1] Oral formulation not systemically absorbed and used only for treatment of C. difficile associated colitis [2] Oral and IV formulation
New Anti-MRSA Products in Development

Narrow spectrum Gram-positive
telavancin Antibiotic Class Company Estimated FDA Approval Dosing: Frequency Status glycopeptide Theravance /Astellas Under FDA review once daily Positive AIDAC vote in cSSSI, HAP under FDA review dalbavancin lipoglycopeptide Pfizer >2011 once weekly Back to Phase 3, marketing applications withdrawn oritavancin glycopeptide Targanta >2011 once daily FDA requires additional clinical studies in cSSSI TD-1792 beta lactam/ glycopeptide Theravance >2012 once daily ceftobiprole cephalosporin Basilea/JNJ >2009 twice daily
Broad spectrum
iclaprim diaminopyrimidine Arpida Uncertain twice daily ceftaroline cephalosporin Forest 2011 twice daily
Phase 2 complete
Clinical site Negative AIDAC vote in Positive topline data inspections cSSSI; started Ph 2 in HAP, from two Phase 3 continue in VAP, and HCAP, in Dec 07; studies announced cSSSI, positive IV-to-oral in cSSSI in May in June 08. data in HAP (not 08. VAP) cSSSI, HAP cSSSI, HAP, VAP, HCAP cSSSI
cSSSI, Proposed cSSSI, HAP cSSSI, uSSSI bacteremia Indications bacteremia Source: Company reports and presentations, Cowen and Company estimates
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Pfizers Zyvox For Gram-Positive Infections: The Only MRSA Agent With Oral Option
Zyvox (linezolid) is an oxazolidinone antibiotic for resistant gram-positive infections, which cause about 60% of serious bacterial infections. Zyvox is bacteriostatic antiinfective binding on the ribosomal 50S subunit inhibiting protein synthesis. Zyvox is one of four antiinfectives approved for MRSA infections, including vancomycin, Cubicin (Cubist), and Tygacil (Wyeth). But Zyvox has one significant advantage. Zyvox is 100% orally bioavailable and is absorbed rapidly. The competitive compounds have only an i.v. formulation. Physicians can initiate i.v. therapy in the hospital and smoothly transition them to the oral for out-patient usage. Oral Zyvox can also be initiated just in the community. Based on IMS data, we estimate two-thirds of Zyvox sales are from the oral. An additional advantage is its indication in community acquired and hospital acquired pneumonias as Cubicin is ineffective in this setting and vancomycin resistance is also increasing. Zyvox has shown no cross-resistance with other antibiotics thus far. At ICAAC 2007, Wyeth reported a failed hospital acquired pneumonia (HAP) study of Tygacil, solidifying Zyvoxs position in this indication. Pfizer is currently evaluating Zyvox in a HAP study enriched for MRSA patients in a Phase 3 trial that initiated in 2004, with the goal of showing superiority in this population vs. vancomycin. In March 2007, the FDA issued a safety alert. In an open-label intravascular catheter-related bloodstream infection study, patients treated with Zyvox had a higher chance of death than did patients treated with any comparator antibiotic if they were infected with Gram negative infections. Pfizer changed the Zyvox label reflecting this failed study in catheter-related blood stream infection. Zyvox is associated with reversible bone marrow suppression when used for longer than two weeks and an irreversible optic neuropathy if treated for longer than four weeks. Televancins (THRX) a 2nd generation glycopeptide is a potential competitor in HAP that reported positive data from two Phase 3 trials at the ECCMID meeting in April 2008. Currently, telavancin is under the FDA review for cSSSI and HAP. Given that community-MRSA rates are rising, there is limited competition for oral MRSA agents. Zyvox sales in 2008 were $1,115MM (+18%), and we estimate worldwide Zyvox sales of $1.25B in 2009, $1.355B in 2009, and $1.75B in 2014.
Cubists Cubicin Approved And Launched For Skin and Endocarditis/Bacteremia

Cubicin in cSSSI. Lilly discovered Cubicin and performed a number of early clinical trials before it licensed the product to Cubist as part of its strategic decision to exit the anti-infective market. Cubicin is a cyclic lipopeptide and a first in class antibiotic that was approved by the FDA in September 2003 for the treatment of complicated skin and skin structure infections (cSSSI) caused by gram-positive bacteria. Approval was based on two Phase 3 trials that demonstrated Cubicin to be statistically non-inferior to the standard of care vancomycin or semi-synthetic penicillins, a classic trial design and outcome used for antibiotic development for serious infections. These data established Cubicin as an option for patients with difficult to treat infections that would otherwise receive vancomycin. Cubicin is not recommended for the treatment of pneumonia, as it failed to demonstrate equivalence to the standard of care in this setting (it was subsequently shown in animals that Cubicin interacts with lung surfactant and is rendered inactive). Cubicin In Bacteremia/Endocarditis. Cubicin received a U.S. approval in bacteremia and right-sided endocarditis caused by MRSA and MSSA in May 2006, followed by a September 2007 E.U. approval in these indications. In December 2005, Phase 3 results were presented at the ICAAC meeting, showing that Cubicin was statistically non-inferior
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to vancomycin or semi-synthetic penicillins. Specifically, the intent to treat (ITT) analysis of 246 patients showed clinical success of 44.2% for Cubicin vs. 41.7% for the comparator arm. In addition, Cubicin showed a trend toward higher rates of cure in MRSA patients, with 44.4% success for Cubicin vs. 31.8% success for the comparator group in this patient subset. From the trial results as well as from the March 2006 panel it was clear that leftsided endocarditis is extremely difficult to treat (vancomycin response rates are typically very low); whether Cubicin is effective in this population remains controversial, based on the very small number of patients studied and the fact that results obtained for rightsided endocarditis/bacteremia cannot be extrapolated to left-sided endocarditis. Ongoing Cubicin Clinical Trials. Cubist initiated a 28-day 10mg/kg study of Cubicin in bacteremia in June 2008. This study is expected to enroll 80 patients and be complete around September 2010. Additionally, a Phase 2 study of Cubicin for the treatment of osteomyelitis began enrollment in June 2007, with data expected in 1H09. Currently, Cubicin is being prescribed in prosthetic joint infections off-label, and the ongoing study will be able to validate Cubicin in this setting as well as better answer the question of appropriate dosage. The Pros And Cons Of Cubicin. Key advantages for Cubicin are: (1) it kills bacteria more quickly than other approved MRSA anti-infectives; (2) it is dosed once daily, and (3) it has demonstrated efficacy in infections that require long treatment durations without a significant increase in adverse events, most recently in bacteremia, and anecdotally in osteomyelitis. Key drawbacks for Cubicin are: (1) it is not indicated in pulmonary infections, which prevents it from competing in the large pneumonia market; (2) elevated CPK enzyme levels and cases of rhabdomyolysis, or muscle toxicity, have been observed at low levels in cSSSI clinical studies (3/1342 (0.2%) in all Phase 2 and Phase 3 studies) and in clinical practice. The rate of elevated CPK levels in the endocarditis/bacteremia study was higher than vancomycin (25.0% vs. 12.5%, p=0.038), and CPK elevation leading to discontinuation was also higher 3/120 (2.5%) in this setting; (3) Cubicin resistance concerns were raised in recent medical meetings; and (4) it is significantly more expensive than vancomycin, and on a per day basis, Cubicin is more expensive than IV Zyvox and Tygacil. Cubicin Paragraph 4 Overhang. Intellectual property covering Cubicin includes a dosing patent and a pharmaceutical composition patent. Based on the lack of composition-of-matter protection and the timing of Hatch-Waxman exclusivity expiration, a Paragraph IV challenge was possible as early as September 2007. In February 2009, CBST announced that it received notice that a division of Teva had filed for approval of a generic version of Cubicin. We view the dosing patent which expires in Sept 2019 as the strongest of the patents. This patent is based on the invention of safely dosing Cubicin 1x/day within a therapeutically relevant range, and we believe Teva would need to argue invalidity to challenge the patent. Any settlement is likely to be several years away. Cubicin Market Potential $1B. We projectU.S. Cubicin sales of $535MM, $655MM and $761MM in 2009-2011. Chiron (now part of Novartis) in-licensed Cubicin (daptomycin) from Cubist Pharmaceuticals in Q3:03 for development outside of the U.S. Chiron filed for E.U. approval in December 2004 for complicated skin and soft tissue infections and received approval in January 2006. An amended filing for endocarditis/bacteremia occurred in 2006. In 12/06, AstraZeneca licensed the rights to develop and market Cubicin in China. The international market opportunity for Cubicin is estimated to be $150MM to $200MM, although initial uptake has been slow.
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Wyeths Tygacil Making In-Roads Despite Delays In New Indications

Tygacil (tigecycline), a modified tetracycline antibiotic, is indicated for the treatment of complicated skin infections and intra-abdominal infections in 33 markets globally, and it is on over 90% of U.S. hospital formularies. Tygacils ex-U.S. launch has been clipped by supply constraints. Tygacil is administered via intravenous infusion twice daily and has a broad spectrum covering gram-positive and -negative infections including MRSA, anaerobes, and atypical infections. The most common side effects are nausea and vomiting. Wyeth makes a strong case for the potential success of Tygacil (estimated peak sales potential of $1B+), however, the post-launch growth of hospital-based antibiotics frequently is slow because they are reserved to minimize the development of resistance and Wyeth has failed to garner additional indications beyond complicated skin and skin structure infections (cSSSI) and complicated intra-abdominal infections (CAI). In April 2008, Wyeth withdrew its regulatory filing in the E.U. for community-acquired pneumonia (CAP) based on the opinion of the CHMP that its clinical data were not sufficient to support a positive risk-benefit balance. In May 2008, FDA issued an approvable letter for the CAP indication requiring additional analyses to support the safety and efficacy in patients requiring hospitalization and with an increased risk of mortality. In addition, FDA requested data regarding the risk-benefit for any potential liver toxicity. Wyeth stated that these data were submitted during the review process but FDA had not yet reviewed the new data. Wyeth is in ongoing discussions with FDA regarding submission of its complete response to FDA. Tygacil worldwide sales were $216MM (+57%) in 2008, and we estimate sales of $325MM (+50%) in 2009, and $775MM in 2015. A Hospital-Acquired Pneumonia Indication A Long Way Off. Data presented at ICAAC in June 2007 from a 945-patient Phase III hospital acquired pneumonia (HAP)/ventilator assisted pneumonia (VAP) study, demonstrated lower clinical cure rates in the clinically evaluable population for Tygacil (68%) vs. imipenem (78%), with poorer outcomes in ventilated patients a key driver. Adverse events that were higher for Tygacil were nausea/vomiting, skin ulcer, and the prolongation of activated plasma thromboplastin test. Overall discontinuations were more frequent in the Tygacil group (11% vs 7%). Wyeth was initially planning a confirmatory Phase III HAP study but announced that it would initiate two Phase II HAP studies in mid-2008.
Theravances Televancin Expecting FDA Approval in 2009

Telavancin is a novel lipoglycopeptide with potent activity against gram positive strains of bacteria, including methicillin-resistant staph. aureus (MRSA). Telavancin inhibits bacterial peptidoglycan production during cell wall synthesis, and affects bacterial membrane function through its lipid moiety interactions with the bacterial membrane, which correlates with loss in bacterial viability. In addition, telavancin has demonstrated bactericidal activity against MRSA in vitro in time-kill assays. Telavancin demonstrated non-inferiority to the standard of care vancomycin, in skin infections and hospitalacquired pneumonia (HAP) in a large Phase 3 program. For background, the company submitted an NDA to the FDA seeking approval of telavancin in complicated skin infections in 2007. The FDA issued an approvable letter on October 22, 2007 for telavancin. In late December 2007, the FDA formally requested an advisory panel review of telavancin in cSSSI; however, the panel was cancelled 4 days before the scheduled time due to data integrity issues. In March 2008, THRX announced that the FDA had accepted the companys response to the approvable letter and assigned a PDUFA date of July 21. As expected the FDA did not take a final action on July 21 on TLV prior to completion of the investigation and resolution of manufacturing issues. The new
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AIDAC panel was rescheduled in October 2008 upon the completion of clinical site inspections and resolution of manufacturing issues and set for November 19-21. The anti-infectives advisory committee meeting overwhelmingly voted in favor of telavancin showing efficacy and safety for the treatment of complicated skin infections (cSSSI) but also expressed clear concerns over use in particular patient populations, and voted overwhelmingly for a pregnancy risk management program. The implementation of REMS (Risk Evaluation and Mitigation Strategy) for inpatient use is novel and may present logistical challenges, but would be worthwhile given the potential for teratogenic risk. On February 27th, THRX announces that it received a second complete response letter from the FDA. We expect THRX to file a response to the FDA by April, which we expect would establish a PDUFA date by Oct 09. Separately, partner Astellas filed an MAA for TLV in skin in Europe in May 2007; however, in October 2008, the decision was made to withdraw the application after the E.U. regulatory body indicated that telavancin for complicated skin infections does not have a favorable risk-reward profile (citing renal tox and QTc as key issues). While this setback is disappointing, we have had very low expectations for the telavancin commercial opportunity in E.U. territories based on the struggles of CBSTs IV anti-MRSA antibiotic Cubicin in Europe. Telavancin Under FDA Review In HAP. In early December 2007, THRX announced positive top-line results for TLV from two Phase 3 studies in Hospital Acquired Pneumonia (HAP) that included over 1,500 patients, and additional data were presented at the ECCMID meeting in April. These trials included >1,500 patients and met all noninferiority endpoints. Subgroup analyses showed numerically higher cure rates for telavancin across multiple difficult to treat patient subgroups, including patients with MRSA, Ventilator Associated Pneumonia (VAP), high APACHE score, the elderly, those with renal impairment, and bacteremia. Increased efficacy in the most infirm patient fraction should help telavancin to differentiate itself in this competitive market. THRX filed its NDA for telavancin in HAP in January 2009. Telavancin Market Opportunity. THRX entered into a collaboration agreement with Astellas for the development and commercialization of telavancin in November 2005. Under the collaboration, THRX is responsible for clinical development and U.S. regulatory filings, and Astellas is responsible for clinical development outside of HAP or skin. Through December 2008, THRX received $159MM in upfront and milestone payments and is entitled to receive up to $60MM more in remaining milestone payments. In addition, THRX is entitled to receive royalties on global sales of telavancin on a percentage basis ranging from the high teens to the high 20s depending on sales volume. We do not expect telavancin to have significant uptake in the market at its initial launch based on the Cubicin and Tygacil launches. The infectious disease market is slow to change and we do not believe physicians will find the overall profile of TLV in skin alone differentiated enough from currently available therapies to accelerate adoption relative to recent market entries. We currently model telavancin peak sales of $300MM and expect a majority use in pneumonia, where the risk-reward is more favorable and fewer options are available.
Pfizers Zeven Filings Withdrawn As New Phase III Planned

Zeven (dalbavancin), a novel glycopeptide, has received multiple approvable letters from the FDA with the first in September 2005 (details were not disclosed) and a second approvable letter in June 2006 related to manufacturing issues. Pfizer received another approvable letter in December 2007, this time related to three issues: (1) FDAs new guidance regarding establishing non-inferiority margins; (2) third-party manufacturing
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issues unrelated to dalbavancin (presumably the same issue plaguing telavancin); and (3) length of storage time after reconstitution of dalbavancin. Zeven is administered as a once-weekly intravenous injection. In September, Pfizer announced that it will globally withdraw all dalbavancin marketing applications for the treatment of complicated skin and skin structure infections in adults, including the U.S. new drug application (NDA) and the European marketing authorization application (MAA). Pfizer plans to conduct an additional Phase III clinical trial with dalbavancin for the treatment of adults with complicated skin and skin structure infections caused by Gram-positive bacteria, including MRSA. The global multi-center study will generate additional clinical data to support planned future regulatory submissions. A pediatric program with dalbavancin is also planned.
Medicines /Targantas Oritavancin Back To Clinic

Oritavancin is a semi-synthetic glycopeptide (I.V.) that targets gram positive infections, including methicillin-resistant Staphylococcus aureus (MRSA), originally developed by Eli Lilly. Targanta acquired worldwide development and commercialization rights from licensee Intermune in 2005. Intermune discontinued the development of oritavancin due to the observance of phlebitis (injection site inflammation). However, Targantas analysis showed that phlebitis cases appeared to be a function of the dose and rate of infusion, rather than manufacturing deficiency. Targanta is developing oritavancin for complicated skin and skin structure infections (cSSSI), bacteremia, and osteomyelitis. Two pivotal Phase III trials for oritavancin have been completed in cSSSI. The first Phase III trial, ARRD, was completed in 2001. The second trial, ARRI, was completed in 2003. Both trials were designed as non-inferiority studies, comparing oritavancin to a regimen of vancomycin followed by cephalexin. Targanta filed the oritavancin NDA in February 2008. On December 8th, Targanta received a complete response letter from the FDA regarding the oritavancin NDA indicating that an "additional well-controlled clinical study to demonstrate efficacy and safety" will be required for FDA approval of oritavancin. This response was anticipated following the oritavancin review by the FDAs Anti-Infective Drugs Advisory Committee (AIDAC) on November 18th: the AIDAC concluded by a 10-8 vote that oritavancin has not demonstrated sufficient efficacy to justify approval for the treatment of complicated skin and skin structure infections (cSSSI). The AIDACs primary concern was the limited evidence of oritavancins efficacy in MRSA infections. The FDA letter requests that a new trial include a sufficient number of MRSA patients to demonstrate oritavancins efficacy against MRSA, as expected. But the FDA also requests that the trial track oritavancins effect on macrophage function and potential for subsequent infections due to oritavancins long half-life. The FDA observes in its letter that a greater number of oritavancin patients in the submitted trials experienced infection-related adverse events, such as sepsis and osteomyelitis. Interestingly, these safety concerns were not noted in the FDAs briefing documents for the AIDAC review. Targantas and Medicines Companys managements, that launched a cash tender offer of 100% TARG shares following the regulatory setback, plan to meet with the FDA in Q1to discuss the protocol for a third pivotal trial (SIMPLIFI 3) to capture the requested efficacy and safety data. Targanta management estimates that such a trial likely would require 300-400 patients, take 12-15 months to enroll and complete, and cost $30-40MM. We expect the EMEA to defer to the FDA on oritavancin, so we have assumed a similar regulatory timeline.
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THRXs TD-1792 Demonstrates Initial Tolerability And Efficacy, But Program Placed On Back Burner
TD-1792 is a unique bivalent antibiotic formed through a covalent attachment of a cephalosporin moiety (THRX-206852) to vancomycin. It inhibits two key bacterial cell wall synthesis functions, transpeptidation and transglycosylation, and is active against gram-positive bacteria, including certain multi-drug resistant strains. Data presented at the ICAAC meeting in 2007 showed that the covalent attachment of the two active antibacterial agents is synergistic, and results in a higher efficacy than an equimolar combination of cephalosporin and vancomycin. In July 2007, THRX announced positive results from its 197-patient, non-inferiority, Phase 2 double-blind, active-control, randomized clinical trial in complicated skin and skin structure infections (cSSSI) evaluating safety and efficacy of TD-1792 at 2mg/kg once-daily vs. 1 gm vancomycin twice-daily for 7-14 days. TD-1792 was well-tolerated and demonstrated superior laboratory profile across all of the measured markers. ALT increases were less frequent in the 1792 group, and all were low grade, <3x ULN. Creatinine elevation was only observed in the vancomycin arm, with one patient experiencing a potentially clinically significant increase of 2.0 mg/ml. ECG results indicated that no patients in the trial had a QTc increase above 60ms or interval >500ms, and the frequency of 30-60ms QTc prolongation was lower in the 1792 group than in the vancomycin control. TD-1792 is a promising antibacterial agent due to its high potency and tolerability. Theravance has indicated its intent to advance TD-1792 into more serious infections, possibly bacteremia. We look for an update on the next development steps for TD-1792 from THRX later in 2009. However, given the companys focus on securing telavancin FDA approval and need to control expense, we do not expect THRX to initiate large scale Phase 3 trials until a partner is found.
Basilea/JNJs Zevtera Hung Up At The FDA & EMEA

Zevtera (ceftobiprole) is a novel twice-daily cephalosporin that is active against MRSA and has broad spectrum coverage. Feedback from consultants suggests ceftobiprole is likely to see uptake among the less severe skin infections relative to Cubicin and to be used more aggressively in mixed infections given its broad spectrum coverage and safety profile. Our consultants indicated that the profile sounds intriguing as empiric therapy but they expect to switch to narrower spectrum drugs once pathogens are identified. The question marks remain on the utilization of ceftobiprole in HAP given mixed results from the HAP study. The major drawback of this compound is that it provides poor coverage of Pseudomonas and Klebsiella pathogens, which is critical in more severe hospitalization requiring infections like HAP. The data from the first Phase 3 STRAUSS study were presented at the ICAAC 2006 meeting. The study enrolled a total of 784 patients and demonstrated that ceftobiprole has similar efficacy to vancomycin in cSSSI (93.3% vs. 93.5% cure rates in CE population, 95% CI (-4.4,3.9)), including the MRSA subset (91.8% for ceftobiprole vs. 90.0% vancomycin, 95% CI (-8.4,12.1)). At the IDSA 2007 meeting, Basilea presented results from the second Phase 3 STRAUSS II study of ceftobiprole in patients with Gram-positive and Gramnegative skin infections, including diabetic patients with foot infections. The study enrolled 828 patients randomized to either ceftobiprole group or a combination of ceftazidime/vancomycin group 2:1. Based on microbiologically evaluable population analysis, cure rates were similar in two groups with 90.8% cure for ceftobiprole vs. 90.5% for the control arm. Cure rates for the MRSA subgroup (>20%) were 90% for ceftobiprole vs. 86% for the control arm. Cure rates in patients with Gram-negative pathogen (one third of ME population) were 85% for ceftobiprole vs. 93% for the comparator.
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A Phase 3 study in community acquired pneumonia was initiated in May 2006 with topline data announced September 2007. The study randomized patients to either ceftobiprole or ceftriaxone with or without linezolid in hospitalized patients. The cure rate at the test-of-cure based on CE analysis was 86% for ceftobiprole vs. 87% for the control arm. The microbiologic eradication rates were 88% vs. 92% for ceftobiprole and ceftriaxone groups, respectively. In October 2007, Basilea/JNJ announced positive non-inferiority results from a Phase 3 study comparing ceftobiprole monotherapy to a combination of ceftazimide and linezolid in hospital acquired pneumonia (HAP). In the clinically evaluable subset, cure rates were 69 percent for ceftobiprole vs. 72 percent for comparator. However, the study failed to establish non-inferiority for ceftobiprole in the ventillated (VAP) subgroup. Based on the details provided, we estimate cure rates were 45 percent vs. 60 percent in the VAP group for ceftobiprole and comparator, respectively. We believe these results potentially leave more market share on the table for other drugs active in HAP. We note that VAP is an extremely challenging group of patients and represent the greatest unmet need overall within HAP. Ceftobiprole is currently being reviewed by the FDA for cSSSI, and JNJ/Basliea announced in September 2008 the FDAs acceptance of a complete response to the initial approvable letter received in March 2008. In November 2008, the FDA issued a second complete response letter. Data integrity issues appear to be the main source of concern. In light of the second complete respons letter, it is hard to gauge when ceftobiprole will gain approval in the U.S. Ceftobiprole was approved in early 2008 in Canada, and in late 2008 in Switzerland. The drug also received a positive CHMP opinion in November 2008, but the CHMP told JNJ/Basilea in February 2009 that it would defer a final approval decision pending a successful Good Clinical Practices (GCP) inspection. Our current worldwide sales estimate for ceftobiprole is $5MM in 2009, and $390MM by 2013, which assumes a 2010 U.S. launch.
Forests Ceftaroline: Positive Phase III Data Reported

In January 2007, Forest acquired privately-held Cerexa (Alameda, CA) for $480MM. The acquisition added three injectable antibiotic products to the Forest pipeline, including ceftaroline acetate, an injectable broad-spectrum cephalosporin antibiotic being developed for the treatment of complicated skin and skin structure infections (cSSSI) and community acquired pneumonia (CAP). Forest initiated two 700-patient Phase III trials of ceftaroline in cSSSI in January 2007: top-line results from these trials were released in June 2008. Two pivotal Phase III trials in CAP have been initiated: a 550-patient Phase III trial was initiated in June 2007, and a 610-patient trial began in December 2007. Forest management expects results from the CAP Phase III trials to be available in H1:09. Our clinical consultants who are familiar with ceftaroline believe it is differentiated by its activity against resistant strains of gram-positive bacteria, including methicillin resistant staphylococcus aureus (MRSA). While a hospital-use injectable antibiotic is outside of Forests marketing strength, we believe ceftaroline has $300-400MM sales potential at an 85%+ gross margin, with modest marketing requirements. The FDA has granted ceftaroline fast-track designation for the treatment of cSSSI caused by MRSA. Forest holds worldwide development and commercialization rights (excluding Japan) to ceftaroline, and plans to pursue development in Europe, likely via a development/commercialization partner. Forest plans to market ceftaroline via its existing hospital sales force of 120 reps. These reps currently promote Forests key products (e.g., Lexapro, Namenda) in the hospital setting.
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Ceftaroline: Positive Top-Line Phase III Results in cSSSI. Forest reported top-line results of the two Phase III trials for ceftaroline (injectable, broad-spectrum, fourth generation cephalosporin antibiotic) in complicated skin infections (cSSSI) in June 2008. The top-line results are positive: both of the Phase III trials achieved the primary endpoint of non-inferior clinical cure rates versus the active comparator of vancomycin plus aztreonam. In the clinically evaluable patient population across both trials (CANVAS1 and CANVAS-2; 1,396 adult patients total), ceftaroline achieved a clinical cure rate of 91.6% versus 92.7% in the vancomycin/aztreonam arm. The pre-specified non-inferiority margin is 10%. >30% of the patients had MRSA: the ceftaroline clinical cure rate in these patients was 93.3%, but the control cure rate was not provided. Ceftarolines tolerability profile looked good based on a relatively low discontinuation rate (3.0% vs. 4.8% for the vanco arm), but no specifics on ceftaroline side-effects were provided: those details will be important when detailed data are presented later this year. Phase III trials in community-acquired pneumonias (CAP) are ongoing and expected to complete in Q1:09: we project an 4Q09 NDA filing for ceftaroline and a 2011 approval and market launch, assuming success in the CAP trial. Although ceftaroline has been granted fast-track designation by the FDA, we have built in extra review time, given the FDAs recently evolving standards for new antibiotics. We currently estimate ceftaroline sales at $75MM in F2012 and $150MM in F2013. Forest Licenses Novexels NXL-104 To Enhance Ceftaroline. In January 2008, Forest licensed North American rights to Novexels (France) NXL-104, a novel intravenous beta lactamase inhibitor, for use in combination with Forests ceftaroline. NXL-104 inhibits beta-lactamase activity: beta lactamases are bacterial enzymes that negatively impact the activity of beta-lactam antibiotics (penicillins and cephalosporins), including ceftaroline. The co-administration of NXL-104 with ceftaroline may counteract antibiotic resistance and enhance ceftarolines spectrum of activity. NXL-104 also may provide ceftaroline with a competitive advantage against JNJs ceftobiprole, which is expected to be a key commercial competitor. The NXL-104/ceftaroline combo is expected to enter Phase I trials later this year. The NXL-104/ceftaroline combination has been shown to enhance ceftarolines activity against beta lactamase producing gram-negative pathogens in microbiology studies. NXL-104 also has proven safe at multiple doses tested in a Phase I NXL-104/ceftazidime study. Assuming clinical and regulatory success, we believe the combo could reach the market in the 2012-2013 timeframe. NXL-104 is protected by a composition-of-matter patent that would protect the NXL-104/ceftaroline combo until 2022, subject to a possible patent term extension.
Arpidas Iclaprim Rejected By The FDA

Arpidas iclaprim is a broad-spectrum antibiotic from the diaminopyrimidine class, with anti-MRSA activity. The FDAs AIDAC in November rejected iclaprim 17:2 in complicated skin infections, which did not come unexpected based on lower cure rates for iclaprim vs. comparator Zyvox in the Phase 3 registration studies and QTc signal observed with iclaprim. Arpida continues to study the potential for iclaprim, including investigation of an oral formulation. Studies in pneumonia are currently ongoing. In May 2008, Arpida announced the initiation of a 60-patient Phase II intravenous-to-oral switch study of iclaprim in patients with cSSSI. The study will assess the clinical efficacy of an oral capsule formulation as a step-down therapy in comparison with intravenous vancomycin. Separately, in December 2007 Arpida initiated a Phase 2 trial with intravenous iclaprim for the treatment of hospital-acquired pneumonia (HAP), ventilator-associated
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pneumonia (VAP) or healthcare-associated pneumonia (HCAP) due to Gram-positive pathogens. The 130-patient trial will evaluate two different dosing regimens of iclaprim compared to the current standard of care vancomycin. Given its broad spectrum activity, we expect this product to compete with the cephalosporin class if approved.
Rib-X Pharmaceuticals Delafloxacin Antibiotic with Anti-MRSA Activity
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Delafloxacin is a next-generation quinolone with activity against MRSA, which Rib-X licensed in 2006 from Wakunaga Pharma. Rib-X announced positive Phase 2 results in January 2009. The study evaluated safety and efficacy of delafloxacin at two IV doses, 300mg BID and 450mg BID, compared to Wyeth Tygacil in 150 adults with cSSSI. The cure rates were 92.5%-97.2% for Delafloxacin and 91.2% for Tygacil in clinically evaluable patient population. The drug was safe and well tolerated with lower rates of overall treatment-related adverse events in the delafloxacin arms. In 2003, Abbott evaluated oral delafloxacin in CAP and in acute bacterial exacerbation of chronic bronchitis. Rib-X is currently seeking partner to advance delafloxacin further in development.
CDAD Is A Common Cause Of Infectious Diarrhea

ICD9 claims codes, which likely underestimate the true burden of disease, indicate that the annual incidence of C. difficile colitis in the U.S. increased from 80K in 2000 to 170K in 2003. Based on reports from the Centers of Disease Control and Prevention and peerreviewed publications, VPHM estimates that at least 500,000 patients were affected by CDAD in 2008. VPHMs research indicates that the incidence of CDAD appears to have plateaued in 2008 relative to previous years. That said, the reports are pointing to increasing number of patients with severe CDI and increased mortality rates. In addition, it appears that some patients are progressing from mild/moderate disease to severe disease or death more rapidly than previously observed. Typical seasonal CDAD trends consist of peaks in the winter months and valleys in the summer months, but experts note that sporadic outbreaks of a hypervirulent strain can significantly obscure underlying seasonality, which may help explain the disconnect between oral Vancocin use and seasonal infection patterns.
C. Diff Colitis Background Clostridium difficile is a spore-forming gram-positive anaerobic bacillus. While this bacteria normally does not cause pathology, disruption of the colonic flora may result in overgrowth of C. difficile and release of two exotoxins, causing inflammation and diarrhea. Hospitalized patients or those receiving antibiotics are at high risk for developing C. difficile Associated Diarrhea (CDAD). Other groups at risk are those with inflammatory bowel disease and patients in chronic care facilities. Symptoms of large intestine infection with C. difficile include diarrhea, abdominal pain, bloody stools, fever, and malaise. Severe cases of C. difficile pseudomembranous colitis can result in toxic megacolon, a life-threatening condition characterized by a greatly inflamed and distending bowel, severe abdominal pain, fever, and dehydration. Oral Vancocin is approved for the treatment of antibiotic-associated pseudomembranous colitis due to Clostridium difficile and for enterocolitis caused by Staphylococcus aureus. However, because oral metronidazole is effective for treating CDAD and extremely cheap, it is generally used as first-line therapy, with oral Vancocin reserved for severe or refractory cases.
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CDAD Treatment Frequently Requires Oral Antibiotics Treatment of CDAD first consists of discontinuing the offending antimicrobial agent, if possible. Typical antibiotics that may result in CDAD include cephalosporins, amoxicillin and clindamycin, although virtually all antibiotics have been linked to the complication. Stopping antimicrobials results in resolution of CDAD in roughly 25% of patients within three days. More severe forms of CDAD are treated with oral antibiotics. Oral metronidazole (500 mg four times daily) is frequently considered treatment of first choice given its availability as a generic and low cost (less than $3 for a 10-day course), although intravenous metronidazole can also be used for patients unable to tolerate oral intake. Notably, use of metronidazole in CDAD is off-label. Because the pathology of CDAD is primarily localized in the lower gastrointestinal tract, oral agents that are not well absorbed and reach the colon are considered optimal for therapy. Median time to resolution of symptoms is four to six days. Relapse of CDAD is common and occurs in up to 30% of cases. Some patients experience frequent and recurrent relapses that are particularly troublesome. Relapses generally remain responsive to therapy. Oral Vancocin (125mg to 500 mg four times daily) is considerably more costly than metronidazole and equally effective, with some evidence to suggest that it works faster to relieve symptoms. Both Vancocin and metronidazole result in response rates of greater than 95% after a 10-day course of therapy. Because of its higher cost, oral Vancocin is generally reserved for severe or refractory CDAD cases. The cost of a typical course of therapy with Vancocin ranges from $300 to $1000, depending on the dose prescribed. We estimate an average price of roughly $800 per course of oral Vancocin therapy. C. difficile infections had been to be on the rise over the past several years, with more severe infections and resistant strains emerging, prompting greater use of Vancocin. Drivers of these trends include an aging population and increasing use of antibiotics that select out more aggressive C. difficile strains. Most recently, however, there has been relatively flat demand for Vancocin. A year over year analysis for 2007 showed a 2.6% increase in Vancocin demand, down substantially from the mid-teens yr/yr growth seen in 2006. To address this issue, Viropharma initiated a small and focused marketing effort in February 2008. Specifically, VPHM hired five sales reps to leverage new CDAD treatment guidelines that position Vancocin more favorably than current practice. Thus, while Vancocin sales have been growing through market expansion, VPHM is now making an effort to increase sales through market share gains. Moreover, VPHM increased Vancocins price by 9.4% in February 2008, and we speculate there is some room left in outer years for growth through price increases (assuming no generic entry).
ViroPharmas Oral Vancocins Monopoly At-Risk

Vancocin is an oral antibiotic used primarily for the treatment of C. difficile associated diarrhea (CDAD), a potentially life threatening infection occurring most commonly in the elderly. The active ingredient in Vancocin is vancomycin, an antibiotic that has been used in the U.S. for decades and has no patent protection. In late 2004, VPHM in-licensed Vancocin from LLY for $116MM and potential additional annual payments based on higher Vancocin sales. At the time, Vancocin annual sales had been ~$40MM, although 2004 sales were edging up towards $60MM unexplainably. Sales skyrocketed under VPHMs watch to $232MM in 2008, based on an increasing rate and severity of CDAD infection and aggressive price increases that VPHM implemented. The significant cash flow associated with Vancocin vaulted VPHM to profitability in 2005. However, Vancocin sales success has also drawn attention of would-be generic competitors, which has spurred a regulatory debate about the requirements for a generic Vancocin that has been raging for over two years. Akorn, Inc (AKRX) has publicly announced that it is seeking FDA
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approval for its generic Vancocin and indicated that it filed its ANDA, although the timing of the filing is unclear. Akorn initially guided investors to expect an ANDA approval by year-end 2007 with a product launch in 2008, and changed its guidance in early 2008 to expect a launch in 2008, which has not happened either. Mylan currently also has its ANDA under the FDAs review. A Quick Background. The Office of Generic Drugs (OGD) at the FDA indicated in 2006 that a generic Vancocin could be filed on the basis of bioequivalence as measured by dissolution testing, a simple and inexpensive test that measures how a compound dissolves, rather than a clinical endpoint recommended previously. The new recommendation referred to the biowaiver, developed and used with Biopharmaceutics Classification System (BCS) Class 1 drugs agents that are highly permeable and rapidly dissolving (defined as 85% dissolution in 30 minutes). Under current guidelines, the basket dissolution apparatus has been defined as the standard for dissolution testing for Vancocin and according to VPHM under this method Vancocin falls outside of OGD guidelines of rapidly-dissolving drugs (<85% dissolved in 30 minutes). Thus Vancocin would not meet current FDA guidelines using simple dissolution testing to establish bioequivalence. Mylan, on the other hand, in a recent FDA filing requesting dismissal of VPHMs Vancocin Citizens Petition, argued that Vancocin is rapidly dissolving using an alternative apparatus (paddle), thus establishing bioequivalence. VPHM believes that the dissolution tests do not accurately mimic how Vancocin would behave in a human colon, the site where Vancocin works to combat the C. difficile infection, and a generic product approved on this basis could result in human harm. VPHM has responded to the OGD 2006 decision vigorously and continues to interact with members of the FDA and Congress to attempt to reverse the OGD decision. In January 2008, VPHM met with the FDA to present its scientific arguments why Vancocin does not fit within current guidelines for an appropriate candidate for approval on the basis of dissolution testing only. In July 2008, the FDA held an advisory meeting to discuss bioequivalence methods for locally acting GI drugs, though Vancocin was not discussed specifically. In December 2008, the FDA rejected VPHMs argument that Vancocin isnt rapidly dissolving in its updated bioequivalence guidance, and is taking comments from the public through mid-March on the latest guidance. Immediately following this update, VPHM sued the FDA and Department of Health and Human Services for access to the FDAs administrative record on Vancocin. Vancocin could be approved any time after the 90 day period is up, or the process could continue to drag on.
Optimers Prulifloxacin In Phase 3

Optimer is developing prulifloxacin for the treatment of infectious diarrhea, including travelers diarrhea caused by a broad range of bacteria. Prulifloxacin is a prodrug of a fluoroquinolone ulifloxacin with a broad-spectrum activity. In July 2008, Optimer announced positive top-line results from its first 187-patient Phase 3 study of prulifloxacin as a 1x/day (600mg), 3-day therapy for infectious diarrhea in travelers. Prulifloxacin met the primary endpoint of time to last unformed stool in both the modified intent-to-treat and microbiologically evaluable populations vs. placebo. The median TLUS for prulifloxacin patients was 24 hours with p-value of <0.0001 vs. placebo. The drug was generally safe and well tolerated. In September 2008, Optimer announced completion of enrollment in the second Phase 3 clinical trial of prulifloxacin in infectious diarrhea in travelers. In November 2008, Optimer announced positive top-line results from a pivotal Phase 3 study of prulifloxacin in 629 patients with CDAD. The primary endpoint is TLUS and secondary endpoints include clinical cure based on relief of symptoms and microbiological eradication rates. 92.1% of patients treated with prulifloxacin achieved clinical cure vs. 89.8% for Vancocin. In addition, 13.3% of
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prulifloxacin patients experienced a recurrence, significantly lower than 24% for Vanconcin (p=0.004). Lower recurrence rate could be a differentiating factor for prulifloxacin on the market if the second Phase 3 confirms this finding. Global cure was achieved by 77.7% prulifloxacin patients vs. 67.1% Vancocin patients (p=0.006). The second pivotal Phase 3 study of prulifloxacin is currently ongoing and data are expected in 2H09. Assuming the results of the second study are positive, Optimer plans to file an NDA in early 2010.
Tolevamers Future Unclear After Phase III Missed Its Primary Endpoint
In July 2007, Genzyme announced that the first of two Phase III trials of Tolevamer liquid for C. difficile-associated diarrhea (CDAD) did not meet its primary endpoint. Specifically, the trial did not demonstrate non-inferiority of Tolevamer to vancomycin, one of the standards of care for CDAD, as determined from the rates of resolution in the two cohorts. These results contrast with those from a Phase II study of a solid Tolevamer formulation, which did show non-inferiority to vancomycin. Although a second Phase III trial of Tolevamer liquid is fully enrolled and will proceed to completion, Genzyme has indicated that this candidate should no longer be regarded as a late-stage development program.
Salixs Xifaxan The Gold Standard For Treatment Of Travelers Diarrhea

Typically, travelers diarrhea patients are treated after the onset of symptoms, but our consultants do occasionally use Salixs Xifaxan for prophylaxis. Travelers diarrhea affects approximately 13-14MM people worldwide on an annual basis, and roughly 15% of the 44-45MM travelers to endemic countries each year seek prophylactic treatment. Because Xifaxan is a non-absorbed antibiotic and has a relatively minimal impact on endogenous flora, prophylactic use does not raise significant resistance concerns. However, clinicians prescribe Xifaxan as prophylaxis only to relatively high risk individuals, including the elderly and other patients that may be at high-risk of infection. Positive Phase III results from a placebo-controlled study of Xifaxan for travelers diarrhea prophylaxis were released in January 2006. Xifaxan sales were $64.3MM in 2007. Xifaxan In Phase III For C. Difficile Salixs Xifaxan (rifaximin) is a semi-synthetic, non-systemic antibiotic currently marketed as a treatment for travelers diarrhea (TD) caused by noninvasive strains of E. Coli. In December 2005 Salix initiated a 300-patient Phase III trial to investigate Xifaxans utility in the treatment of C. Difficile associated diarrhea. The trial compares the efficacy of Xifaxan to that of vancomycin for the treatment of C. Difficile infection (primary endpoint) and the prevention of infection recurrence (secondary endpoint). Our physician experts predict that Xifaxan will demonstrate non-inferiority to vancomycin on treatment efficacy, but are less confident in Xifaxans ability to measure up to vancomycin on prevention of recurrence. They believe that the recurrence hurdle will have to be met for the trial to be a success in the eyes of clinicians, although Xifaxan may still be used in vancomycin failures. We anticipate top-line results from this study will likely be released in 2009.
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Positive Phase II Results For Iomais Travellers Diarrhea Vaccine

In September 2007, Iomai presented detailed results from the Phase II Trek (field study) study of its needle-free travelers diarrhea (TD) patch vaccine at the Interscience Conference on Antimicrobial Agents and Chemotherapy (ICAAC) meeting. Iomai announced positive top-line results from this study in early August 2007. The Phase II results are impressive and further validate Iomais transcutaneous immunization (TCI) approach. There are currently no FDA-approved vaccines for the prevention of travelers diarrhea, and we believe Iomais TD vaccine could be the first to market. Incidence Of Moderate/Severe Diarrhea Reduced By 75% The logistics trial enrolled 170 patients (111 placebo; 59 TD vaccine) traveling to Mexico or Guatemala. Patients treated with Iomais TD patch vaccine were 75% less likely to suffer moderate/severe diarrhea from any cause (p=0.007) and 84% less likely to be afflicted by severe diarrhea (p=0.033). Of the 59 patients treated with the TD vaccine, just three (5.1%) suffered moderate/severe diarrhea, compared to 23 of 111 (20.7%) in the placebo group. Just one (1.7%) patient treated with the TD vaccine suffered severe diarrhea, compared to 12 of 111 (10.8%) patients treated with placebo. In the group of patients treated with the vaccine who did suffer episodes of diarrhea, the episodes were generally milder, lasting half a day versus two days for patients who had been treated with placebo. No vaccine-related serious adverse events were seen. The most common adverse event seen with the TD vaccine was a mild rash seen at the application site of the patch. Patients treated with the vaccine followed a prime/boost regimen, whereby they received two doses of the vaccine. The second dose was given 2-3 weeks after the initial dose and one week before the date of travel. Mild diarrhea is defined as three loose stools in a 24 hour period. Moderate diarrhea is defined as 4-5 loose stools in a 24 hour period. And severe diarrhea is defined a greater than five loose stools in a 24 hour period. A reduction in moderate/severe diarrhea is viewed as a clinically significant result. Study Demonstrates Self-Application Of TD Patch Vaccine Equivalent To Application By A Medical Professional. In February 2008, Iomai announced positive top-line results from a 160-patient Phase II self-administration study of its travelers diarrhea (TD) patch vaccine. The TD vaccine requires two doses (37.5 micrograms), which were administered 14 days apart in this study. The objective of the study was to demonstrate that the second dose of the TD vaccine could be administered by the patient after leaving the physicians office and that the immune response achieved via the self-administration is equivalent to the response achieved if a medical professional had administered both doses. The study successfully achieved its objective. The positive results are not a surprise; however, the commercial viability of the TD vaccine would have been seriously harmed if patients were not able to successfully self-administer the second dose. With respect to the general profile of Iomais patch vaccine technology; in our view the ability of patients to self-administer the vaccine, its room temperature stability, and ease of shipment make for a compelling product profile. TD Vaccine May Offer Broader Protection The immunostimulatory antigen used in Iomais TD vaccine is LT toxin, which is produced by ETEC bacteria. ETEC is believed to be responsible for approximately onethird of the estimated 20MM travelers diarrhea cases that occur annually. Interestingly, in the Trek study Iomais TD vaccine appeared to provide protection in cases where ETEC was ultimately determined not the pathogenic organism, suggesting that Iomais TD
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vaccine may offer protection against a broader panel of organisms that can cause travelers diarrhea, including (potentially) shigella, salmonella, and campylobacter. Phase III Trials Of TD Vaccine To Begin In 2009 Management plans to initiate Phase III trials for the TD patch vaccine in 2009, during the rainy summer season in Latin America when travelers diarrhea rates peak. Before Iomai starts the Phase III trials it must complete an additional 200-400 patient Phase II trial to confirm that the patches being manufactured via Iomais new production facility are equivalent to those used in the previous Phase II studies. The confirmatory study is expected to begin in 2Q08 and results from this study are expected to be released before year end. We project a 2010 launch for Iomais TD vaccine. We project U.S. TD vaccine sales of $20MM in 2010 and $70MM in 2012. We assume Iomai partners the international rights to the TD vaccine. We project international sales of $15MM in 2010 and $45MM in 2012. We assume Iomai receives a 30% royalty on net international sales.
Competition Increasing As New Antifungals Roll Out

Three major classes of antifungals are marketed: The polyenes (amphotericin B and its liposomal formulations Fungizone, Abelcet and Ambisone); the azoles (Diflucan, Sporanox, Vfend (Pfizer), Noxafil (Schering-Plough)); and the echinocandins (Cancidas (Merck), Mycamine (Atellas), Eraxis (Pfizer)). Johnson & Johnsons Sporanox and Pfizers Diflucan have succumbed to generics. Toxicity has capped the use of Bristol-Myers Squibbs Fungizone. Diflucan and Vfend, Cancidas, Ambisome, and Enzons Abelcet have faced increased competition recently from Mycamine, Noxafil, and Eraxis. Liposomal amphotericin products are effective and safer than traditional amphotericin, but are not sufficiently superior to justify their high price. A limiting factor for all antifungals is that the market appears to be satisfied because of the reduction in AIDS-related fungal disease. However, there is a growing unmet need in the resistant fungal infections including aspergillosis and Acinetobacter. The combination of azoles and candins is the best current approach for these resistant infections but the need for more potent, safer agents remains.
Comparison Of In Vitro Activity Of Antifungals Vs. Candida MIC Species C albicans n=733 C glabrata n=458 C krusei n=50 Eraxis 0.03 0.13 0.13 Cancidas 0.5 1 2
90
Fluconazole 2 32 >64
Amphotericin B 0.25 0.5 0.5
Source: Company reports; Antimicrobial Agents and Chemotherapy, 2003.
Mercks Cancidas Differentiated By Cidal Properties

Cancidas (caspofungin) is an enchinchandin that is indicated for the treatment of esophogeal candidiasis and invasive aspergillosis (approved in January 2001). In January 2003, the FDA approved Cancidas for the treatment of candidemia and the following Candida infections: intra-abdominal abscesses, peritonitis and pleural space infections. Cancidas is not cross-resistant with the azoles, offers excellent G.I. tolerability, good renal safety, and is administered once daily by intravenous infusion. Cancidas competes in a market with a number of other new entries, but its current success suggests that
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Cancidas is a solid competitor, driven in part by favorable head-to-head data for Cancidas in invasive candidiasis (in organs) and candidemia (in blood) versus amphotericin. The results showed that Cancidas has efficacy that is at least comparable to amphotericin, but with improved safety. Cancidas was approved in September 2004 for empirical therapy of presumed fungal infections in febrile, neutropenic patients (ETFN). To broaden Cancidas usage in the candida infection market, Merck is conducting a 200-patient Phase IV study of Cancidas prophylaxis followed by pre-emptive therapy for invasive candidiasis in the ICU. The study is expected to be complete in 2009. Cancidas sales were $575MM (+7%) in 2008, and we project sales of $575MM in 2009, and $500MM in 2012.
Astellas/Roches Mycamine Rolling Out In U.S.; Leader In Japan

Mycamine (micafungin) was approved in the U.S. in March 2005 for the treatment of esophageal candidiasis and prophylaxis of candida infections in patients undergoing hematopoietic stem cell transplantation, a differentiated indication versus Mercks Cancidas. Mycamine was launched in May 2005 via Astellas 40-person immunology and its 70-person hospital sales force. Roche also is co-promoting Mycamine via its hospital specialty sales force. Mycamine inhibits 1,3-beta-D-glycan, a component of fungal cell walls that does not exist in humans. In its Phase III esophageal candidiasis studies, Mycamine 150 mg/day was comparable to Diflucan on endoscopic cure rate and Candida eradication. In prophylaxis of Candida infections in hematopoietic stem cell transplant recipients, Mycamine 50 mg/day (n=425) was numerically superior to fluconazole 400 mg/day (n=457) in the prevention of infection (80.7% vs. 73.7%). The Mycamine arm also had fewer deaths than fluconazole (4.2% vs. 5.7%) and fewer withdrawals due to adverse events (4.2% vs. 7.2%, p=0.058). Mycamine's most common drug-related events in the prophylaxis trial were bilirubinemia, nausea, and diarrhea. In January 2008, Astellas announced that FDA approved Mycamine for the treatment of patients with Candidemia, acute Disseminated Candidiasis, Candida peritonitis and Abscesses. In February 2008, Mycamine received positive opinion from the CHMP of the European Medicines Agency for the treatment of invasive candidiasis, prophylaxis of candida infection in patients undergoing allogeneic haematopoietic stem cell transplantation or patients who are expected to have neutropenia. Initially, the application in E.U. was submitted in April 2006. Mycamine is available under the trade name Funguard in Japan and is the leading antifungal in that market. Funguard was awarded a pediatric indication in April 2006.
PFEs Eraxis Offers Good Fungicidal Activity

Eraxis (anidulafungin), a once-daily intravenous aminocandin, is indicated for the treatment of candidemia and invasive candidiasis, and esophageal candidiasis. A 256patient Phase III trial comparing Eraxis 100 mg daily to fluconazole (an azole) 400 mg daily, both given as intravenous infusions, showed Eraxis was statistically superior to fluconazole (75.6% of patients in the Eraxis arm versus 60.2% in the fluconazole arm achieved the primary endpoint). Eraxis also resulted in a higher global response rate at the two-week follow-up (64.6% versus 49.2%, statistically significant) and trended toward a higher rate at the six-week follow-up (55.9% versus 44.1%, NS). Eraxis, Cancidas (Merck), and Mycamine (Astellas) are echinocandins, which are very potent against yeast infections with a reasonable side-effect profile. However, oral formulations are not available. In contrast, the widely used azoles, including Vfend and Diflucan, have a broader-spectrum of activity and oral formulations but are less potent against yeast and have significant drug-drug interactions and toxicities. Eraxis offers obvious selling synergies for Pfizer with Vfend, and could be used in combination with other azole-type antifungals or amphotericin B. At ICAAC 2007, Pfizer formally announced the initiation of combination trials with Vfend for severe aspergillosis. The antifungal market has
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experienced significant pricing pressure. We forecast Eraxis sales of $80MM in 2009, $120MM in 2010, and $275MM in 2015. Eraxis sales were $43M in 2008.
PFEs Vfend Successful Despite Limitations

Vfend, a broad-spectrum antifungal azole, targets the treatment of severe fungal infections including molds and yeasts, such as systemic aspergillosis or candidiasis respectively. It has convenient oral and IV dosing, and utility in pediatric patients. Vfend had a statistically significant survival benefit compared with amphoteracin B in one study and has become the drug-of-choice for primary prophylaxis of fungal infections in high-risk individuals. However, Vfend has limitations that include unpredictable kinetics which make the drug hard to dose consistently, drug interactions, and hepatic and ocular toxicity. Schering-Plough is developing IV and solid oral dosage forms for Noxafil (posaconazole) which would make it directly competitive with Vfend. Vfend sales were $743MM in 2008, and we estimate sales of $800MM in 2009, $1.05B in 2012, and $700MM in 2015 post the 10/13 patent expiration.
Schering-Ploughs Noxafil Targets Serious Fungal Infections

Noxafil (posaconazole), a three-time daily oral suspension, broad-spectrum antifungal, is marketed in the U.S. and EU for prophylaxis of invasive Aspergillus and Candida infections in high-risk patients. Noxafil is also approved in the EU for the treatment of invasive fungal infections refractory to itraconazole (J&Js Sporanox) or amphoteracin B (generics). Noxafil is the only agent approved to prevent mould infections (Aspergillus). In January 2008, Schering announced that Noxafil oral suspension had received an A-1 recommendation (highest rating) for the prevention of invasive Aspergillus infections in certain high-risk patients in the latest guidelines of the IDSA. Schering is developing a solid oral formulation and an IV formulation that has fast track designation. These new formulations would make Noxafil more competitive against Pfizers Vfend (IV and solid oral). We estimate Noxafil sales of $200MM in 2009, $250MM in 2010, $500MM in 2015.
Astellas/Gilead Sciences AmBisome Looking To Hold On

Gilead Sciences AmBisome is a liposomal formulation of the generic drug amphotericin B that is used for the treatment of invasive fungal infections. Fungal infections can be lifethreatening in immunosuppressed patients, such as those receiving chemotherapy, organ or bone marrow transplants, and AIDS patients. While Amphotericin B is effective, it is nephrotoxic and causes infusion-related reactions in over 50% of patients. Liposomal formulations of the drug reduce toxicity while concomitantly allowing higher doses of the drug to be delivered. In most of the 45 countries where it is sold, AmBisome is approved as first-line treatment of fungal infections. In fact, in many countries, it is approved as empirical therapy, meaning it can be administered when there is strong suspicion of a fungal infection without actual laboratory confirmation (such as fever of unknown origin). In the remainder of countries, it is approved as second-line therapy, where conventional amphotericin B fails or is not tolerated. AmBisome is sold by Gilead in Europe and is co-promoted with Fujisawa in the U.S. whereby Gilead provides drug to Fujisawa at cost and receives a 17% royalty on U.S. sales. In return, Gilead pays Fujisawa a 4% royalty on Asian sales. Gilead reported $290MM in Ambisome sales in 2008 versus $263MM in 2007. We expect increasing competition from newer agents, such as Mercks Cancidas and Pfizers Vfend and Eraxis, to pressure Ambisome growth through 2011. We forecast worldwide Ambisome sales of $300MM in 2009 and $270MM in 2013.
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Enzons Abelcet Pressured By Competitors

Enzon management had hoped to stabilize Abelcet (liposomal amphotericin B for treatment of systemic fungal infections) sales in the face of rising competition from Ambisome (Gilead/Astellas), Cancidas (Merck), and Mycamine (Astellas). However, the rollouts of Pfizers Eraxis and Schering-Ploughs Noxafil have caused continued pressure on Abelcet sales. Enzon acquired North American marketing rights to Abelcet in November 2002 from Elan for $360MM in cash. Abelcet is protected by a composition-ofmatter patent through 2014. Abelcet is indicated for patients refractory to, or intolerant of, standard amphotericin B injections. The main advantage Abelcet offers against conventional amphotericin B is the ability to administer larger doses of amphotericin B with fewer toxic effects. Enzon reported Abelcet sales of $27MM (-7%) in 2008 and we estimate 2009 sales of $24.5M and 2013 sales of $20MM.
ANTIFUNGAL MARKET LANDSCAPE Product Fungizone Sporanox Company Bristol-Myers Squibb Johnson & Johnson Status Marketed Marketed (generics available) Indications Candida Candida, blastomycosis, histoplasmosis, aspergillus Candida, aspergillus Candida, cryptoccal meningitis Candida, aspergillus Aspergillus, cryptococcus Candida, aspergillus Candida, aspergillus Candida, aspergillus, cryptococcus, coccidioidomyces, histoplasma, blastomyces Candida, aspergillus, cryptococcus
Cancidas Diflucan Eraxis Vfend Mycamine Noxafil Abelcet
Merck Pfizer Pfizer Pfizer Astellas/Roche Schering-Plough Enzon
Marketed Marketed (generics available) Marketed Marketed Marketed Marketed Marketed
AmBisome
Gilead/Astellas
Marketed
Source: product labels
Sepsis Opportunity Remains Elusive

Sepsis is systemic inflammation resulting from serious infection caused by in-hospital complication, serious injury, or predisposing disease. In the U.S., an estimated 500,000700,000 people develop sepsis annually, which leads to severe organ dysfunction and death in 25-35% of cases. Eli Lilly received approval for Xigris (drotecogin alfa-activated) in 2001, but acceptance has been slow due to issues with sepsis diagnosis, an indication for severe sepsis only, increased risk of death in some patients, bleeding risk, difficulty in reimbursement, and cost. In August 2005, positive Phase II results for Eisais Eritoran, a toll-like receptor 4 (TLR4) antagonist, were released and the product moved into Phase III trials in June 2006. Chiron is pursuing Tifacogin (tissue factor pathway inhibitor) for the treatment of severe community acquired pneumonia following disappointing clinical results in sepsis. AstraZenecas development of CytoFab (anti-TNF alpha antibody) has
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been delayed with the addition of two additional Phase II studies. Xoma/Baxters Neuprex received a not approvable letter from the FDA.
Eli Lillys Xigris Trends Steady, But Lackluster

Xigris (sepsis) continues to make steady gains with launches in international markets. Xigris is approved in more than 33 countries for the treatment of severe sepsis with organ failures. A small number of severe sepsis patients are expected to survive for a significant duration, which is the population for which Xigris is indicated. Xigris use overall has been modest for a number of reasons, including: (1) the risk of serious bleeding (2.5-5%), (2) elevated risk of death in patients with single organ dysfunction and recent surgery, and (3) a reluctance on the part of payors to reimburse the drug. The PROWESS study, which was stopped early, indicated a statistically significant 29% relative reduction in risk of death among high-risk (APACHE II score 25) patients (P=0.0002). In these patients, survival rates were 69% for Xigris patients, compared to 56% for standard therapy patients at 28 days. The difference in survival was sustained through 2.5 years of follow-up. A 10,000 patient study in less severe sepsis has been discontinued due to lack of efficacy. A pediatric study in severe sepsis also was stopped due to lack of efficacy and evidence of increase risk of CNS bleeding. In 2005, a warning was added to the Xigris label following subset analysis of the ADDRESS and PROWESS studies that showed higher mortality in patients with single organ dysfunction and recent surgery. In February 2006, Lilly announced the commencement of a new clinical trial to help clinicians better identify severe sepsis patients at high risk of death who are more likely to benefit from Xigris and to further clarify the drug's benefit/risk profile. The need for this trial stemmed from annual Xigris license assessments with the EMEA. In addition to the new placebo-controlled study, a Phase II Xigris clinical trial began in November 2006. RESPOND (Research Evaluating Serial Protein C levels in severe sepsis patients ON Drotrecogin alfa [activated]) is designed to tailor the dose and duration of Xigris based upon serial Protein C levels. Data from this trial could advance Xigris therapy by using a biomarker such as Protein C to provide the right dose of Xigris to the right patient at the right time. Five hundred patients are being enrolled at 50 sites in 11 countries for the trial. Xigris sales were $161MM in 2008, and we forecast sales of $160MM in 2012.
Eisais Eritoran Moves Into Phase III

Eisai is developing Eritoran (E5564), a TLR4 receptor antagonist, for the treatment of severe sepsis. Positive Phase II results were released in August, 2005, which showed that Eritoran may reduce the risk of death in patients with severe sepsis. Eisais Phase II North American study involved 293 patients with early severe sepsis with APACHE II Predicted Risk of Mortality (PROM) of 20-80% who were randomized to Eritoran 105mg/6days, 45mg/6days, and placebo, and dosed within 12 hours of diagnosis. The trial showed a numerical reduction in mortality risk at the high dose (-6.4% vs. placebo) that was not statistically significant, although the study was not powered to show such a difference. Compliance may have impacted results, since the subset that was compliant (80%) showed a mortality rate reduction of 12.2% (p=0.09) in the high-dose group versus placebo. Further subset analysis suggested that the greatest mortality benefit was seen in the most severe patients (PROM of 50-80% showed an 18% reduction in mortality vs. placebo). However, subset analysis also suggested a higher risk of mortality in lower risk patients. This may have been confounded by a surprisingly low mortality rate in the placebo arm. Nonetheless, we expect the FDA will require further exploration of the lower vs. higher risk effect. Phlebitis (inflammation of the vein) was observed in 6.7% of patients dosed with Eritoran through a peripheral vein, but was mild and reversed upon discontinuation of treatment. Eisai initiated the first Phase III trial of Eritoran in June 2006. The target enrollment is 2,000 patients and the primary endpoint is survival at day
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28 post treatment. Patients will be treated with Eritoran (or placebo) every 12 hours and will receive a total of eleven doses. Assuming clinical success, we target a 2010 launch. We forecast Eritoran sales of $100MM in 2011.
NVSs Tifacogin A Long Shot In sCAP; Bleeding Rates Key

Novartis inherited tifacogin through the Chiron acquisition. Tifacogin, a recombinant tissue factor pathway inhibitor, was initially developed for the treatment of sepsis but failed to demonstrate a benefit on 28-day mortality in a large Phase III study, OPTIMIST (The Optimized phase 3 Tifacogin In Multicenter International Sepsis Trial) and resulted in an increased risk of bleeding. However, a subgroup analysis of OPTIMIST results suggested a survival benefit trend with tifacogin in cases of sepsis/septic shock related to severe community-acquired pneumonia (sCAP). The subgroup analysis was presented at ATS 2006. There were 496 patients in the sCAP subgroup of the OPTIMIST trial. The researchers were unaware of patient treatment assignment at the time of the analysis. The primary outcome of 28-day mortality among the sCAP patients was 27.9% with tifacogin versus 32.7% for those given placebo; this difference did not reach significance. For patients with microbiologically documented CAP who were not receiving concomitant heparin, the respective 28-day mortality rates with tifacogin and placebo were 29.3% and 51.5%, and that difference was significant when the analysis was unadjusted. A trend toward reduced mortality was also observed when the primary outcome was analyzed by quartile of APACHE II score. In this analysis, the difference was largest in the third quartile: 28-day mortality for these patients was 29.9% with tifacogin and 40% with placebo. The difference was smallest in the second quartile, as shown by a 28-day mortality rate of 22.8% with tifacogin and 24.3% with placebo. Notably, there tended to be better survival among patients with a baseline interleukin (IL)-6 level of less than 1,000 pg/mL. Higher IL-6 levels have been associated with increased severity and worse outcomes in sepsis. A 2,100 patient pivotal sCAP study is ongoing; patients only require ICU admission due to pneumonia and not sepsis to be eligible for enrollment. The study was initiated in May 2004 with enrollment only expected to be completed in 2009. Novartis plans to file for the sCAP indication in the same year. The clinical hurdle for Phase III sepsis trials is significant with only one product, Xigris (Lilly), ever garnering approval. The sCAP trial may be less burdensome due to the homogeneity of the target population but mechanistically this is likely a long shot, and bleeding rates will be viewed critically given the increase incidence seen in the OPTIMIST trial. Even if successful, unless the risk-benefit profile is clear, tifacogin is likely to have limited commercial potential. We forecast tifacogin sales of $25MM in 2010, $125MM in 2012, $200MM in 2015.
Novartis Inhaled TOBI For Cystic Fibrosis Dry Powder Inhaler To Extend TOBI Franchise
TOBI (inhaled tobramycin solution) is the only FDA-approved inhaled medication for cystic fibrosis with P. aeruginosa infections in people age 6 and older with lung function within a certain range. It improves lung function, reduces the number of days in the hospital and the need for IV antibiotics. TOBI was acquired through the Chiron acquisition. TOBI is nebulized twice-daily in repeated cycles of 28 days on drug followed by 28 days off drug. TOBI has dominated the U.S. and ex-U.S. CF markets since its launch in 1997 and 1999 respectively. A 2nd generation dry powder version, TIP, is in Phase III development with a planned filing in 2009. TIP utilizes a handheld device designed to reduce administration time and increase convenience. Gilead filed its nebulized aztreonam lysine delivered by the eFlow Electronic Nebulizer (PARI GmbH) in November 2007 for patients with cystic fibrosis (CF) who have pulmonary P. aeruginosa infection. However, in September 2008, FDA issued a complete response to Gilead requiring Gilead
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to do an additional clinical study. Gilead had planned to position inhaled aztreonam to be used in the off-months when TOBI is not used. We forecast inhaled TOBI sales of $295MM (+8%) in 2008, $310MM (+5%) in 2009 and $175MM in 2010, the year in which it is replaced by 2nd generation dry powder inhaler. We estimate the sales of Tobi 2nd generation of $155MM in 2010, $370MM in 2012, and $430MM in 2015.
Progress in HIV Global Epidemic, But Antiretroviral Drugs Remain Underutilized

More than 1.5MM people in North America and Western Europe are living with HIV (over 1MM of whom are in the United States), and nearly 33MM people have the virus worldwide. Two thirds HIV infections, and 72% of HIV/AIDS related deaths occur in SubSaharan Africa, considered to be the epicenter of the HIV epidemic according to the Joint United Nations Programme on AIDS (UNAIDS). On a positive note, some headway does appear to have been made on a global scale, both in regard to reducing transmission and diagnosis/treatment. Recent figures presented by UNAIDS in conjunction with the August 2008 International AIDS Conference pegged the number of new infections in 2007 at 2.7MM, down from a peak of 5MM and the number of deaths due to HIV/AIDS at 2MM, down 10% y/y. In addition, UNAIDS estimated that 3MM people were on antiretroviral therapy in 2007, vs. only 300K in 2003. While progress has been made, millions remain undiagnosed, do not have access to these life saving therapies or choose not to go on them. Despite improved trends on a global scale, trends in new infections in developed markets like the U.S. appear more troubling, particularly among the high-risk groups in which the infections are concentrated. The CDC recently revised upwards its annual new infections estimates for the U.S. from roughly 40K, to 56,500 in 2006, based on new data analysis and technology which strongly suggested that the level of new infections had been previously underestimated. Our physician experts have also expressed the view that HIV incidence has increased in recent years. New infection rates are highest in African Americans (45%) and men who have had sex with men (53%). One of the most visible and concerning areas of new infection growth has been in young gay men, attributed to growing prevalence of crystal meth use, and a more lax attitude toward the disease with the advent of new drugs that allow patients to chronically manage the disease. It also remains concerning that 25-33% of infected patients in the U.S. are estimated to not be aware of their HIV status, and only 300-400K patients, or roughly 25-40% of the U.S. HIV population, receive treatment. Clearly, there is notable opportunity for larger numbers of patients to receive antiretroviral therapy, and with the transformation of HIV antiviral therapy into a chronic indication requiring life-long therapy for viral control, the pool of HIV patients continues to grow. Our physician experts estimate that their treatment practices are expanding by 5-10% annually. Because the goal of HIV therapy is life-long viral suppression, adherence to treatment is critical. Patients need to take more than 95% of their prescribed medications to have an optimal chance for HIV control. Failure rates for front-line regimens are roughly 10% each year, and most failures are generally the result of poor patient compliance. Thus, success in treating HIV is driven by antiretroviral agents that offer fewer side effects, require fewer pills, and have pharmacokinetic profiles that allow for less frequent dosing.
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Natural History Of HIV Infection

A virus is composed of a viral genome surrounded by a protein envelope. During its life cycle, a virus employs the host cells infrastructure to manufacture additional virus particles. At the core of an HIV particle are two strands of RNA encapsulated by a nucleocapsid membrane. The nucleocapsid also contains the viral enzymes that perform critical synthesis, integration, and assembly functions enabling the HIV to replicate within the cell. The viral outermost envelope is derived from the plasma membrane of the host cell during the process of viral budding. The first step in HIV infection is entry into the host cell. The HIV virus has developed a sophisticated process by which a viral surface glycoprotein (gp120) binds to the CD4 receptor and its co-receptors (CCR5 and CXCR4). These events trigger the process of membrane fusion which is mediated by a second surface glycoprotein, gp41. Once inside the cell, the reverse transcriptase enzyme copies the viral RNA into DNA. The DNA is then incorporated into the host cell genome by the integrase enzyme. Following integration, expression of the viral genes results in production of structural and functional proteins involved in viral replication. The HIV protease modifies these proteins to facilitate assembly of mature virion particles.
HIV Life Cycle A Complex Process

HIV is a single-stranded RNA (ssRNA) retrovirus belonging to the lentivirus subfamily. The virus is unique in that it attacks the very cells which are responsible for its elimination i.e. cells of the immune system. HIV preferentially targets T lymphocytes in the immune system by attaching to CD4 co-receptors on the surface of T cells via the viral envelope glycoprotein gp120. CD4 is found exclusively on T lymphocytes. Once attached, the virus also binds to proximal CCR5 chemokine receptors on the T cell surface. This anchoring mechanism results in conformational changes within gp120 and the viral envelope glycoprotein gp41 that allows the viral membrane to fuse with the host cell membrane. In some cases, the virus utilizes the CXCR4 chemokine receptor to mediate this process. Phenotypically, CCR5 is the predominant co-receptor for synctiuminducing HIV genotypes whereas CXCR4 is the predominant co-receptor for nonsynctium-inducing genotypes. CXCR4 entry variants tend to be more aggressive in disease patterns. Upon fusion, contents of the viral particle are unloaded into the host cell. A portion of the viral ssRNA is then transcribed into double-stranded DNA (dsDNA) by a viral enzyme called reverse transcriptase (RT) which comes pre-attached to the viral ssRNA. dsDNA is inherently more stable and can be integrated into the host genome in order to elude immune detection. Reverse transcriptase is a multifunctional enzyme that is able to carry out both RNA polymerase and DNA polymerase activity. Proviral integration is executed by the viral integrase enzyme at random sites throughout the host genome, and is essential to the viral replication life cycle. Host integration provides a means by which the virus can exist in a dormant form (inactive) for up to 10 years, and also allows virally encoded genes to be expressed via host-mediated transcription and translation. Hence the virus does not need to carry copies of its own transcription or translation machinery and instead will hijack the use of host enzymes for these processes. The transcription of viral genes, their subsequent translation into viral polyproteins, and the processing of these proteins into functional subunits are all critical steps in the HIV
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viral life cycle. The HIV genome encodes for the essential GAG, POL, and ENV proteins as well as several accessory proteins including TAT, NEF, REV, VPR, VPU, VIF, and TEV. Once the viral protein components are produced and the viral RNA genome have been replicated, viral particle assembly takes place within the host cell near the plasma membrane. Maturation of newly formed viral particles occurs as the particles begin to bud from the plasma membrane into the surrounding extracellular space. Maturation consists of the final steps of structural protein organization that occur concurrent with HIV budding. As the HIV virion buds off an infected cell, the viral protease enzyme cleaves the Gag polyprotein and releases two SP (spacer) proteins and four mature Gag proteins: MA (matrix); CA (capsid), NC (nucleocapsid) and p6. The MA protein associates with the HIV viral membrane and forms a thin protein shell. The CA protein forms the central condensed conical core which houses the HIV RNA strands, and the NC protein complexes with the HIV RNA within the capsid. The last of the proteases five cleavage sites is CA-SP1, and release of CA is required for final maturation and production of infectious virions.
The Current Standard Of Initial Care Remains Triple-Drug Therapy

HIVs proclivity towards developing drug resistance (a result of its high mutation rate) has resulted in a standard of care for HIV viral control that typically involves concomitant use of three antiviral drugs. Triple drug therapy remains the standard of care, and initial treatment generally consists of two nucleoside or nucleotide reverse transcriptase inhibitors (NRTIs) combined with either a protease inhibitor (PI) or a nonnucleoside reverse transcriptase inhibitor (NNRTI). The NRTI combination suggested by UNAIDS guidelines for initial treatment is GILDs Viread/Emtriva (enofovir/emtricitabine). The preferred NNRTI on the market is Sustiva (efavirenz), but several PIs are supported by the guidelines including Kaletra (lopinavir), Reyataz (atazanavir), Lexiva (fosamprenavir), Prezista (darunavir), and Fortovase/Invirase (saquinavir). Twenty five individual drugs in seven classes have been approved and are available for HIV therapy in the U.S., which has alleviated some fears that early therapy would leave patients without options as the disease progresses. Recently updated guidelines do favor earlier intervention, before a patients immune system is compromised.
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Source: Biocentury, Vol 15, 40, 2007
Simplicity & Durability Define The Market Leaders But New Agents May Shake Up The Market
The current market for HIV treatment is increasingly dominated by once- or twice-daily regimens. The trend toward regimen simplification and reduced pill burden has driven rapid penetration of several once-daily treatment options among all three agents used in the HIV cocktail such as Gileads NRTI Truvada and NRTI/NNRTI Atripla, and PIs like Bristol Myers (Reyataz) In refractory patients, efficacy against resistant strains of the virus is most important, and for the first time in years several new options are available. The recent approvals of Pfizers Selzentry, a CCR5 receptor antagonist, and Mercks Isentress, an integrase inhibitor, signal the arrival of two new, potent classes. While Selzentrys uptake maybe protracted due to the requirement for expensive testing, Isentress has the potential to move upstream in treatment protocols despite its current limited indication for multi-class resistant patients.
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Currently Approved Once-Daily HIV Therapeutics with Low Tablet/Capsule Counts

Class NRTIs Proprietary Name Epivir Ziagen Epzicom Viread Emtriva Truvada Videx EC Zerit XR NNRTI Sustiva Viramune NRTI+ NNRTI Atripla Lamivudine (3TC) Abacavir (ABC) Lamivudine + Abacavir Tenofovir DF (TDF) Emtricitabine (FTC) Tenofovir DF + Emtricitabine Didanosine EC (ddI) Stavudine XR (d4T) Efavirenz (EFV) Nevirapine Tenofovir DF + Emtricitabine + Efavirenz (EFV) PIs Reyataz Atazanavir (ATA) BMY Two 200mg tablets once a day. Gilead/BMY One tablet once a day. BMY BMY BMY One 400mg capsule daily. One 100mg tablet once a day. One 600mg tablet once a day. GlaxoSmith Kline GlaxoSmith Kline GlaxoSmith Kline Gilead Gilead Gilead One 300mg tablet once a day. One 200mg capsule once a day. One tablet once a day. One tablet once a day. One 600mg tablet once a day. One 300mg tablet once a day. Generic Name Company Dosing Schedule
Lexiva boosted with Norvir
Fosamprenavir plus Ritonavir
GlaxoSmith Kline/VRTX
Two 700mg Lexiva tablets plus two 100mg Ritonavir tablets once a day.
Source: Cowen and Company; NRTI: Nucleoside (or nucleotide) Reverse Transcriptase Inhibitor; NNRTI: Non-nucleoside Reverse Transcriptase Inhibitor; PI: Protease Inhibitor.
Gileads HIV Franchise Dominates First Line

Our physician experts think Viread (tenofovir) is a well tolerated, convenient and efficacious backbone for anti-retroviral therapy in their treatment-nave patients, and in general prescribe it to 90+% of patients beginning therapy. It is typically combined with Gileads Emtriva (available as a single pill formulation under the name Truvada) and added to either Sustiva (Bristol-Myers) [for NRTI/NNRTI regimens, available as the Atripla single pill] or Reyataz (Bristol-Myers) [for NRTI/PI regimens]. Following its July 2006 approval, Atripla has become the first line NRTI/NRTI/NNRTI of choice, and our consultants use it in the vast majority of newly diagnosed patients whose initial therapy will be 2 NRTIs and a NNRTI. Our consultants have continued to use Truvada in those patients who get a protease inhibitor instead of an NNRTI. Viread. Viread is the brand name of tenofovir, a nucleotide analog with best-in-class attributes for the treatment of HIV. The drug is differentiated from other nucleoside reverse transcriptase inhibitors (NRTIs) by its convenient one-pill, once-daily dosing; a clean side-effect profile; high potency; lack of drug-drug interactions; and favorable resistance profile. Importantly, Viread does not fall victim to thymidine-analog
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associated mutations (TAMs) that confer resistance to Retrovir (AZT) and Zerit (d4T). Our physician experts think Viread (tenofovir) is a well tolerated, convenient and efficacious backbone for anti-retroviral therapy in their treatment-nave patients, and in general prescribe it to 90+% of patients beginning therapy. It is typically combined with Gileads Emtriva (available as a single pill formulation under the name Truvada) and added to either Sustiva (Bristol-Myers) for NRTI/NNRTI regimens, available as the Atripla single pill, or Reyataz (Bristol-Myers) for NRTI/PI regimens. Our physician consultants believe that many patients still on AZT and d4T will be gradually converted to Viread or Truvada over the next several years. In addition, our consultants are aware of no new NRTIs coming on stream this decade that are likely to challenge Viread or Truvada, as the drugs possess a favorable resistance profile. Nonetheless, we expect sales of Viread to increase only gradually over the next several years as Truvada and Atripla displace it. Our 2009-13 worldwide Viread revenue estimates are $675MM, $730MM, $780MM, $830MM, and $875MM. Truvada. Truvada, a single-pill, once-daily co-formulation of Viread (tenofovir) and Emtriva (emtricitabine), was granted accelerated approval by the FDA in August of 2004 and by the EMEA in February of 2005. Even after Atriplas approval, our consultants have continued to use Truvada in those patients who get a protease inhibitor instead of an NNRTI. Our 2009-13 worldwide Truvada revenue estimates are $2.4B, $2.7B, $2.8B, $3.0B and $3.1B. Atripla. Atripla was approved by the FDA in July 2006, and the EMEA in December 2007. Atripla is a single-pill co-formulation of 600mg Sustiva, 200mg Emtriva, and 500mg Viread, and was developed as a joint venture with Bristol-Myers Squibb. Atripla is the first-ever once-daily single tablet regimen for HIV. Atripla has become the first line NRTI/NRTI/NNRTI of choice, and our consultants use it in the vast majority of newly diagnosed patients whose initial therapy will be 2 NRTIs and a NNRTI. We estimate 200913 worldwide Atripla sales of $2.2B, $2.7B, $3.2B, $3.6B and $4.1B. Emtriva. The FDA approved Emtriva (FTC) in July 2003 for the treatment of experienced and nave HIV patients in combination with other medications. Emtriva is a once-daily oral cytosine analog that is viewed by our consultants to be largely equivalent to GlaxoSmithKlines Epivir (also known as 3TC or lamivudine). In fact, the drugs differ in structure by a single fluorine atom. Gilead obtained Emtriva via its Triangle acquisition in 2003. We forecast $30MM per year in 2008-13 worldwide Emtriva sales. Strength in Gileads HIV franchise has led to consistently solid performance. Our 2009-13 total Gilead HIV global franchise revenue estimates are $5.4B, $6.2B, $7.1B, $7.9B and $8.6B.
Gileads Viread NRTI Backbone Of Choice

Gileads 144-week data from Study 903 comparing Viread to Bristol-Myers Zerit (stavudine; d4T) in treatment-nave patients demonstrated similar efficacy between the two compounds with a superior lipid profile for Viread. These data fueled Vireads penetration into first-line therapy. The trial enrolled 600 patients with no prior antiretroviral treatment. Patients were randomized 1:1 to enter one of two treatment arms: Viread/Sustiva (EFV)/Epivir (3TC) or Zerit/Sustiva (EFV)/Epivir (3TC). At 144 weeks, Viread and Zerit were roughly comparable in controlling viral replication, with 73% and 69% of patients maintaining viral suppression of >50 copies/mL for Viread and Zerit respectively. Perhaps most impressive was the difference in lipodystrophy and lipid
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abnormalities. At 144 weeks, only 3% of Viread patients developed investigator-defined lipodystrophy (characterized by loss of limb fat), whereas 19% of Zerit patients developed this syndrome. Viread also affected fasting lipids to a lesser degree than Zerit. Given that patients living with HIV in the U.S. more often die of causes other than AIDS, side effects and safety are increasingly important to the utility of these agents.
Atripla Has Helped GILD Take #1 Share Of NRTI Market

In the week before Atriplas U.S. launch in July of 2006, GSK held the #1 position in the U.S. NRTI market, with 44% share of total scrips. Gilead had the second highest, 37%. In the 33 months since Atriplas launch, Gilead rapidly gained share. Gilead took over the #1 position in January of 2007 and its share gains have continued since. As of February 2009, Gilead has 62% share of the U.S. NRTI market, while GSK has 33%. Atripla was approved in the European Union on December 17, 2007, and as of January 2009 had been launched in 14 countries, including 4 of the largest 5. Atriplas launch has solidified Gileads position in Europe, and according to the company, as of January 2009 the tenofovir molecule had the highest NRTI share in all five of the largest European countries (France, Germany, Italy, Spain, and the UK). Much of the gain in Gileads share can be attributed to enthusiasm for Atripla among physicians and patients. Not only has Atripla fortified tenofovirs position as first choice first line therapy, but our physician experts think that Atripla has also accelerated the rate of switching from non-tenofovir-based regimens, for several reasons. First, patients are intrigued by the idea of a one-pill once per day anti-HIV regimen. In the experience of our consultants, even patients on non-tenofovir based, two pill per day regimens (Sustiva-Epzicom, for example) are interested in trying Atripla. Second, our consultants think that the reduction in co-pays is meaningful to many patients. Whereas patients on Combivir/Sustiva or Epzicom/Sustiva would need to pay two co-pays, those on Atripla pay only one. The exact amount of co-pay varies depending on the patients insurance, but they can be quite expensive, particularly to low-income individuals. Patients could pay $50-$75/month per prescription or in some cases as much as 20% of the total cost of the prescription. Last, our consultants think that the increased promotion supporting Atripla has helped convince more people to switch to it. They note in particular that while they have very few patients on Combivir-based regimens in their practice because of the lipodystrophy associated with Combivirs AZT component, it is their experience that many of their colleagues still prescribe Combivir for many patients. Our physician experts think that the increased marketing and promotion that has come with Bristols sales force detailing Atripla, has increased the awareness of the benefits of tenofovir/emtricitabine over zidovidudine/lamivudine, particularly among those physicians who had been slow adopters. The physicians think most switching of patients on non-tenofovir backbones has come from those who were on Combivir and Sustiva, Epzicom and Sustiva, and those on Viramune-based regimens.
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NRTI Market Share: GILD vs. GSK

70%
60%
50%
NRTI TRx Share

M
40%
30%
20%
10%
0%
W AR eek C E AP H 1 ndin R 0, g IL 2 M 14 006 A , JU Y 1 200 N 9, 6 S E J E 2 20 PT UL 3, 06 E Y 20 O MB 28, 06 N CT ER 20 O O V B 1, 06 D EM ER 20 EC B 6 06 EM ER , 2 0 JA BE 10 06 , FE NU R 1 200 BR AR 5, 6 U Y 1 200 A 9 M RY , 2 6 AR 2 00 C 3, 7 H 20 3 M 0, 07 A 2 JU Y 4 007 N ,2 JU E 8 00 SE AU LY , 2 7 PT GU 13 007 E ST , 2 O M B 17 0 0 C E , 7 N TO R 20 O 2 VE BE 1, 07 M R 2 200 JA BE 6, 7 R 2 FE NU 30 007 BR AR , 2 U Y 00 M AR 4, 2 7 A R Y 00 C 8, 8 AP H 1 20 R 4, 08 IL 2 M 18 008 A , JU Y 2 200 N 3, 8 SE AU E 2 20 PT GU 7, 08 S 2 O EM T 1 00 C B , 8 N TO ER 20 O VE BE 5, 08 R 20 D M EC B 10 08 EM ER , 2 0 JA BE 14 08 N R ,2 U AR 19 008 Y , 20 23 08 ,2 00 9
GSK (All NRTI's)
BMY (All NRTI's)
GILD (All NRTI's)
Generic ddI
Generic AZT
Generic Stavudine
Source: IMS Health
934 Study Results Support Benefits Of Truvada, Atripla

Gileads 934 study is an ongoing open-label, randomized trial of 517 treatment-nave patients, comparing Viread and Emtriva to Combivir (AZT plus 3TC), both in combination with Sustiva. The trials primary endpoint was at 48 weeks, although the study is continuing through 144 weeks. Gilead has reported data from four different time points (24, 48, 96, and 144 weeks) that have demonstrated benefits for Viread/Emtriva over Combivir. The most common cause of discontinuation for patients in the Combivir arm was anemia (14 vs. 0 patients in the Viread/Emtriva arm, p < 0.001), while rash was the most common reason for discontinuation in the Viread/Emtriva arm (two patients). Renal safety was similar in the two groups with no patient discontinuations due to renal impairment. The 48-week data were added to Truvadas label in March of 2006. The 144week data from the trial were presented in July 2007 at the 4th International AIDS Society Conference on HIV Pathogenesis, Treatment, and Prevention in Sydney, Australia. They demonstrated that the benefits of Viread/Emtriva continued through almost three years of therapy. Efficacy data are presented in the table below. Through 144 weeks, no patients in either arm of the study developed the K65R mutation (associated with reduced sensitivity to Viread). Fewer Viread/Emtriva/Sustiva patients developed the M184V/I mutation, associated with resistance to either Emtriva or lamivudine (2 patients vs. 10, p=0.02). After 144 weeks a greater percentage of patients in the Combivir/Sustiva group discontinued drug because of adverse events (11% vs 5%, p=0.01). The most common cause of discontinuations was anemia for Combivir/Sustiva (14 patients vs. 0 for Viread/Emtriva/Sustiva, p<0.001) and rash for Viread/Emtriva/Sustiva (4 patients vs 1 in the Combivir/Sustiva arm). Renal safety and function were similar between the two groups, and no patient discontinued due to renal events. A significant median decrease in limb fat was seen in the Combivir/Sustiva arm (decrease from 6.0 to 4.9kg, n=49, 38), while a significant median increase was seen in the Viread/Emtriva/Sustiva arm (increase from 7.4 to 8.3kg, n=51, 48).
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934 Study Key Findings At 24, 48, 96, and 144 Weeks
Atripla 24-weeks Viral load <400 copies/mL Viral load <50 copies/mL Discontinuation due to adverse events 48 weeks Viral load <400 copies/mL Viral load <50 copies/mL Discontinuation due to adverse events 96-weeks Viral load <400 copies/mL Viral load <50 copies/mL Discontinuation due to adverse events 144-weeks Viral load <400 copies/mL Viral load <50 copies/mL Discontinuation due to adverse events
Combivir/Sustiva 78% 65% 9% 73% 71% 9% 62% 61% 11% 58% 56% 11%
p-value 0.01 0.038 0.008 0.002 0.027 0.019 0.004 0.16 0.023 0.004 0.08 0.01
87% 73% 3% 84% 80% 4% 75% 67% 5% 71% 64% 5%
SWEET Data Suggest Benefit For Combivir Switchers

To support the conversion of patients from Combivir-based to Truvada-based regimens, Gilead has conducted a Phase III trial evaluating virologically-suppressed patients with HIV who switched from Combivir to Truvada. The SWEET (Simplification With Easier Emtricitabine and Tenofovir) study was a 48-week open-label study evaluating 250 HIVinfected patients. At study entry patients were well controlled (HIV RNA less than 50 copies/mL for the last two consecutive testings and less than 400 copies/mL for more than three months) while on Combivir/Sustiva. Subjects were randomized 1:1 to continue on Combivir (n=117) or switch to Truvada (n=117), both in combination with Sustiva. 48-Week data were presented at the 11th European AIDS conference (EACS) in Madrid, Spain in October 2007. In general the data showed patients in both arms maintained good viral suppression, while those switched to the Truvada arm had improvements in treatment-related side effects. In terms of viral suppression, 88% of patients switched to Truvada were suppressed to less than 50 copies/mL at 48 weeks, compared to 85% who continued with Combivir. As for side effects, 5% of Combivir patients but 3% of Truvada patients discontinued study drug due to adverse events. For those patients whose limb fat was measured by DEXA scan, a median increase in limb fat of 0.21 kg was observed among patients who switched to Truvada, while a median decrease of 0.14 kg was seen in patients continued on Combivir (p=0.025). A median increase in hemoglobin of 0.5 g/dL was observed among Truvada patients and a median decrease of 0.1 g/dL was seen in patients on Combivir (p<0.001).
D.A.D. Data Should Drive Further Switching To Tenofovir-Based Regimens

The D:A:D trial was published in The Lancet in April 2008, having first been released at the CROI conference in early 2008. D:A:D is a prospective study of 33,347 patients encompassing 157,912 person-years that showed the use of GSKs abacavir is associated with a 90% increase in the risk of myocardial infarction. Updated data presented at CROI
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in 2009 found no association between tenofovir and cardiovascular events, while continuing to show an association between abacavir and MI. Our consultants think that the D:A:D data will be damaging to GSKs abacavir. Our consultants have said they will consider switching any abacavir patients who have high cardiovascular risk factors to tenofovir. Although there is no certain mechanism for abacavirs effects on myocardial infarctions, they find this data troubling and have decided to adopt a conservative stance in switching any patients who could be at risk. In particular, our consultants note they would switch any patients with high lipid levels, diabetes, or even impaired glucose tolerance. In total our consultants estimate that these high risk patients account for nearly 60% of the patients currently treated with abacavir. Our consultants sentiments were echoed in an editorial accompanying the D.A.D. publication. The editorial said One additional infarction would be expected for every 11 [high risk patients] treated with abacavir.On the basis of this risk, alternatives to abacavir and didanosine in high risk patients should be considered. However, the decision to switch antiretroviral therapy must be made cautiously given the known toxicities of inadequate viral suppression. Gilead estimates that 102K patients are on abacavir in the U.S. and 66K are on it in the big five nations of the E.U., while there are 330K patients on tenofovir in the U.S. and 127K, on it in the EU. Thus we expect the incremental opportunity for abacavir switches will be meaningful for Gilead over the next 12-24 months.
GlaxoSmithKlines HIV Franchise Facing NRTI Share Loss

GlaxoSmithKline continues to lose considerable ground to Gileads single-pill NRTIs, in a market that it once dominated. While the total prescription share of the companys expansive NRTI franchise (Combivir (Retrovir + Epivir), Trizivir (Retrovir + Epivir + Ziagen), its once-daily version of Epivir (3TC), Epzicom (once-daily Epivir + Ziagen), Retrovir, and Ziagen) remains substantial. Despite expected share losses, the overall HIV franchise is expected to generate 1.5B in revenue in 2009, with a low to mid single digit constant currency growth worldwide. Epzicom/Kivexa, approved in 2004, is the one growth driver for the companys NRTI franchise however, recent safety concerns and some questions of potency may slow uptake near term, and limit the long term sales peak potential of the drug. GlaxoSmithkline Still Hopeful That HLA-B*5701 Screening Could Boost Ziagen & Epzicom Ziagen, also a component of Epzicom and Trizivir fixed dose combinations, has been associated for sometime with hypersensitivity reactions (HSR) in the 8-9% range which has limited its use somewhat despite a favorable once daily dosing profile. Because rash can be an early symptom of Ziagen hypersensitivity, our physician consultants are reluctant to combine it with Sustiva, the leading NNRTI. Sustiva can cause a generally benign skin rash in 5% of patients, but the rash may be indistinguishable from early hypersensitivity reactions to Ziagen, causing confusion and uncertainty with regard to managing or altering a patients regimen. Recently, GlaxoSmithkline has looked to HLA-B*5701 genetic screening as a means of overcoming the hypersensitivity hurdle. Data from the PREDICT-1 study presented at ISA 2007, that patients in the intervention arm (genetic test used to guide treatment) were about half as likely to as those without test guidance to develop hypersensitivity reactions (3.4% vs 7.8%, respectively). In the arm without test guidance, 2.7% of patients
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had immunologically confirmed hypersensitivity reactions, compared with none in the intervention arm. The test had a negative predictive value of 100%, and positive predictive value of 48% (i.e., some people who tested positive for HLA-B*5701 did not have hypersensitivity reactions). Data presented at ICAAC 2007 from the retrospective SHAPE analysis confirmed that patients who were HLA-B*5701 positive were more likely to report fever (87% vs 56%) and constitutional symptoms (85% vs 73%) than HLA-B*5701 negative subjects. Further, HLA-B*5701 positive subjects more often had symptoms in 3 or more categories (82% vs 61%). Though suspected hypersensitivity symptoms occurred after a median of 7 days in both groups, everyone in the HLA-B*5701 positive group who experienced symptoms did so within about a month. 94% of HLA-B*5701 positive subjects had onset of hypersensitivity reaction symptoms within 21 days of initiating Ziagen. In contrast, some HLA-B*5701 negative patients had suspected hypersensitivity symptoms more than a year after starting Ziagen, suggesting that the drug was unlikely to be the cause. But Recent Data on Cardiovascular Risks Raises Some Additional Questions More recently, the drug has been associated with higher levels of cardiovascular risk (specifically MI) in two separate analyses a D:A:D cohort analysis reported at CROI in February 2008 and an analysis by SMART investigators at the August 2008 International AIDS Conference. While an analysis of GSKs HIV Data Repository, which included 54 Phase II-IV clinical trials, did not shown an association. Data from the large D:A:D (Data Collection on Adverse Events of Anti-HIV Drugs) cohort showed that patients who took Ziagen and didanosine had a higher rate of myocardial infarction within a 6 month time frame than those taking other NRTIs. In the 2,752 patient continuous therapy arm of the Strategies for Management of Anti-Retroviral Therapy study, patients who received Ziagen and not didanosine were compared to those patients on didanosine alone and to those receiving NRTIs besides Ziagen or didanosine. The adjusted hazard ratio for clinical MI was 4.3 (95% CI 1.4 - 13.0), for major cardiovascular disease (defined as MI, stroke, surgery for coronary artery disease and cardiovascular death) was 1.8 (95% CI 1.0 - 3.1) and for expanded cardiovascular disease (defined as major cardiovascular disease as previously described, plus congestive heart failure, peripheral vascular disease, coronary artery disease requiring drug treatment and unwitnessed death) was 1.9 (95% CI 1.3 - 2.9), elucidating an excess risk of cardiovascular with Ziagen as compared to other NRTIs. Baseline data from a subset of patients with available biomarker data demonstrated that high sensitivity C-reactive protein was 27% higher (p-value = 0.02) for and IL-6 levels were 16% higher (p-value = 0.02) for patients receiving Ziagen (n=175) when compared to patients receiving other NRTIs (n=500). Didanosine was not associated with either an elevated risk of cardiovascular disease or altered biomarker levels. GSK's pooled analysis of its HIV Data Repository included data on 14,683 HIV positive patients, with 9,639 on abacavir and 5044 on regimens without Ziagen. The 54 trials included 13 randomized clinical trials in which patients were randomized to Ziagen or a comparator, 33 trials in which all patients received Ziagen as part of a background regimen and 8 trials in which patients did not receive Ziagen at all. These studies were not designed to look at cardiovascular outcomes, so data on many cardiovascular risk factors such as smoking and inflammatory biomarkers was not available. Overall rates of cardiovascular events in these studies were lower than observed in SMART, similar in the Ziagen and non-Ziagen groups, and similar to the incidence in the general population. The MI rate in the Ziagen group was 0.114%, lower than the 0.139% observed in the nonZiagen group, and a similar pattern emerged when the investigators looked at the
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expanded definition of cardiovascular disease: 0.249% for the Ziagen and 0.416% for the non-Ziagen group, prompting the investigators to conclude that there was no difference in the incidence of ischemic coronary events or MI among patients who did or did not receive Ziagen. Although the data are not definitive, they do raise some questions with regard to the risk/benefit of the drug in certain patient groups.
Bristol-Myers Squibbs NRTIs Decline Due To Branded And Generic Competition

Bristol-Myers Squibbs Zerit franchise has been under siege from Gileads Viread since the publication of the 903 study. Gileads ability to leverage the convenience of its two oncedaily antiviral NRTIs in a single pill puts further pressure on Zerit. Bristol-Myers Squibbs franchise was dealt a further blow when Videx generics were allowed to enter the U.S. market in December 2004. Worldwide Bristol-Myers Squibb NRTI (Zerit, Videx and Videx EC) sales were $240MM in 2007 and we forecast $65MM in 2012, diminished by the introduction of Videx/EC generics and competitive inroads by Gileads Viread, Truvada and Atripla.
Achillions Elvucitabine Awaiting A Partner

Elvucitabine (ACH-126,443 or b-L-Fd4C) is an L-cytosine analog, similar to 3TC and FTC, being developed by Achillion Pharmaceuticals. The potential advantages of the drug relative to 3TC and FTC are: (1) The L-cytosine isomer may be less toxic, (2) It has a longer half life and (3) It is potent at low concentrations which may prove to be advantageous in fixed combination dosing. Achillion is evaluating the 10mg elvucitabine dose in additional Phase II trials that should help elucidate its commercial opportunity. A 74-patient Phase II study was initiated in May 2006 and was a comparative safety, antiviral efficacy and pharmacokinetics trial in HIV treatment-naive patients enrolled at 20 sites in the U.S. The trial is comparing therapy with elvucitabine versus Epivir, both in combination with Sustiva (BMYs Non-nucleoside reverse transcriptase inhibitor [NNRTI]) and Viread (NRTI). Patients who respond favorably are eligible to receive an additional 12 or 36 weeks of elvucitabine treatment. Twelve-week data from this trial were announced in October 2007. The primary endpoint was a non-inferiority comparison of the proportion of patients who achieved undetectable status (<50 copies HIV RNA/mL) at week 12. It was hit as the confidence intervals of elvucitabine and Epivir overlapped. 70% of elvucitabine and 74% of Epivir patients who completed 12 weeks of dosing were undetectable (HIV < 50 copies/mL). The mean change in HIV-RNA from baseline was -2.7 log (+/- 0.82) for Elvucitabine/Sustiva/Viread and -3.0 log (+/- 0.79) for Epivir/Sustiva/Viread. Elvucitabine was safe and well tolerated, with a side effect profile similar to Epivir. Notably, elvucitabine produced no grade 3 or 4 adverse events, no grade 3 or 4 laboratory abnormalities, no decreases in white blood cells, no decreases in neutrophils, and no evidence of mitochondrial toxicity. In June 2008, Achillion released further data from this study showing that elvucitabine's safety and efficacy profile is just as good through week 48. At week 48, elvucitabine produced a mean change in HIV-RNA from baseline of -3.0 log vs -3.2 log for 3TC. 96% of elvucitabine patients reached undetectable, vs 97% for 3TC. The safety profile of elvucitabine and 3TC were comparable in both the incidence and severity of AE's.
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A second Phase II study released data in February 2008. This randomized, double-blind study analyzed the viral kinetics, safety, and pharmacokinetics of elvucitabine in 14 HIVinfected patients who had failed a prior HAART regimen which included Epivir. Entry criteria were based on genotype analysis with failure being defined as the presence of the M184V mutation, which confers reduced activity of Epivir or Emtriva. Patients were randomized to receive either 10 mg of elvucitabine once daily (in place of Epivir) or continue receiving 300 mg of Epivir once daily, for 14 days. The patients other two HAART regimen drugs remained unchanged. If patients responded favorably, they were allowed to receive an additional 24 weeks of elvucitabine. Elvucitabine and 3TC were similar in the 14-day blinded phase of the study, but in the open label extension phase, 8 of 14 (57%) patients on elvucitabine achieved a 0.5 log or more reduction in viral load. Our consultants have said that a mean reduction in viral load of >0.5 log10 suggests activity in M184V mutants. Elvucitabine succeeded in meeting this bar. Achillion has begun partnering discussions for Elvucitabine, and hopes to move it additional studies in 2009 after a partner is signed.
Avexas Apricitabine Also Appears to Have Activity Against M184V

Apricitabine (ATC) is cytidine NRTI, that entered its first Phase III trial in the U.S. in early 2008. Enrollment in the initial two dose component of the trial has been completed, and results from that component are expected during Q2:09. Apricitabine is being studied as an NRTI for people who have developed resistance, particularly failed lamivudine. Avexa initially licensed the drug from Shire in 2005, and renegotiated for worldwide rights in January 2007. Initial results from one of the companys first Phase IIb studies (AVX-201), was presented in March 2007. The trial compared ATC viral load reduction in patients with drugresistant HIV (M184V mutation) with lamivudine viral load reduction. Forty-seven patients completed 21 day dosing (17 patients = 600 mg doses bid of ATC/ 16 patients = 800 mg doses bid of ATC/14 patients = 150mg 3TC bid). Patients who received ATC achieved - 0.8 log10 (85%) reduction vs -0.03 log10 for 3TC. Nine patients achieved a 1.5 log10 (97%) reduction and 3 patients achieved over a 2.0 log10 (99%) reduction. Patients with drug resistance still achieved a significant benefit from ATC. Notably, there were no SAEs or discontinuations due to drug treatment. Fifty-one patients in a second safety study were followed through 24 weeks, and data was reported at the recent International AIDS conference in August 2008. ATC was dosed at 600mg or 800mg bid, and the most common drugs used with ATC were Ziagen, Videx, Viread, Reyataz, Kaletra and Norvir. Safety results were favorable, as there were no SAEs and no discontinuations due to drug treatment. AEs were reported at 11.8% in the 600mg dose, 16.7% in the 800mg dose and 18.8% in the lamivudine arm.
RFS Pharmas Amdoxovir Undifferentiated

Amdoxovir (DAPD) is an NRTI in Phase II. The triphosphate form of DXG is a potent and selective inhibitor of HIV-1, including drug resistant viruses harboring clinically relevant mutations. It is also active against HIV-2 and hepatitis B virus. To date, 188 subjects have safely received DAPD in six Phase I and II studies. There are currently two doses of amdoxovir being studied in clinical trials: 300mg and 500mg, both of which are taken twice a day. In DAPD-150, a phase I clinical trial that enrolled 18 treatment-experienced
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and multi-resistant patients. The patients were randomized to either 300mg or 500mg amdoxovir and OBT. After three months of therapy, the 300mg amdoxovir arm demonstrated a 1.53 log reduction and the 500mg a 0.75 log reduction. Results from a 24-patient Phase 2a study were presented in February 2008 at the 15th Conference on Retroviruses and Opportunistic Infections. Patients had a plasma RNA viral load of greater than or equal to 5,000 copies/ml and were not currently on antiretroviral therapy. Drug regimens given were either 500mg bid of Amdoxovir (DAPD) alone or in combination with 200mg or 300mg bid of AZT. In each arm, patients were randomized 3:1 to DAPD or placebo. At baseline, mean viral load was 4.5 log and mean CD4 count was 417 cells/mm3 Both DAPD/AZT combination groups achieved a 2 log decrease in viral load and were significantly improved over the DAPD monotherapy group. The significantly more potent DAPD/AZT therapy suggests synergy between the two agents, and the two separate doses of AZT given produced equivalent potency. Importantly, no drug-drug interactions were observed. The clinical trial program continues but is in early stages.
Sustiva Remains The Market Leading NNRTI, Although Competitive Pipeline Expanding
Despite competitive inroads by Gileads NRTI franchise, Bristol-Myers non-nucleoside reverse transcriptase franchise continues to be a success due to Sustiva, which is the NNRTI of choice for use in combination with other once-daily antiviral regimens. BristolMyers markets Sustiva in North America and in certain European countries, while Merck markets it elsewhere (under the brand name Stocrin). Sustiva (including Atripla) continues to capture roughly 80% of new and total NNRTI prescriptions, and it remains the most prescribed product among PIs and NNRTIs. Total prescriptions for Sustiva or Sustiva-containing regimens were 1.15M in 2008. Sustivas success has been due, in large part, to the products once-daily dosing and low pill burden. The availability of the Atripla triple combo should allow Sustiva to further piggy-back off of Gileads successful HIV franchise, although we note that the competitive pipeline in both NNRTIs and alternate categories (i.e. Isentress) may make some inroads over time in first line use. Sustiva sales (including those recorded as part of Atripla) were $1,149MM (+20%) in 2008 and we forecast sales of $1.75B in 2012.
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U.S. NNRTI Market

80% 70% 60% Rx Share 50% 40% 30% 20% 10% 0%
Nov-06 Nov-07 May-06 May-07 May-08 Nov-08 Mar-06 Jul-06 Mar-07 Jul-07 Mar-08 Sep-06 Sep-07 Jan-06 Jul-08 Sep-08 Jan-07 Jan-08 Jan-09
Rescriptor
Sustiva
Atripla
Viramune (nevirapine)
Intelence
Source : IMS JNJs Intelence: Recently Approved Next-Generation NNRTI Intelence, formerly TMC125 etravirine), a next-generation twice-daily NNRTI appears to have activity against both wild type and resistant strains of HIV. Intelence is a di-arylpyrimidine (DAPY) derivative that is one of the first investigational NNRTI to demonstrate efficacy in patients with NNRTI resistance. The FDA issued an accelerated approval for Intelence on January 18, 2008 for treatment-experienced HIV patients who have an NNRTI-resistant viral strain based on 24-week data from two ongoing Phase 3 trials (DUET-1 and DUET-2). The drug was also approved in the EU in September 2008. JNJ filed for full approval on February 5 , 2009, which included the full 48-week follow-up from the DUET-1 and DUET-2 Phase III trials. Physicians do view Intelence as an important new option for treatment-experienced patients with NNRTI resistance, although efficacy does appear to depend on the number of etravirine MC125 resistance-associated mutations. IMS scripts data showed that almost 8,493 prescriptions for Intelence were written in January 2009. To date, Intelence market share within the NNRTI class stands at 6%, and appears to be taking share away primarily from single agent Sustiva. The combined market share of Sustiva + Intelence has remained constant at 29 - 32% since the launch of Intelence. We are forecasting worldwide sales of $50MM in 2009, and $500MM in 2013. Intelence is an inducer and a substrate of CYP3A4, a key metabolic enzyme; the label indicates Intelence should not be co-administered with certain protease inhibitors including Aptivus (tipranavir), Lexiva (fosamprenavir) or Reyataz (atzanavir). These protease inhibitors comprise nearly 50% of the protease inhibitor market. Two Phase IIb studies were conducted on this compound: the TMC125-C203 trial in Europe and Canada and the TMC125-C223 trial in the U.S. 48-week results from TMC125-C223, a randomized, partially-blinded Phase IIb dose-ranging study (n=199) in treatment-experienced/NNRTIresistant/PI-mutated HIV-1 patients were presented at the 2006 AIDS meeting in Toronto, and showed a -0.88 log reduction for the 400 mg bid dose with optimized background regimen, and a -1.01 log drop for the 800 mg bid dose with optimized regimen versus a 635
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0.14 log drop for the optimized regimen alone control arm (p<0.05). A 1 log viral load reduction was achieved by 31%, 34% and 8% of patients in the 400mg, 800mg and placebo arms, respectively, and performance in patients with NNRTI resistance was superior in the TMC125 arms. Diarrhea (22%) and rash (20%) were reported as the most common adverse events for the Intelence groups versus 15% and 8% for the control arm respectively. Severe skin reactions, including Stevens-Johnson syndrome, were reported by <1% of the patients, and the label advises discontinuation of therapy if severe rash develops. A new formulation has shown equivalence between the 200 mg twice daily currently approved and the older formulation that had tested 800 mg twice daily. Initial Phase III trial results from DUET 1 and DUET 2 were published in the July 7, 2007 issue of The Lancet and presented at IAS in late July, and 48-week data were first presented at CROI in February 2009. The DUET trials had identical protocols, and relative to prior trials looked at treatment experienced patients with documented NNRTI resistance, and utilized a novel background regimen that included Prezista JNJs PI that was investigational at the time of the trial. The primary end point of both trials was the proportion of patients with undetectable viral load (<50 copies/mL) at 24 weeks. In DUET 1, 612 patients were assigned to receive Intelence (n=304) or placebo (n=308). At week 24, 56% of patients in the Intelence arm had confirmed viral load of <50 copies/mL vs. only 39% for placebo (p= 0.005). At week 48, 60% percent of patients in the Intelence arm had a confirmed undetectable viral load of <50 copies/mL vs. 39% for placebo, and the statistically significant different improved (p<0.0001). In DUET 2, 591 patients were assigned Intelence (n=295) or placebo (n=296). Similar to DUET 1, the background regimen included 600mg/100mg Prezista/RTV BID, plus investigator-selected NRTIs and optional use of Fuzeon. At week 24, 62% patients in the Intelence arm had viral load of <50 copies/mL vs. 44% patients in the placebo group (p=0.0003). At week 48, 61% patients in the Intelence arm had viral load of <50 copies/mL vs. 48% patients in the placebo group (p<0.0001). Discontinuation was similar in both studies at 24 weeks (14-17% Intelence/18-25% placebo). The most common adverse events that occurred at a higher rate than placebo were rash (17% vs. 9%) and nausea (14% vs. 11%). Severe and potentially life-threatening skin reactions, including Stevens-Johnson Syndrome, hypersensitivity reaction, and erythema multiforme, occurred (<0.1% percent) in patients taking the drug. JNJs TMC-278: Once-Daily NNRTI With Potential Questions TMC-278 (rilpivirine) is a second-generation NNRTI from JNJs Tibotec that is more potent than JNJs Intelence and can be dosed once-daily. TMC-278 is active against some of the common Sustiva resistant mutations. It is an inhibitor of CYP3A4, complicating combinability with other HIV agents that are dependent on this metabolic pathway. Tibotec completed a 48-week Phase 2b study of TMC-278, and presented the 96-week results from the study at the AIDS conference in August 2007. The antiviral efficacy observed at week 48 was sustained through week 96, and >70% of TMC278 maintained an undetectable HIV RNA level, similar to the patients in the Sustiva control arm. Additionally, incidence of rash and CNS toxicity was lower for TMC 278 compared to Sustiva. Tibotec started two Phase 3 trials of TMC-278 in treatment-nave patients, a 680patient study comparing TMC-278 to Sustiva in combination with GILDs Truvada (started in April 2008), and a 680-patient study comparing TMC-278 to Sustiva + an investigator choice of 2 NRTIs (started in May 2008). Both studies will dose 25mg of TMC-278 once per day for a total of 96 weeks, assess non-inferiority of TMC-278 to Sustiva after 48 weeks, and monitor safety and tolerability out to 96 weeks of therapy. The trials are estimated to complete around August 2010. The 25mg dose selected in the trial is not surprising since prior data showed a lack of dose response within the 25 300mg daily dose range, and a QTc signal at higher doses.
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Earlier 7-day monotherapy study in treatment-nave patients showed a mean HIV RNA decrease of 1.1-1.3 logs, showing less potency than Sustiva monotherapy, and oddly, no dose response across a wide dosage range (25-300mg once/day) was observed. Our consultants find these data to be perplexing, and have also noted a wide range of responses for TMC-278, suggesting a potential pharmacokinetic issue. Specifically, patients in each of the dosing cohorts had a response as low as a 0.7 log reduction to as high as 1.9 log reduction. That said, a 48-week study in treatment naive patients comparing TMC-278 to Sustiva showed a similar viral reduction to Sustiva (77-81% of TMC278 treated patients were <50 copies/ml at 48 weeks, vs. 81% for Sustiva). 96-week data presented at the AIDS meeting in August 2008 showed that TMC278 maintained its efficacy throughout the study, with >70% of patients remaining under 50copies/ml of viral RNA. At 48 weeks TMC-278 treated patients had lower rates of central nervous system disorders (33% vs 53%, 1% vs 11% vertigo, 3% vs 10% abnormal dreams), rash (8% vs. 19%), total cholesterol (5mg/dL vs. 31 mg/dL), and LDL cholesterol (0mg/ml and 16 mg/ml). At 96 weeks, rates of rash (9.7% for TMC278 vs. 22.5% for Sustiva), CNS adverse events (36.6% vs. 53.9% for Sustiva), and psychiatric adverse events (16.2% vs. 21.3%) all favored TMC 278 over the active Sustiva control. However, Grade 3 or 4 adverse events were higher in the TMC-278 arm at 48 weeks (25% vs. 16%) and at 96 weeks (27.2% vs. 21.3%). Based on these data, and an observation of QTc prolongation at the higher doses, the 25 mg once daily dose was selected for advancement into Phase 3 trials. Pfizers UK-453,061: Early Data Show Promising Activity But Potential GI Tox Signals. UK-453,061 is a next-generation NNRTI with activity against common Sustiva-resistant mutations, and recently demonstrated impressive antiviral activity in a proof-of-concept study. UK-453,061 is a weak CYP3A4 inducer. Pfizer plans to start patient dosing in a Phase 2b study of UK-453,061 vs. Intelence in combination with Prezista/Ritonavir and a NNRTI for the treatment of antiretroviral experienced HIV-1 infected patients. The study will evaluate 750mg and 1000mg UK-453,061 1x/day. Clinical Data Summary: Phase 1 studies in healthy volunteers showed that single doses of 500mg or higher maintained serum blood concentrations above the EC90 for at least 24 hours, supporting the potential for once-daily dosing. A 7-day monotherapy study in treatment-nave patients showed a mean HIV RNA decrease of 1.7-1.8 logs (range 1.4-2.3 log) for the two best doses (500mg twice-daily and 750mg once-daily). UK-453,061 was generally well tolerated, with no discontinuations due to adverse events (AEs) and most AEs reported as mild to moderate. However, there were potentially concerning GI signals, with half of the patients (3 out of 6) receiving 750mg once-daily dosing reporting nausea, compared with 2 out of 6 patients treated with 500mg twice per day, and none with 500mg once per day. We are cautious about extrapolating conclusions from very small patient cohorts, but the sensitivity to nausea at higher doses suggests that PFE may not be able to advance its most potent doses in future trials. Idenixs IDX 899: Promising Profile, But Awaiting Safety Details. Idenix is developing IDX-899, an NNRTI with a strong potency for wild-type virus (EC50 = 0.8nM), as well as many common NNRTI- resistant strains. Data from a 7-day monotherapy study in treatment nave HIV patients showed a dose-independent mean viral load reduction of 1.78 1.87 logs at doses of 100mg, 200mg, 400mg, and 800mg once/day. All patients achieved at least >1 log viral load decline after 7 days of dosing (range 1.3 2.4 logs). IDIX reported no treatment-related adverse events and no grade 3 or 4 laboratory abnormalities. All adverse events reported were mild in nature, and did not appear to be dose dependent. Additionally, IDIX conducted two drug-drug interaction
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studies of 899, one with Reyataz and another with Truvada. While the details have not been presented, the company stated that no relevant drug-drug interactions were observed. Preclinical data show that IDX899 is metabolized by CYP3A4 and the initial pK data in healthy subjects suggests exposure consistent with once-daily dosing, and serum drug levels 30-40x above the EC50. Safety data from a healthy volunteer study showed 2 discontinuations, one due to rash and another due to vomiting as well as reports of vivid dreams (1/16), headache (1/16), and polyuria (2/16). IDX-899 is a covalent binder and mechanism based inhibitor of CYP3A4, and long-term safety with this profile will be important. In February 2009, IDIX signed a partnership for IDX899 with GSK with an upfront payment of $34M, where GSK assumes all development responsibility and associated costs. Ardeas RDEA806 Has Promising Early Profile For HIV RDEA showed promising Phase 2a 7-day monotherapy data in August, and plans to start a 6-months Phase 2b of RDEA806 vs. Sustiva on a background of Truvada in 100-200 patients in 3Q, with data expected in 2H:09. Early data suggest key points of differentiation for 806 are: 1) activity in Sustiva-resistant HIV; 2) a clean early tolerability profile, with no CNS effects; 3) potential for combination and/or co-formulation with other HIV products with limited expected drug interactions; and 4) potential added benefits on triglycerides, cholesterol, and serum uric acid. Phase 2a Presented In August. In late June RDEA announced the top-line results from the 48-patient 7-day monotherapy study of RDEA806 in treatment nave HIV patients, and the data were presented at the AIDS meeting in Mexico in August. The median viral reduction at day 8 in the 800mg once daily, 1,000mg once daily, and the 400mg twice daily arms was 1.8 1.9 logs. The 600 mg arm showed a lower reduction of 1.4 logs. Additionally, the fraction of patients achieving >=1 log decrease in viral load was 7/9 for 600mg arm, and all patients in the 800mg daily, 1000mg daily, and 400mg twice/day arms. There was no evidence in viral rebound in the study, and patients reached nadir between days 7 9. All doses were well tolerated and no patients discontinued the study prematurely. A few transient cases of diarrhea were reported in the 1000mg arm without food.
Abbott's Kaletra Slipping Into #2 Spot in the U.S.

Abbotts Kaletra, a single-capsule combination of the second-generation protease inhibitor Lopinavir (ABT-378) boosted with Norvir slipped into the #2 spot for prescribed protease inhibitors. Relative to older PIs (Crixivan, Viracept), the drug has significant advantages including a lower rate of metabolic abnormalities (lipodystrophy, insulin resistance, and HIV-related cachexia or wasting) and resistance, thus gaining significant share at the expense of older PIs like Crixivan and Viracept after its launch in 2000. Kaletra now faces stiff competition from new once-daily PIs, including BMYs Reyataz and, to a lesser extent, GlaxoSmithKline/ Vertexs Lexiva. BMY Reyataz did officially esclispe Kaletra prescriptions for the full year in 2008 for the first time. We do not expect the competition to let up near term in addition to our expectation for continued gains for Reyataz, recent results from JNJs Prezista trials in early experienced and treatment nave patients suggest Prezista is going to be a very tough competitor for Kaletra in the future. While our physician consultants do expect continued first-line inroads by competitive agents Kaletra has shown strong durability in the marketplace. Results from a seven-
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year follow-up trial presented at EACS in November 2005 suggest that 98% of patients maintain viral loads <400 copies/mL. The company has also recently introduced a once daily regimen of the drug in major country markets (800mg once daily vs. 400mg BID) including the U.S., which has provided a boost to Rx growth particularly outside of the U.S. where it maintains a market leadership position in several key countries. As of January 2009, Kaletra held a 30% total prescription share of the U.S. protease inhibitor market (exclues Norvir), down from 34% in January of 2008. We expect continued downward share pressure in the U.S. near term, but better performance O.U.S. given more limited availability of Prezista internationally (in the near term) and the better success of the Kaletra once daily formulation. Mylan recently received WHO clearance to market a generic form of Kaletra in certain emerging markets. Abbott does however have signficiant patent protection through 2016 on the product, and prices Kaletra very low in emerging areas. We currently anticipate no generic launches in key country market prior to 2016. Worldwide Kaletra sales were $1,473MM in 2008 (up 11%), and we estimate sales of $1,547MM in 2013.
Abbotts Norvir Growing with Reyataz, Lexiva, and Prezista

Norvir (ritonavir), one of the first PIs used for treating HIV, has become widely used in small doses to boost the potency of three novel competitive protease inhibitors BristolMyers Squibbs Reyataz, GlaxoSmithKlines Lexiva and most recently Johnson & Johnsons Prezista. Kaletra, the single-pill combination of lopinavir and ritonavir, has been losing market share to both of these recent entrants. Worldwide Norvir sales were $340MM in 2008, and we estimate sales of $400MM in 2013.
Bristol-Myers Squibbs Reyataz Offers Important Advantages Over Competitive Protease Inhibitors
Reyataz has been a big success in the protease inhibitor market, claiming 25% in total prescription share in August 2008, and over 50% of new prescriptions. Reyataz offers improved dosing (two capsules once daily) and virtually no impact on lipids, its main advantages vs. Kaletra. Reyataz is two- to nine-fold more potent than current protease inhibitors. Reyataz targets resistant strains of HIV; indeed, the drug is still effective in 79% of isolates that are resistant to 1-3 protease inhibitors. Results from a 48-week study of Reyataz +/- ritonavir in treatment nave patients were presented at CROI in February 2006, and showed that the presence of ritonavir did not impact response to HIV treatment, as measured by HIV RNA levels. 86% of patients in the Reyataz plus ritonavir arm vs. 86% of patients in the Reyataz alone arm achieved viral loads <400 copies/mL at 48 weeks (primary endpoint), while 75% vs. 70% achieved <50 copies/mL and CD4 T cell counts improved by +189 cells/mm3 vs. +224 cells/mm3 at week 48 (secondary endpoints). We forecast Reyataz sales of $1,340MM (+19%) in 2008 and $1,825MM in 2012. However, JNJs recently-launched Prezista is a new PI with a very competitive profile, and could clip outer year growth.
GlaxoSmithKline/Vertexs Lexiva Solid, But Wont Challenge Kaletra Or Reyataz

Lexiva, GlaxoSmithKline/Vertexs protease inhibitor for the treatment of HIV infection, was approved by the FDA in October 2003. Lexiva is a prodrug of agenerase. Lexiva was approved for use with ritonavir in the E.U. under the brand name Telzir in July 2004. Lexivas relatively low pill burden and dosing flexibility should allow it to modestly
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penetrate the HIV protease inhibitor market. Lexiva is promoted by GlaxoSmithKline, and Vertex receives a mid- to high-teens royalty on Lexiva sales. Lexiva is unaffected by antacids, including proton pump inhibitors (PPIs). Antacids have been found to have a dramatic effect on some PIs, significantly reducing absorption, and substantially reducing levels of the drug in the bloodstream. At the end of 2004 BristolMyers issued a Dear Doctor letter warning that its protease inhibitor Reyataz (atazanavir) should not be used alongside PPIs when coadministered with AstraZenecas Prilosec there was a 76% reduction in blood levels of Reyataz. GlaxoSmithKline estimates that 77% of HIV patients use some form of medication to reduce gastric acid. Lexiva may be dosed in three different ways: two 700mg tablets twice daily; two 700mg tablets once daily in combination with two 100mg capsules of ritonavir; or one 700mg tablet BID in combination with one 100mg capsule of ritonavir BID. In general, our physician consultants view Lexiva as a good drug, but think it is unlikely to unseat Abbotts Kaletra or Bristol-Myers Reyataz as the preferred protease inhibitors. Our physician consultants believe that Kaletra may be more potent (although results from the KLEAN study comparing Lexiva + ritonavir BID to Kaletra BID therapy showed them comparable), while Reyataz offers a lower pill-count (two 200mg capsules once daily). Furthermore, Agenerases drug interactions may prevent Lexiva from playing much of a role in salvage regimens that use two or more protease inhibitors. Competition also is increasing for PIs in salvage regiments from Boehringer Ingelheims Aptivus and J&J/Tibotecs Prezista. Our physician experts believe Prezista is the most promising PI for inclusion in salvage regimens. In June 2007, the FDA approved a Lexiva oral suspension for children 2-18 years. Worldwide Lexiva sales were 160MM in 2008 and we estimate sales of 125MM in 2015.
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HIV Protease Inhibitor Scrip Market Trends Excluding Norvir

40% 35%
PI, Rx Market Share
30% 25% 20% 15% 10% 5% 0% Nov-06 Nov-07 May-06 May-07 May-08 Nov-08 Jan-06 Jan-07 Jan-08 Mar-06 Mar-07 Mar-08 Sep-06 Sep-07 Sep-08 Jan-09 Jul-06 Jul-07 Jul-08
Kaletra
Source: IMS Health
Lexiva
Reyataz
Viracept
Other
Series6
Boehringer Ingelheims Aptivus (Tipranavir): A Niche PI

Next-generation, non-peptidic protease inhibitors may have activity against resistant strains of HIV. One such product is Boehringer Ingelheims Aptivus (tipranavir), which was acquired from Pharmacia. Launched in June 2005, twice-daily Aptivus (500 mg) in combination with ritonavir (200 mg) was granted accelerated approval by the FDA to treat PI-resistant or treatment-experienced HIV patients (Aptivus was also granted approval in the E.U. in October 2005). FDA approval was based on 24-week interim results from 1200 patients in the ongoing RESIST-1 and 2 studies. These trials evaluated twice-daily ritonavir-boosted tipranavir plus optimized therapy in highly treatment-experienced patients with PI resistance. In RESIST-1 (n=620), 35% and 25% of patients in the tipranavir arm had viral load below 400 and 50 copies/mL, respectively, at week 24, versus 17% and 10% in the comparator arm. In RESIST-2 (n=863), 34% and 23% of patients in the tipranavir arm had viral load below 400 and 50 copies/mL, respectively, at week 24, versus 13% and 9% in the comparator arm. The combined 24week results indicated that 40% of patients on Aptivus compared to 18% of patients in the comparator group had viral load reduction greater than 1 log. Patients on Aptivus at 24 weeks also showed a greater increase in CD4 T cell count (+34 cells/mm3) than those in the comparator arm (+4 cells/mm3). In November 2005, a 48-week meta-analysis was reported at the EACS conference in Dublin, Ireland. The results showed that 30% of patients in the tipranavir arm achieved viral loads below 400 copies/mL vs. 14% for the comparator arm (p<0.0001). The meta-analysis also assessed the time to treatment failure (TTF), with 113 days median TTF for tipranavir arm versus 0 days for the comparator arm (p=0.0001). Patients had roughly double the number of CD4 T cells at 48 weeks (44.8 cells /mm3 vs. 21.1 cells/mm3). Overall response rate at 48 weeks was 33.6% in the tipranavir arm vs. 15.3% in the comparator arm. FDA granted full approval of Aptivus based on 48week analyses in October 2007.
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Most recently, three-year data from RESIST studies were presented at the European AIDS Conference in Spain in October 2007. New data showed Aptivus/ritonavir combination provides superior and durable response for up to 3 years of treatment vs. comparator PIs. The response rates in the Aptivus/ritonavir arm were almost three times higher vs. comparator PIs (21% vs. 8%). Response was defined as confirmed viral load reduction of 1 log or more at week 156 without viral rebound, death or treatment changes. 14% of Aprivus/ritonavir patients had viral load of less than 50 copies/mL at week 156 vs. 7% for comparator PIs. Additionally, patients taking Aptivus/ritonavir combined with first-time use of enfuvirtide achieved 38% response vs. 8% for comparator PIs. In this group, at week 156, 22% of patients had viral load of less than 50 copies/mL in the Aptivus/ritonavir arm vs. 9.3% in comparator PIs arm. Boehringer intends to continue long-term evaluation of Aptivus in the RESIST trials, and conducted a Phase III study in treatment-nave patients as well as a Phase II study in pediatric patients. Study 1182.33 was a non-inferiority trial comparing ritonavir-boosted Aptivus (500 mg/200 mg twice daily or 500 mg/100 mg twice daily) versus ritonavirboosted Kaletra (400 mg/100 mg twice daily) for treatment-nave patients. A DSMB review of this study was performed in February 2006 and showed that the Aptivus arms were non-inferior to the Kaletra arm; however, the 500 mg/200 mg Aptivus/ritonavir arm was discontinued due to asymptomatic liver enzyme elevation. Later in H1:06, a post-hoc analysis of patients at 60 weeks found that Aptivus (500 mg/100 mg) was no longer noninferior to the Kaletra arm, and the trial was closed. Additionally, Boehringer is exploring Aptivus in highly treatment experienced HIV patients. The SPRING study, initiated in mid 2007, will enroll 400 HIV positive and highly treatment-experienced patients. It is an open label multinational trial with a primary endpoint of treatment response at 48 weeks, defined as a viral load <50 copies/mL at two consecutive measurements at least five days apart. As of August 2008, Aptivus held just 0.1% TRx share of the U.S. protease inhibitor market, down from its peak of nearly 1%. We continue to expect Aptivus to be a niche PI product.
JNJs Prezista Recently Received First Line Approval

Tibotecs protease inhibitor Prezista (formerly TMC114) was approved by the FDA in June 2006 on Phase IIb data for treatment-experienced patients. In December 2006, the EMEAs CHMP issued a positive recommendation for Prezista and JNJ has launched the product on a country by country basis during 2007. Phase III data in both treatment- naive and early experienced patients was submitted to the FDA in December of 2007, and label expansion for first line use was approved in late November 2008. Data for treatment nave patients was filed in the E.U. in February 2008. Prezista is a highly potent nonpeptidic protease inhibitor which is thought to be a highly flexible molecule, allowing it to adapt its shape to a changing shape of the mutating virus, and therefore providing a high genetic barrier to resistance. The two Phase IIb trials that formed the basis of Prezistas initial approval in treatment experienced patients were partially blinded, 96-week Phase IIb dose-finding trials in combination with low-dose RTV (TMC114-C202 or POWER 2 was conducted in the U.S. and Argentina and TMC114-C213 or POWER 1 was conducted in Europe, Canada, and Brazil). The two trials compared 400 mg QD, 600 mg QD, 800 mg QD, 400 mg BID 600 mg BID (all plus 100 mg ritonavir RTV) versus optimized background therapy plus investigator-selected PI. The trials completed enrollment in 2004, and interim data were presented at CROI in February 2005 with additional updates at IAS in July 2005 and ICAAC in December 2005. At the 24 week interim presented at CROI, investigators
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announced a mean viral load reduction of -1.85 log observed in the highest dose cohort (600 mg Prezista plus 100 mg ritonavir BID) versus -0.27 log in the control group. The percentage of patients with undetectable virus defined as <50 copies/mL ranged from 30-47% in the Prezista/RTV arms compared to 10% in the control arm. Headache (17%) and diarrhea (14%) appeared in the combined Prezista/RTV arms compared to 23% and 20% respectively in the control arm. Additional 24-week results presented in December 2005 at ICAAC showed that 62% of patients achieved viral load reduction of -1 log10 or more in the 600mg Prezista +100mg RTV cohort versus 14% for the control group. As well, 39% of patients in this 600 mg Prezista dose group achieved undetectable virus levels (<50 copies/mL) at 24 weeks versus 7% for the control arm. The most common adverse events were headache (17%) and nausea (17%) versus 17% and 9% in the control arm respectively. Results of pooled 48-week data of POWER 1 and 2 were published in the April 4, 2007 issue of the Lancet, which confirmed earlier published results and that the 600/100mg BID dose of Prezista was the most effective. Tibotec/J&J moved forward with the 600 mg/100 mg BID Prezista/RTV dose in a Phase III study in early experienced patients, TITAN, and an 800mg/100mg once daily dose in a Phase III study of treatment-nave patients (ARTEMIS). Data through 48 weeks of the TITAN trial were published in the July 7, 2007 issue of The Lancet, and presented in an oral abstract at IAS held in late July. TITAN is a randomized, controlled, 96 week Phase III study. The primary endpoint is non-inferiority of a Prezista/RTV arm (600/100mg BID) to a Kaletra arm (400/100mg BID) in confirmed virological response (VL <400/copies/mL) at 48 weeks. Superiority of the Prezista regimen was a secondary endpoint, if the primary endpoint was met. Five-hundred ninety-five (595) patients were randomized and treated (298 Prezista/RTV and 297 Kaletra) and were included in the ITT analysis. At week 48, significantly more patients in the Prezista/RTV arm achieved VL <400 copies/mL (77% vs 68%) and <50 copies/mL (71% vs 60%). These results established non-inferiority, and confirmed superiority of Prezista regimen p=0.008). The Prezista arm also performed well vis a vis virological failure only 1% of the patients in the Prezista arm discontinued due to virological failure vs. 11% in the Kaletra arm. Of those with virological failure fewer patients in the Prezista/RTV arm developed primary PI mutations (21% (n=6) vs 36% (n=20) or NRTI-associated mutations (14% (n=4) vs 27% (n=15). Safety was similar in the two arms with 27% and 30% of patients having grade three or four SAEs in the Prezista and Kaletra arms respectively. AEs were similar, although the rate of diarrhea in the Prezista arm (32%) trended slightly better than the Kaletra arm (42%). Data through 48 weeks of the ARTEMIS trial were presented in an oral abstract at ICAAC in September, and then again in the July 2008 issue of AIDS. ARTEMIS is a randomized, controlled, 96 week Phase III study of treatment nave patients. Six-hundred ninety eight patients were in the ITT analysis (343 Prezista/RTV and 346 Kaletra). Patients enrolled in the study were treatment nave and had viral load > 5,000 copies/mL. Patients were randomized to receive PREZISTA/r 800 mg/100 mg once daily or, based on approved dosing in each country, Kaletra 800 mg/200 mg once daily or 400 mg/100 mg BID plus a background regimen of Truvada. At 48 weeks, 84% of patients in the PREZISTA/r arm reached viral load <50 copies/mL vs. 78 percent of patients in the Kaletra arm, which established non inferiority of the Prezista/RTV regimen. Incidence of SAEs was less in the Prezista/RTV arm than in the Kaletra arm (1.7% vs. 5.2%). Diarrhea was less in the Prezista/RTV arm than in the Kaletra arm (4.1% vs. 9.8%). Moderate-to-severe increases in total cholesterol were also favorable to Prezista/RTV increases were 13% vs. 23% for those patients in the Kaletra group. JNJ filed an sNDA supported by the data from both TITAN and ARTEMIS in December 2007, and received expansion of the of the Prezista label to early experienced and treatment nave patients in late 2008 in the U.S., and is expected to receive expanded
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approval in early 2009 in most major European markets. Relative to tolerability and convenience, our physician consultants believe that, while not perfect, the tolerability of Prezista is preferable to Abbotts Kaletra the leading PI in the category. Pill count is not viewed as excessive (600/100 mg BID for experienced/early experienced 800/100mg once daily for treatment naive), but may not be ideal relative to once-daily PIs including Bristols Reyataz and GlaxoSmithKline/Vertexs Lexiva. As of January 2009, Prezista had captured 11% of the protease inhibitor class up from 6% in August 2008. Over time, we anticipate Prezista will be one of the top PIs in the category. Sales for 2008 were $300MM worldwide split evenly US/OUS; we project sales of $1,120MM in 2013.
Fusion Inhibitors Prevent HIV Entry

Within the last few years, fusion inhibitors have emerged as a new focus of HIV research. Fusion inhibitors target the chemokine receptors CXCR4 or CCR5, or their complementary HIV binding protein gp41. The CCR5 and CXCR4 chemokine receptors are located on the surface of CD4 T cells. Before HIV can invade CD4 T cells, the virus must attach to the T cell via gp41to one of two chemokine receptors on the cell surface and then fuses with the cell membrane. Trimeris and its development partner, Roches Fuzeon is the only approved fusion inhibitor. Fuzeon is a peptide that works by binding to a region of the HIV gp41 protein, normally responsible for fusion with, and penetration of, the cell membrane. This prevents the virus from fusing with the cell membrane. Phase III trials of Fuzeon demonstrated solid efficacy in combination with existing antiretroviral therapy among patients with multiple HIV resistance mutations.
Roche/Trimeris Fuzeon Shows Solid Efficacy In TreatmentExperienced Patients

Fuzeon (enfuviritide) was the first approved fusion inhibitor in the U.S in 2003. Fuzeons uptake has been limited by patients resistance to starting a twice-daily injection regimen, troublesome injection-site reactions, and physicians conservative selection of patients who will likely be compliant with the dosing regimen. In February 2007, precautions regarding nerve pain and the recommendation to avoid injecting Fuzeon near large nerves were added to the label. Furthermore, because Fuzeon is priced at roughly three times most other HIV antiviral agents, reimbursement has been challenging. Our physician consultants indicate that clinician comfort with Fuzeon is increasing, although it generally remains a drug of last resort for treatment-experienced HIV patients. Many state ADAPs have caps on the total number of patients for which they will reimburse Fuzeon. Trimeris and Roche have shown encouraging results using a new CO2-powered needlefree delivery device (B2000 injector) using Bioject Medicals technology, and an sNDA for the device was filed with the FDA in May 2005; however, the companies received an approvable letter in November 2005. The FDA has requested additional safety information regarding injection site reactions including hematomas and nerve pain. In October 2006, the companies announced that they were awaiting the completion of the BOSS (Biojector Open Label Safety Study) trial and would likely resubmit the sNDA in H1:07. In October 2007, Roche and Trimeris announced that they would no longer seek approval of the B2000 device attributed to a significant delay in achieving U.S. regulatory approval due to the time required to generate additional data. Fuzeons pivotal trial program consisted of two Phase III trials, TORO I (T-20 vs. Optimized Regimen Only) and TORO 2.Results from these trials were presented in July 2002 at the International AIDS Conference. Fuzeon demonstrated robust efficacy in combination with antiretrovirals vs. an optimized background regimen (consisting of
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three to five drugs, including up to two newly approved or investigational drugs). TORO 1, conducted in North America and Brazil, enrolled 491 patients who had previously been treated with an average of 12 antiretrovirals. TORO 2, conducted in Europe and Australia, enrolled 504 patients who had previously been treated with an average of 11 antiretrovirals. Patients randomized to Fuzeon self-administered 90mg sc injections twice-daily. TORO 1 results showed that at 24 weeks, 37% of patients randomized to Fuzeon had undetectable levels of virus (<400 copies/mL) compared to 16% of patients in the control arm. TORO 2 results showed similar efficacy as 28% of Fuzeon-treated patients had undetectable levels of virus (<400 copies/mL) compared to 14% of patients in the control. Fuzeon was well tolerated in both TORO 1 and TORO 2, with only 3% of patients discontinuing due to injection site reactions. In July 2004, 96-week follow-up data from TORO 1 and 2 were presented and continued to support the benefit of Fuzeon seen at 48 weeks. Trimeris Looking for Licensor for TRI-1144 In August 2008, Trimeris announced preliminary results from a Phase I study (TRI-1144101) of its next generation fusion inhibitor, TRI-1144. TRI-1144 is a 38 amino acid peptide derived from the HIV gp41 sequence. The drug is being developed as a one daily, low volume injection with less injection site reactions in an effort to improve upon the main ease of use issues that have limited uptake of Fuzeon and the company believes the drug will also have a higher barrier to genetic resistance. The study was a placebo-controlled, double-blind, single-dose trial that explored the safety, tolerability and pharmacokinetics of four doses of TRI-1144 in 24 healthy volunteers. Eighteen subjects received TRI-1144, ranging from 25 mg to 250 mg. Plasma half-life ranged from 13 to 20 hours and was dosedependent. Results from the trial suggest that a 25mg once daily injection would be feasible, and importantly there were no injection site reactions in the study. Trimeris has decided not to fund further development of the program and is actively looking for a licensor.
CCR5 Chemokine Antagonists Prevent Viral Entry

CCR5 is a chemokine receptor expressed on T cells and macrophages that plays an important role in leukocyte trafficking to sites of inflammation, infection, or diseased areas of the body. HIV uses chemokine receptors to attach and infect CD4 T cells and macrophages. Cells infected in such manner are often targets of destruction by other T cells, resulting in paradoxical immunodeficiency. As the majority (60%) of HIV infections occur through a CCR5-tropic mechanism, CCR5 targeted therapies are being aggressively pushed forward by multiple large pharma companies and several biotechs. Interestingly, a small number of European individuals have naturally occurring genetic CCR5 defects that result in lower infection rates and slower disease progression, but the frequency of these mutations is less than 10%. Research shows that HIV can also infect cells via the CXCR4 chemokine (about 35% of HIV strains are CXCR4-tropic), although this typically arises only during later stages of disease or after CCR5 has been suppressed, suggesting that CCR5 viruses are dominant to CXCR4 viruses. Nonetheless CXCR4 viruses tend to behave more aggressively and promote more rapid onset of disease. As a result, a major concern regarding use of CCR5 antagonists is conversion of CCR5-tropic to CXCR4-tropic disease. Despite liver toxicity from GSKs and Pfizers programs, concerns with malignancy and the viral rebound observed in Phase II studies of Scherings CCR5 inhibitor, the FDA approved Pfizers maraviroc in August 2007.
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Pfizers Selzentry (Maraviroc) First CCR5 Antagonist Approved For HIV, But Initial Launch Disappointing
Selzentry, a twice-daily CCR5 receptor antagonist, was approved in August 2007, for combination antiretroviral treatment of adults infected with only detectable CCR5-tropic HIV-1, who have evidence of viral replication and have HIV-1 strains resistant to multiple antiretroviral agents. In April, 2007, the FDAs Antiviral Advisory Committee unanimously recommended Maraviroc for accelerated approval based on excellent efficacy but the FDA issued an approvable letter in June 2007. Pfizer at that time stated it was addressing certain FDA concerns and in label negotiations, and the application was approved just a couple of months later. The Selzentry NDA was based on 24-week data from the MOTIVATE Phase II/III studies. In the MOTIVATE trials, approximately twice as many patients receiving Selzentry combined with an optimized background therapy (OBT) achieved undetectable viral load at 24 weeks compared with those receiving OBT alone. In the trials, patients receiving Selzentry with OBT also experienced significantly greater viral load reductions and increases in CD4 cell counts compared with those receiving OBT alone. Selzentry side-effect profile was remarkably clean. The FDA Advisory Committee was marginally concerned with the risk for postural hypotension and found no risk of neoplastic disease. In September 2007, the European Commission approved Maraviroc (called Celsentry ex-U.S) based on the 48-week data from the MOTIVATE studies. The 48-week MOTIVATE-1 data presented at ICAAC 2007, demonstrated consistency with the 24-week data. 47% of patients on maraviroc bid and OBT versus 16% on placebo and OBT had <50c/mL at 48-weeks (p<0.0001). The 48-week data are currently under review by FDA. Data from the treatment-nave MERIT study, presented at IAS in August, comparing maraviroc plus Combivir to efavirenz + Combivir, demonstrated that maraviroc was not not-inferior by statistical analysis with 65% of maraviroc patients achieving HIV RNA below 50 copies/mL vs. 69% for efavirenz arm. However, maraviroc patients had a larger CD4 count increase than those taking efavirenz, fewer discontinued due to AEs and lipid profiles were more favorable. The once-daily arm was halted due to virologic breakthrough. Nonetheless, these data will constitute part on an sNDA, likely for a treatment-nave indication that Pfizer plans on filing. In order for physicians to prescribe Selzentry they need to establish the viral tropism. The only available CCR5 test, the Trofile HIV Entry Tropism assay (MGRM) costs $1,960 and has an average 18-day turnaround time. In addition to determining if a patient is eligible for Selzentry, HIV experts have stated that physicians will want to test patients if and when the drug stops working to determine if the CXCR4- or dual-tropic virus is present, forms that are associated with more rapid AIDS progression. The tests price and logistics are likely to continue to temper the Selzentry launch. Maraviroc sales were $46MM in 2008, and we estimate sales of $80MM in 2009 and $320MM in 2015, which could prove aggressive. Maraviroc is also in Phase II for Rheumatoid arthritis. 48-Week MOTIVATE Data Consistent With 24-Week Results MOTIVATE-1s, 48-week results were presented at ICAAC in 2007. The efficacy and safety data were consistent with those of the 24-week studies. Nearly 3 times as many patients receiving the newly approved CCR5 antagonist maraviroc plus optimized background therapy (OBT) achieved undetectable HIV viral load compared with those receiving an optimized regimen alone. The results also demonstrated that maraviroc, along with an optimized background regimen, significantly increased CD4 cell counts, as compared to an optimized regimen alone. The adverse events profile observed in this analysis was similar in patients receiving maraviroc and those receiving an optimized regimen alone.
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The most commonly reported adverse events included diarrhea, nausea, fatigue, and headache.
MOTIVATE 1: Summary of 48-week Results At week 48: Mean change in HIV-1-RNA from baseline, log10 c/mL / teatment difference vs PBO (97.5% CI) % with HIV-1-RNA <400 c/mL (p value vs PBO) % with HIV-1-RNA <50 c/mL (p value vs PBO) Mean change in CD4+ count from baseline [LOCF], cells/mm3 (95% CI; p value vs PBO) Discontinuations due to AEs, n (%) Deaths, n (%) Source: www.hivandhepatitis.com PBO + OBT (n=118) MVC QD + OBT (n=232) -1.66 / -0.85 (-1.22, 0.49) 51% (<0.0001) 42% (<0.0001) +113 (+34, +83; <0.0001) 14 (6.0) 2 (0.9) MVC BID + OBT (n=235) -1.82 / -1.02 (-1.39, 0.66) 57% (<0.0001) 47% (<0.0001) +122 (+44, +93; <0.0001) 11 (4.7) 4 (1.7)
-0.80 / N/A 22% (N/A) 16% (N/A)
54 7 (5.9) 1 (0.8)
24-Week MOTIVATE Data Support NDA Filing In March 2007 at the 14th Conference on Retroviruses and Opportunistic Infections (CROI), Pfizer presented 24-week data from the two Phase IIb/III MOTIVATE studies. In MOTIVATE-1 (U.S., Canada), 42.2% of patients receiving once-daily maraviroc and 48.5% of patients receiving twice-daily maraviroc achieved undetectable viral loads (<50 copies/mL) versus 24.6% of patients receiving placebo. In MOTIVATE-2 (Europe, Australia, U.S.), 40.8% of patients receiving once-daily maraviroc and 45.6% of patients receiving twice-daily maraviroc achieved undetectable viral loads (<50 copies/mL) versus 20.9% of patients receiving placebo. The rate of discontinuation due to adverse events in MOTIVATE-1 was 5% for once daily maraviroc, 4% for twice-daily maraviroc and 5% for the placebo arm. In MOTIVATE-2, rate of discontinuation due to adverse events was 5% for once daily Maraviroc, 4% for twice daily maraviroc and 2% for the placebo arm. Treatment-Nave Study Disappoints Phase III data from a maraviroc trial in treatment-naive patients, presented at IAS 2007, did not demonstrate non-inferiority in combination with Combivir to Sustiva (efavirenz) and Combivir. Subjects taking maraviroc and Sustiva were about equally likely to achieve HIV RNA below 400 copies/mL (70.6% vs 73.1%, respectively). However, patients taking maraviroc were less likely than those on Sustiva to achieve viral loads below 50 copies/mL (65.3% vs 69.3%). Among patients starting with lower baseline viral loads (< 100,000 copies/mL), those taking maraviroc and Sustiva had similar rates of virological suppression below 50 copies/mL (69.6% vs 71.6%). Patients with higher baseline viral loads (100,000 copies/mL), however, fewer patients taking maraviroc achieved HIV RNA < 50 copies/mL compared with those taking efavirenz (59.6% vs 66.6%). Subjects taking maraviroc had a larger CD4 cell count increase than those taking Sustiva (170 vs 144 cells/mm3, respectively). Maraviroc was better tolerated than Sustiva. A similar proportion of patients in the maraviroc and Sustiva arms stopped the study prematurely (26.9% and 25.2%, respectively) but more patients in the maraviroc arm discontinued due to virological failure (11.9%, compared with 4.2% in the Sustiva arm). Patients in the efavirenz arm had larger increases in total cholesterol, LDL-c, and triglycerides, but also a larger gain in HDL-c.
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PF 232,798 Development Moving Ahead

Pfizer is developing a 2nd-generation CCR5 inhibitor, PF-232,798 that has an imidazopiperidine side chain, is dosed once per day, and has potential activity against maraviroc resistant strains. PF-232,798 recently began Phase II studies. Phase I results presented at CROI 2008 concluded that the compound had a pharmacological and safety profile and potency similar to Selentry, but has activity against lab generated Selentryresistant CCR5-tropism. Additionally, pharmokinetics suggest that the drug may be able to be dosed once daily vs. the current twice daily dosing schedule for Selentry.
Schering-Ploughs Once-Daily Vicriviroc In Phase III

Vicriviroc, Schering-Ploughs CCR5 receptor antagonist, entered Phase III studies in September 2007, is only dosed once-a-day and does not require dose adjustments depending the HIV regimen which likely positions its favorably vs. Selentry when it is approved (we expect during 2009). However, it is required to be given in combination with a ritonovir boosted background therapy, which may represent a modest disadvantage. A Phase II treatment-nave study was stopped in October 2005 when patients receiving vicriviroc in combination with zidovudine/lamivudine (Combivir) experienced virologic breakthrough compared to those who received the control regimen of Combivir and efavirenz (Sustiva). Currently, Schering-Plough is recruiting treatment-nave HIV patients in a Phase 2/3 study that was initiated in December 2007. The study will compare virologic activity of vicriviroc 30mg + Reyataz + ritonavir to Truvada + Reyataz + ritonavir in 200 treatment-nave HIV patients. Final data might be available in mid-2009. The Phase II ACTG sponsored study ACTG-5211, in treatment-experienced patients, was unblinded in March 2006 due to malignancies seen in an interim analysis. However the DSMB deemed these unrelated to vicriviroc. The 48-week data, presented at the 4th IAS conference in July 2007, demonstrated robust efficacy with patients in the 10 mg and 15 mg vicriviroc treatment groups achieving a median decrease in viral load of 1.92 and 1.44 (log10 copies/mL) and a median increase in CD4 cell count of 130 and 96 (cell/uL) from baseline, respectively. More patients in the vicriviroc groups had undetectable virus at 48 weeks (HIV-1 RNA <400/<50 copies/ml) compared to those in the placebo group (57/37 percent and 43/27 percent vs. 14/11 percent, respectively). The 5mg dose had been dropped due to lack of efficacy. Given the dose response and good tolerability, Schering initiated VICTOR-E1 (Vicriviroc in Combination Treatment with Optimized Antiretroviral Treatment Regimen in Experienced Subjects), to evaluate the safety and efficacy of vicriviroc 20mg and 30mg once daily and to guide dose selection for the 48-week Phase III VICTOR-E3 and E4 studies which were initiated in September 2007. The 48-week studies will evaluate the virologic benefit, safety and tolerability of adding vicriviroc 30 mg once daily to an optimized background therapy compared to a control group receiving new optimized background therapy alone, including ritonovir. Vicriviroc crosses the blood brain barrier, potentially enhancing efficacy but simultaneously increasing toxicity potential. Schering has fast-track status, which may allow for priority review. We forecast vicriviroc sales of $25MM in 2010 and $75MM in 2012, although these forecasts could prove aggressive based on the disappointing Selzentry launch. Phase II Treatment-Nave Results Disappointing CCR5-tropic patients with HIV were randomized to receive vicriviroc 25, 50, 75 mg, or placebo once daily for 14 days, before adding Combivir to their regimens. Patients who received placebo were given efavirenz in addition to their Combivir regimen. The
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endpoints of this 48-week trial included mean change in log10 HIV RNA (the amount of virus in the blood) from baseline at two weeks, the proportion of patients with greater than 1 log decrease, the proportion of patients with HIV RNA less than 50 and less than 400 copies per milliliter, and the mean change in CD4 count from baseline. Mean duration of patient follow-up was 31.8 weeks (1-53.8 week range). Primary analysis at two weeks showed a mean decrease in HIV RNA of 0.93 log10 in the 25 mg arm, 1.18 in the 50 mg arm, 1.34 in the 75 mg arm, and 0.07 in the placebo arm (p<0.001 for each vicriviroc arm vs. placebo). The proportion of patients who experienced virologic breakthrough (RNA greater than or equal to 50 copies/mL) was 4 percent (1/24) in the placebo group, 56 percent (13/23) in the 25 mg group, 41 percent (9/22) in the 50 mg group, and 17 percent (4/23) in the 75 mg group (p<0.001, pooled vs. control). Mean change in CD4 count from baseline at week two was an increase of 24 cells/L in the 25 mg group, 85 cells/L in the 50 mg group, 90 cells/L in the 75 mg group, and 3 cells/L in the placebo group (p<0.001 for 50 and 75 mg vicriviroc arms vs. placebo). Schering has not yet determined the reason for the breakthrough, but noted that the treatment-nave patient study compared Vicriviroc + Combivir (GlaxoSmithKline) to Sustiva (Bristol-Myers Squibb) + Combivir, whereas, the treatment-experienced study is comparing Vicriviroc on top of an optimized background regimen. Schering noted that a higher proportion of treatmentexperienced patients had mixed X4/R5 tropism (50% R5 only; 48% X4/R5) vs. treatment nave patients (88% R5 only; 12% X4/R5). Despite the higher percentage of X4/R5 tropic virus in treatment-experienced patients, Schering believes that lack of resistance to vicriviroc coupled with strong activity against resistant HIV argues for use in treatmentexperienced patients. Schering also noted that vicriviroc can be used with all Norvir (Abbott) boosted regimens as it does not appear to induce CYP, the primary mechanism by which Norvir increases the bioavailability of protease inhibitors. No evidence of liver toxicity has been seen to date. Phase II Treatment Experienced Study Data Solid Through 48-weeks The data from the Phase II, randomized, double-blind 48-week study were presented at IAS 2007. A total of 118 treatment-experienced HIV patients (median viral load 36,380 copies/ml and CD4 146 cells/microliter) with R5-type virus at screening who were taking ritonavir-boosted PI-containing regimens received vicriviroc (5, 10 or 15 mg) dosed once daily or placebo, after the background antiretroviral regimen had been optimized at day 14. The interim analysis demonstrated at 2 and 24 weeks median changes in HIV-1 RNA level from baseline (log10 copies/mL) that were greater in the 5, 10 and 15 mg vicriviroc groups -0.87 and -1.51, -1.15 and -1.86 and -0.92 and -1.68, respectively, compared to the placebo group +0.06 and -0.29 (p<0.01). Mean CD4 cell counts increased at week 24 for the vicriviroc 5, 10 and 15 mg groups by +84, +142 and +142 respectively, compared to a decrease of -9 for the placebo group. The 5 mg dose of vicriviroc in this trial was discontinued early (patients were unblinded and could increase their vicriviroc dose to 15 mg). Eight patients on vicriviroc and two patients on placebo developed malignancies. As a result, the Independent Safety Monitoring Committee recommended that patients be informed of this information, unblinded to treatment assignment and continued to be followed. Consequently, the study became open label on March 6, 2006. At 48 weeks, patients in the 10 mg and 15 mg vicriviroc treatment groups achieved a median decrease in viral load of 1.92 and 1.44 (log10 copies/mL) and a median increase in CD4 cell count of 130 and 96 (cell/uL) from baseline, respectively. More patients in the vicriviroc groups had undetectable virus at 48 weeks (HIV-1 RNA <400/<50 copies/ml) compared to those in the placebo group (57/37 percent and 43/27 percent vs. 14/11 percent, respectively). Fewer patients in the vicriviroc groups experienced virological failure compared to those in the placebo group (27 and 33 percent vs. 86 percent, respectively). Grade 3/4 adverse events were similar across arms. No new malignancies occurred and no cases of seizure were reported. 18 subjects were randomized (8% women; 34% non-whites) with median VL
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36,380 (4.56 log10) copies/ml and CD4 146 cells/uL. Of 20 subjects on vicriviroc 10/15 mg with VL <50 copies/ml at 24 weeks, 14 (70%) continued <50 copies/ml at 48 weeks. Of 26 vicriviroc subjects with R5 virus who experienced virologic failure, 9 (35%) had D/M or X4 virus. VICTOR-E1 Phase 2 in Treatment Experienced Study Data Solid Through 48weeks. The data from the Phase 2, randomized, double-blind study were presented at the CROI meeting in 2008. A total of 116 treatment experienced patients with R5-type virus at screening were randomized to receive either vicriviroc 30mg+OBT (optimized background therapy) or vicriviroc 20mg+OBT or placebo+OBT. The patients were treated for 24 weeks and followed to week 48. The primary efficacy endpoint was mean change in log HIV RNA at week 48. Secondary efficacy endpoints included % subjects <50 copies/mL and % subjects <400 copies/mL. Mean viral load at baseline was 4.52log in 30mg arm, 4.5log in 20mg arm and 4.62log in the placebo arm. Mean CD4 count in the study was 210 cells/uL. At 24 weeks (n=91), mean decline in HIV RNA was 2.04, 2.04 and 0.96log in 30mg, 20mg and placebo groups respectively. Percent of patients with <50 copies (undetectable virus) was 58%, 64% and 26% in the three groups, respectively. At 48 weeks, patients in the 30mg and 20mg groups achieved a mean decrease in viral load of 1.77 and 1.75 (log10 copies/mL) vs. 0.79 for placebo group. Mean increase from baseline in CD4 cell count was 102 for 30mg and 134 for 20mg (cell/uL) vs. 65 for placebo. More patients in the vicriviroc groups had HIV RNA <400 copies/mL at week 48 compared to those in the placebo group (67% for 30mg, 60% for 20mg and 26% for placebo). No clinically significant differences in the safety profile between vicriviroc and placebo groups were found in the study, including hepatotoxicity, opportunistic infections, malignancies or other conditions. Based on these results, Schering-Plough selected 30mg once-a-day dose for the ongoing Phase 3 study in ART-experienced subjects. VICTOR-E3 and VICTOR-E4 Phase III Studies Initiated; Data Likely In 2009 VICTOR-E3 AND VICTOR-E4 will enroll approximately 375 patients each at more than 160 sites in North America, South America, Europe, Australia, and South Africa. The primary efficacy endpoint of the studies will be the proportion of patients with plasma HIV-1 RNA less than 50 copies/mL at week 48. Key secondary endpoints, each measured at 48 weeks, include the proportion of patients with less than 400 copies/mL of plasma HIV-1 RNA, mean change from baseline in plasma HIV-1 RNA (log10 copies/mL) and mean change from baseline CD4+ count. All efficacy endpoints will also be evaluated at week 24. Patients in VICTOR-E3 and VICTOR-E4 must have documented resistance to at least two of the three antiretroviral drug classes (NRTI, NNRTI or PI) (2-4) or 6 months or more of experience with at least two of the following: one NRTI, one NNRTI or two PIs (excluding low-dose ritonavir); and must have plasma HIV- 1 RNA levels above 1000 copies/mL. The optimized background therapy must include a protease inhibitor boosted by ritonavir and at least two drugs that are active, based on susceptibility testing. The optimized background therapy will be chosen by the investigator based on results of drug susceptibility tests performed at screening, patient history of prior antiretroviral drug use and drug toxicity. The VICTOR-E3 and VICTOR-E4 studies will also evaluate the safety and tolerability of vicriviroc compared to placebo, each given in combination with an optimized background therapy. An independent, external Data Safety Monitoring Board (DSMB) will review study data on a regular basis to assure continued safety of the participants.
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Scherings SCH532706 Phase 1 Results Reported at CROI 2008

At the CROI meeting in 2008, investigators presented results from a Phase 1 study of SCH532706, another once-daily CCR5-receptor antagonist under development by Schering-Plough. In vitro, SCH532706 demonstrated high affinity for CCR5 receptor of Kd=0.36nM and long dissociation half-life of 78 hours. In prior ascending multiple dose studies in healthy volunteers the drug was safe and well tolerated. The primary objective of the Phase 1 study was to evaluate the antiviral activity of SCH532706 in combination with ritonavir in untreated HIV patients (cART-nave/ART-experienced off cART for >3 months) with R5-type virus. The study enrolled 12 patients with median baseline CD4 cell count of 327cells/uL and median viral load of 4.6log. The mean decline in viral load from baseline, the primary endpoint in the study, was 1.3log copies/mL on day 10 and viral decline continued until day 15 with 1.6log copies/ml reduction. Mean increase in CD4 count was 59 cells/uL. The study did not identify any QTc prolongation to >500ms or change from baseline of >60ms, which is considered to be clinically significant effect. The most common AEs were related to GI with 33% diarrhea and 25% abdominal pain. One serious adverse event of Grade 2 pericarditis was reported 13 days after last administration of SCH532706 and was resolved after 4 days. The study found SCH532706 to be safe and well tolerated at 60mg dose and determined that it is suitable for once daily administration in a ritonavir-containing regimen.
Progenics PRO 140 Could Be Interesting, But Likely Niche Opportunity

PRO 140 appears to block the entry of HIV into immune cells, hence interfering with a key step in the HIV infectious process. Preclinical data indicate that PRO 140 exerts potent antiviral activity, and its initial clinical profile suggests that it may enable once monthly dosing as an intravenous infusion. PRO 140 has received fast-track designation by the FDA. In a Phase I study conducted in healthy volunteers, treatment with PRO 140 at doses ranging from 0.1 to 5.0 mg/kg resulted in dose-dependent binding to cells expressing CCR5. Following a single infusion at the 5 mg/kg level, PRO 140 completely masked CCR5 activity, and this effect persisted for at least 60 days. It appeared that the coating of CCR5 cells with PRO 140 did not reduce their normal circulating concentrations, and no evidence of immunogenicity related to PRO 140 was reported. PRO 140 was generally well tolerated at all dose levels. Progenics recently announced results from a Phase Ib trial of PRO140 which provide proof-of-concept in the treatment setting. Enrolled in the trial were 39 HIV patients who were off antiretroviral therapy for three months and had viral loads 5,000 copies/ml, and had been screened for HIV that utilized only the CCR5 co-receptor for entry. Subjects were randomized to 0.5 mg/kg, 2.0 mg/kg, and 5.0mg/kg PRO140 given in a single i.v. dose and placebo. The trial achieved significance in its primary endpoint, a reduction in viral load, at the 2.0 and 5.0 mg/kg doses. In the 5.0 mg/kg group, an average maximum decrease of 1.83 log (98.5%, p<0.0001) was recorded, and mean viral load was suppressed by 1.0 log (90%) within 4 days of dosing and 1.70 log (p<0.0001) at 9 days. The viral load in this group remained suppressed by 1.0 log for 2-3 weeks before returning to baseline at around 30 days. All patients who received 5.0 mg/kg PRO140 achieved at least a 1.0 log viral load reduction at some point following dosing. In January 2008, PGNX announced that it has initiated two placebo-controlled Phase II trials of HIV candidate PRO 140. Both trials will enroll patients with early HIV disease and
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who have been off antiretroviral therapy for at least three months, and will screen patients for infections which use only CCR5 as the entry co-receptor. One trial of i.v. PRO 140 will randomize 30 patients to receive a single dose of drug (5 mg/kg, 10 mg/kg) or placebo. A second trial of s.c. PRO 140 will randomize 40 patients to receive PRO 140 (162 mg weekly, 324 mg weekly, 324 mg bi-weekly) or placebo (weekly). Patients on weekly regimens will be dosed three times, and those on the bi-weekly regimen will be dosed twice. The trials should report data by YE:08, and PGNX expects to select one of the dose formats (i.v. or s.c.) for pivotal testing. The company believes it will be in a position to begin Phase III trials of PRO 140 in H1:09, and anticipates evaluating this drug in combination with current oral HIV therapies. Outstanding questions include the sustainability of the response beyond 9 days; given this is a novel approach, it is possible the effect wears off over time, and/or safety issues arise with longer term treatment. Additionally, the injectable nature of PRO 140 could significantly limit the adoption if successfully launched. Finally, the launch for the first CCR5 inhibitor has been disappointing, and it remains unclear how important of a class anti-CCR5 inhibitors will be in the overall HIV market. In addition to intravenous PRO 140, the company is developing a subcutaneous form. Humanized PRO 140 was developed by Protein Design Labs via its proprietary SMART humanized protein technology, and is under exclusive license to Progenics.
INCB9471 Early Data Show Activity, But INCY Looking To OutLicense

Incyte has an oral CCR5 antagonist, INCB9471, which is differentiated from other oral CCR5 inhibitors by its prolonged 60-hour half-life that lends itself to once-daily dosing without ritonavir boosting. The drug has good pharmacokinetic properties and has shown potent anti-HIV activity in preclinical cell culture studies. The results from the 23patient 14-day Phase 2a study in treatment nave and experienced patients were presented in July 2007 at the IAS meeting. 200mg once a day treatment with INCB9471 demonstrated an impressive 1.72 log viral load reduction on day 14 and a nadir of 1.81 log viral load reduction at day 16 (4 days after completion of dosing. INCB9471 was found to be well tolerated with no clinically meaningful chemistry, hematology, or ECG changes reported.
Takeda/Tobiras TAK-220 Early

Takeda is developing its own oral small molecule CCR5 antagonist. Thus far, only preclinical in vitro data are available for the drug, which indicate that the drug is orally bioavailable and active in the presence of other anti-retroviral agents. In August 2007, Tobira Therapeutics (private) in-licensed from Takeda worldwide rights to develop, manufacture and commercialize TAK-220 as well as TAK-652. Both compounds are reported to be in Phase 1 studies.
Isentress A Big Success In Treatment-Resistant Patients; Nave Patients NDA Accepted

Isentress (raltegravir), an oral integrase inhibitor, was approved in October 2007 for use in combination with other antiretroviral agents for the treatment of HIV-1 infections in treatment-experienced adult patients with multi-drug resistance at a dose of 400mg bid. Integrase is a key enzyme that enables HIV integration into the host genome, and is a vital element in the HIV-1 replication life-cycle. In September 2007, the FDAs Antiviral Drugs
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Advisory Committee unanimously recommended that Isentress be approved for use in combination therapy for treatment-experienced HIV patients. It did not recommend approval for treatment-naive individuals, despite the positive 24-week data in treatmentnave patients presented at the ISA meeting in July 2007. The Isentress NDA included data from Phase II and III studies in which Isentress was used in combination with optimized background therapy (OBT) in treatment-experienced HIV patients. FDA has accepted the Isentress treatment-nave sNDA. The PDUFA date is July 2009. A Phase III trial, QDMRK evaluating Isentress 800mg QD was initiated in Q4:08. Merck believes that Isentress long off-rate supports once-daily kinetics. QDMRK will enroll 750 treatment-nave patients and compare Isentress 800mg QD + Truvada versus Isentress 400mg BD + Truvada. Merck and Abbott are codeveloping an NRTI sparing regimen in treatment-nave patients comparing Kaletra + Isentress versus Kaletra plus Truvada. Merck and Bristol-Myers are conducting a 90 patient Phase II study comparing Reyataz + Isentress versus ritonavir-boosted Reyataz+ Truvada. To date, Isentress in treatment-resistant patients has been filed in over 100 countries and approved in over 50. In the U.S., Isentress is available in all 50 states through the AIDS Drug Assistance Program; 50 states through Medicaid; and on tier 2 or 3 for 99% of lives. H1:08 launches included Japan, Korea, France, Italy, Spain, U.K., and Germany and H2:08 launches included Australia, Portugal, New Zealand and Russia. Merck is evaluating fixeddose combinations. Gileads GS9137, a competitive integrase inhibitor, Phase III studies in treatment-experienced patients were planned to start in Q3:07 pending protocol design discussions with FDA. However, these studies were been delayed until Q4:08. We forecast Isentress sales of $720MM in 2009, $1.35B in 2012, and $1.95B in 2015. Treatment-Nave Study Could Support Approval. In August 2008, results of the ongoing Phase II study in treatment-nave HIV patients were presented at the 17th International AIDS Conference (AIDS 2008). Isentress, in combination with two other antiHIV medicines, reduced HIV viral load to undetectable levels in 83% of previously untreated HIV-infected patients which was comparable to the 84% seen with Sustiva, when also combined with the same anti-HIV medicines in patients through 96 weeks of treatment. Patients taking Isentress experienced a mean increase in CD4 cell counts of 221 cells/mm. The most commonly reported adverse experiences in patients receiving Isentress and Sustiva, respectively, were diarrhea (6.9% versus 10.5%), nausea (12.5% versus 13.2%), dizziness (8.8% versus 28.9%), headache (8.8% versus 23.7%), abnormal dreams (6.3% versus 18.4%), insomnia (8.1% versus 10.5%) and nightmares (0% versus 10.5%). Neuropsychiatric adverse events, which included abnormal dreams, depression, nightmare, and suicidal thoughts, were reported less frequently with the Isentress group compared to the Sustiva group, occurring respectively in 16% versus 32% of patients through Week 96; most of these had occurred earlier in the study by Week 48. Phase III BENCHMRK-1 and -2 Show Promise. BENCHMRK-1 and -2 are identical Phase III randomized controlled trials involving highly treatment-experienced patients. Patients received Isentress 200 mg, 400 mg, 600 mg, or placebo, each dosed orally twice daily in combination with optimized background therapy (OBT). OBT was selected based on patients' prior treatment history and results from HIV resistance testing. Patients who entered the study were infected with HIV that was resistant to one or more drugs in each of the three oral anti-retroviral drug classes-nucleoside reverse transcriptase inhibitors (NRTIs), non-nucleoside reverse transcriptase inhibitors (NNRTIs), and protease inhibitors (PI) - and were receiving anti-retroviral therapy (ART) for more than three months, and had HIV viral loads greater than 5,000 copies/mL and CD4 counts greater than 50 cells/mm3. BENCHMRK-1 included 350 participants in Europe, Asia, and Peru; BENCHMRK2 included 349 patients in North and South America. Interim 24-week data presented at CROI, 2007 demonstrated that in the two studies combined, 61-62% of patients in the
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Isentress arms achieved virological suppression below 50 copies/mL, compared with 3336% of those receiving placebo (p < 0.001). In both trials, 77% of patients in the Isentress arms achieved viral loads below 400 copies/mL, compared with 41-43% of those in the placebo arms (P < 0.001). Among patients with no other active drugs in their regimen, 61% achieved a viral load below 400 copies/mL with Isentress, compared to only 5% with placebo. Among subjects with CD4 counts above 200 cells/mm3, 88% in the Isentress arm and 59% in the placebo arm achieved viral loads below 400 copies/mL; for those with fewer than 50 cells/mm3 at baseline, the corresponding figures were 63% and 24%. The rates of virological failure were 16% in the Isentress arms and 51% in the placebo arms. Isentress was generally well tolerated, with adverse events similarly distributed across arms when considering both trials together. In all arms, the rate of serious drug-related adverse events was 2.5% or less. 1.7% of subjects in the Isentress arm discontinued due to adverse events in both studies (vs. the placebo groups, 3.4% in BENCHMRK-1 and 0.8% in BENCHMRK-2). Based on limited data, there appeared to be two distinct pathways to Isentress resistance, involving the N155H and Q148K/R/H mutations. Ninety-six week results from BENCHMRK-1 and -2 were presented in February 2009 at the 16th Conference on Retroviruses and Opportunistic Infections (CROI). Highlights include: At Week 96, 57% of patients (262 out of 460) receiving Isentress plus OBT achieved undetectable viral load (less than 50 copies/mL) versus 26% (62 out of 237) receiving placebo plus OBT. Patients receiving Isentress had significantly greater increases in CD4 cell counts (123 cells/mm3) compared to patients receiving placebo (49 cells/mm3) at Week 96, p<0.001.
Isentresss Switching Study Misses Noninferiority Endpoint, But Unlikely To Impact Use
Merck presented data From SWITCHMRK 2 at the CROI meeting in February 2009. SWITCHMRK 1 and 2 are parallel, multicenter, double-blind, randomized, activecontrolled studies in HIV-positive patients who were virologically well controlled on a stable Kaletra-based regimen. Patients were randomized 1:1 to switch from Kaletra to Isentress (400 mg bid) or to continue on Kaletra (400/100 mg bid) while remaining on the same background therapy which included at least 2 NRTIs (and no other PI). Primary endpoints were: (1) mean percent change in lipids at week 12; (2) Proportion of patients with HIV RNA <50 copies/mL at week 24; and (3) safety and tolerability up to 24 weeks. Isentress demonstrated improvements in lipid parameters over Kaletra, but failed to show virologic non-inferiority. In SWITCHMRK 2, 355 patients were randomized and 354 treated with 176 switched to Isentress and 178 remained on Kaletra. Isentress was superior to Kaletra for the mean % change from baseline in total cholesterol (-12.41 vs 1.29, p<0.001), triglycerides (-42.82 vs 8.20, p<0.001), and non-HDL-C (-14.77 vs 2.91, p<0.001) at week 12. However, at week 24, 154/175 (88.0%) vs. 167/178 (93.8%) of patients had HIV RNA <50 copies/mL in the Isentress and Kaletra groups, respectively. This resulted in a treatment difference of -5.8% [95% CI (-12.2, 0.22), NC=F], and therefore Isentress did not demonstrate non-inferiority to Kaletra based on the pre-defined margin of -12%. Our consultants do not expect the missed endpoint to impact the use of Isentress. They believe it was likely an artifact of the clinical trial design as patients in the trial had probably become resistant to their background NRTI regimens, but were not allowed to modify them per the protocol. Although the data do suggest that Kaletra is more potent as a monotherapy than Isentress, our consultants think this finding has little practical consequence. Most physicians appreciate that patients must remain on at least two active therapies at any time. Minor adjustments to the background regimen are easily made by
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physicians at the time of a regimen change, and would prevent the low level of viral rebound seen in the trial.
Gileads Integrase Inhibitor In Phase III Development

Elvitegravir is a twice-daily oral HIV integrase inhibitor that is metabolized by CYP3A4 and glucuronidation. Elvitegravir can be dosed either twice per day, or once per day when boosted with ritonavir. Elvitegravir entered a Phase III trial in July 2008. The first data on elvitegravir came from a 10-day Phase I/II study in 40 treatment-nave and treatment-experienced HIV patients. At baseline, patients had HIV viral load between 10,000 and 300,000 copies/mL and CD4 cell count greater than or equal to 200 cells/uL. At baseline, study participants had a mean viral load of 4.75 log10 copies/mL and mean CD4 cell count of 442 cells/uL. Results from the trial, presented at CROI 2006 demonstrated a statistically significant reduction in viral load from baseline including up to -2.0 log drop in patients on 50 mg qd Elvitegravir + 100 mg qd ritonavir boost versus 0.24 log drop in placebo patients (p<0.0001). There were no discontinuations or serious adverse events in cohorts receiving Elvitegravir, with all adverse events reported as grade 1/2 in severity that resolved during treatment and were not deemed to be associated with Elvitegravir dosing.
Elvitegravir Phase I/II Study
50 mg qd + 100 Placebo (n=10) -0.24 log 200 mg bid (n=6) -1.48 log 400 mg bid (n=6) -2.03 log 800 mg bid (n=6) -1.78 log 800 mg qd (n=6) -0.96 log mg qd RTV (n=6) -2.03 log
*p<0.0001 for all doses
Based on the results of the study, Gilead initiated a 48-week Phase II study in March 2006 to test Elvitegravir at three once-daily doses (20 mg, 50 mg, and 125 mg), each boosted with 100 mg ritonavir. The trial was completed in December 2006, and data were presented at the conference on Retroviruses and Opportunistic Infections in Los Angeles, in late February 2007. The trial met its primary endpoint of non-inferiority in viral load reduction at 24 weeks in HIV-positive patients receiving either 50mg or 125mg of Elvitegravir in combination with an optimized background regimen compared to a boosted protease inhibitor regimen (p=0.02 for the 125mg arm). After week 8 of the trial, the 20 mg arm was closed due to a high rate of virologic failure. Data presented at ICAAC 2007, from a study evaluating the effect of co-administration of elvitegravir/ritonavir and etravirine (JNJ) on the safety and PK of elvitegravir and etravirine in treatment experienced patients with documented NNRTI resistance demonstrated that Elvitegravir/ritonavir and etravirine administered alone and in combination were generally well tolerated and most frequent AEs across treatment arms were headache, gastrointestinal disorders (nausea, diarrhea). Importantly, there were no clinically relevant drug interactions. However, in a separate elvitagravir/ritonivir drug interaction study with Selzentry presented at ICAAC, Selzentry AUCs were raised. It was therefore recommended as with CYP3A inhibitors (including ritonavir-boosted protease inhibitors, except tipranavir/ritonavir), that a reduced 150mg dose of Selzentry be used with elvitegravir/ritonavir. Gilead initiated a Phase III program for Elvitegravir in July 2008. The elvitegravir Phase III study is a randomized, double-blind, 48-week clinical trial that will assess the noninferiority of ritonavir-boosted elvitegravir (n=700) vs. raltegravir (n=700), each
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administered with a background regimen in HIV-infected treatment-experienced adults with HIV RNA > 1,000 copies/mL. Patients who have previously taken an integrase inhibitor will be excluded. Patients are randomized to receive either elvitegravir (150 mg, once daily) or raltegravir (400 mg, twice-daily). Patients' background regimens will be based on the results of resistance testing and will include a fully-active ritonavir-boosted protease inhibitor (PI), and a second agent that may be an NRTI, etravirine, maraviroc or enfuvirtide. Due to known pharmacokinetic interactions, elvitegravir patients whose background PI is either atazanavir or lopinavir will receive an 85 mg dose of elvitegravir. The primary endpoint is the proportion of patients who achieve and maintain confirmed viral load of <50 copies/mL through 48 weeks. As of January 2009 this study is more than 40% enrolled. The FDA has agreed that this one large study will support an FDA filing for elvitegravir in treatment experienced patients.
Gilead Developing GS9350 As Proprietary PK Enhancer

Gilead is developing GS 9350 as a pharmacoenhancing agent (booster) to increase blood levels and allow once-daily dosing of medicines like Gileads own HIV integrase inhibitor, elvitegravir. GS 9350 is a potent inhibitor of cytochrome P450 3A (CYP3A), an enzyme that metabolizes drugs in the body. Gileads goal is to develop and bring to market a pharmacokinetic enhancer that does not have HIV activity, can be dosed once daily as a solid dosage form and is stable at room temperature, such that it can be co-formulated with elvitegravir and Truvada into a single tablet. Gilead expects to initiate a Phase II study of the complete single tablet fixed-dose regimen containing elvitegravir, GS 9350 and Truvada in treatment-nave patients during Q2:09. Gilead is also examining GS 9350s potential to boost HIV protease inhibitors, which are used in many HIV treatment regimens. Gilead has initiated a pharmacokinetic study of GS 9350 that will assess its ability to boost atazanavir, one of the most widely prescribed HIV protease inhibitors. Phase I data were presented at CROI 2009. This Phase I double-blind, double-dummy study evaluated the safety, tolerability, pharmacokinetics and boosting capacity of GS 9350 compared to ritonavir 100 mg in healthy volunteers over a 14-day period. Single and multiple doses of three dose levels of GS 9350 (50, 100 and 200 mg once daily) were assessed in separate cohorts each comprising 18 evaluable patients. Within each cohort, subjects were randomized to receive GS 9350 (n=12), ritonavir 100 mg (n=3) or placebo (n=3). Trial participants also received oral midazolam, at the beginning of the study and when receiving study drug, as a standardized test compound to assess boosting properties. GS 9350 doses of 100 mg and 200 mg inhibited midazolam clearance by 92 percent and 95 percent, respectively, compared with 95 percent for the 100 mg dose of ritonavir, thereby providing clinical proof-of-concept of GS 9350 as a pharmacokinetic booster in humans. Both single and multiple doses of GS 9350 were well tolerated. One drug-related Grade 3 adverse event (discoordination) occurred in one trial participant during multiple dose administration of GS 9350 100 mg. No trial participants developed drug-related Grade 3 or 4 laboratory abnormalities or Grade 4 adverse events. The Phase II study to be initiated in Q2:09 will compare the /Truvada/GS 9350 fixed dose regimen to Atripla, and Gilead expects data will be available around YE:09. Following the Phase II, during 2010 Gilead expects to move the elvitegravir/Truvada/GS 9350 fixed dose regimen into a Phase III program in treatment-nave patients. The program will consist of two Phase III non-inferiority studies, each with about 600 patients comparing the fixed-dose combination to a standard of care regimen.
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GlaxoSmithkline in Phase I with GSK1349572

GlaxoSmithKline (with Shionogi) had two integrase inhibitors currently in development, the napthyridinone GSK364725 and GSK1349572. Phase I data on 725 was presented last February at the 14th Conference on Retroviruses and Opportunistic Infections (CROI). The study compared safety, tolerability and pharmacokinetics of single and multiple doses in 79 healthy HIV negative volunteers. Overall, the drug was well tolerated with mild adverse events and the compound was advanced to Phase II. However, adverse liver effects were recently observed in a long-term preclinical safety study in monkeys, and further development of the compound was halted. A Phase I trial of 572 began in November 2007 and was completed in February 2008. This randomized, double-blind, placebo-controlled, single dose escalation study consisted of 20 healthy volunteers, and a second Phase I trial in 44 healthy volunteers was completed in June 2008. An open label Phase I trial to study the interaction of the drug with Tenofovir began in August 2008, and a 10 day Phase IIa proof of concept study to compare the antiviral effect, safety, tolerability, and pharmacokinetics of monotherapy versus placebo is scheduled to be completed in November 2008.
Hepatitis C
Expect HCV Treatment Paradigm To Evolve Considerably Over Next Two To Four Years
We expect the HCV treatment paradigm to evolve considerably over the next two to four years as new drug classes with the potential to offer significant improvements in efficacy, convenience, and tolerability over existing treatment regimens progress through development. We expect most new drug development programs to focus on HCV genotype 1, the most common strain in the U.S. and Europe (roughly 70%) and also the most challenging to eradicate, and there is a clear push from industry to move the treatment paradigm from non-specific immunomodulator drugs toward direct targeted therapies such as protease and polymerase inhibitors.
A Successful New HCV Drug Class Has Multi-Billion Dollar Sales Potential
The World Health Organization (WHO) estimates that 170MM people globally are infected with Hepatitis C virus (HCV), with 3 to 4 million new infections each year. Roughly 75% of these cases fail to resolve acutely and evolve into a chronic state. The population of patients with chronic hepatitis C infections is estimated at 3-5MM in the U.S. (1.0-1.8% of the population) and a slightly greater number in Europe (5-10MM), representing a huge target market. Roche estimates there are roughly 7.5MM patients in the U.S. and the top 5 EU countries with 1.7 MM diagnosed. The frequency of new HCV infections has been significantly reduced to 20K per year with blood screening; the majority of new HCV infections stem from IV drug use as opposed to previous transmission through the U.S. blood supply. There are approximately 8,000-10,000 deaths attributed to HCV annually in the U.S., and experts expect the death rate to climb to >200,000 deaths in the next 10-20 years based on the aging of the infected U.S. population. We estimate there are currently 50K new HCV patients initiating therapy in the U.S. each year and an existing worldwide HCV market that is treated with >$2B worth of interferon, PEG-IFN, and branded/generic ribavirin. Both front-line and non-responder patients represent sizable opportunities that may be addressed with new HCV therapies, and we
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believe that a new drug class that possesses synergistic activity with other agents has blockbuster potential, with peak sales that could surpass $4B+ (assuming premium pricing depending on clinical profile). It is estimated that there are several hundred thousand patients in the U.S. who have been treated unsuccessfully with standard PEGIFN, and could be early adopters of new HCV therapies. Additionally, other patients waiting on the sidelines for a time when higher cure rates are possible are watching developments of anti- HCV therapies closely.
HCV Is A Chronic Infection That Damages The Liver

The hepatitis C virus targets hepatocytes (liver cells) where it thrives and replicates. Viral turnover is on the order of 1012 virion particles each day, and the half-life of individual viral particles is believed to be only a few hours. Seventy five percent of patients acutely infected with HCV are unable to generate an immune response sufficient to eradicate the virus, resulting in chronic infection. Many patients do not realize they have ever been infected with HCV until one to three decades after initial contact with the virus, as only 25-30% of cases are symptomatic. Longer-term outcomes of chronic infection include cirrhosis (20%) and hepatocellular carcinoma (1-4%). More than 50% of patients develop slowly progressive chronic disease with fibrosis and non-specific symptoms that impair quality of life (QOL). Liver failure due to HCV is now the leading cause for liver transplant in the developed world and up to 10K deaths each year in the U.S. are attributed to complications of HCV infection. The Centers of Disease Control and Prevention (CDC) estimates that 5% of HCV infected patients develop end-stage liver failure or liver cancer.
Sustained Virologic Response (SVR) Is The Goal Of Therapy

The purpose of treating chronic HCV infection is to reduce the risk of developing longterm complications such as cirrhosis and hepatocellular carcinoma. Because HCV can be eradicated, this is generally the goal of therapy, particularly as long-term viral suppression therapy has not yet been proven to reduce long-term complications (although the benefit of chronic suppressive therapy for patients failing to achieve a sustained virologic response is currently under investigation). SVR is defined as undetectable HCV RNA levels for at least 24 weeks following cessation of therapy, with standard therapy currently consisting of 48 weeks treatment with weekly injections of pegylated interferon plus daily oral ribavirin. Current treatment options achieve SVR in approximately 40-50% of genotype 1 patients and approximately 80-90% of genotype 2 and 3 patients. Patients who fail to achieve early virologic response (EVR defined as 2 log decline in HCV RNA after 12 weeks of therapy) or end-of-treatment response (ETR defined as undetectable HCV RNA at the end of therapy), are unlikely to achieve SVR and frequently abandon therapy. Patients who do not achieve SVR but experience 2 log or greater viral load reduction during their course of therapy are termed partial responders (PR), and have a 20-30% chance of responding to a more aggressive regimen. Treatment of HCV is generally recommended for those with increased risk of cirrhosis. Patients with HCV RNA levels greater than 50 IU/mL, a liver biopsy with portal or bridging fibrosis, and at least moderate inflammation and necrosis frequently undergo treatment. Most have persistently elevated ALT values as well. Poor candidates for therapy include those with ongoing injection drug use, significant alcohol use, severe anemia and with neuropsychiatric conditions. The treatment rate for chronic HCV infection is very low in relation to the pool of infected patients; about 22% of those chronically infected in the U.S. and roughly 12-13%
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of those chronically infected in developed overseas markets have been treated. Lack of treatment stems from: lack of recognition of infection; absence of sufficient inflammatory activity to merit therapy; and the harsh regimen of year-long interferon therapy unsuitable for many patients.
Non-Responder Population Represents A Large Opportunity

A sizable number of warehoused patients is waiting for a new treatment option. This group includes patients who are poor candidates for starting the harsh therapy of interferon plus ribavirin, as well as non-responders who failed to achieve SVR following initial treatment with interferon-based therapy. We estimate there are 300-400K HCV nonresponders in the United States, with the number growing by nearly 30-40K each year. By the time new HCV drug classes reach the market, we believe the number of nonresponder patients will be roughly similar in Europe and slightly less in developed Asian countries. Patients who failed to respond to previous interferon- monotherapy have a roughly 10-15% chance of achieving SVR with interferon- plus ribavirin, and a 25-35% chance of achieving SVR with pegylated interferon plus ribavirin. Re-treatment of patients who failed to respond to an optimal course of interferon- plus ribavirin has a roughly 10% likelihood of achieving SVR with pegylated interferon plus ribavirin.
Pegylated IFN- Plus Ribavirin Is Current Standard Of Care

Until 1998, Schering-Ploughs Intron A, an alpha interferon, was used predominantly as monotherapy for the treatment of hepatitis C. However, the HCV market has rapidly migrated to longer-acting pegylated interferons that allow for more convenient dosing (once per week versus three times per week) and have efficacy advantages due to longer plasma circulation time and increased patient compliance. Despite the advantages of pegylation, many of the interferon side effects including flu-like symptoms (fever, chills, nausea), gastro-intestinal irritation, and depression are still present. Hence our physician consultants note that there is room for improvement to the current standard of care. In combination with interferon alpha-based treatment, it was discovered that ribavirin (a nucleoside analog) possesses synergistic effects on SVR rates. Ribavirin has virtually no impact on viral load as monotherapy, and comes with its own set of side effects, namely hemolytic anemia. Nonetheless, combination of ribavirin with IFN improves the likelihood that patients who achieve ETR go on to successful SVR. Prior to 2003, ribavirin was marketed as a branded product by Schering-Plough as Rebetol. Upon going generic in 2003, Roche began manufacturing the drug under the name Copegus (approved only for use with Pegasys), with additional generic producers entering the market in 2004.
SVR Rates For Interferon Therapies, With/Without Ribavirin, Frontline
Weeks of Therapy IFN 2b IFN 2b IFN 2b+ribavirin IFN 2b+ ribavirin Pegasys Pegasys + ribavirin Pegasys + ribavirin (800mg) Pegasys + ribavirin (1000-1200mg) 24 48 24 48 48 48 24 24 Genotype 1 ETR N/A N/A N/A N/A 69% N/A 68% 78% SVR 2% 6-11% 16-18% 28-36% 20-28% 40-46% 29% 42% 42% 54% ETR/SVR rate Genotype 2 & 3 ETR N/A N/A N/A N/A N/A N/A 94% 90% SVR 16% 28-33% 64-69% 61-66% 45-64% 76-77% 84% 67-81%
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Pegasys + ribavirin (800mg) Pegasys + ribavirin (1000-1200mg) PEG-Intron 0.5 g/kg PEG-Intron, 1.0 g/kg PEG-Intron, 1.5 g/kg PEG-Intron + ribavirin
48 48 48 48 48 48
60% 69% 20% 20% 35% N/A
41% 52% 10% 11-14% 14% 42%
68% 75% 50% 55% 40%
82% 85% N/A N/A N/A N/A
63-79% 80-82% 20-35% 31-47% 49-60% 50-82%
Source: Hadzlyannis et. Al. Ann Int Med. 2004; 140: 346-355
Pegylated IFN- Market Dominated By Schering-Plough and Roche

Schering-Plough and Roche lead the market with combined annual sales of >$2B for pegylated alpha-IFNs. In January 2001, Schering-Plough received U.S. approval for PEGIntron (pegylated interferon -2b) for monotherapy treatment of hepatitis C, and received U.S. approval for the PEG-Intron/ribavirin combination in August 2001. In October 2002, Roches Pegasys (pegylated interferon -2a) received approval as monotherapy treatment of chronic hepatitis C infection. In December 2002, Roche received approval for Pegasys in combination with Copegus (Roches proprietary ribavirin) and the combination was launched in January 2003. Roches Pegasys/Copegus combination has performed well since its January 2003 introduction, now capturing 60% share of the hepatitis treatment market. The Pegasys/Copegus combination has also been approved in most European markets. Peg-Intron Less Effective Than Roches Pegasys? The complete results presented at EASL 2008 of the previously top-lined IDEAL study and newly presented data from a smaller Italian study comparing Peg-Intron to Pegasys on balance favored Pegasys due to its superior SVR data. In IDEAL, the Peg-Intron 1.5 mcg, Peg-Intron 1.0 mcg, and Pegasys combination arms achieved similar SVRs (primary endpoint: 40 vs. 38 vs. 41%, respectively) overall, and among those patients who were assigned equivalent doses of ribavirin based on their weight group (40 vs. 38 vs. 38%, respectively). IDEAL therefore missed its primary endpoint which was to demonstrate Peg-Intron superiority over Pegasys. However, relapse after the end of treatment were lower for patients in the Peg-Intron arms compared to patients receiving Pegasys (24 vs. 20 vs. 32%, respectively). Safety and tolerability were similar among the three treatment groups, with no new peginterferon or ribavirin-related adverse events identified. Overall, the proportion of patients reporting serious adverse events was similar (9 vs. 9 vs. 12%, respectively). Discontinuation rates due to adverse events were similar across the three treatment arms (13 vs. 10 vs. 13%, respectively) as were discontinuations due to psychiatric adverse events (3 vs. 2 vs. 2%, respectively). IDEAL Study Design: 1) high-dose PEG-Intron (1.5 ug/kg per week) with weight-based Rebetol (800-1,400 mg/day); 2) low-dose PEG-Intron (1.0 ug/kg per week) with weight-based Rebetol (800-1,400 mg/day); or 3) Roches Pegasys (fixed dose 180 ug/week) with weight-based Copegus (1,000-1,200 mg/day).
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In a smaller independent Italian study (n=320) comparing Pegasys to Peg-Intron, a statistically significant higher SVR was seen with Pegasys, driven by higher SVRs in genotype-1/4 patients, and high viral load. The study differed from IDEAL by the following: 1) weight average of 70kg vs. 84kg in IDEAL; 2) IDEAL had 17% AF patients; 3) 320 patients vs. >3000 patients in IDEAL; and 4) same weight based dosing of RBV in each arm (1000-1200 mg) vs. IDEAL which had broader RBV weight doses. Overall the SVR was obtained by 197 patients (61.6%): 110 (68.7%) in the Pegasys group and 87 (54.4%) in Peg-Intron group (p=0.008). In genotype 1/4, the SVR was obtained by 88 patients (47.3%): 51 (54.8%) in the Pegasys group and 37 (39.8%) in Peg-Intron group (p=0.04); in genotype 2/3, the SVR was obtained by 109 patients (81.3%): 59 (88.1%) in the Pegasys group and 50 (74.6%) in the Peg-Intron group (p=0.046). In patients with chronic hepatitis, the SVR occurred in 171 (65.5%): 96 (75.6%) in the Pegasys group and 75 (56%) in the Peg-Intron group (p=0.0009); in cirrhotic patients the SVR was obtained by 26 (44.1%): 14 (42.4%) in the Pegasys group and 12 (46.2%) in the Peg-Intron group (p=0.7). However, as in IDEAL, the study supports higher relapse rate with Pegasys but of 26 adverse-event related dropouts, 24 were on Peg-Intron with only two on Pegasys. VRTXs Telaprevir Study Further Stirs Up The Pegasys vs. PEG-Intron Debate VRTX is currently testing its protease inhibitor telaprevir in a Phase 2 study designed to compare 2x/day and 3x/day telaprevir-based regimens. In addition, the trial compares telaprevir with a Pegasys and PEG-Intron based backbones. While it is a relatively small study with a total of 160 HCV treatment-nave patients and 40 patients per arm, it is the first direct and fair comparison of two pegylated interferons. The on-treatment data (rapid virologic response (RVR), and early virologic response (EVR) from this study were presented at the AASLD meeting in November 2008 (see table below for details). Key findings show RVR rates favoring Pegasys, comparable EVR rates and a trend towards higher breakthrough with Peg-Intron. The debate of which interferon is the best in the context of direct antiviral therapy are unlikely to be addressed until SVR data from this study become available, which is expected at the AASLD meeting in November 2009.
Interim Results from Telaprevir 2x/day vs. 3x/day Study
TVR TVR TVR TVR
3x/day /Pegasys/RBV 2x/day /Pegasys/RBV 3x/day /Peg-Intron/RBV 2x/day /Peg-Intron/RBV
N 40 40 42 39
RVR 83% 83% 69% 67%
EVR 93% 83% 93% 85%
AEs 10% 10% 5% 8%
VB 3% 3% 5% 8%
VB= viral breakthrough, AE = adverse events; AEs include data beyond 12 weeks Source: AASLD 2008
Roche Attempting To Claim Non-Responder Market Via REPEAT study In November 2007, Roche presented final results from the 950-patient REPEAT study assessing the cost-effectiveness of treating U.S. HCV patients not responded to PegIntron using Pegasys + Copegus (RBV). The data included SVR rates and safety analysis of standard dose (180mcg) and fixed-dose induction (360mcg) therapy and similar outcomes for patients with cirrhosis and/or advanced fibrosis. Four arms were:
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1) Pegasys 360mcg/week for 12 weeks then 180mcg/week for 60 weeks plus RBV (1000/1200mg/day) 2) Pegasys 360mcg/week for 12 weeks then 180mcg/week for 36 weeks plus RBV (1000/1200mg/day) 3) Pegasys 180mcg/week for 72 weeks plus RBV (1000/1200mg/day) 4) Pegasys 180mcg/week for 48 weeks plus RBV (1000/1200mg/day) The study demonstrated that the induction dose followed by standard therapy for 72 weeks achieved the highest SVR rate of 16%, followed by the standard Pegasys dose for 72 weeks with SVR rates of 14%. The 48-week arms resulted in 7% and 9% SVR rates. We believe these results may have limited commercial relevance given the focus by industry to develop direct antiviral agents. However, initial results in null responders with direct antivirals have been disappointing, and more data will be required to better assess this opportunity for the interferons.
SGPs Intron Franchise: Moderate Decline Through 2015

Several factors have tarnished the U.S. hepatitis treatment market: declining flow of patients exacerbated by their warehousing for the specifically targeted antiviral therapy for HCV (STAT-C) agents; little patient switching during the year-long therapy, making capture of new patients the battle; and splitter behavior, given that there are only two competitors and physicians typically dont like to give all their business to one company. If the small molecule antivirals are approved in 2011/12, interferon therapy duration is likely to be shortened significantly, decreasing the market opportunity even further. In addition, some consultants believe that FDA may only approve the combination of the specific interferon studied with the STAT-C agent, for example only Peg-Intron could be used with boceprevir and not Pegasys. Roches success with Pegasys is due in part to an easier-to-administer product, although Schering-Plough is working on a number of technologies to make dosing easier with PEG-Intron. Schering-Plough was relying on the results of the head-to-head IDEAL study but this failed to demonstrate superior efficacy despite a design that was weighted in PEG-Introns favor. Pegasys had a higher relapse rate after end of treatment but our consultants believe that IDEALs results are unlikely to change their current prescribing. In addition, data from a small Italian study presented at EASL 2008 confirmed Pegasyss superiority. In November 2007, PEG-Intron and Rebetol were approved in the E.U. for retreating HCV relapsers and non-responders based on the EPIC3 study. PEG-Intron sales were $914MM (+0%) in 2008, and we forecast sales of $900M in 2009 and $450MM in 2015. Intron Franchise sales in 2008 were $1.4B, and we forecast sales of $1.4B in 2009, and $730MM in 2015.
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EVALUATING THE SAFETY AND EFFICACY OF PEG-INTRON BASED REGIMENS

Trial Name HBV 99-01 Completion 2004 Patient Population Chronic Hepatitis B (HBV) Comment Published in January 8, 2005 Lancet; sustained viral response (SVR) in 35 and 36% of patients treated with PEG-Intron monotherapy or in combination with lamivudine Published in December 15, 2004 JAMA; treatment with PEG-Intron + ribavirin compared to Intron-A resulted in statistically superior hepatitis C SVR in 27% vs. 20% of patients co-infected with HIV/HCV
RIBAVIC
2004
HIV/HCV co-infection
WIN-R
2005
Flat vs. weight-based ribavirin WIN-R, an investigator-initiated study in 4,913 patients across 250 dosing U.S. centers; included the largest number of African American patients in any hepatitis C study; results presented at AASLD 2005 showed an overall SVR or 44.3% in the weight-based arm vs. 40.6% for fixed-dose (p=0.01); serious adverse events were 11% in both arms; anemia occurred in 42% of weight-based vs. 32% of fixeddose patients Maintenance in cirrhotics Two-year interim results of 0.5mg/kg PEG-Intron versus colchicine showed a 50% reduction in clinical endpoints (variceal bleeding, liver failure, liver transplantation, hepatocellular carcinoma or death) IDEAL (Individualized Dosing Efficacy vs. flat dosing to Assess optimaL pegylated interferon therapy); three arms: (1) PEG-Intron 1.5 mcg/kg/week and Rebetol (ribavirin) 800-1,400 mg/day; (2) PEG-Intron 1.0 mcg/kg/week and Rebetol 800-1,400 mg/day; and (3) Pegasys 180 mcg/week and Copegus (ribavirin) 1,000-1,200 mg/day. All three treatment arms achieved similar SVR rates (primary end point): 40%, 38%, and 41%, respectively missing the superiority end point. The PEG-Intron arms achieved lower relapse rates compared to the Pegasys arm: 24%, 20%, and 32%, respectively PEG-Intron + weight-based ribavirin achieved total SVR of 21%, higher in relapsers (39%) vs. non-responders (15%). SVR also was higher in genotype 2/3 (39%) vs. genotype 1 (16%) and in early responders (HCV - @ 12 weeks; SVR = 61% vs. 5% for HCV + @ 12 weeks). At 48 weeks, 56% of patients with undetectable virus @ week 12 achieved SVR. Continuation will test PEG-Intron 0.5mg/kg/week compared to no treatment in slowing disease progression
COPILOT
2006
IDEAL
2008
PEG-Intron + ribavirin vs. Pegasys + ribavirin in HCV genotype 1 patients
EPIC3
2005-08
Non-responders, disease progression
Source: Company data; AASLD 2004, 2005 and 2006, DDW 2005; JAMA; Lancet
Protease Inhibitors, A Promising Class Of Direct Antivirals For HCV

The class of HCV protease inhibitors has generated tremendous interest and excitement among physicians and Wall Street investors after Vertexs telaprevir (VX-950) posted unprecedented results in Phase 1b and Phase 2 PROVE studies. Multiple protease inhibitors designed to inhibit hepatitis C viral replication are in development. Enthusiasm for the class of protease inhibitors was first sparked by impressive efficacy data for Boeheringer Ingelheims BILN 2061 which demonstrated a dramatic 2-3 log viral load reduction after just two days of treatment in genotype 1 chronic HCV patients. However, the program was halted after therapeutic doses resulted in cardiotoxicity in monkeys. Other companies that are pursuing protease inhibitor targets include ScheringPlough, Roche/InterMune, Medivir/Tibotec, Boehringer Ingelheim, Merck, Bristol-Myers Squibb, and many other companies whose programs are earlier stage.
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Vertexs Telaprevir Leads The Race For HCV Protease Inhibitors

VRTX has initiated three key Phase 2 studies for its HCV protease inhibitor telaprevir (TVR), detailed below, two of which are complete, known as the PROVE studies. Key conclusions from these studies are: (1) TVR plus standard of care dosed for only 12 weeks is associated with a relapse rate that is too high to move forward into Phase 3. (2) TVR dosed without ribavirin produces unacceptably high rates of virologic breakthrough. (3) TVR dosed for 12 weeks with standard of care followed by an additional 12 weeks of standard of care meaningfully improves SVR rates over standard of care alone. (4) Addition of TVR is associated with higher rates of rash, anemia, and GI symptoms relative to standard of care alone; rates of TVR induced moderate to severe rash increase after approximately 8 weeks of dosing. (5) Relapse rates post 24 weeks of therapy are 2-14%, with higher rates of relapse driven by patients who did not achieve a rapid virologic response. (6) TVR delivers unprecedented SVR rates in the treatment-experienced HCV patients. PROVE-1 included 250 treatment-nave patients in four groups, of which 175 received TVR. Group A patients received the standard of care for 48 weeks. Group B patients received triple therapy for 12 weeks followed by 36 weeks of standard of care. Group C patients were treated with combo therapy for 12 weeks, followed by 12 weeks of standard of care. Group D patients received 12 weeks of triple combo therapy only, without the 12 weeks of PEG/RBV follow-up in Group C. PROVE-2 tested TVR in European patients, who historically achieved higher cure rates than their U.S. counterparts with the PEG/RBV standard of care. The trial replaced the 12+36 arm in PROVE-1 with 12 weeks of TVR + PEG (no RBV). PROVE-3 is testing TVR in treatment experienced mix of U.S. and EU patients. In addition to the 48-week standard of care arm, VRTX is testing a 12+12 regimen (just like Group C in PROVE-1), a longer 24+24 arm, and a 24-week TVR+PEG only combo. PROVE-3 tested TVR in approximately 440 HCV treatment-experienced patients. Group A received the standard of care PEG/RBV for 48 weeks. Group B patients received triple therapy TVR/PEG/RBV for 24 weeks followed by 24 weeks of PEG/RBV alone. Group C received excluded RBV and treated patients for 24 weeks of TVR/PEG. Group D patients received 12 weeks of TVR/PEG/RBV followed by 12 weeks of PEG/RBV.
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Phase 2 Telaprevir (TVR) Trial Designs
PROVE 1-U.S. Treatment Nave TVR Portion Group D 12 weeks Group C 12 weeks Group B 12 weeks Group A 12 weeks # of Patients # of TVR patients TVR+PEG/RBV TVR+PEG/RBV TVR+PEG/RBV placebo+PEG/RBV N 17 79 79 75 250 175 Additionl Treatment No additional treatment 12 weeks PEG/RBV 36 weeks PEG/RBV 36 weeks PEG/RBV Total Treatment Duration 12 weeks 24 weeks 48 weeks 48 weeks (control)
PROVE 2- EU Treatment Nave TVR Portion Group D 12 weeks Group C 12 weeks Group B 12 weeks Group A 12 weeks # of Patients # of TVR patients TVR+PEG/RBV TVR+PEG TVR+PEG/RBV placebo+PEG/RBV N 78 82 81 82 323 241 Additionl Treatment No additional treatment No additional treatment 12 weeks PEG/RBV 36 weeks PEG/RBV Total Treatment Duration 12 weeks 12 weeks (no RBV) 24 weeks 48 weeks (control)
PROVE 3-U.S./EU Treatment Experienced TVR Portion Group D 12 weeks TVR+PEG/RBV Group C 24 weeks TVR+PEG Group B 24 weeks TVR+PEG/RBV Group A # of Patients # of TVR patients TVR patients studied in Phase 2
N 115 112 112 114 453 339 755
Additionl Treatment 12 weeks PEG/RBV No additional treatment 24 weeks PEG/RBV 48 weeks PEG/RBV
Total Treatment Duration 24 weeks 24 weeks (no RBV) 48 weeks 48 weeks (control)
Summary Of PROVE Data for Telaprevir

Final results for PROVE 1 were presented at the EASL 2008 meeting, while final results from PROVE 2 were presented at the AASLD 2008 meeting. PROVE 1 showed the lowest SVR results for TVR dosed in the 12+12 regimen (61% vs 67% for TVR in the 12+36 regimen), while PROVE 2 showed an impressive 69% SVR rate for patients receiving 12+12. We believe the PROVE 1 results were negatively impacted by three factors: (1) patients not achieving RVR in PROVE 1 were counted as failures in the 12+12 arm and received 48 weeks of total therapy; (2) severe rash was discovered to occur with a median of 8 weeks time of onset during the PROVE 1 study, and caused a reasonably high rate of dropout; (3) a number of patients were lost to follow up, as VRTX had not put in place strict guidelines to follow patients after treatment discontinuation. In early June, VRTX announced interim results from the PROVE 3 study in which telaprevir is evaluated in treatment failure patients. The first analysis included 115 treatment-experienced patients treated with 24 weeks of TVR-based regimen (12 weeks of TVR/PEG/RBV followed by 12 weeks of PEG/RBV). 52% of all patients achieved SVR12 (<10IU/mL). By subgroup, 73% of prior relapsers, 41% of non-responders and 44% of breakthroughs achieved SVR12. These results are unprecedented, and compare to the 50% SVR rate typically reported for 48
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weeks of standard of care in treatment nave patients. We project a mid-teens SVR rate for the control arm of PROVE 3.
Final PROVE 1 Data
Control Intent to treat (N) 4 wk UND % (RVR) 12 wk UND % (EVR) Relapse Rate % SVR %
Source: EASL 2008 presentation
75 11% 45% 23% 41%
TVR/PEG/RBV 12 weeks 17 59% 71% 33% 35%
TVR/PEG/RBV 12 + 12 wks 79 81% 68% 2% 61%
TVR/PEG/RBV 12 + 36 wks 79 81% 80% 6% 67%
Final PROVE 2 Results

Group D
12wk
TVR/PEG/no RBV
Group C
12wks
TVR/PEG/RBV
Group B
12wks+12wks
TVR/PEG/RBV
Control
48wks
PEG/RBV
Intent To Treat RVR, % 12-week UND, % Relapse rate Total SVR SVR rate (actual)
78 50% 62% 48% 28 36%
82 80% 80% 30% 49 60%
81 69% 73% 14% 56 69%
82 13% 43% 22% 38 46%
Notes: RVR=rapid virologic response, UND = HCV RNA undetectable, EOT = end of treatment Source: Data presented at EASL 2008 and AASLD 2008
Interim Data From PROVE 3: 12+12 arm and control arm
Non-responders Relapsers Breakthroughs Total Control arm
N 66 40 9 115 114
RVR 50% 80% 44% 61% 0%
EVR 71% 88% 44% 75% 8%
EOT 65% 83% 44% 70% 30% [2]
SVR 12 41% 72% 44% 52% 13%-15% [1]
[1] Based on Parise et al and Basso et al - relapse rate of 47-55% in treatment-experienced HCV patients [2] 30% reported at 36 weeks on-treatment RVR = rapid viral response; EVR =early viral response at 12 weeks EOT = end of treatment; SVR = sustained viral response Source: AASLD posters
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Telaprevir Treatment-Nave Phase 3 Moving Along

In March 2008, VRTX announced the initiation of its first Phase 3 study ADVANCE for telaprevir in the treatment-nave patient population after discussions with the FDA. This first Phase 3 will evaluate TVR in a 24-week treatment design and will include 1,050 treatment-nave GT1 HCV patients randomized to three arms (see design above for details): "8+16" weeks, "12+12" weeks, and a 48-week control arm. This study completed enrollment in October 2008, suggesting that patients completed their last dose of the TVR portion of the study in January. Patients in the 24 week TVR arms should complete the primary endpoint of the study this fall (SVR defined as 6 months following the 24 weeks of therapy), while patients in the control arm will complete the study in spring 2010.
ADVANCE Telaprevir Phase 3 Design
Arm 1 Arm 2 Arm 3
TVR/PEG/RBV
PEG/RBV
350 patients 350 patients 350 patients
TVR/PEG/RBVPEG/RBV PEG/RBV
Weeks of treatment 0 week 8 wk 12 week 24 week 48 week

Source: VRTX reports A second Phase 3 study ILLUMINATE completed enrollment early in 2009, and should report data a few months after ADVANCE. The purpose of this second study is to evaluate the benefit of an additional 24 weeks of PEG/RBV therapy in patients who have achieved RVR (undetectable HCV levels at 4 weeks) and EVR (undetectable HCV levels at 12 weeks). The design is a single arm for the first 12 weeks with all patients receiving TVR/PEG/RBV, followed by randomization of the RVR/EVR patients only to 12 weeks of PEG/RBV or 36 weeks.
ILLUMINATE Telaprevir Phase 3 Design
Arm 1 TVR/PEG/RBV Arm 2
PEG/RBV PEG/RBV
225 patients 225 patients
0 week
Source: VRTX reports
12 weeks
24 weeks
48 weeks
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REALIZE Enrollment Completed 1Q09

Telaprevir Targeting Broad Swath Of Treatment-Experienced Patients. REALIZE opened enrollment in mid-October and is being run by partner Tibotec and the design is shown above. The study is set to enroll 650 treatment experienced patients. In order to better characterize the results in patients deems partial, null or relapsers, all patients entering the study are required to provide documentation from a PCR test performed at week 12 from their prior treatment regimen. Null responders achieve <1 log reduction from baseline, partial responders achieve >2 log by week 12 but do not reach undetectable levels, and relpasers achieve undetectable levels by week 12 and stay throughout treatment, but relapse once therapy is discontinued. The study calls for 300 null/partial responders and 350 relapsers. The study is evaluating a 4-week PEG/RBV lead in strategy, as requested by the EMEA. All patients in the study will be given 48 weeks of therapy to ensure patients achieve their optimal response, despite quite promising data in relapsers suggesting that 24 weeks may be sufficient in that group. Enrollment in the study was completed in 1Q09, data from this study should be available in fall 2010.
REALIZE Telaprevir Phase 3 Design
Arm 1 Arm 2 Arm 3 TVR/PEG/RBV PEG/RBV PEG/RBV TVR/PEG/RBV PEG/RBV 260 patients 260 patients 130 patients
Weeks of treatment 0 wk
Source: VRTX reports
4 wk
12 week
24 week
48 week
Interim C208 Data Suggest 2x/Day TVR Is Viable

C208 results presented at the AASLD 2008 meeting show a higher EVR rate with 3x/day dosing compared to 2x/day dosing, regardless of interferon backbone. The simplest conclusion based on this statement is that telaprevir 3x/day would have better SVR rates than 2x/day. However, several nuances in the data imply that 2x/day is behaving similarly to 3x/day, including: Comparable eRVR rates- eRVR is defined as patients achieving undetectable viral levels at weeks 4 (RVR) and 12 (EVR). These patients have the best chances for attaining SVR, particularly compared to EVR alone. VRTX has indicated that the absolute eRVR difference between patients in the 2x/day vs 3x/day Pegasys arms is 5%, 78% vs 73% (difference of two patients). Comparable Pk/PD data- Detailed pharmacokinetic data for telaprevir in patients treated with 2x vs 3s/day show a similar profile, according to VRTX. Total drug exposure, as measured by AUC, as well as trough concentrations was similar for the two groups. Additionally, trough levels for telaprevir in both 2x/day and 3x/day were well above the level related to virologic breakthrough. Comparable adverse events/virologic breakthrough rates- A show stopper for 2x/day telaprevir would be if there was a higher rate of virologic
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breakthrough or if there was a higher adverse event rate. Rates for AEs and breakthrough were comparable in the study through 12 weeks. C208 is not designed to show definitively that telaprevir 2x/day is equivalent to 3x/day. Once SVR results are available from the study (we expect final data in 2H09), we expect VRTX to take data to the FDA and discuss next steps. It is unclear whether VRTX would elect to initiate a non inferiority based study comparing 2x/day to 3x/day, or would elect to use 2x/day dosing to use in combination with other direct anti-virals, such as polymerase inhibitors (or pursue both strategies).
Telaprevir 2x/day vs. 3x/day Study Design
TVR dosing TVR-based regimen Arm 1 q8h TVR 750mg/Pegasys/RBV for 12 weeks + Pegasys/RBV for 24 weeks Arm 2 q8h TVR 750mg/PEG-Intron/RBV for 12 weeks + PEG-Intron/RBV for 24 weeks Arm 3 q12h TVR 1125mg/Pegasys/RBV for 12 weeks + Pegasys/RBV for 24 weeks Arm 4 q12h TVR 1125mg/PEG-Intron/RBV for 12 weeks + PEG-Intron/RBV for 24 weeks Note 1: If sub-optimal response, standard therapy will be extended to 48 weeks Note 2: If insufficient response, all treatment will be stopped
Source: Clinical trials database
Interim C208 Study Data

TVR TVR TVR TVR
N 40 40 42 39
RVR 80% 83% 69% 67%
EVR 93% 83% 93% 85%
AEs 10% 10% 5% 8%
VB 3% 3% 5% 8%
VB= viral breakthrough, AE = adverse events; Aes include data beyond 12 weeks
Source: VRTX press release
C208 Data Show Unprecedented EVR Rates

Based on results from PROVE 1 and 2 studies, we undertook an analysis to project expected SVR rates based on the EVR data now available. In PROVE 1-2, 84-95% of patients with an EVR achieved SVR. Applying this range to the data in the C208 study implies SVR rates of 69%-88%, a range that is higher than what has been previously reported from PROVE 1 and 2 studies (range 61-69%). Points to consider: (1) this is an open label study and relatively small patient numbers-patients may be more motivated to continue on therapy than in larger studies or studies where placebo is involved; (2) rash management could be improving with increased physician experience with telaprevir. We look forward to updated C208 data at medical meetings in 2009, with data likely at AASLD 2009.
Prove 1 and Prove 2 EVR and SVR Results
Arm n EVR, % EVR, n SVR, % SVR, n SVR rate for EVR patients
Prove 1 12+12 12+36 79 79 68% 80% 54 63 61% 67% 48 53 89% 84%
Prove 2 12+12 81 73% 59 69% 56 95%
Source: Presentations at EASL and VRTX press release
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Study C208: Estimated SVR Rates

TVR TVR TVR TVR
N 40 40 42 39
RVR 80% 83% 69% 67%
EVR 93% 83% 93% 85%
AEs 10% 10% 5% 8%
VB 3% 3% 5% 8%
Est. SVR 78% - 88% 70% 79% 72% 78% 88% 79%
VB= viral breakthrough, AE = adverse events; Aes include data beyond 12 weeks Source: VRTX press release, Cowen and Company analysis
J&J Licenses Ex-U.S. Rights To Telaprevir

In June 2006, VRTX announced collaboration with Janssen, a JNJ subsidiary, for telaprevir in ex-U.S. territories excluding Japan. JNJs Tibotec leads ex-U.S. development/ commercialization efforts. VRTX receives an upfront $165MM license fee, up to $380M in milestones, a tiered royalty in the mid-20% range plus coverage of certain third-party royalties, and reimbursement of 50% of worldwide drug development costs. Interestingly Tibotec is partnered with a competitor Medivir, and that protease inhibitor although earlier stage has demonstrated promising early anti viral activity. VRTX has no quid on the Medivir product (TMC-435). We expect a Phase 2b trial start in late 2008 or early 2009.
Schering Ploughs Protease Inhibitor Boceprevir (SCH 503034)

Boceprevir is an oral HCV serine protease inhibitor in Phase 3 development by ScheringPlough. Boceprevir is closest in development to telaprevir and recently completed enrollment into its two Phase 3 studies in treatment-nave and treatment experienced HCV patients, with data expected mid 2010. At the AASLD meeting in November 2008, SGP announced SVR data for the 48-week arms in the SPRINT-1 study of boceprevir in the treatment-nave patient population.
Overall Data Support BVR In 48 Week Treatment Design

Phase 2b SPRINT-1 Study Design
Arm A Arm B Arm C Arm D Arm E Arm F BVR/PEG/RBV PEG/RBV BVR/PEG/RBV PEG/RBV BVR/PEG/RBV BVR/PEG/RBV
BVR/PEG/low dose RBV PEG/RBV - Control 0 wks 4 wks 28 wks 48 wks
Source: SGP reports
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Investigators presented updated data from the Phase 2b SPRINT-1 study of boceprevir in combination with PEG-Intron/RBV at the AASLD 2008 meeting. The 4-week lead in arm with 48 weeks PEG/RBV showed fortuitously low safety related dropouts, that experts believe is unlikely to be replicated in Phase 3. Separately, the data may suggest a 4-week lead-in reduces the rates of virologic breakthrough (4-5%) compared to no-lead-in (7-11%). However, patient numbers with breakthrough are small, and minor imbalances in the underlying baseline patient characteristics could be confounding. When looking at these data, as well as the data for telaprevir with PEG-Intron (study C208), there generally appears to be higher rates of virologic breakthrough with PEG-Intron when no lead in is present. SGP is defining virologic breakthrough differently however for boceprevir, and so it is difficult to compare data directly. SGP defines virologic breakthrough as greater than or equal to 2 log increase from nadir and >50,000 IU/ml. VRTX defines virologic breakthrough as >1 log from nadir, or detectable after going undetectable, which is more stringent than SGP. Feedback from experts is that a 4-week lead in with PEG-Intron doesnt give steady state levels of interferon because of its poor pK profile. Experts are skeptical on the value of the lead-in arm overall, but believe if it will have value, it will be with Pegasys.
Updated SPRINT-1 Boceprevir Data
BVR/PEG/RBV 28 wks ITT, N AE withdrawals RVR * EVR Relapse rate SVR rate (ITT) 4 wk lead-in BVR/PEG/RBV 28 wks BVR/PEG/RBV 48 wks 4 wk lead-in BVR/PEG/RBV 48 wks Control PEG/RBV 48wks
107 11% 39% 73% 19% 55%
103 15% 60% 78% 18% 56%
103 19% 38% 64% 3% 66%
103 9% 63% 80% 7% 75%
104 8% 8% 34% 13% 38%
Note: AE, RVR and EVR for 48-wk arms are calculated by Cowen and Company based on the available information
Source: EASL, AASLD 2008 presentations and SGP press release
Additionally, a lead investigator indicated his intention to provide additional noteworthy analyses at the EASL 2009 meeting including: (1) final results from a locked database (we have seen with telaprevir minor data shifts from preliminary to final data); (2) SVR rates broken out by EPO usage; there has been some criticism lately from competitors that EPO use was high in the SPRINT1 trial, so this analysis should provide greater insight into the need for EPO (SGP has indicated that the use of EPO provides greater benefit for patients not receiving EPO); (3) more details around virologic breakthrough; qualitatively, breakthrough is occurring earlier in the treatment vs later, and seeing detailed data will help understand the rationale for using a PEG/RBV lead in. SGP also reported correlation of RVR with SVR and EVR with SVR. These data show generally better correlation of RVR with SVR, as would be expected, and higher correlations overall with 48 weeks of therapy, not surprisingly given the high relapse rate recorded in the 28 week arms. It is difficult to compare the data from 28 weeks to 48 weeks, because definitions of RVR and EVR are skewed. Specifically, in the lead in groups, RVR is defined at week 8 vs week 4 for the non lead in groups.
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RVR And EVR Correlation With SVR Control BVR/PEG/RBV 28 wks 4+24 wks 48 wks 4+44 wks N 107 103 103 103 104 7% 42% 64% 37% 63% RVR % RVR, N 8 43 66 38 66 SVR, N 8 32 54 31 61 RVR SVR correlation 100% 74% 82% 82% 92% EVR, % 35% 83% 83% 79% 82% EVR, N 37 85 85 81 85 SVR, N 32 59 58 67 76 EVR SVR correlation 86% 69% 68% 83% 89%
Source: AASLD presentation, Cowen and Company
Boceprevir Plus Pegasys Phase 2b To Start Soon. Finally, SGP did indicate it is considering a study of boceprevir with Pegasys. Feedback from key experts previously suggested a large Phase 2b with Pegasys should be underway by the end of 2008, although we are not aware the study has yet started. At this juncture, there is no publicly available data for BVR with Pegasys, although using telaprevir as a guide, we would expect Pegasys to modestly improve RVR rates for boceprevir, and should increase the proportion of patients able to achieve SVR with a shortened course of therapy. That said, given the extreme differential in RVR rates between telaprevir and boceprevir with PEGIntron (67-69% vs 39%), we do not expect boceprevir plus Pegasys to be as efficacious as telaprevir.
Boceprevir In HCV Non-Responders

Schering-Plough initiated in September 2005 a 357-patient Phase II study of boceprevir in HCV genotype 1 non-responders to PEG-Intron + ribavirin. This trial only enrolled null responders and not relapsers. The trial was disrupted in 2006 as many patients were initially randomized to lower than optimal doses of boceprevir (100mg, 200mg, and 400mg 3x/day vs. current 800mg 3x/day), many arms lacked ribavirin, and part way through the study patients were subsequently converted to a higher BVR dose. In addition, a separate 800mg dosing arm was added and was fully enrolled in June 2006. In December 2007, the top-line data from the study demonstrated that 7-14% of patients in the boceprevir crossover arms achieved SVR versus 2% in the control arm. SVR was associated with an EVR and longer course of therapy (more than 36 weeks). There were reports of resistant variants, likely the result of the initial unoptimized regimen.
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SGPs Boceprevir Also In Phase 3

Boceprevir Phase 3 Program Design
SPRINT-2 (treatment nave)

Group N Design - Total 1080 pts A [1] 360 4 weeks PEG/RBV + BVR/PEG/RBV 24 weeks B 360 4 weeks PEG/RBV+ BVR/PEG/RBV 44 weeks C 360 PEG/RBV control arm for 48 weeks [1] Patients not achieving UND at 8 wks will be treated for 48 wks (4wks PEG/RBV+24wks BVR/PEG/RBV+20wks PEG/RBV) [2] PEG = PegIntron [3] RBV dose is 600mg to 1400mg Treatment Duration 28 weeks 48 weeks 48 weeks
RESPOND-2 (partial responders, relapsers)

Group Design Total 375 pts Treatment Duration A [1] 4 weeks PEG/RBV + BVR/PEG/RBV 32 weeks 36 weeks B 4 weeks PEG/RBV+ BVR/PEG/RBV 44 weeks 48 weeks C PEG/RBV control arm for 48 weeks 48 weeks [1] Patients not achieving an UND at 8 wks will be treated for 48 wks (4wks PEG/RBV+32wks BVR/PEG/RBV+12wks PEG/RBV) [2] Patients with detectable virus at 12wks discontinue all treatment [3] PEG = PegIntron [4] RBV dose is 600mg to 1400mg [5] BVR dosed 800mg 3x/day [6] The study does not include null responders (<2log drop at 12wks)
Source: SGP press release
In May 2008, SGP announced the design of a Phase 3 program for boceprevir which includes two studies, one in the nave patient population and one in the treatment failure population. Enrollment in both studies began in August 2008, and by late November, SGP had completed enrollment in RESPOND-2, the smaller treatment experienced study. Last week, SGP announced the completion of enrollment in the larger treatment nave study. Based on this timeline, data from these studies should be available during summer 2010. Based on previously reported data for boceprevir in SPRINT-1, we are not convinced boceprevir needs to be dosed with a 4-week PEG/RBV lead in phase in treatment nave patients. However, SGP is not evaluating any non lead in arms in Phase 3.
Additional Protease Inhibitors Garnering Interest Boehringer Ingelheims BI-201335

Boehringer Ingelheim (BI) indicated that it initiated a Phase 2b study in Oct 08 for '335 in combination with PEG/RBV. The study is designed to enroll 700 treatment nave patients and test two doses that we expect are 120mg and 240mg, or in that range based on author commentary. BI indicated that 12-week and 24-week 335-based regimens are being evaluated and we believe the following arms may be included, although we have no specific trial design information: (1) 12-week 335/PEG/RBV followed by 12-week PEG/RBV; (2) 24-week 335/PEG/RBV followed by 24-week PEG/RBV; (3) 12-week 335/PEG/RBV followed by 36-week PEG/RBV. Experts we spoke with do not expect BI to present interim data from this study, suggesting 2010 is the earliest we will see results from this study.
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BI 2011335: Monotherapy Data Potency On Par With Telaprevir. For the first time investigators presented data showing antiviral activity of Boehringer Ingelheims protease inhibitor BI201335 as monotherapy for 14 days followed by the combination with PEG/RBV for additional 14 days in treatment nave patients, as well as 28-day data in treatment-experienced patients. As monotherapy, 1x/day BI201335 resulted in 2.9, 3.5, 3.7 and 4 log median max viral load reductions for 20mg, 48mg, 120mg and 240mg doses. With the exception of one patient in the 20mg group, all patients in the study (n=25) achieved >2log viral load reduction during 14 days of monotherapy. It is worth noting that a plateau of antiviral activity was reached by day 4 from starting monotherapy and virologic rebound (defined as >0.8log increase in viral load from baseline) occurred in the majority of patients in all dose groups. For reference, telaprevir in a similar monotherapy study had only 1 viral rebound out of 8 patients. After two weeks of monotherapy, the study was designed to layer PEG/RBV on top of 335 for additional 2 weeks of treatment where continued viral decline was observed. BI 2011335: Early Triple Combo Therapy Looks Promising. In the nonresponder patient population, '335 was tested in combination with PEG/RBV for 28 days and resulted in a maximum viral load reduction of 5.0, 5.2 and 5.3 log for 48mg, 120mg and 240mg 1x/day dose cohorts. All patients (n=6 for 48mg, n=7 for 120mg and n=6 for 240mg) in the study achieved >2 log reduction in viral load from baseline during 28 days of treatment. Viral breakthrough was recorded in 2/6 patients in 48mg dose cohort and in 1/7 patients in 120mg dose cohort. In the 240mg dose cohort, no breakthroughs were observed and 5/6 patients were HCV RNA undetectable at day 28 with the 6th patient going UND at day 42. Of 4 null responders (defined as <0.5 log reduction from baseline), 3 were UND with the 120 mg dose at day 28. These early data are promising, although BI is exploring higher doses in treatment experienced patients prior to embarking on a larger study. BI 2011335 Safety: Generally Clean But Increases In Bilirubin Recorded. In terms of safety, reversible changes in bilirubin were observed in the dose dependent manner with increasing incidence of unconjugated hyperbilirubinemia at higher doses. The lead investigator in the study believed these increases are not clinically significant, however indicated that monitoring in the longer term studies is warranted. BI research suggests that bilirubin increases are due to the interactions of '335 with the UGT1A1 enzyme. No other dose dependent increases in clinical lab parameters or adverse events were observed. One patient in the 28-day treatment-failure study discontinued therapy due to anxiety in the 120mg group. One serious adverse event, asthenia, occurred in 1 patient in the 20mg cohort in the treatment-nave study 6 days following initiation of therapy with PEG/RBV.
Medivir/JNJs (Tibotec division) TMC435

Tibotec/JNJ/Medivirs TMC435 Show Efficacy In Line With Telaprevir, Potential GI Tox Signals Need Watching. Tibotec/Medivir presented results from the initial cohorts of the Phase 2a OPERA-1 study of its HCV protease inhibitor TMC435 at the AASLD 2008 meeting. Eight of nine (89%) patients in the 75mg 1x/day TMC435/PEG/RBV group achieved HCV RNA undetectable at 28 days (<10 IU/mL), which compares to 3/9 patients (33%) for 25mg 1x/day TMC435/PEG/RBV and 2/7 (29%) for PEG/RBV alone. While PEG/RBV response at 4 weeks appears to be slightly higher than what was reported recently in several small studies (5%-13%), we attribute the imbalance to the small numbers. TMC435 was generally well tolerated in this study, however higher rates of asthenia (21-22% for TMC435/PEG/RBV vs. 7% for PEG/RBV), bone pain (6-11% for TMC435/PEG/RBV vs. 0% for PEG/RBV), diarrhea (16-17% for TMC435/PEG/RBV vs. 0% for PEG/RBV) and nausea (26-28% for TMC435/PEG/RBV vs. 8% for PEG/RBV) were observed
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with TMC-435. That said, the patients numbers are small and we are cautious on drawing any definitive conclusions. There were no signal of rash or anemia, and no laboratory signals. Data from the 200mg cohort should be available at the EASL meeting in April 2009. We understand that the study is now evaluating treatment failures, and will explore several doses in Phase 2a triple combination therapy. The study is expected to complete in 1Q09. We expect a Phase 2b program for TMC435 in combination with PEG/RBV in treatment-nave and experienced HCV patients to start in 2Q09, which we understand will include doses in the range of 75 mg to 200mg. Phase 2a Details For TMC-435: Panel A: (total planned n=48; n=12 per group, treatment nave, GT1, 9 active, 3 placebo;) 25 mg, 75 mg, 200 mg, 400 mg for 7 days monotherapy, followed by 21 days TMC435+PEG/RBV Panel B: (total planned n=48; n=12, treatment nave, GT1, 9 active, 3 placebo) 25 mg, 75 mg, 200 mg, 400 mg for 28 days in combination with PEG/RBV Panel C: (n=24, treatment experienced, GT1, 9 active per dose, 6 placebo) two dose groups, 200 mg, 400 mg or other dose selected based on final dose selection for 28 days combination with PEG/RBV Panel D: (n=10, treatment experienced from Phase 1b study) 400 mg dose or final dose selection for 28 days in combination with PEG/RBV
Mercks MK-7009
MK-7009 Early, But Advancing Into Phase 2b in 2Q09. Data presented for the first time at the AASLD 2008 meeting for MK-7009 showed a 4.6 log drop at the highest dose tested (700 mg BID) by day 8 of monotherapy, and cohorts at lower doses showed dose dependent increases in antiviral activity. Emergent resistance overlapped with ITMN-191 (D168) and telaprevir (R155K). The presenter indicated that 700 mg BID dosing would be a ceiling for future studies, presumably because of toxicity concerns. There were no dose dependent adverse events of note. We expect updated data from a 4-week combination study in 2009, possibly as early as the EASL 2009 meeting.
Phase 2a Study Design: Initial Data At EASL 2009
Arm 1 2 3 4 5
N 17 17 17 17 17
Regimen MK7009 300 mg 2x/day + peg-IFN/RBV MK7009 600 mg 2x/day + peg-IFN/RBV MK7009 600 mg 1x/day + peg-IFN/RBV MK7009 800 mg 1x/day + peg-IFN/RBV Placebo + peg-IFN/RBV
Duration 28 days 28 days 28 days 28 days 28 days
Source: clinical trials database, Cowen and Company
A Phase 2b study focused on 48-week treatment duration is slated to start in April according to the public clinical trials database. Interestingly, this study only has a single 24-week dosing regimen, while the other arms all are evaluating 48-week based regimens. All arms are evaluating 2x/day MK-7009 dosing, suggesting MRK has seen a differential response in the 28-day study testing once-daily dosing.
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MK-7009 Phase 2b Study: Focused On Longer Treatment Duration
Arm 1 2 3 4 5
N 40 40 40 40 40
Regimen Duration MK-7009 600 mg 2x/day + PEG/RBV 24 wks MK-7009 600 mg 2x/day 24 wks + PEG/RBV 48 wks MK-7009 300 mg 2x/day + PEG/RBV 48 wks MK-7009 600 mg 2x/day + PEG/RBV 48 wks PEG/RBV 48 wks
Source: clinical trials database
Intermune/Roches ITMN-191
ITMN/Roches ITMN-191 Development Been Slow, But Momentum Should Accelerate Once Phase 2b Starts. ITMN at its AASLD analyst event showed detailed results from the 2-week Phase 1b monotherapy study as well as the initial results from the triple combination study of its HCV protease inhibitor ITMN-191. As a reminder, topline monotherapy results were released in April 2008 and showed median viral load reduction of 3.8 log with the best 200mg 3x/day (n=8) dose, 3.1 log with 200mg 2x/day dose (n=5), 1.7 log with 100mg 3x/day (n=8) and 0.7 log with 2x/day (n=8). In nonresponders, ITMN-191 300mg 2x/day resulted in only 2.5 log which is surprisingly lower than data with 200mg 2x/day dose in the nave patients despite comparable baseline viral loads across the study arms. While this could be attributed to the small patient numbers in the study, it might also suggest that ITMN-191 is less active in treatment failures. ITMN believes further dose-optimization for ITMN-191 is needed in the treatment-experienced patient population. Separately, top-line data from the ongoing triple combination 2-week Phase 2a study of ITMN-191/PEG/RBV were reported recently, showing again more impressive antiviral activity with a 3x/day dosing schedule. Specifics are shown in the table below. The next step will be a larger Phase 2b study of ITMN-191/PEG/RBV expected to start sometime in 2Q09.
Summary of Viral Kinetic Data for ITMN-191 In Combination with PEG/RBV for 14 days
Dose Placebo 100mg q8h 200mg q8h 300mg q8h 400mg q12h 600mg q12h 900mg q12h
n 12 8 8 7 7 8 7
Median change HCV RNA at EOT, log (IU/mL) -2.2 -5.5 -5.7 -5.6 -4.7 -5.4 -5.3
<25 IU/mL (%) 8% 75% 88% 71% 57% 75% 57%
<9.3 IU/mL (%) 0% 13% 50% 57% 14% 13% 14%
EOT = end of treatment Source: ITMN press release, Jan 12, 2008
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SGPs SCH 900518

SGP relying on ritonavir boosting to achieve improved dosing profile; potency far superior to boceprevir. SGP announced during its November 2008 Analyst event positive initial data for its next generation protease inhibitor 518. Specifically, in a 7-day Phase 1b proof of concept study, 518 achieved up to 4 log reduction in viral load at 400mg 2x/day in combination with ritonavir (RTV, a boosting agent) and 800mg 3x/day alone, in treatment nave and experienced HCV patients. These data are similar to monotherapy data generated for VRTXs telaprevir at 750 mg 3x/day. Additionally, SGP showed data with encouraging results in combination with PEG/RBV over 14 days: (1) approximately 5 log in 800mg 3x/day treatment nave and experienced patients groups, (2) approximately 4.5log reduction in 400mg 2x/day with RTV in nave patients, and (3) approximately 3.5log reduction in 400mg 2x/day with RTV in treatment experienced patients. We expect a more compete dataset from the Phase 1b study to be presented at the EASL meeting in April 2009. Perplexingly, while the anti-viral data for 518 look promising at 400 mg 2x/day dosing with RTV boosting (SGP did not release any 1x/day data), the ongoing studies are focused on once-daily doses. The 140-patient Phase 2a NEXT-1 trial is a 28-day study in combination with PEG/RBV, and is evaluating 200 mg, 400 mg, and 600 mg 1x/day or 100 mg 2x/day, with all arms including RTV boosting. This study opened in November 2008 and we expect data in 2H09. Our consultant believes that boosting with ritonavir is a very feasible strategy to pursue as it provides excellent chances for 1x/day dosing schedule. In addition, ritonavir, currently marketed by Abbott, is expected to go generic in a couple of years, which would free up hands of companies pursuing the boosting strategy with their HCV protease inhibitors. That said, we believe that an additional drug in the HCV treatment cocktail could further complicate dosing of the combination, particularly in the HIV-HCV co-infected population.
Vertexs Next Gen PIs

VRTXs Next Generation Protease Inhibitor VX-500 has completed a Phase 1a study in healthy volunteers and entered a Phase 1b study in HCV patients in 3Q08. In February 2009, VRTX announced that it will not advance VX-500 into Phase 2. VRTX is advancing another protease inhibitor VX-813 into clinic in 3Q08 and proof-of-concept data are expected in 2009.
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Clinical Stage HCV Protease Inhibitors
HCV Protease Inhibitors

Company VRTX/JNJ SGP Boehringer Ingelheim Medivir/JNJ MRK ITMN/Roche SGP BMY Phenomix VRTX ABT/Enanta Product telaprevir boceprevir BI-201335 TMC-435 MK-7009 ITMN-191 SGP-900518 not disclosed PHX1766 VX-813 ABT-450 Stage Phase 3 Phase 3 Phase 2b Phase 2a Phase 2a Phase 2a Phase 2a Phase 1a/1b Phase 1b Phase 1a Phase 1a Next Steps Complete Phase 3 program Complete Phase 3 program Report Phase 2b in 2010; Start Phase 2b in treatment failures Initiate Phase 2b 2Q09 Initiate Phase 2b study in 2Q09 Initiate Phase 2b study in 2Q09 Complete Phase 2a Report proof of concept data Report proof-of-concept data mid-'09 Start proof-of-concept study Report POC Possible EASL 2009 Data Final PROVE 3 data Additional SPRINT1 data cuts Additional Phase 2a data Additional dosing data 4-week triple combo data 2-week triple combo data Phase 1b data Phase 1b data possible NE NE NE
SAD=Single ascending dose study; POC=proof-of-concept Note: Phase 1b means in HCV patients Source: Company data, Cowen and Company.
NE=not expected
RNA Polymerase An Attractive Target

Polymerase inhibitors are the other class of advanced direct-targeted HCV drugs in development, with the NS5B polymerase currently representing one of the top targets for HCV drug development. However, it is worth noting that polymerase target has been treacherous thus far in the clinic with multiple compounds failing in Phase 1 or Phase 2 studies either for safety or efficacy including IDIXs NM283, Japan Tobaccos JTK-003 VPHMs HCV-796 among others. Consultants believe there will be a role for combining polymerase inhibitors and protease inhibitors in a strategy similar for HIV, with viral eradication remaining the primary goal of therapy in hepatitis C.
Nucleoside Polymerase Inhibitors
VRUS/Roches R7128
Most advanced polymerase inhibitor in development, 12-week clinical safety next key step. VRUS announced early this year that the FDA has allowed it and partner Roche to initiate a Phase 2b trial for their HCV polymerase inhibitor R7128 on schedule in 1Q09. The design of the study, primarily focused on the potent 1,000 mg BID dose for R7128 in combination with the standard of care PEG/RBV backbone is in line with our expectations. However, the design also calls for the study to enroll in two cohorts, with enrollment into the larger portion of the study contingent on the safety results from the first smaller cohort of patients through 12 weeks. We believe Roche was in favor of this contingency, we presume based on the preclinical kidney toxicity found in monkeys, and highlights increased focus on safety concerns following several safety issues with prior nucleoside based therapies (Idenixs NM283 and Roches R1626). Implications are that the overall program will be delayed by several months, as the companies wait for results
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from the first patient cohort. It remains unknown how severe or frequent any kidney toxicity will be in humans (if at all) following the first 4 weeks of treatment. The design includes 400 GT1 and GT4 patients to be randomized as follows: (1) 12+12 week design with R7128 500 mg BID + PEGB/RBV for 12 weeks followed by 12 weeks PEG/RBV (2) 12+12 week design with R7128 1,000 mg BID + PEGB/RBV for 12 weeks followed by 12 weeks PEG/RBV (3) 8+16 week design with R7128 1,000 mg BID + PEGB/RBV for 8 weeks followed by 16 weeks PEG/RBV (4) 12+36 week design with R7128 1,000 mg BID + PEGB/RBV for 12 weeks followed by 36 weeks PEG/RBV (5) Control arm with PEG/RBV for 48 weeks R7128 Combination With PEG/RBV Shows Potent Anti-Viral Activity. R7128 in a Phase 2 study in combination with PEG/RBV in the treatment-nave and -experienced HCV patients showed the most impressive 4-week data for any polymerase and data on par with the most promising protease inhibitors. Interim results presented at the EASL/AALSD 2008 meetings in April for the treatment nave patient population. Patients were randomized to PEG/RBV alone (n=10) or PEG/RBV plus R7128 across doses of 500mg (n=20), 1000mg (n=25) and 1500mg (n=20) administered 2x/day. Following 4 weeks of treatment with 1000 mg and 1500mg R7128/PEG/RBV, patients achieved viral load reduction of 5 to 5.1 log and 85-88% of them achieved HCV RNA below limit of detection (<15 IU/mL) or rapid viral response (RVR). These data compare very favorably to the standard of care group (PEG/RBV) where patients had 2.95 log viral load reduction and 10% of them achieved RVR. 500mg R7128/PEG/RVR cohort resulted in viral load reduction of 3.82 log and 30% RVR. From the individual plasma HCV RNA chart, it appears that none of the patients experienced viral breakthrough during the 4-week treatment in the 1000mg BID group. No serious adverse events were reported during the 4 week treatment period. The most common adverse event reported across the cohorts was headache (45% in 500mg arm, 65% in 1500mg arm and 40% in PEG/RBV), followed by injection site reaction (45% in 500mg arm, 15% in 1500mg arm and 30% in PEG/RBV), insomnia, fatigue, fever, chills, nausea, depression, vomiting, and loose stool. Hematologic parameters looked relatively clean, with one of 20 (5%) patients in 1500mg group experienced Grade 4 neutropenia compared to 1 of 10 (10%) in the placebo group. There was some decline in hemoglobin associated with R7128 over 28 days. Longer- term studies will be required to assess the significance of this finding.
IDIXs IDX184
More potent inhibitor than first generation compounds, human efficacy/safety unknown. Idenix (IDIX) announced the initiation of a Phase 1b 3-day multi ascending dosing study for its next-generation nucleotide inhibitor IDIX-184. IDX184 was well tolerated in a single ascending dose study, and pK data showed minimal plasma concentrations of unchanged drug. In chimpanzees, IDX184 resulted in 2.5 log to 4.0 log reduction over 4 days of 10mg/kg dosing 1x/day, suggesting active doses in the 50-100 mg range in humans. The 3-day study is evaluating 25 mg, 50 mg, 75 mg, and 100 mg once daily dosing, and data for some of the cohorts are expected at the EASL 2009
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meeting, with full data likely at the AASLD meeting. IDX184 is designed using IDIXs proprietary liver targeting technology. Once the 3-day data are complete, IDIX expects to refine dosing in a 2-week combination study with PEG/RBV. The company has pointed out that steady state levels of IDX184 are not achieved by 3 days, so dose optimization as monotherapy is not feasible. Novartis has right of first refusal following proof of concept data.
Non-nucleoside Polymerase Inhibitors
GILDs GS-9190
Modest HCV inhibitor as monotherapy, most advanced non-nuc, long term safety unknown. GILDs GS-9190 is the only non-nucleoside polymerase inhibitor in Phase 2b development presently and the only non-nuc on track to report SVR data. The 200-patient study started recruitment in October 2008 and is projected to report final data in late 2010, although it is possible GILD would allow earlier cuts of the data to be presented. To ensure adequate representation across the two subtypes of genotype 1, the study will enrollment at 120 patients for either GT1a or GT1b. As of late January, GILD indicated the trial was 38% enrolled, suggesting GILD should complete enrollment in the next few months. Phase 2b Design: Arm 1: PEG/RBV + placebo for 48 weeks (n = 50) Arm 2: PEG/RBV + GS-9190 40 mg 2x/day for 48 weeks (n = 100) Arm 3: PEG/RBV + GS-9190 40 mg 2x/day for 48 weeks, with RVR responders (who maintain response through 24 weeks) stopping therapy at week 24 (n = 50) At the 2007 AASLD meeting, Gilead presented its 8-day monotherapy study of GS-9190 in treatment nave GT-1 patients with 1.7 log reduction in the twice daily 120 mg dose and 1.4 log reduction in the 40 mg twice daily dose. There was no evidence of viral rebound within the 8-day dosing period, although viral declines appeared to plateau around day 5 with the high dose. That said, GILD indicated it had seen a QTc signal with the 120mg twice daily dose which it subsequently confirmed in a pilot QTc study at 120mg and 40mg doses initiated last year. GS-9190 binds in a unique position of the polymerase relative to other compounds previously in development, and is adjacent to the active site.
PFEs PF-00868554
Viable 3x/Day, Expect 2x/day strategy to backfire, long term safety/efficacy unknown. PFE presented data for the first time from a monotherapy study of its nonnucleoside inhibitor 554 evaluated in HCV GT1 patients at the AASLD 2008 meeting. Four cohorts of 8 patients (6 to 554 and 2 to placebo) were randomized to receive 100mg 2x/day, 300mg 2x/day, 450mg 2x/day and 300mg 3x/day doses of 554 for 8 days. The mean max reduction in viral load was 0.97, 1.84, 1.73, and 2.13 for 100mg 2x/day, 300mg 2x/day, 450mg 2x/day and 300mg 3x/day doses, respectively. On day 8, reductions were negatively impacted by virologic rebound as would typically be expected with non-nucleoside polymerase inhibitors, with more patients rebounding in the 2x/day 300mg and 450mg groups than the 3x/day 300mg group. A total of 0/6, 1/6, 2/6 and 4/6 patients in 100mg 2x/day, 300mg 2x/day, 450mg 2x/day and 300mg
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3x/day doses, respectively, experienced a >2 log maximum reduction in HCV RNA from baseline to day 8. The drug was generally safe and well tolerated with no trends in the incidence of adverse events or lab abnormalities recorded. Based on the results of this monotherapy study, PFE initiated a 4-week Phase 2a study of 554 in combination with PEG/RBV where it is evaluating 200mg, 300mg and 500mg 2x/day doses. Data from the Phase 2a should be internally available sometime in January 2009 and we expect results at the EASL meeting in April. We are surprised PFE elected not to pursue 3x/day doses in the Phase 2a study. It is possible that virologic breakthrough and/or relapse rates could be high, as 2x/day trough levels in monotherapy appear to correlate with viral rebound. Assuming RVR rates are high enough, PFE would move into a 24 week based triple combination Phase 2b study.
ANDSs ANA598
Initial potency appears best in class, long term safety/efficacy unknown. ANDS recently press released encouraging 3-day anti-viral data for its non-nuc polymerase inhibitor ANA598. Data from the lowest dose cohort (200 mg 2x/day) showed 2.5 log reduction over 3 days. Enrollment in the 400 mg cohort is currently underway and the study is designed to evaluate doses up to 800 mg 2x/day. We expect more details at the EASL 2009 meeting. An outstanding question is whether ANA598 is acquired as part of a sale of the company, or whether ANDS finances the company on these data and initiates on its own a 28-day PEG/RBV combination study.
Mercks MK-3281
Chimp data look potent. A 2-part Phase 1 study evaluating MK3281 in healthy male subjects as well as in HCV patients has completed enrollment, and we expect data sometime in 2009. Part 1 of the study includes 4 cohorts of healthy subjects with MK3281 dosed at 100mg, 200mg, 400mg and 800mg 2x/day for 10 consecutive days. Part 2 explores MK3281 in HCV patients at 800mg administered 2x/day for 7 consecutive days. As a reminder, at the HepDart meeting in December 2007, Merck presented proof of concept data in two HCV infected chimps for MK-3281 showing activity and a potent dose response. Two animals dosed with 3281 for 5 days monotherapy experienced dose dependent reduction in viral load. The better responder was a chimp dosed with 10 mg/kg twice daily orally with a 3.8log reduction; the second chimp showed a 1.4 log reduction dosed at only 2 mg/kg twice daily. Neither animal showed since of drug resistant virus.
Virochems Non-Nucs
VCH-759 OR VCH-222? ViroChem should have completed a 3-day Phase 1b study of VCH-916 in 55 HCV Genotype 1 treatment-nave patients. According to clinical trials database, the study was planned to complete in October 2008 suggesting that the data may be available at the EASL meeting. Virochem has also advanced a third non nuc into the clinic recently, VCH-222, which has completed healthy volunteer testing. As a reminder, at the AASLD meeting in November 2007, ViroChem presented data from a Phase 1b study which showed a mean maximal viral reduction of 1.9 log for the 400mg 3x/day, 2.3log for the 800mg 2x/day and 2.5log for 800mg 3x/day after 10 days dosing. It is unclear which product will ultimately advance.
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Abbotts ABT-333
ABTs HCV Portfolio. Abbott initiated a study of its ABT-333 in healthy volunteers and HCV patients last summer. We speculate the compound is a non-nucleoside polymerase inhibitor based on Abbotts preclinical area of research. The ongoing study will enroll a total of 100 subjects and evaluate first single and multiple doses of ABT-333 in healthy subjects and then advance into multi-dose part of the study in HCV patients with ABT333 at 100mg to 300mg 1x/day and/or 2x/day. The earliest the results from this study could be available at the EASL 2009 meeting. ABT recently moved a second compound with an undisclosed mechanism into Phase 1b testing, ABT-072. The single ascending dose portion of the study will evaluate 10-600 mg in healthy volunteers, followed by 1080 mg 1x or 2x/day in HCV patients. These dosing schedules are likely to be refined driven by results in early cohorts. Finally, ABT is partnered with Enanta to develop HCV protease inhibitors, although this partnership has not produced any clinical candidates to our knowledge.
Clinical Stage HCV Polymerase Inhibitors
Company Nucleosides Roche/VRUS IDIX VRUS Non-nucleosides PFE GILD ViroChem [1] ViroChem [1] MRK ANDS ABT Product R7128 IDX184 PSI-7851 PF-00868554 GS-9190 VCH-759 VCH-222 MK-3281 ANA598 ABT-333 Stage Phase 2a Phase 1b preclinical Phase 2a Phase 2b Phase 1b completed Phase 1b Phase 1a/1b Phase 1b Phase 1b Next Steps Phase 2b start in early '09 Report proof of concept data 2Q09 IND in 1Q09 Report Phase 2a data Complete Phase 2b study Make go/no -go decision Additional dose optimization Report proof of concept data Complete Phase 1b Report proof of concept data Possible EASL 2009 Data Additional data cuts of Phase 2a Partial proof of concept data NE Phase 2a data NE NE Phase 1b data possible Proof of concept data possible Phase 1b data Proof of concept data possible Proof of concept data possible
BMY undisclosed Phase 1a/1b Report proof of concept data [1] VRTX announced an intent to acquire ViroChem in March 2009
Source: Company data, Cowen and Company NE=not expected
Novel Target-NS5a Inhibitor BMYs 790052

Bristol-Myers BMS 790052-The First Clinical Data Validating NS5a as an HCV Target. Investigators presented very provocative data for BMYs first-in-class NS5a inhibitor BMS 790052 at the AASLD 2008 meeting. A single dose study evaluated 1mg, 10mg and 100mg doses vs. placebo in HCV GT1 treatment-nave or experienced patients. The data showed an unprecedented mean decline in HCV RNA of 1.8 log, 3.2 log and 3.3 log after 1mg, 10 mg and 100 mg single doses, respectively. Interestingly, the 100mg dose resulted in additional HCV viral load reduction well after the first day, despite only a 9-14 half life, with a mean decline of 3.6 log at 48 hours after dosing that was maintained at 144 hours. Most amazingly, 8/16 patients across all doses achieved at least a 3 log decrease in HCV
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RNA with one patient achieving undetectability below the limit of quantitation, and a second patient coming close to undetectable levels. There was detectable drug in some patients at 144 hours, although the pK/pD relationship has not been fully analyzed at this point. The drug was generally safe and well tolerated up to 100mg dose with some incidence of headaches and no serious adverse events or lab abnormalities, however it is too early to meaningfully interpret safety results based on the single dose study. A 60-patient, multiple-dose Phase 1b study of 790052 (1-100mg doses) is currently ongoing and data should be available by the EASL meeting in April 2009, at which time we are hoping to better understand the product profile. The study started in May 2008 and the primary endpoint is at 7 days, although dosing will continue through 14 days.
Antiviral Agents With Mechanism Of Action Not Disclosed Bristol-Myers BMS-791325, BMS-650032
Bristols Expanding HCV Portfolio. Bristol-Myers currently has three HCV antivirals in its pipeline (BMS-791325, BMS-650032 and BMS-790052-described above). BMY indicated that at least one of these molecules is a protease inhibitor, and we believe the third compound is a non-nucleoside based inhibitor. BMS-791325 is being evaluated in a single ascending dose study while BMS-650032 has advanced recently into a multiascending dose study. 0032 is being evaluated in a 3 or 5 day dosing study, dosed every 12 hours, with doses including 200 mg, 40 mg, and 600 mg. Data from this study are possible at EASL 2009 but more likely at AASLD 2009. 791325 is being evaluated at 100mg up to 900mg doses. Separately, Bristol recently signed a deal with Zymogenetics ($85M upfront payment) for a novel interferon in Phase 1b development.
AstraZenecas AZD7285
AstraZenecas AZD7285 recently entered the clinic and could report out data later this year at the AASLD 2009 meeting. Based on AZNs acquisition of Arrow Therapeutics, we speculate the product is an NS5a inhibitor, which would be a competitor to BMYs impressive 0052. The study will dose up to 700 mg/day over 5-days as monotherapy.
Pfizers PF-04878691, PF-4194471

PF-04878691 recently started a 24-patient Phase 1 study of three ascending doses (3 mg, 6 mg, and 9 mg) oral solutions given 2x/week over 2 weeks. Based on the secondary endpoint evaluating specific biomarkers of immune stimulation, we expect this product is not a direct antiviral. Initial data should be available by AASLD 2009. 471 is a novel HCV inhibitor that recently moved into Phase 1 testing.
Taking a First Step Towards Direct Antivirals Combination

Roche/ITMN/VRUS announced in November 2008 the initiation of a 14-day combo study in HCV patients with ITMNs protease inhibitor (ITMN 191) and VRUSs nucleoside polymerase inhibitor (R7128), without IFN and RBV, the current standard of care backbone. We expect this study to be the first in series of early stage studies designed to evaluate safety and early virologic kinetics of the combination, and the initial data from the lower dose cohorts should be available at the EASL 2009 meeting. We expect data
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from this first study to show greater antiviral activity with the combination than the monotherapy components alone, although we believe longer term studies (which are unlikely to start until 2010) will be critical for understanding whether an all oral interferon sparing regimen will produce promising results.
Design of INFORM-1 Study
Arms Details Part 1 Arm 1 500mg R7128 for 3 days, followed by 500mg R7128 + 100mg ITMN-191for 4 days Arm 2 100mg ITMN-191 for 3 days, followed by 500mg R7128 + 100mg ITMN-191 for 4 days Arm 3 500mg R7128 + 100mg ITMN-191 Part 2 Arm 4 500mg R7128 + 200mg ITMN-191 Arm 5 1000mg R7128 + 100mg ITMN-191 Arm 6 1000mg R7128 + 200mg ITMN-191 Note: R7128 dosed BID = 2x/day, ITMN-191 dosed Q8D = every 8 hours Source: clinicaltrials.gov
Total duration 7 days 7 days 14 days 14 days 14 days 14 days
Non-Direct Antiviral Strategies - Cyclophilins

Cyclophilin inhibition is a novel approach to treat HCV which is based on targeting host factors that are required for viral replication. One of our consultants believes this approach is very interesting as the mechanism is getting more elucidated, it may be less prone to resistance and such an inhibitor could be used in combination with direct antivirals and would be the most likely candidate to replace IFN in the HCV cocktail. There are currently three candidates in development that we are aware of including: NVSs NIM811, Debiopharms Debio 025, and Scynexis SCY-635.
Debiopharms DEBIO-025
Most advanced cyclophilin based inhibitor, variable efficacy, long-term safety unknown. Results from a Phase 2a study of Debio 025 were presented at the EASL 2008 meeting. The study investigated Debio 025 in combination with Peg-IFN in treatment nave HCV GT 1 and 4 patients for 29 days. Ninety patients were randomized to (1) Peg-IFN plus placebo; (2) Peg-IFN plus Debio 025 at 200mg/day; (3) Peg-IFN plus Debio 025 at 600 mg/day; (4) Peg-IFN plus Debio 025 at 1000 mg/day; and (5) Debio-025 1000 mg/day. At day 29, the HCV RNA reduction was -4.6 log10 IU/mL in the Peg-IFN with Debio-025 600 mg/day arm, and -4.8 log10 IU/mL in the Debio-025 1,000 mg/day arm. This result compares to -2.49 and -2.20 log reduction for Peg-IFN alone and Debio-025 alone, respectively. Undetectable viral load at day 29 (RVR) was achieved in 25% of patients in Peg-IFN and Debio-025 as monotherapies vs. 66% of patients in the PegIFN/Debio-025 1000mg/day combo group. It is worth noting that there were variable viral load declines observed across the full range of doses. In January 2009, Debiopharm initiated a Phase 2b study of Debio 025 in HCV GT 1 patients. The study will enroll 272 treatment-nave patients and randomize them into three PEG/RBV regimens or standard of care PEG/RBV alone. The results of the study are expected in 1Q 2011.
Scynexis SCY-635
Initial data suggest it is active, details at EASL. In January 2009, Scynexis (N/R) announced top-line results from a Phase 1b study of SCY-635 in HCV patients. The drug was dosed as an oral capsule for 15 consecutive days. The treatment was well tolerated
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and produced a clinically relevant reduction in plasma HCV RNA. Complete results of the study are expected at the EASL meeting in April.
Novartis NM-811
One of our consultants indicated Novartis NM-811 is in Phase 2a development, although we know very little about this compound. We look forward to additional data in 2009.
Other Clinical Stage HCV Products

Company Product Cyclophilin analogs Debio-025 Debio Scynexis Novartis NS5a Inhibitors BMY - NS5a BMS-790052 Phase 1b Phase 1b Phase 1b Complete Phase 1b Complete Phase 1b Complete preclinical work Phase 1b data NE NE Possible EASL 2009 Data Report proof of concept data Report proof of concept data Report proof of concept data Report proof of concept data Report proof of concept data Report proof of concept data Phase 1b possible NE NE NE NE NE SCY-635 NM-811 Stage Phase 2b Phase 1b Phase 2a Next Steps Report Phase 2b data in 2011 Start Phase 2a study Report proof of concept data Possible EASL 2009 Data NE Phase 1b data Phase 1b data possible
Adenosine receptor agonist Can-Fite CF102 Alpha glucosidase inhibitor Migenix/UTC Celgosivir
Undisclosed Mechanism Of Action

BMY BMY ABT PFE PFE AZN BMS-791325[1] BMS-650032 ABT-027 PF-04878691 PF-04194471 AZD7285 Phase 1b Phase 1b Phase 1b Phase 1 Phase 1 Phase 1
[1] BMY stated that at least 1 of its 3 HCV compounds is a protease inhibitor, and we believe another is a non-nuc polymerase inhibitor Source: Company data, Cowen and Company
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HCV Development Graveyard

Company Protease Inhibitors Boehringer Ingelheim Bristol Myers Product BILN 2061 unnnamed Stage Phase 1b Phase 1b Reason preclinical cardiotoxicity not disclosed
Nucleoside polymerase inhibitors IDIX/NVS MRK Roche NM283 MK-0608 R1626 Phase 2b Phase 1 Phase 2b poor efficacy/GI toxicity not disclosed neutropenia, ocular
Non-nucleoside polymerase inhibitors Japan Tobacco RIGL Boehringer Ingelheim VPHM/WYE JTK-003 R803 BILN 1941 HCV-796 HCV-086 HCV-371 XTL-2125 GSK625433 Phase 2 Phase 1b Phase 1b Phase 2 Phase 1b Phase 1b Phase 1b Phase 1b not disclosed insufficient blood levels GI toxicity elevated liver enzymes lack of efficacy/GI toxicity lack of efficacy lack of efficacy not disclosed
XTL Biopharm GSK Other VRTX ACHN/GILD AVII

merimepodib GS-9132 AVI-4065
Phase 2 Phase 1b Phase 1b
poor efficacy/toxicity renal toxicity lack of efficacy
New Interferons: Lower Development Risk But Commercial Hurdles

New interferons in development for HCV include HGSI/NVS Albuferon, ZGEN/BMYs IFN lambda, Flamel Technologys Medusa Interferon, Biolex/Octopus Locteron, and Intarcia/Boeheringer Ingelheims Omega Interferon. While the interferon class of drugs has been validated in HCV, generation of compelling data to displace one of the entrenched PEG-IFN leaders (Roches Pegasys, Schering Ploughs PEG-Intron) or to penetrate into the non-responder setting may prove costly and elusive.
HGSI/NVS Albuferon - Tolerability And Commercial Challenge Significant

Albuferon is a long-acting modified interferon-alpha currently in Phase 3 development for treatment naive and non-responder HCV patients. Albuferon was originally designed to reduce interferon related side effects through less frequent dosing. However, the latest
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clinical data suggest that Albuferon will be given every two weeks compared to onceweekly Peg-interferons, but its tolerability does not appear to be better. Additionally our consultants believe that, because Albuferon is unlikely to be tested in combination with the new STAT-C molecules in pivotal trials, it may not be indicated for use with these drugs. We therefore believe that the outlook for Albuferon is tempered. Similar to the pegylated interferons, Albuferon was designed with the intention of improving the pharmacokinetic properties of recombinant interferon. However, unlike the pegylated interferons, Albuferon utilizes a large covalently attached globular molecule (albumin) to protect it from rapid degradation in the bloodstream. The median half-life of Albuferon in human blood is 148 hours, substantially longer than the reported 40-hour mean half-life for PEG-Intron (range 22-60 hours) and mean half-life of 80 hours for Pegasys (range 50-140 hours). Furthermore, albumin is a naturally occurring protein in the blood whereas pegylated interferons utilize polyethylene glycol (PEG), a synthetic polymer, to stabilize the cytokine. Novartis licensed Albuferon from HGSI in 2006 and is sharing development expenses and the U.S. commercialization, but is responsible for the ex-U.S. commercialization. Phase 2b data presented at AASLD 2007 from a 458-patient treatment nave study reported similar efficacy but despite an improved quality of life score for the 900mcg every two weeks dose, the drop-out rates were worse in the Albuferon arms, especially at the higher 1200mcg dose. These data suggest that Albuferon is likely to impart convenience but a tolerability advantage remains unclear. In January 2008, the companies announced that the DMSB had recommended modification of the doses in ACHIEVE studies, converting all patients to the 900mcg twice monthly dose because of an increased risk of serious pulmonary events. Currently, Albuferon is being evaluated in a pivotal Phase 3 clinical trial ACHIEVE 1 in 1,278 HCV GT1 treatment nave patients. ACHIEVE 2/3 in 918 HCV GT2 and GT3 treatment naive patients has reported data in December 2008. Both ACHIEVE 1 and ACHIEVE 2/3 are randomized, open-label, non-inferiority studies designed to evaluate efficacy, safety and quality of life of Albuferon + RBV vs. Pegasus + RBV. In July 2008, HGSI completed treatment in ACHIEVE 1. HGSI plans to release top-line results from ACHIEVE 1 in March 2009. The companies believe that they are on track for a BLA submission in the fall of 2009. Albuferon Top-Line Data Suggest Similar Efficacy To Pegasys. In June 2007, top-line data from a Phase 2b study of Albuferon were reported. These included data through Week 24 following completion of 48 weeks of therapy. This open-label study enrolled 458 patients with genotype 1 chronic hepatitis C that were randomized into four treatment groups, three of which received subcutaneously administered Albuferon (900 mcg every two weeks, 1200 mcg every two weeks, and 1200 mcg every four weeks). The fourth treatment group served as the active control and received 180 mcg of subcutaneously administered peginterferon alfa-2a (Pegasys) once a week. All patients received weight-based oral ribavirin daily. The study was conducted in Australia, Canada, Czech Republic, France, Germany, Israel, Poland and Romania. Our interpretation of the data suggests that Albuferon showed efficacy comparable to Pegasys but with high rates of discontinuation, especially in the 1200mcg once every two weeks arm. The data also included Quality of Life measures and an analysis of a subgroup (i.e. patients with body weight >75kg). In the Albuferon 900mcg every-two-weeks (Albuferon 900mcg Q2w) group, 58.5% of patients achieved SVR, vs. 57.9% for Pegasys administered every week. The rate of discontinuations due to adverse events was 9.3% in the Albuferon 900mcg Q2w treatment group, vs. 6.1% in the Pegasys group. In heavier patients (>75 kg) who were treatmentadherent, 74.2% of those in the Albuferon 900 mcg Q2w treatment group achieved SVR, versus 53.3% for Pegasys. Additionally, based on a quality of life survey, patients in the
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Albuferon 900mcg Q2w treatment group reported less impairment of health-related quality of life, compared with patients in the Pegasys treatment group, as measured by both physical and mental component SF-36 summary measures at all time-points throughout the 48-week treatment period. Fewer working patients in the Albuferon 900mcg Q2w treatment group reported missing 7 days or more of work during the month prior to their visits at weeks 12 and 24, vs. the Pegasys group (week 12: 3.0% for Albuferon 900mcg Q2w vs. 19.2% for Pegasys; week 24: 5.8% for Albuferon 900mcg Q2w, vs. 22.4% for Pegasys). For the Albuferon 1200mcg every-two-weeks group, 55.5% of patients achieved SVR, vs. 57.9% for Pegasys administered every week. The rate of discontinuations due to adverse events was 18.2% in the Albuferon 1200mcg Q2w treatment group, vs. 6.1% in the Pegasys group. Dose reductions were attempted in only 30.0% of Albuferon subjects prior to discontinuation, versus 42.9% for Pegasys. In heavier patients ( >75 kg) who were treatment-adherent, 67.9% of those in the Albuferon 1200mcg Q2w treatment group achieved SVR, versus 53.3% for Pegasys every week. Additionally, Albuferon 1200mcg once-monthly showed that 50.9% of patients in the Albuferon 1200mcg Q4w treatment group achieved SVR, vs. 57.9% for Pegasys administered every week. In heavier patients ( >75 kg) who were treatment-adherent, 61.0% of those in the Albuferon 1200mcg Q4w treatment group achieved SVR, versus 53.3% for Pegasys administered once every week. Among all treatment-adherent patients in the Albuferon 1200mcg Q4w treatment group, 62.0% achieved SVR, versus 66.7% for Pegasys. The rate of discontinuations due to adverse events was 12.1% in the Albuferon 1200mcg Q4w treatment group, vs. 6.1% in the Pegasys group. In addition, 72-week results from 71 patients in three of five dose cohorts in a Phase 2 study of Albuferon plus ribavirin for HCV non-responders were presented at the AASLD meeting in 2006. The study evaluated five Albuferon regimens: 900 mcg q14d, 1200 mcg q14d, 1200 mcg q28d, 1500 mcg q14d and 1800 mcg q14d. After 48 weeks of therapy, 31% of patients in the three lower dose groups had undetectable HCV RNA. Additionally, for 71 patients in the lower dose groups, three-month SVR was reached by 21% of patients (13% in the HCV genotype 1 non-responders). Albuferon in ACHIEVE 2/3 trial in GT 2 and 3. HGSI announced in December 2008 top-line results from the Phase 3 ACHIEVE 2/3 study that evaluated 900mcg albuferon plus ribavirin compared to Pegasys/ribavirin. 1200mcg dose of albuferon was reduced to 900mcg after DMC recommendation following the observation that serious pulmonary adverse events were higher in the 1200mcg group. Based on an ITT analysis of the 900mcg group, the topline data demonstrated SVR rate of 78.9% (249/312) for the albuferon group, numerically lower than 84.8% (263/310) for Pegasys, although noninferiority endpoint to met with p=0.0086. The incidence of servere and/or serious adverse events was comparable between the groups with 17.3% in the albuferon arm vs. 17.5% in the Pegasys arm. The incidence of severe/serious pulmonary AEs was also comparable. Overall, AEs observed in the study were typical for interferon therapy, and the rate of discountinuations was 4.8% for albuferon vs. 3.6% for Pegasys. Based on the ITT analysis of the 1200mcg-modified-to-900mcg group, 80% of albuferon patients achieved SVR, which is slightly below Pegasys 84.8% SVR rate. The incidence of servere/serious AEs was 16.8%. The incidence of severe/serious pulmonary AEs was 1.3% for pulmonary infections and 1.6% for respiratory, thoracic or mediastinal disorders. Overall adverse events were typical for interferon therapy. The discontinuation rate was 5.5%.
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Monthly Dosing In Phase 2b in GT2/3. In January 2009, HGSI announced that partner NVS initiated dosing in a Phase 2b study of Albuferon to evaluate monthly dosing administration in combination with ribavirin in treatment-nave GT2/3 HCV patients. The study will enroll approximately 375 patients in four arms, including 900mcg, 1200mcg and 1500mcg once a months, and active control group in combination with ribavirin. The total duration of treatment will be 24 weeks. Locteron (Biolex). Locteron is a controlled-released interferon alfa designed to have a more favorable side-effect profile and more convenient dosing (once every two weeks) compared with other pegylated interferons. Locteron combines its recombinant interferon alfa and an advanced controlled-release drug delivery technology developed by OctoPlus. Locterons mechanism results in the gradual release of interferon to patients over two weeks and covers inter-dose troughs while reducing frequency of administration and duration and severity of side effects. At the AASLD 2007 meeting, Biolex reported the results of its European-based Phase 2a SELECT-1 study of Locteron in 32 treatment nave HCV genotype 1 patients. The study evaluated four doses of Locteron, 160, 320, 480 and 640 mcg, administered once every two weeks in combination with ribavirin. 320mcg dose resulted in 88% early virologic response (EVR) at 12 weeks, and 480mcg and 640mcg groups resulted in 100% EVR rate. In addition, the study suggested a more favorable safety profiled compared to what previously was reported for other interferons. In February 2008, Biolex initiated a U.S.-based Phase 2a PLUS trial of Locteron in 56 HCV patients. In the first phase of the study, 320mcg of Locteron will be studied in combination with ribavirin for four weeks compared to Peg-Intron in combination with ribavirin in treatment experienced patients. The second phase will include four weeks of 640mcg Locteron/ribavirin compared to Peg-Intron/ribavirin. In 2009, the company plans to move Locteron into a 100-patient Phase 2b SELECT-2 study in Europe. The study will compare three doses of Locteron in combination with RBV administered for 48-weeks against a PEG/RBV control arm. 12-week on-treatment data will be evaluated and will be the basis for dose selection for Phase 3 clinical trials. Other Novel Interferons. Several additional alternative interferons are currently under development for HCV including ZGEN/BMYs IFM lambda, Intarcias Omega interferon and DUROS, and Flamels Medusa Interferon among others. Limitations to this group of candidates include the side-effect profile common to most interferons, the commercial hurdles posed by the entrenched pegylated interferon leaders, and the potential need to incorporate new HCV drug classes such as protease inhibitors into the development strategy.
Interferons In Development For The Treatment Of HCV
HGSI/NVS ZGEN/BMY Biolex/Octoplus Flamel Intarcia Nautilus Biotech Maxygen/Roche Alios
Albuferon IFN lambda Locteron IFN-alpha-2b XL Omega IFN DUROS Belerofon R7025 - Maxy alpha IFN alfacon 1
Phase 3 Phase 1b Phase 2 Phase 2 Phase 2 Phase 1 Phase 1 preclinic
Albumin interferon alpha 2b IFN lambda Controlled release mechanism Superior tolerabiltiy/anti-viral ratio Implantable infusion pump Oral administration 50x greater in vitro activity vs. PEG-IFN Addition/optimization of glycosylation
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Ribavirin Analog Targets Reduction In Anemia

Viramidine (Valeant). Viramidine is an oral prodrug of ribavirin designed to reduce the incidence of anemia. Results of the Phase III VISER I study were reported in March 2006. Unfortunately, Viramidine failed to meet non-inferiority on an ITT basis (38% SVR with Viramidine versus 52% with ribavirin). On per-protocol basis, Viramidine SVR rates in North America and Europe (489 patients) were 51% versus 56% for ribavirin, and for patients in these territories who weighed less than 75 kg (218 patients), SVR rates were 62% for Viramidine versus 60% for ribavirin. In the rest of the world territories (148 patients), SVR with Viramidine was 55% versus 78% with ribavirin. VISER I did confirm a lower rate of anemia with Viramidine versus ribavirin (5% versus 24%, p-value <0.0001). VISER II (600 mg Viramidine + Pegasys, n=1,000) was initiated in Q2:04 and top-line results were released in September 2006. Consistent with the results of VISER I, VISER II failed to demonstrate Viramidines non-inferiority vs. ribavirin; although a positive efficacy trend was seen. Valeant has initiated a Phase IIb trial in order to test higher doses (20, 25, and 30mg/kg) of Viramidine. Valeant plans to conduct an interim analysis of the Phase IIb study at 12 weeks and use these data as a basis for whether or not to pursue further Phase III studies of Viramidine. Valeant indicated that should it decide to move forward with a Phase III trial of Viramidine, it will seek a co-development partner. Nitazoxanide An Antiparasitic Agent For The Treatment Of HCV? NTZ is an anti-parasitic agent marketed in the U.S. for the treatment of diarrhea caused by Cryptosporidium parvum and Giardia lamblia. Serendipitously, it was discovered that NTZ might have activity against HCV. The mechanism of action of NTZ appears to be different against viruses from its action against bacteria and protozoa and is related to enhancement of the intracellular activity of interferon by inducing elF2alfa phosphorylation. At the EASL meeting in 2008 investigators showed that 500mg 2x/day NTZ monotherapy for 24 weeks induced SVR rates in 4 of 23 (17 percent) HCV GT4 patients compared to O of 24 placebo patients. Early virologic response was 7/23 (30 percent) in the NTZ group vs. 0/24 (0 percent) in the placebo group. The drug was safe and well tolerated with two serious adverse events recorded and the remaining adverse event were mild to moderate and transient in nature. Separately, investigators presented a study of NTZ in 44 treatment nave HCV patients conducted in Egypt, which included 40 patients with GT4, 3 patients with GT1, and 1 patient with GT2. Patients received a lead-in with NTZ 500mg 2x/day with food for 4 weeks followed by NTZ/PEG for 36 weeks. An earlier study STEALTH C-1 served as historic control where 97 HCV GT4 treatment-naive patients were randomized to receive 1) 12-week lead-in NTZ followed by 36 weeks of NTZ/PEG/RBV (SVR of 79 percent); 2) 12-week lead in NTZ followed by 36 weeks of NTZ/PEG (SVR of 61 percent); and 3) PEG/RBV for 48 weeks (SVR of 50 percent). The 4week lead-in NTZ study resulted in 59 percent RVR rate (26/44) and 80 percent SVR rate, which compares favorably to the historical STEALTH C-1 control study and suggests that 12 weeks of lead-in with NTZ may be reduced to 4 weeks of lead-in. Interestingly, all three patients with HCV GT1 achieved SVR, suggesting that the drug might have activity in this difficult to treat patient subgroup, although larger studies are needed to confirm this finding. Currently, NTZ is evaluated in two U.S-based studies in HCV GT1 treatmentexperienced (60) and treatment nave (60) patients. The treatment-experienced study is now fully enrolled. The study in treatment-naive patients started enrollment in April 2008. Given benign safety profile and the ability to enhance SVR rates when added to the standard of care PEG/RBV, investigators believe NTZ might potentially be added to direct antivirals-based regimens as a fourth drug or even be used in place of interferon. Further studies are needed to test these hypotheses.
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TLR Agonists Stumble

Toll-like receptors (TLRs) represent an emerging field in the infectious disease space. TLR agonists demonstrated immuno-modulatory effects which are currently being explored for both antiviral and anticancer therapy. Evidence of clinical efficacy is supported by proof-of-principle studies and an observed upregulation in pro-inflammatory cytokine production during therapy. Because TLR agonists activate endogenous antiviral immunity rather than acting directly on HCV targets, the potential for drug resistance is likely to be lower than for other antiviral agents in development. ANA975 (Anadys/Novartis) and ANA773 (Anadys) ANA975 is Anadys novel oral TLR7 agonist. In June 2005, Anadys announced a global collaboration with Novartis to develop oral TLR7 agonists including ANA975 for HCV and HBV. ANA975 is an oral prodrug formulation of isatoribine, a nucleoside-like compound which binds and activates the TLR7 receptor on dendritic cells (DC). During viral infection, DCs are programmed to scavenge and recognize foreign antigens in the blood and tissues. When viral antigens such as single stranded RNA (ssRNA) bind to TLR-7 receptors on the surface of DCs, an inflammatory cascade is triggered, leading to the production of cytokines such as IFN- by the DCs. Anadys believes that the localized activation of TLR7 will reduce systemic side effects associated with systemically delivered IFNs. Initial data with TLR7 agonists in HCV patients produced encouraging short-term antiviral activity. However, 13-week Phase Ib trials of TLR7 candidate ANA975 were suspended in 2006 following reports of significant animal toxicity observed in longerterm studies. Anadys and then partner Novartis characterized the adverse events as related to intense immune stimulation and B-cell proliferation. In July 2007, after reviewing data from additional studies, Anadys and Novartis discontinued development of ANA975, with all rights to TLR7 agonists returning to Anadys. In July 2008, Anadys announced its intention to resume testing of TLR7 agonists (ANA773) in HCV. The decision was based upon clean safety data from a 13-week GLP animal-toxicology study of ANA773 dosed every other day, as well as compelling interferon induction data. ANDS has completed a Phase 1 in healthy volunteers. A Phase Ib in 24 HCV patients was initiated in October. The study is evaluating ANA773 1x/day over 28 days at 800, 1200 and 1600mg. Top-line virologic data are expected in February 2009. Actilon (Coley) Actilon is a TLR9 agonist consisting of CpG repeats. Research has shown that CpG motifs are commonly found in pathogenic bacteria and can induce an immune response in humans via activation of the TLR9 receptor on host immune cells. Actilon (CPG 10101) Phase Ib studies were presented at the AASLD meeting in November 2005. The trial enrolled 60 HCV patients (predominantly genotype 1) who are nave, intolerant, or non-responders to IFNa-based therapies. Patients in the highest dose cohort (0.75 mg/kg/wk) achieved a mean viral load reduction of 1.6 log after four weeks. A drug related increase in IFN-associated biomarkers and dose-dependent decrease in HCV RNA was observed. The drug was relatively well tolerated with no dose-limiting toxicity, and only mild site pain reactions and flu-like symptoms observed. In October 2006, Coley presented data from a 12-week Phase Ib study of Actilon with PEGIFN and ribavirin in previously relapsed patients. Through 24 weeks of therapy, 7/14 patients receiving Actlon plus PEG-IFN plus ribavirin remained HCV negative. However, in additional follow-up, only 2/7 patients remained HCV negative at four months post dosing.
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In November 2006, Coley announced that in a three-arm Phase II study of Actilon plus PEG-IFN and ribavirin in non-responder patients, there was no meaningful difference in viral load reduction achieved. In January 2007, Coley announced that Actilon development was being suspended and research efforts will be focused on preclinical TLR 7 and TLR 8 agonists. IMO-2125 (Idera) IMO-2125 is a novel DNA-based TLR9 agonist. In preclinical studies, IMO-2125 was shown to induce high levels of endogenous interferon-alpha, as well as other cytokines and chemokines, in primates and human immune cell cultures. The cytokines induced by IMO-2125 demonstrated potent antiviral activity in replicon assay. In September 2007, Idera initiated a Phase 1 trial evaluating safety and tolerability of IMO-2125 in 40 patients who have failed prior Peg-IFN/RBV therapy. The study will test four doses of IMO-2125, which will be administered subcutaneously 1x/week for four weeks. Idera expects to have interim data from this trial during 1H09.
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HCV Pipeline Portfolios Organized By Company

Company Roche Compound Pegasys R7128 ITMN-191 Peg-Intron boceprevir SGP-900518 telaprevir VX-500 VX-813 telaprevir TMC-435 Albuferon NM-811 IDX184 BI-201335 undisclosed GS-9190 Debio-025 MK-7009 MK-3281 PF-00868554 PF-04878691 PF-04194471 VCH-916 VCH-759 VCH-222 BMS-790052 BMS-791325 [4] BMS-650032 [4] IFN lambda ABT-333 ABT-072 IDX184 PHX1766 ANA598 AZD7285 Partner None VRUS ITMN None None None JNJ, ex-US None None Vertex [1] Medivir HGSI None Idenix [2] None None None None None None None None None None None None None None None ZGEN None None NVS [2] None None None Mechanism Interferon Nuc polymerase Protease inhibitor Interferon Protease inhibitor Protease inhibitor Protease inhibitor Protease inhibitor Protease inhibitor Protease inhibitor Protease inhibitor Interferon Cyclophilin analog Nuc polymerase Protease inhibitor polymerase inhibitor Non-nuc polymerase Cyclophilin analog Protease inhibitor Non-nuc polymerase Non-nuc polymerase Unknown Immune stimulant Non-nuc polymerase Non-nuc polymerase Non-nuc polymerase NS5a inhibitor Unknown Unknown Interferon Non-nuc polymerase undisclosed Nuc polymerase Protease inhibitor Non-nuc polymerase Undisclosed Stage Marketed Phase 2a Phase 2a Marketed Phase 3 Phase 2a Phase 3 Phase 1b Phase 1a Phase 3 Phase 2a Phase 3 Phase 2a Phase 1b Phase 2b undisclosed Phase 2b Phase 2b Phase 2a Phase 1a/1b Phase 2a Phase 1 Phase 1 Next Step Phase 2b start 1Q09 Phase 2b start 2Q09 Data 2010 Data 2010
SGP
Vertex
JNJ NVS
Data 2010 Phase 2b start 2Q09 Data 2009 Opt in decision Data 2010 Data 2010 Data 2010 Phase 2b start 2Q09 Phase 2b start
Boehringer Ingelheim GILD [3] Debio Merck PFE
ViroChem
Phase 1b Partner Phase 1b completed Phase 1a Phase 1b Phase 1b Phase 1b Phase 1b Phase 1b Phase 1b Phase 1b Phase 1b Phase 1b Phase 1 Data mid-2009 Start Phase 2a/partner Start Phase 2
BMY
ABT [5] IDIX Phenomix ANDS AZN [6] [1] [2] [3] [4] [5] [6]
JNJ has rights to VRTX' telaprevir ex-US NVS has the right of first refusal to all IDIX' compounds based on proof of concept data GILD has a partnership with ACHN for an NS4a inhibitor (preclinical) We believe one compound is a protease inhibitor and one is a non-nucleoside polymerase inhibitor ABT has a partnership with Enanta for HCV protease inhibitors AZN acquired Arrow Therapuetics, which had a focus on NS5a inhibitors
Source: Company data, Cowen and Company
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HBV Is The Most Common Cause Of Liver Disease

The hepatitis B virus (HBV) is a partial double-stranded DNA virus spread via blood transfusion or sexual contact. Hepatitis B infection is a serious chronic inflammatory illness triggered by HBVs attack on liver cells (hepatocytes). HBV can lie in a dormant state for many years inside infected cells. The bulk of the damage done to the liver is not by viral replication leading to cell lysis, but an over-reaction by the immune system, which causes widespread inflammation, scarring (cirrhosis), tissue necrosis and, ultimately, liver failure. Due to the scarcity of tissue-matched liver donor organs and the expense of the procedure, many patients do not receive a transplant and succumb to the disease. In the U.S., 5,000 HBV patients die annually from liver failure. While vaccination has greatly decreased the rate of new HBV transmission, the World Health Organization (WHO) estimates that over two billion people worldwide have been infected with HBV and approximately 500 million people are chronic carriers. The Centers for Disease Control (CDC) estimates 1.25MM U.S. citizens are chronically infected by the virus. Predictors of cirrhosis include duration of infection, presence of Hepatitis B e antigen (HBeAg positive), advanced age, and persistently elevated ALT levels. Progression to cirrhosis occurs at an annual rate of 2.0% to 5.5% in HBeAg+ patients and 8-10% in HBeAg negative patients with chronic hepatitis. HBeAg negative patients have greater risk for long-term complications because they have no chance of seroconverting into a quiescent state. The five-year mortality rate is 0-2% for patients without cirrhosis, 14-20% for patients with compensated cirrhosis, and 70-86% for patients with decompensated cirrhosis. The goal of therapy for HBeAg positive patients is to achieve seroconversion (loss of serum HBeAg with concomitant increase in eAg antibody), which can occur in 30-35% of patients after two years and which usually results in sustained remission that allows treatment to be discontinued. For patients who do not seroconvert, antiviral therapy is often continued indefinitely.
Dollar Size Of HBV Market Is Relatively Small But Growing

Currently approved oral therapies for Chronic Active Hepatitis B (CAHB) include BMYs Baraclude, GSKs Epivir-HBV, GILDs Hepsera and Viread, and IDIX/NVSs Tyzeka, while PEG-Intron (Schering-Plough) and Pegasys (Roche) are interferons approved as weekly subcutaneous injections. Despite the large number of patients with CAHB worldwide, the current commercial opportunity is modest. HBV sales in 2008 were $1.4B, up 30% from 2007. Asia claims a lion share of the market (est. $650MM in 2008), with the U.S. ($308MM in 2008) and the EU ($460MM in 2008) splitting the rest. The modest market size reflects the fact that the majority of infected patients are in underdeveloped countries without access to modern medical care, and universal HBV vaccination in the U.S. and EU has substantially reduced the incidence of HBV infection. A majority of the 1.25MM infected Americans and 3MM infected Europeans do not receive therapy, in part due to underdiagnosis and also because watchful waiting is still the standard of care for early stage disease. We estimate that the U.S. HBV market has about 20K treated patients, and project that new treatment options and raised awareness of new and effective therapies could increase this number to 30K over the next 3-5 years. The Asian market is by far the largest market for the treatment of HBV in terms of patient numbers. There are more than 100MM individuals infected with the HBV virus in China, Korea, Japan, and Taiwan. HBV virus transmission in Asian territories is believed to be mostly materno-fetal, and patients infected from birth tend to develop immune tolerance with many years of quiescent disease. Thus, these countries have a lower percentage of infected HBV patients with active disease suitable for treatment. Even assuming low rates of diagnosis (<20%)
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and a significant price discount for this region, the Asian market opportunity may still be compelling. Challenges in these territories include poor enforcement of intellectual property rights and threats from generic challengers. U.S. HBV Market Small But Growing. U.S. HBV antiviral market was $308MM in 2008, up 27% yr/yr. Total HBV prescriptions grew 15% yr/yr in 2008, which suggests 2008 sales are supported by increased number of patients on therapy and/or increasing combination therapy. In January 2008, Hepsera held 37% of the market share based on prescriptions, followed by Baraclude with 42%, Epivir HBV with 18% and Tyzeka 4%. We expect the U.S. dollar market to grow by 15-20% annually on average over the next five years, primarily through increases in treated patients after the recent Vireads formal approval as well as conversion of patients from lamivudine to higher priced therapies, particularly Baraclude.
U.S. Sales By Product
$90,000
$80,000
Reported Net U.S. Sales ($, 000)
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0 1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08
Epivir HBV
Source: Companies' reports
Hepsera
Baraclude
Tyzeka
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U.S HBV Prescriptions

140,000
120,000
U.S. HBV Prescriptions
100,000
80,000
60,000
40,000
20,000
0 1Q03 3Q03 1Q04 3Q04 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 1Q08 3Q08
Epivir HBV
Source: IMS database
Hepsera
Baraclude
Tyzeka
EU HBV Market Is Growing. We estimate HBV sales in Europe of $460 million in 2008, an increase of 43% from 2007. Hepsera is leading the market with 46% dollar market share in 2008 (sales of $210MM in 2008). However, it is worth noting that some of the reported sales (20%) belong to international markets - Australia, Canada, Turkey where Gilead markets Hepsera. The most recent entrant is BMYs Baraclude which was launched in Europe in June 2006 and rapidly catching up with Hepsera in dollar terms. We estimate Baraclude sales were $200MM or 44% market share in 2008. Of note, Bristol Myers does not disclose the breakdown for Europe vs. rest of the world territories. Epivir holds the rest of the E.U. market with an estimated 11% dollar market share in 2008.
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EU Sales By Product
$140,000 $120,000
Estimated EU Sales ($,000)
$100,000 $80,000 $60,000 $40,000 $20,000 $0

1Q02 2Q02 3Q02 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 2Q04 3Q04 4Q04 1Q05 2Q05 3Q05 4Q05 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08
Epivir HBV
Source: Companies' reports
Hepsera
Baraclude
Note: Baraclude sales are estimated as BMY does not disclose EU vs. ROW sales breakdown
Rest Of The World Important HBV Market. We estimate the HBV market in the rest of the world was $650MM in 2008, 26% growth from 2007. This level of sales represents approximately 45% of the global dollar market. More than 90% of the infected global HBV patients are in the Asian countries, suggesting room for growth even with a low assumed diagnosis rate and willingness/opportunity to treat. Epivir captures 42% dollar market share with estimated $270MM sales in 2008, up from $262MM in 2007. GSK is marketing Gileads Hepsera in Asia and does not break out Hepsera sales, but we estimate Hepsera sales of $180MM in 2008. We estimate Baraclude sales of $200MM in 2008, although Bristol-Myers does not disclose the breakdown for Europe vs. rest of the world territories so it is difficult to accurately tease out Baracludes dollar value in the international markets. Current HBV Treatment. Treatments available for HBV remain limited and suboptimal. The five viral specific approved treatments target the HBV polymerase. Epivir, Hepsera, Tyzeka and the most recently approved Viread inactivate the polymerase by inhibition of the reverse transcriptase portion of the enzyme; Baraclude inhibits reverse transcription, and also inhibits two additional enzymatic functions (base priming and positive strand DNA synthesis). Each of these therapies has shown a modest ability to improve disease prognosis as judged by HBeAg seroconversion rates, with all drugs in the 15-22% range. In addition, interferons PEG-Intron (Schering-Plough) and Pegasys (Roche) are approved as weekly subcutaneous injections and produce too few cures to justify their side effects. Thus the current standard of care is to suppress HBV DNA to undetectable levels, in order to minimize liver damage.
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Comparison Of Approved Antivirals

Brand name (generic name) Epivir (lamivudine) Hbe+ Hbe15%-30% after 1 year 70% after 5 years 16-21% 41-75% 60-79% Hepsera (adefovir) Hbe+ Hbe0% after 1 year 29% after 5 years 12% 48% 21% 72% 51% Viread (tenofovir) Hbe+ Hbe0% after 1 year Baraclude (entecavir) Hbe+ Hbe0% after 1 year <1% after 4 years 21% 77% 93% 68% 67% 78% 90% Tyzeka (telbivudine) Hbe+ Hbe6%-12% after 1 year 22% in HBeAg+ after 92 wks 9% in HBeAg- after 92 wks 22% 77% 60% 74% 88%
Resistance in treatment nave patients HBeAg s/c, e+ ALT normalization
21% 69% 76%
HBV DNA UND 40-44% 60-73% HBeAg s/c = HBeAg seroconversion

Source: Medical literature
GSKs Epivir HBV (lamivudine) Not A Gold Standard Anymore. Approved in the U.S. 1998, Epivir HBV was the first nucleoside to be approved for the treatment of HBV. While the drug is very well tolerated, its poor resistance profile has limited longterm use of the drug. Specifically, studies have shown 15-30% of patients develop resistance within one year of treatment. That proportion increases to 70% after five years of treatment. Viral breakthrough is often associated with an elevation in ALT levels, which in some cases can lead to hepatic decompensation and even death. BMYs Baraclude (entecavir) Good Choice For Front-Line HBV. Baraclude was approved in March 2005 and is widely considered among HBV experts to have a very favorable efficacy profile. Baraclude induces significant viral load reduction compared with lamivudine (80% vs. 39% of patients have undetectable HBV DNA at two years) and has shown <1% resistance after four years of therapy. It is believed that Baraclude is one of the best choices for front-line treatment especially for patients with high baseline viral loads. That said, Baraclude is not ideal for lamivudine-refractory patients due to the cross-resistance. Specifically, 42% of lamivudine-refractory patients experience virologic breakthrough after 4 years on Baraclude therapy. Separately, Baraclude's preclinical carcinogenicity data remain a source of debate in the infectious disease community. GILDs Hepsera (adefovir) Likely To Be Replaced By Viread. Approved in the U.S. in September 2002, Hepsera was the second direct antiviral product approved for the treatment of HBV. In less than two years after product launch, Hepsera became the market leading treatment for HBV. Although there were unanswered safety questions related to Hepsera's potential nephrotoxicity, Hepsera's superior resistance profile and its efficacy in lamivudine resistant patients have been key drivers in market acceptance. Longer term data however, has shown that nearly one third of patients are likely to develop resistance to Hepsera after five years of treatment. Moreover, the magnitude of viral reduction for Hepsera is numerically lower relative to data for other anti-virals at every time point, which makes it a non-ideal agent for patients with high baseline viral loads. GILDs Viread (tenofovir) Likely To Replace Hepsera. GILDs Viread was originally approved for the treatment of HIV in 2001. In 2007, Gilead completed two randomized double-blind Phase III studies of Viread in chronic HBV and presented positive results at the AASLD meeting in November 2007. Viread is nearly identical structurally to Hepsera, but appears to be more potent than Hepsera and without the nephrotoxicity risk. Following Vireads approval in HBV in August 2008, we expect that Viread will cannibalize Hepsera over time. Given Viread is priced at a discount to Hepsera
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and has a superior profile to Hepsera, we expect it to expand the market share beyond the current Hepseras market. Tyzeka (telbivudine) Poor Resistance Profile. Approved in October 2006 in the U.S., Tyzeka has not found its market niche so far due to its undifferentiated efficacy profile (better than Hepsera, but slightly inferior to Baraclude) and concerns over resistance. Specifically, after 1 year of treatment 6% to 12% of Tyzeka patients develop resistance. After two years, nearly a quarter of HBeAg-positive patients are resistant to Tyzeka.
Roches Pegasys Approved For HBV

Treatment with recombinant alpha interferon is thought to control HBV infection by blocking viral replication and making uninfected cells less susceptible to the virus. In February 2005, Roches Pegasys was approved for CAHB in the EU. By May 2005, the drug also received approval in the U.S. to treat HBeAg+ and HBeAg patients based on two large Phase III studies (n=1500 patients each). The trials assessed patients after 24 weeks following a 48-week course of Pegasys therapy versus lamivudine or in combination with lamivudine. Results indicated that patients taking Pegasys monotherapy achieved greater sustained response than lamivudine monotherapy patients at the end of follow-up, but that the combination of lamivudine did not improve response rates over Pegasys alone. It should be noted that lamivudine is unlikely to have effect if withdrawn for 24 weeks during the follow-up period, and therefore conclusions about comparable efficacy cannot be fully determined from these studies. Additional results from a long-term follow-up study were presented at EASL in April 2005 indicating that Pegasys responders were able to maintain the benefit for at least a year post-treatment cessation. Dosing of Pegasys for HBV is identical to HCV (180 g/week for 48 weeks). Our physician consultants note that use of interferon in Europe is still high, in part due to the high success rate of HBeAg seroconversion, and in part to practice guidelines that are influenced by a group of clinicians who advocate interferon therapy. In contrast, our U.S. consultants rarely use interferon for treatment of CAHB, because chronic therapy is frequently required and the side-effect profile of interferon is difficult for many patients to tolerate. Side effects such as flu-like symptoms, fever, nausea, myalgia, depression, and rashes result in poor patient compliance and dose reductions in up to 40% of patients. Other key issues include form of administration (subcutaneous injection) and high cost of therapy (a 48-week course of Pegasys costs approximately $10-15K). Studies also indicate that IFN-based therapy is not as effective in two key patient populations: Asian patients (lower response rate) and those with decompensated liver disease (risk of acute liver failure). We therefore expect limited use relative to Baraclude.
Clevudine Antiviral Effect Is Comparable To Marketed Products, But Could Deliver Sustained Responses
Clevudine is an oral 1x/day pyrimidine nucleoside analog being developed by Pharmasset for the treatment of Hepatitis B. Pharmasset licensed rights to commercialize clevudine in North, Central and South America, Europe and Israel from a Korean pharmaceutical company Bukwang Pharm. In June 2005. Clevudine received Korean approval in November 2006 based on the results from two Phase 3 studies conducted by Bukwang and currently sells in Korea under the brand name Levovir. In October 2007, Pharmasset initiated its own Phase 3 registration studies of clevudine on the base of which the company will seek marketing approval by the FDA and European regulatory authorities. Initial data from these studies are expected in 2H09 assuming completion of enrollment in 2H08. The potential unique feature of clevudine that would be able to
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differentiate it in the crowded HBV market is its durability of viral suppression after stopping the therapy (SVR). Specifically, in the 302 study in 86 HBeAg-negative patients treated with 30mg clevudine for 24 weeks and followed for additional 24 weeks, 16% of the clevudine patients remained HBV DNA undetectable at the end of the follow up. In the open label extension study of the two Phase 3 trials (301 and 302), 28% of HBeAg-positive patients and 80% of HBeAg-negative patients remained HBV DNA undetectable at week 60, or 12 weeks after stopping clevudine treatment. These data are intriguing, but not definitive and would need to be replicated in the ongoing Phase 3 studies. It is difficult to extrapolate these results to Phase 3 given the short follow up in the prior studies. It is worth noting that currently no oral direct antivirals are able to induce such sustained suppression of viral load (3-7% SVR24 reported for approved nucleoside HBV therapies). Peg-Interferon results in SVR in about 19% of HBeAg negative patients. Provided the SVR data for clevudine are replicated in the ongoing Phase 3 studies, we expect the company to build its commercialization strategy around this message, which should resonate well with physicians treating HBV.
Schering-Plough Returns Pradefovir Rights Due To Preclinical Carcinogenity Signal

Pradefovir (formerly remofovir/Hepavir B) is an orally administered prodrug of adefovir that was developed using Metabasiss proprietary HepDirect technology and is specifically targeted to the liver. Pradefovir remains in an inactive pro-drug form unless it is processed by the livers CYP3A4 p450 enzyme. Schering-Plough licensed the rights to pradefovir in December 2006, but returned them in July 2007 after 24-month oral carcinogenicity studies in mice and rats were completed with findings of increased incidence of cancer at the higher doses.
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Vaccines Target Large Markets But Have Their Challenges

Favorable demographics and the need for primary prevention have provided strong underlying demand for vaccines. Vaccines have traditionally been used for the prevention of viral and a limited number of bacterial infectious diseases. Newer technologies have enabled companies to develop vaccines against previously impossible targets (meningitis B), but some still remain elusive (HIV). In addition, enhanced understanding of the immune system has enabled the development of vaccines against non-infectious disease targets including neurological diseases (Alzheimers disease) and certain cancers. However the BCG vaccination is the only proven vaccine therapeutic for certain bladder carcinomas. This section only focuses on the infectious disease targets. Infections are a leading cause of death globally, with death from respiratory (3.5MM), AIDS (2.3MM), and diarrheal diseases (2.2MM) most common. Early vaccines targeted the prevention of viral illnesses (polio, measles, rubella), but there is now widespread use for the prevention of bacterial diseases too, especially in children (e.g., Wyeths Prevnar (pneumococcus); and the H. influenza, tetanus, diphtheria and pertussis vaccines). Several new vaccines were launched recently for high-profile infectious disease targets, including human papilloma virus (HPV: genital warts and cervical cancer prevention), herpes zoster (shingles), and rotavirus. Meningitis B vaccines in clinical development are potentially the most exciting preventative viral vaccines because of lack of availability of a vaccine and the morbidity and mortality associated with the infection. Mercks Phase II Staphylococcus aureus vaccine could be the loan dark horse in a race plagued by last stage failures. Avian and the pandemic flu move in and out of the lay press headlines but the regular flu is often overlooked given that most adults recover completely despite a modest illness. However, the flu has a much more serious impact on the young and the old, causing 50,000 pediatric hospitalizations, 200,000 total hospitalizations, and 36,000 deaths per annum in the U.S. It also has a substantial economic impact; 20-25MM physician visits per annum are attributed to flu. Current vaccines have 7090% efficacy in adults but are relatively ineffective in the highest-risk groups: children and the elderly; this could be a physiological barrier. Vaccination rates also are lowered by needle-phobia, which partly underlies attempts by companies to develop alternative vaccine delivery systems, including nasal spray (AstraZenecas MedImmune) and patch (Iomai) designs. The production and development of vaccines creates a high barrier to entry but fierce competition exists amongst the incumbent players which are predominantly the large pharmaceutical companies (GlaxoSmithKline, Merck, Novartis, Pfizer/Wyeth, and Sanofi-Aventis). The business cycle can be heavily seasonal and is heavily dependent on tender or government negotiations. Speed to market is critical in both the seasonal flu market and the new markets. The company first to the flu market gets the best price and sells the largest volume. In novel indications, like HPV, the first product to market i.e. Gardasil (Merck/Sanofi) benefits from the applicable birth cohort and importantly catch-up cohort. The second product to market therefore has limited opportunity in the large catch-up populations.
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Infectious Disease
Seasonal Flu Vaccines The Bread And Butter But Overcapacity A Potential Problem
Influenza, also known as the flu, is a contagious disease that is caused by influenza viruses. Influenza viruses infect the respiratory tract (nose, throat, and lungs) in humans. The flu is different from a cold, mainly because the symptoms and complications are more severe. Influenza usually comes on suddenly and may include these symptoms: fever, headache, malaise (a feeling of being ill and without energy that can be extreme), cough, sore throat, nasal congestion and body aches. A flu vaccine can be given to anyone who wants to avoid the flu (persons over 6 months of age). FDA's Vaccines and Related Biological Products Advisory Committee (VRBPAC) met in February 2008 to select the influenza virus strains for the composition of the influenza vaccine for use in the 2008-2009 U.S. influenza season. During this meeting, the advisory panel reviewed and evaluated the surveillance data related to epidemiology and antigenic characteristics, serological responses to 2007/2008 vaccines, and the availability of candidate strains and reagents. The panel recommended that vaccines to be used in the 2008-2009 influenza season in the U.S. contain the following: an A/Brisbane/59/2007 (H1N1)-like virus; an A/Brisbane/10/2007 (H3N2)-like virus; a B/Florida/4/2006-like virus. In September 2008 FDA approved the following six vaccines: 1. Afluria (CSL), for adults 18 years of age and older 2. Fluarix (GSK), for adults 18 years of age and older 3. FluLaval (GSK/ID Biomedical), for adults 18 years of age and older 4. Fluvirin (Novartis), for people 4 years of age and older 5. Fluzone (SanofiAvenits), for people 6 months of age and older 6. FluMist (MedImmune), for people ages 2 to 49
Sanofi-Aventis FluZone Leads But Competition Is Heating Up

FluZone contains three inactive influenza viruses, including H1N1 (type A), H3N2 (type A), and type B. FluZone is approved for use in patients ages six months and older, an advantage relative to competing vaccines. FluZone is a split virus vaccine, a type of vaccine typically associated with fewer adverse side effects in children. Sanofi is constructing a new manufacturing facility that is expected to double its U.S. capacity in time for the 2009/2010 flu season. In 2008, total flu (seasonal and pandemic) sales were 736MM, or 170MM doses. Sanofi was the first company to ship its vaccines for the 2008/09 season and therefore benefited from best price and was not left with excess inventory; this was not the experience of companies like Novartis. In 2005, post the shortage of flu vaccines, the U.S. government requested that manufacturers step-up capacity. The companies have complied but this has resulted in an oversupply of flu vaccines. The oversupply requires regulatory bodies to expand the flu vaccination guidelines. In 2008, the ACIP expanded flu vaccinations guidelines to vaccinate all children from 6 months to 18 years of age versus up to 5 years previously. International guidelines generally recommend vaccination for people over 65 years but this age could be lowered to include people above 50 years, the current CDC recommendation.
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Infectious Disease
A microdelivery system, Inanza is under review in the E.U. and in Phase III in the U.S. The prefillable microinjection system is integrated with a thin needle only 1.5mm in length and the vaccine can be delivered accurately within the dermal layer of the skin. This layer contains a dense network of lymphatic vessels feeding local lymph nodes, which gives the vaccine rapid and efficient access to the immune system. The dermal layer also contains a high concentration of potent immune cells that play a key role in initiating the immune response following vaccination. Another plus is ease of use, with a minimally invasive procedure that ensures the antigen is consistently deposited in the dermal layer. Sanofi plans on filing an improved Flu formulation, a high-dose intramuscular injection, in the U.S. in Q2:09. In clinical trials involving more than 7,000 adult or elderly subjects, the vaccine triggered higher levels of seroprotective immune response against all tested influenza strains than standard intramuscular (IM) influenza vaccination. Most vaccines are injected into muscle. The Cell Culture vaccine is progressing in Phase II Sanofi recently completed the construction of a new influenza vaccine manufacturing facility in the United States, incorporating the latest technology in vaccine production. This new facility is planned to go online in 2009. The additional capacity has been filed with FDA and will come on in two stages; the first stage will deliver about 50MM doses per year, on top of current capacity. In 2010, at full capacity, the plant will manufacture an incremental 100MM doses. Sanofi is also on track to build a facility to manufacture seasonal influenza vaccine in China for the local market. This vaccine manufacturing facility is due to be operational by 2012. A new formulation and filling facility located in France is also planned to become operational in 2009.
GlaxoSmithKlines Next-Generation Flu Vaccine In Phase III

GlaxoSmithKlines Fluarix for seasonal flu received final FDA approval for use in adults 18 years and older in August 2005 and is now distributed in 79 countries including the U.S. GlaxoSmithKline acquired FluLaval (marketed as Fluviral outside the U.S.) from ID Biomedical in 2005 and the product was launched in 2006. GlaxoSmithKline is working on a next-generation flu vaccine targeted for use in elderly patients. The next-generation inactivated split-trivalent flu vaccine makes use of GlaxoSmithKlines proprietary vaccine adjuvant in order to better stimulate an immune response. The elderly have less robust immune systems and often do not mount an adequate immune response to a standard flu vaccine. GlaxoSmithKline believes its new vaccine will improve the response rate in the elderly. We forecast total influenza vaccine sales of 225MM in 2009, 300MM in 2012, 375MM in 2015.
Novartis Seasonal Flu Business Struggling

Following manufacturing and regulatory troubles in 2004/2005, Chiron (now part of Novartis) resumed worldwide shipments of its seasonal flu vaccines (Fluvirin, Fluad, Agrippal, and Begrivac) in 2006. Novartis suffered a disappointing 2008 seasonal flu season and has suggested that 2009 is unlikely to be different. Novartis experienced softer demand in the U.S. and 5-10% pricing erosion in both the U.S. and E.U. Novartis believes the worldwide flu vaccine demand could exceed 600MM doses by 2011 and is investing heavily in the area. Novartis is investing to update its egg-based flu vaccine manufacturing plant in Liverpool. Novartis is also building a state-of-theart, cell-culture-based flu vaccine manufacturing plant in North Carolina. Novartis cell-based flu vaccine is called Optaflu. Optaflu received final European approval in
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June 2007, and it had a limited launch in 2008. Novartis shared the Optaflu E.U. Phase III data with the FDA hoping additional U.S. Phase III trials would not be required prior to registration but this was not allowed. Novartis is currently in Phase III studies with Optaflu. Novartiss adjuvanted seasonal flu vaccine, Fluad is approved ex-U.S. and has demonstrated improved efficacy and better crossprotection against strain changes. The adjuvant, MF59, has been given in over 30MM doses. Novartis is developing Fluad for children aged 6-36 months, an age group where current vaccines are ineffective. Novartis plans on filing for this indication in H2:09 but is still in licensure discussions with FDA. Novartis withdrew its prepandemic vaccine, Aflunov, E.U. application as a result of a review with EMEA.
AstraZenecas FluMist On Road To Recovery With CAIV-T And >2 Years Approval
FluMist, an intranasal influenza vaccine approved for use in healthy individuals aged 5 to 49, received an expanded approval in September 2007 in children 2 to 5 years. FluMist has not been able to compete effectively with the injectable vaccine during its first four seasons on the market. However, the 2nd generation CAIV-T has several advantages over FluMist including: 1) refrigerator-stability (not frozen like FluMist, which must be transported cold and thawed before use), 2) a broader label for individuals aged 2 through 49 years (approved September 2007), and 3) data showing it is more effective than traditional injectable TIV vaccine. Given that manufacturing issues with CAIV-T are resolved and ACIP recommendation has been received, FluMist appears on track to realize its potential as a needle-free influenza vaccine. FluMist is however prohibited for use in children aged two to seventeen with asthma and children aged 24-59 months with recurrent wheezing, but AstraZeneca stated that this accounts for only 20% of the target population. FluMist yields over 180 times more doses per egg than the classic inactivated vaccine. And this production efficiency results in a significantly greater number of vaccine doses being produced with limited production resources, chicken flocks in this case, during a pandemic crisis. Data also support that FluMist has efficacy against matched and mismatched strains which should help in pandemic preparedness. We forecast FluMist sales of $125MM in 2009, $200MM in 2012, and $275MM in 2015.
PSCs FluBok Receives Another Delay For Cell Culture Based Flu Vaccine
FluBlok is an intramuscular recombinant, trivalent cell culture-based (insect) vaccine for the prevention of both seasonal and pandemic influenza. A BLA (includes 4 studies, 6,000 patients) for seasonal influenza in patients 18 years old is pending with a PDUFA date in H1:09 but this could be delayed to H2:09. FluBlok could become the first FDA approved cell culture flu vaccine with the potential for faster, more flexible production, greater immunogenicity in the elderly, and being egg and preservative free. FluBlock's current manufacturing capacity is in the 2-4MM dose range.
Pandemic Flu: Uncertain Global Threat

There have been three influenza pandemics during the 20th century. The emergence of a new viral strain, the lack of previous exposure and immunity to the virus, and the lack of a vaccine that can protect against the new strain can lead to a global influenza pandemic. The disease spreads easily person-to-person, causes serious illness, and can sweep across the country and around the world in very short time. In
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1918, approximately 500,000 people in the United States died from the Spanish Flu, and up to 50 million may have died worldwide. The 1957-58 Asian flu killed 70,000 Americans, and the 1968-69 Hong Kong flu caused more than 34,000 deaths in the U.S. An influenza pandemic occurs when an existing influenza strain mutates. Health professionals are concerned that the continued spread of a highly pathogenic avian H5N1 virus across eastern Asia and other countries represents a significant threat to human health. The H5N1 virus has raised concerns about a potential human pandemic because: it is especially virulent, it is spread by migratory birds, it can be transmitted from birds to mammals and in some limited circumstances to humans, and like other influenza viruses, it continues to evolve. Since 2003, a growing number of human H5N1 cases have been reported in Asia, Europe, and Africa. More than half of the people infected with the H5N1 virus have died. Most of these cases are all believed to have been caused by exposure to infected poultry. There has been no sustained human-to-human transmission of the disease, but the concern is that H5N1 will evolve into a virus capable of human-to-human transmission.
POTENTIAL IMPACT OF "MEDIUM" PANDEMIC FLU ON U.S. # Of Deaths # Of Hospitalizations # Of Outpatient Visits (MM) Economic Impact ($MM)
89,000 - 207,000 314,000-734,000 18 - 42 $71,000 - $166,000
The U.S. governments flu preparedness initiative seeks to prevent the spread of pandemic flu by targeting a number of key initiatives. A portion of that funding is earmarked to support the development of dose-sparing technologies in order to extend the current global vaccine production capacity. A portion of the budget has been flagged for the development of cell culture-based manufacturing technologies (HHS recently awarded Novartis $487MM to help build the first U.S. cell-based manufacturing plant). There are also funds set aside for funding federal, state, and local preparedness programs, as well as programs for detecting and containing potential outbreaks in the U.S. Besides pandemic flu vaccines, governments are also looking to stockpile influenza antiviral medications such as Roche/Gileads Tamifu and GlaxoSmithKlines Ralenza ahead of a potential pandemic. The U.S. governments preparedness plans are part of a broader global initiative. In 2006, in response to these challenges and in order to develop a Global Vaccine Action Plan for Pandemic Influenza Vaccines, WHO organized a consultation and invited key stakeholders from national immunization programs, national regulatory authorities, vaccine manufacturers and the research community to participate. The objective of the consultation was to identify and prioritize practical solutions for reducing the anticipated gaps in vaccine supply. The participants drew up an Action Plan with strategies for the short, mid and long term, aiming to increase influenza vaccine production and surge capacity before and during an influenza pandemic. They identified three main approaches: a) an increase in seasonal vaccine use; b) an increase in production capacity; and c) further research and development. The implementation of this plan will require the concerted efforts of countries, industry and the global health community.
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Gileads Economics On Tamiflu Meaningful After Roche Deal Revised

Tamiflu is a neuraminidase inhibitor that is indicated for the treatment and prevention of influenza types A and B. In 1996, Gilead out licensed worldwide rights to Tamiflu to Roche, but in June 2005 Gilead delivered a licensing agreement termination notice to Roche, contending that Roche had materially breached its obligations by not launching Tamiflu in 43 of 64 territories in which it is approved. In November 2005, the two parties announced an end to the dispute. Under the amended agreement, Gilead will now receive a tiered royalty on end user sales (14% on the first $200MM, 18% on the next $200MM, and 22% above $400MM during the calendar year), and will no longer incur COGS adjustments to those royalties. Gilead will have an increased say in the manufacturing, commercial, and pandemic planning for Tamiflu, and will reserve the right to co-promote Tamiflu in specialized areas of the U.S. Should Gilead choose to co-promote, it would receive the same royalty on Tamiflu sales in addition to a per-detail reimbursement for its sales force. Gilead did not co-promote Tamiflu in 2006 and has not decided whether it will optin for co-promotion in future years. In March 2008, the FDA gave Tamiflu a stronger warning for rare reports of delirium and abnormal behavior leading to self-injury, and, in some cases, death. Tamifu's label continues to stress the importance of watching flu patients for signs of unusual behavior and seeking immediate care if any such signs are observed. Since November 2006, Tamiflu's warning information has noted postmarketing reports, mainly from Japan, of self-injury and delirium in flu patients - and that it is not clear if Tamiflu caused those problems. Now, Tamiflu's warning information also includes more details, including reports of "some cases" of fatal injuries from delirium and abnormal behavior in patients taking Tamiflu. Tamiflu's updated label also states that those reports appear to be "uncommon," and that the reported cases may happen abruptly. The drug's label also points out that flu itself can cause neurological and psychiatric problems. Pandemic Tamiflu Stockpiling Likely Over To meet the demand for Tamiflu from governments wanting to stockpile it to prepare for a potential pandemic bird flu epidemic, Roche steadily increased its Tamiflu production capacity from 18MM courses in 2003, 27MM in 2004, 55MM in 2005, and 400MM in 2006. The company signed sublicensing agreements with more than 15 suppliers to increase Tamiflu production worldwide, including Albemarle, Ampac Fine Chemicals LLC, API Corporation, Clariant, DSM, FIS, Martek Biosciences Corporation, Novasep/Dynamit Nobel, PHT International, PPG Industries, SanofiAventis, Shaanxi Jiahe Phytochem, and Siegfried. With global pandemic planning and government stockpiling reaching full scale, Roche achieved 2.6B CHF in 2006, 1.9B CHF in 2007, declining to 1.6B CHF in 2008. More than 60 countries have placed orders for Tamiflu in pandemic preparation, with Roche reporting that some are purchasing enough to cover 2540% of their population. With most countries having completed much of their stockpiling, Tamiflu sales are expected to decline precipitously.
GlaxoSmithKlines Relenza And Novel Vaccines Targeting Pandemic Flu

Relenza is an inhaled neuraminidase inhibitor approved for the prevention and treatment of influenza A and B virus infections. In response to concerns regarding a possible flu pandemic, the FDA approved Relenza for the prevention of influenza in
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adults and children five years of age and older in March 2006 and the EMEA followed suit in August 2006. In March 2008, GlaxoSmithKline also update the Relenza label and added a warning about reports of delirium and abnormal behavior in some patients who took the medicine. Given a different resistance profile, global stockpiling of Relenza along with Tamiflu is likely to continue. Sales of Relenza were 57MM in 2008 versus 262MM in 2007 and 91MM in 2006). In January 2009, GlaxoSmithKline announced that it had been awarded a 10MM dose contract to supply the U.K. government; this contract alone is worth double the 2008 sales. GSK Advancing H5N1 Vaccine Program; Prepandemic Vaccine Approved In E.U. GlaxoSmithKline has several pandemic flu programs ongoing. The most advanced is the H5N1 inactivated split monovalent vaccine, which was filed as both a pre and pandemic vaccine in the E.U. in January and February 2007, respectively. In July 2006, GlaxoSmithKline released top-line results of an interim analysis of data from a 400-patient trial of its H5N1 vaccine. The vaccine utilized a novel, proprietary adjuvant. The trial participants were healthy adults (18-60 years of age) and were vaccinated twice during the trial. Four different doses of the vaccine were tested. The lowest dose tested was 3.8g and at this dose over 80% of the subjects achieved a hemagglutination inhibition titer greater than 40. This is the standard immune response target measure used by regulatory agencies to determine if an influenza vaccine is effective. GlaxoSmithKline is also in Phase III trials with its H5N1 inactivated split monovalent for pre and pandemic prophylaxis. We estimate pandemic flu vaccine sales of 50MM in each year through 2015. In May 2008, GlaxoSmithKline announced that the European Commission granted marketing authorization for the H5N1 adjuvanted pre-pandemic vaccine, Prepandrix, in all E.U. member states. Prepandrix should be administrated before or in the early stages of a flu pandemic. The E.U. license, with a current age indication from 18-60 years old, is based on data from a number of trials which evaluated the safety, reactogenicity, immunogenicity and cross-protection of the pre-pandemic vaccine using the Vietnam strain, which is a WHO recommended strain. In one of the pivotal trials, the vaccine, which utilizes the antigen from the H5N1 A/Vietnam/1194/04 strain, demonstrated at least a four-fold increase in serum neutralizing antibodies in 77% to 85% of subjects against three distinct H5N1 strain variants, A/Indonesia/5/05, A/Anhui/1/05 and A/turkey/Turkey/1/05 respectively.
Sanofi-Aventis H5N1 Prototype Vaccine Approved In U.S. For Pandemic Flu

In April 2007, the FDA announced the first approval in the U.S. of a vaccine for humans against the H5N1 influenza virus. In September 2006, Sanofi-Aventis announced the initiation of a novel H5N1 vaccine under development for pandemic flu. The H5N1 strain has been linked to avian flu outbreaks in Asia and Europe. The vaccine is produced using Crucells proprietary PER.C6 cell line. The vaccine was originally developed via collaboration between the University of Reading (UK) and the UKs National Institute for Biological Standards and Control. The purpose of the Phase I trial is to assess the safety of the vaccine and its ability to generate an adequate immune response. In February 2007, FDA released briefing documents that contained data from the double-blind, placebo-controlled Phase I/II FUG01 trial of the vaccine in 452 subjects. The committee voted 14-0 and 13-1 that data in the BLA were sufficient to support the vaccine's efficacy and safety, respectively, during a pandemic or potential high-risk exposure situation. The agency noted that the
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immunogenicity data, as assessed by a hemagglutination inhibition (HAI) assay, indicated that the 90 ug dose elicited a better response than the 7.5, 15 and 45 ug groups following two doses given one month apart. Data show that 46% of subjects in the 90 ug group achieved HAI titer >=1:40 compared to 6.5%, 17% and 34.1% in the lower dose groups, respectively. The agency noted that previous studies have suggested that a titer >=1:40 is associated with up to 50% protection against influenza. In 2007, Sanofi-Aventis recorded nearly 100MM of sales of H5N1 contracts to the U.S. government and have filed a mock dossier in the E.U. Further studies with the novel adjuvant suggest that a lower dose to as low as 3.8 micrograms or even 1.9 micrograms is possible. In June 2008, Sanofi-Aventis announced that it was to supply 60MM doses of H5N1 vaccine to the WHO over 3 years for the establishment of an H5N1 stockpile.
Novartiss Aflunov EMEA Filing Withdrawn

In June 2008, Novartis withdrew its marketing application with the EMEA for the Aflunov prepandemic H5N1 vaccine. The EMEA commented that Novartis was unable to provide The Committee for Medicinal Products for Human use (CHMP) with the further data it had requested within the specified time frame. Novartis intends to resubmit data in 2009. Focetria, the MF59 containing vaccine, was approved as a pandemic vaccine in the EMEA.
AstraZeneca And NIAID Developing Pandemic Flu Vaccines

AstraZeneca/MedImmune have begun work to develop live attenuated intranasal pandemic vaccines in collaboration with the National Institute of Allergy and Infectious Diseases (NIAID). The program will focus on potential pandemic influenza strains, including H5N1. An open-label Phase I healthy volunteer study began at Johns Hopkins in June 2006, and will evaluate two doses of vaccine administered 28 to 62 days apart. MedImmune also received a $170MM contract to develop cell culture-based flu vaccines from the NIH.
Intercell/Iomais TCI: A Novel Vaccination Approach But Not For Seasonal Flu
Intercell/Iomais transcutaneous immunization (TCI) vaccination technology offers multiple potential therapeutic and administrative advantages over standard injectable vaccines, including: (1) needle-free delivery; (2) an improved safety/sideeffect profile; (3) an improved immune response; and (4) easier storage/administration. Iomais TCI technology enables the delivery of immunostimulatory agents to the epidermis or outer layer of the skin. Studies have demonstrated superior immune responses via delivery of immuno-stimulatory agents to the epidermis, relative to standard vaccines. The area of skin where the patch will be placed is prepared using a mildly abrasive pad. This is done to disrupt the outer layer of skin (the stratum corneum) to facilitate the delivery of the antigen and/or adjuvant. Upon application to the skin, the dry matrix containing the antigen and/or adjuvant is hydrated via the moisture of the skin, triggering the release of the antigen and/or adjuvant to the epidermal layer. Antigen-presenting cells known as Langerhans cells reside in the middle layers of the epidermis; these cells facilitate the processing and transportation of the antigen and/or adjuvant to the nearest lymph nodes. Once in the lymphatic system, the antigen and/or adjuvant is presented to the relevant immune cells, triggering an immune response. The transcutaneous delivery of immune stimulants was discovered and developed by researchers at the Walter Reed Army Institute of Research in the 1990s, and is the
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subject of three issued patents and 14 pending patent applications in the U.S., and 20 issued and 29 pending foreign patents. Iomai licensed commercial application rights to the TCI technology and the relevant patents in 2001. Our clinical consultants believe that the key practical advantage of the TCI vaccine technology is the ability to employ the powerful immune response to the LT toxin without generating systemic toxicity. In May 2008, Intercell acquired Iomai to leverage its vaccine research and development portfolio.
MECHANISM OF TRANSCUTANEOUS IMMUNIZATION (TCI)
Pandemic Flu Opportunity A Wild Card In May 2007, Iomai released disappointing top-line results from a Phase I trial of its needle-free seasonal flu vaccine patch. The 353-patient multi-dose Phase I study compared the safety and immune stimulation profiles of Iomais patch vaccine (LT plus three flu antigens) to a three antigen injectable flu vaccine. Patients treated with the patch vaccine wore it for 18-24 hours. While Iomais vaccine did elicit a dose-dependent immune response (the LT adjuvant dose was varied), the response was not as robust as that seen with the injectable vaccine. After Intercell acquired Ioamai it turned its attention to Pandemic Flu. In December 2008, Intercell announced that HHS had committed $12.5MM in funding for the development of the patch system for Pandemic Flu. The funding forms part of an HHS contract with potential funding of up to $128MM over five years. If successful, Intercell's Pandemic Influenza Vaccine Patch System would have the effect of expanding limited vaccine supplies by allowing fewer or lower doses of the vaccine. The next Phase II study is expected to start in early 2009 and will be a randomized, blinded study to determine the optimal combination and dose of an injected H5N1 influenza vaccine and the vaccine patch from Intercell. The study will be conducted in the U.S. and is expected to enroll 500 subjects at six study sites.
Vicals Phase I Pandemic Flu Vaccine Data Encouraging

Vicals DNA-based, three-component influenza vaccine (2 highly conserved influenza viral proteins + one protein from H5N1 viral strain A/Vietnam/1203/04)
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was observed to completely protect animals against lethal challenges with an H5N1 avian flu virus. Vicals two-component DNA vaccines also demonstrated significant protection against the flu. These vaccines are formulated using the companys Vaxfectin cationic lipid as an adjuvant. Vaxfectin has been shown to greatly enhance immune response (T-cell and antibody titers) elicited from DNA vaccination. In July 2008, Vical reported results from its 103-patient six month Phase I pandemic flu vaccine study. The trial tested seven vaccine cohorts (escalating doses, delivered via needle of Biojector device) delivered on days 1 and 21 versus placebo. At the highest doses (0.5mg and 1mg total DNA), the vaccine produced antibody titers thought to confer protection against pandemic influenza in 50%-67% of volunteers. In comparison, Sanofi's licensed, 2-dose, pandemic vaccine (currently stockpiled by the U.S. government) induces protective titers in 44% of individuals. DNA vaccines may hold additional advantages over egg-produced protein-based vaccines (such as Sanofi's) that include ease and speed of manufacturing and stability. Vical's vaccine candidate appeared well tolerated with no vaccine-related serious adverse events or AE-related drop outs. Injection site pain was the most common adverse event, and appeared to be dose related. Needle delivery appeared more tolerable than the Biojector device which suffered from redness, swelling, and induration. Subsequently, in October 2008 Vical noted that 80-100% of responders in the two cohorts receiving the 1mg dose maintained antibody titers through Day 182. Additional analysis in December 2008 determined that Vicals flu vaccine generated T-cell responses towards a matching influenza viral strain and a different clade (A/Hong Kong/156/97). Vical hopes to partner this program and provide a development update in 2009.
Novavax Phase II Data From Its VLP Vaccine Candidate Encouraging

In August 2008, Novavax announced Phase I/IIa data from its virus-like particle (VLP) vaccine. Novavax's VLP candidate is directed against the H5N1 A/Indonesia/05/2005 avian influenza strain. In this study, the vaccine demonstrated strong neutralizing antibody titers across all three doses tested, exhibiting increasing antibody titers with the escalation of the dose. The study evaluated individuals who received two injections of 15 mcg, 45 mcg, 90 mcg or placebo. Among those individuals in the 15 mcg arm, 72% had a neutralizing antibody titer of 1:20 or greater (four-fold rise from baseline) against the H5N1 A/Indonesia strain as did 73% of subjects in the 45 mcg arm and 94% of subjects in the 90 mcg arm. All subjects tested negative for neutralizing antibodies to the H5N1 A/Indonesia strain before vaccination and no responses were observed among individuals who received a placebo. Novavax's proprietary VLPs contain the surface proteins (hemagglutinin [HA] and neuraminidase [NA]) and matrix protein (M1) of the H5N1 A/Indonesia strain. Additional immunological responses induced by each of the components of the vaccine are being evaluated including responses against HA, NA and the M1 proteins. Although the safety data are still blinded pending complete safety follow-up, there have been no serious adverse events reported. An independent external Data and Safety Monitoring Board fully supported continuation of the study including expansion to the 90 mcg dose. These data supported Novavaxs decision to move forward into a Phase II seasonal flu program
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Novavax announced top line data of the Phase II seasonal flu study in December 2008. The vaccine was immunogenic, inducing HAI responses against the vaccine strains and drifted strains. For subjects in the 15 mcg or 30 mcg vaccination groups, seroprotection rates (i.e., percentage of subjects with HAI titers >40) for the vaccine strains ranged from 95 to 97% for H3N2, 83 to 94% for H1N1, and 73 to 79% for B. Seroconversion rates (i.e., percentage of subjects with >4 fold rise in HAI titer from baseline) ranged from 90 to 100% for H3N2, 69 to 78% for H1N1, and 42 to 56% for B among subjects who did not have antibodies to these strains before vaccination. The geometric mean HAI titers were strong and increased with dose. High HAI titers, similar to those seen with the vaccine strains, were also observed against drifted H3N2 and H1N1 strains, demonstrating the potential for the vaccine to be crossprotective.
CMV Vaccines A Significant Opportunity

It is estimated that roughly 50% of the U.S. population is infected with CMV. The virus is particularly troublesome in immunocompromised patients and pregnant women, and is a major cause of birth defects (up to 4,000 infants annually are affected). The Institute of Medicine considers the development of a CMV vaccine a top priority based on overall cost of treating the disease, estimated at $4B. Data indicate that approximately 30-60% of transplant patients succumb to CMV infection, which often results in transplant rejection, other serious illness, or death.
CMV Vaccine Safe, Generates T-Cell Response In Interim Phase II Data

Vical initiated Phase I trials with bivalent and trivalent (three-plasmid) formulations of its CMV vaccine in 2004. Both trials tested two dosing levels and two dosing schedules, and enrolled CMV- and CMV+ healthy patients. While data from these trials indicated that both formulations were safe, the bivalent vaccine induced higher levels of antibody and T-cell responses, and was selected for Phase II testing. A randomized, placebo-controlled Phase II trial began enrolling patients in February 2006 and sought to recruit approximately 80 bone marrow transplant donor/recipient pairs and 80 stem cell transplant recipients (only) from unrelated donors at 15-20 centers to evaluate safety and CMV levels in recipients. Individuals enrolled in the trial are vaccinated twice prior to donation (four weeks and two weeks) and once after donation (four-to-six weeks). The primary endpoint is safety, with the occurrence rate of clinically significant CMV levels being the secondary endpoint. Although enrollment in the study had been challenging, Vical undertook efforts to improve recruitment, including (1) educating transplant physicians/ patients on the potential benefits of vaccination; (2) addressing inconvenience issues on the part of transplant donors; (3) relaxing inclusion criteria for perfect bone marrow matches; and (4) amending the trial protocol to include stem cell transplant recipients from unrelated donors. These efforts have had their desired effect and as of November 2008, the recipient-only arm of the trial was fully enrolled at 80 patients and in 2008 Vical closed out the patient donor/recipient arm of the study. Final data are expected in 2009. In November 2008, interim efficacy results were announced, indicating that the CMV vaccine was associated with a statistically significant enhancement of CMV-specific
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T-cell responses. As T-cell responses are highly correlated with disease control, these data provide the first proof-of-concept for Vical's CMV vaccine. The interim analysis included 47 stem cell transplant recipients: 33 patients in a recipient-only arm and 14 patients in an arm that received donor and recipient vaccinations. In the recipient-only arm there was a significant enhancement of CMV-specific immunity as measured by T-cell responses to the two CMV antigens targeted by the vaccine (pp65 and gB). We believe Vical's vaccine is the only candidate in development that has been shown to induce cellular immunogenicity. The sample size of the donorrecipient arm was too small to produce conclusive results. Several Other Competitors In Close Pursuit SanofiAventis has a CMV vaccine in Phase II. In December 2008, Novartis licensed a Phase I CMV vaccine from AlphaVax. The AlphaVax vaccine candidate is based on an alphavirus replicon particle encoding CMV phosphoprotein 65, IE1 (immediate early protein 1) and soluble gB protein. AstraZenecas MedImmune also has a CMV vaccine in Phase I development. GlaxoSmithKlines CMV vaccine is in Phase I.
HPV Vaccines Target A Significant Unmet Need

Human papillomavirus (HPV) is a sexually transmitted disease that is estimated to occur in 50% of sexually active women at some time in their lives. Most people who become infected with HPV will not have any symptoms and clear the infection on their own. Rarely, however, certain viral types can lead to cervical cancer and/or genital warts. If detected early and managed promptly, the survival rate for cervical cancer is over 90%. Despite this high survival rate, an estimated 12,200 women develop cervical cancer and 4,100 die from the disease in the U.S. each year. The disease is much more problematic outside the U.S.: there are an estimated 450,000 new cases and 250,000 deaths each year from cervical cancer worldwide. This is due to the fact that cervical cancer screening is limited in many developing countries and is the most common cancer in women. The two licensed HPV vaccines appear highly effective at preventing cervical cancer in HPV nave-woman; in females who have been exposed to HPV the effectiveness drops off significantly. It would appear that in developing countries, an HPV vaccine could have great benefit, particularly given infrequent or non-existent Papanicolaou (PAP) screening, but expense and availability are key variables. The rationale for male vaccination is tenuous with herd immunity unlikely to be a justifiable reason for approval. Gardasil (Merck/Sanofi) does prevent male condylomatous warts caused by HPV but this is a cosmetic problem and therefore immunization programs are unlikely to endorse broad programs for boys.
HPV Market Opportunity Big But Not Without Significant Hurdles

The total market opportunity for an HPV vaccine is theoretically substantial. The targeted populations includes both males and females between the ages of 10-26, and a catch up population into the early 20s, representing more than 60 million U.S. patients and many fold more globally. In general, effective universal vaccination depends on targeted age, cost, and legislative action by individual states or government bodies to mandate or encourage vaccination. As the targeted age and costs increase, vaccination rates typically decrease, although governmental and/or state legislative mandates can increase overall compliance. The highest vaccination rates occur among newborns and toddlers, with declining rates thereafter.
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Vaccination of adolescents is improving, driven primarily by implementation of school laws, which frequently require state-mandated legislation. Vaccination within this population has been highly effective, and now approaches 90%+ for Hepatitis B and meningococcus. However, newborns, toddlers and early adolescents are not populations that would receive an HPV vaccine. Despite ACIP endorsement and universal coverage for Gardasil in the U.S. and many international markets, the rollout of Mercks Gardasil has highlighted several hurdles for this unique vaccine: 1) challenges getting repeat dose vaccinations in school going girls despite a well established infrastructure at pediatricians to give the vaccines; 2) difficulties in penetrating the 19-26 year old cohort both from the perspective of convincing generally risk-taking college aged females about the need for cancer prevention; and 3) the requirement to set-up a vaccine infrastructure with Obgyns to give the HPV vaccine to this cohort. The private market, represented mostly by women in their post-college years, also represents a sizable opportunity for HPV vaccination but regulatory challenges precede the commercial opportunity.
Merck/Sanofis Gardasil Growth Keyed To Penetration Of New Markets

Gardasils (quadrivalent, 3-dose HPV vaccine) initial success in the U.S. has been dampened as Merck has struggled to penetrate the 19-26 age cohort. In June 2008, Gardasil suffered several set-backs on previously filed sBLAs: 1) vulvar and vaginal cancer was approvable pending resolution of the Form 483 that Merck received as a result of its Westpoint vaccine facility inspection; 2) complete response letter for women ages 27 through 45; and 3) a complete response letter for the cross protection indication, to which Merck does not intend to respond. In September, FDA approved the vulvar and vaginal cancer prevention indication confirming that the Form 483 was resolved. However, Gardasil's U.S. label was also revised to note that current information does not support cross protection. In January 2009, FDA accepted the Gardasil application in boys but granted a second complete response for women ages 27 through 45; an approval is now likely in H2:10 as Merck plans to respond to FDA towards the end of 2009. Gardasil is priced at $120 per dose or $360 for the three-dose regimen. Merck states that 98% of privately insured lives have coverage for the vaccine, and all 55 Vaccines For Children (VFC) programs have adopted the vaccine. The VFCs follow the ACIP guidelines and cover all patients 18 years and younger who either are uninsured, underinsured, native-American, Alaskan-American, or on Medicaid. This has historically represented 50% of the vaccine population. The VFCs get a 20% discount to Gardasils list price ($96 per vial). Gardasil has now been approved in 109 countries and is launched in 88. 40MM doses have been sold globally since launch and 22MM of these are in the U.S. In 2008 Gardasil sales fell short of expectations. The key reason is that Merck failed to penetrate the 19-26 cohort. Merck has stepped up its commercial effort to address the challenges gaiting penetration of this cohort but this is likely to take time given the required change in behavior of the treating physician (the Obgyn) and the college-going female. Gardasil sales growth has also slowed given initial rapid adoption by large countries in 2007 of both the birth cohort and target populations; completion of the three dose schedule by the initial cohort; and increasing competition ex-U.S. Gardasils duration of protection and its immune memory have been proven over 5+ years. Immune memory and a potential requirement for a booster dose is likely to
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become a topical issue. Our consultants believe that GlaxoSmithKlines Cervarix is more potent than Gardasil but it is unclear whether this will translates into clinical significance; one potential advantage is the Cervarix may not require a booster dose. Cervarixs AS04 adjuvant may be causing the incremental immune response and some consultants theorize that Garsasils four valents may be antagonizing the immune response. Cervarix (a bivalent adjuvanted vaccine) suffered a regulatory setback in the U.S. when in December 2007 it received a complete response from FDAs CBER division. GlaxoSmithKline plans to supplement its original BLA with the final data from the 066 study in H1:09 and therefore could receive approval in H2:09. Cervarix was approved in the E.U. in September 2007. In January 2007, GlaxoSmithKline initiated a head-to-head with Cervarix and Gardasil. The trial has completed and GlaxoSmithKline has the data in house, but the results are unknown. Merck is developing a nine-valent HPV vaccine (V503) to provide broader coverage against HPV. V503 uses alum as the adjuvant. It is unclear whether the additional valencies may antagonize the immune response further. The Phase III clinical program is underway and Merck anticipates a filing with the FDA in 2012. We forecast Gardasil sales of $1.51B (+8%) in 2009, $1.8B in 2012, and $2.1B in 2015. We forecast V503 sales of $100MM in 2012 and $400MM in 2015.
Gardasil Approvals And Filings
Claim 9- to 15-year old girls 9- to 26-year old boys* 16- to 26-year old girls 26- to 45-year old women Vulvo-vaginal caner Immune memory Cross-protection
Source: Merck data
Filing Date 2008 12/07 04/07 04/07 06/07
FDA Action Approved Accepted 1/09 Approved Complete response letter (06/08 and 1/09) Approved (09/08) Complete response letter (06/08); MRK no longer pursuing indication
*Recommendation is gender neutral in some markets, such as the U.K.
Merck Addressing 19-26 Cohort Challenges The challenges of penetrating the 19-26 year old cohort include: 1) despite high awareness, this cohort is less willing to act on this awareness; Merck does not believe that the reported deaths and other adverse events associated with Gardasil are impacting penetration to a significant extent; and 2) most of the cohort see an Obgyn as its primary physician; these physicians are comfortable recommending Gardasil but dont typically administer vaccines and may not be equipped to do so; these physician practices are not familiar with vaccine ordering, stocking, and medical reimbursement coding; this can create challenges for the patient and provider. While private insurance covers up to 90% of the vaccine cost for privately insured patients, the physicians have in certain cases absorbed the cost for uninsured patients. Merck has put in place a free stocking program for those vaccines that are not reimbursed. In addition, Merck reps are teaching physicians how to set up a vaccination program to facilitate usage. Merck believes the 27-45 age group will be easier to penetrate given that these patients are more motivated to manage their health and have better access to reimbursement.
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Results Of Gardasils Pivotal Future I And II Studies Published Gardasil was approved based on FUTURE I and II studies. The results of FUTURE I and FUTURE II (Phase III trial in women aged 16 to 24) of Gardasil were published in the NEJM in May 2007. Future I demonstrated 100% type-specific efficacy for HPV-6, 11, 16, and 18 in the per-protocol-population at a mean of three years. Future II demonstrated 98% prevention of cervical precancerous lesions (CIN 2/3 and AIS) and external genital lesions caused by HPV 16 and 18 at mean of 3 years. Future I and II only showed a benefit in women who were not previously exposed to either HPV-16 or -18. Cross Protection Data Not Sufficient To Garner An Indication Initial results of cross-protection studies presented at ICAAC 2007 demonstrated that Gardasil prevented 38% of pre-cancerous lesions (CIN2/3, AIS) caused by ten HPV types 31/33/35/39/45/51/52/56/58/59 during a mean follow up of three years after the start of vaccination. These ten virus types cause roughly 16% of cervical cancer in Europe and up to 22% of cervical cancer around the world. However, both FDA and the EMEA were not convinced that these data were sufficient for a new indication. The data (without an indication) were introduced in Gardasils European label but U.S. FDA required Gardasils label to be updated to specifically state that Gardasil has not demonstrated cross-protection. Gardasils European Launch Gaining Traction. Since the European approval, several European countries including: Austria; Belgium; Denmark; France; Germany; Italy; Portugal; Netherlands; Norway; Luxemburg; Spain; Switzerland; Sweden; and the United Kingdom have recommended routine HPV vaccination for preadolescent girls, usually coupled with catch-up programs for adolescent girls and young women. European Deaths Unlikely Related To Gardasil. The European Medicines Agency posted a statement in January 2008, stating that there had been two sudden and unexpected deaths in young women who had received Gardasil. But the EMEA decided not to change the label, given that 1.5 million women already have been vaccinated in Europe and no causal relationship between the vaccine and the two fatalities has been found. One death occurred in Austria and the other in Germany. In both cases, the cause of death could not be identified. However, the EMEA will continue to monitor Gardasil for safety issues. Our physician consultants do not believe there is any causal relationship between these deaths and Gardasil.
GlaxoSmithKlines Cervarix Delayed Further In U.S.; Foreign Rollout Modest

Cervarix is a three-dose vaccine regimen administered at 0, 1, and 6 months, consisting of two viral vectors (HPV16 and HPV18; 20ug of each) responsible for the majority (over 70%) of high-risk infections (i.e., those associated with cervical cancer) and a novel adjuvant, AS04. The ASO4 adjuvant in Cervarix, a detoxified endotoxin, is designed to boost the immune response and may result in faster onset of protection, a more durable response against HPV 16/18, as well as crossprotection against other high-risk HPV strains. The Phase III interim analysis from the HPV-008 pivotal study published in the Lancet in June 2007, confirmed the protection with 90.4% vaccine efficacy in CIN2+ with HPV types 16 and 18 at 15 months. Results also suggest that Cervarix may offer cross-protection against HPV 31 (36.1%), HPV 45 (59.9%), and HPV 52 (31.6%).
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GlaxoSmithKline filed Cervarix in Europe in March 2006, approximately three months after Sanofi-Pasteur/MSD (Gardasil) and received EMEA approval in September 2007 for women between the ages of 15 and 25. A BLA for the prevention of cervical cancer was filed with FDA on March 29th 2007 but did not obtain priority review. GlaxoSmithKline announced in June 2008, that it submitted its response to questions raised by FDA in Cervarixs December 2007 Complete Response letter. GlaxoSmithKline has not revealed the nature of these questions or its response but it has been suspected that the safety of the Cervarix adjuvant, AS04, was an issue. GlaxoSmithKline indicated as part of the response in H1:09 it will augment the BLA with the final results of the HPV-008 study and this will trigger a 6-month review. This augmentation was not required by FDA but approval is now expected no earlier than Q3/Q4:09. To date, Cervarix is approved in 80 countries and GlaxoSmithKline has submitted licensing applications in an additional 30 including Japan as of September 2007. Gardasils ability to prevent extra-genital lesions via protection against HPV 6/11 is an advantage over Cervarix. Cervarix could counter this, if it demonstrates a higher degree of cross-protection against other high-risk HPV strains relative to Gardasil, as well as prolonged protection. Cervarix has demonstrated HPV 16 and 18 antibodies 11X higher than natural levels out to 6.4 years after the 1st injection. Our physician experts believe the cross-protection claim will be difficult to substantiate and is unlikely to play a significant role in a physicians choice between Gardasil and Cervarix. This was echoed when Merck failed to garner an approval for Gardasils sBLA for cross-protection and decided against pursuing the claim further. In June 2008, GlaxoSmithKline announced that Cervarix was confirmed as the vaccine of choice by the U.K. Department of Health for the national HPV immunization program. In July 2008, Cervarix was also recommended for reimbursement in France, a reversal of a January decision. In November 2008 Cervarix won the Dutch tender as the cervical vaccine of choice for the Dutch National Immunisation Programme. We forecast Cervarix sales of 200MM in 2009, 500MM in 2012, and 800MM in 2015.
Gardasil Company Serotypes Adjuvants Indications where approved Merck/SanofiAventis 6,11,16,18 Aluminum Prevention of the following in women ages 9-26: Cervical, vulvar and vaginal cancer Prevention of genital warts Precancerous lesions: CIN grades 1-3; VIN grades 2,3 Manufacturing Fermentation of VLPs in yeast cells Amplification of L1 proteins in Hi-5 insect cell cult Cervarix GlaxoSmithKline 16,18 AS04; MPL, a purified bacterial lipid Prevention of the following in women ages 10-25 Cervical cancer Precancerous lesions: CIN grades 2 and 3
Source: product label; www.emea.europa.eu
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Cervarix Protection Data Impressive In April 2007 at AACR (American Association For Cancer Research), GlaxoSmithKline presented data that showed that Cervarix produced 100% protection in preventing precancerous lesions caused by HPV types 16 and 18 at 5.5 years in women 15-25 years of age. This was part of an extended follow-up analysis of women who participated in the initial efficacy study. At ACOG, 2006, a subset analysis of the 014 study demonstrated that immune response seen in blood correlated to the levels in the cervico-vaginal fluid one year post completion of the vaccine course. The blood levels achieved were similar to those conferring 5.5 years of protection in the previous study. At ASCO 2007, GlaxoSmithKline presented data demonstrating that 100% of subjects up to 55 years of age had antibodies 18 months after the last dose of Cervarix. GlaxoSmithKline has commenced enrollment for a number of Phase III trials. If these trials generate a 90%-plus reduction in CIN 2 and CIN 3 and cross protection, they will support the long-term data from the pivotal study in the European filing. Head-To-Head With Gardasil In-House But May Be Disappointing In January 2007, GlaxoSmithKline announced initiation of a 1,000-woman head-tohead study between Cervarix and Gardasil. The primary endpoint is immune responses to HPV types 16 and 18 in U.S. women 18 to 26 years old. The secondary endpoint is immune responses to HPV 16 and 18 in women 27 to 35 years old and 36 to 45 years old. In addition, the study compared immune responses to other cancercausing HPV types. GlaxoSmithKline has stated that it has the data in-house but is unlikely to include them in its Cervarix FDA response suggesting that the results may be disappointing. Regardless, our consultants believe that both Gardasil and Cervarix impart high levels of protection and therefore believe that these data are not particularly relevant.
Source: Cowen and Company Therapeutics Conference, October 2008
WHO Prequalification Unlikely To Have Significant Commercial Impact GlaxoSmithKline has submitted Cervarix for prequalification to the WHO. WHO designed the pre-qualification mechanism to speed the delivery of new vaccines to developing countries (where they are needed most), once the vaccines have received approval from a recognized national regulatory authority. With three opportunities for submission a year, prequalification functions as a public health endorsement of a vaccines efficacy, safety and quality and confirms the manufacturers ability to
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fulfill large-scale UN tenders. Products with prequalification status may be used by UN agencies and the GAVI Alliance, as well as mass vaccination programs across the developing world.
Overview Of Cervarix Phase III Program
Study Number Description Age group Number of Women Results Presented
Study-008: Papilloma Trial To Long-term efficacy and safety 15-25 Prevent Cervical Cancer In Young follow-up with endpoints examining infection rate and Adults (PATRICIA) CIN progression Study 009 Long-term efficacy follow-up with endpoints examining infection rate and CIN progression Immunogenicity comparison between Cervarix and Gardasil Safety and Immunogenicity Safety Safety and Immunogenicity Cervico-vaginal fluid evaluation 18-25
18000
Interim results used for BLA filing; final results to be filed in H1:09
Expected 2009
12000
Expected 2009
Study 010
18-45
Expected 2009
Study 012 Study 013 Study 014
10- 25 10-14 15-55
750 women 660 women 90 women subset
Safe with good immune response. Safe with good immune response. Strong immune response
ICAAC 2005 ESPID 2006 ASCO 2006
Subset analysis: 1) Cervico-vaginal ACOG 2007 secretion contained significant Ab at one year. 2) Blood Ab-levels were in the same range as Study 008 which demonstrated efficacy at 5.5 years.
Study 015
Prevention of precancerous cervical lesions and safety
26-55
4000
Source: Company Data; Cowen and Company
Mercks Zostavax Could See A Rebound In 2009

Zostavax, a single high-dose varicella vaccine, has had a constrained rollout for prevention of shingles and shingles-related pain for adults 60+ due to supply issues. Merck resolved a bulk varicella manufacturing issue retarding active promotion of Zostavax and delaying the global launch of the refrigerated version which requires higher potency. As of August 2008, the varicella vector was in full scale production with Merck able to produce the higher potency batches. Merck had shipped Varivax backorders through 12/31/08. However, Zostavax orders in some states (CA, WI, IN, and DE) from July 2008 would only begin shipping in February 2009. Orders after 12/31/08 would be shipped through March of 2009. Merck plans to increase supply of frozen Zostavax in the U.S. in 2009; the global launch of the refrigerated formulation is not expected in 2009. Merck anticipates Zostavax uptake to be similar to that of flu vaccine in the 60+ age group. The CDC recommends Zostavax for all people over 60 years. Merck states that it is being reimbursed by plans covering 85% of managed care lives. All of Medicare Part D plans offer coverage but Medicare Part B plans do not. Zostavax is priced at $145-155 per dose. Zostavax has been recommended for inclusion in the elderly vaccination schedule, boosting managed care reimbursement. Merck will file an sBLA for 50-59 year olds in 2010. This cohort will increase the market by 60%. We estimate Zostavax sales of $275MM in 2009, $650MM in 2012, and $950MM in 2015. Proquad Supply Halted And Additional Warnings Added To Its Label Merck has temporarily stopped the promotion of ProQuad, a pediatric combination vaccine against measles, mumps, rubella and varicella, because of the quantity of
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varicella bulk required for manufacture. Merck has maintained promotion of Varivax [Varicella VirusVaccine Live (Oka/Merck)], a vaccine to help prevent chickenpox together with the MMR-II that covers measles, mumps and rubella viridae. In February 2008, FDA approved a revised label for ProQuad. The new label alerts to a change in the Post-Marketing Surveillance section on the possible risk of febrile seizures after ProQuad vaccination. Increased rate of fever was previously identified as a safety signal in the ProQuad prelicensure studies. Merck committed to conduct a large, postmarketing study at the time of licensure to better understand the risk of febrile seizures that might be associated with ProQuad vaccination. This may have a negative impact on Proquad use once it is back on the market.
Meningitis Vaccines Have Significant Commercial Potential

Meningitis is inflammation of the lining the brain and surrounding fluid most often due to an infection. Meningitis is usually caused by a viral or bacterial infection. Viral meningitis is generally less severe and resolves without specific treatment, while bacterial meningitis can be quite severe and may result in death, brain damage, hearing loss, or a learning disability. Mengitis can be particularly destructive in children with developing brains. For bacterial meningitis, it is also important to know the causative organism because antibiotics can prevent many types from spreading and infecting other people. Before the 1990s, Haemophilus influenzae type b (Hib) was the leading cause of bacterial meningitis, but new vaccines being given to all children as part of their routine immunizations have reduced the occurrence of invasive disease due to H. influenzae. Despite the availability of vaccines, Streptococcus pneumoniae and Neisseria meningitidis remain the leading causes of bacterial meningitis. Although their rates have been significantly reduced since the availability of the respective vaccines, there has been a shift to strains not covered in the current products. The market opportunity for meningitis vaccines as depicted in the table is significant but only Prevnar has seen this materialize.
U.S. & EU Meningitis Markets Target Cohort Infants U.S. Infants EU Adolescents U.S. Adolescents EU Total @ $320 per course*
* estimated cost of Menactra and Gardasil
(MM) 4.1 7.3 4.2 8 23.6
$7,552
Wyeths Prevnar May Face Competition Ex-U.S. But PCV13 Likely The Winner
Streptococcus pneumoniae is responsible for more than one million deaths in young children per year. Morbidity associated with S. pneumonia is typically manifested as otitis media, but less commonly can result in pneumonia, bacteremia and meningitis. Prevnar (7 valent pneumococcal vaccine) sales have grown robustly post resolution of manufacturing difficulties and the CDC reinstatement of the fourth
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pediatric dose. Prevnar is approved in 92 countries worldwide and is included in 28 national immunization programs (NIPs) with several in line to announce their intention to initiate NIPs. Wyeths 13-valent pneumococcal vaccine (PCV13) will replace Prevnar and allow expansion into the adult market, which alone has an estimated $1.5B potential. The new vaccines includes six new serotypes (1, 3, 5, 6A, 7F, and 19A) in addition to the seven serotype (4, 6B, 9V, 14, 18C, 19F, 23F) in Prevnar. Coverage of the 3, 7F and 19A serotypes in the U.S. is key. A study conducted by the CDC comparing pneumococcal serogroups and their clonal associates pre and post the introduction of Prevnar in the U.S. found that among children <5 years of age, the incidence of invasive disease due to non-Prevnar serogroups together with serogroup 19A increased (P < 0.001). Among the non-Prevnar serogroups, newly emerging clones were uncommon; and a significant expansion of already established clones occurred for serotypes 3, 7F, 15BCF, 19A, 22F, 33F, and 38. PCV13 received fast track designation in May 2008 and Wyeth to filed in the U.S. in Q1:09 for pediatrics and early 2010 for an adult indication. In December 2008, Wyeth announced that it had submitted an MAA to the EMEA for PCV13. In October 2008, data presented at ICAAC/IDSA demonstrated that PCV13 offered broader coverage than Prevnar. However, in one of the Phase III studies assessing immune response there was a low percentage of responses with antibodies >35ug/ml (mean =77.3%) to the 6B antigen. This resulted in a missed primary end point. Our consultants were not concerned with the miss as the secondary end points, GMC (geometric mean concentration) and OPA (opsonophagocytic assay) were met. These represent a more functional measurement that antibody titres. It is unclear why GlaxoSmithKline has elected not to pursue a U.S. indication for Synflorix, its 10 valent pneumococcus vaccine, but this may be as a result of inferior antibody levels to Prevnar in clinical trials. Nonetheless this has paved the way for Prevnar/PVC13s market dominance. Our consultants view Synflorixs ability to protect against non-typeable H. influenzae as an advantage over Prevnar given the widespread incidence of the otitis media caused by the pathogen. Synflorixs ex-U.S. approval could be imminent and its superior profile to Prevnar would make it competitive. Our consultants believe that PCV13 would likely trump Synflorix despite not covering non-typeable H. influenzae. The rationale is that otitis media caused by the non-typeable H. influenzae is less severe than pneumococcus otitis media therefore they favor PCV13s additional pneumococcus coverage. Our consultants believe that an adult indication would be significant. We forecast Prevnar/13vPnC franchise sales of $2.95B (+9%) in 2009, $3.75B in 2012, and $4.35B in 2015.
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Comparison Of Late Stage Pneumococcus Vaccines

Prevnar Company Serotypes Wyeth 4 6B 9V 14 18C 19F 23F Synflorix GlaxoSmithKline 1 4 5 6B 7F 9V 14 18C 19F 23F 13vPnC Wyeth 1 3 4 5 6A 6B 7F 9V 14 18C 19A 19F 23F CRM197
Carrier protein
Red = additional serotypes Source: Company data
CRM197
Non-typeable H. influenzae
GlaxoSmithKlines Synflorix Receives Positive Opinion In The E.U.; U.S. Future Unclear
Synflorix is a conjugated 10 valent vaccine with significant protection against Streptococcus pneumoniae and non-typable H. influenza (NTHI). Synflorix uses NTHi as the active carrier protein. NTHi and Streptococcus pnuemonaie are responsible for approximately 40% of otitis media infections. Current Hib vaccines only cover the encapsulated forms of Haemophilus influenzae (Type B). Phase III data presented at the 6th International Symposium on Pneumococci and Pneumococcal Diseases (ISPPD, Reykjavik, Iceland) indicate that Synflorix should offer protection to children against most major strains of Streptococcus pneumoniae. Synflorix provides broader coverage against invasive disease, compared to Prevnar as it includes three additional pneumococcal strains - 1, 5 and 7F - that are not currently vaccine preventable. These strains cause a significant number of severe childhood invasive diseases, accounting for 5-25% of all cases in different regions of the world and are an increasingly prominent cause of serious disease in Europe. The immunogenicity data show that Synflorix elicited comparable biologically active antibody responses for each of the 7 S. pneumoniae serotypes common between Synflorix and Prevnar. Depending on serotype, at least 87.3% and up to 100% of subjects studied reached the antibody response threshold in the Synflorix group. For the 3 additional serotypes contained only in Synflorix, at least 93.1% of subjects studied reached the antibody response threshold. Synflorix received a positive recommendation from the EMEA in January 2009. The recommendation did not include an indication for non-typeable HiB otitis media, negating any potential advantage over Wyeths PCV13 when it is launched. However, GlaxoSmithKline has stated is designed Synflorixs manufacturing process to keep the cost of goods low. A low cost vaccine is likely to change the value proposition and is definitely better suited for emerging markets. Given the clinical/regulatory development challenges, a U.S. filing is unclear. GlaxoSmithKline has submitted a file for this potentially life-saving vaccine to the World Health Organization (WHO) for prequalification. Prequalification is a service provided by the WHO to facilitate access to medicines in less-affluent countries. A
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WHO prequalification would facilitate rapid access by developing countries once the candidate vaccine is approved in Europe. We forecast Synflorix sales of 50MM in 2009, 200MM in 2012, and 350MM in 2015.
Competition Heating Up In The Neisseria Meningitis Space

There are two vaccines against N. meningitidis available in the U.S. Meningococcal polysaccharide vaccine (MPSV4 or Menomune; Sanofi-Aventis) was approved by FDA in 1981. Meningococcal conjugate vaccine (MCV4 or Sanofi-Aventis Menactra) was licensed in 2005. Both vaccines can prevent 4 types of meningococcal disease, including 2 of the 3 types most common in the U.S. (serogroup C, Y, and W-135) and a type that causes epidemics in Africa (serogroup A). The current vaccines do not cover the B strain which is the most prevalent in developed countries. In general conjugate vaccines induce a much higher level and sustained antibody response than polysaccharide vaccines and some polysaccharide vaccines can produce a hyporesponsive state that exists for several months. Conjugate vaccines are therefore favored especially when a booster dose requires consideration. Menactra is recommended for all children at their routine preadolescent visit (11 to 12 years of age). For those who have never gotten Menactra previously, a dose is recommended at high school entry. Other adolescents who want to decrease their risk of meningococcal disease can also get the vaccine. Other people at increased risk for whom routine vaccination is recommended are college students living in dormitories, microbiologists who are routinely exposed to meningococcal bacteria, U.S. military recruits, anyone who has a damaged spleen or whose spleen has been removed, anyone who has terminal complement component deficiency (an immune system disorder), anyone who is traveling to the countries which have an outbreak of meningococcal disease, and those who might have been exposed to meningitis during an outbreak. Menactra is the preferred vaccine for people 11 to 55 years of age in these risk groups, but MPSV4 can be used if MCV4 is not available. Several companies are working on new N. meningitides A,C, Y and W-135 vaccines but only Novartis (Phase III) and Wyeth (Phase II) have managed to advance Serotype B vaccines. Sanofi-Aventis Leads With Menactra Sanofi dominates the U.S. meningitis vaccine market with Menactra. Menactra is a quadrivalent (A,C,Y,W-135) conjugated vaccine. The CDC/ACIP recommends Menactra for all 11 to 18 year olds. In 2007, FDA approved Menactra to include children 2 to 10 years old, increasing the original age span of 11 to 55 years. The ACIP has not recommended routine vaccination of the 2-10 age group. In 2008, Sanofi produced 8MM doses, which was sufficient to meet U.S. demand but is building capacity to produce 9MM doses in 2009. The new facility which has capacity of a minimum of 20MM doses will be filed with FDA in 2009 and in 2010 should come on line. This will allow Sanofi to expand its European and other international sales. Net sales for Menactra in 2008 were 408MM (+7.9%) A Phase III with Menactra Toddler, a two dose vaccine targeting infants nine months and older potentially removing the need for the current four dose schedule, has completed enrollment and Sanofi expects to file these data in H1:09. An Infant/Toddler formulation filing will be key to protecting the franchise before Novartis files Menveo for infants mid-2010 (a delay from mid-09 previously). A micro-injection system for Menactra and a 2nd generation meningitis A,C,Y,W-135 vaccine are in Phase I.
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Novartis Menveo Has Advantage In Infants; Filing Delay A Significant Setback The ability to give Menveo (Men A, C, W, Y) as part of the routine infant vaccination schedule should it prove safe and effective is a significant advantage over Sanofiaventiss Menactra. Menactra is being studied as a two-dose vaccine in infants greater than 9 months and therefore will require additional pediatric visits. However, Menveo's advantage in adolescents is less clear despite demonstrating higher antibody titres in a head-to-head study versus Menactra. The clinical relevance of higher titres is unclear. The European market opportunity for a quadrivalent meningitis vaccine appears significantly smaller than the U.S. given the different prevalence of serotypes and the availability of a meningitis C only vaccine. Menveo was filed for an adolescent indication mid-2008, but in January 2009 Novartis announced that FDA requested an additional 1,500 patient safety study prior to filing which is now scheduled to be 2011 (versus mid-09) in the U.S. but still remains on track for a 2010 filing in the E.U. This delay is a significant blow to the franchise given that Menveo is undifferentiated from Menactra in the adolescent indication. Novartis is ramping up supply of Menveo and will be ready should it be approved. Supply constraints clipped an initial broader ACIP recommendation for Menactra. Glaxos Meningitis Program In The Running GlaxoSmithKline markets a Hib-MenC vaccine, Mentarix in the U.K, and Mencevax ACWY but is developing a broader meningitis portfolio of N. meningitis vaccines that are in Phase III, Hib-MenCY-TT and MenACWY-TT. Hib-MenCY-TY is combined with an H. influenzae type b vaccine but lacks the N. meningitis A and W strains, and MenACWY just has the four N. meningitis strains. Wyeths Meningitec Uncompetitive Meningitec currently prevents only one of five serogroups that cause meningococcal disease, serogroup C. Wyeth was developing a meningococcal vaccine that targets 45 of the serogroups (Mening4V) but there is limited visibility with this vaccine. We forecast Meningitec sales of $70MM in 2008-2015. Epicenters Fractional Dose Vaccine Recommended For Meningitis Epidemics In 2004, a randomized clinical trial of 750 healthy volunteers (2-19 years old) took place in Uganda. Their immune response, assessed by serum bactericidal activity (SBA), was measured for 1/5 and 1/10 doses compared to a full dose. SBA response and safety/tolerability using 1/5 dose were comparable to a full dose for three serogroups (A, Y, W135), but not a fourth (C). The Phase III study was initiated by the Norwegian Institute of Public Health, together with Epicentre (the research arm of Doctors Without Borders/Mdecins Sans Frontires), and Mbarara University of Science and Technology in Uganda. The study's findings contributed to a 2007 WHO recommendation that a fractional dosing strategy be utilized in the event of severe vaccine shortages during a meningitis epidemic.
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Meningitis B, The Next Frontier But U.S. Regulatory Pathway Not Clear
Novartis MenB is in Phase III for infant meningitis and could be filed globally in 2010. The meningococcal B strains are a leading cause of bacterial meningitis throughout the world, particularly among infants, accounting for 72% of meningococcal disease in Europe in 2006. Meningococcal B infection can be a devastating disease that strikes suddenly and can kill children quickly. There is currently no broad coverage meningococcal B vaccine licensed in the European Union, United States and most other parts of the world. In September 2008, Novartis released top-line data from a small Phase I/II study evaluating two formulations of MenB (with and without the outermembrane vesicle antigen). Immunizations were administered at enrollment, two months later and at 12 months of age. The vaccines protective immune response was assessed by the percentage of subjects achieving hSBA titers >1:4 using strains representing three major vaccine antigens. One month after the third dose, the percentages of subjects achieving a protective immune response were 100 percent, 100 percent and 96 percent. One month after the second dose, the percentages were 100 percent, 100 percent and 95 percent. Based on discussion with regulatory bodies, Novartis believes a 20,000 patient immunogenicity study is sufficient for registration and an efficacy study will not be required. Seven studies are planned: two pivotal Phase III studies in infants (7,610 MenB vaccinees; 2,790 comparator vaccinees); two Phase III studies in toddler/young children (2,000 MenB vaccinees; 1,000 comparator vaccinees); and two Phase III studies in adolescents (3,125 MenB vaccinees; 1,425 comparator vaccinees). In January 2009, Novartis stated that of the two major Phase III trials, one has completed enrollment and the other was on track to complete enrollment in the next few months. However, FDA requested additional data (not specified) that are necessary for a filing. The human serum binding antigen (hSBA) assay appears acceptable for determining efficacy but it is unclear whether a 1:4 or 1:8 titre will be required. Novartis stated that it has clarity on the EU pathway to file MenB. The low incidence of MenB disease, approximately 9 per 100,000 infants, provides our physician consultant with reason for pause that the ACIP may not recommend MenB for routine vaccination. Novartis highlighted that the ACIP recognizes that Meningitis B is an unmet need, and has significant community awareness. This Novartis believes will trump the low incidence in the ACIPs final recommendation. Novartis believes given no competition there is an opportunity for premium pricing but our consultants believe that the economics are likely borderline if high priced.
Source: Novartis
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Wyeths Meningitis B Vaccine In Phase II Wyeths meningitis B vaccine is in Phase II trials in adolescents and Phase I for infants. There is little data on the meningococcal B rLP2086 vaccine.
AstraZeneca/MedImmunes Synagis Franchise Healthy, But Aging

Synagis is a humanized monoclonal antibody for the prevention of lower respiratory tract disease resulting from respiratory synctial virus (RSV) in pediatric patients. RSV is a serious problem in babies, and infections cause more than 125K infants to be hospitalized each year in the U.S. Synagis has been given to more than 900K infants since the launch in 1998 but has almost fully penetrated the less than 32 week and greater than 32 week high-risk segments. Penetration into the 250K 32-35 week cohort has remained elusive as there is tenuous medical need and lack of pharmacoeconomic data in this group. However, there is no competition on the horizon for Synagis and therefore little risk that its sales will decline. Motavizumabs (2nd-generation mAb) U.S. BLA for premature infants and chronic lung disease was filed in the U.S. in Q1:08, a slight delay from the previously expected YE:07 and received a complete response in January 2009. Motavizumab's increased potency over Synagis and efficacy in Native Americans could provide commercial upside but is still likely to face challenges penetrating the 32-35 week market until results from the 3-5 year study in this age group are available. Our consultants also note that motavizumab has an increased incidence of allergic skin reaction over Synagis. Synagis has been approved in over 60 countries. We forecast Synagis/motaviumab sales of $1.35B in 2009, $1.62B in 2012, and $1.89B in 2015. Synagiss Phase III trial in premature and bronchopulmonary dysplasia (BPD) children was called the Impact-RSV trial. This trial was conducted during a single RSV season and studied 1,502 patients less than 24 months of age with BPD or infants who were premature (< 35 weeks gestational age) who were < 6 months at study entry. Synagis reduced the rate of RSV-hospitalizations by 55% (p<0.001) compared to placebo. A second study was conducted over four consecutive seasons among a total of 1,287 patients 24 months of age with hemodynamically significant congenital heart disease. In both trials participants received 15 mg/kg Synagis or an equivalent volume of placebo IM monthly for five injections and were followed for 150 days from randomization.
Synagis Phase III Program Results
Trial Impact-RSV Clinical Endpoint N Incidence of RSV hospitalization CHD N Incidence of RSV hospitalization
Source: Synagis Package Insert, Cowen and Company
Control 500 53 (10.6%) 648 63 (9.7%)
Synagis 1002 48 (4.8%) 639 34 (5.3%)
% Reduction
P-value
55%
<0.001
45%
0.003
New Data Demonstrate Synagis Decreases Recurrent Wheeze By Almost Half. A prospective study published in the July 2007 issue of the Journal of Pediatrics, demonstrated that infants <35 weeks vaccinated with Synagis had a reduction in recurrent wheeze by 49%. There is a tenuous link between RSV infection and
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recurrent early childhood wheezing. Synagis therefore may be able to protect children without chronic lung disease from recurrent wheeze. Wheeze is also often a common cause of physician room consultation. Data from the placebo-controlled trial in 32-35 week preterm infants followed 3-5 years for reduction in persistent wheezing could be available in Q4:08.
Motavizumab Receives Complete Response

Motavizumab is a second-generation anti-RSV monoclonal antibody that was derived from Synagis. Motavizumab was optimized so that its binding affinity to the F glycoprotein of RSV is about 70-fold greater than that of Synagis. In vitro studies have shown an 18-fold-increase in neutralizing activity compared to that of Synagis, and in the cotton rat model, at equivalent serum concentrations, Motavizumab is 50 to 100 times more potent than Synagis. AstraZeneca submitted the BLA for premature and CLD children in January 2008 but received a complete response in January 2009. The nature of FDAs questions is unknown and it is unclear whether MedImmune is on track to file in the EMEA for all high-risk infants in H1:09. Our consultants note that motavizumab has a higher incidence of local skin allergic reactions (4%) than Synagis. It is unclear whether this allergic reaction is associated with the delay.
Motavizumab Immunoprophylaxis Clinical Trials
Study CP101 CP104 CP106 CP118 CP127 CP110 CP124 CP117 Population Healthy Adults High-risk Children (Premature & CLD) Hospitalized Childrenwith RSV High-risk Children (Premature& CLD) High-risk Children (Premature & CLD) High-risk Children (Premature& CLD) High-risk Children (CHD) Native American (FT) Objective Safety, IM, PK, Safety, IM, PK Safety, IM, PK, Nasal RSV titer Safety, IM, PK 2nd season CP104 Safety, IM, PK RSV hosp/MALRI Safety, IM, PK RSV hosp/MALRI Wheezing Design Open-label Open-label Placebo Control Synagis Control Mixed dosing Synagis/Motaviz Synagis Control Synagis Control Placebo Control Enrollment 30 217 30 136 240 6635 621 1410 Status Completed Completed Completed Completed Completed Completed Ongoing Interim Completed
Motavizumab Phase III Trial Shows Non-Inferiority To Synagis High-Risk Trial Positive. In May 2007, at the Pediatric Academic Societies' Annual Meeting in Toronto, MedImmune announced the Phase III results from CP110 in 6,635 pre-term infants at high risk for RSV: those born at 35 weeks gestation or less and those who have chronic lung disease (CLD) due to being born prematurely. Motavizumab met the primary endpoint, demonstrating non-inferiority to Synagis with 26% fewer RSV hospitalizations in Motavizumab-treated infants. The overall RSV attack rate was low in both treatment groups: 1.4% for infants who received Motavizumab, compared with 1.9% for those who received Synagis [RR: 0.740, 95% CI: (0.503, 1.083)]. The p-value for non-inferiority was p<0.01, demonstrating a significant finding. Analysis of the data also showed that Motavizumab reduced the incidence of RSV-specific medically attended outpatient LRIs (the study's RSVrelated secondary endpoint) by approximately 50% compared with Synagis. The overall RSV-specific medically attended LRI rate was 2.0% for infants who received Motavizumab compared with 3.9% for those who received Synagis (p<0.01). There were no significant differences in other non-RSV- specific endpoints. There were comparable rates of related adverse events and drug discontinuations between treatment groups [related AEs: Motavizumab (N=298, 9.0 percent) vs. Synagis (N=258, 7.8 percent) p=not significant (NS); discontinuations: Motavizumab (N=13, 0.4 percent) vs. Synagis (N=10, 0.3 percent) p=NS]. AEs related to skin hypersensitivity reactions resulted in discontinuation of dosing in Motavizumab -
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treated patients at low frequency (N=9, 0.3 percent). In Synagis-treated patients, there were no AEs consistent with skin hypersensitivity reactions that resulted in dosing discontinuation. The overall mortality rates were not statistically different between the two groups (N=8, 0.2 percent Motavizumab and N=4, 0.1 percent Synagis); no death was considered to be related to the study drugs and there were no RSV-related deaths. Immunogenicity in the Motavizumab arm was less than 1 percent and comparable to the historical Synagis rate. Native-American Study Strongly Positive. In August, MedImmune announced that the Phase III study in Native-American full-term newborns reduced hospitalizations due to RSV by 83% as compared to placebo (8.3% in placebo arm vs. 1.4% in motavizumab; p<0.001), as the trial's primary endpoint. In addition, the trial showed a 71% reduction in the incidence of RSV-specific lower respiratory infections (LRIs) requiring outpatient management (9.5% in placebo group and 2.8% in the motavizumab group; p<0.001), which was a secondary endpoint. Motavizumab was well tolerated in these Native American infants, with an overall incidence and severity of adverse events (AEs) that were similar between the motavizumab and the placebo groups. The mortality rates were not statistically different between groups (0.4% in the placebo arm, n=2 and 0.3% in the motavizumab arm, n=3) and were not considered to be related to the study drug. Rates of hypersensitivity related skin rashes within two days of dosing were seen in about one percent of treated children in the motavizumab group, similar to those seen in the High Risk Phase III study.
Trial High Risk Native American Clinical Endpoint Incidence of RSV hospitalization Incidence of RSV hospitalization Synagis/ Placebo 1.4% 8.3% Motaviz umab 1.9% 1.4% 26% 83% P<0.01 P<0.001 % Reduction P-value
Source: Company Data; PAS Abstract Archives
Additional Studies Ongoing. An additional study in children with hemodynamically significant congenital heart disease (n=620 when diagnosed <24 months age) began in December 2005. The trial doses children at 15 mg/kg i.m. monthly for five months, and evaluates safety, immunogenicity, and PK, with reduction in hospitalization rate a secondary endpoint. A third trial will evaluate mixed sequential doses of Synagis followed by motavizumab in roughly 240 children in the Southern Hemisphere. Because the timing of motavizumabs anticipated launch means some children in the Southern Hemisphere may end up receiving a few doses of Synagis before converting to motavizumab, MedImmune decided to initiate the Phase II study which will assess the safety, immunogenicity, and tolerance of sequential dosing of the two products.
Penetration Into 32-35 Week Gestational Ages A Challenge

We estimate that Synagis is used in three-quarters of babies less than 28 weeks of gestational age, but only about one-third of babies between 32 and 35 weeks of gestational age. Our consultants said that Synagis use is low in 32 to 35 week gestational age babies because the AAPs guidelines require two additional risk factors in order for these children to be candidates for Synagis. This has effectively raised the bar to its use. Our consultants believe that the AAP guidelines are a direct result of the lobbying by payors who are worried about the cost should Synagis be widely used in 32-35 week babies given the size of that population. Whereas about 85K babies are born at less than 32 weeks of gestational age each year, there are over
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190K born between 32 and 35 weeks of gestational age, and therefore the cost of paying for Synagis in this larger population would be extreme. The AAP guidelines do not stem from actual clinical data suggesting that Synagis is less effective in the 32-35 week cohort. In fact, just the opposite is true Synagis has produced some of its best data in the 32-35 week gestational ages. In its Phase III trial, Synagis reduced RSV hospitalizations to a greater extent in the larger babies. According to the Pediatrics publication of the Impact-RSV trial, Synagis reduced RSVassociated hospitalizations by 47% (p=0.003) in babies less than 32 weeks of gestational age, but it reduced hospitalizations by 80% (p=0.002) in babies 32 to 35 weeks of gestational age. Therefore, given that Synagis low use in 32-35 week gestational age babies is not due to a lack of data, our consultants believe that AstraZeneca will face an uphill battle using motavizumab to greatly increase penetration in 32-35 week gestational age babies. Given the strength of data that Synagis has produced in this population, motavizumab must overcome a high hurdle to be clinically superior. Perhaps an even larger impediment is a lack of urgency among physicians to prophylax these babies. Physicians believe that they are less fragile and more robust, and therefore much less likely to suffer consequences from RSV infection. MedImmune Establishing A Significant RSV Franchise But Programs Are Early As part of the RSV prevention franchise, MedImmune is also developing YTE, a 3rd generation RSV mAb, MEDI-557. Its potency is identical to motavizumab but manipulation of the Fc portion of the antibody could significantly increase its half life, reducing the need for multiple administrations. MEDI-557 is currently listed as being Phase I studies although PK data should have been available by YE:08. Phase III studies are planned for 2010. Low cost of goods and a pristine safety profile will be required in order to garner broad adoption. MEDI-564 (AZD9639) is a fusion protein inhibitor in Phase I. MedImmune also has initiated Phase I live attenuated RSV vaccine studies for prevention. MEDI-534, which uses a PIV-3 vector, has successfully completed Phase I studies in seropositive children and is in doseescalation studies in older seronegative children. Phase I/II infant studies are ongoing. For treatment of RSV, MedImmune is evaluating single dose motavizumab as well as small molecules. A single dose Phase I study has been completed with outpatient and in-hospital Phase II studies planned.
Mercks RotaTeq Faces Competition From GSKs Rotarix

RotaTeq, an oral, liquid, pentavalent bovine reassortant vaccine (G1, G2, G3, G4, G9P1A) is marketed for the prevention of rotavirus (a disease that prompts severe diarrhea in infants). ACIP recommends RotaTeq for routine immunization of infants starting at 6 to 12 weeks of age. All doses are administered by 32 weeks, with a 4 to 10 week interval between the doses. RotaTeq is included in the Vaccines for Children (VFC) program. Mercks market research, under the assumption of universal vaccination, suggests that: (1) 93% of physicians would administer a new, safer rotavirus vaccine; and (2) 78% of mothers are likely to accept vaccination when recommended by a physician. 70,300 patients had been enrolled in the large safety trial when it was stopped by the DSMB because it was fully powered. RotaTeq demonstrated 98% efficacy against severe rotavirus gastroenteritis (RGE) and 74% efficacy against RGE of any severity.
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Intussuseption, which was a problem with a prior vaccine, is comparable to placebo. A CDC report published in April 2007 on one year of RotaTeq post marketing surveillance by the VAERS confirmed that there is no association with RotaTeq and intussusception. In an analysis presented at the 25th International Congress of Paediatrics from the European subset of the large clinical study REST (Rotavirus Efficacy and Safety Trial), RotaTeq demonstrated 100% clinical efficacy against severe rotavirus disease for the first rotavirus season after vaccination. The efficacy remained high through two rotavirus seasons of follow up, preventing 98% of severe rotavirus cases. In this REST sub-analysis, RotaTeq reduced the number of hospitalizations and emergency department visits due to serotypes G1 to G4 by 95% and the number of GP surgery visits by 87% up to two years post vaccination in Europe. RotaTeq has been approved in 87 countries and launched in 55 countries. In the U.S, RotaTeq is reimbursed by plans covering 100% of managed care lives, and over 75% of the birth cohort was being vaccinated as of Q4:08. In 12/07, RotaTeqs label was updated to include data demonstrating the reduction in hospitalizations and emergency visits caused by the G9P1A rotavirus serotype. In September 2008, RotaTeqs label was updated to include pertussis immune response data from REST to support concomitant use of DTaP with RotaTeq. RotaTeqs first-mover advantage, with penetration into 60% of the U.S. birth cohort, positions it well for competition from GlaxoSmithKlines Rotarix, which was approved by FDA in April 2008, recommended by the ACIP in June 2008 and is now rolling out. However Rotarix, a humanized monovalent vaccine, is potentially more potent and requires only two vaccinations versus RotaTeqs three. Our consultants note that the ACIP recommends both Rotateq and Rotarix. Our consultants also highlight that since the introduction of Rotateq, rotavirus infections in the U.S. have dropped by 90% despite most infants only receiving one dose of Rotateq; the implication of this is unclear given that there are no scientific data supporting the efficacy of a single dose of Rotateq. We forecast RotaTeq sales of $700MM in 2009, $850MM in 2012, and $1B in 2015.
Rotateq Company Valencies Dose Schedule Merck/SanofiAventis G1, G2, G3, G4, G9P1A 3 X 2mL 1st dose: 6 -12 weeks 2nd dose: 4 10 week interval 3rd dose: 4 10 week interval; no later than 32 weeks Indications where approved Prevention of rotavirus gastroeneteritis caused by G1, G2, G3, and G4 serotypes Prevention of rotavirus gastroeneteritis caused by G1, G3, G4, and G9 serotypes Rotarix GlaxoSmithKline G1P 2 x 1mL 1st dose: 6 weeks 2nd dose after 4 weeks prior to 24 weeks
Price per course (WAC)
$213.51
$205
Source: www.fda.gov; product labels; www.emea.europa.eu; PriceRx
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GlaxoSmithKlines Rotarix May Offer Advantages Over Mercks RotaTeq

Rotarix is a two dose, oral, monovalent, live attenuated vaccine that covers G1 and non-G1 types (G3, G4, and G9). In April 2008, FDA approved Rotarix based on the February 2008 FDAs Vaccines and Related Biological Products Advisory Committee (VRBPAC) unanimous (12-0) vote in favor of Rotarixs clinical trial data being adequate to support efficacy. The Committee voted 11-1 in favor of the data being adequate to support Rotarixs safety. The VRBPAC focused on the increased incidence of pneumonia-related deaths seen with Rotarix but ultimately the majority of the committee members believed that this was not a concern given no clear and plausible biological relationship. In June 2008, the ACIP recommended Rotarix. Mercks RotaTeq, a three-dose, live, oral pentavalent vaccine, is indicated for the prevention of rotavirus gastroenteritis in infants and children caused by the G1, G2, G3 and G4 serotypes. Rotarixs WAC is $205 for the two vaccines. This is a 4% discount to Mercks 3-dose RotaTeq which costs $213.51 per course. The initial launch package is large and occupies a disproportionate amount of shelf space. This could temper sales to certain physicians, but GlaxoSmithKline is working on smaller packaging. Our vaccine consultant believes that Rotarixs two-dose (1mL each) schedule may be favored over RotaTeqs three-dose (2mL each) regimen for compliance reasons but we have limited visibility into the contracting that may have transpired for RotaTeq. Rotarix was approved in the E.U. in February 2007. We estimate Rotarix sales of 250MM in 2009, 350MM in 2012, and 425MM in 2015.
Growth Of GlaxoSmithKlines Valtrex Driven By Transmission Indication

Valtrex (valacyclovir) is marketed for the treatment and suppression of genital herpes and herpes zoster, and the treatment of cold sores. Valtrex prescriptions accelerated following approval for suppression of genital herpes and risk of transmission driven by the increasing percentage of patients using Valtrex on a daily basis. Valtrex is covered by a composition-of-matter patent through June 2009. In February 2007, Ranbaxy received FDA approval for a generic version of valacyclovir and notified GlaxoSmithKline that it intends to launch the product in the U.S. On July 26, 2007, Ranbaxy reached a settlement with GlaxoSmithKline. Under the terms of the settlement, Ranbaxy will introduce its generic copies of Valtrex in the U.S. in the latter part of 2009 and will have 180 days of exclusivity to sell the product there.
EBS Continues To Sell Out Of BioThrax

Emergents flagship commercial product is BioThrax, the only anthrax vaccine that is FDA-approved for the prevention of infection in humans who are at high risk of exposure to anthrax spores. Numerous trials, including a controlled study in humans, have demonstrated that BioThrax is effective in preventing anthrax infection by all routes of exposure. Emergent markets BioThrax almost entirely to U.S. government agencies, and has received multiple contracts from the U.S. Department of Health and Human Services (acting also on behalf of the Department of Defense). BioThrax posted revenues of $55MM, $81MM, $127MM, $148MM, and $170MM in 2003-2007, respectively. BioThrax contracts signed with HHS in September 2007 and October 2008 provide for >$800MM in orders and excellent revenue and earnings visibility through the middle of 2011. Based on these
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contracts and modest orders from ex-U.S. governments, EBS expects to sell out its BioThrax capacity of 7-8MM doses for the next several years. Prior to December 2008 BioThrax was administered by subcutaneous injection and required six initial doses over 18 months followed by annual boosters thereafter. In December 2008, the FDA approved a sBLA to change BioThraxs administration to an intramuscular injection (causes fewer acute side effects as compared to subcutaneous injections) and to reduce the number of initial doses to five over 18 months followed by annual boosters thereafter. Recombinant Protective Antigen Vaccine (rPA 102). In May, Emergent BioSolutions acquired rPA 102 from Vaxgen (VXGN) for $2MM upfront, plus royalties and up to $8MM in future milestones. rPA 102 contains the purified protective antigen protein formulated with alum adjuvant and has completed a Phase II trial. While it remains to be seen if this vaccine is equivalent or superior to BioThrax, EBS believes that rPA 102 could serve two benefits - being over 90% pure and provide a second type of anthrax vaccine, something that HHS and DoD have requested. Considering the modest acquisition price and potential for significant near-term returns, the acquisition of rPA 102 appears to be a sound move. In September 2008, Emergent announced that HHS informed the company that its proposal to provide a recombinant protective antigen anthrax vaccine (rPA) is technically acceptable and within the competitive range. Emergents proposal was in response to HHSs request for proposal for development and delivery of 25 million doses of an rPA anthrax vaccine for the Strategic National Stockpile. Emergent will begin to provide additional technical and business information in connection with the ongoing negotiation process. The continued development of this rPA vaccine candidate further solidifies Emergents franchise of anthrax countermeasures, which now includes: Biothrax; rPA a recombinant anthrax vaccine candidate, which is composed of a purified protein with an alum adjuvant and is designed to induce antibodies that neutralize anthrax toxins; and AV7909 - an anthrax vaccine candidate composed of BioThrax. It also has two therapeutics in development: AAVP21D9 - a human monoclonal antibody product candidate being developed as an intravenous post-exposure treatment for patients who present symptoms of anthrax disease; and AIG - a polyclonal anthrax immunoglobulin product candidate being developed as an intravenous post-exposure treatment for patients presenting symptoms of anthrax disease, is derived from human plasma from individuals who have been vaccinated with BioThrax.
Mercks V710 Unlikely To Go Where No S. Aureus Vaccine Has Gone Before

Phase I data of Mercks S. aureus monovalent vaccine, V710, were presented at the International Symposium on Staphylococci and Staphylococcal Infections (ISSSI) meeting in September in Australia. Interim proof-of-concept Phase II (CAGB) data potentially will be available in 2009 (versus December 2008, previously). The Phase II trial is the best opportunity to demonstrate a positive outcome because of the short-term duration, immune competent study population, and large sample size (8000+). However, despite a significant market opportunity for a successful S. aureus vaccine, V710 is unlikely to prosper in the long term for the following reasons: 1) IsdB (iron-regulated surface determinant B) is a reasonable target but, as the only antigen in a monovalent vaccine, it is unlikely to confer protection; 2) it appears that Merck is evaluating a non-adjuvanted formulation which is less likely
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to produce polyclonal and robust immune memory; and 3) resilience of the S. aureus pathogen as evident by its tenure on earth, resistance to antimicrobials, and failure of multiple antibody approaches suggest that it has multiple survival mechanisms including redundancies of seemingly critical pathways. Orthopedic surgery and chronic conditions, including ESRD, are planned. Merck anticipates a filing with the FDA in 2011. We estimate V710 sales of $100MM in 2011, $200MM in 2012, and $500MM in 2012. Why Develop A Vaccine For S. aureus? The incidence of both nosocomial (hospital) and community acquired S. aureus infections is rising. Nosocomial S. aureus infections comprise up to 50% of all hospital infections. Methicillin-resistant S. aureus (MRSA) rates continue to increase dramatically. There are limited options for the treatment of MRSA infections, making it a potentially lethal infection. Certain populations, including ICU patients, surgical patients, dialysis patients, premature neonates, hospital workers, and army recruits, are more susceptible to MRSA infections and therefore would be ideal candidates for S. aureus vaccination as a method of primary prevention. Wyeths Prevnar (pnuemococcus vaccine) and the H. influenza vaccines are stand-out successes for antibacterial vaccines but to date there has been no recorded sustained immune response to S. aureus through experimental vaccines.
Key Elements Of A Successful Vaccine Vaccines are successful if they can prime the immune system to recognize an invading pathogen, generate antibodies to latch onto it (opsonization) so that the antigen-antibody complex can be cleared by neutrophils (phagocytosis). There is a possibility that some antibodies neutralize virulence factors preventing the pathogen from doing any damage or spreading (neutralization), enhancing the phagocytic process.
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A bacterial target when selected to be part of a vaccine should be: 1) Responsible for infectivity and/or virulence. Antigens responsible for infectivity and/or virulence are more likely to be conserved and potentially have a smaller chance of being redundant. Our consultant believes S. aureus tenure suggests that it likely has multiple redundant systems and blocking a single infectivity and/or virulence target is unlikely to be successful. Redundancy allows bacteria to survive by stopping the expression of the protein target therefore preventing opsonophagocytosis. 2) Conserved across multiple isolates and strains. For a S. aureus vaccine, it is also critical that the target be present in both methicillin-sensitive S. aureus (MSSA) and MRSA groups. 3) Expressed and attached during most stages of the pathogens life cycle in the same form. Antigens that are not displayed during an infection or those that detach (e.g. capsular proteins) are likely to render antibodies ineffective. 4) The antigen should be immunogenic and not be cross-reactive with a human target. An antigen that does not elicit an antibody response would render a vaccine ineffective. If there is cross reactivity with a human target this would be unsafe. IsdB Checks Some But Not All The Boxes We reviewed V710s Phase I data presented at ISSSI in September and the results of preclinical studies on Isd with our consultants and believe that IsdB is a reasonable target but on its own unlikely to be effective in long-term studies. However, it could show a signal in short-term studies. Is A Monovalent IsdB Vaccine A Reasonable Approach? Background On S. aureus and Iron Requirements Although S. aureus can survive in fluids with iron concentrations as low as 0.04 uM, iron is vital to the survival of this pathogen. Multiple iron-uptake systems are deployed by S. aureus to ensure successful nutrient acquisition. S. aureus can acquire iron through siderophore-dependent mechanisms, which remove host iron from sources such as the labile iron pool, transferrin and lactoferrin, or the iron storage protein ferritin. In addition, S. aureus can use free heme and hemoproteins including hemoglobin, and hemoglobinhaptoglobin as iron sources. It seems plausible that staphylococci employ specific iron transport systems, depending on the growth phase of the organism, the specific site of infection, the level of tissue damage at the site of infection, and the nature of the infected hosts. The Isd System The staphylococcal iron-regulated surface determinant (Isd) system is the pathogenic strategy of scavenging heme-iron during infection by tapping into the rich iron source of hemoproteins. S. aureus utilizes the Isd system to access the most abundant iron source in the body, hemoprotein-bound heme-iron. The Isd system comprises the only known heme-iron utilization pathway in S. aureus. The Isd system is so named based on the iron regulation of all genes in the cluster, and
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the observation that four of the protein products of the system (IsdA, IsdB, IsdC, and IsdH) are cell-wall anchored. Why Targeting IsdB Alone May Be Insufficient In an effort to correlate the protective effect of their IsdB vaccine using a direct antiIsdB antibodyIsdB protein interaction in a murine sepsis model, Kuklin et al (Merck) genetically engineered a S. aureus Becker IsdB deletion strain. This experiment confirmed that mice who were vaccinated with the IsdB vaccine had a reduced survival when challenged with the S. aureus Becker IsdB harA strain confirming specificity of the antibody. However, we interpret this study differently. This genetically engineered strain, despite being deficient in IsdB and harA, still managed to cause an infection that resulted in mortality. This suggests that IsdB may not be critical in determining bacterial survival and fitness and/or there maybe redundancies in the Isd system. In addition, Kuklin et al demonstrated protection in only 20-40% of mice in a murine sepsis model with the V710 vaccine. Stranger-Jones et al, tested the individual components of and a polyvalent IsdA, IsdB, SdrD, and SdrE vaccine in a different murine sepsis model. This experiment used a more virulent Newman S. aureus strain. The IsdB component only vaccine conferred 60% protection but the polyvalent vaccine resulted in 100% protection. The incomplete immunity obtained with the monovalent vaccines could be the result of many factors but one explanation is that an IsdB only vaccine may confer only partial protection.
Source: Stranger-Jones et al
Our consultants do not believe that animal models, especially the murine sepsis model, are good correlates for clinical success for the following reasons: 1) S. aureus is predominantly a human pathogen and the inoculum required to generate an infection in mice is many logs above human levels; and 2) immune systems in animal models are not identical to humans and their antibody response may be difficult to interpret. However, vaccines that are unlikely to work are unlikely to
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demonstrate any efficacy in animal models, and therefore the models are a good screening tool. IsdB Appears Well Conserved Kuklin et al and Stranger-Jones et al confirm that IsdB is conserved across a diverse range of S. aureus isolates including MRSA resistant groups. Larger studies of greater than 2000-5000 isolates would be more definitive. But Is IsdB Expressed Throughout The S. Aureus Life Cycle? Conservation of IsdB expression across multiple isolates is beneficial only if the protein is expressed for a considerable time during an infection and in both sessile and planktonic stages. The literature confirms that many individuals have antibody levels to IsdB suggesting that IsdB is present during human exposure. However, it is unclear whether these antibodies were generated during normal colonization (pointing away from the virulence) or during an infection. It is also unclear whether antibodies are effective, although immunity to S. aureus infections has yet to be demonstrated. IsdB Is Immunogenic But Is A Monovalent Approach Reasonable? Given that antibodies to IsdB have been found in normal individuals, IdsB is immunogenic. The murine models suggest that IsdB antibodies generated by a vaccine may confer some protection but the effectiveness of antibodies generated by monovalent vaccine in preventing human infections will be key. The role of an adjuvant to enhance the immune response to IsdB vaccines is also unclear. Adjuvants prime the immune system to generate a stronger and more effective response to an antigen creating long lived B and T cell memory. Many experts believe that adjuvants are particularly required for therapeutic vaccines but the FDA is conservative in approving novel non-alum based adjuvants that might be more effective, due to potential safety concerns. Phase I data, to be presented at ISSSI, testing three different formulations of V710 (a liquid formulation with an aluminum adjuvant, a liquid formulations without an adjuvant, and a lyophilized formulation) demonstrated a similar antibody response to all three formulations 14 days post vaccination (Table 1). V710s preclinical data was generated with an adjuvant. Our consultant believes that without an adjuvant the probability of success is extremely low and it will be critical to determine whether the antibodies produced are mono or polyclonal in nature; a monoclonal response would have less chance of success. In addition to the adjuvant likely being required, our consultant and the Stranger-Jones et al preclinical data suggest that a monovalent vaccine is less likely to be successful.
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Table 1
TWO PHASE I, MULTICENTER, DOUBLE-BLIND STUDIES TO INVESTIGATE IMMUNOGENICITY AND SAFETY OF DIFFERENT FORMULATIONS OF A NOVEL STAPHYLOCOCCUS AUREUS (SA) VACCINE (V710) % of patients with a > 2 fold increase in antibodies from baseline at Day 14 95% CI 84 67%, 95% 72 53%, 86% 81 65% ,91%
Study V710-P002 V710-P004
Dose 30ug 30ug 60ug
Adjuvant Present Yes No Yes
Formulation Liquid Liquid Lyophilized
Source: 13th International Symposium on Staphylococci and Staphylococcal Infections Abstracts
Table 2
ISDB AS A TARGET Attribute Responsible for infectivity and/or virulence Rationale IsdB is part of the iron-regulated surface determinant (Isd) system that is the only pathogenic strategy of scavenging heme-iron during infection. However, a knock-out Becker S. aureus IsdB harA strain still managed to cause an infection in a mouse model albeit with a greater innoculum than needed. IsdB As A Target Source Kuklin et al, IAI 74.4.2215-2223. 2006 Stranger-Jones et al, PNAS, November 7 2006, vol 103 no. 45 ?
Conserved across multiple isolates and strains
Several genetic and in vitro studies have confirmed that IsdB is found in multiple S. aureus strains and MRSA and MSSA species.
Kuklin et al, IAI 74.4.2215-2223. 2006 Stranger-Jones et al, PNAS, November 7 2006, vol 103 no. 45 Harro et al, abstract to be presented at ISSSI
Expressed and attached during all Limited data to conclude when IsdB is present however, V710's Phase I data phases of the pathogens life cycle in suggest that at least 20% of people not exposed to the vaccine have the same form underlying antibody levels to IsdB confirming that the protein is expressed at some stage either during an infection or colonization. Immunogenic and not be crossreactive Phase I data with V710 demonstrated a >2 fold increase in antibody levels with different formulations in 72-84% of individuals and was relatively well tolerated. Preliminary data suggest immunity was sustained until day 84 with most formulations but the full data needs to be assessed, long-term immunity and functionality of the response cannot be determined until Phase II data are presented. Several non-clinical animal models including Macquacqe monkeys have also demonstrated immunity.
Harro et al, abstract to be presented at ISSSI 2008
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Strolling Through The S. Aureus Vaccine Graveyard, What Can We Learn? Review of late-stage antibody approaches to S. aureus provides a framework to quantify potential hurdles for V710 (Table 4). Each of the antibody approaches demonstrated efficacy in animal models but failed to demonstrate clinical success. This cautions against using preclinical models to predict success. StaphVax (capsular polysaccharide (CP) vaccine; Nabi) appeared to generate immunity through 40 weeks in its Phase III hemodialysis clinical studies but antibody levels declined thereafter despite using a booster in the 2nd trial. Our consultant believes that this attests to the absence of a sustained memory response to S. aureus, a major hurdle for S. aureus vaccines. Nabi claims that the immunogenicity of one lot of vaccine in the 2nd Phase III trial was less potent than a lot in the previous study. The literature questions whether targeting a single virulence factor (i.e. CP) is sufficient, whether antibody alone may be sufficient for prophylaxis, and whether targeting immunocompromised patients may reduce the chance of success. In addition, our consultant believes that the polysaccharide capsule is an elusive target because it is constantly changing its sugar composition and can be shed as a decoy. Nabi is developing a next generation vaccine including an additional capsular antigen 336, and two other antigens PVL and alpha-toxin. Nabi completed shorter duration studies (in orthopedic hip) but these data have not been published. Nabi has redesigned StaphVax to include three more antigens to stimulate a broader and more robust immune response; it is unclear whether this will be advanced into a clinical program. Our consultant believes that a short-term study that doesnt rely on sustained memory may have a small chance of success but emphasizes that an adjuvantedmultivalent approach is probably required. The failure of Veronate (IVIG; Inhibitex) and Altastaph (IVIG; Nabi) in the short-term setting may temper this optimism but both these IVIGs targeted VLBW (very low birth weight) neonates, which may have different opsonophagocytic capabilities. Can V710 Buck The Trend? Phase II CAGB Study May Hold A Glimmer Of Hope But Hemodialysis Study A Long-Shot Mercks Phase II program includes one short-term (3 month) study assessing infection prevention in planned cardiothoracic surgery (CABG) and a one-year study in hemodialysis that began in September 2008 (Table 3). It is unknown whether Merck is using an adjuvant in this short-term cardiothoracic trial. The hemodialysis Phase II study is assessing a 60ug adjuvanted vaccine and 90ug non-adjuvanted vaccine. Short-Duration, Immune-Competent Patients, And Very Large Sample Size Could Give V710 A Good Shot We take some comfort from Nabis Phase III trials that demonstrated sustained antibody protection through 40 weeks despite many patients potentially having immuneparesis. While Nabi never published the results from its short-term orthopedic studies we believe V710s best chance of demonstrating effectiveness is in a trial that does not rely on longer-term immune memory and is studied in patients with normal immune systems. However, according to the most recent national data from the Society of Thoracic Surgeons National Database, the average post-operative infection rate for isolated CABG procedures in 2006 was 1.8% for all U.S. hospitals, and 2.1% for large teaching hospitals. Merck recently updated clinicaltrials.gov increasing the trial size significantly from 76 patients to 8,044. This sample size should sufficiently power the study to demonstrate a difference between the two arms given the low incidence rate. Proof-of-concept interim data should be available in 2009.
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Table 3
V710 Phase II Program Study title A Study of Staphylococcus Aureus Vaccine (V710) in Patients Scheduled for Cardiothoracic Surgery A Study to Evaluate the Safety and Immunogenicity of V710 in Adults With Kidney Disease on Hemodialysis Phase II 198 Change in Antibody level from baseline as measured at 8 predefined time points Not given
Phase Number of patients Primary outcome measures
Phase II 8044 Prevention of S. aureus infections for 90 days following cardiothoracic surgery Invasive S. aureus infection for 90 days following cardiothoracic surgery; S. aureus surgical-site infections for 90 days following cardiothoracic surgery 2 arms: V710 single 0.5 ml injection
Secondary
Arms
6 arms: Group 1: V710 (60 g without MAA) on Day 1 and Day 28 Group 2: V710 (60 g without MAA) on Day 1, followed by saline placebo on Day 28 Group 3: V710 (60g with MAA) on Day 1 and Day 28 Group 4: V710 (60 g with MAA) on Day 1, followed by saline placebo on Day 28 Group 5: V710 (90 g with MAA) on Day 1 and Day 28 Group 6: Saline placebo on Day 1 and Day 28
Single 0.5 ml placebo injection
Source: clinicaltrials.go
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Table 4
Vaccine (Company) Type Target Highest Stage Of Development 1st generation Active vaccine Type 5 and 8 Phase III Failed to demonstrate S. aureus infection reduction in two large pivotal ESRD trials. Initial study demonstrated a positive trend up to 40 weeks but was thought to have failed because of declining antibody levels. Second study was designed with a booster and shorter study duration but also failed. Nabi claims that the immunogenicity of one lot was less potent than a lot in the previous study. The literature questions whether targeting a single virulence factor (i.e. CP) is sufficient; whether antibody alone maybe sufficient; and targeting immunocompromised patients may reduce the chance of success. In addition, our consultant believes that the polysaccharide capsule is an elusive target because it is constantly changing its sugar composition and can be shed as a decoy. Nabi is developing a next generation vaccine including an additional capsular antigen 336, and two other antigens PVL and alpha-toxin. Veronate (Inhibitex) IVIG screened donors Potentially enriched for ClfA and Sdrg Phase III Failed to demonstrate a reduction in the prevention of hospital infections due to S. aureus in premature infants. There were also no measurable trends or effects in favor of Veronate for the primary or secondary endpoints. Our consultant believes that ClfB may be a better target but admits there are many unanswered questions from this study. In addition capsule expression may inhibit ClfA binding and are both expressed in post exponential growth. Aurograb (Novartis) grab, antibody fragment Altastaph (Nabi) IVIG from vaccinating subjects with StaphVax Aurexis hmAb against ClfA ClfA Phase II Phase II sepsis trial in 60 patients trended in Aurexiss favor. The program has not advanced. derived Type 5 and 8 Phase II Phase II study in low birth weight infants failed. Higher death rate than standard of care. ABC Transporter Phase III Program terminated due to lack of efficacy in combination with vancomycin. Comments
StaphVax (Nabi)
capsular polysaccharides (CP)
capsular polysacharides
Pagibaximab (Biosynexus)
mAb-LTA
Lipotechoic acid
Phase II
Phase II/III trial in very low birth weight babies to prevent neonatal sepsis imminent. Phase II data confirm dose and safety.
Source: Lee et al, Company data

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U.S. ANTIBIOTIC/ANTIVIRAL MARKET

Total Prescriptions (000's) 2008 Other Therapies, Sepsis 100,705 Macrolides 86,870 Antifungals 31,083 69,687 Quinolones 22 61,884 Antivirals 4,211 48,122 Penicillins 106,327 98,353 Cephalosporins 36,918 59,717 Tetracyclines 26,926 31,793 Erythromycins 46,878 3,439 Total 290,341 560,569 * 1987 figures are estimates based upon 1992 IMS survey Source: IMS America; Cowen and Company estimates 1987* 37,978 % Market Share 2009E 2013P 1987* 2008 2009E 106,000 162,000 13% 18% 18% 88,000 139,000 15% 15% 70,000 107,000 11% 12% 12% 64,000 99,000 11% 11% 53,000 92,000 1% 9% 9% 105,000 61,000 37% 18% 18% 68,000 61,000 13% 11% 11% 35,000 39,000 9% 6% 6% 6,000 5,000 16% 1% 1% 595,000 765,000 100% 100% 100% universe expansion restatements. CGR 2013P '87-08 '08-13 21% +5% +10% 18% NA +10% 14% +4% +9% 13% NA +10% 12% +12% +14% 8% -0% -9% 8% +2% +0% 5% +1% +4% 1% -12% +8% 100% +3% +6%

U.S. Sales in Year Drug Epivir Valtrex Primaxin Famvir Baraclude Levaquin Merrem Crixivan Manufacturer GlaxoSmithKline GlaxoSmithKline Merck Novartis Bristol-Myers Squibb Johnson & Johnson AstraZeneca Merck Patent Expiration 2/09 6/09 9/09 9/10 10/10 12/10 2012 5/13 Patent Expires ($MM) 350 750 155 300 75 1,000 NA ---
INFECTIOUS DISEASE R&D PIPELINE Company Dainippon Sumitomo Sumitomo Merck Dainippon Product AmBisome Meropen (SM7338) Isentress 2008 PC I II III NDA . . MKT Comment Prevention of fungal infection Menopenem trihydrate; febrile neutropenia MK-0518; HIV integrase inhibitor; AIDS; treatment nave indication; PDUFA July 2009; 800mg QD PIII trial initiated in Q4:08 Mitsubishi Tanabe Pfizer, Inc. Pfizer, Inc. Valixa (TA9070) Vfend Zithromax . Jun-05 Jan-08 Additional indication for transplantation Treatment of fungal infections pediatric filing Japan; bacterial infections
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INFECTIOUS DISEASE R&D PIPELINE Company Pfizer, Inc. Product Zmax PC I II III NDA Nov-06 MKT Comment Sustained-release formulation for treatment of pediatric bacterial 2007 Sanofi-Aventis Bayer Schering Pharma Eisai Johnson & Johnson Clevudine Ceftobiprol . . . May-07 Ketek Avelox . . . Skin and soft tissue infections; cervicitis; filed in Japan New indications; filed for pelvic inflammatory disease Hepatitis B; PIII China; filed in Malaysia and Thailand Filed for complicated skin and skin structure infections, approvable letter 3/08; PIII for nosocomial pneumonia; hospitalized CAP Pfizer, Inc. Selzentry (Maraviroc) . . Feb-08 Treatment-nave patients; filed in Japan for HIV in treatment-experienced patients Wyeth Tygacil . . Filed for community acquired pneumonia; PIII for diabetic foot infection; PII for hospital acquired pneumonia; resistant pathogens; outcomes requested by FDA Astellas Televancin . . . additional information regarding patient Filed in U.S. and Europe for complicated skin and skin structure infections; partnered with Theravance; received favorable FDA review in November MRSA ScheringPlough Bristol-Myers Squibb Squibb Daiichi Sankyo Daiichi Sankyo Eisai Endo CS-8958 DL-8234 E-5564 PRO-2000 . . . . Anti-influenza; with Biota New indication for treatment of chronic hepatitis Lipid A antagonist; sepsis and septic shock Topical vaginal microbicide for Bristol-Myers Reyataz Sustiva . . Noxafil . . Filed for serious fungal infections; PII for IV formulation Boosted nave pediatric Pediatric 2008; hospital-acquired pneumonia; infections; FDA approvable letter 28 Sep
Pharmaceuticals
prevention of HIV and STDs; 2NIH and MRC-funded trials ongoing; data in
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Infectious Disease
INFECTIOUS DISEASE R&D PIPELINE Company Forest Laboratories Johnson & Johnson Johnson & Johnson Johnson & Johnson Tanabe Mitsubishi Tanabe Novartis Pfizer, Inc. Albuferon Dalbavancin . . 2009 Pazucross . Injectable quinolone; sepsis, pneumococcus ABF656; novel longer-acting interferon; hepatitis C Once-weekly lipoglycopeptide; skin and soft tissue infections; regulatory filings withdrawn; additional PIII trial planned Pfizer, Inc. Pfizer, Inc. ScheringPlough ScheringPlough Garenoxacin . Eraxis Vfend combo ZithromaxChloroquine Boceprevir . 200910 SCH503034; hepatitis C NS3 protease inhibitor; oral Quinolone antibiotic; gram +, -, anaerobes; oral/IV; from Toyama Chemical; global ex Japan, Korea and China; outlicensure options in U.S.; dropped product in U.S. ScheringPlough Vicriviroc . CCR5 receptor antagonist; HIV infection; PII studies in treatment-experienced patients ongoing; treatment nave . . Aspergilosis Malaria Mitsubishi TMC-278 MP-424 . . TMC-207 . Telaprevir . 200910 200910 200910 NNRTI; HIV Protease Inhibitor; chronic hepatitis C Product Ceftaroline PC I II III . NDA F2011 MKT F2012 Comment 2009 Broad spectrum injectable cephalosporin; cSSSI, CAP; cSSI PIII data positive (Q3:08); CAP PIII data in Q2:09 Protease inhibitor; hepatitis C; with Vertex Anti-viral; tuberculosis
studies stopped; oral; long-t 1/2; well tolerated; designated fast track by FDA Takeda Bristol-Myers Squibb TAK-242 Baraclude . . . Severe sepsis Prevention of the recurrence of hepatitis B virus in subjects who receive an orthotopic liver transplant (OLT); Mycograb ARD 3100 . . >2012 Invasive candidiasis; meningitis Liposomal ciprofloxacin; CF-related infection
742
treatment of HBV/HIV co-infection Novartis Aradigm
Infectious Disease
INFECTIOUS DISEASE R&D PIPELINE Company Aradigm Astellas AstraZeneca AstraZeneca Bayer Schering Pharma Product ARD-3150 ASP2151 AZD 7295 CytoFab Amikacin inhaled PC I II . . . . . III NDA MKT Comment Liposomal ciprofloxacin; bronchiectasis Helicase-primase inhibitor; herpes zoster, genital herpes NS 5a inhibitor; hepatitis C Anti-TNF-alpha polyclonal antibody; severe sepsis NKTR-061; adjunctive treatment of associated (VAP) Gram-negative pneumonias Bayer Schering Pharma Bristol-Myers Squibb Dainippon Sumitomo Enzon EZN-2232 . 2010 2011 rhMBL; prevention of opportunistic infection in chemotherapy patients; licensed from Natimmune GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Johnson & Johnson Merck Myriad Genetics Myriad Genetics Novartis Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Sanofi-Aventis Sanofi-Aventis 1349572 Etaquine (Tafenoquine) IDX-899 Sitamaquine TMC-435 (oral) MK-7009 MPC-4326 Vivecon RSV604 PF-232798 PF-868554 UK-453061 Ferroquine (SSR-97193) Pleconaril . Anti-picornavirus; viral respiratory syndrome; intranasal formulation; European rights licensed from Viropharma . . . . . . . . . . . . . HIV integrase inhibitor; HIV infection Malaria prophylaxis (adults); 8aminoguinoline Non-nucleoside reverse transcriptase inhibitor; HIV infection Treatment of visceral lieshmaniasis Anti-viral; hepatitis C Hepatitis C HIV; viral maturation inhibitor HIV; viral maturation inhibitor Respiratory syncytial virus; small molecule HIV Hepatitis C virus HIV Malaria HIV Attach Inhibitor SMP-601 . . Novel mechanism; useful in any treatment stage and combination; no Life-threatening infection cross resistance; oral; Phase IIa in 2005 Cipro . Inhalable formulation hospital-acquired (HAP) or ventilator-
743
Infectious Disease
INFECTIOUS DISEASE R&D PIPELINE Company Sanofi-Aventis Sanofi-Aventis ScheringPlough Plough Plough Wyeth Bristol-Myers Squibb AstraZeneca AstraZeneca Moxidectin HCV Protease Inhibitor AZD 9639 MEDI-557 . . MEDI-564; F protein inhibitor; RSV treatment YTE - extended half-life respiratory syncytial virus (RSV) Mab; RSV prophylaxis; from MedImmune Bristol-Myers Squibb Chugai GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Merck Novartis Novartis Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche Roche Wyeth PEG-Interferon lambda NA808 1265744 1322322 932121 945237 MK-3281 NIM811 PTZ601 PF-4064900 PF-4194471 PF-4522625 PF-4878691 Sulopenem Sulopenem prodrug R7128 R7227 HCV-796 . . . . . . . . . . . . . . . . . . 2011 Type 3 interferon; hepatitis C; with ZymoGenetics Chronic hepatitis C HIV integrase inhibitor; HIV infections Novel class antibacterial agent; treatment of bacterial infections inhibitor; malaria Topoisomerase II inhibitor; treatment of bacterial infections Hepatitis C Hepatitis C Hospital bacterial infection Bacterial infections Hepatitis C virus Seasonal flu; from PowderMed; DNA plasmid vaccine Hepatitis C virus Bacterial infections; IV formulation Bacterial infections; oral formulation Polymerase inhibitor; HCV; with Pharmasset Protease inhibitor; HCV; with InterMune Hepatitis C; IV . . . Onchocerciasis Hepatitis C ScheringScheringProduct SAR-97276 XRP-2868 AN-2690 Pradefovir SCH 900518 PC I II . . . . . III NDA MKT Comment Antimalarial Oral streptogramins; community acquired infection Treatment of onychomycosis; from Anacor Pharmaceuticals Hepatitis B Protease inhibitor; hepatitis C
Plasmodium electron transport chain
744
Infectious Disease
INFECTIOUS DISEASE R&D PIPELINE Company Aradigm Bristol-Myers Squibb Bristol-Myers Squibb Bristol-Myers Squibb Bristol-Myers Squibb Eli Lilly Forest Laboratories Forest Laboratories Myriad Genetics Myriad Genetics Nektar Therapeutics Sanofi-Aventis Wyeth Wyeth Wyeth SAR-116242 BLI-489 ERB-257 RAS-111 Total Drugs In Development 15 20 31 24 13 103 . . . . Antimalarial Infectious disease; IV Sepsis; IV Sepsis; IV NXL104/Ceftaroline combo MPI-451936 MPI-461359 NKTR-140 . . . HIV; viral fusion inhibitor HIV; viral maturation inhibitor PEG protease inhibitor; HIV . Intravenous beta lactamase inhibitor Product ARD-1100 HCV Inhibitor Target 1 Target 2 HCV Inhibitor Target 3 HIV Integrase Inhibitor Novel antibiotics ME1306 . . . HIV/AIDS Community-acquired pneumonia; hospital infection; from ICOS Broad spectrum injectable carbapenem . Hepatitis C HCV Inhibitor PC . . . I II III NDA MKT Comment Liposomal ciprofloxacin; inhalation anthrax Hepatitis C Hepatitis C
745
Infectious Disease
Notes
746
Multiple Sclerosis
Multiple Sclerosis
Old And New Drugs Vie For A Lucrative Market

Multiple sclerosis (MS) is the most common cause of nontraumatic disability in young adults, affecting an estimated 12% 2008-13 CGR 400,000-500,000 patients in the U.S. and over 1MM people worldwide. Although the unmet medical need in MS remains high, existing drugs are able to reduce the rate of relapse and have a modest effect on slowing the progression of disease. Injectable disease-modifying drugs are approved for use in patients with relapsing-remitting (RRMS) disease of mild to moderate severity, but are regarded as having some efficacy in treating various stages of disease. Consultants estimate that roughly 50% of MS patients have the relapsing-remitting form of the disease (RRMS), with an equal number of patients with progressive forms of MS. The number of patients diagnosed with MS grew significantly in the late 1990s and early 2000s due to improved diagnostic criteria and greater disease awareness. More recently, the rate at which new patients with MS are diagnosed has leveled off, and the MS patient population in most developed nations appears to be growing at a rate only slightly higher than the general population. Consultants estimate that approximately 80% of RRMS and 30-40% of secondary progressive MS (SPMS) patients are currently treated with disease-modifying agents. They note that there is a growing trend toward earlier treatment in MS, but that compliance rates can be highly variable and discontinuations common. The treatment standard for MS has changed very little over the past 10 years. Four injectable disease-modifying drugs dominate the landscape. These include three formulations of beta interferon (Biogen Idecs Avonex, Merck Seronos Rebif, and Bayer/Novartis Betaseron/Betaferon/Extavia) and one complex immuno-modulatory peptide (Tevas Copaxone). A fifth drug, Biogen Idec/Elans Tysabri, has gained substantial market share in refractory MS patients despite its association with PML, a testament to the unmet medical need in MS.
Multiple Sclerosis Category Market Share By $ Sales
2008
BAYER 18%
PARTICIPANTS
2013P
Other 13%
$8.8B
$15.2B
BIIB/ELN 34%
BIIB/ELN 30% BAYER 14%
Merck KGaA 22%
Merck KGaA 19%

TEVA/SNY 25%
TEVA/SNY 24%
747
Multiple Sclerosis
MAJOR TRENDS &

ISSUES
The worldwide MS market continues to grow at a significant pace, driven by aggressive U.S. price hikes, mid-single-digit patient growth, and newer options for refractory patients (Tysabri). We estimate that worldwide sales of Avonex, Betaseron/Betaferon, Copaxone, Rebif, and Tysabri will reach $10.0B in 2009 (+14% Y/Y). MS market growth in U.S. dollars fluctuates with currency, as roughly 50% of the worldwide market is ex-U.S. In 2009, Biogen Idec (Avonex/Tysabri) should continue to lead the multiple sclerosis category with a 35% dollar share. However, Teva/Sanofi-Aventis Copaxone (27%) and Merck Seronos Rebif (21%) remain close in second/third place. Many novel MS drugs have entered late-stage testing. These include Merck Serono/Tevas oral cladribine, Novartiss FTY720, Biogen Idecs BG-12, Tevas laquinimod, Genzymes CAMPATH, Genentech/Biogen Idecs ocrelizumab, and Eli Lily/BioMSs MBP8298. Any MS drug that is safe and effective and has a convenience or tolerability profile that is superior to the standard of care will be embraced by the MS community, which has grown weary of the injections and tolerability issues associated with the existing armamentarium. However, as with other auotimmune conditions, there is a fine line between a drug candidate with too much potency (leading to immunosuppression) and too little potency (leading to lack of efficacy), and in the wake of Tysabris association with PML, newer drugs will need to establish a long-term track record of safety before they are likely to challenge entrenched products.. Nonetheless, many physicians remain optimistic that superior therapies will be available in the coming years. Phase III data on oral cladrine has succeeded in a Phase III trial and could represent the first oral therapy for MS. In the U.S., we forecast modest patient growth and 3-7% annual price increases, driving average annual sales growth of approximately 11% during 2008-2013. During the past two years, price hikes were particularly rampant, with major brands experiencing increases in excess of 15% annually. Outside the U.S., we forecast approximately 10% average annual market growth derived mostly from patient growth. Amongst the currently marketed agents, the relative market shares of the beta interferons (Biogen Idecs Avonex, Merck Seronos Rebif, and Bayer/Novartiss Betaseron) are unlikely to change much, while Sanofi-Aventis/Tevas Copaxone (the only non-interferon) continues to perform well based upon its tolerability, alternative mechanism, and and more established efficacy profile. Tysabri has gained significant share in patients who have failed an interferon and Copaxone, but its continued association with PML is likely to restrict the drugs ability to move into earlier lines of therapy. We model oral cladribine and FTY720 reaching the market in 2010, with the initial use mostly in refractory patients. Teva/Sanofi-Aventiss Copaxone ($2.3B, +32% Y/Y in 2008) became the #1 MS drug in 2008. Sales are growing rapidly, driven by the drugs tolerability and status as the only non-interferon-based DMARD. Copaxone should continue to gain market share in the wake of data from REGARD and BEYOND, two studies that support efficacy on par with that of beta interferons. In July, Momenta filed an ANDA for Copaxone but legal, manufacturing and regulatory issues should protect Copaxone from generics for the next five years. Biogen Idecs Avonex ($2.2B, +18% Y/Y in 2008) is no longer the best-selling MS drug, but remains the top-selling interferon. Avonex (interferon beta-1a) has performed reasonably well in the face of competition from higher dose interferons. Steady international market share and aggressive U.S. pricing support solid sales growth. Biogen Idec is developing PEG-Avonex (Phase III study to start in 2009) in an effort to reduce the frequency of dosing.
748
Multiple Sclerosis
Within the beta interferon class, Merck Seronos Rebif (interferon beta-1a) has been the fastest-growing product on a unit basis. Sales in 2008 were $1.9B worldwide, with growth (+15% Y/Y) having been impacted by currency. Rebif has benefitted from the EVIDENCE trial which established superiority for high dose Rebif over Avonex through 12 months of therapy. Bayer (Berlex)/Novartiss AGs Betaseron (projected at $1.6B, +11% Y/Y in 2008) faces competition from Rebif, but a strong international sales base and higher U.S. pricing should support 5-10% sales growth. Novartis launched its own version of interferon beta-1b, called Extavia in 2009. We expect Extavia to have minimal impact on the overall sales of the interferon beta 1b franchsie. Biogen Idec/Elans Tysabri ($814M, +137% Y/Y in 2008), reintroduced in the U.S. in mid-2006, experienced a solid launch. However, the disclosure of five new cases of PML since mid 2008 has tempered sales growth. While we believe Tysabris benefits far outweigh its risks, the drugs market potential remains closely linked to its rate of association with PML. Merck-Serono/Tevas oral cladribine appears very efficacious based upon topline data from the Phase III CLARITY trial. Novartiss FTY720 has been shown to be more potent that Avonex, but questions about tolerability persist. Other compounds such as Biogen Idecs BG-12, Genzymes Campath, Tevas laquinimod, Eli Lilly/BioMSs MBP8298, and Genentech/Biogens anti-CD20 antibodies, have demonstrated encouraging efficacy. However, all new drugs will need to establish a favorable long-term safety profile before they are embraced broadly by the MS community. Acordas fampridine may be the first approved adjunctive therapy for treating symptoms of MS. Consultants estimate that 5-20% of MS patients could be suitable for treatment. We model U.S. sales of $250M in 2013. Our scatter plot shows that Biogen Idec, Teva, Merck-Serono, and Bayer should continue to dominate the MS market in 2013. This category is critical to the outlook for all four companies.
749
Multiple Sclerosis
Multiple Sclerosis
100% 90% BIIB/ELN 80% 70% 60% Merck KGaA 50% 40% 30% 20% BAYER 10% 0% -10% $0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0 $4.5 2013 Sales Contributed By Company To Category ($ In B) TEVA
750
Multiple Sclerosis
Multiple Sclerosis Is Incurable And Often Debilitating

DETAILED DISCUSSION
Multiple sclerosis (MS) is the most common cause of non-traumatic disability in young adults (median age of onset mid-20s). An estimated 400,000 to 500,000 U.S. patients and over 1MM patients worldwide are affected. A chronic autoimmune disease of the CNS, MS results from the degeneration of the myelin sheath that surrounds neuronal axons. This sheath provides a form of insulation necessary for efficient and rapid conduction of electrical impulses along the axons. When it is damaged, neuronal signaling is hindered and disturbances in motor and sensory function result. The disease tends to progress over time; patients typically have periods of good health (remissions) interspersed with periods of debilitating disease flare (exacerbations). Early symptoms include visual disturbances; paraesthesia (altered sensation in one or more extremities, the trunk, or side of the face); weakness or clumsiness, and difficulty walking. Later in the course of the disease, patients may lose control of their muscles (ataxia), become incontinent, suffer paralysis of their lower extremities (and thus be confined to a wheelchair), and experience mental dysfunction. MS is broadly characterized into the following four disease classifications. However, many patients have symptoms that span multiple forms, meaning the following designations are somewhat academic. Relapsing-remitting (RRMS): Recurring attacks, neurological dysfunction, periods of recovery, and stability between episodes. Roughly 80% of MS patients present with this form of disease. At any point in time, perhaps 50% of the overall MS population might have a relapsing-remitting form of MS. Secondary progressive (SPMS): Slow neurological deterioration, typically with acute relapses in a patient who previously had relapsing-remitting disease (more than 50% progress to this stage). A goal of therapy is to prevent or delay progression to secondary progressive disease. Primary progressive (PPMS): Gradual and nearly constant neurological degeneration from the onset of symptoms affecting approximately 10-15% of patients. Progressive relapsing (PRMS/BMS): Also referred to as benign MS, is a slow neurological deterioration from onset but with subsequent superimposed relapses. This is the least frequent type of MS disease progression, affecting less than 5% of patients.
Clinical Patterns Of MS
30 25
Disability
20 15 10 5 0
RRMS
SPMS
PPMS
BMS
11
13
15
17
19
21
23
25
27
Time
751
29
Multiple Sclerosis
Disease-Modifying Agents Have A 15-Year History

Since the approval in 1993 of Bayer/Novartiss Betaseron (interferon beta-1b), various formulations of beta interferon have dominated the disease-modifying drug (DMDs) landscape. Beta-interferons are said to have multiple mechanisms of activity in MS, although the primary mechanism of action is believed to be regulation of Tcell function and modulation of cytokine release (IL-2, gamma-interferon, and TNF). The most widely prescribed non-interferon DMD is Teva/Sanofi-Aventis's Copaxone (glatiramer acetate), an amino acid polymer, which was approved in the U.S. in 1996 and in the EU in 2001. The mechanism of action for Teva/SanofiAventis's Copaxone is believed to be somewhat similar to that of the betainterferons but remains unknown. Tysabri was reintroduced into the U.S. market and launched in Europe in mid-2006 as monotherapy for relapsing forms of multiple sclerosis. Although none of the MS drugs on the market cure the disease, they act to control relapses and may be effective in slowing the progression of some forms of the disease.
Approved Disease-Modifying MS Agents Approved
Drug Active agent Company Indication Approved for: Reduction in exacerbations Slowing of disability ROW approval US approval Administration Rebif -interferon (1a) Merck Serono Relapsing MS Avonex -interferon (1a) Biogen Idec Relapsing MS Betaseron -interferon (1b) Berlex Relapsing remitting MS Copaxone Glatiramer acetate Tysabri alpha-4 integrin
Teva/Aventis Biogen Idec/Elan Relapsing Relapsing MS remitting MS
1997 March 2002 22-44 mcg injected sub-q 3x week
1997 May 1996 30 mcg injected intramuscularly once per week
X 1993 July 1993 0.25mg injected subcutaneously every other day
X 1997-2001 Dec 1996 20 mg injected subcutaneously daily
2006 Nov 2004 3 mg/kg IV infusion once every 4 weeks
U.S. Growth Driven Underpenetrated
By
Price
Hikes;
EU
Market
Still
The worldwide MS market continues to grow at a significant pace, driven by mid single-digit patient growth, additional treatment options (Tysabri), and price increases (U.S in particular). Worldwide sales of disease modifying drugs including Avonex, Betaseron, Copaxone Rebif, and Tysabri were $8.8B in 2008 (+25%) and are projected to reach $14.6B in 2013. Overall, the worldwide market is expected to grow by approximately 11% annually in 2008-2013. Discussions with neurologists indicate that disease-modifying agents have significantly penetrated the U.S. market, with up to 80% of RRMS patients receiving disease-modifying drugs. Despite this relatively high market penetration, additional therapeutic options could increase drug utilization by bringing patients back onto therapy who had exhausted all previous options. Price hikes have been the most significant source of U.S. sales growth. Consultants are aware of the aggressive nature of price increases (between 19-24% for each of the top four MS drugs in 2008), and suggest that pricing trends have the feeling of collusion among drug companies. Nonetheless, physicians attitudes toward pricing have been relatively passive, as
752
Multiple Sclerosis
price hikes have not in any way impeded access to therapy. While consultants note that every area of medicine faces increased scrutiny over reimbursement (need for prior authorization, justification, etc), they are not aware of any factors that will dissuade aggressive price increases in the future. Hence, we believe that all major MS brands will continue to benefit from a relatively open pricing environment. In 2008, U.S. sales ($4.3B, +25% Y/Y) growth was driven mainly by Tysabri (94% Y/Y) and Copaxone (+26%).
Market for MS Therapies: U.S. Total Prescription Trends
Multiple Sclerosis U.S. Market (total prescriptions)

Avonex 45% 40% 35% Market share 30% 25% 20% 15% 10% 5% 0%
S04 N04 J05 M05 M05 J05 S05 N05 J06 M06 M06 J06 S06 N06 J07 M07 M07 J07 S07 N07 J08 M08 M08 J08 Month
Betaseron
Copaxone
Rebif
Source: IMS Monthly Prescriptions, Cowen and Company.
In contrast to the widespread use of disease-modifying agents in the U.S., checks suggest that there is still an opportunity in Europe for MS drugs to penetrate an increasing percentage of MS patients. Disease-modifying drug (DMD) penetration into the EU market is relatively modest with approximately 60% of RRMS patients on therapy. High DMD-using countries (over 50% usage) include Germany, Italy, and France, with the lowest DMD usage (less than 25%) in Finland, Norway, and the U.K. This disparity between the U.S. and EU is not unexpected considering their different reimbursement environments. While the lower usage in the EU represents a significant market opportunity, we also believe that price hikes are less common in these markets and, therefore, that growth should be around 10% annually. We estimate that the ex-U.S market will grow to $7.2B in 2013. Overall, market share trends in MS have been relatively stable. In the U.S. Copaxone continues to gain modest share at the expense of the beta interferon class as a whole. Amongst the beta interferons, Rebif has gained a bit of share at the expense of Avonex and Betaseron. Physician consultants believe that oral MS drugs such as oral cladribine, FTY 720 or BG-12 could transform the market, but the barrier to admittance is high and most consultants believe it still too early to quantify any specific threat.
753
Multiple Sclerosis
Market for MS Therapies: What Is The Unmet Need?
Source: Teva
Tevas Copaxone Now The #1 MS Drug Worldwide

Copaxone (glatiramer acetate) was launched in the U.S. in April 1997 and received approval in the United Kingdom in August 2001, followed by launches into EU member states. Copaxone is approved in over 40 countries. Until the advent of Tysabri, Copaxone was the only non-interferon-based, disease-modifying agent approved for the treatment of relapsing-remitting multiple sclerosis (RRMS). Teva co-promotes Copaxone with Sanofi-Aventis in Europe but has sole marketing responsibility in the U.S. In January 2009, Copaxone had 36.3% share of the U.S. MS market in terms of total prescriptions, making it the leading brand in the U.S. market. We estimate worldwide Copaxone sales of $2.7B (+19%) in 2009 and $3.6B in 2013. Benign Side-Effect Profile Has Been Copaxones Primary Advantage Copaxones key selling point is that it lacks the well-known flu-like side effects associated with beta-interferon while still providing solid efficacy. The precise mode of action of Copaxone remains unclear. The drug is a mixture of synthetic polypeptides varying in length and containing random sequences of the amino acids glutamine, alanine, lysine, and tyrosine. It is possible that these polypeptides resemble myelin basic protein, a component of the myelin that insulates nerve fibers. Copaxone may act as a myelin decoy, thus blocking the damaging T-cell response. Copaxone also appears to shift the T-cell response toward the Th2 branch, promoting the release of IL-5 and IL-13 in MS patients. Because this branch does not cause inflammation at the lesion sites, it may be the route for the therapeutic effects of Copaxone. Due to the differing mechanism of action, Copaxone does not cause the flu-like symptoms associated with the interferons; roughly 20% of interferon-treated patients discontinue treatment due to side effects. In addition, although Copaxone patients were shown to develop reactive antibodies in clinical trials, these antibodies were not neutralizing and therefore do not seem to have clinical implications. The antibody levels were transitory and disappeared in many patients. In contrast, all of the interferon-based products produce neutralizing antibodies, and there is evidence of loss of efficacy in some patients. Additionally, Avonex and Rebif carry warnings for depression and suicide, anaphylaxis, and hepatic injury; labeling for Copaxone does not include these warnings. Copaxone Has Benefited As The Non-Interferon Alternative Copaxone has also benefited from being the one established alternative to interferon therapy. Given the absence of any cross-reactive antibodies and
754
Multiple Sclerosis
Copaxones differing mechanism, patients who start on an interferon often switch to Copaxone upon disease breakthrough. While Biogen Idec had claimed that Tysabri was eating into Copaxones non-interferon niche (more patients switching to Tysabri were coming from Copaxone than any other therapy), Tysabris continued PML woes are likely to limit any competitive pressures. Physicians Increasingly Comfortable With Copaxones Efficacy Historically many MS experts had reservations about Copaxones efficacy. This reflected the relative lack of rigor associated with Copaxones registrational studies. However, in late 2007, trials conducted by Merck Serono (REGARD) and Bayer (BEYOND) aimed at establishing the superiority of interferons to Copaxone failed to achieve their goals. Physicians have interpreted these results as meaning that the efficacy of Copaxone is roughly on par with that of interferons, a major boost for the drugs image. Ironically, our consultant believes that competitors Merck Serono and Bayer have done a better job of establishing Copaxones efficacy than drug sponsors (Teva/Sanofi). Physicians expect REGARD and BEYOND will drive continued market share gains for Copaxone. Continued European Growth Expected For Copaxone Since its initial approval in the U.K. in 2001, Copaxone has obtained approval in 22 European Union countries. In 2004, Copaxone was launched as a pre-filled syringe in most of the European markets. To date, European growth has been strong. International (outside of North America) Copaxone sales reached $884M (+43%) in 2008 and should grow to $1.6B in 2013. Copaxone sales have been particularly strong in Germany, the largest MS market in Europe. Full Copaxone U.S. Rights Take-Back To Begin In April 2010 Teva began the reacquisition of the full U.S. Copaxone rights from Sanofi-Aventis in April 2008. However, it will continue to pay a 25% royalty (via its SG&A line) through April 2010. Following April 2010, Teva should enjoy the full benefit, which could eliminate the $300MM+ in royalty payments per year. We estimate Teva records Copaxone sales of $2,205MM (+29%) in 2009 rising to $2,390 (+8%) in 2010. Note, the 29% increase in total sales in 2009 accounts for a full year of the U.S. top-line recapture versus the partial year in 2008. Part of the opportunity of controlling the product was the ability to put the pricing decisions in the hands of Teva. Management has taken full advantage of this new arrangement. In January 2009, Teva implemented a 9.9% price increase, which follows the 9.9% price increase in August 2008. Teva typically takes two price increases per; therefore, we would assume another mid-year raise, which should further bolster our Copaxone sales estimate. Interestingly, Teva is also poised to recapture the International Copaxone sales beginning in February 2012. Momenta Has Made Generic Challenge To Copaxone; Mylan Signs Agreement With Natco In July 2008, Momenta disclosed that it had made a Paragraph IV filing against Copaxone. Teva sued Momenta in late August 2008, triggering the 30-month stay on generic approval. Momentas filing begins what we believe will be an extended regulatory and legal process, with the regulatory issues likely creating the highest burden for Momenta. In addition, in June 2008, Mylan entered into an agreement with Natco (a publicly traded Indian manufacturer) to distribute Natco's claimed generic Copaxone
755
Multiple Sclerosis
(glatiramer acetate). We remain skeptical about the nature of Natcos product. Natco is selling what it indicates to be generic Copaxone in India, but the regulatory hurdles there are exceedingly low. Also, Teva does not market Copaxone in that country, so it is unclear whether it is indeed the same version of Teva's glatiramer acetate. Additionally, Teva has already initiated litigation in India against Natco. The Mylan/Natco product has not been filed in the U.S., although Mylan has indicated that a filing should occur in the coming months. However, Multiple Barriers Are In Place That Should Protect Against Generics Despite the loss of Hatch-Waxman and Orphan Drug Exclusivity, and the recent news regarding the potential generic threat to Copaxone, we believe that there are four major barriers that will protect the Copaxone franchise. Each barrier is surmountable, but taken together they create a formidable defense and give us confidence that there will not be generics of Copaxone for at least the next few years. These obstacles are as follows: (1) There are four Copaxone formulation patents listed in the FDAs Orange Book, which a generic manufacturer would need to successfully litigate by either proving non-infringement or invalidity. If a patent is challenged, Teva holds the right to initiate patent infringement proceedings under HatchWaxman provisions, which triggers a 30-month stay of approval until the patents are successfully litigated. In August 2008, Teva sued Momenta, therefore triggering a 30-month stay until late February 2011. (2) Teva is the sole supplier of Copaxone raw material and therefore a generic challenger would need to source its own API. It is unclear how difficult a formulation challenge creating/accessing Copaxone raw material would be. (3) Our medicinal chemistry consultant reviewed Copaxones formulation using publicly available information. Copaxone is a mixture of synthetic polypeptides containing random sequences of the amino acids glutamine, alanine, lysine, and tyrosine. These sequences are of varying lengths. The amino acids appear in varying ratios and thus the molecular weight ranges between 4,700 and 11,000 daltons. Because Copaxone is not comprised of a single compound but rather a mixture of polypeptides, the formulation is complex. The composition of Copaxone may vary depending on how it is formulated: the four amino acids are combined in different ratios and polymerized (process of synthesizing long molecular chain materials), which yields polymers of differing sequence. Our consultant indicates that attempting to replicate a random formulation (due to the variability of the composition of the polymers) without knowing the original process would be challenging. Although our medicinal chemistry consultant believes that a generic formulation would be possible, it likely will be difficult to formulate and manufacture without wide variability. Because the amino acids are present in a random sequence, it is unclear if a challenger could duplicate the formulation, control for variability, and/or ensure that its therapeutic effect is equivalent to Copaxone without extensive clinical studies. Even if replicated, it may be difficult to analyze whether the new formulation works similarly to Copaxone given that the precise mode of action of Copaxone has never been fully characterized or confirmed. It is possible that the polypeptides resemble myelin basic protein and that Copaxone acts as a myelin decoy, theoretically blocking damaging T-cell responses. Although the formulation might contain the necessary components in the same
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Multiple Sclerosis
amounts, it may or may not be in the same sequence proportions and thus require clinical studies. (4) Because Copaxone was approved as an NDA (and not a BLA), there was always risk of an ANDA filing. Nonetheless, we think that given Copaxone's complex drug substance, it could be treated more like a biologic, and fall under the purview of the anticipated generic biologic legislation that is likely to pass in 2009. That legislation is expected to establish the rules of engagement for biosimilars (also complex substances) and we believe the new legislation could demand some form of clinical studies prior and prevent substitution. For the Copaxone generic challengers, this could cause an extended delay (potentially 5+ years), and mean that the resulting approved products would not be interchangeable. Progression Or Lack Thereof Of Generic Lovenox Filings Also Critical To Copaxone Generic Threat We believe that Momentas inability to garner FDA approval for generic Lovenox (ANDA filed August 2005) has highlighted the difficulties of attempting to move through an unproven pathway and the difficult policy decisions necessary for the approval of a complex generic. Recall, Momenta received a deficiency letter for its ANDA on Lovenox in November 2007. In May 2008, the FDA provided notification to Momenta indicating general concurrence with the company's plan to submit additional in vitro and animal data (but no new clinical data) in response to the FDA's November 2007 letter. Momenta characterized additional work requested as falling into three categories: (1) additional lot testing comparing M-Enoxaparin to the innovator product; (2) further information regarding the sensitivity of Momentas proposed assays; (3) additional orthogonal validation around Momentas analytical methods. The company submitted a complete response to the FDA in September 2008 and is hoping for FDA action in 2009. A few other comments concerning the Lovenox filings may also be helpful. In addition to Momenta, Amphastar and Teva filed their respective ANDAs in April 2003 and have yet to receive an approval. Additionally, the EMEA (European Medicines Agency) indicated in April 2008 that clinical trials would be required to prove clinical equivalence to Lovenox. The guidelines state that [s]ince a clear correlation between surrogate PD parameters (antifactor Xa or IIa) and clinical outcome has not been established, a similar biological medicinal product containing LMWH should show equivalent efficacy and safety to a reference product approved in the EU. This therapeutic equivalence should be demonstrated in at least one adequately powered, randomized, double-blind, parallel group clinical trial. In theory, this could be done either in the setting of prevention of venous or arterial thromboembolism, or in the setting of treatment of venous thromboembolism. However, the most sensitive model to detect potential differences in efficacy between the new LMWH and the reference product should be selected. We believe that the EMEA and the FDA will likely treat Copaxone along similar lines to Lovenox and therefore require clinical trials. Copaxone 40mg Results Suggest That Currently Marketed 20mg Dose Performs Exceeding Well In July 2008, Teva reported results from its FORTE study, which compares 40mg Copaxone formulation compared to the currently available 20mg, double the current dose. Data from a proof-of-concept study had suggested good efficacy for Copaxone. However, results of the Phase III study, did not meet the primary endpoint of annualized relapse rate. The strong performance of the Copaxone 20mg in both the BEYOND and REGARD studies which demonstrated that Copaxone 20mg was
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essentially equivalent to Rebif and Betaseron may have created a very high hurdle rate for the 40mg. In those studies, 20mg Copaxones resulting annual relapse rate was about 0.30-0.35. It appears that once again, the 20mg Copaxone performed exceedingly well, registering a 0.27 annual relapse rate in the FORTE. Given those results, showing significance with the 40mg was likely near impossible. There is one significant positive implication from this study: the 20mg Copaxone appears to be establishing itself as a potential best-in-class first-line treatment (recall, Tysabri registered about a 0.22 annual relapse in the AFFIRM study). These results will likely continue to allow Copaxone to gain share in an increasingly competitive MS treatment market.
Avonex Remains The Interferon Beta Of Choice

Until 2008 Biogen Idecs Avonex (interferon beta-1a) had been the most frequently prescribed treatment for multiple sclerosis. Worldwide, more than 120,000 patients are on therapy. Avonex was launched in the U.S. in 1996 for the treatment of relapsing forms of MS to slow the progression of disability and reduce relapses. It was the first treatment approved for MS patients who have had their first clinical MS attack and have a brain MRI scan that suggests MS (indefinite MS). However, safety and efficacy in patients with progressive multiple sclerosis have not been established. Avonex is marketed in approximately 90 countries. Although Avonex lost its #1 position in the market to Copaxone, it remains the most widely prescribed brand of interferon beta by a significant margin. Like other MS drugs, U.S. Avonex sales have been boosted by a series of price increases that have served to double Avonexs price over the past five years. The drugs annual cost is now $27.3K, making it the fourth most expensive agent in the U.S., behind Tysabri ($30.7K), high-dose Rebif ($28.5K), and Copaxone ($27.8K).
U.S. Avonex Price Hikes Date
May 2005 December 2005 June 2006 February 2007 August 2007 November 2007 June 2008 November 2008
Source: PriceRx
% Increase
5% 9% 9% 5% 6% 12% 9% 9%
In the U.S., Avonex has faced several promotional attacks from Merck Seronos Rebif. However, MS market trends have stabilized, and, if anything, Avonex may be losing less market share than expected. Avonexs ability to defend its turf despite head-tohead data indicating that Rebif might be more potent may relate to studies on neutralizing antibodies published in 2005. A series of trials indicated that neutralizing antibodies (nAbs) to interferon beta are associated with diminished drug efficacy, a phenomenon that physicians have now come to accept as true. Approximately 5% or fewer Avonex patients develop such nAbs versus 20-25% of Rebif patients. Outside the U.S., Avonex continues to prosper, driven by a consistent message of convenience, safety, and long-term efficacy. Ex-U.S. sales grew by 18% in 2008 to $927M.
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We think low single-digit market growth offset by modest share losses will lead to a relatively stable number of patients on Avonex in the U.S. High single-digit price increases are likely to be the one driver of U.S. sales growth, estimated at 7% annually during 2008-2013. Ex-U.S. we project Avonex will grow by 7% annually between 2008 and 2013 driven by market growth, stable share, and more modest price hikes. Biogen Hopes PEG-Avonex Might Extend The Franchise PEG-Avonex is a long-acting version of Avonex created and developed internally at Biogen Idec. Following the achievement of several technical and regulatory hurdles, this program has taken on greater importance. Data from a Phase Ib study that supports once every 2-4 week administration (vs. 1x/week for Avonex) will likely be presented at the American Academy of Neurology in April/May. Following recent FDA discussions, BIIB plans to initiate a Phase III trial in 2009 that will require just 12 months of dosing. An FDA filing could occur by late 2010 or early 2011. Should PEG-Avonex match Avonexs efficacy and safety profile using a more convenient dosing regimen, the product could enable Avonex to grab market share from competing beta interferon formulations and establish a higher barrier to entry against newer compounds.
Merck Seronos Rebif Never Took The U.S. By Storm

In March 2002, Rebif was approved in the U.S., thus overturning Avonexs orphan drug status because of Rebifs superior efficacy over Avonex based upon the 6month results of the EVIDENCE trial. The FDAs approval of Rebif provided an important endorsement of Rebifs clinical superiority claim and likely enhanced the argument that higher, more frequent doses of interferon-beta provide greater efficacy. Data from the PRISMS study and the 6-month results of EVIDENCE are included in the U.S. label. Overall, our consultants believe the EVIDENCE trial was well designed and results of the study suggest that Rebifs higher, more frequent dosing has greater efficacy, at least through the time period studied (12 months). Although Rebif made solid initial share gains in the U.S. market, the drug failed to achieve Seronos then claim of becoming the #1 MS therapy within three years of U.S. launch. According to IMS, Rebifs market share stood at roughly 19.9% as of January 2009 and the drug has gained little market share over the past few of years. U.S. comarketing partner Pfizer did not appear to have much of an impact on sales trends. In 2008, worldwide Rebif sales were $1.9B (+15%). We forecast worldwide 2009 Rebif sales of $2.1B (+10% Y/Y), growing to $2.8B in 2013. EVIDENCE Results Provided Rebif With Entry To The U.S. Market The EVIDENCE trial was a 48-week trial of 677 patients conducted in North America and Europe. Patients were randomized to high-dose Rebif (44 g 3x week, titrated up to week 4) or standard-dose Avonex (30 g IM 1x week). The study was blinded to neurologists and radiologists assessing the primary and secondary endpoints. Rebif was statistically significantly superior to Avonex for all primary and secondary endpoints studied. The primary endpoint was a comparison of the proportion of relapse-free patients after 24 weeks. Twenty-five percent of patients treated with Rebif experienced a relapse during six months, compared with 36.7% of Avonex patients, a relative difference of 32%. The main secondary endpoint was the combined unique lesion count (T1 and T2) as measured by monthly MRI scans. Avonex patients had 50% more new lesions than did Rebif patients (p<0.0001). Other
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measures favored Rebif, including average number of relapses, relative risk of experiencing a relapse, and steroid usage. However, Avonex did appear to be better tolerated in the study. Rebif was associated with more injection site inflammation (43/339 Rebif patients vs. 5/338 Avonex patients), injection site reactions (33 Rebif patients vs. 9 on Avonex), and elevated liver enzymes (14 Rebif patients vs. 7 on Avonex). Twelve-month results of the EVIDENCE trial continued to show an efficacy advantage for Rebif over Avonex. At the 48-week timepoint, 62% and 52% of Rebif and Avonex treated patients were exacerbation free, respectively (p=0.006).
Evidence Study Exacerbation Status To Week 48
to week 24 To week 48 from week 24 to 48
No of patients Exacerbation free 1 or more exacerbation Relative rate of at least 1 exacerbation

Source: Company data and FDA
Avonex Rebif 338 339 214 (63%) 254 (75% 124 (37%) 85 (25%) 0.68
Avonex 338 177 (52%) 209 161 (48%) 130 0.81
Rebif 339 (62%) (38%)
Avonex 214 177 (83%) 209 37 (17%) 45 1.02
Rebif 254 (82%) (18%)
For the subset of patients who were exacerbation free at 24 weeks, the proportion that remained so through 48 weeks was essentially the same in both treatment groups (82-83%). Thus, the treatment effect observed during the initial 24-week period of the study was maintained during the second six months. In addition, the distribution of exacerbation severities in the second six-month period was essentially the same across the two groups. Only a T2 MRI scan was conducted at the 48-week endpoint. To enhance the interpretation of the 48-week results, the 24-week T2 MRI data and the 48-week T2 MRI data were assessed for T2 active lesions using identical intervals for each. The results show that the Rebif group had a lower mean number of T2 active lesions than the Avonex group at both 24 and 48 weeks. Although EVIDENCE did not have the impact Serono had hoped for and U.S. sales growth has moderated, there is still a trend among U.S. physicians favoring highdose interferons (Rebif and Betaseron) over low-dose formulations (Avonex). Rebif has also benefited from steady U.S. price hikes (totaling 19% in 2008). Our U.S. Rebif sales estimates are $800MM (+14%) in 2009 and $1.2B in 2013.
Evidence Study MRI Results At 24 And 48 Weeks
Number of new active T2 lesions (compared with 24 weeks earlier) Study time Week 24 Parameter n mean Median n mean Median Avonex 312 1.7 1 303 1.2 0 Rebif 315 0.9 0 304 0.9 0 % of patients with active scan Avonex 312 51% 303 37% Rebif 315 31% 304 25%
Week 48
Source: Company data and FDA
Rebif Remains The Market Leader Outside The U.S. Rebif is available in 80 countries, including most of Europe. Rebif holds the leading share of the ex-U.S. market due to its early availability (approved in some territories in 1997), aggressive marketing of the EVIDENCE data, and a label for the treatment of patients with early SPMS based upon the companys SPECTRIMS trial. However, Copaxone is becoming an increasingly strong challenger to Rebifs dominance
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outside the U.S. and may soon overtake Rebif in ex-U.S. territories. Rebif recorded ROW sales of $1.0B (+12%) in 2008 REGARD Study Ends Up Aiding The Competition Merck Serono had hoped that its Rebif franchise would receive a boost from the REGARD (REbif vs. Glatiramer Acetate in Relapsing MS Disease) study comparing Rebif 44 mcg three times per week with Copaxone 20 mg daily. Instead, by showing relative equivalence for the two drugs, REGARD has gone a long way toward legitimizing Copaxones efficacy. Data reported at ECTRIMS in 2007 showed no significant difference (HR=0.943) in time to first relapse for patients treated with Rebif (n=386) versus Copaxone (n=378). Experts note that although REGARD was a large two-year study, is was likely underpowered due to a study population that included patients with less active disease. Only 258 of the 764 patients (relapse rate 0.3) experienced one or more relapses during the trial versus a predicted 460. Nonetheless, high awareness of REGARD and heavy marketing by Teva have legitimized Copaxones efficacy relative to high dose interferons.
Bayer/Novartiss Betaseron Hampered By Side-Effect Profile

Betaseron (Betaferon in Europe) is approved in the U.S. for treating relapsingremitting MS and early relapsing SPMS, and is also approved for treating secondary progressive MS in Europe. Betaseron's share declines have moderated as comparative trial results, including Rebif's EVIDENCE and Betaseron's INCOMIN trial, provide supporting evidence that higher more frequent doses of interferon-beta have better efficacy. The INCOMIN trial (INdependent COMparison of INterferon), a two-year prospective open-label trial, showed that the higher, more frequent dosing of Betaseron was superior to Avonex in reducing the frequency of relapses (51% vs. 36%) and in preventing additional MRI lesions (55% vs. 26%). Although Betaseron has benefited from a loyal following and from supporting evidence that higher, more frequent doses of interferon-beta may have better efficacy, the product likely will continue to be hampered by its side-effect profile (injection site necrosis/depression) and more limited marketing support. Worldwide sales were tracking at approximately $1.6B in 2008 (+11%), and we forecast WW sales of $1.7B (+7%) in 2009 and $2.1B in 2013. BEYOND Fails To Support Increased Efficacy For High-Dose Betaseron The BEYOND (Betaseron Efficacy Yielding Outcomes of a New Dose) compared the efficacy of Betaseron 500 mcg vs. both the standard 250mcg Betaseron dose and Copaxone 20mg. In 2007 Bayer announced that BEYOND did not demonstrate a statistically significant benefit for the 500 mcg Betaseron versus either the 250 mcg dose or Copaxone. All three arms produced similar data in terms of relapse risk, the studys primary endpoint. When compared to the relapse rate during the year prior to study enrollment, 500 mcg of Betaseron reduced the relapse rate by 79% versus 78% for 250mcg of Betaseron and 79% for Copaxone. Bayer noted that like the REGARD trial (see above), the relapse rate in BEYOND was much lower than previous trials. Based upon the results of BEYOND, Bayer no longer intends to file for approval of the 500mcg dose of Betseron.
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Benefit Of BENEFIT Was Limited The Betaseron in Newly Emerging MS for Initial Treatment (BENEFIT) study is a randomized, placebo-controlled, multicenter trial that compares 250 mcg Betaseron subcutaneously every other day with placebo in patients with a first clinically demyelinating event suggestive of MS. It is the largest study of its kind, with 468 patients, 292 randomized to receive Betaseron, and 176 randomized to receive placebo. The results, presented at ECTRIMS in 2005, showed that Betaseron reduced the risk of developing clinically definite MS (CDMS) by 50% when compared with placebo. The results also showed that Betaseron is well tolerated, with only 7% of patients discontinuing the drug compared with 5.7% of patients who received placebo. Any impact from BENEFIT on Betaserons growth prospects has been limited. This reflects the fact that Avonex had already demonstrated a benefit in such high-risk patients in the CHAMPS study and physicians views that all interferons are roughly equivalent in preventing clinically definite MS. Novartis Launching A Second Brand Of Interferon Beta 1b Partners Bayer (which gained commercial rights to interferon beta 1b via its acquisition of Schering AG) and Novartis (which acquired Chiron, the developer of interferon beta 1b) have agreed that Novartis can market formulation of the drug that is identical to Betaseron under the brand name Extavia. As part of the agreement, Bayer purchased the former Chiron manufacturing facility in California from Novartis and agreed to supply Novartis with the interferon beta-1b formulation in return for double digit royalties. The terms under which Novartis can market the brand (pricing, competitive positioning, distribution) are undisclosed. Novartis launched Extavia in Germany in Q1:09 and is scheduled to roll out the brand in additional territories, including the U.S., in 2009. Via Extavia, Novartis is hoping to establish a footprint with the MS community (physicians, payors, patients, and key channels) ahead of a possible 2010 launch for FTY720. Novartis has priced Extavia at near parity with Betaseron, and we do not expect the availability of a second brand to change the dynamics of the MS market or to alter interferon beta 1bs overall market share. We model Extavia sales of $120MM in 2009 and $195MM in 2013.
Tysabris Comeback Derailed By Additional PML Cases

In June 2006, Biogen Idec and Partner Elan received FDA authorization to re-launch Tysabri into the U.S. market as a monotherapy for the treatment of relapsing forms of multiple sclerosis. Tysabri is indicated for those who have had an inadequate response to or are unable to tolerate other MS therapies, including at least one interferon and Copaxone. In order to prescribe Tysabri, physicians must comply with the TOUCH risk management program. The EMEA also approved Tysabri in June 2006. As of February 2009, the drug was approved in over 40 countries and available in 26, including all major EU markets. Biogen Idec had estimated that 100,000 patients would be receiving Tysabri by the end of 2010, equating to sales of nearly $3B. However, management now concedes that estimate appears highly unlikely given the five new cases of PML disclosed since mid-2008. Although a minority of patients on Tysabri are expected to discontinue therapy, consultants report that in the future Tysabri use is being reserved for more severe patients who are truly refractory to or intolerant of other therapies. Following the disclosure of the PML in the commercial setting, the net new patient add rate has declined from approximately 400/week to 175/week. Even though MS is a chronic disease, relatively little safety data exists on Tysabri beyond 2-3 years. We expect another 12
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Multiple Sclerosis
months of commercial experience will be required before Tysabris safety profile comes into focus. As of December 2008, roughly 37.1K commercial patients were on Tysabri. We forecast that number will grow modestly to 53K by 2013, equating to a market opportunity for Tysabri of approximately $1.6B.
PML Cases On Tysabri In The Commercial Setting
Source: Biogen Idec
What A Long, Strange Trip Its Been In late 2004, Biogen Idec and partner Elan received the initial approval for Tysabri in the treatment of MS. Seemingly destined for blockbuster status, the drugs commercialization was halted less than three months into its launch following two cases of severe progressive multifocal leukoencephalopathy (PML) reported in clinical trial patients treated with Tysabri and Avonex combination therapy for 2+ years. An additional confirmed case was then reported in a Crohns patient receiving intermittent Tysabri monotherapy over 1.5 years. Biogen Idec and Elan completed a full review of Tysabris safety in MS, Crohns, and RA patients with no additional cases of PML in 3,000 patients who had received the drug through various clinical trials. Following a positive FDA panel recommendation in March 2006, Tysabri was re-launched in the U.S. in July 2006 under the TOUCH risk management program. However, in July 2008, PML reared its head once again. Although the re-emergence of PML was not shocking, it has proven disruptive to Tysabri's commercial prospects. Both MS patients were on Tysabri monotherapy (one was naive to all treatments). Hence it is now clear that Tysabri (as opposed to only the combination of Tysabri + Avonex) is linked to PML. Three further cases of PML have since been announced: one, reported in late October in a U.S. patient receiving Tysabri monotherapy for 14 months (this patient subsequently died) and two additional cases in Europe in patients receiving Tysabri monotherapy for 12 and 26 months. Nonetheless, the rate of PML remains well below the 1 in 1,000 figure that the FDA and our consultants have deemed acceptable (5 cases out of 10,700 patients who have received Tysabri for 18 months or longer). Biogen Idec is evaluating whether earlier diagnosis followed by plasma exchange might improve patient outcomes. However, the jury is still out on this. Tysabri profits are split 50-50 between Biogen and Elan. Elan books 100% of U.S. sales and pays Biogen a transfer price estimated at 50% of end-user sales, which are recorded by Biogen as Tysabri revenue. Biogen Idec records 100% of ex-U.S. sales and pays Elan 50% of pretax ex-U.S. profits.
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Tysabri Priced At A Modest Premium To Other MS Therapies Tysabri is administered by a one-hour intravenous infusion once every four weeks. In the U.S., the wholesale acquisition cost for Tysabri is $2,364 per vial or $30.7K per year, assuming 13 administrations per year. Tysabris introduction at a substantially higher price point than other MS therapies ignited a wave of price hikes. In the 2+ years since Tysabris reintroduction, other MS therapies have closed much of the pricing gap. However, 3% Tysabri price hikes in June and December 2008 suggest remaining pricing flexibility in the MS marketplace and Biogen Idecs continued willingness to use Tysabri as a price leader.
Comparison Of MS Drug Prices
Drug Avonex Rebif Betaseron Copaxone Tysabri Dosing 1x/week 3x/week 1x/2 days 1x/day 1x/4weeks Route i.m. s.c. s.c. s.c. i.v. Type Interferon-beta 1a Interferon-beta 1a Interferon-beta 1b glatiramer acetate alpha-4 integrin mAb WAC $2,102 for 30mcg vial $182 per syringe $2,055 for 15 syringes $2,279 for 30 syringes $2,364 per vial Annual Cost $27,318 $28,552 $25,072 $27,801 $30,732
Source: RedBook, Price RX, Elan, Biogen Idec, and product inserts
Tysabri Had Been Steadily Gaining U.S. Market Share MS specialists had expected uptake of Tysabri to be gradual as physicians needed to gain confidence in the drugs risk benefit profile. Biogen initially targeted 2,000 infusion centers and 2,500 MS physicians through its existing 200-person U.S. sales force. U.S. sales in 2006 were just $28MM. However, Tysabri steadily gained market share and posted highly respectable U.S. sales of $218MM in 2007 and $422M in 2008. The most recent update from partners Biogen Idec and Elan on Tysabri utilization comes from December 2008. At that time, approximately 37,600 patients were receiving Tysabri in the commercial and or clinical trial setting. This figure includes 10,200 and 16,900 U.S. and E.U. commercial patients, respectively, who had received at least one commercial infusion of Tysabri. According to Biogen Idec, over 3,400 U.S. physicians have prescribed Tysabri to at least one patient. Seventy percent of Tysabri patients were switched from other drugs while the remainder are returning quitters or nave patients. Assuming the treated U.S. multiple sclerosis population of approximately 240,000, Tysabri has penetrated 8% of the U.S. market. EU Appeared Even More Receptive To Tysabri In Europe, Tysabri received a positive CHMP opinion in late April 2006 for use as a single disease-modifying therapy either in patients with highly active relapsingremitting MS who have failed to respond to treatment with a beta-interferon, or in patients who have rapidly evolving severe relapsing-remitting MS. This was followed by EMEA approval in June 2006. Tysabri has been launched in all major European countries. As of December 2008, the drugs market share had topped 10% in Denmark, Greece, Iceland, Ireland, Sweden, and Switzerland. A number of factors appeared to facilitate greater uptake of Tysabri in Europe, including fewer risk management obligations and the long history and association between European MS leaders and Tysabri. Biogen noted that approximately 16,900 European patients were on Tysabri at the time of its last update (December 2008) and despite a
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protracted country-by-country launch, ex-U.S. sales have already caught up to U.S. sales. Longer-Term Rates Of PML Are Unknown PML is a rare disease that results from the reactivation of the JC virus and subsequent demyelination of neuronal tissue in the CNS. While it is estimated that up to 80% of the worlds population is infected with latent JC virus, the activation of the virus appears to be prompted by immunosuppression and reduction of viralspecific cytotoxic T lymphocytes (CTL). Hence the disease is most commonly observed in immunocompromised individuals such as late-stage AIDS or transplant patients. Experts view Tysabris mechanism of action (ability to reduce T-cell surveillance in the CNS) as consistent with a risk of JC virus reactivation. Unfortunately, methods for selecting a subset of patients who are more likely to succumb to PML or identifying the disease are relatively unproven. PML is acute and victims typically die within one to four months of detection. While the symptoms of MS and PML can overlap, checks with consultants suggest that PML lesions are not easily distinguishable from MS lesions. A diagnosis of PML requires: (1) signs and symptoms of neurological impairment, (2) MRI-based detection of white matter lesions in the CNS, and (3) JC virus detection from the CSF. Because JC virus assays are insensitive, there could be other partially confirmed PML cases associated with Tysabri. Biogen Idec has confirmed that several physicians have discontinued Tysabri therapy and initiated plasma-exchange in patients suspected of having PML, but without JC virus confirmation. Both patient and physician education of the risk for PML are required prior to dosing. In the U.S., Biogen and Elan have implemented the comprehensive TOUCH risk management program that will help ensure that: (1) patients and doctors are properly educated, (2) early detection of suspected PML is encouraged, and (3) data on the incidence and risk of PML are collected. There is no requirement for cerebrospinal fluid monitoring or MRIs during treatment unless PML is suspected. Consultants believe that another 12 months of commercial experience will be required before Tysabris true association with PML comes into focus. By that time, several thousand patients should have 3+ years of experience with the drug. However, given that most patients harbor JC virus in their kidneys and Tysabri is a chronically immunosuppressive drug, reported rates of PML could escalate at any time. Consultants believe it would take an incidence of at least 1/500 PML cases for the FDA to consider withdrawing Tysabri from the U.S. market. Tysabri Efficacy Data In MS Are Impressive Tysabri was approved based upon data from the AFFIRM (Tysabri monotherapy vs. placebo) and SENTINEL (Tysabri plus Avonex combination vs. Avonex) studies. In these studies Tysabri induced a dramatic reduction in relapse rate either vs. placebo (AFFIRM) or Avonex monotherapy (SENTINEL). In the AFFIRM monotherapy trial, patients experienced a 66% reduction in relapse rates after one year (p<0.001), with annualized relapse rates of 0.25 for Tysabri vs. 0.74 on placebo. At two years AFFIRM demonstrated a 42% reduction in the risk of disability progression for the Tysabri treatment arm vs. placebo. This figure eclipses the other reported risk reductions for Avonex (37% reduction) and Rebif (30% reduction). Betaseron and Copaxone have never shown an impact on progression. Tysabri also showed a 67% reduction in relapse rate versus placebo at two years, a result that is very consistent with the one-year data.
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In the SENTINEL study, patients on Tysabri + Avonex experienced a 54% reduction in relapse rates compared with patients treated with Avonex alone (0.36 vs. 0.78 annualized relapse rate, p<0.001). Two-year SENTINEL data indicated a 56% reduction in relapse rate and 24% reduction in disability for Avonex + Tysabri vs. Avonex monotherapy. However, given the heightened safety concern and warnings of Tysabri usage in combination with other immunosuppressive agents, we believe the SENTINEL results are largely academic. Consultants have also been very impressed with Tysabris efficacy in the real world setting. In their experience, very few patients experienced a relapse with radiographic progression while on Tysabri. Physicians reported that a substantial number of previously severe patients were stabilized on the drug. Perhaps the only negative thus far has been hypersensitivity/infusions reactions to Tysabri, which in roughly 5% of patients necessitates withdrawal from the drug.
The MS Pipeline Heats Up

Overall our consultants believe the unmet medical need in MS is high and express optimism for the emergence of new therapies. Consultants are particularly hopeful that an oral drug candidate capable of reducing relapse rate by at least 30-40% versus placebo might emerge in the next 3-5 years. They believe that such a drug would be well received by the MS community. However, the experience with Tysabri has jaded many. Consultants now view 2 years of safety data as the absolute minimum requirement for any MS drug, and many are interested in seeing 3-4 years of data on a therapy with the potential to cause immunosuppresion. In addition, consultants point to two clinical development concerns that bear monitoring for drugs in Phase III trials for RRMS, these include 1) greater difficulty in enrolling patients in placebo-controlled trials, especially given the number of ongoing competitive trials (Novartiss FTY 720, Biogens BG-12, TEVAs laquinimod, and GENZs Campath are recruiting) and 2) the fact that the earlier diagnosis of MS has created an environment where more mild patients are enrolling in studies. This has already had the effect of reducing the statistical power in studies like BEYOND and REGARD and may make it difficult for newer therapies to demonstrate a drug effect. Despite these concerns, oral cladribine has recently produced positive pivotal data and a head-to head trial between FTY720 and Avonex has shown the former is more potent.
Merck Seronos Cladribine May Be The First Oral Option For MS

Merck Seronos oral cladribine (formerly Mylinax) is a new formulation of the chemotherapeutic IV cladribine (approved for hairy cell leukemia). Oral cladribine was developed in concert with Ivax (now Teva), which will receive a 15% royalty on sales. Positive top-line data from the Phase III placebo-controlled CLARITY (CLAdRIbine Tablets Treating MS OrallY) were announced in January 2009 and full data are expected at the 2009 AAN meeting. The 1,326 patient CLARITY trial met its primary endpoint, a reduction in relapse rate versus placebo, of 58% in the low dose group and 55% in the high dose group, over two years. These data are impressive and place oral cladribines efficacy somewhere between the first-line ABCR therapies (30-40% reductions) and Tysabri (65% reductions). Merck Serono also disclosed that cladribine reduced MRI lesion activity and disability progression, but provided no details. Based upon these data, Merck Serono announced its intention to file for FDA and EMEA approval of cladribine in mid 2009. This is based on discussions from the
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2004-2005 timeframe that indicated data from a single pivotal trial on oral cladribine (CLARITY) along with supportive data from IV cladribine could support approval. If approved, oral cladribine would be the first oral MS drug. In September 2008, Merck Serono started the 200-patient Phase II ONWARD study to evaluate oral cladribine as an add-on to Rebif in patients who have active disease despite therapy with Rebif. In December 2008 the company began a 650-patient trial on oral clardibine in early MS. Cladribine Has A Long History In MS Johnson & Johnson, which has marketed injectable cladribine under the name of Leustatin since 1993, previously attempted to develop oral cladribine for MS. It licensed the MS rights to the purine nucleoside analog from Scripps but encountered problems when developing cladribine for MS. An advisory committee review of the drug for MS was scheduled in 1999 but was later cancelled, and JNJ eventually returned the rights to cladribine for MS to Scripps. The reason for FDA non-approval is unknown but may have related to a variety of patient types (RRMS, progressive MS) being enrolled in the trials. Ivax (since acquired by Teva) licensed the drug from Scripps and entered into a co-development agreement with Merck Serono. IV cladribine has shown a positive effect on prevention of brain lesions. A placebocontrolled study of 159 patients over 12 months (Neurology: March 2000) indicated the drug (at 0.7 mg/kg and 2.1 mg/kg) was safe, well tolerated and reduced the number, and volume, of lesions. However, there was no effect on EDSS. A 52-patient placebo-controlled study over 18 months demonstrated a similar reduction in lesions with MRI enhanced lesions completely suppressed by month six. A number of smaller studies support the hypothesis that oral dosing may prove effective in MS. A small two-year pilot study showed significant (five-fold) improvement in relapse rate (seven out of 10 patients), and significant improvement in EDSS scores, although these data should be viewed cautiously, given that the study was unblinded and conducted without a placebo control. Consultants Mostly Optimistic Regarding Oral Cladribines Profile Physicians had been somewhat unenthusiastic about cladribine, largely reflecting the drugs untargeted mechanism (cladribine is a broadly myelosuppressive chemotherapy drug) and lack of novelty. However the top-line data from CLARITY seems to have improved physician sentiment. The biggest question going forward is oral cladribines safety profile. The CLARITY study featured four cases of cancer (melanoma, cervical cancer, pancreatic cancer, and ovarian cancer) and one death possibly related to drug (TB) and full data from the trial along with the results from a 2 year extension will be needed before judging its profile. On the positive side, cladribine is viewed as easy to use, relatively well tolerated by patients, and strongly efficacious. On the negative side, the drug works by causing moderate (in approximately 50% of patients) to severe (approximately 10% of patients) lymphopenia, the longer-term consequences of which are unclear. Lymphopenia is typically prolonged (six to 12 months) and requires a fair bit of monitoring. Should the clinical sequelae associated with lymphopenia be manageable, oral cladribine could become a first-line drug with enormous clinical potential. However, only time will tell.
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Novartiss FTY720 Phase III Trials Under Way

Novartiss FTY720 (fingolimod; sphingosine-1-phosphate receptor modulator) is a once-daily oral immunosuppressant. Novartis licensed the compound from Mitsubishi Pharma. While Novartis has discontinued development of FTY720 in transplant rejection, it is continuing its efforts in MS. FTY720 is being studied in three Phase III studies in MS after demonstrating a 50% reduction in relapse rates versus placebo in 24-month Phase II trial. Two of FTY720s Phase III trials are twoyear double-blind RRMS studies comparing FTY720 at doses of 0.5mg and 1.25mg with placebo, one in the U.S. (FREEDOMS II) and the other ex-U.S. (FREEDOMS I). The FREEDOMS II trial has an additional prespecified 300 patient safety analysis, requested by the FDA, to monitor ophthalmic (macular edema was seen in transplant studies), pulmonary function and cardiovascular adverse events (bradycardia associated with hypertension changes). Novartis has stated that the change in heart rate is due to the reversible hypertension that is seen on initiation of therapy. The third study is a one-year active comparator trial, TRANSFORM, comparing the 0.5mg and 1.25mg doses of FTY 720 with Avonex. Top-line data from this study were reported in December 2008 and indicated that FTY720 was more active than Avonex. Consultants are mixed on FTY720. A minority view it as one of the more promising new drugs in development for relapsing remitting multiple sclerosis (RRMS) based upon patients strong desire for an active, targeted, oral agent. Others indicate waning enthusiasm due to safety concerns. We forecast FTY720 sales of $25MM in 2010 and $450M in 2013.
FTY720s Pivotal Program
FTY720 RRMS Pivotal Program Name Arms Duration Expected Completion Reported December '08 Q4:09; report 2010 2010; 300 subset Q4:09
TRANSFORMS Avonex vs. 0.5mg FTY720 vs 1.25mg FTY720 (1292 subjects 1 year FREEDOMS I Placebo vs. 0.5mg FTY720 vs 1.25mg FTY720 (1272 subjects) 2 years FREEDOMS II (US) Placebo vs. 0.5mg FTY720 vs 1.25mg FTY720 (1080 subjects ~300 patient safety subset) 2 years
Source: clinicaltrials.gov; Novartis
TRANSFORMS Trial Meets Primary Endpoint In December 2008, Novartis announced preliminary data from the Phase III TRANSFORMS, a worldwide double-blind study that enrolled 1,292 patients. The study had three arms: oral FTY720 0.5 mg and 1.25 mg once-daily, and Avonex onceweekly (given by intra-muscular injection). The study met its primary endpoint for both doses of FTY720, with an annualized one-year relapse rate of 0.16 and 0.20 for the 0.5mg and 1.25mg doses, respectively, a statistically significant reduction of 52% and 38% (p<0.001) for the 0.5 and 1.25mg doses versus the Avonex control arm (relapse rate of 0.33). While FTY720s efficacy appears impressive and TRANSFORMS established the viability of a lower dose of FTY720 (0.5mg), the side-effect profile of the drug continues to appear very concerning. There were two fatal infections (herpes encephalitis and varicella zoster) on the higher dose of FTY720. While the lower dose appeared to be associated with less infectious risk, opportunistic infections (varicella reactivation) were still observed in this relatively short term study. Almost as concerning, 7 patients (approximately 1%) in the FTY720 arm developed skin cancer (4 Basal cell carcinoma, 3 melanoma). Cases of skin cancer were split roughly evenly between the two arms. Lastly, FTY720-treated patients experienced
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transient reductions in heart rate, increases in blood pressure (1-3 mmHg), elevations in liver enzymes, and increased rates of macular edema. TRANSFORMS is a one-year study, and the FDA will require 2-year data from the ongoing FREEDOMS trial, including demonstration of an impact on disability, for approval. We doubt safety data on low dose FTY720 will improve with longer duration of therapy.
TRANSFORMS Study: Key Safety Findings FTY720 0.5mg N=429 n (%) 369 (86.0) 99 (23.1) 88 (20.5) 44 (10.3) 15 (3.5) 18 (4.2) 14 (3.3) FTY720 1.25mg N=420 n (%) 380 (90.5) 96 (22.9) 93 (22.1) 59 (14.0) 15 (3.6) 15 (3.6) 14 (3.3) Avonex N=431 n (%) 395 (91.6) 88 (20.4) 88 (20.4) 45 (10.4) 159 (36.9) 77 (17.9) 44 (10.2)
Any Adverse Event Headache Nasopharyngitis Fatigue Influenza-like illness Pyrexia Myalgia Transient increase in HR Increase in blood pressure at 12 months Raised ALT changes, % Macular edema, n (%) Skin cancers, n Serious infections (death), n
Yes Yes (average of 1-3mmg) 7-8% 8 (0.94) 7 0 2
2% 1 (0.2) 1 0
ITT Population (4 basal cell carcinomas, 3 melanomas evenlly distributed across the two arms Source: Novartis
Physicians/Patients Willing To Accept Some Risk For Oral Dosing Our MS experts are concerned about the overall rate and scope of side effects seen at one year. However, they believe that as long as the drugs safety profile doesnt worsen with time, FTY720 could still be approved. Should FTY720 make it to market, candidate patients likely will require screening including for previous infections, and intensive multi-disciplinary monitoring including liver function tests and dermatology visits whilst on therapy. Our consultants believe that there is a significant demand for oral therapy. Many patients continue to fear and dislike the inconvenience of current i.m. or i.v. therapies. Our physician consultants indicate that many patients likely would demand FTY720 even potentially as front-line therapy because of the convenience. If ultimately approved our consultants believe that FTY720's label and reimbursement status will determine when and where it is used. A favorable risk-benefit could see FTY720 move to first line therapy but our MS experts believe that it is more likely to be used in the third line or as a switch therapy, competing with Tysabri. Rapid adoption in either setting is unlikely. The physicians also believe that combination therapy, possibly in the first line, could be compelling but without data this is an unlikely scenario. The physicians believe FTY720 could be priced at $30K/year, similar to current therapies. Rest Of FTY 720 Phase III Program On Track For 2009 NDA? The EU FREEDOMS I has completed enrollment, but the 1,200-patient FREEDOMS II U.S. study is still enrolling. However the 300 patients requested by the FDA to satisfy safety requirements have been enrolled. Data from FREEDOMS I (ex-U.S.) are
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expected in 2009. While FREEDOMS II will not be complete in time to meet Novartiss goal of a late 2009 NDA submission, Novartis believes that FREEDOMS I and TRANSFORM plus safety results from FREEDOMS II will support approval. U.S. physician consultants are less convinced about this regulatory strategy. Phase II Data Also Showed Good, Durable Efficacy Novartiss Phase II study evaluated the effect of 1.25mg and 5.0mg of FTY720 on disease activity as measured by MRI and clinical relapses as well as its tolerability and safety. All patients that continued past the 12-month phase were treated with the 1.25mg dose. The data show that up to 73% of patients taking once-daily oral FTY720 remained free of relapses over three years. One-year data from the Phase II trial were published in September 2006 in the New England Journal of Medicine. In the initial six-month, placebo-controlled part of the study, 281 patients were randomized in equal numbers to receive placebo or oncedaily 1.25mg or 5.0mg FTY720 through oral administration. After six months, patients in the placebo group were re-randomized to receive either FTY720 1.25 mg or 5 mg blinded for an additional six months, while patients already on FTY720 continued their originally assigned treatment. Therefore, at the 12-month analysis there were four arms to the study: patients were on either FTY720 1.25mg (for 12 months), FTY720 2.5mg (for 12 months), placebo (six months)/1.25mg FTY720 (six months) or placebo (six months)/2.5mg FTY720 (six months). In the initial six-month phase, relapses were reduced by 55% in the FTY720 1.25mg group (p=0.009) and 53% in the FTY720 5mg group (p=0.014) compared to placebo. In 12 months, these patients maintained their relapse rates. In patients who switched from placebo to either the 1.25 mg or 5 mg dosing of FTY720 after six months, the annualized relapse rate was reduced by at least 70% during the second six-month study phase compared to the first six months on placebo. In addition, time to first confirmed relapse, 86% of patients in both FTY720 treatment groups remained relapse-free over six months compared to 70% of patients on placebo (p=0.007 in FTY720 1.25 mg, p=0.008 in FTY720 5 mg). This trend appeared to be maintained in the extension phase. FTY-720 also had a favorable impact on Gd+ lesions. A 36-month extension of FTY-720s Phase II trial was presented at AAN 2008. FTY720 demonstrated robust efficacy with 73% and 68% of patients remaining disease free on 5mg and 1.25mg, respectively.
Promising Phase II Data Support Pivitol Trials On BG-12

Biogen Idec is developing BG-12 (panaclar) in Phase III trials for RRMS. The company originally in-licensed the drug from privately held Fumapharm AG in 2003, but in May 2006 Biogen Idec obtained full ownership of BG-12 when it acquired Fumapharm AG for roughly $250MM in cash. Biogen Idec is optimistic that BG-12 will have interferon-like activity in MS with the convenience of oral dosing. BG-12 is dosed orally three times daily. BG-12 completed a 257-patient multicenter, double-blind, placebo-controlled European Phase II dose-ranging trial for the treatment of multiple sclerosis. Patients were randomized to receive 120 mg, 360 mg, or 720 mg BG-12 daily for six months or placebo. Top-line results showed that BG-12 achieved the primary endpoint (MRIassessed brain lesion activity at six months versus placebo) with statistical
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significance. Full results were presented at the European Neurological Society in May 2006, and showed that BG-12 produced a 69% reduction in the mean number of lesions in the highest dose cohort (720 mg), as measured from weeks 12 to 24. The 720 mg cohort also experienced a 48% reduction in newly enlarging T2 hyperintense lesions, and was associated with a trend toward reduction in relapse rate (32% reduction versus placebo). While liver enzyme elevations were observed in 2-8% of patients compared to 5% of the placebo group, the company indicates that it has not determined if these effects are dose related or of any consequence, and noted that they improved upon discontinuation of the drug. There have also been preclinical reports of renal cell cancer associated with BG-12 in chronic toxicity models. No opportunistic infections occurred in patients on BG-12. While consultants view BG-12s activity in Phase II studies as promising, they note the drug could suffer from tolerability issues such as nausea, diarrhea, and flushing, especially upon the initiation of dosing. As a result, consultants indicate some difficultly in keeping patients on study. They also believe it will be hard for patients to remember to take the middle dose of BG-12 (dosed 3x/daily). Consultants are less concerned by safety issues such as the potential for BG-12 to be associated with an increase in liver enzymes. Phase III Trials Nearly Fully Enrolled Phase III trials on BG-12 in MS began in January 2007. The two-year, placebo controlled dose comparison DEFINE (determination of the efficacy and safety of oral fumarate in relapsing-remitting MS) and CONFIRM (comparator and an oral fumarate in relapsing-remitting MS) studies will each include approximately 1,000 patients from international sites. DEFINE randomizes patients 1:1:1 to 240mg BG-12 TID, 240mg BG-12 BID, or placebo. CONFIRM is a 4-arm study employing the same three arm plus a Copaxone comparator. Endpoints for both studies are relapse rate, disability progression, and various MRI measures. We believe the DEFINE trial completed enrollment in December 2008. Enrollment in CONFRIM is expected to conclude in H1:09.
DEFINE Phase III Trial Design
Source: Biogen Idec
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CONFIRM Phase III Trial Design
Source: Biogen Idec
Rituxan Highly Promising In RRMS

Consultants view anti-CD20 antibodies, including second-generation candidate ocrelizumab, as amongst the most promising drugs in development for MS. Biogen Idec and Genentech published 48-week data on first-generation antibody Rituxan in the New England Journal of Medicine. This Phase II double-blind study randomized 104 patients to receive either a single treatment course of Rituxan (two infusions separated by two weeks) or placebo. The trial met its primary endpoint, with Rituxan producing a statistically significant decrease in total number of gadoliniumenhancing lesions (as measured by MRI) at all time points (weeks 12, 16, 20, and 24) versus placebo (p<0.0001). At 24 weeks, the Rituxan arm demonstrated an impressive 91% decrease in gadolinium lesions and a 58% relative reduction in relapse rate (p=0.02). These benefits were generally sustained through 48 weeks despite no additional treatment with Rituxan. Based upon the data from this trial, Rituxans efficacy appears to be on par with the most potent of MS therapies, including Tysabri. Adverse event profile was similar between the two groups, except for a higher rate of first infusion-associated AEs in Rituxan-treated patients (78% vs. 40%), with most infusion events mild to moderate in severity. Although Rituxans Phase II RRMS trial was of modest size (n=104), consultants view the efficacy data as compelling. In addition, they are impressed by the growing scientific rationale in support of the efficacy of B-cell depletion as a therapy for MS. Rituxans safety profile in chronic autoimmune disorders is supported by growing long-term experience in rheumatoid arthritis. Despite much physician enthusiasm, timelines for Rituxan development in RRMS are likely to be protracted. Partners Biogen Idec and Genentech have had a disagreement over decision making rights on the program that has led to delays. Development of Rituxan has been terminated, and Phase II trial on ocrelizumab (a humanized antiCD20 antibody) are now being conducted. A 96-week, 200-patient study (two different doses of ocrelizumab vs. placebo) will complete enrollment in H1:09. Hence Phase III trials are unlikely to begin before 2011, and a commercial launch is
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at least 5 years away. Next-generation anti-CD20 antibodies carry better financial terms to Genentech. PPMS Too High A Hurdle For Rituxan In April 2008, Biogen Idec and Genentech announced that their Phase II/III trial of Rituxan in primary progressive multiple sclerosis (PPMS) missed its primary endpoint. The U.S. and Canadian OLYMPUS trial randomized 439 patients 2:1 to receive either four doses of Rituxan or placebo six months apart, with a primary endpoint of time to confirmed disease progression during the 96-week treatment period. Physicians generally held low expectations for this study, and noted that PPMS represents a particularly high hurdle, owing to the unchanging nature of these patients. Rituxans failure in the PPMS trial has not diminished physicians optimism for anti-CD20 therapy in RRMS.
Tevas Laquinimod Phase III Under Way

Laquinimod is a once-daily, orally administered immunomodulatory compound that is being developed for RRMS. Teva acquired global (excluding Baltic/Nordic states) rights to laquinimod from Active Biotech in mid-2004. In February 2009, Teva announced that laquinimod had received fast-track status from the FDA and could enter the market as early as late 2011. So far, only Phase II data are available for laquinimod and suggest modest efficacy for the drug. One potential concern with laquinimod is that a number of patients in the proof-of-concept trial experienced elevation of liver enzymes. Teva noted that this elevation was transient. Teva believes that while laquinimod is appropriate for monotherapy, it could also be combined with other therapies. Teva completed enrollment for the first of its two Phase III clinical trials for laquinimod (ALLEGRO) in November 2008 and is currently enrolling RRMS patients globally for the second Phase III study (BRAVO). Allegro (assessment of oral laquinimod in preventing progression of MS), is a 24- to 30-month study designed to evaluate the efficacy, safety and tolerability of laquinimod versus placebo. Bravo (benefit-risk assessment of Avonex and laquinimod) is designed to compare laquinimod with placebo and to provide data for laquinimod versus Avonex. The enrollment goal is approximately 1,200 patients. In prior studies, laquinimod had shown only marginal efficacy with 0.1mg and 0.3mg doses. Additionally, there is the potential for liver enzyme elevation, which should be closely watched in the Phase III trials. In September 2006, Teva presented results from a proof-of-concept study. Teva increased the doses in the study to 0.3mg and 0.6 mg. The study enrolled 306 patients into three arms (placebo, 0.3mg/day and 0.6mg/day) for a period of 36 weeks, with an additional 36-week double-blind extension phase. Results from this study were published in June 2008 in The Lancet and reported that an oral 0.6 mg dose of laquinimod, administered daily, significantly reduced MRI disease activity by a median of 60% (51% mean reduction) versus placebo in RRMS patients. In addition, while the study was not powered to see effects on relapses, it showed a trend in the reduction of relapses. There were some transient and dose-dependent increases in liver enzymes reported.
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Laquinimod Proof-Of-Concept Study: Relapse Reduction Data
Source: Teva R&D Presentation Slides, September 2006
Sanofis Teriflunomide Also Slow To Enroll In Phase III

Teriflunomide (formerly HMR1726), an immunomodulator, is a compound similar to Sanofis leflunomide (Arava a DMARD indicated for rheumatoid arthritis). A 180patient nine-month Phase II Canadian trial showed a significant reduction in MRI lesions (the trials primary endpoint), with a trend (although this wasnt significant) toward a reduced disability/number of relapses. The trial reported a number of common side effects, including headache, nasopharyngitis and upper respiratory tract infection. In patients using its sister compound, Arava, there are relatively high levels of GI side-effects (not uncommon for DMARDS), with trials reporting diarrhea (17-27% of patients), dyspepsia (5-10% of patients) and nausea (9-13%). There is also a high reported incidence of respiratory infection (15-21%). An 1,070-patient Phase III teriflunomide trial was initiated in September 2004 and completed recruitment in H2:08. The studys primary endpoint is EDSS score with a secondary endpoint of MRI analysis. Results may be available by late 2010. Sanofi initiated a second Phase III trial in patients with early MS in February 2008.
Campaths Potential In Multiple Sclerosis Dependent Upon Managing Toxicity

In September 2005, Genzyme reported mixed results from a one-year interim analysis of Campaths Phase II trial in multiple sclerosis. The trial randomized 334 patients with active relapsing-remitting multiple sclerosis to one of two doses of Campath (dosed once per year) or Merck Seronos Rebif (dosed three times per week). The two primary endpoints were the rate of relapse of MS symptoms, and the time to progression of clinically significant disability as measured by EDSS. Treatment with Campath resulted in a 75% reduction in the risk of relapse after one year compared to patients treated with Rebif. This result was statistically significant, with p<0.00267. In September 2006, Genzyme released similar results from a two-year interim analysis. At two years, patients treated with Campath had at least a 75% reduction in the risk of relapse after two years compared to patients on Rebif (p=0.00328). In a second co-primary endpoint, patients on Campath experienced at least a 65% reduction in the risk for progression of clinically significant disability vs. patients on Rebif (p=0.01194).
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These are impressive efficacy numbers, and hence Campath appears to be a potent agent for MS. To put these results in perspective, one-year data from Tysabri's SENTINEL trial showed that patients on Tysabri + Avonex experienced a 54% reduction in relapse rates compared to patients treated with Avonex alone. Three year Phase II data will be presented at ECTRIMS in October. However, the issue for Campath has been side effects, and in fact a clinical hold was placed on its development in MS in September 2005 after three patients on Campath developed ITP (immune thrombocytopenic purpura, low platelet counts) and one patient died. As reported by the two-year data, a total of six patients in the trial have been diagnosed with ITP, suggesting a cumulative risk of ITP of about 3%. No new ITP cases have been reported since September 2006, and the clinical hold was lifted in May of 2007. Physician consultants think that Campath is quite effective, but that its safety issues are significant, and that it must demonstrate a clean safety profile in order to be competitive. Although the physicians acknowledge that in most cases ITP is reversible, they noted that ITP is nonetheless very inconvenient for the patient and quite disabling. In order for Campath to be competitive, the physicians think that its Phase III trials must show a low level of this side effect. Just as important, our consultants think that the Phase IIIs must demonstrate that Genzymes risk reduction strategy, and in particular its monthly blood tests, are able to catch all cases of ITP before they become too serious. Our consultants suggest that if there is a single ITP-related death in Campaths Phase III trials it would be at best a niche therapy in multiple sclerosis. Based on our consultants comments, we do not have estimates for Campath in MS in our model. In late 2007, Genzyme initiated two 24-month Phase III trials in MS. One trial will enroll one in treatment naive patients and the other treatment experienced patients. Both studies include an active comparator (Rebif). The trials will have co-primary endpoints of relapse rate and time to sustained accumulation of disability (SAD) at 24 months. Enrollment in both of these trials is expected to complete by the end of 2008 with data expected by late 2010.
Daclizumab Meets With Success In Phase II

Biogen Idec and PDL Biopharma are developing daclizumab, a humanized anti-IL2 receptor antibody for relapsing remitting MS. Data from the Phase II CHOICE study presented at the ECTRIMS Meeting in October 2007 indicated daclizumab was more efficacious than placebo when added onto interferon beta. CHOICE randomized 230 patients to receive subcutaneous daclizumab 2 mg/kg every two weeks, daclizumab 1 mg/kg every four weeks, or placebo for 24 weeks in combination with beta interferon. Patients in the 2 mg/kg group experienced 72% fewer new or enlarged Gd enhancing lesions versus placebo (p=0.004) while patients in the 1 mg/kg group experienced a 25% fewer lesions versus placebo (p-value not statistically significant). Relapse rates (a secondary endpoint) showed a non-statistically significant trends (roughly 35% reduction) favoring daclizumab over placebo. There were more serious infections (4.6% vs. 1.3%) on daclizumab versus placebo. Biogen Idec advanced daclizumab into the randomized controlled SELECT trial in 2008. SELECT is a monotherapy trial designed to enroll 297 patients randomized to receive 300mg daclizumab every four weeks, 150mg daclizumab every four weeks, or placebo every four weeks. The 24-week primary endpoint is MRI score with follow-ups through 48 and 72 weeks.
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MBP8298 One Of The Few Drugs In Development For SPMS

Eli Lilly/BioMSs MBP8298 is an intravenous synthetic peptide compound that consists of 17 amino acids linked in a sequence identical to that of a portion of human myelin basic protein (MBP). The sequence of MBP8298 is associated with the autoimmune process in MS patients with certain immune response genes (HLA types DR2 and/or DR4). MS patients having these genes represent 65 to 75 percent of all MS patients. Subset data from twenty patients in a Phase II trial showed MBP8298 delayed median time to disease progression (versus placebo) in secondary progressive MS patients with HLA types DR2 and/or DR4. However, the overall patient population failed to benefit from MBP8298, and efficacy in this HLA subset did not correlate with biomarkers of reduced inflammation (lower anti-MBP antibodies, lower T cell activation). Furthermore MBP8298 failed to reduce relapse rate (primary endpoint) in a Phase II trial in RRMS patients with DR2/DR4 haplotypes. Consultants believe that immunomodulatory approaches should work best in early stage MS and are highly skeptical of MPB8298s prospects. Nonetheless, BioMS is continuing to develop MBP8298 in two pivotal Phase III clinical trials in secondary progressive MS. MAESTRO-01 is a 611-patient pivotal Phase II/III trial for SPMS being conducted in Canada and Europe. It successfully passed an interim efficacy and safety analysis on the first 200-enrolled patients in August 2008. MAESTRO-03 is a pivotal Phase III trial in SPMS patients in the United States. Partner Eli Lilly can opt into funding development of MPB8298 following data from MAESTRO-01 expected in H2:09.
Fampridine Is A Promising Adjunct Therapy; Phase III Successful

Acordas lead program is Fampridine-SR. Fampridine-SR is an extended-release form of 4-aminopyridine, an orally-bioavailable small molecule that blocks axonal potassium channels. Fampridine-SR has successfully completed two SPA-supported Phase III trials in MS patients, including those with including primary-progressive, secondary-progressive, relapsing-remitting, and progressive-relapsing disease. The first study yielded results in 2006. Data were strong as Fampridine-SR met all three predefined efficacy hurdles. Compared to placebo, a greater proportion of subjects taking Fampridine-SR had a consistent improvement in walking speed and were classified as responders, the study's primary outcome (34.8% vs. 8.3%, p<0.001). This effect was maintained throughout the 14-week treatment period and there was a statistically significant improvement in the 12-Item MS Walking Scale for walking responders vs. non-responders (p<0.001). In June 2008, Acorda announced positive Phase III data from a confirmatory Phase III, with Fampridine demonstrating a consistent increase in walking speed across all types of MS. The trial's primary endpoint was hit convincingly, with 42.9% of Fampridine patients responding to therapy vs 9.3% of placebo, p<0.001. The average increase in walking speed over the eight weeks of treatment compared to baseline was 24.7% for the Fampridine responders compared to 7.7% for the placebo group. Fampridine appears safe and well tolerated. Adverse events have been generally mild to moderate and consistent with CNS stimulation (insomnia, headache, dizziness, nausea). Whereas investors had been concerned that Fampridine would result in a high rate of seizures, those fears have been unfounded. Moreover, thorough QTc cardiac evaluation study uncovered no issues. We expect Acorda to submit an FDA filing in Q1:09, supporting approval and launch in late 2009. Acorda
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owns worldwide rights to Fampridine and may seek to partner the drug outside the U.S. Consultants estimate that 50-60% of multiple sclerosis patients have problems with ambulation. They expect to try Fampridine in 50-75% of those patients with walking disability who are not already in a wheelchair, and they expect the responders to stay on long term therapy. They note that the definition of a responder in clinical practice is likely to be much looser than it was in the clinical trials, and will probably be as broad as anyone who feels better. Although there was only a 43% response rate in the MS-F204 trial, they suggested that perhaps half (50%) of patients who try Fampridine could stay on it for the long haul. There are 400450K people with multiple sclerosis in the United States, of whom 5075% have some degree of walking disability. If one assumes that 40% of patients in each group with walking problems will respond to Fampridine (consistent with the results from Fampridines Phase II trial), then about 100K patients, or about 20-25% of all MS patients, would be candidates for long-term Fampridine use. Assuming an average price per patient of $5,000/yr (Acorda has indicated it is likely to price Fampridine somewhere between $5K and $10K per patient per year), this would suggest that Fampridine could have $500MM peak potential in the United States multiple sclerosis market. We project Fampridine-SR will penetrate 16% of all MS patients by 2013 generating $250MM in U.S. sales.
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U.S. Multiple Sclerosis Market Model ($MM)

2008 U.S. Population (MM) Incidence (Per Thousand) U.S. MS Sufferers (000) Breakdown: Relapsing/Remitting (RRMS) Secondary Progressive (SPMS) Primary Progressive (PPMS) Benign Penetration of RRMS/SPMS Patients Treated (000) Total Rx's (MM) Rx Growth Rate Avonex Patient Share (BIIB) Patients Treated (000) Price Per Patient/Per Month Sales ($MM) Copaxone Patient Share (TEVA) Patients Treated (000) Price Per Patient/Per Month Sales ($MM) Betaseron/Extavia Patient Share (Bayer/Novartis) Patients Treated (000) Price Per Patient/Per Month Sales ($MM) Rebif Patient Share (Merck Serono) Patients Treated (000) Price Per Patient/Per Month Sales ($MM) Tysabri Patient Share (BIIB/ELN) Patients Treated (000) Price Per Patient/Per Month Sales ($MM) Oral Caldribine (Merck Serono) Patients Treated (000) Price Per Patient/Per Month Sales ($MM) FTY720 (Novartis) Patients Treated (000) Price Per Patient/Per Month Sales ($MM) Total Market Sales (MM) % Growth 302.0 1.5 453.0 2009E 303.5 1.5 455.3 2010E 305.0 1.5 457.5 2011E 306.6 1.5 459.8 2012E 308.1 1.5 462.1 2013E 309.6 1.5 464.4 CAGR Comments +0.5% - Moderate growth driven by earlier diagnosis/treatment - Estimated U.S. prevalence is 100-200 per 100,000 +0.5% - Women more affected than men; typically between 20-40 yrs.
203.8 181.2 45.3 22.6 50% 191 1.3 14% 31% 58.5 $1,948 $1,276 34% 65.6 $1,750 $1,378 13% 24.6 $2,015 $570 15% 28.5 $2,050 $702 7% 14.2 $2,477 $422 0% 0.0 $2,500 $0 0% 0.0 $2,500 $0 $4,348 +25%
204.9 182.1 45.5 22.8 53% 205 1.4 9% 28% 57.0 $2,240 $1,430 35% 71.2 $1,873 $1,600 12% 25.4 $2,136 $625 15% 30.4 $2,194 $800 10% 20.5 $2,599 $641 0% 0.0 $2,500 $0 0% 0.0 $2,500 $0 $5,096 +17%
205.9 183.0 45.8 22.9 54% 209 1.4 2% 27% 56.1 $2,419 $1,520 34% 70.7 $2,004 $1,700 12% 25.9 $2,264 $675 15% 31.1 $2,347 $875 11% 23.2 $2,677 $746 1% 1.7 $2,500 $50 0% 0.8 $2,500 $25 $5,591 +10%
206.9 183.9 46.0 23.0 56% 218 1.4 1% 26% 55.7 $2,588 $1,615 32% 70.4 $2,144 $1,810 12% 25.7 $2,400 $710 15% 32.4 $2,511 $975 11% 24.1 $2,758 $796 3% 6.5 $2,575 $200 1% 3.2 $2,575 $100 $6,206 +11%
208.0 184.8 46.2 23.1 57% 224 1.4 0% 25% 55.3 $2,770 $1,715 31% 69.0 $2,294 $1,900 11% 25.6 $2,544 $750 15% 34.1 $2,687 $1,100 11% 23.9 $2,843 $817 5% 11.0 $2,652 $350 2% 5.5 $2,652 $175 $6,807 +10%
209.0 185.8 46.4 23.2 58% 231 1.4 -1% 24% 54.7 $2,964 $1,815 29% 67.9 $2,454 $2,000 11% 25.8 $2,697 $800
+0.5% +0.5% -
85-90% of cases at onset Begins as RRMS; typically develops in 80% of RRMS sufferers 10% of cases at onset Non-progressive; 5% of cases
+3.8% +2.2% - Increasing diagnosis and earlier treatment - Increased promotional efforts - Increased competition from Rebif, Copaxone - Assumes 7%/year price hike
-1.3% +7.3%
- Increased use as first-line therapy following REGARD, BENEFIT +0.7% - Once-daily injection - Assumes 7%/year price hike +7.7% - Losing share to Rebif, Copaxone +1.0% - Dosing every other day - Assumes 6%/year price hike +7.0%
15% - Better efficacy vs. Avonex drives uptake 34.8 +4.0% $2,875 - Assumes 7%/year price hike $1,200 +11.3% - Pfizer co-promotion limited impact 10% - assumes majority of use in refractory patients 23.3 +10.5% - Superior efficacy $2,931 - Assumes 3%/year price hike $821 +14.2% - Approved 11/04; Discontinued 2/05; Re-launched 6/06; MS sales 7% 16.8 $2,732 $550 3% 7.6 $2,732 $250 $7,436 +11.3% +9% - assumes majority of use in refractory patients - Strong efficacy. Assumes acceptable, but not clean safety - Assumes 3%/year price hike - To be filed in mid 2009 - assumes majority of use in refractory patients - Superior efficacy, but safety issues create monitoring requirements - Assumes 3%/year price hike - To be filed in late 2009/early 2010
Source: Company reports, IMS America, Cowen estimates
778
Multiple Sclerosis
International Multiple Sclerosis Market Model ($MM)

2008 International Target Population (MM) Incidence (Per Thousand) MS Sufferers (000) Breakdown: Relapsing/Remitting (RRMS) Secondary Progressive (SPMS) Primary Progressive (PPMS) Benign Penetration of RRMS/SPMS Patients Treated (000) Growth Rate Avonex Patient Share (BIIB) Patients (000) Price Per Patient/Per Year Sales ($MM) Copaxone Patient Share (TEVA) Patients (000) Price Per Patient/Per Year Sales ($MM) Betaseron/Extavia Patient Share (Bayer/Novartis) Patients (000) Price Per Patient/Per Year Sales ($MM) Rebif Patient Share (Merck Serono) Patients (000) Price Per Patient/Per Year Sales ($MM) Tysabri Patient Share (BIIB/ELN) Patients (000) Price Per Patient/Per Year Sales ($MM) Oral Clardribine Patient Share (Merck Serono) Patients (000) Price Per Patient/Per Year Sales ($MM) FTY720 Patient Share (Novartis) Patients (000) Price Per Patient/Per Year Sales ($MM) Total Market Sales (MM) % Growth Source: Company reports, Cowen estimates 379.0 3.1 1,174.9 528.7 211.5 117.5 58.7 42% 309.2 13% 22% 68.6 $13,514 $927 23% 70.7 $12,500 $884 23% 71.4 $14,000 $1,000 27% 84.8 $14,500 $1,230 4% 13.7 $28,700 $392 0% 0.0 $25,000 $0 0% 0.0 $25,000 $0 $4,433 +25% 2009E 379.0 3.1 1,174.9 528.7 211.5 117.5 58.7 45% 334.8 8% 21% 71.9 $13,500 $970 25% 84.6 $13,000 $1,100 22% 72.4 $14,500 $1,050 26% 88.0 $15,000 $1,320 5% 17.9 $27,100 $485 0% 0.0 $25,000 $0 0% 0.0 $25,000 $0 $4,925 +11% 2010E 379.0 3.1 1,174.9 528.7 211.5 117.5 58.7 49% 362.8 8% 21% 75.4 $14,000 $1,055 27% 96.2 $13,000 $1,250 21% 75.9 $14,500 $1,100 26% 93.3 $15,000 $1,400 6% 22.1 $27,100 $599 0% 1.0 $25,000 $25 0% 0.0 $25,000 $0 $5,429 +10% 2011E 379.0 3.1 1,174.9 528.7 211.5 117.5 58.7 52% 384.3 6% 19% 73.7 $14,250 $1,050 28% 107.7 $13,000 $1,400 21% 79.3 $14,500 $1,150 26% 98.3 $15,000 $1,475 7% 25.2 $27,100 $684 1% 5.0 $25,000 $125 1% 2.0 $25,000 $50 $5,934 +9% 2012E 379.0 3.1 1,174.9 528.7 211.5 117.5 58.7 56% 413.5 8% 20% 84.6 $14,250 $1,205 28% 115.4 $13,000 $1,500 20% 82.8 $14,500 $1,200 25% 103.3 $15,000 $1,550 7% 27.4 $27,100 $743 2% 10.0 $25,000 $250 1% 5.0 $25,000 $125 $6,573 +11% 2013E 379.0 3.1 1,174.9 528.7 211.5 117.5 58.7 59% 437.5 6% 20% 89.0 $14,500 $1,290 28% 123.1 $13,000 $1,600 20% 87.9 $14,500 $1,275 25% 108.3 $15,000 $1,625 7% 29.2 $27,100 $790 4% 16.0 $25,000 $400 2% 8.0 $25,000 $200 $7,180 +9% CAGR Comments +0.0% - Moderate growth - Estimated prevalence is 250-350 per 100,000 +0.0% - Women more affected than men; typically between 20-40 yrs. +0.0% +0.0% +7.2% 85-90% of cases at onset Begins as RRMS; typically develops in 80% of RRMS sufferers 10% of cases at onset Non-progressive; 5% of cases
- Increased promotional efforts in underpenetrated market - Steady share despite intense competition
+1.4% - Once-weekly profile differentiates +6.8% - Increased first-line use +0.8% - Once-daily injection +12.6% - Rapid penetration of 20% of patients intolerant of interferons - Should continue to lose share to Avonex and Rebif +0.7% - Dosing every other day +5.0% - Potential better efficacy drives uptake +0.7% - Priced at a premium to Avonex; three-times weekly dosing +5.7% - assumes majority of use in refractory patients -1.1% - Dosed once-a-month +15.0% - assumes majority of use in refractory patients +0.0% - Dosed orally, 2-4X courses per year - assumes majority of use in refractory patients +0.0% - Dosed orally, 1X/day +10.1%
779
Multiple Sclerosis
Notes
780
Obesity
Obesity
Light On Current Treatment Options, But Heavy On Drug Development Efforts

5% CGR 2008-13
Obesity is a chronic condition that affects approximately onethird of the United States population and its prevalence has doubled over the past two decades. Obesity is a primary risk factor for the development of type 2 diabetes, hyperlipidemia, hypertension, and other cardiovascular disorders, and has been identified as the second most common factor contributing to preventable death behind tobacco use. Increased body weight also plays a role in the development of gallbladder disease, degenerative joint disease, respiratory disorders, and certain types of cancers. As a result, the economic burden of the condition is substantial. The total economic cost of obesity-associated disease in the United States is now estimated to run >$90B per year. The diversity of mechanisms believed to underlie weight control has led to a broad array of approaches to address this large and growing health burden, and the entry of several candidates into later stages of development is stimulating growing interest among investors.
Obesity Category Market Share By $ Sales
2008 $0.7B
SNY 6% ABT 9% Roche/GSK 31%
2013P $0.9B
PARTICIPANTS
Roche/GSK 66% ABT 27%
Arena 16%
VVUS 22%
PFE 22%
In 2008, GlaxoSmithKline/Roche and Abbott led the U.S. branded obesity category, with 66% and 27% dollar share, respectively. In 2013, we forecast that Roche/GSK will maintain its top position in the obesity category with a 31% dollar share, while Pfizer and Vivus will share the second position with a 22% dollar share. We project that Arena will capture the third position in the category with a sales share of 16% and Abbotts dollar share will decline from 27% in 2008 to 9% in 2013.
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Obesity
The failure of the central cannabinoid (CB-1) receptor antagonists (SanofiAventiss Rimonabant, Mercks Taranabant, Pfizers CP-945,598) due to CNS side effects was a significant setback to the growth outlook for the obesity therapeutic category and drug class. Arenas 5-HT2c agonist lorcaserin has demonstrated promising Phase II data and is in a broad Phase III program. A lack of a cardiac valve safety signal at twelve months in the Phase III BLOOM trial supports a clean valve profile. Vivus Qnexa (topiramate/phentermine) has demonstrated impressive weight loss (average of 25 lbs) in Phase II and is currently in Phase III development. Intellectual property concerns and tolerability questions are likely to remain an investor focus pending further clarity. Orexigens combinations of approved drugs have demonstrated potent weight loss, and are supported by a sound biologic rationale. Contraves Phase III program in mild-moderate obesity is fully enrolled, and Empatic recently entered a Phase IIb trial. A number of candidates exploiting various mechanisms (monoamine transmission, GLP-1 pathway, PTP-1B receptor, melanin system, and others) are showing signs of promise in this tough-to-treat indication. Development efforts and strategies should continue to emerge in response to the increasing recognition of obesity as an epidemic. Our scatter plot shows that through 2013, Roche/GSK will maintain the largest sales base in the category. Obesity represents an emerging therapeutic area for Pfizer, Vivus, and Arena, and is expected to be a drag on projected sales for Abbott.
Obesity
430% % Of Company 2008-13 Sales Growth From Category 380% 330% 280% 230% 180% 130% 80% 30% -20% -70% $0.00 $0.20 $0.40 $0.60 $0.80 2013 Sales Contribution By Company To Category ($ In B) ABT PFE ROCHE/GSK Arena
vvus
782
Obesity
Obesity Now Epidemic, And Rates Are Climbing

Obesity has reached epidemic proportions in the U.S.: the prevalence of obesity has risen dramatically in both adults and children in recent decades. According to the CDC, data from NHANES surveys show that, among adults aged 20-74 years, the prevalence of obesity, defined by a body mass index (BMI) of 30, has increased from 15.0% (in the 1976-1980 survey) to 32.2% (in the 2003-2004 survey) in the U.S. The annual number of obesity-related related deaths is estimated by the CDC to have surpassed 360,000 per year, and in 2004, the CDC declared obesity to be the number-one health threat in the U.S. Extrapolation of NHANES data trends demonstrate that, by 2020, 40% of U.S. males and 43% of U.S. women are projected to be obese. Overweight and obesity are widely believed to increase the risk of numerous chronic conditions that contribute to morbidity and mortality as well as to the nations health care cost burden. The recent and rapid rise in obesity rates is generally attributed to diet and lifestyle shifts which have occurred since the mid-20th century.
Prevalence Of Obesity On The Rise
1990 1998
DETAILED DISCUSSION
2006
No Data
<10%
10%14%
15%19%
20%24%
25%29%
30%
Source: Centers for Disease Control
Obesity Increases The Risk Of Many Medical Conditions

Condition Type 2 diabetes Gallbladder disease Hypertension Heart disease Osteoarthritis Breast cancer Uterine cancer Colon cancer
Source: Medical literature
Prevalence Attributable To Obesity 57% 30% 17% 17% 14% 11% 11% 11%
783
Obesity
Current Options Lacking To Address Vast Unmet Need

As supported by NIH guidelines, diet therapy, increased physical activity, and behavioral modification are the mainstay strategies for weight loss and maintenance of a healthy body weight. While such lifestyle changes can be effective in reducing body fat (and increasing lean body mass) and are the typical prescription for most patients who are overweight, compliance with lower-calorie diets and/or exercise regimens is challenging for most. The growing view of obesity as a chronic disease that requires targeted treatment has spurred industry-wide efforts to develop novel therapeutics, but only a few products have been approved by the FDA, including Abbotts Meridia (sibutramine) and Roche/GlaxoSmithKlines Xenical (orlistat). These are characterized by modest efficacy and problematic safety and tolerability profiles. Hence, despite a large potential treatment population and compelling data on the benefits of weight loss, actual treatment of obesity as a disease remains low. Of the more than 160MM people estimated to be obese in major markets worldwide, only 6MM are therapeutically treated, and only 50% of those are thought to be compliant with treatment regimens. Although bariatric surgery and other invasive procedures can engender profound weight loss and are gaining wider acceptance, these options remain reserved for those patients who are at the extreme of the obese population. Hence, the overwhelming majority of obese patients are inadequately treated for their condition.
Obesity As Measured By Body Mass Index (BMI)
BMI (kg/m2) Underweight Normal Overweight Obesity Extreme obesity
Source: Medical Literature
Obesity Class
< 18.5 18.5 24.9 25.0 29.9 30.0 34.9 35.0 39.9 40.0 I II III
Decreasing Use Of Approved Obesity Drugs Despite Expanding Need The use of prescription obesity agents is limited by modest efficacy, side effects and lack of reimbursement. Abbotts Meridia (sibutramine) and Roche/GlaxoSmithKlines Xenical (orlistat) dominate the obesity market, but both agents have limited efficacy. On average, both agents result in approximately 4-5kg (4-5% of baseline body weight) of weight loss over and above diet. Furthermore, they are fraught with side effects that may cause physicians to exclude them from many patients, or cause patients sufficient discomfort and/or inconvenience to discontinue therapy. Prescription volumes of both Meridia and Xenical are on the decline. Xenicals decline in particular has been hastened by the June 2007 launch of GlaxoSmithKlines Alli, an OTC version of orlistat, which has cannibalized Xenical prescriptions.
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Obesity
Meridia Hampered By Hypertension Concerns

Abbotts Meridia (sibutramine) is a combination serotonin and norepinephrine re-uptake inhibitor, similar to Wyeths Effexor and Eli Lillys Cymbalta. It was approved in 1997. Serotonin, which is released in the brain after eating, creates a feeling of satiety. Meridia inhibits the reabsorption of serotonin and prolongs the feeling of satiety. Its long-term effectiveness is greatest among those patients who experience early efficacy (approximately 50% of patients who experience >4 lbs of weight loss in the first 4 weeks of therapy go on to experience long-term weight loss of up to 20 lbs). However, Meridias norepinephrine activity can cause or exacerbate hypertension, thus limiting its utility among obese patients with cardiovascular co-morbidities. Our physician consultants estimate that at least 30% of obese patients have hypertension. In August 2005, the FDA rejected a Public Citizen petition to ban Meridia. The petition cited concerns over the incidence of heart attacks and strokes in some patients. The agency said the overall risk-benefit profile of Meridia was supportive of keeping the drug on the market. We forecast Meridia U.S. sales of $30MM in 2009, $21MM in 2010, and $7MM in 2013, due to anticipated generic competition in 2009. We estimate Meridia international sales of $153MM in 2009, $107MM in 2010, and $78MM in 2013.
Xenical Has A Poor GI Profile

GlaxoSmithKline/Roches Xenical (orlistat) was approved by the FDA in 1999. It is indicated for the management of obesity including weight loss and weight maintenance in conjunction with diet and exercise. It is also indicated for the treatment of Type 2 diabetes in overweight or obese patients, in combination with other antidiabetic therapies. Xenical is an oral lipase inhibitor which acts by reducing the absorption of dietary fat by approximately one-third. As its point of action is the digestive process itself, it needs to be taken with every meal to be effective. Many patients do not respond to Xenical, and only about 1530% achieve >5% weight loss after a year of therapy. Xenical suffers from GI side effects which are directly related to its efficacy mechanism, and although they are typically mild, users are often intolerant of them. These include oily spotting, flatus with discharge, and fecal urgency. To manage these adverse effects, patients are advised to eat a diet that is low in fat (<30% of all calories should derive from fat), and should evenly distribute their fat intake over the daily meals. By reducing fat absorption, Xenical also blocks the uptake of fatsoluble vitamins (A, D, E, and K) as well as other nutrients such as -carotene. Patients are recommended to take daily vitamin supplements to offset this effect. Despite substantive data with respect to long-term clinical outcomes, cost-effectiveness, and impact on quality of life, its success has been limited by its dosing frequency and tolerability issues. Since its 2007 launch, Alli (OTC orlistat) has cannibalized Xenical prescription sales, a trend which we expect to continue through 2013. OTC Xenical Approved By The FDA In February 2007, GlaxoSmithKline received FDA approval for OTC orlistat, which is being sold under the brand name Alli. The dose of orlistat in Alli is 50% of that in Xenical (60mg vs. 120mg). According to GSK, Alli posted sales of 150MM in 2007. Alli struggled to gain momentum in 2008, however, and only recorded sales of 75MM in 2008. We estimate Alli sales of 80MM in 2009, 85MM in
785
Obesity
2010, 100MM in 2013, and 110MM in 2015. The composition-of-matter patent on orlistat expires in December 2009.
Phentermine Commonly Used For Weight Loss

Phentermine (generic) is an appetite suppressant that has been FDA-approved since 1959. It is the most commonly used agent for weight loss and comprises 50% of all prescriptions for this indication. It is generally recommended that phentermine be used short-term (up to 12 weeks) while following nonpharmacological approaches to weight loss such as healthy dieting and exercise. It tends to become ineffective over longer term use. Phentermine is structurally similar to amphetamines, and its addictive potential has led to a Schedule IV listing in the U.S. Also, like amphetamines, it has stimulant properties and can increase heart rate and blood pressure as well as lead to insomnia. Phentermine gained popularity followed by notoriety in the 1990s as part of Fen-Phen, a combination of phentermine and fenfluramine (a nonselective serotonin receptor agonist, also used for weight loss). Although FenPhen was never approved, a study published in 1992 demonstrated impressive weight loss (15% from baseline at one year, on average). These data led to a surge in the use of Fen-Phen. However, fenfluramine and its pure isomer dexfenfluramine were withdrawn from the market in 1997 following their linkage to cardiac valvular disease. Phentermine monotherapy provides only modest weight loss, but superior tolerability relative to Xenical and Meridia continue to support its use.
Rimonabant NDA Withdrawn, Development Discontinued

Sanofi-Aventiss rimonabant is a small-molecule central cannabinoid receptor (CB1) antagonist. The cannabinoid system is regarded as a component of the neurologic reward mechanism which plays a central role in behavior, and CB1 receptors have been identified centrally (primarily within the hypothalamus, the pleasure center of the brain), and peripherally in fat cells. Data suggest that aberrancies of this system may predispose individuals toward excess weight as well as states of dependence and addiction. Following a large Phase III program involving more than 13,000 patients (half in obesity, half in smoking cessation), Sanofi submitted an NDA for rimonabant seeking approvals for obesity and smoking cessation in April 2005. In February 2006, the FDA issued an approvable letter for the obesity indication and a nonapprovable letter for the smoking cessation indication. A more detailed discussion of rimonabant in smoking cessation can be found in the CNS/Addiction section of this report. The original FDA action date for obesity of April 2007 was delayed by three months per Sanofis request for an extension. This delay did not come as a surprise, as there had been speculation that the FDA would not act on rimonabant until safety issues have been considered by an independent FDA advisory panel. On June 13, 2007, the FDAs Endocrinologic and Metabolic Drugs Advisory Committee unanimously voted (14-0) against approval of rimonabant due to unclear safety information and data pointing to an increased risk for psychiatric and neurological adverse events. On July 29, 2007, Sanofi withdrew the NDA for rimonabant.
786
Obesity
Rimonabants Phase III Showed Promise

The Phase III program studying Rimonabant In Obesity (the RIO studies) began in August 2001. The full set of results was included in the NDA package submitted to the FDA in May 2005. RIO comprised four major studies involving 6,180 patients: 1) a two-year study in the U.S. (RIO-North America) that included 3,090 patients to evaluate weight loss and the prevention of weight regain; 2) a twoyear study in Europe (RIO-Europe) that included 1,507 patients measuring weight loss and weight regain; and 3) two complementary studies (RIO-Lipids and RIODiabetes) enrolling 1,000 obese patients each examining co-morbidity factors (dyslipidemia and type-2 diabetes). The four studies tested doses of 5 and 20mg rimonabant vs. placebo. All four studies showed that rimonabant is effective in weight reduction and it improves most metabolic markers. It is debatable whether the metabolic marker improvement is solely due to weight loss, or partly due to the mechanism of rimonabant on top of weight loss, or rimonabants side-effect profile (nausea and dizziness are most frequently cited, but appear generally mild and transient).
But CNS Safety Issues Were The Major FDA Hurdle

The RIO clinical trials had recent past depression episodes as one of the exclusion criteria (anti-depressant medications can cause weight gain, and might have confounded the results if these were also being taken by trial participants). As outlined by briefing documents issued ahead of the June FDA panel, in its RIO trials rimonabant caused a statistically significant increase in the incidence of depression, anxiety, insomnia, and panic attack, including a doubling of risk of depression in the subgroup of patients who did not even have a previous history of psychiatric illness. A meta-analysis of the trials data showed an 80%+ increase in relative risk for suicidal ideation for the rimonabant groups, representing a 0.3% increase in absolute risk. The FDA panel unanimously opined that rimonabants risk/benefit profile did not warrant its use, and voted 14-0 against its approval.
787
Obesity
Efficacy Data From Rimonabants RIO Phase III Trials
Source: Published data
788
Obesity
Pooled Data From The RIO Trials (At One Year): CNS Side Effects
Source: Acomplia EU label
Acomplia Started a Launch In Europe, But Later Was Dropped

Sanofi-Aventis received European Union marketing authorization for rimonabant (branded as Acomplia) for the treatment of obesity on June 21, 2006. The European Commission granted marketing authorization "as an adjunct to diet and exercise for the treatment of obese patients (BMI 30kg/m) or overweight patients (BMI > 27kg/m) with associated risk factors such as type-2 diabetes or dyslipidemia." Importantly, the label says that Acomplia should not be taken by patients with uncontrolled serious psychiatric illnesses such as major depression. Acomplias original European label contained language that warned against use in patients with major depression. In July 2007, Acomplias prescribing information was updated with a formal contraindication for use in patients with ongoing major depressive illness and/or ongoing anti-depressive treatment. This was based on data reflecting one year of post-marketing experience as well as results of five clinical trials completed since its approval in June 2006. In October 2008, the EMEA concluded that the benefits of prescribing rimonabant (Acomplia) for the treatment of obesity no longer outweighed the side-effects for compounds in this class and Sanofi pulled the product from the UK market.
Several Other CB1 Antagonists Pulled From Development

Taranabants Development Discontinued Taranabant (MK-0364, a CB-1 inverse agonist for obesity) began Phase III in Q4:2006. Merck was targeting an NDA filing in H2:2008 but due to the dosedependent increase in psychiatric side effects observed in the Phase III study (28.3% and 40.2% for the 2 and 4mg doses, respectively, versus 20.4% for placebo), Merck discontinued development of taranabant in early October 2008 and is no longer seeking regulatory approval for this compound. Data from the 533 patient Phase II study presented at the North American Association for the Study of Obesity meeting demonstrated a dose-dependent weight loss. Taranabant 0.5, 2, 4 and 6mg resulted in a 1.6, 2.4, 2.9, and 4kg additional weight loss versus placebo. Similarly there was dose-dependent loss in waist circumference. The study excluded patients with a history of depression, symptomatic depression, or on antidepressants. There were dose-
789
Obesity
dependent increases in clinical adverse events including psychiatric adverse events and discontinuations. Merck has stated that the pre-clinical toxicity profile of taranabant was different from the reported profile for rimonabant (SNY) with >100-fold margins for neurological effects (e.g. convulsions, seizures) in non-human primates with taranabant. Phase III data from a 52-week study looking at the 2, 4, and 6mg doses were presented at ACC 2008. MK-0364 demonstrated impressive weight loss with the 2 and 4mg doses, 6.6kg and 8.1kg, respectively, (versus 2.2kg for placebo; 6mg data not shown). Pfizer Discontinues Phase III Study of CB1 Antagonist Pfizer discontinued its Phase III study of selective CB-1 antagonist CP-945,598 in November 2008 due to the observed centrally mediated CNS side effects associated with this class of compounds and the increasing regulatory hurdles for approval of a CB-1 compound for the treatment of obesity. In Phase II, CP945,598 demonstrated a 4-5% placebo-adjusted weight reduction with good dose response. Pfizer claims that weight loss seen at 3 months was comparable to rimonabant at 6 months. Sanofi-Aventis Discontinues Development of Surinabant, AVE-1625 Sanofi has discontinued clinical development of its CB1 antagonist program for the indication of obesity. All clinical studies with Surinabant (SR147778) for the treatment of obesity were terminated in November 2008 due to the adverse effects associated with the class. AVE-1625 is the only CB1 antagonist remaining in late stage clinical trials. The study is evaluating the safety and efficacy of AVE1625 over a 24-week dose ranging study for the treatment of cognitive impairment in close to 700 schizophrenia patients. It remains to be seen how a CB1 compound could be approved for any indication given the history of the class.
Lorcaserin In Phase III Development For Obesity

Arena Pharmaceuticalss wholly owned lorcaserin (formerly APD356) is a selective 5-HT2c receptor agonist that is currently in Phase III testing for obesity. The 5-HT2c serotonin receptor subtype appears to be involved in the central regulation of satiety as validated in both animal models and human studies. Notably, the serotonergic agonist fenfluramine was one of the most successful drugs ever used for weight loss but was pulled from the market in 1997 due to cardiac toxicity, which was believed to be a result of the compounds lack of selectivity. In addition to being an agonist of the 5-HT2c receptor, its action on 5-HT2b receptors in the heart led to valvular disorders. In contrast, lorcaserin features >100-fold selectivity for the 5-HT2c receptor vs. 5-HT2b, and also shows relatively low activity at other serotonin receptor subtypes. High-dose studies in animals over several months have not demonstrated appreciable cardiovascular changes. Phase II Results Demonstrate Meaningful Activity Results from Arenas controlled Phase IIa trial of lorcaserin in 352 clinically obese patients (BMI 30-45) were released in May 2005. After daily dosing of three dose groups of lorcaserin (1 mg, 5 mg, and 15 mg) or placebo for 29 days, during
790
Obesity
which subjects did not alter their diet or exercise level, dose-dependent weight loss was observed, and significance (-2.9 lbs with treatment vs. -0.7 lb on placebo, p=0.0002) was achieved in the 15 mg group. No apparent drug effects on heart valves or pulmonary artery pressure were recorded by echocardiogram. Positive data from a 12-week Phase IIb trial of lorcaserin reinforce the beneficial efficacy/safety profile seen in the Phase IIa. This study randomized 469 patients with body mass indices (BMI) ranging from 29 to 46 (mean = 36.4) into four groups of daily 10 mg, 15 mg and 20 mg (10 mg BID) doses of lorcaserin or placebo. Patients did not receive any diet or exercise advice. Echocardiograms were taken at both baseline and at the end of the study for comparison. Weight loss in the three dose groups and placebo are illustrated as follows and indicate that lorcaserin causes meaningful weight loss at all doses tested.
Weight Loss By Completers, ITT Analysis
Completers Analysis
n 88 86 82 77 Mean weight change (lb) -0.7 -4 -5.7 -7.9 Mean weight change (kg) -0.3 -1.8 -2.6 -3.6 p-value <0.001 <0.001 <0.001 >5% wt loss from baseline 2% 13% 20% 31% n 116 114 113 110
ITT Analysis
Mean weight change (lb) -0.4 -3.7 -4.8 -6.8 Mean weight change (kg) -0.2 -1.7 -2.2 -3.1 p-value <0.001 <0.001 <0.001
placebo 10 mg 15 mg 10 mg twice daily
Source: Arena Pharmaceuticals
The weight loss observed with lorcaserin was progressive throughout the 12week treatment period. Although the rate of weight loss is greatest in the first month or so of the trial period, the data suggest that continued treatment with lorcaserin would lead to additional, consistent reductions in weight. A linear pattern of weight loss emerges at each dose level by about the fifth week, and the average weekly weight loss observed with the 20mg dose arm over the last eight weeks of the trial is about 0.13kg/wk. Adding the 2.6kg of weight loss observed at this dose in the first four weeks of this trial to 48 weeks of 0.13kg/wk loss implies a cumulative 8.5kg+ weight loss over one year. Early Metabolic Improvements Observed The Phase IIb trial also revealed lorcaserins positive effect on lipid and glucose levels. In particular, daily treatment with lorcaserin at 15 mg and 20 mg led to statistically significant reductions in cholesterol (p<0.05 and p<0.01, respectively), and positive trends on LDL and triglycerides were observed at these doses. In addition, lorcaserin 20 mg led to a significant reduction (p<0.05) in fasting blood glucose. Although minor decreases in HDL (3.3-3.5%) were recorded that were marginally statistically significant at all doses (p=0.0380.053), and led to slight and non-statistically significant increases in LDL:HDL ratios, we believe that these changes may have been due to secondary effects on lipids that are known to occur in the setting of rapid weight reduction as opposed to any direct drug effect on metabolism. Apart from these biochemical parameters, patients treated with lorcaserin 15 mg and 20 mg achieved significant reduction in waist circumference and hip circumference, areas in which elevated amounts of fat are associated with the metabolic syndrome.
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Obesity
Lorcaserin Well Tolerated, No Concerning Valvulopathy Observed Lorcaserin also demonstrated reasonable tolerability in the Phase IIb trial. Headache was the most frequent adverse event, which occurred in 26.7-32.2% of patients treated with lorcaserin as compared to 17.8% of placebo, and the data suggest that these were transient and mild-to-moderate and that the bulk of them occurred in the first week or so of exposure. Nausea was also experienced with lorcaserin in greater frequency (8.5-11.2% in the three dose groups) than placebo (3.4%) but this complaint also tended to last no more than 1-2 days and attenuated as the trial went on. Importantly, lorcaserin appeared to have a clean profile with regard to cardiovascular determinants. Baseline and day 85 2D echocardiograms, which were all read at a single, blinded, academic center, indicated that no obvious changes in either heart valve status or pulmonary artery pressure occurred during the trial. At Arenas analyst day in November 2007, the company disclosed the rates of "FDA valvulopathy" recorded in the Phase IIb trial, defined as mild aortic insufficiency and or moderate mitral regurgitation. In the Phase IIb, two one-category shifts in regurgitation were observed in the 15mg arm (n=96, 2.1%) and no shifts were observed in the 10 mg or 20 mg cohorts, as compared to two one-category shifts in the placebo group (n=99, 2.0%). These data suggest that no increase in FDA valvulopathy was seen with lorcaserin in this trial. Valvulopathy has not been reported in other clinical or preclinical studies, including 12-month exposure in primates. Lorcaserin Is Currently In Three Phase III Trials Lorcaserins Phase III pivotal program consists of two randomized, placebocontrolled trials which have completed their enrollment with 7,190 overweight/obese patients (BMI 27-45). A third, non-pivotal Phase III trial in type 2 diabetics, from which data will not be required for an approval in obesity, continues to accrue subjects. Per FDA guidelines, all subjects will receive diet and exercise counseling.
Lorcaserins Phase III Program
ECHO monitoring Enrollment BLOOM 3,182 (complete) 4,008 (complete) 600 (goal) Lorcaserin Dose 10 mg twice-daily By DSMB Yes
Data March 2009 September 2009 Mid-2010
Notes Passed 6,12-month ECHO check
BLOSSOM BLOOMDM
10 mg once/twice-daily 10 mg twice-daily
No No
To enroll type 2 diabetics Not required for NDA
Supplemental Trials Mechanism of Action Pharmacokinetics Abuse Potential

Source: Arena Pharmaceuticals
Note Energy expenditure, eating behavior Renal and hepatic impairment, elderly, and food effect Looking for CNS effect similar to abused drugs
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The primary endpoint for all studies is the percentage of patients achieving 5%+ weight loss from baseline at one year. The BLOOM trial, which completed enrollment in February 2007, includes serial 2D echo monitoring for all subjects, to evaluate for changes in FDA valvulopathy status. ECHOs are performed at baseline, 6, 12, 18, and 24 months, and 6- and 12-month results were reviewed by a DSMB. We believe that published data on the rate of valvulopathy development in untreated, otherwise healthy obese patients (approx. 1% per year) have enabled ARNA to sufficiently power the Phase III program for this safety endpoint. Although the primary efficacy analysis in BLOOM will be based on oneyear results, the safety checks span two years and top line data will become available in late March 2009. BLOSSOM and BLOOM-DM are one-year trials which began in December 2007. The FDA has agreed to allow ARNA to enroll patients with pre-existing FDA valvulopathy into both trials, and ECHOs will be collected at baseline, 6, and 12 months for database purposes. The lack of valve exclusion criteria and requirement for ECHO safety monitoring in these two trials suggests that the FDA is gaining comfort with lorcaserins potential valve risk. Data from BLOSSOM should become available in Q3:2009. Enrollment into the BLOOM-DM trial was initially slow, in part due to a fairly high level of competition among numerous U.S. diabetes trials (approximately 300 ongoing), but is expected to be complete in 2009 with approximately 600 subjects with uncontrolled diabetes taking oral medications (data in mid:2010). Assuming positive data from lorcaserins Phase III program, ARNA plans to submit an NDA for lorcaserin by year-end 2009. While data from BLOOM and BLOSSOM will be required for the filing, per discussions with the FDA, results from BLOOM-DM trial will not be. Thus, so as not to delay timelines, ARNA will likely submit data from this trial (which would be supportive for a label in diabetics) as a supplemental filing following approval. ARNA has indicated that it will partner lorcaserin for commercialization, and while a deal could materialize at any time, a potential partner may wish to await at least the topline BLOOM results, if not the data from BLOOM and BLOSSOM. Lorcaserin Has Clean Valve Safety At Twelve Months In March 2008, Arena announced that the BLOOM trial had passed its twelvemonth cardiac valve safety review, and that the trial would proceed unaltered. Comparisons of 12-month echocardiograms to baseline scans in the lorcaserin and placebo groups satisfied the DSMB that lorcaserin is not leading to a meaningful increase in valve damage. Although no specific figures were disclosed, ARNA said that the rate of FDA-valvulopathy in the placebo arm is in line with trial powering assumptions. According to our analysis of other drugs known to cause cardiac valve toxicity via the 5-HT2b receptor, clean safety at twelve months consistently has predictive value on longer-term effect rates, and supports our optimism that BLOOM will continue to demonstrate favorable valve safety. But Full Safety Analysis Will Require BLOSSOM Data Too The Street is very focused on lorcaserin's safety profile, specifically in regards to mitral/aortic valvulopathy. Several animal models (e.g., rats and monkeys), Phase I, IIa, and IIb results, and 6- and 12-month echocardiography DSMB checks in BLOOM do not show any evidence that lorcaserin damages cardiac valves. As part of the NDA package, Arena will pool all echocardiography data collected in BLOOM and BLOSSOM and compare valvulopathy rates in patients treated with
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lorcaserin vs. placebo, suggesting the final valvulopathy analysis will not be available until late 2009.
Orexigens Contrave Challenges Obesity With A One-Two Punch

Orexigen is evaluating drug combinations for their potential to treat obesity. The company has two products in clinical development, Contrave (Phase III) and Empatic (Phase II). Both are combinations of generic CNS drugs which have been approved for non-obesity indications: Contrave is bupropion + naltrexone, and Empatic is bupropion + zonisamide. These combinations are based on a neuroscientific rationale, in that they aim to block hypothalamic feedback mechanisms which are believed to diminish the efficacy of single-agent CNSbased weight loss strategies. In a published meta-analysis, bupropion was observed to provide weight loss of 4-5kg over 6-12 months, significantly greater than placebo. However, the effect size is modest, and the drug loses efficacy over time. This diminishing efficacy of bupropion, as well as other agents used for weight loss, is believed to derive from feedback regulation. Naltrexone and zonisamide serve to counter this feedback, and preserve the appetite suppression imparted by bupropion.
Orexigens Strategy Based On Rational Neuropharmacology
Weight loss Naltrexone: -endorphin-mediated POMC autoregulation leading to: -MSH release
MC-4
a-MSH
Contrave
(naltrexone SR / bupropion SR)
B-endorphin
Bupropion: DA leading to POMC activation: -MSH release
POMC
AgRP
Empatic
Zonisamide: 5-HT and DA and AgRP leading to: -MSH release
Source: Orexigen Pharmaceuticals
Monoamines (DA, 5-HT)
(zonisamide SR / bupropion SR)
The components of Contrave each target neural pathways which underlie addictive behavior (bupropion is approved as a smoking cessation aid as well as an antidepressant, and naltrexone is approved for alcohol dependency). Orexigen anticipates that this combination will be particularly effective for reducing food cravings, which are believed to be governed by neural reward pathways. Contraves Phase IIb trial tested combinations of bupropion SR and naltrexone IR. This 24-week trial randomized 389 subjects with BMI 30 to one of six treatment arms, including combination, single-agent + placebo, and placebo alone. In the combination arms, a single dose of bupropion SR was given with one of three doses of naltrexone. On an ITT basis, Contrave led to a mean weight loss of 4.3%-5.4% from baseline at 24 weeks, compared to 0.8% in placebo.
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Average weight loss among completers was 7.1%-7.6% vs. 1.1% within the placebo subjects. Those who completed the 24-week controlled portion were allowed to continue on open-label treatment. At 48 weeks, on an ITT basis, Contrave led to a mean weight loss of 5.0-6.6% from baseline at 24 weeks, and on a completerbasis, mean weight loss was 8.0%-10.7%. Plots of weight loss over time indicate that subjects continued to lose weight at the end of the 48 weeks, suggesting that longer-term dosing would provide additional weight loss.
Efficacy Results From Contraves Phase IIb Trial
Mean % Weight Change From Baseline Components Bupropion SR 400mg Bupropion SR 400mg Bupropion SR 400mg Bupropion SR 400mg Placebo Placebo Naltrexone IR 16mg Naltrexone IR 48mg Placebo Naltrexone IR 48mg Placebo 24 weeks Naltrexone IR 32mg ITT-LOCF Completers ITT-LOCF Completers
-5.4 -5.4 -4.3 -2.7 -1.2 -0.8
-7.6 -7.1 -7.5 -3.1 -1.7 -1.1
*Data from subjects who crossed over from naltrexone-only or placebo arms to bupropion arms in the open-label extension are not included in the 48 week analysis. tNot significant vs. bupropion monotherapy. Source: Orexigen Therapeutics
24-Week Efficacy Results From Empatics Phase IIb Trial
Source: Orexigen Therapeutics
Contrave demonstrated a reasonable tolerability profile, although patient dropouts were considerably higher vs. placebo (15.9-29.5% dropout rates among the three experimental arms as compared to 8.2-10.7% among the controls). The most common complaints were gastrointestinal (nausea) and CNS-related (dizziness, headache, irritability). No serious adverse events were attributed to Contrave. Orexigen has developed a sustained-release form of naltrexone (naltrexone SR), which has demonstrated clinical evidence of better tolerability than the IR version and is being used in Phase III. Naltrexone SR appears to be mostly absorbed in the small bowel, which has a smaller number of opioid receptors as compared to the stomach, and clinical data indicated that it has an improved GI and CNS profile. Consultants are impressed by the efficacy and safety profile of Contrave, and are enthusiastic for Phase III success.
795
48 weeks*
-5.5 -6.6 -5.0 -2.7
-8.0 -8.8 -10.7 -4.0
Obesity
Contraves Broad Phase III Program Is Seeing Results Orexigen has advanced Contrave into Phase III development, and four one-year trials are underway. These trials are evaluating a 360mg daily dose of bupropion SR paired mostly with naltrexone SR 16mg or 32mg. Naltrexone SR is Orexigens proprietary sustained-release form, which it believes will favor superior tolerability over IR while at least retaining, if not improving, efficacy. The coprimary endpoints of each trial are percent weight loss and percent of subjects who lose 5% of weight at 56 weeks vs. placebo. At an end-of-Phase II meeting with the FDA, it was agreed that Contraves Phase III program would require comparisons to placebo only as superiority to the individual components had already been established. A database of >5,000 subjects enrolled into Contraves Phase II and Phase III trials should be sufficient to meet the FDAs safety evaluation requirements. NB-301. To randomize approximately 1,650 healthy obese subjects at 34 sites to naltrexone SR 16mg or naltrexone SR 32mg plus bupropion SR 360mg, or placebo. NB-301 began in October 2007, and data should report in Q2:2009. NB-302. Completed enrollment in November 2007 with 793 healthy obese individuals at nine sites, randomized to naltrexone 32mg plus bupropion 360mg or placebo. All participants were subjected to an intensive behavior modification plan that included dietary counseling, behavioral therapy, and exercise. Results from this trial were reported on January 8, 2009. The trial reached its coendpoints with statistical significance: (1) precent change from baseline in total body weight loss (-9.3% for Contrave vs. -5.1% for placebo, p<0.001) and (2) proportion of subjects who lose at least 5% of their baseline body weight (66.4% for Contrave vs. 42.5% for placebo, p<0.001). Contrave was well tolerated with the most common treatment related adverse effects reported as nausea (34.1% of Contrave patients vs. 10.5% of placebo patients), constipation (24.1% of Contrave patients vs. 14.0% of placebo patients), and dizziness (14.6% of Contrave patients vs. 4.5% of placebo patients). While the efficacy data reached statistical significance, questions were raised about the absolute weight loss for Contrave versus placebo. NB-303. To randomize 1,500 healthy obese subjects at 37 sites to naltrexone 32mg plus bupropion 360mg or placebo. Contrave-treated individuals who have not achieved 5% weight loss at 28 weeks will be blindly re-randomized to an escalated dose of naltrexone 48mg plus bupropion 360mg, or remain on their original regimen. NB-303 began in December 2007, and data are anticipated in Q2:2009. NB-304. To randomize 525 obese subjects with type 2 diabetes at 53 sites to naltrexone 32mg plus bupropion 360mg or placebo. Secondary endpoints will evaluate impact on glucose metabolism. NB-304 began May 2007, and we expect data in Q2:2009.
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Obesity
Contrave Phase III Program

NB-301 No. of subjects No. of sites Population Treatment Initiated Data Comments 1,650 34 Healthy Obese Contrave 16 / 32 Began 10/07 Q2:2009 NB-302 793 9 Healthy Obese Contrave 32 Began 4/07 January, 2009 Includes intensive behavior modification protocol NB-303 1,500 37 Healthy Obese Contrave 32 Began 12/07 Q2:2009 Includes dose-escalation provision for non-responders NB-304 525 49 Obese w/Type 2 Diabetes Contrave 32 Began 5/07 Q2:2009 Secondary endpoints to evaluate markers of glucose metabolism
Source: Orexigen Therapeutics, Cowen and Company
Consultants Enthusiastic About Contrave For Obesity

Primary care physicians and obesity specialists agree that the most effective strategy for weight loss is one that combines several therapies. They believe that the use of two agents that work synergistically is sensible given that multiple mechanisms control body weight, and may lead to drugs with greater efficacies vs. the current offering of individual agents. For example, before it was banned due to cardiac valve toxicity, the combination of phentermine and fenfluramine known as Fen-Phen resulted in weight loss superior to the currently-approved monotherapy drugs, and AMLNs pramlintide/leptin combinations have demonstrated impressive weight loss in Phase II. Consultants express a great deal of frustration in their ability to manage overweight and obese patients, and are generally dissatisfied with the approved drugs in light of their modest efficacies and poor tolerabilities. Although they are occasionally able to achieve weight loss of 10% or more, they report 3-5% loss as more the norm. Hence, they view Contraves Phase II efficacy data as impressive, and Phase III efficacy as acceptable. They also view Contraves tolerability as attractive compared to that of drugs in current use. While they cite nausea as a potential detractor, they note that AMLNs Byetta is used for weight loss in non-diabetics despite a 35-50% rate of nausea observed during its pivotal trials as well as being an injectable. A black box warning on Contrave is likely given the bupropion component, but our consultants did not see this as a hindrance given that many of them use bupropion today for weight loss, and recognize that the warning applies to young patients for whom they would be unlikely to prescribe Contrave. Based on its Phase II results, our experts are excited about Contrave and would be eager to try it in 50-75% of their moderately obese patients who they believe are candidates for medical therapy. In addition, they believe that Contraves superior safety and tolerability profile compared to current products will enable it to penetrate a sizable fraction of their overweight/mildly obese patients, although this will depend somewhat on reimbursement.
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Worldwide Contrave Sales Could Surpass $500MM

We anticipate that Contrave will significantly expand the weight loss market by offering superior safety and tolerability compared to current drugs. Its use may be further supported by providing favorable metabolic effects and reductions in cardiovascular risk factors. We believe $500MM in worldwide sales is attainable based on the revenue achieved by ABTs Meridia and Roche/GSKs Xenical, which together sold >$800MM worldwide in 2006. In fact, despite Xenicals troublesome gastrointestinal side effects and three-times-daily dosing, it has achieved a sales level of >$500MM, suggesting that our estimates could be conservative. We believe Contrave will become the weight loss option of choice for women with mild-moderate obesity for whom food cravings play a major role in their challenges with body weight control. Although reimbursement rates for mild forms of obesity tend to be modest (estimated to be 25-30% of patients with BMI 30-35), these continue to improve as the morbidity/mortality risks of excess weight become more well-defined, and we believe that many for whom reimbursement is not available will pay out-of-pocket for an effective, welltolerated weight loss therapy. Orexigen expects to submit an NDA for Contrave in late 2009 under Section 505(b)(2), and we model a launch in 2011.
Expect Orexigen To Commercialize Contrave, Empatic Via Partnerships

Orexigen plans to partner both Contrave and Empatic for worldwide commercialization. The company intends to file Contraves NDA on its own, and then may seek a U.S. co-promotion partner. We would expect a partnership to materialize in 2009-2010, and are optimistic for robust terms to Orexigen given Contraves attractive profile and large market potential. Although Orexigen has made no commitment to building its own sales force, if it does it would likely have a distinct focus on certain physician subgroups. Ex-U.S. rights to Contrave may be out-licensed under a royalty-bearing agreement, and we would expect a healthy royalty rate (25%+). Orexigen believes that a worldwide partnership on Empatic may come ahead of Phase III development.
Use Of Approved Drugs Reduces Development Risk

The obesity therapeutic category is marked by a number of high-profile disappointments in which effective drugs have been derailed by safety and tolerability issues. Notable events include 1) the market withdrawal of fenfluramine (half of Fen-Phen) following cases of cardiac valve damage, 2) Sanofi-Aventiss withdrawal of its NDA for rimonabant, following an FDA panel which voted against approval due to an adverse neuropsychiatric profile, and 3) other large pharmaceutical companies terminating development of CB1 antagonists (e.g. Merck, Pfizer). Given the potential for broad off-label use of any obesity drug, we expect the FDA to have a high safety bar for approvals in this category. The agency is likely to be particularly stringent with new therapies that operate at the level of the central nervous system, as indicated by the challenges encountered by Sanofi-Aventiss rimonabant. Although Orexigen is approaching obesity with a CNS-based strategy, we believe the companys exclusive use of previously-approved agents, each of which has a well-known adverse event profile and years worth of post-marketing experience behind it, reduce development and regulatory risk ahead of later-stage clinical testing as well as FDA review, which will be conducted under Section 505(b)(2).
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Obesity
Dramatic Weight Loss Seen With Empatic In Phase II

Orexigen is also developing Empatic, a combination product containing bupropion SR and zonisamide. Zonisamide (Eisais Zonegran) is approved by the FDA for the adjunctive treatment of partial epileptic seizures, and modest weight loss is a side effect. Following a Phase II proof-of-concept study, which demonstrated encouraging signs of weight-loss efficacy in obese patients using the marketed, immediate-release form of zonisamide, Empatic was evaluated in a Phase IIb trial in which Orexigens proprietary SR formulation of zonisamide was used. This trial enrolled 623 otherwise healthy subjects with BMI 29-45 (average weight of 220 lbs) at 15 sites in the U.S. Patients were given minimal diet/exercise intervention. Six different bupropion/zonisamide combinations were tested, and results are shown below. With Empatic yielding 24-week placebo-adjusted weight loss in the ITT group of up to 7.5%, and in completers of up to 9.1%, this candidate appears to have remarkable potency, and outpaces the efficacy of the approved drugs, Fen-Phen, and nearly all candidates that have ever been advanced to late-stage clinical testing. Adverse effects were mild to moderate and included headache, nausea, insomnia, anxiety, and rash. The discontinuation rate was 14%.
Efficacy Results From Empatics Phase IIb Trial

Mean % Weight Change From Baseline Components Bupropion SR 280mg Bupropion SR 280mg Bupropion SR 280mg Bupropion SR 360mg Bupropion SR 360mg Bupropion SR 360mg Placebo Zonisamide SR 120mg Zonisamide SR 240mg Zonisamide SR 120mg Zonisamide SR 240mg Zonisamide SR 360mg Placebo 24 weeks Zonisamide SR 360mg ITT-LOCF -4.5 -6.6 -7.3 -6.4 -6.3 -8.6 -1.1 Completers -5.3 -7.2 -8.3 -7.3 -7.4 -10.3 -1.2 48 weeks* ITT-LOCF -10.1 -11.8 -10.8 -12.1 -12.0 -14.0 Completers -12.1 -12.4 -11.0 -11.8 -12.5 -15.1
*Data from subjects who crossed over into the open-label extension are not included in the 48 week analysis. Source: Orexigen Therapeutics
24-Week Efficacy Results From Empatics Phase IIb Trial
Source: Orexigen Therapeutics
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Obesity
Birth Defect Seen In Phase II Unlikely To Be Due To Empatic Despite the requirement for contraception in this trial, four subjects became pregnant. While three resulted in normal births, one infant was found to have a congenital cardiac abnormality that was surgically corrected. This case was reported as an SAE by the investigator, possibly related to Empatic. While zonisamide has been observed to cause teratogenic effects in certain animal studies, we note that human trials have been inconclusive. Nonetheless, zonisamide carries a Pregnancy Category C warning as a result, and we would expect a similar warning for Empatics eventual label. With regard to this particular case, we note that 1) the subject was believed to have become pregnant shortly before the end of the trial, and hence her exposure to drug was likely limited to the earliest phases of her pregnancy, possibly prior to the onset of significant cardiac development, 2) near the time of conception, the subject received an HPV vaccine, for which data suggest a higher incidence of fetal abnormalities when administered within 30 days of conception and the labeling of these products recommends avoidance during pregnancy, and 3) the abnormality was transposition of the great arteries (TGA), a relatively common congenital heart condition (10% of all) for which the cause is often unknown and multi-factorial, and is a condition that has not been linked with any approved drug. In view of the available information, we do not view this development as incremental to Empatic's risk profile. Empatic Has Entered Another Phase IIb In July 2008, Orexigen advanced Empatic into a Phase IIb trial in which it is being compared to placebo as well as bupropion and zonisamide monotherapy. The double-blind, 24-week ZB-202 trial will randomize approximately 720 otherwise healthy obese patients at 20 U.S. sites to one of six arms: two Empatic groups (Bup360/Zon360, Bup360/Zon120), three single-treatment groups (Bup360/placebo, Zon360/placebo, Zon120/placebo), and placebo/placebo. The primary endpoint is percent change in body weight at 24 weeks. Top-line data are expected in Q2:2009. Prior clinical Empatic data suggest that both dose regimens will show a significant weight loss improvement vs. untreated controls in ZB-202, and historical data make us optimistic that meaningfully greater weight loss over the monotherapies will be observed. For example, in Contraves Phase IIb trial, 24week weight loss with bupropion 400mg/placebo was 2.7% on an ITT basis. While 24-week data on zonisamide monotherapy from past studies are not available for comparative purposes, published results from an 18-subject open-label trial report 3.1% weight loss at 12 weeks, and results from a 60-subject blinded trial demonstrate 6.0% weight loss at 16 weeks. While at first glance such levels of weight loss with zonisamide alone may lead some to question what level of incremental benefit may be gained with the addition of bupropion, the dosing of zonisamide in these trials was more aggressive (400 mg/day in the 12-week trial, and up to 600 mg/day in the 16-week trial). We also note that while the effect of zonisamide monotherapy tends to plateau at 12-16 weeks, prior data indicate that Empatic leads to progressive weight loss to 24 weeks and beyond.
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Obesity
Empatic Making A Play For Severe Obesity Orexigen is developing Empatic for the treatment of obese patients in a high BMI range (high 30s and beyond). We believe this category consists of >10MM individuals in the U.S., and includes patients who might otherwise qualify for surgical interventions. An initial Phase IIb trial of Empatic demonstrated that this drug is capable of achieving profound weight loss in this severe group, with up to 15% reduction from baseline weight observed in subjects who remained on therapy for one year. Empatic also appeared well-tolerated. While we await further visibility on Empatics path to approval and eventual labeling to better define its market potential, we believe that this candidate could see $200MM+ in sales in the severely obese segment.
Weight Loss Seen In Vivuss Qnexa Phase II Trial Was Impressive

In May 2006, Vivus released positive top-line results from a Phase II obesity trial of Qnexa (15mg phentermine; 100mg topiramate). Detailed results were presented at the North American Association for the Study of Obesity (NAASO) meetings in October 2006. The 200-patient Phase II trial was conducted at Duke University Medical Center. The 24-week trial compared Qnexa treatment to placebo, phentermine alone, and topiramate alone. Patients enrolled in the study were asked to reduce their caloric intact by 500 calories per day. The FDA favors having a behavioral modification component built into the design of obesity trials, given the multi-factorial nature of the disease. Highlights From Qnexas Phase II Trial: Qnexa achieved a statistically significant reduction in weight compared with placebo or either of the single agents (phentermine and topiramate) alone (p<0.0001). On an intent-to-treat basis, the mean weight loss achieved by those patients taking Qnexa was 25.1 lbs, compared to 14.4 lbs. for those patients treated with topiramate, 11.6 lbs. for those patients treated with phentermine, and 4.8 lbs. for those patients on placebo. While not directly comparable to rimonabant or Lorcaserin due to differing clinical trial designs, we believe the Qnexa Phase II results are compelling and compare favorably to the results seen with the competing agents. A significantly greater percentage of patients treated with Qnexa (50% on an ITT basis) achieved a clinically significant reduction in weight (>10% of total body weight) compared to those patients taking placebo (8%) or either of the single agents (phentermine 14%; topiramate 16%) alone (p<0.0001). The proportion of patients achieving 10% or more total body weight loss with Qnexa was greater than the sum total of the single agents, suggesting a synergistic effect for the combination. Qnexa achieved a statistically significant reduction in patient waistline (reduction in cm vs. baseline; -12.6 cm) compared to those patients taking placebo (-6.4cm) or either of the single agents (phentermine -6.8cm; topiramate -8.0cm) alone (p<0.0001). Qnexa achieved a statistically significant reduction in patient BMI (body mass index; -10.3%) compared to those patients taking placebo (-1.7%) or
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Obesity
either of the single agents (phentermine 4.3%; topiramate 5.7%) alone (p<0.0001). Weight-loss trends for those patients taking Qnexa did not plateau during the 24-week study, suggesting that additional weight loss could have been achieved if the study was carried out beyond 24 weeks. Previous studies with topiramate alone demonstrated continued weight loss out to 56 weeks. Qnexa was generally well-tolerated, with just four patients (8%) dropping out of the Qnexa arm during the study, compared to 19 patients (38%) in the placebo arm. Mild and transient paresthesia (abnormal neurological sensations) was seen in 38% of patients taking Qnexa; however, no patients dropped out of the study due to paresthesia. Our consultants indicate significant paresthesia and other CNS side effects were key reasons why JNJ abandoned the development of Topamax for the treatment of obesity. The Qnexa Phase II studies were conducted at a single site, which may have helped the dropout rate. Data From Qnexas Type 2 Diabetes Trial Encouraging Results of the OB-202 trial of Vivuss Qnexa in Type 2 diabetes patients were presented at the June 2008 ADA meeting. The trial was a 28-week, multi-center trial examining HbA1c changes and weight loss in 206 patients randomized to receive Qnexa (phentermine 15mg qAM/topiramate 100mg qPM) or placebo. At 28 weeks, Qnexa yielded a reduction in HbA1c of 1.2% vs. 0.6% for placebo and a mean weight loss of 8.0% vs. 1.2% for placebo. Additionally, fasting plasma glucose levels were decreased 18.8% in the Qnexa treatment group vs. 4.3% in the placebo group (p<0.001). The study completion rate was 85% for the Qnexa group, vs. 72% in the placebo group. Patients who completed OB-202 were eligible to continue on Qnexa in a six-month blinded extension study. The 1.2% reduction in HbA1c (0.6% placebo-adjusted) observed for Qnexa is clinically significant, but our clinical consultants attribute the effect to weight loss. Our consultants also note that the 8.0% mean weight reduction (6.8% placebo-adjusted) observed for Qnexa is clinically significant, but is roughly on par with phentermine monotherapy. This observation is consistent with the separated dosing regimen, in which the phentermine was dosed in the morning and the topiramate was dosed at night (see below). Overall, our clinical consultants believe these efficacy data are solid, but not surprising. But Separate Dosing Of Components Raises Questions In this trial, Qnexa was well-tolerated with no treatment-related serious adverse events (SAEs), which is inconsistent with our consultants prior topiramate clinical experience, especially at the 100mg topiramate dose. In this trial, the phentermine was dosed in the morning while the topiramate was dosed in the evening. Our clinical consultants note that this dosing regimen maximizes the efficacy of the phentermine component (morning dosing is required for phentermine efficacy), while reducing the tolerability issues caused by the parasthesias and other CNS side effects associated with topiramate. While the AM/PM dosing regimen yields good efficacy and tolerability for the phentermine/topiramate combination, the separate components are available generically and will be widely substituted if dosed separately.
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Obesity
Qnexa Intellectual Property An Area Of Focus Qnexa is covered by patents and patent filings in the U.S., Europe, and other key international markets. The key U.S. use patent (#7,056,890 B2) covering Qnexa was issued in June 2006. Johnson & Johnson (JNJ) also holds a patent covering the use of topiramate (Topamax) in obesity (U.S. patent #6,071,537; expires June 2017). Vivus management indicates that it has a freedom to operate opinion from legal counsel, and that its counsel believes that the JNJ patent is invalid due to prior art/anticipation. Vivus management has highlighted an abstract published in the journal Neurology in 1994 (Penovich, et al. Neurology, 44 [suppl. 2] A204-A205). The abstract - which was published ahead of the filing of the 537 patent - was not referenced in JNJs 537 patent and is believed to anticipate the use of topiramate for the treatment of obesity. Vivus Qnexa patent and patent applications claim a method-of-use combining a sympathomimetic agent (i.e., phentermine) and an anticonvulsant (i.e., topiramate) for the treatment of obesity. The U.S. patent (US #7,056,890 B2) claims doses of phentermine of 5-15mg and doses of topiramate of 100-200mg. The international (PCT) patent application (Pub #WO0076493) claims doses of phentermine of 5-60mg and doses of topiramate of 50-150mg. JNJs Topamax composition-of-matter patent expires in September 2008, and thus does not present a commercialization barrier for Qnexa. However, JNJs method-of-use patent for Topamax in obesity (U.S. patent #6,071,537; expires June 2017) could be a hurdle. This patent claims a method of treating obesity using topiramate, and specifically claims therapeutically effective doses from 50 to 400mg. Our legal consultants indicate that while Vivuss Qnexa patent appears to be patentably distinct, there are still overlapping claims with the JNJ 537 patent, which JNJ could use as a basis to sue. Vivus management has indicated that it may look to strike a deal with JNJ to avoid litigation and any slowing of Qnexas development timeline. Qnexa Phase III Trials In Obesity Under Way In November 2007, Vivus initiated the first two Phase III trials of Qnexa. This pivotal program is being conducted under an SPA with the FDA. The placebocontrolled, multi-dose 56-week pivotal EQUIP (OB-302) trial was fully enrolled in March 2008 with >1,250 morbidly obese patients (BMIs greater than or equal to 35). There is a four-week lead-in titration period. The co-primary endpoints for the trial are mean weight loss and the percentage of subjects achieving weight loss of 5% or more of their body weight. A once-daily formulation, which releases the phentermine upon morning dosing and releases the topiramate in the event (so as to minimize side effects) is being used in the Phase III program; a twicedaily formulation was used in Phase II. Two fixed dose combinations of Qnexa are being tested in EQUIP. The trial will have three arms: (1) placebo (n=500); (2) full strength Qnexa: 15mg of immediate-release phentermine and 92mg of controlled-release topiramate (n=500); and (3) low dose Qnexa: 3.75mg of immediate-release phentermine and 23mg of controlled-release topiramate (n=250). Patients enrolled in the Phase III program will be required to reduce their caloric intake by 500 calories/day and implement a lifestyle modification program. We anticipate top-line results from EQUIP in Q3:2009. The pivotal placebo-controlled, multi-dose, 52-week CONQUER (OB-303) trial completed its enrollment with approximately 2,500 patients in April 2008. Obese patients enrolled in the trial will have baseline body mass index scores
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(BMIs) of 27-45. Type 2 diabetes patients will also be enrolled, regardless of baseline BMI. The co-primary endpoints of the placebo-controlled trial are mean percent weight loss and the percentage of subjects achieving weight loss of 5% or more. Qnexa is being dosed 1x daily, and two different doses of Qnexa are being tested: mid-dose (7.5mg phentermine/46mg topiramate) and full strength (15mg phentermine/92mg topiramate). Patients enrolled in the trial will be instructed to reduce their caloric intake by 500 calories/day. Enrollment in CONQUER was completed in April 2008, so we expect data to be reported in Q3:2009. In December 2007, Vivus initiated a 28-week confirmatory factorial trial of Qnexa in obese patients (BMIs of 30-45). The 7-arm EQUATE (OB-301) trial is testing two fixed dose combinations of Qnexa (7.5mg phentermine/46mg topiramate and 15mg phentermine/92mg topiramate), as well as the individual drug components (topiramate and phentermine) used in the fixed dose combinations of Qnexa. The co-primary endpoints for the trial are mean weight loss and the percentage of subjects achieving weight loss of 5% or more of their body weight. Patients enrolled in the trial are instructed to reduce their caloric intake by 500 calories/day. The double-blind, placebo-controlled, 7-arm EQUATE trial completed enrollment of 756 obese subjects (599 females, 157 males) in March 2008. Following a dosetitration of 4 weeks, patients were administered treatment QD over a 24 week period, receiving mid-dose Qnexa (7.5mg phentermine/46mg topiramate CR), full-dose Qnexa (15mg phentermine/92mg topiramate CR), individual phentermine and topiramate components, or placebo. Top-line results for the EQUATE trial were reported in December 2008. The trial met its primary endpoint in showing statistically significant weight loss with full-dose and middose Qnexa compared to placebo. Patients treated with full-dose Qnexa had an average weight loss of 9.2% compared to the placebo weight loss of 1.7% (p<0.0001). The mid-dose Qnexa compared favorably to the full-dose patients achieving a weight loss of 8.5%. An average weight loss of 19.8 pounds for the full-dose group and 18.2 pounds for the mid-dose group was recorded compared to a weight loss of 3.3 pounds for the placebo group in the study. Both doses were well tolerated with the most common drug-rlated side effects reported as paresthesia (7.5mg dose: 15%; 15mg dose: 20%; placebo: 3%), dry mouth (7.5mg dose: 12%; 15mg dose: 18%; placebo: 0%), constipation (7.5mg dose: 6%; 15mg dose: 11%; placebo: 6%), and altered taste (7.5mg dose: 8%; 15mg dose: 15%; placebo: 0%). Statistically significant drug-related effects associated with depression and altered mood were not observed for both doses compared to placebo (7.5mg dose: 0.9%; 15mg dose: 1.9%; placebo: 1.8%). In January 2009, a follow up analysis for the EQUATE trial reported that nondiabetic patients treated with Qnexa showed a statistically significant lowering of blood sugar compared to patients on placebo measured by the hemoglobin A1c test, which indicated a reduction in glycosylated hemoglobin levels. These results may indicate a broader benefit for Qnexa in non-diabetic patients for glycemic control. Management expects to be in a position to release full Phase III results for Qnexa in Q4:2009. We target a H2:2010 launch for Qnexa. We project Qnexa sales of $30MM in 2010 and $200MM in 2013.
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VIVUS PRODUCT DEVELOPMENT MILESTONES Product Qnexa (phentermine/topiramate) Date December 2008 Event EQUATE (OB-301) trial results
28-week factorial trial, 700 patients, 35 clinical sites BMI 30-45 (with and w/out co-morbidities) Co-primary endpoints (differences between arms): - Mean % weight loss - % of pts. achieving >= 5% weight loss 7 arms, QD dosing: - 7.5mg phentermine/46mg topiramate CR - 15mg phen/92mg topi CR - each separate component - placebo Enrollment completed 3/6/08
H2:2009
EQUIP (OB-302) trial results

52-week efficacy trial, 1,250 patients BMI >= 35 (morbidly obese) Co-primary endpoints: - Mean % weight loss - % of pts. achieving >= 5% weight loss 3 arms, QD dosing: - 3.75mg phen/23mg topi CR (n=250) - 15mg phen/92mg topi CR (n=500) - placebo (n=500) Enrollment completed 3/26/08
H2:2009
CONQUER (OB-303) trial results

52-week efficacy trial, 2,500 patients BMI 27-35 (overweight and obese) Co-primary endpoints: - Mean % weight loss - % of pts. achieving >= 5% weight loss 3 arms, QD dosing: - 7.5mg phen/46mg topi CR - 15mg phen/92mg topi CR - placebo Enrollment completed 4/21/08
H2:2009/ H1:2010 H2:2010
NDA submission Market launch
Cetilistat May Be Better Tolerated Than Xenical

Cetilistat is Alizymes lipase inhibitor and is poised to enter Phase III trials pending a corporate partner. Alizyme has reached agreement with the FDA on a pivotal program for cetilistat under an SPA. In its clinical trials, cetilistat has demonstrated similar weight loss to Xenical (orlistat), yet was distinguished by superior tolerability. A double-blind Phase IIb trial in 612 obese, diabetic patients randomized patients to either cetilistat (40mg, 80mg or 120mg), Xenical (120mg) or placebo. Study medications were taken three times daily. Patients had a BMI of between 28 and 45 at study entry and received metformin for control of diabetes. Over a 12-week treatment period, cetilistat 80mg and 120mg promoted significant weight loss compared with placebo (3.85kg and 4.32kg
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Obesity
versus 2.86kg respectively), thus meeting the trial's primary endpoint. Cetilistatinduced weight loss was similar to that achieved with Xenical (3.78kg). Rates of premature discontinuation for adverse events were 2.5%, 5.0% and 2.5% for cetilistat 40mg, 80mg and 120mg respectively. This compared with 6.4% for placebo and 11.6% for Xenical. Since Xenicals GI side effects are a principal cause for discontinuation, cetilistats profile may enable it to become a preferred lipase inhibitor for weight loss. Cetilistat has also demonstrated an ability to lower HbA1c, and the FDA has recommended that Alizyme open a separate IND for the diabetes indication.
NeuroSearchs Tesofensine Looks Promising

Tesofensine is a triple monoamine re-uptake inhibitor it blocks the re-uptake of serotonin, dopamine and noradrenaline, but does not interact with monoamine receptors. It is believed to induce weight reduction through both appetite suppression and increased thermogenesis. Preclinical studies with tesofensine in DIO rats have shown sustained 10% weight loss. Encouraging Results From TIPO-1 Phase IIb Trial In September 2007, NeuroSearch released positive data from the TIPO-1 Phase IIb study of tesofensine. In 203 patients (baseline BMI of 30-40), 24 weeks of treatment with 0.25 mg, 0.5 mg and 1 mg tesofensine resulted in a dosedependent average weight loss of 6.5%, 11.2% and 12.6%, respectively vs. 2.0% weight loss in the placebo group (p < 0.0001 vs. placebo for all three drug groups). Secondary endpoints, including relative decrease in BMI as well as increased feelings of satiety were also met (p < 0.0001 for BMI). In the two highest dose groups (0.5 mg and 1.0 mg), treatment with tesofensine led to an average BMI reduction of 4. All participants followed a reduced-calorie diet and exercise program. Approximately 80% of weight loss with tesofensine was due to decreases in body fat. Patients from TIPO-1 were eligible to continue in TIPO-4, an open-label extension study, and positive interim data were reported in July 2008. TIPO-4 offered another six months of treatment with tesofensine 0.5 mg daily for all patients. Patients in TIPO-4 followed the same diet and exercise program as in TIPO-1. Interim results at 24 weeks showed that tesofensine continued to provide weight loss following a two month washout period (during which a gain in weight occurred), and led to weight loss in patients who had been on placebo in TIPO-1 at levels commensurate with those demonstrated in treatment patients in the controlled portion. Tesofensine was well tolerated in TIPO-1/4, and the most frequent adverse events included dry mouth, sleep disturbances, nausea, constipation and diarrhea. These were mostly mild to moderate. Slight increases in heart rate and blood pressure were noted with increasing dose, but were not deemed clinically relevant.
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TIPO-1 Results
Tesofensine Placebo Intent-to-treat population Mean baseline weight (kg) Average relative weight loss 52 103.2 2.0% 0.25 mg 52 101.7 6.5%* 6.7* 0.5 mg 50 100.1 11.2%* 11.3* 1.0 mg 49 101.3 12.6%* 12.8*
Average absolute weight loss (k) 2.2% Statistically significant vs. placebo. Source: Company reports
TIPO-2 Demonstrates Positive Effects On Metabolic Parameters TIPO-2 was a randomized, double-blind, placebo-controlled study of 32 overweight subjects (BMI=28-35) who were treated for 14 days with either tesofensine (accelerated dosing up to 1 mg exposure) or placebo; the aim of the study was to evaluate tesofensine's effect on selected metabolic parameters. Even though TIPO-2 was designed for only two weeks of treatment, a statistically significant mean weight loss of 2.2 kg was seen in the tesofensine-treated group compared to a mean weight loss of 0.4 kg in the placebo group. The results showed no measurable changes in energy expenditure, metabolic rate and respiratory quotient, but did demonstrate that tesofensine provides an increased feeling of satiety (p<0.05), increase in 24-hour fat oxidation (p<0.05), lower 24-hour protein oxidation (p<0.05), and greater loss of fat tissue (p<0.01) vs. placebo.
Amylin Developing Novel Obesity Therapies, Data Encouraging

In addition to diabetes therapies, Amylin is committing efforts to the development of treatments for obesity. Pramlintide has demonstrated weight loss properties in a Phase IIb study, and results from an extension study presented at Amylins analyst day in October 2008 demonstrate that patients completing 52 weeks of pramlintide therapy experienced a 7-8% mean body weight reduction (depending upon dose) compared to a 1% reduction in patients receiving placebo. Evidence also supports gut hormone fragment PYY 3-36 as an active weight-control agent, and this is in Phase I trials. Preclinical data suggest that pramlintide works synergistically with several proteins believed to have potential for causing weight loss, including PYY 3-36 and leptin. In November 2007 Amylin announced positive results from pramlintide + leptins Phase IIa proof-of-concept study. 177 overweight and obese patients with a body mass index ranging from 27 to 35 kg/m2 were enrolled in this 24-week randomized active-drug controlled trial. For the first four weeks, patients were only given pramlintide, and those patients who experienced 2-8% weight loss (139 patients, or 78%) continued for the remaining 20 weeks and received either pramlintide + leptin, pramlintide, or leptin in a 2:2:1 ratio. Amylin hypothesized, based on preclinical testing, that treating patients with pramlintide alone first enhances the effects of the subsequent pramlintide + leptin combination. The results were impressive in that after completing the study, the pramlintide + leptin arm had a 12.7% decrease in body weight vs. 8.4% in the pramlintide arm (p<0.001). This magnitude of weight loss is better than that for many marketed products, and approaches that achieved by surgery. However, an important caveat is that patients in this trial first had to demonstrate responsiveness to pramlintide alone, and 22% of patients did not
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Obesity
meet this bar and so were not included in the full study. This pre-selection of patients certainly increased the magnitude of the mean weight loss results for pramlintide + leptin, and makes comparisons with results from other drugs less meaningful. Side effects where mostly mild to moderate and transient and included injection site reactions and nausea. Although the trials of pramlintide, sibutramine, and phentermine have also been completed, and the cohorts in the combination arms achieved 11% weight loss, Amylin plans to discontinue development of these combinations in order to focus on pramlintide and leptin. In May 2008, Amylin initiated a 600-patient (BMIs ranging from 27-45 kg/m2) randomized double-blind placebo-controlled six month Phase IIb study to establish the optimal dose and regimen of pramlintide + leptin, and to examine the effect of the combination in different obese patient segments. This trial will last one year and should be complete in mid:2009. Amylin also plans to develop a novel combination pramlintide + leptin injection delivery system. Pramlintide induces significant weight loss and leptin prevents patients from regaining weight. In addition, unlike other anti-obesity medications that induce fat and muscle loss, pramlintide/leptin is likely to only induce fat loss while preserving lean muscle mass. Pramlintide/leptins phase IIa data, which yielded a 12.7% weight loss, is dramatic and the best our specialist has seen but must be replicated in additional studies. The biggest impediment to broad adoption of obesity therapies could be reimbursement. Currently payors do not reimburse for medications used solely for obesity. However, this may change over the next few years since obesity is associated with hypertension, diabetes, dyslipidemia, cardiovascular disease, obstructive sleep apnea, and liver disease. Assuming insurance companies begin to reimburse for obesity medications, the market size will be able to accommodate several successful medications. Past Attempts With PYY And Leptin Have Been Disappointing PYY 3-36 (pancreatic peptide YY3-36) is a peptide produced in the GI tract that inhibits appetite in response to feeding, and is released in a quantity proportional to meal calorie content. It induces feelings of satiety through its stimulation of neuropeptide Y (NPY) receptors in the hypothalamus, and also inhibits gastric motility. The evidence supporting PYY 3-36 as a treatment for obesity is controversial. Results in humans suggest that it can suppress food intake over 24 hours by up to 33%. However, animal data suggest that, over longer periods, reduced effectiveness may occur as subjects acclimate to and compensate for the higher levels of PYY 3-36. In March 2006, Merck terminated a partnership to jointly develop Nastech's Phase I peptide YY3-36 nasal spray for treatment of obesity after concluding from a preliminary proof-of-concept study that it did not demonstrate efficacy. Nastech, which reacquired rights to the nasal spray, has indicated that it will go it alone with further dose-optimization studies before seeking a new partner. Like PYY, leptin is a hormone that acts within the hypothalamus to reduce food intake, and preclinical data have suggested that the administration of exogenous leptin could be a means of treating excess weight. However, its clinical trials as a single agent (as performed by Amgen) were unimpressive, and in March 2006, Amgen licensed worldwide rights to leptin to Amylin.
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Obesity
Competition In Obesity Company Abbott Alizyme/Takenda Amylin Amylin Arena NeuroSearch Novo Nordisk Orexigen Orexigen Roche Vivus Product Meridia sibutramine Cetilistat Pramlintide Pramlintide + Leptin Lorcaserin Tesofensine Liraglutide Contrave naltrexone + bupropion Empatic bupropion/zonisamide Xenical orlistat Qnexa phentermine / topiramate Status Marketed Phase IIb completed Phase II Phase IIa Phase III Phase II completed Phase II completed Phase III Phase IIb Marketed Phase III Mean Weight Reduction 6.6 - 13 lbs 8.5-9.5 lbs 7.7-13.4 lbs 25 lbs, 12.7% 4-7.9 lbs 14.7-28.2 lbs (6.5-12.6%) 12.1-13.2 lbs 4.3-6.6% 4.5-8.6% 12.4-13.4 lbs 10.7%
Source: Cowen and Company Reports; Biocentury
Weight Loss Driving Further Use of Amylins Byetta

To get a sense of attitudes toward Byetta among doctors, Cowen and Company has conducted periodic surveys of physicians to better understand their enthusiasm for and expected level of use of Byetta. Physicians have been enthusiastic about Byettas ability to help patients lose weight. Given the comorbidities of diabetes and obesity, as well the tendency for several oral diabetes drugs and insulin to increase weight, the favorable effect of Byetta on body weight has led physicians in our survey to view this property as a key differentiating element. In fact, the majority of physicians have consistently said that Byettas ability to reduce weight is the products biggest attribute, and physicians have ranked Byettas weight loss effects above its ability to control A1C as the reason that they prescribe it. Many physicians view Byetta as a weight loss drug for type 2 diabetics, and therefore use it in a wide variety of patients with weight problems. Physicians have reported using Byetta in treatment-nave patients, in patients on oral therapy who would not otherwise start insulin, patients failing orals, and patients on insulin.
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Liraglutide Being Evaluated For Obesity

Novo Nordisks liraglutide, filed with the FDA and EMEA for the diabetes indication in Q2:2008, is also being developed for the treatment of obesity in the non-diabetic setting. Like other GLP-1 analogs such as Amylins Byetta, liraglutide has demonstrated an ability to impart weight loss in its trials. In a 165-subject dose-ranging Phase IIb monotherapy study in type 2 diabetics, patients at the highest dose of liraglutide (1.9 mg) lost approximately 3 kg vs baseline and 1.2 kg vs placebo after 14 weeks. Data from the 533-patient LEAD-4 trial, part of liraglutides Phase III diabetes program, demonstrated that patients treated with a combination of liraglutide, metformin, and Avandia experienced 2.5kg weight loss at 26 weeks as compared to patients on the oral agents only. In early 2007, liraglutide entered a dose-finding, 550-patient Phase II trial in obese subjects without diabetes. This 20-week double-blind trial randomized participants to either liraglutide or placebo, and featured an open-label Xenical arm. Baseline BMI was 30-40, and the protocol featured a mild low-fat diet and exercise instruction. In November 2007, Novo Nordisk released results from the study demonstrating subjects given liraglutide at the highest dose (not specified) led to a weight loss from baseline of >7 kg in comparison to a weight loss of <3 kg in the placebo group and a weight loss of >4 kg in the orlistattreated group. All doses of liraglutide reduced body weight. More than 75% of the people treated with the highest dose experienced a weight loss larger than 5%, and more than 25% experienced a weight loss larger than 10% relative to their body weight at randomization. The study revealed a beneficial effect on systolic blood pressure after treatment with liraglutide; 30% of the 564 participants in the study showed signs of pre-diabetes at randomization, after 20 weeks of treatment with any dose of liraglutide 80-90% of these participants no longer showed any sign of pre-diabetes, as opposed to around 40% in the placebo- and orlistat-treated groups. Liraglutide was generally well tolerated. The overall withdrawal rate across the study was around 20%, and no more than 10% of the people who were treated with liraglutide withdrew from the trial due to adverse events. In patients who continued on therapy (same treatment allocation) in a 32-week open label extension study, at 52 weeks, those treated at the highest dose experienced a mean weight loss from baseline of 7.5-8.0 kg (5.5-6.0 kg as adjusted for placebo). Approximately 75% of subjects achieved >5% weight loss and >35% achieved >10% weight loss after 52 weeks of treatment vs. 25% and 10% of placebo subjects, respectively. The company has finished recruiting patients for its Phase III study that will evaluate long-term weight loss control with liraglutide in obese non-diabetic patients with a history of hypertension or dyslipidaemia. Completion of the Phase III obesity study is expected in October 2010, but liraglutide for diabetes could be approved/launched as early as H1:2009.
Athersyss ATHX-105 Tried To Tackle Obesity

ATHX-105 is an oral candidate in clinical development for obesity indications. ATHX-105 targets the 5-HT2c receptor (highly selective) in the brain. 5-HT, or serotonin, is a monoamine neurotransmitter with various effects mediated by seven receptor families and 14 receptor subtypes. Activation of the central 5HT 1b, 2a, and 2c receptors is associated with reduced eating, and the 2c receptor is viewed by our consultants as most attractive for drug development. Maximizing selectivity for the 2c receptor would be expected to maintain a beneficial effect on food intake while minimizing side effects attributed to the 2a receptor (CNS
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symptoms including anxiety and hallucinations) and the 2b receptor (heart valve thickening). Indeed, as evidenced by the market withdrawal of fenfluramine, a non-selective 5-HT2 agonist, following a link with valvular damage that was eventually determined to be 2b-mediated, the consequences of off-target activity in this receptor class can be onerous and unacceptable. ATHX-105 demonstrated positive anti-obesity effects in several animal models. In a two-week study in Zucker obese rats, in which fenfluramine was used as a positive control, ATHX-105 led to significant (p<0.05), dose-dependent reductions in food intake (up to 57%) and body weight (up to 10%). An investigation in a dog model demonstrated that ATHX-105 dose-dependently suppressed food intake within the first two hours of administration. Preclinical testing also supports the safety of ATHX-105. Studies in dogs have demonstrated an excellent overall safety and tolerability profile with favorable CNS and cardiovascular therapeutic indices, and no adverse events were observed in monkeys receiving 50x the levels needed for efficacy for two weeks. In February 2008, Athersys reported data from a Phase I trial of ATHX-105 conducted in 107 healthy volunteers with BMI 22-40 at a single center in the U.K. This two-part trial first evaluated escalating single doses of ATHX-105, which resulted in a maximum tolerated dose determination of 100mg. The study then investigated once-daily (25mg, 50mg, 75mg) and twice-daily (50mg x 2) dosing over a seven day period. Each cohort contained six subjects on drug and two on placebo. ATHX-105 was generally well-tolerated, with adverse events notable for headache, nausea, and dizziness which were classified mostly as mild-moderate and transient. Subjects treated with ATHX-105 experienced no meaningful effects on heart rate, blood pressure, or EKG parameters at any dose, and there were no serious adverse events and no discontinuations due to adverse effects. Drug exposure and maximum drug concentrations were dose proportionate, and food had no effect on total exposure. But Stumbled Along The Way Unfortunately, in September 2008, the FDA placed a partial clinical hold on ATHX-105 and requested additional data, including new non clinical studies. Subsequently, in November 2008, management announced that FDA concerns with this specific candidate may lead Athersys to "delay, amend, suspend, or terminate" ATHX-105's development. Athersys filed a formal response to FDA's letter in Q4, expects to receive feedback by early 2009, and then will make a go or no-go decision in H1:2009. Based on this new information and a meeting with FDA, management believes that some issues have the potential to prevent the successful development, partnering, and commercialization of ATHX-105. Although details are lacking on FDA's concerns, we believe that barriers to further development appear to be quite high.
Genaeras Trodusquemine Inhibits PTP-1B

Trodusquemine (MSI-1436) is an oral inhibitor of protein tyrosine phosphatase 1B (PTP-1B). As PTB-1B is central to both the insulin and leptin pathways, trodusquemine may have the dual functions of decreasing appetite and normalizing blood sugar. Data demonstrate that trodusquemine can produce consistent, sustainable weight loss in a variety of animal models and appears to overcome metabolic readjustment, which often limits sustained weight loss during caloric restriction. Trodusquemine has been observed to suppress
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appetite, cause differential weight loss, and improve glucose tolerance in a mouse model of diet-induced obesity. It is currently in Phase I testing, and early data indicate the compound has favorable pharmacokinetics, and while nausea was dose-limiting, no serious adverse events were observed. A second Phase I study began in January 2008 and enrolled overweight and obese type 2 diabetics who are poorly controlled on metformin; interim data indicated good tolerability. In February 2009, Genaera outlined preliminary results of the Phase Ib study in progress, which showed that eight 3mg/m2 doses of trodusquemine administered over 21 days achieved a 9.5% decrease in fasting blood glucose compared to placebo, a 7% decrease in AUC for the oral glucose tolerance test, an 11.3% decrease in serum fructosamine (a measure of short-term blood sugar control), and a 0.4% decrease in hemoglobin A1c (a measure of long-term blood sugar control). The second (6mg/m2 dose) and third (10mg/m2 dose) arms of the ascending multi-dose trial for trodusquemine is underway and final data for the full study (102) is expected in Q2:2009. The data for the first arm (3mg/m2 dose) of the study was encouraging, since this initial dose was assumed to be too low to show a therapeutic benefit. No adverse events or side affects were observed for the first treatment group of the study and no dose-limited toxicities have been identified for trodusquemine to date.
Neurogens NGD-4715 Halted Upon Follow-Up

Neurogens NGD-4715 is a small molecule antagonist of melanin concentrating hormone receptor-1 (MCHR1). This hypothalamic receptor stimulates food intake when bound by its ligand MCH. In May 2007, Neurogen announced data from a single ascending dose Phase I study of NGD-4715, in which it was observed to be safe and well-tolerated at all doses studied with favorable bioavailability and pharmacokinetics. In January 2008, Neurogen announced that it had completed a follow-up component of this Phase 1 study upon learning that a moderate induction of the liver enzyme CYP 3A4 occurred, increasing the probability of accelerating metabolism of other drugs administered concomitantly. In the follow-up study, CYP3A4 induction was substantially reduced as measured by treatment with midazolam, a drug sensitive to changes in CYP 3A4 levels. However, vivid dreams and awakenings were reported by half the drug treated subjects during the first week of dosing, suggesting to the company that the effect of MCH-1 receptor antagonism on caloric regulation and sleep architecture requires further study. Based on this, Neurogen determined that it will not advance the compound into Phase II testing, but will consider outlicensing its MCH program for potential development with a partner.
KEY PATENT EXPIRATIONS Drug Meridia Xenical Manufacturer Abbott Labs Roche Patent Expiration 6/07 12/09 U.S. Sales in Year Patent Expires ($MM) $163 415
Source: Cowen and Company Estimates
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POBESITY R&D PIPELINE Company Arena Orexigen Vivus Alizyme Amylin Athersys Neurosearch Novo Nordisk Orexigen 7TM Pharma Product Lorcaserin Contrave Qnexa Cetilistat Pramlintide ATHX-105 Tesofensine Liraglutide Empatic TM 30338 PC I II III NDA MKT Comment Passed 12-month valve review Bupropion + naltrexone Phentermine/topiramate Next-generation lipase inhibitor Expects to initiate Phase IIb pramlitine/leptin in 2008 Phase II on hold. Triple monoamine reuptake inhibitor Could initiate Phase III in 2008 Bupropion + zonisamide Synthetic analog of both PYY 336 and PP In Phase I with leptin Oral PTP-1B inhibitor Modified CNTF
Amylin PYY 3-36 Genaera Trodusquamine Regeneron PEG-axokine Source: Company data
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Obesity
Notes
814
Oncology/Hematology
Oncology/Hematology
Molecular Medicine In Full Swing
Cancer comprises numerous different diseases characterized by uncontrolled cell growth. This aberrant cell growth may be triggered by external (e.g., chemicals, radiation, viruses) and internal (e.g., hormones, immune 6% 2008-13 CGR conditions, inherited mutations) factors. The classification, staging, and progrognosis of various cancers differs greatly based upon site of origin. There are three general solid tumor classifications: (1) carcinomas, cancers originating in the epithelial tissue; (2) sarcomas, cancers originating in connective tissue and muscle; and (3) gliomas, cancers originating in nerve tissue. There are also three types of hematological tumors: myelomas (originating in plasma cells), leukemias (originating in bone marrow), and lymphomas (originating in the lymphatic system). Approximately 10.8MM Americans have or have had cancer, and an estimated 1.4MM new cancer cases were diagnosed in the U.S. in 2008. It is estimated that about 565,000 Americans and 6.2MM people worldwide died of cancer in 2008. Lung (162,000 estimated U.S. deaths in 2008), colon and rectum (50,000 deaths), breast (41,000 deaths), and prostate (29,000 deaths) are prevalent cancers. Causes of cancer include environmental factors (tobacco, chemicals, radiation, diet), genetic factors (inherited mutations, endogenous hormone levels), and associated medical conditions (certain viral infections, immunodeficiency). Antineoplastic agents, which prevent the development, maturation, and spread of cancerous cells, are used along with surgery and radiation to treat cancer. Older chemotherapeutics, including toxins that broadly suppress cell division, are still a mainstay treatment option. These include alkylating agents, DNA intercalators, microtubule inhibitors, antimetabolites, nitrosoureas, and plant alkaloids, many of which are generic. Certain types of cancer, namely prostate and breast, are treated mainly with hormonal agonists/antagonists. Over the last 5-10 years, a number of drugs with novel targeted mechanisms have emerged, providing hope for improved efficacy and reduced side effects. However, the number of tumor types addressed by newer agents is still modest. Hence the market for supportive care products to treat the side effects of chemotherapy remains significant.
Oncology/Hematology Category Market Share By $ Sales
PARTICIPANTS
2008
$66B WYE Other SGP BMY 2% 2% 6% 3% CELG 3% PFE 4% LLY 4%
JNJ 5% SNY 7% AZN 8% NVS 13% DNA 12% AMGN 16%
2013P
SGP Other WYE 2% 7% GSK 3% 3% SNY 3% JNJ 4% BMY 4% LLY 4% AZN 4% PFE 5% CELG 5%
$89B
RHHBY 17%
RHHBY 15%
AMGN 16%
NVS 10%
DNA 13%
Via its blood cell factor franchises, Amgen (Aranesp, Neulasta, and Neupogen) narrowly edged out Roche for greatest dollar share in 2008. We expect Roche to
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Oncology/Hematology
achieve the leadership position in 2013, driven by international sales of NeoRecormon (EPO), MabThera (Rituxan), Avastin, Tarceva and Mircera. Genentech (U.S. rights to Avastin, Rituxan, Herceptin, Tarceva) is expected to grow its share of the market from 12% in 2008 to 13% in 2013. Novartis is expected to have strong oncology/hematology franchises in 2013. Targeted therapies are changing the landscape of cancer treatment and likely will be used in most cancer patients in 5-10 years. Monoclonal antibodies and oral tyrosine kinase inhibitors could reach $22B+ in sales in 2012. Rituxan, used widely for NHL and CLL, remains the worlds best selling cancer drug with sales in excess of $6B. Genentech/Roches Avastin (approved for use in colorectal, lung, and breast cancer, filed for kidney and brain cancer) has validated anti-angiogenesis as a therapeutic strategy. Key data on Avastin in adjuvant disease are anticipated in Q2:09. Sales of supportive care drugs for anemia (Amgens Aranesp, JNJs Procrit) have been decimated by safety issues, but the market for white blood cells support (Amgens Neupgen/Neulasta) is approaching $5B. Small molecule tyrosine kinase inhibitors, led by Novartis Gleevec, Genentech/OSIs Tarceva, Onyx/Bayers Nexavar and Pfizers Sutent, are important advances that eventually could be applicable to many cancers. Monoclonal antibodies including Genentech/Roches Avastin, Rituxan, Herceptin, Eli Lilly/Bristols Erbitux, and Amgens Vectibix have become another mainstay of treatment. More than 1,000 oncology/hematology products are in development, placing it among the two highest in terms of development activity of any category. Our scatter plot shows that Amgen, Genentech, Novartis and Roche are expected to dominate this category in 2013. This category is critical to the growth of Amgen, Celgene, Genentech, Novartis and Roche. Numerous companies have rapidly emerging portfolios.
816
Oncology/Hematology
Oncology/Hematology
110%
90%
BMY NVS DNA AMGN
70%
50% WYE 30% MRK GSK LLY
CELG RHHBY PFE
10% ABT -10% SGP JNJ
-30% AZN
-50%
-70% $0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0 $14.0 $16.0 $18.0 2013 Sales Contributed By Company To Category ($ In B)
817
Oncology/Hematology
ESTIMATED WORLDWIDE MARKET FOR ONCOLOGY/HEMATOLOGY DRUGS BY CLASS ($MM)

2008 Market % Total $24,254 37% 17,486 21,587 65 43,898 $65,550 27% 33% 0% 67% 100% 2013P Market % Total $34,118 39% 21,942 20,752 376 11,396 $88,584 25% 23% 0% 13% 100% $ 08-13 CGR 7% 5% -1% 42% -24% 6% NRx 87-08 CGR Comments NM - DNA/BIIB's Rituxan, DNA/RHHBY's Avastin and Herceptin, NVS' Gleevec, EGFR Inhibitors NM - AMGN/JNJ's Epogen/Procrit, AMGN's Neupogen and Aranesp, RHHBY's CERA 9% - BMY's Taxol and Paraplatin, LLY's Gemzar, TDCHF's Lupron, SNY's Taxotere and Eloxatin NA - Various in early-stage development NA - Includes adjuvant/supportive care therapies 11% - Driven by blood cell factors, Mab/targeted therapies, and novel chemotherapeutics
Drug Class Mabs/Targeted Therapies Blood Cell Factors Chemotherapeutics Chemopreventatives Other Therapies Total Market
Cancer Is A Large, But Fragmented Market Opportunity

DETAILED DISCUSSION
Cancer is the #2 cause of death in the U.S., with a forecasted 565,000 deaths and 1.4MM new cases diagnosed in 2008. Demographic trends and improved screening technologies will accelerate the diagnosis rate, as 85% of cancers occur in the over55 population. The National Cancer Institute (NCI) estimates the overall cost for cancer at $190B in the U.S.; $64B for direct medical cost, $16B for morbidity cost and $109B for mortality cost. Treatment of breast, lung, and prostate cancers accounts for over half of the direct medical cost.
Cancer Drugs Get Special Treatment At The FDA

In 1996, the FDA undertook initiatives to improve patient access to new cancer therapies. Most important, the FDA implemented a two-tiered approval system, providing an accelerated approval track to get new therapies to the market prior to completion of longer-term survival benefit studies, followed by a full approval designation when those studies are completed and reviewed. With this system, the FDA began accepting clinical endpoints other than improvement in survival (for accelerated approval), enabling shorter clinical trials and easier enrollment. Surrogate endpoints include response rates (e.g., tumor shrinkage), progression-free survival (i.e., time to tumor progression), and quality-of-life benefit. Legislation also was enacted to approve drugs intended to treat serious/life-threatening medical conditions and address unmet medical needs on a fast-track basis at the request of the product innovator. Provisions include the ability to submit data on a rolling basis. In certain cases, priority review has dramatically reduced the review time of novel cancer therapies, from over a year to six months or less. More recently, regulatory policies directed at cancer and other high unmet medical needs have drawn criticism owing to the failure of some companies to live up to post-approval requirements and the failure of some drugs (for example AstraZenecas Iressa) to live up to their initial promise. FDA panel recommendations against drug candidates such as Genentechs Avastin (for breast cancer), GPCs satraplatin, and Abbotts Xinlay may signal greater conservatism on the part of the FDA and heighted interest in having survival data prior to approval. While companies in the cancer market should still benefit from the possibility of abbreviated development timelines, the need for more comprehensive datasets for regulatory submissions may lead to some slowing of new oncology therapeutics entering the market.
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Oncology/Hematology
Premium Pricing Is Still The Norm

One of the biggest trends in oncology has been the premium pricing accorded to novel drugs. High pricing likely reflects a dearth of existing products that safely and efficaciously treat cancer and the severe nature of the disease. Nearly every new oncology product launched in the past 5 years has been priced at a level that exceeded investors expectations. Examples include Bristol-Myers/Eli Lillys Erbitux ($10,000 per month), Genentechs Avastin ($4,400 per month), Celgenes Revlimid ($6,200 per month for multiple myeloma), and Cephalons Treanda ($40,000 per course). High pricing of these novel agents is in part being justified to payors based upon the fact that selective therapies like Erbitux and Avastin typically require less supportive and hospital care based upon their superior side-effect profiles. While we doubt that the favorable pricing environment will last forever, we are not aware of any specific initiative that threatens the status quo.
Cancer Characterized By Unregulated Cell Growth

Cancer is a disease characterized by unregulated cell growth. Cancer typically develops when the repair of genetic material in normal cells begins to fail and genes that regulate cell growth become disrupted. This early stage of cancer is the initiation stage. Carcinogens (i.e., radiation, chemicals, and hormones) can trigger changes to the genetic material of a cell, and typically prompt the initiation phase to commence. Cells that have been initiated may become cancerous (promotion phase), leading to changes in the cells DNA, and ultimately uncontrolled growth. Cancer cells can spread to other areas of the body (metastasize), and form tumors, which can destroy normal tissue or organs. Risk factors for cancer include family history, age (roughly 80% of cancer is diagnosed at age 55 or older), diet, and exogenous factors (i.e., exposure to ultraviolet sunlight, smoking). Cancers can be classified in stages to document disease severity, measured on a scale of I to IV (IV represents greater severity), and based on tumor size, involvement of lymph nodes, and metastases.
New Cases Of Cancer And Survival Rates Increasing Modestly

The area in the body where it originates and its appearance characterize cancer. Skin, prostate, breast, lung, and colorectal are the most prevalent forms of cancer. Cancer types vary geographically. For example, the risk of colon and breast cancer is lower in Japan than in the U.S., but people living in Japan have higher rates of stomach cancer. Estimates of new cases of cancer at all sites in the U.S. appear to be stable, and the five-year survival for most cancers has been increasing steadily due to earlier detection and improved therapies.
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Oncology/Hematology
U.S. CANCER INCIDENCE AND SURVIVAL

Est. New Cases Cancer Site Prostate Breast (Female) Lung Colorectal NH Lymphoma Bladder Melanoma Uterus Oral Cavity Pancreas Kidney Leukemia Ovarian All Sites 2008 (thousands) 186 184 215 148 66 69 62 40 35 38 54 44 22 1.44M Y/Y Change % -15% +2% +24% -4% +5% +3% +3% +3% +3% +3% +6% 5-Year Survival 98% 89% 15% 64% 64% 80% 91% 83% 59% 5% 66% 50% 45% 66%
Source: Cancer Facts & Figures, the American Cancer Society, 2008
Numerous Types Of Products Treat And Prevent Cancer

The following table describes the classes of oncology/hematology drugs, their mechanisms of action, and applications in cancer treatment and prophylaxis.
ONCOLOGY/HEMATOLOGY AGENTS: TYPES, ACTION, AND USES

Type/Drug Class
Blood Cell Factors Chemopreventive Agents Chemotherapeutics - Alkylating Agents - Anti-Tumor Antibiotics - Antimetabolites - Hormonal Agents - Nitrosoureas - Plant (Vinca) Alkaloids Immunotherapy Targeted Therapies - Angiogenesis Inhibitors - Tyrosine Kinase Inhibitors - Monoclonal Antibodies Supportive Care/Adjunct Therapies
Mechanism of Action
Stimulate proliferation, differentiation, and mobilization of blood cells Prevent carcinogenesis or stimulate apoptosis of precancerous cells Kill cancer cells by affecting cell division Kill cells by directly attacking DNA Bind with DNA and prevent RNA synthesis Block cell growth by interfering with certain development activities; halts normal development and cell reproduction Modify growth of hormone-dependent cancer cells Kill cells by inhibiting changes necessary for DNA repair; cross blood-brain barrier Block cell division during mitosis (cell reproduction) Boost immune system function Target cancer cells for destruction or block growth signaling pathways Block formation of new blood vessels Inhibit growth factor receptor-linked enzyme activity Block interactions of cell-surface receptors with their ligands Add-on drugs used to enhance the efficacy or improve the side-effect profile of agents
Uses
Increase blood cells, which allow more aggressive chemotherapy administration and decrease infection Chronic treatment of pre-malignant conditions to prevent cancer progression Broad usage Certain carcinomas (breast, lung, ovary, prostate), chronic leukemias, Hodgkins disease, lymphomas Wide variety of cancers Acute and chronic leukemias, choriocarcinoma, tumors of the breast, GI tract, and ovary Breast cancer, prostate cancer Brain tumors, lymphomas, malignant melanoma, multiple myeloma Leukemia, breast, lung, and testicular cancers, lymphomas neuroblastoma IFN and IL-2 for kidney cancer. Many others in development Broad usage Colorectal, breast & lung cancer NSCLC, RCC, HCC, CML, GIST Breast cancer, Non-Hodgkins lymphoma, CLL, colorectal cancer, NSCLC, numerous in R&D Prevent nausea, pain, mucositis
Source: University of Pennsylvanias OncoLink and Cowen
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Oncology/Hematology
Anemia And Supportive Care Agents

As cytotoxic agents still form the backbone of most chemotherapeutic regimes, it is not surprising that supportive care therapies make up one of the larger markets within oncology. Such supportive therapies continue to benefit from the fact that many chemotherapeutic agents lack specificity for tumors and cause a broad range of side effects including nausea, anemia, and neutropenia. The most successful supportive care products have been recombinant versions of the natural proteins erythropoietin (EPO) and granulocyte colony stimulating factor (G-CSF) for the replenishment of red blood cells and neutrophils, respectively.
Cowen And Company Erythropoietin Market Model ($MM)
2008A Sales: Worldwide J&J (Eprex & Procrit) Amgen Aranesp Epogen Roche (NeoRecormin/Epogin & CERA) Other WW Total United States J&J (Procrit) Amgen Aranesp Epogen Roche (CERA) U.S. Total International J&J (Eprex) Amgen (Aranesp) Roche (NeoRecormin/Epogin & CERA) Other (Biosimilars) Int. Total Growth Analysis Worldwide J&J (Eprex & Procrit) Amgen Aranesp Epogen Roche (NeoRecormin/Epogin & CERA) Other WW Total United States J&J (Procrit) Amgen Aranesp Epogen Roche (CERA) U.S. Total International J&J (Eprex) Amgen (Aranesp) Roche (NeoRecormin/Epogin & CERA) Other Int. Total Q1E Q2E Q3E Q4E 2009E 2010E 2011E 2012E 2013E
2,460 5,593 3,137 2,456 1,800 140 9,993
557 1,260 680 580 450 35 2,302
562 1,320 700 620 460 40 2,382
559 1,360 725 635 460 40 2,419
547 1,390 750 640 470 40 2,447
2,225 5,330 2,855 2,475 1,840 155 9,550
2,077 5,575 3,050 2,525 1,915 170 9,737
1,947 5,725 3,150 2,575 1,990 185 9,847
1,824 5,875 3,250 2,625 2,070 205 9,974
1,785 6,025 3,350 2,675 2,155 225 10,190
1,335 4,096 1,640 2,456 0 5,431
321 920 340 580 0 1,241
329 970 350 620 0 1,299
331 998 363 635 0 1,329
324 1,015 375 640 0 1,339
1,305 3,903 1,428 2,475 0 5,208
1,252 4,112 1,587 2,525 0 5,364
1,202 4,245 1,670 2,575 0 5,447
1,154 4,379 1,754 2,625 0 5,533
1,180 4,518 1,843 2,675 0 5,698
1,125 1,497 1,800 140 4,562
236 340 450 35 1,061
233 350 460 40 1,083
228 363 460 40 1,091
223 375 470 40 1,108
920 1,428 1,840 155 4,343
825 1,463 1,915 170 4,373
745 1,480 1,990 185 4,400
670 1,496 2,070 205 4,441
605 1,508 2,155 225 4,493
-15% -8% -13% -1% 1% -8% -21% -12% -24% -1% -14% -5% 3% 1% 0% 0%
-12% -4% -11% 5% 0% -5% -4% -4% -15% 5% -4% -20% -5% 0% 0% -7%
-14% -9% -15% 0% 2% -8% -5% -8% -18% 0% -7% -24% -12% 2% 14% -9%
-10% -8% -14% 0% 2% -6% -1% -9% -21% 0% -7% -20% -6% 2% 14% -6%
-2% 3% 6% -1% 4% 2% 1% 2% 6% -1% 2% -7% 6% 4% 14% 3%
-10% -5% -9% 1% 2% -4% -2% -5% -13% 1% -4% -18% -5% 2% 11% -5%
-7% 5% 7% 2% 4% 10% 2% -4% 5% 11% 2% 3% -10% 3% 4% 10% 1%
-6% 3% 3% 2% 4% 1% -4% 3% 5% 2% 2% -10% 1% 4% 9% 1%
-6% 3% 3% 2% 4% 1% -4% 3% 5% 2% 2% -10% 1% 4% 11% 1%
-2% 3% 3% 2% 4% 2% 2% 3% 5% 2% 3% -10% 1% 4% 10% 1%
Source: Cancer Cowen and Company
Safety Issues Have Decimated The ESA Market

Erythropoietin, originally developed by Amgen and subsequently outlicensed to others through several territory- and indication-specific deals, is the single most successful product in biotechnology history. Worldwide sales of all EPO products topped $11.8 billion in 2006, including an estimated $6B in oncology. However, smoldering concerns over potential safety issues associated with erythropoiesis
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Oncology/Hematology
stimulation agents (ESAs) escalated into an inferno in 2007 driven by the outcome of two trials in off-label settings. Results from Amgens Study 103 investigating Aranesp versus placebo in patients with anemia of cancer not currently receiving chemotherapy showed no benefit in reducing transfusions (hazard ratio 0.85, p=0.32) and an increase in 16-week mortality (hazard ratio 1.29, p=0.006). It subsequently became known that the DAHANCA 10 study testing Aranesp in nonanemic head & neck cancer patients receiving radiotherapy was halted after an interim analysis indicated that the trial was unlikely to reach its primary endpoint (improved survival for Aranesp versus placebo). Aranesp-treated patients in DAHANCA 10 performed worse than placebo-treated patients in terms of local regional failure (p=0.01) and trended toward worsened mortality (p=0.08). Later in 2007 Amgen and JNJ further disclosed the results from two additional trials, PREPARE (neoadjuvant breast cancer) and GOG (cervical cancer). Data from both suggested adverse trends (not statistically significant) in death and tumor progression for patients treated with ESAs. Although AMGNs PREPARE and JNJs GOG studies (cervical cancer trial sponsored by JNJ) were also off-label, high hemoglobin target studies, the FDA had seen enough evidence to become convinced of the potential for ESAs to cause harm. ESA Labels Amended Three Times Results from study 103 and DAHANCA prompted an already concerned and increasingly conservative FDA to amend the label of all ESAs with a black box warning against off-label usage and overdosing in both the oncology and renal disease settings in March 2007. Following reviews by the Oncologic Drugs Advisory Committee (ODAC) and Cardiovascular and Renal Drugs Advisory Committee (CRDAC), the label for ESAs was further refined in November 2007 and July 2008. Highlighted changes include: Dosing: Renal failure patients should dose ESAs to maintain a hemoglobin range of 10-12mg/dL. Hyporesponder patients that cannot reach the goal Hb range should be maintained on a minimum dose that can prevent transfusions. Physicians should initiate ESA therapy only in cancer patients whose hemoglobin levels have fallen below 10g/dL. The label will also include a warning against ESA use in patients who are being treated with curative intent (adjuvant chemotherapy patients). Boxed Warnings: Renal failure patients with higher levels of Hb (13.5 and 14 g/dL) vs. lower levels (11.3 and 10 g/dL) have an increased risk of CV events and death. A boxed warning for cancer patients states that targeting a Hb level >12g/dL leads to shortened survival and time to tumor progression and since these risks and others (thromboembolic) have not been ruled out in patients with lower Hb levels, the label recommends using the lowest dose possible to prevent transfusions and using ESAs in patients who are receiving chemotherapy. Other warnings include that renal failure patients who are hyporesponders to ESAs may experience increased CV risks and mortality. Quality of Life: The label maintains claims that ESAs improve exercise tolerance and physical functioning in patients with renal failure but no longer includes quality of life indications in cancer patients.
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Oncology/Hematology
E.U. Label Revisions More Benign In 2008, the EMEA amended the labels for ESA. Changes include: (1) Target hemoglobin should range from 10 to 12g/dL and excursions above 12g/dL should be avoided; (2) Guidance on how to dose ESAs to target a 10-12g/dL range should be provided; (3) Prescribing information will include a special warning to indicate that excess mortality has been observed in trials that target Hb >12g/dL and that ESAs have not been shown to benefit patients with anemia of cancer; (4) ESAs will be indicated for the treatment of symptomatic anemia in CKD patients vs. todays labeling for anemia associated with CKD. In addition, the E.U. labels indicate that cancer patients with reasonably long life-expectancy should receive blood transfusions and not ESAs, due to the associated risk of tumor progression and death. However, the decisions for ESA use should be made on a patient-by-patient basis based on weighing the pros and cons of giving ESAs. We view the EMEAs label changes as relatively benign. Given that ESA safety issues have been less politicized in Europe and that there has historically been less overdosing of these agents in this geography, we expect sales of Aranesp (approximately $1.5B) to witness far less impact from these changes.
Sales of Amgens Aranesp Poised For One More Leg Down

In 2007, U.S. oncologists were quick to curtail their use of ESAs in cancer-related anemia ($500MM in sales in 2006) and CIA ($1.4B in sales in 2006). IMS sales trends confirmed a rapid deterioration in Aranesp revenues during this time period. We believe U.S. sales in oncology were tracking at a run rate of approximately $1B heading into the most recent (July 2008) label change. This change and an expected REMS program are anticipated to have a further negative impact on sales trends. Amgen had estimated that Aranesp sales might decline by approximately 20%. However, based upon Q4:08 trends, it appears that greater downside is likely. We model 2009-20013 Aranesp sales of $2.85B, $3.05B, $3.15B, $3.25B, and $3.35B respectively.
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Oncology/Hematology
IMS Reported Aranesp Sales Trends

500,000 450,000
Aranesp - Monthly sales ($ 000)

400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
Amgens Aranesp Holding Its Own Against E.U. Biosimilars

Several competitors have launched follow-on versions of erythropoietin in Europe. In March 2007, Shire/TKTs Dynepo (erythropoietin delta) was launched into the E.U. dialysis market. Later in 2007, the E.U. approved biosimilar erythropoietin agents from Sandoz (Binocrit), Stada (Silapo epoetin zeta) and Hospira (Retacrit epoetin zeta). In the third quarter of 2008, $387MM of Aranesp sales (10% of Amgens total sales), were derived from ex-U.S. markets (the majority from Europe). Our Amgen model assumes flat sales of Aranesp outside the U.S. beginning in 2008. Amgen asserts that thus far Aranesp has lost little if any market share to the various EPO biosimilars now available the E.U. The company has however had to make double-digit price concessions to certain customers. While the commercialization of biosimilar EPOs will not be without its challenges (Shire has already exited the market with DynEpo), European physicians express comfort with follow-on biologics, and in a highly cost-conscious environment are likely to use any EMEAapproved product. However, much of the pressure from biosimilar EPOs has been directed mostly at first-generation products, including Eprex (Johnson & Johnson) and NeoRecormon (Roche), as opposed to longer-acting drugs such as Aranesp.
Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02 Oct-02 Dec-02 Feb-03 Apr-03 Jun-03 Aug-03 Oct-03 Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Dec-04 Feb-05 Apr-05 Jun-05 Aug-05 Oct-05 Dec-05 Feb-06 Apr-06 Jun-06 Aug-06 Oct-06 Dec-06 Feb-07 Apr-07 Jun-07 Aug-07 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08
Source: IMS Health, Cowen and Company
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Oncology/Hematology
Aranesp Maintaining Its Market Share In The EU
Source: Amgen Analyst Day October 2008
Roches Mircera Unlikely To Enter The U.S. Market Until 2015

Mircera (formerly CERA for Continuous Erythropoiesis Receptor Activator) is a native erythropoietin (Roches NeoRecormon, marketed in Europe) that has been engineered through PEGylation technology to exhibit an extended serum half-life. Mirceras primary amino acid sequence (165 amino acids) and glycosylation pattern are believed to be identical to Amgens erythropoietin. The E.U.s EPAR documents indicate that Mircera differs from Aranesp only by the addition of a PEG group, without any change to the amino acid sequence of the protein backbone. The addition of a large PEG chain provides Mircera with a half-life that is 5-15x longer than native erythropoietin and 3-5x longer than Aranesp. In addition, Roche asserts that PEGylation appears to allow Mircera to continuously stimulate the EPO receptor through repeated attachment and rapid detachment. In contrast, Roche believes native EPO stimulates its receptor only once. Phase III data on Mircera encompassing more than 2,000 ESRD patients suggest Mircera is more potent gram for gram than EPO and capable of driving rapid increases in hemoglobin levels in patients treated every third week. No antibodies to Mircera have been observed in clinical trials. Mircera Gets Approved In U.S. And Europe Roche filed a BLA for the use of Mircera in ESRD patients in April 2006 and was granted approval in November 2007. Phase III development of Mircera in oncology has been postponed, and a BLA filing is now unlikely. Roche announced in July 2007 that Mircera was approved by the EMEA for the treatment of anemia associated with chronic kidney disease. Mircera is an addition to the already competitive ESA environment in Europe with Roches NeoRecormon, JNJs Procrit, Amgens Epogen and Aranesp, and biosimilars.
825
Oncology/Hematology
But Roche Loses U.S. Patent Battle In October 2005, Amgen filed a patent infringement lawsuit against Roche in the U.S. District Court related to PEGylated EPO derivatives. This suit alleges infringement of six of AMGNs U.S. patents that claim EPO products and compositions, as well as processes for making EPO. In its complaint against Roche, Amgen asserts that Mircera contains erythropoietin as claimed by three of its U.S. patents, and that Mircera would not be functional but for its erythropoietin component. Amgen also claims that Roche produces the glycosylated human EPO in PEG-EPO by means of processes covered by Amgens patents. In August 2007, Judge Young of the U.S. Federal District Court of Boston issued a surprisingly early and favorable decision for Amgen in the companys erythropoietin patent dispute versus Roche. Judge Young granted Amgens motion for a summary judgment that Roches PEG-Epo (Mircera) infringes Amgens U.S. patent 5,955,422 (covering pharmaceutical compositions of erythropoietin purified from mammalian cells). Subsequently, in October 2007, a jury of the U.S. District Court in Massachusetts issued a verdict in favor of Amgen in the companys litigation versus Roches Mircera (PEG-Epo). The jury ruled that Mircera infringes 11 valid Amgen patent claims. And Opts To Appeal The Case. Subsequent to the trial, Amgen asked Judge Young for a permanent injunction preventing Roche from launching Mircera. Meanwhile, Roche asked the courts permission, based on certain royalty and pricing concessions to Amgen, to launch Mircera based upon the publics best interest. In March 2008 Judge Young indicated that he would consider granting Roche a compulsory license to Amgens intellectual property, an unprecedented move in the biopharmaceutical sector. However, as Judge Young was considering the compulsory license, Roche decided instead to appeal the case, thus forfeiting the possibility of selling Mircera under a compulsatory license. The appeal process is expected to last 18-24 months, during which Roche has been barred from launching Mircera. We believe that Roche is unlikely to prevail on appeal as the district court ruled in favor of Amgen on 11 of 11 patent claims.
Landscape For Amgens Epogen Also Changed, But Not Dramatically So

Two articles published in the New England Journal of Medicine in November 2006 suggested that high-dose erythropoietin to stimulate red blood cell production above recommended levels in kidney disease patients may be associated with problematic outcomes (excess heart disease or accelerated kidney failure). In these trials, of which one (CHOIR) was conducted using Procrit (JNJ) and the other (CREATE) using NeoRecormon (Roche), stimulation of red blood cell count above the FDA-indicated range (>12g/dL) was associated with problematic outcomes (excess heart disease or accelerated kidney failure). Although these data had been reported in the past and hence were not new to investors, the articles led the media and politicians to criticize Amgen and CMS for their promotion and reimbursement of erythropoietin products, respectively. The FDA hosted a meeting of the Cardio Renal Drugs Advisory Committee in September 2007. That panel voted to reduce the Hb target to 11 g/dL in ESRD and CKD patients with most panelists preferring a range of 11-11.5 g/dL or 10-12 g/dL.
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Oncology/Hematology
There was no consensus on setting specific limits on ESA dosing. Rather the panel suggested that ESA labels simply include dosing data from various trials and a warning that higher doses are associated with increased mortality. The panel supported a labeling change to reflect the dangers of Hb cycling. Many panelists also recommended that future studies should focus on dosing algorithms (vs. refined Hb targets) and defining and treating ESA hyporesponsive patients. These recommendations have been broadly adopted into the new ESA labeling that went into effect in November 2007 (see above). In January 2008, CMS enacted announced revisions to its policy for reimbursing erythropoiesis-stimulating agents (ESAs) in dialysis. The changes are quite benign and have had little impact on the market for Amgens Epogen or Aranesp in this setting. They include modest changes aimed at dissuading dialysis providers from overshooting the targeted hemoglobin range of 10-12 g/dL. Importantly, this targeted range of 10-12 g/dL is itself unchanged from prior CMS policy. Dialysis providers are now required to reduce ESA dosing by 50% should a patients Hb levels exceed 13 g/dL for three months. This compares to the previous policy of a 25% reduction in the case of a patient having exceeded 13 g/dL for six months.
J&Js Procrit Also Feeling Market Contraction, But Gaining Back A Bit Of Share
Procrit/Eprex is erythropoietin alfa, developed by Amgen and licensed to J&J in the U.S. for non-dialysis indications and in Europe for all indications. Procrit sales declined 21% Y/Y in 2008 driven by a decline in the U.S. market for ESAs in oncology. In the U.S., Procrit has gained back a bit of share at Aranesps expense. Amgen had been emplying aggressive marketing tactics to gain share from Procrit for most of up until mid 2008. At its peak, Aranesp enjoyed nearly 60% market share in U.S. oncology driven by the bunding of Aranesp with Neulasta. JNJ finally succeeded (via a court settlement) in getting Amgen to terminate its bundling practices. The result has been modest market shares gains over the past 2 quarters. Relative to Aranesp (24% Y/Y decline in 2008), Procrit sales have held up better (-21%). Eprex has also performed a bit better internationally. Sales have benefited (Eprex decreased by 5% Y/Y in 2008) from the restoration of subcutaneous administration to the products label. On the other hand, biosilimars are expected to take more of a bite out of Eprex in the future. We anticipate that Procrit will continue to gain share from Amgen, although any gains will be modest relative to the overall contraction in the market. We forecast Procrit/Eprex WW sales of $2,225MM (-10%) in 2009, declining to $1,785MM in 2013. In the U.S., we forecast sales of $1,305MM (-2%) in 2009, declining to $1,180MM in 2013. We currently forecast ex-US sales of $920MM (-10%) in 2009, declining to $605MM in 2013.
NeoRecormon Sales Growing Modestly

Roches NeoRecormon (erythropoietin beta) is approved for sales in Europe and Japan. The brand has struggled in the face of greater competition from Aranesp and biosimilars. 2008 worldwide sales of were CHF 1.8B, down 13% Y/Y. In Japan, Epogin has suffered from price cuts, as well as competition from Aranesp. Japanese sales declined 18% to CHF 470M in 2008. We expect sluggish NeoRecormon growth in Europe, impacted by potential new entrants (Shire/TKT) and price competition.
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Hematides Once-Monthly Dosing May Be A Key Advantage

Affymaxs hematide is a synthetic, PEGylated peptide which activates the EPO receptor and is being developed for anemia in the renal setting. Although hematide works by the same mechanism as the erythropoietins, its completely novel peptide structure gets around Amgens intellectual property. Clinical data suggest that it can be dosed once per month, which should allow greater flexibility in dosing and enable it to be given in oncology on schedule with a patients chemotherapy. It can be given intravenously or subcutaneously, and our consultants believe that hematides data have shown it to be safe and well tolerated. While hematide has been shown to effectively improve hemoglobin levels in patients with chemotherapy-induced anemia (CIA), Affymax recently made the strategic decision to discontinue development in oncology. Hematides Phase III program in renal-related anemia has completed enrollment. Data from four 52-week open-label randomized controlled non-inferiority studies are expected in early 2010. There are two studies in chronic kidney disease (nondialysis) patients that will compare monthly Hematide to biweekly Aranesp in correcting anemia and maintaining hemoglobin in the 11-12g/dL range. There are another two trials in end stage renal disease (ESRD) patients that will evaluate Hematide's ability to maintain hemoglobin levels of 10-12g/dL in patients who are switched from Epogen or NeoRecormon. The trials have two primary endpoints: efficacy and safety. The primary efficacy endpoint is a non-inferiority comparison in change from baseline in hemoglobin levels between Hematide and the EPO comparators. For safety, the adverse event data from all four trials will be pooled, and the cardiovascular safety of Hematide will be compared to that of the controls. The analysis has 80% power to detect a 30% difference in time to first cardiovascular adverse event. The program will enroll 2,400 patients. Affymax expects to submit an NDA for use in anemia due to renal conditions in 2010. Worldwide rights to hematide have been partnered with Takeda. We estimate U.S. revenues of hematide in 2011-12 of $150MM and $370MM, respectively.
Amgens Neulasta Gaining In First Cycle Use

Launched in 2002, Neulasta is a sustained-duration form of Neupogen (G-CSF) created by attaching a polyethylene glycol (PEG) molecule to the N-terminus of Neupogen. Neulastas longer half-life permits once-per-cycle dosing to control chemotherapy-induced anemia. Neulastas dosing advantage has translated into rapid market acceptance, making Neulastas launch the strongest ever for an injectable drug. Neulasta was also launched with a clever pricing strategy that effectively priced Neulasta at an 18% premium to Neupogen. Neulasta is sold in 10day doses instead of Neupogens single day doses. Because patients are on therapy for an average of 6.5 days, Amgen captures significantly more revenue per Neulasta patient. Amgens strategy made Neulasta one of the fastest launches ever in the history of biotechnology. However, following its rapid adoption, the conversion rate from Neupogen to Neulasta has slowed with Neupogen retaining approximately one third of the market. Amgen expects growth of its Neulasta/Neupogen franchise to be driven by patient growth and expanded first-cycle use (prophylaxis of neutropenia). Data from a randomized, double-blind, placebo-controlled study of 928 breast cancer patients show that first and subsequent-cycle administration of Neulasta resulted in a 94% reduction in the incidence of febrile neutropenia, a 93% reduction in the incidence of
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hospitalization, and an 80% reduction in the incidence of intravenous anti-infective use in patients receiving myelosuppressive chemotherapy previously considered at moderate risk for neutropenic complications. The 2005 expansion of Neulastas label to cover this indication has helped, but Neulastas penetration as a first cycle agent in patients on myelosuppressive therapies is only approximately 60%. Amgens G-CSF franchise grew 9% Y/Y in 2008 to $4.7B. Several biosimilars versions of G-CSF have been approved and are launching in the E.U. Such introductions are expected to compete for share in Neupogens $400M E.U. market, but have little impact on Neulasta. In addition, several next-generation long acting G-CSFs are in development (Maxygen, Neose, and Teva). However, none of these are anticipated to make it to market until at least 2013.
Amgens Nplate, GSKs Promacta Approved For Thrombocytopenia

Nplate (romiplostim) is a novel peptibody comprised of a pair of identical short peptides that are each linked to the Fc region of IgG. Nplate, administered once weekly subcutaneously, binds to megakaryocytes and stimulates platelet production. Idiopathic thrombocytopenia purpura (ITP) is an autoimmune disease in which antiplatelet antibodies destroy peripheral platelets and damage platelet producing megakaryocytes in the bone marrow. An estimated 30,000 patients currently being treated in the U.S. with 10,000 new diagnoses every year, of which 40% require treatment. Consultants are impressed by Nplates Phase III and open label extension data and believe Nplate would likely be initially reserved for second-line use (after corticosteroids). In August 2008, Nplate was approved by the FDA. Nplate is priced at approximately $55, 000 per patient per year. Nplate likely represents a $200MM U.S. market opportunity and will likely compete with GSKs Promacta (also approved in 2008), an oral thrombopoietin receptor agonist. Both Nplate and Promacta are being studied in Phase II trials for chemotherapy induced thrombocytopenia.
5-HT3 Antagonists Are Standard Of Care For ChemotherapyInduced Nausea And Vomiting
Nausea and vomiting are common side effects of chemotherapy, and approximately 70-80% of all cancer patients who receive chemotherapy may experience chemotherapy-induced nausea and vomiting (CINV). In addition to their impairment of quality-of-life, these effects can be severe enough to be treatment limiting, and may lead to either a delay in receiving treatment or its discontinuation. The 5-HT3 receptor antagonists are highly effective for the management of CINV, and several agents within this class, including GSKs Zofran, Eisais Aloxi, Roches Kytril, and Sanofi-Aventiss Anzemet, are approved for CINV and are the standard of care. Across all products, WW sales of 5-HT3 receptor antagonists used for the prevention of CINV is about $2B, but this figure is likely to decrease as generics enter the market. For example, GSKs Zofran held the lions share of the market until 2007, when its composition-of-matter patent expired in the U.S. and in several major European markets excluding Italy (2010), and the emesis use patent, which covers Zofran, expired in December 2006. Several generic formulations of odansetron have recently been launched, including injectable and orally-disintegrating tablet (ODT) formulations, and 2007 sales of branded Zofran ($364MM) were down by nearly 60% vs. 2006 sales of $847MM. While other branded 5-HT3 antagonists may be able to
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maintain share due to differentiating features (such as EisaisAloxi, which retains its efficacy for up to five days following a single injection), we believe the encroaching generic threat will broadly dictate the market for all players.
Brain Cancer
The most common type of brain tumors are gliomas, which may develop within the brain or afflict the brain via metastasis. Normal brain cells do not divide in adults, but adults may have genetic abnormalities that enable brain cells to divide, leading to the formation of tumors. Brain tumors are named for how they appear under a microscope and graded for severity. The most common and aggressive form of brain tumor is glioblastoma multiforme, which affects the glial cells. Astrocytoma is a type of cancer that arises from astrocytes, cells that perform a variety of CNS functions. Roughly 18,000 patients per year are diagnosed with primary malignant gliomas in the U.S., and an additional 25,000 patients are diagnosed annually in Europe. The annual incidence of anaplastic astrocytoma in the U.S. is 2-3,000 cases. Surgery, radiation and chemotherapy are the most common treatments for gliomas. Few advances have been made in developing novel therapeutics for brain cancer. The most commonly used therapeutics are generic drugs including carmustine (BCNU), lomustine, procarbazine, carboplatin, and 5-FU. Schering-Ploughs Temodar and Guilfords Gliadel wafer (a device for sustained delivery of carmustine) are viewed as modest advances over the standard of care, while Genentechs Avastin has produced impressive data in the relapsed setting.
Schering-Ploughs Temodar To Target Many Tumors

Temodar, an oral alkylator chemotherapeutic agent, was approved for the treatment of malignant glioma in relapse patients in 1999. In March 2005, Temodar received FDA approval for the first-line treatment of glioblastoma multiforme (GBM) when administered in combination with radiotherapy and as maintenance therapy. Temodar crosses the blood brain barrier, delivering more drug to the brain than comparative glioma therapies. Additionally, Temodar is an active metabolite, and thus does not need to be metabolized once inside the body to become effective. This differs from existing injectable treatments that must be converted by the liver to become active and therefore have associated side effects and drug interactions. Temodar has been launched in all major European markets and received EMEA approval for treatment of first-line GBM, and has been approved in Japan. At the American Society for Therapeutic Radiology and Oncology 2007 meeting, follow-up data from the original Phase III study conducted by EORTC and NCIC demonstrated that the combination of Temodar and radiation therapy resulted in survival rates of 27.2%, 16% and 12.1%, versus 10.9%, 4.4%, and 3% for radiation alone at two, three and four years respectively. 55 studies are ongoing in other cancers, including lung, colorectal, prostate, breast, sarcoma, leukemia, lymphoma, and brain tumor/metastases. A one-month course of Temodar costs $2,500-3,000. We estimate Temodar sales of $970MM (-3%) in 2009 and $950MM in 2010, $910MM in 2012, due to the anticipated launch of generics in 2011.
Avastin Gaining Mind Share In Brain Cancer

In November 2007, Genentech announced impressive results from a 167-patient, randomized Phase II trial in patients with relapsed glioblastoma multiforme (GBM). As assessed by independent radiological review, 31/85 GBM patients treated with Avastin alone, and 42/82 patients treated with Avastin + chemotherapy, were
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progression-free at six months. Full data presented at ASCO 2008, demonstrated that median survival in these two groups was 9.2 months and 8.7 months, respectively. Adverse Events were similar to those reported in other studies of Avastin. Conversations with GBM experts indicate much enthusiasm for Avastin. Response rates ranging from 21-34%, and six months PFS rates of 36-51% are viewed as unprecedented in this disease. In clinical trials and in practice, Avastin has been well tolerated and theoretical concerns such as hemorrhage/stroke have not been an issue. Genentech submitted an sBLA for Avastin in refractory GBM in November 2008, which has been granted priority review, with a PDUFA date of May 5th, 2009. Physicians are optimistic that the FDA will approve Avastin based upon PFS and overall survival data from this study. Although FDA actions are difficult to predict, there are no approved therapies for recurrent GBM and physicians would be hesitant to randomize patients to a non-Avastin arm. In the meantime, experts report growing off-label adoption of Avastin, limited only by reimbursement. We estimate 8,000 patients/year seek treatment for recurrent GBM. At an assumed cost of $8,800/month (10 mg/kg every 2 weeks) and a duration of treatment of 4-6 months, recurrent GBM represents a $300-400MM opportunity for Avastin. Avastin is also being studied in a Phase III study in first-line disease in combination with radiation/temozolomide.
Breast Cancer
In the U.S., it is estimated that approximately 182,000 women developed breast cancer in 2008. The disease comes in different forms depending on whether the tumor is driven by signaling through the estrogen receptor (roughly 60-70% of patients), the HER2 receptor (roughly 25% of patients), or neither. In the early stages, breast cancer may have no symptoms and can be detected only through mammography screening. During the later phases, symptoms may include tenderness, swelling, lumps, and skin irritation. The use of mammography screening has driven a trend toward earlier stage diagnosis and decreased mortality. Treatment of breast cancer typically includes surgery to remove tumors and lymph nodes. Usually a combination of radiation, chemotherapy, or hormonal therapy is used post surgery (adjuvant setting). An estimated 100,000 U.S. women receive adjuvant chemotherapy each year. Anthracyclines, cyclophosphamide, and taxanes are commonly used in the adjuvant setting either in combination with tamoxifen (a hormonal therapy), aromatase inhibitors (AstraZenecas Arimidex, Novartiss Femara, and Pfizers Aromasin), or Genentech/Roches Herceptin in Her2+ patients. There has been a growing trend toward dosing adjuvant chemotherapy every two weeks (dose dense) along with growth factor support (Amgens Neupogen or Neulasta). Metastatic breast cancer occurs in approximately 40,000 U.S. patients annually and can be treated with a variety of monotherapy or combination drug regimens. Estrogen receptor (ER) positive patients receive hormone therapy first line, while HER2 positive patient typically receive Herceptin and chemotherapy. Avastin is also approved for use in first-line metastatic disease in combination with chemotherapy, with roughly 40% share of HER2 negative patients. Common chemotherapy agents include capecitabine, gemcitabine, paclitaxel, docetaxel, doxorubicin, cyclophosphamide, vinorelbine, methotrexate, and 5-FU. Although therapy is palliative, patients typically remain healthy enough to receive multiple lines (in many cases five or more) of chemotherapy. Median survival with metastatic breast cancer is approximately three years.
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Genentech/Roches Herceptin Entrenched In The Adjuvant Setting

Herceptin, approved in 1998, has almost fully penetrated its initial market of Her2+ metastatic breast cancer patients (approximately 25-30% of the estimated 50,000 new cases each year). However, sales trends witnessed dramatic acceleration during 2005 following demonstration of benefit in the Her2+ adjuvant setting. At ASCO 2005, Genentech presented top-line results from multiple Phase III studies (NSABP B31, NCCTG N9831 and HERA trials) that revealed a roughly 50% reduction in the risk of breast cancer recurrence in Herceptin treated patients compared to standard adjuvant therapy alone. At four years follow-up, 86% of women treated with Herceptin + chemo experienced disease-free survival vs. 73% for women on chemo alone. The studies also supported Herceptins association with an overall survival benefit (a 33% reduction in the risk of death). Additional data from a fourth trial (BCIRG) have produced similarly compelling results. In total, the combined studies evaluated nearly 10,000 patients. Genentech submitted an sBLA for Herceptin adjuvant breast cancer therapy in February 2006, receiving FDA approval in November 2006. Our physician consultants report that they have long been providing Herceptin to the vast majority of their Her2+ patients who receive adjuvant chemotherapy. Although Herceptin is associated with a 3-4% incidence of serious cardiotoxicity including heart failure, our consultants believe that the strong survival data for Herceptin supports its use even with this attendant risk, and that this adverse effect will not be a meaningful deterrent for its inclusion in adjuvant treatment. The incidence of this toxicity may have been subset-driven, as analysis of the NSABP trial showed that women either >50 years of age or with pre-existing heart disease had a much higher risk for this adverse effect. Experts indicate that while physicians do not appear to be screening out patients based on this criterion, they closely monitor the cardiac status of their older patients. In general, our physician consultants have not found cumulative cardiotoxicity to be a major concern; although they note that approximately 10% of their patients have experienced reductions in ejection fraction, this has usually been resolved by withholding two to three cycles of Herceptin. HERA Study Evaluating 12 vs. 24 months Adjuvant Treatment The key question for adjuvant Herceptin going forward is duration of treatment and whether todays standard (12 months) is optimal. Roches ongoing HERA study in adjuvant HER2+ breast cancer is evaluating chemotherapy +/- Herceptin (12 or 24 months duration). While our consultants believe it is difficult to handicap the outcome of this trial, they did indicate that any statistically significant benefit in disease-free survival (the trials primary endpoint) would likely lead the majority of oncologists to adopt the longer treatment duration. This study will likely produce conclusive data in the 2011 timeframe (a DSMB recommended the study continue following an interim analysis in late 2008). HERA enrolled 5,102 Her2+ breast cancer patients between December 2001 and March 2005. Patients were randomized 1:1:1 to receive standard adjuvant chemotherapy followed by either 1) Herceptin for 1-year, 2) Herceptin for 2-years, or 3) supportive care.
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The appropriate duration of Herceptin therapy has never been tested, and is therefore unknown. However, it is interesting that the DFS curves between 1 year Herceptin and no treatment diverge over the first 12 months (on treatment) and then remain roughly parallel (off treatment), suggesting longer duration of therapy might prove beneficial. It is also believed that continued dosing of Herceptin in the metastatic setting (treatment beyond progression) might be beneficial. If Her2+ breast cancer patients never really develop resistance to Herceptin, longer duration of treatment could have an impact on disease control.
1-Year Herceptin Dosing Is Superior To Placebo
Source: Roche
Physicians do not expect cumulative cardiotoxicity to be an issue with 24 months Herceptin treatment, as they note that many of their patients have received Herceptin in the metatstatic setting for as long as 5-6 years, with no cardiotoxicity issues. Should data from HERA show a significant benefit from an additional years worth of Herceptin treatment, we believe this would likely lead to widespread adoption to the 24-month Herceptin adjuvant regimen. Herceptin Adjuvant Market Is Roughly $1B Estimates for the number of women with breast cancer starting adjuvant therapy annually are hard to obtain, but consultants believe that roughly one half to two thirds of all women (100,000-140,000 in the U.S) might receive some sort of adjuvant chemotherapy (in addition to either tamoxifen or an aromatase inhibitor). It is estimated that 50% or patients initiating adjuvant therapy are node negative and 50% node positive. Of patients with early stage breast cancer, 20%, or 20,000-28,000 of those on adjuvant therapy, might overexpress Her2 and be candidates for Herceptin therapy. At a cost of $40K/year, we estimate the Herceptin adjuvant market at $800M-1.1B.
GSKs Tykerb A Nice Addition, But Uptake Has Been Modest

Tykerb, an oral, small molecule, dual Her2/EGFR inhibitor was approved in March 2007 for use in combination with Xeloda for the treatment of patients with Her2+ metastatic breast cancer who have received prior therapy including an anthracycline, a taxane, and Herceptin. In June 2008, the European Commission
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granted conditional marketing authorization for Tyverb. U.S. approval was supported by a single Phase III trial in 392 refractory Her2+ metastatic breast cancer patients. The study showed a time to disease progression benefit for Tykerb plus Xeloda (36.9 weeks) versus Xeloda monotherapy (19.7 weeks, p=0.00016). Although this trial enabled Tykerb to receive FDA approval, Tykerb may not represent a significant advance for patients with Herceptin-refractory breast cancer, as it is widely assumed (though unproven) that Herceptin would also show benefit in this setting. Our consultants report limited use of Tykerb in their HER2+ metastatic breast cancer patients. While they note that Tykerb is a viable alternative in patients no longer benefiting from Herceptin, they have tended to continue using Herceptin in the majority of their patients post-progression as they see no reason to switch to Tykerb and note that Tykerbs safety profile may be differentially worse than that of Herceptin. Versus Herceptin, Tykerb holds theoretical advantages in terms of oral administration, lower cardiotoxicity, and efficacy in treating CNS metastases. However, consultants note that these advantages are purely speculative. Consultants assert that oral dosing is not a significant advantage in the treatment setting as compliance with a 5 pills/day regimen cannot be assured and every three week Herceptin infusions are hardly inconvenient. As a result patients have not clamored for Tykerb. Consultants do believe an oral therapy may be more convenient in the adjuvant setting; however note that data from trials of Tykerb in adjuvant breast cancer is years away (see below). Consultants do expect some increase in their use of Tykerb in the future as they gain experience with the drug and as their pool of relapsed patients who have already received Herceptin in the adjuvant setting grows. We estimate Tykerb sales of 180MM in 2009, 400MM in 2012, and 700MM in 2015. ASCO 2008 featured data from a 296-patient Phase III trial evaluating Tykerb +/Herceptin in heavily pre-treated HER2+ metastatic breast cancer patients. The combination demonstrated a statistically significant increase in median progression free survival versus Tykerb alone (12 weeks versus 8.1 weeks). In addition there was a 27% reduction in the risk of disease progression (HR =0.73; p=0.008) and a response rate pf 10.3% versus 6.9%. Adverse events were similar in both arms, with Grade 1/2 diarrhea, 53% versus 41%. Two studies on Tykerb in the HER2+ adjuvant setting have been initiated. The 3,000patient TEACH (Tykerb Evaluation After CHemotherapy) Phase III trial (outside the U.S. and Europe) is investigating Tykerbs role versus placebo in HER 2+ adjuvant patients. More recently, GlaxoSmithKline and the National Cancer Institute initiated the 8,000-patient worldwide ALTTO (Adjuvant Lapatinib and/or Trastuzumab Treatment Optimisation) Phase III study evaluating Tykerb vs. Herceptin vs. Tykerb/Herceptin combination vs. Herceptin followed by Tykerb, in HER 2+ adjuvant patients. Our physician experts believe that data from these studies are unlikely for at least 3-4 years, however see no reason why Tykerb will not work in the HER2+ adjuvant setting. Consultants await full data from the ALTTO trial to gain a better understanding of Tykerbs role in the adjuvant treatment paradigm. Tykerb Unlikely To Threaten Herceptin In First-line Breast Cancer At ASCO 2007, data were presented from a Phase III trial on paclitaxel +/- Tykerb in 580 unselected (Her2+ and Her2-) patients with first-line metastatic breast cancer. The trial was negative in that Tykerb failed to improve progression-free survival (5.8
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months for the combination vs. 5.2 months for paclitaxel only, p-value not significant) or overall survival (22.8 months vs. 20.0 months, p-value not significant). The combination was associated with moderately higher adverse events (rash, diarrhea, vomiting, neutropenia, mucositis), including a higher incidence of treatment related deaths. Given these results, it appears Tykerb is not destined to compete with Herceptin for market share in Her2- patients. However, a subset analysis from the study showed that the addition of Tykerb to paclitaxel did greatly benefit Her2+ patients in terms of improved progression-free survival (7.9 vs. 5.2 months, p=0.007), and trended toward an improvement in overall survival (24.0 months vs. 19.0 months, p=0.16). Some may interpret these data to mean that Tykerb will eventually threaten Herceptins dominance in first-line Her2+ disease (follow-up studies on Tykerb in this population are already ongoing). Physicians with whom we spoke do not believe this will be the case. When analyzed side by side, they believe the Herceptin data are on the margin stronger, and that Herceptins more established survival benefit (observed in multiple trials) will be difficult for Tykerb to match any time soon. Moreover, even assuming Tykerb ultimately produces Phase III data as convincing as Herceptins, physicians indicate an unwillingness to sequence Tykerb ahead of Herceptin as the sequential benefit of Herceptin followed by Tykerb has been proven while the benefit of Tykerb followed by Herceptin has not. Physicians are unwilling to sacrifice a line of therapy (Herceptin) in a disease where preserving active therapeutic options is a key goal.
Roche/Genentechs Avastin Approved For Front-Line Breast Cancer

In 2005 Genentech announced that a Phase III trial of Avastin plus chemotherapy had met its primary endpoint (progression-free survival) versus chemotherapy alone in front-line metastatic breast cancer patients (the ECOG 2100 trial). This open-label randomized, controlled trial enrolled 722 metastatic breast cancer patients to receive paclitaxel plus or minus Avastin. The physician-reported progression-free survival (PFS) difference in ECOG 2100 was 13.3 months for Avastin plus chemotherapy vs. 6.7 months for chemotherapy alone. Avastin also doubled the response rate attributable to chemotherapy from 14% to 28%. A non-statistically significant trend favoring the Avastin arm has been observed in ECOG 2100. Avastin in breast cancer patients has been very well tolerated, and unlike the drugs profile in colorectal cancer or lung cancer, not associated with any serious drug-related adverse events. Hypertension (13% vs. 0%) was the most notable side effect of the Avastin arm. In late February 2008, Avastin's breast cancer indication was granted accelerated approval under Subpart H guidelines. This action was a surprise to some, given that a December 2007 ODAC panel had voted 5-4 against approval. The panel asserted that ECOG 2100 demonstrated Avastin to be associated with a benefit in PFS; however, it deemed that this benefit was less than robust when weighed against Avastins toxicity and lack of improvement in overall survival. In support of the ECOG 2100 data, in February 2008, Genentech announced that AVADO, a Roche-sponsored Phase III study evaluating docetaxel +/- Avastin in firstline metastatic breast cancer, met its primary endpoint of a significant improvement in progression-free survival (PFS). AVADO was a 736-patient study that evaluated the addition of one of two doses of Avastin (7.5 mg/kg or 15 mg/kg) every three weeks, to docetaxel chemotherapy. Full data were presented at ASCO 2008, and showed that
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while there was no statistically significant increase in efficacy for high-dose Avastin over low-dose Avastin, trends favored the high-dose arm (PFS of 8.8 vs. 8.7, response rate 63% vs. 55%). Although one could still ask why doctors should continue to employ high-dose Avastin over low-dose Avastin in the absence of a meaningful efficacy advantage, the last 12 months of experience with AVAiL (little to no impact on dosing in lung cancer) should put to rest any investor concerns. An Overall Survival Advantage Would Be A Game Changer Were Avastin to show an overall survival benefit in metastatic breast cancer, our physician consultants would feel much more compelled to offer the drug to all eligible patients. With the ECOG2100 trial failing to demonstrate such a survival advantage, Genentech/Roches next hope for doing so rests with AVADO. While PFS data were presented at ASCO 2008, overall survival data from this study are unlikely to be available until 2009 or 2010. Genentech is also conducting the Phase III RIBBON-1 study evaluating Avastin + several chemo regimens (Xeloda, anthracyclines) in HER2-negative front-line metastatic breast cancer, which also met its primary endpoint of PFS in late 2008. In addition, the Phase III RIBBON-2 study is evaluating Avastin + several chemo combinations in second-line breast cancer. Overall survival data from the RIBBON studies might be available in 2010. Based upon consultants comments, we believe positive overall survival data may be required for Avastin to achieve our longer-term estimates in breast cancer. Breast Cancer A Large Market Opportunity For Avastin Our conversations with physician consultants indicate a broad spectrum of opinion on the use of Avastin in the first-line setting. The drugs solid efficacy and a tolerable safety profile have motivated some physicians to adopt it in a majority of patients regardless of chemotherapy. Some centers are even offering the drug to second and third-line patients assuming they did not have the opportunity to receive the drug in the first-line setting. Still others report sticking closely to evidence based practice and using Avastin only in the front-line setting and only in combination with Taxol. The myriad chemotherapies used in treating breast cancer (no standard of care exists) limit the use of Avastin in such practices. Avastins high cost in breast cancer is also a concern for some. As of Q4:08, Genentech estimated that Avastin had penetrated roughly 40% of the market (up from 35% in Q2, and 25% in Q1), and consultants believe penetration might rise as high as 50% over time. It is estimated that there are approximately 50,000 new cases of metastatic breast cancer in the U.S. each year. The majority (90%+) of these patients receive a first-line chemotherapy regimen after treatment with hormone therapy (tamoxifen). Excluding those patients that are Her2+ (roughly 20%), we estimate 40,000 patients are candidates for Avastin therapy. Of these another 5-15% might be ineligible for Avastin based upon having brain metastases or thromboembolic risk. At an average cost of $8,800 per month, the market potential of Avastin in breast cancer is estimated to be $1-2B. Consultants are also optimistic about Avastins potential in the adjuvant setting, where data could be available in two to three years. But Avastins Lack Of Efficacy In Refractory Patients Creates A Bit Of An Overhang The large improvement in PFS observed in ECOG 2100 came as somewhat of a surprise to many in the breast cancer community because the first Phase III trial of Avastin in breast cancer did not show any benefit on this metric. This trial evaluated
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the combination of Xeloda plus Avastin vs. Xeloda alone in metastatic breast cancer patients who were previously treated with both an anthracylcine and taxane regimen. With Avastin having imparted positive results in first-line and negative results in second-line treatment, Avastins value in the minds of some physicians may be called into question, and this apparent conflict may continue to hang over Avastins uptake into the breast cancer market.
Sanofi Aventiss Taxotere: New Indications Support LongTerm Sales Growth

Taxotere (docetaxel) is a taxane with indications in metastatic breast cancer, nonsmall cell lung cancer (represents 75% of all lung cancer cases), and prostate cancer; the three of the most prevalent cancers in the U.S. Taxotere is approved in the U.S. and E.U. for (1) adjuvant and first-line treatment of locally advanced or metastatic breast cancer; (2) first- and second-line treatment of non-small cell lung cancer (NSCLC); and (3) hormone-refractory prostate cancer (HRPC). Other targeted indications include: gastric cancer based on data of TAX 325 (Taxotere + cisplatin + 5-fluorouracil versus cisplatin + 5-fluorouracil) and on SAKK Phase II data presented at the 2005 ASCO meeting; and neo-adjuvant head and neck cancer, supported by the TAX 323 study (Taxotere + cisplatin + 5-fluorouracil versus cisplatin + 5-fluorouracil demonstrated an improvement in response rate and PFS). Taxotere has received U.S. and E.U. approvals in this latter indication. In Japan, Taxotere has been approved for gastric, ovarian, and head and neck cancers. Competition from Alimta in second-line NSCLC likely has tempered sales growth, but new indications should drive sales growth through 2009. Adjuvant Breast Cancer With And Without Herceptin: A $1B Market Opportunity In August 2004, the FDA approved Taxotere as adjuvant therapy for early-stage breast cancer with axillary lymph node involvement. E.U. approval was granted in January 2005. Approval was based upon the long-term (55 months) follow-up data of TAX-316 (BCIRG 001), comparing the combination of Taxotere, doxorubicin and cyclophosphamide (TAC) therapy with fluorouracil, doxorubicin and cyclophosphamide (FAC) therapy. Results at 55 months, which were published in the NEJM in June 2005, confirmed the efficacy of Taxotere as adjuvant treatment in node-positive breast cancer patients, with a significant improvement in disease-free survival (primary endpoint) and in overall survival (secondary endpoint - risk of death reduced by 30%). Three-year results demonstrated a benefit on overall survival (a 24% risk reduction in this secondary endpoint), regardless of whether or not the tumors were receptive to hormone therapy. Taxotere also is well positioned to benefit from adjuvant therapy in combination with Herceptin. In September 2005, an interim analysis of the BCIRG 006 trial at 23 months of median follow-up showed that the addition of Herceptin to Taxotere +/an anthracycline-based regimen significantly improved disease-free survival in the adjuvant setting. BCIRG 006 enrolled 3,222 women with HER2+ breast cancer and poor prognosis. The trial randomized patients to standard adjuvant chemotherapy (doxorubicin, cyclophosphamide, Taxotere) followed by Herceptin + standard chemotherapy (AC-TH) or Herceptin + Taxotere and carboplatin (TCH). The relative reduction in the risk of relapse was 51% in the AC-TH arm and 39% in the TCH arm vs. the AC-T control. Cardiac safety in the TCH arm (protocol-defined cardiac events = 1.2%) was numerically superior to the AC-TH arm (2.3%) and comparable to control. These results position Taxotere as adjuvant therapy in node positive and HER2+
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breast cancer. We estimate that adjuvant breast cancer represents a $1B market opportunity for Taxotere.
Roches Xeloda Gaining In Acceptance

Xeloda (capecitabine) is an oral medication indicated for first-line therapy in metastatic colorectal cancer, combination therapy with docetaxel in metastatic breast cancer after anthracycline treatment and monotherapy in metastatic breast cancer resistant to anthracycline and paclitaxel. Xeloda is a pro-drug and it only becomes active once it comes into contact with the tumor, as it forms 5-fluorouracil (5-FU). Furthermore, it was shown that, in combination with two other drugs (Taxotere and Epirubicin) in metastatic breast cancer, Xeloda improves the response rate in patients with advanced and previously untreated cancer. Xeloda was approved in the U.S. in September 2001 and in Europe in March 2002. In June 2004, Roche presented efficacy data from the X-Act study that compared Xeloda to intravenous 5-FU and leucovorin in the adjuvant treatment of colorectal cancer. Xeloda was as effective as IV 5-FU/leucovorin. In April 2005, European authorities approved Xeloda as adjuvant treatment for colon cancer. In June 2005, the FDA approved Xeloda for this indication. Roche plans to promote the advantages of oral therapy. In major markets like the U.S., Germany and France, physician reimbursement for infusional 5-FU has limited the penetration of Xeloda, which may improve with full Medicare reimbursement now established. Future new indications include neo-adjuvant combination use in colorectal cancer, which accounts for an estimated 50% of the 140,000 cases of colorectal cancer in the U.S. In March 2007, Xeloda was approved by the EMEA in first-line advanced gastric cancer. A major study (on 10,000 patients) is also underway examining Xeloda in adjuvant therapy for breast cancer, which represents almost 60% of the 200,000 new breast cancer cases in the U.S. In Japan, Chugai launched Xeloda for the treatment of inoperable or recurrent breast cancer in July 2003. An interim analysis of a Phase III trial on 533 patients in first-line pancreatic cancer presented at the 2005 European Cancer Conference shows that Xeloda plus gemcitabine improved overall survival in patients, compared to gemcitabine alone. Patients on Xeloda had a 20% reduction in the risk of death. Median survival was 7.4 months compared to 6 months and 1-year survival rates were 26% and 19% respectively.
Aromatase Inhibitors Stepping Up

Arimidex (anastrozole), Femara (letrozole), and Aromasin (exemestane) are oral aromatase inhibitors used primarily in post-menopausal women with metastatic breast cancer. In contrast to SERMs, which block estrogen's ability to "turn on" cancer cells, the aromatase inhibitors limit the amount of estrogen produced. In post-menopausal women, although estrogen is no longer produced by the ovaries, it is converted from androgen, and these inhibitors block this conversion. In the past, these medications were most commonly used by women who may have already tried other anti-estrogen therapies, such as tamoxifen, and whose cancer was no longer controlled by those drugs. Recent clinical studies which support the earlier use of these drugs have shifted this timeline; aromatase inhibitors are gaining use as adjuvant therapy. AstraZenecas ATAC study, with over 9,000 women participating in over 20 countries, was the largest breast cancer trial ever conducted. ATAC showed that Arimidex is superior to tamoxifen in postmenopausal women diagnosed with early838
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stage ER-positive and/or PR-positive breast cancer. Arimidex reduced the risk of breast cancer recurrence by 17% more than tamoxifen alone, and also decreased the chances of breast cancer developing in the other breast by almost 80% (60% better than tamoxifen). In addition, Arimidex delivered these benefits with fewer side effects than tamoxifen, including fewer cases of endometrial cancer (cancer in the lining of the uterus), fewer blood clots, and fewer hot flashes. The combination of tamoxifen and Arimidex didn't work any better than either tamoxifen or Arimidex alone. Arimidex was approved for adjuvant treatment of breast cancer in the U.S. under accelerated approval guidelines (subpart H) in September 2002, which included superiority to tamoxifen in the ATAC study through a median of 33 months. In September 2005, median survival data through 68 months, which showed that Arimidex was superior to tamoxifen, were added to the label. Follow-up will continue through 10 years. Novartiss Femara Continues To Gain Share In AI Market Novartiss Femara received accelerated approval in the U.S. for adjuvant treatment of advanced breast cancer in October 2004 based on results from the MA-17 trial. This study, published in the Journal of Clinical Oncology (March 2008), demonstrated a 63% reduced risk of breast cancer recurrence compared to those patients who did not start Femara despite a long break in therapy after completing the recommended five years of tamoxifen. According to our clinical consultants, the publication has created significant patient awareness. Following positive data from the BIG I-98 study, a four-arm 8,000 patient study that compared Femara to tamoxifen in early adjuvant breast cancer, the label has been expanded to include use in the early setting. The first of two arms of the BIG 1-98 study compared Femara directly to tamoxifen, and placed Femara alongside AstraZenecas Arimidex in terms of efficacy. 76-month follow-up data from the BIG 1-98 study presented at SABCS 2008 confirmed Femaras advantage over tamoxifen in overall survival (statistically significant), disease-free survival, and time to distant recurrence (both significant). The benefit was magnified when censored for those patients who switched from tamoxifen to Femara. In a previous comparison carried out by the principal investigator on the BIG 1-98 study versus Arimidexs ATAC, the primary endpoint of disease-free survival was not comparable (differing definitions in the two studies). However, on secondary comparisons: 1) Arimidex was similar to Femara on time to recurrence (18% risk reduction versus 16%); 2) similar on overall survival (14% risk reduction for BIG versus 3% ATAC); 3) time to distant recurrence (27% versus 16%) had a trend to advantage for Femara; and 4) similar disease-free survival (21% risk reduction versus 17% risk reduction for ATAC). This suggests that Femara may be superior on one secondary endpoint, but any analysis across different trials is not scientifically rigorous. Arimidex dominates the U.S. AI market due to it being first to market, however its efficacy and safety profile is undifferentiated from Aromasin (Pfizer) and Femara. Our physician consultants believe that these drugs can be used interchangeably despite the fact that Femara demonstrated superior aromatase inhibition in a pharmacodynamic study and superiority over tamoxifen in advanced diseases where Arimidex demonstrated non-inferiority. Despite Arimidexs dominance, Femara worldwide sale have grown 50% from 2002-06. In December 2008, Novartis announced that it had reached a settlement with Mylan about the launch of its generic. Under the terms of the agreement, Novartis gave Mylan a license to market generic Femara 2.5mg prior to the expiration of the relevant U.S. patent. The deal is subject to an ongoing review by the U.S. Department of Justice
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and the Federal Trade Commission. We forecast Femara sales of $1.22B (+9%) in 2009, $500MM in 2012, post Arimidexs 6/10 patent expiration and $100MM in 2015. IES, ARNO 95/ABCSG 8, And ITA Suggest Benefit to Early Switching. Switching patients started on tamoxifen to an AI is initiated to pre-empt the development of tamoxifen resistance, reduce costs of pure AI therapy, and reduce side effects of prolonged treatment with tamoxifen or an AI by limiting exposure. The Intergroup Exametasane Study (IES) used Aromasin and the ARNO 95/ABSCG 8, a small study that is part of ABCSG 8 and ITA, assessed Arimidex. The first four trials demonstrated a benefit of switching in terms of event-free and recurrence-free survival (not statistically significant in the ITA study). ARNO 95 showed a survival benefit as did IES but only when estrogen-receptor-negative patients were eliminated from its analysis. A more consistent survival benefit was seen in two meta-analyses: ARNO 95/ABSCG 8/ITA and GROCTA4b/ITA. Switching to the AI results in an increased risk of hypercholesterolemia, ischemic heart disease, musculoskeletal disorders and bone fractures. The question now is whether to use adjuvant AI therapy upfront or 2-3 years of tamoxifen followed by an AI. The 76month BIG 1-98 monotherapy data presented at San Antonio Breast Cancer Symposium 2008 demonstrated that Femara improved overall survival (not significant) and resulted in a significant benefit in disease-free survival and time to distant metastases. When this analysis was censored for patients who switched from tamoxifen to Femara (versus the ITT) the hazard ratio showed additional benefit for Femara.
SERMs Have Role In Breast Cancer Prevention

AstraZenecas Nolvadex (tamoxifen) is a selective estrogen receptor modulator (SERM) which has been used for breast cancer treatment for many years. It was approved in 1998 for short-term reduction of risk of breast cancer in high-risk patients. The risk reduction indication was based on an NCI study of 13,388 healthy women considered to be at high risk of developing breast cancer. Results showed a 44% reduction in breast cancer incidence in women treated with tamoxifen for five years, versus a placebo group. However, tamoxifen also was shown to increase the risk of endometrial cancer and thromboembolic events, which may restrict use to patients at relatively high risk of breast cancer.
Lillys Evista Approved For Breast Cancer Prevention

Eli Lillys Evista (raloxifene) is a SERM approved for osteoporosis prevention and treatment. Based on data from several large clinical studies, including STAR, RUTH, MORE, and CORE, Evista was approved for breast cancer incidence reduction in September 2007. All breast cancers go through an early atypical hyperplasia phase which is estrogen receptor positive. Therefore, if women at risk start taking Evista or another SERM early, there is a good chance they will avoid breast cancer development in later life. Four-year breast cancer data from the CORE trial showed that Evista reduced the relative risk of invasive tumors by 59% and reduced estrogen receptor positive tumors by 66%. Three key conclusions resulted from RUTH: 1) Evista was protective against ER-positive breast cancer; 2) Evista has no cardioprotective effects; and 3) there was increased stroke mortality but no increase in overall stroke incidence. Lilly stopped RUTH in Q1:06 due to a lower than expected cardiovascular event rate, so no cardiovascular benefit was expected. Lilly noted a small increase in stroke deaths (less than 1:1,000), but no difference in the incidence of stroke. It is unclear if this increase should be attributed to Evista. A similar increase has been seen with estrogen replacement therapy in patients
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suffering a prior stroke. The 22,000-patient STAR trial, which compared Tamoxifen to Evista, showed that the rate of invasive breast cancer on Evista was similar to Tamoxifen (Evista = 167 cases/9,745, 1.71%; Tamoxifen = 163 cases/9,726, 1.67%) but the risk of developing uterine cancer was 36% lower for Evista (Evista = 23 cases/4,712, 0.49%; Tamoxifen = 36 cases /4,732, 0.97% - roughly 50% of women had hysterectomy). Evista also was associated with 29% fewer cases of deep vein thrombosis (65 cases vs. 87), fewer pulmonary emboli (35 cases vs. 54), and a similar rate of cardiovascular events (51 cases vs. 53) and stroke-related deaths (4 deaths vs. 6). The lack of an increase in stroke-related deaths is important given the signal seen in RUTH, although patients in STAR did not have diagnosed cardiovascular disease (CVD).
EVISTA BREAST CANCER PREVENTION STUDIES
Study RUTH Full Name Raloxifene Use for The Heart Focus Determine whether Evista 60 mg/day compared with placebo lowers the risk of coronary events (coronary death, nonfatal myocardial infarction [MI], or hospitalized acute coronary syndromes other than MI) and reduces the risk of invasive breast cancer in women at risk for a major coronary event. 10,101 women recruited: 5,031 women had prior CVD; 5,070 at high risk fo CV event; 80% powered to detect 58.5% relative risk reduction in invasive breast cancer. Determine whether Evista is more or less effective than Tamoxifen in reducing the incidence of invasive breast cancer in 19,747 postmenopausal women. Evaluate differences in the incidence of intraductal carcinoma in situ, lobular carcinoma in situ, endometrial cancer, ischemic heart disease, fractures of the hip and spine, or Colles' fractures of the wrist. Est. 5-Year Risk of Breast Cancer 1.4%; 35% of women had >1.66% estimated 5-year risk of developing breast cancer Expected Year Of Completion Completed; prevents invasive breast cancer; no effect on CV outcomes; full data at ASCO 2006
STAR
Study of Raloxifene And Tamoxifen
3.5%; 100% had >1.66% estimated 5year risk of developing breast cancer
Completed; Evista reduced incidence of invasive breast cancer by 50%, similar to Tamoxifen with less uterine cancer and DVT Completed; Evista reduced incidence of breast cancer by 59% over 4 years and 66% during CORE and MORE Completed; Evista reduced incidence of breast cancer by 72%
CORE
Continuing Outcomes Relevant to Evista
4-year follow up of the MORE study to assess invasive breast cancer prevention in 5,200 postmenopausal women.
54% of women had >1.66% estimated 5year risk of developing breast cancer
MORE
Multiple Outcomes Evaluation
of
Raloxifene
Determine whether Evista reduces fracture risk in 7,705 postmenopausal women. Secondary endpoint of breast cancer risk reduction at 4 years.
Not assessed baseline
at
Source: cancer.org; clinicaltrials.gov; American Journal of Cardiology, Vol. 90, Dec. 1, 2002
But Our Oncology Experts Are Skeptical It Will Boost Growth The STAR data were viewed as disappointing for Evista by our consultants. They believe that tamoxifen should still be the preferred agent for the prevention of breast cancer, largely because of the higher rate of LCIS/DCIS seen in the STAR trial. STAR showed that the rate of invasive breast cancer on Evista was similar to tamoxifen (Evista = 167 cases/9,745, 1.71%; tamoxifen = 163 cases/9,726, 1.67%) but the risk of developing uterine cancer was 36% lower for Evista (Evista = 23 cases/4,712, 0.49%; tamoxifen = 36 cases/4,732, 0.97% - roughly 50% of women had hysterectomy). However, Evista had a higher rate of LCIS/DCIS than tamoxifen (Evista = 81 cases/9,745, 0.83%; tamoxifen = 57 cases/9,726, 0.58%), which our oncology physician experts believe outweighs the lower rate of uterine cancers seen with Evista in STAR. LCIS/DCIS typically is a precursor to invasive breast cancer and should be considered when choosing therapy. Our physician experts noted that when cancer events in STAR are aggregated to include invasive breast cancer, uterine cancer, and LCIS/DCIS, tamoxifen actually is numerically superior to Evista (Evista = 271 cases/9,745, 2.78%; tamoxifen = 256 cases/9,726, 2.63%). While
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thrombotic events were somewhat lower for Evista in the STAR trial, experts do not believe that these results suggest that Evista has a meaningfully superior side-effect profile. Despite a long lead time over competitive development-stage SERMs and a formidable clinical trial program, Evista has one major weakness: no data supporting a reduction in non-vertebral fractures. However, given the unclear differentiation potential for Pfizers Fablyn and the delay of Wyeths Viviant, Evistas position as the leading SERM likely is secure. Despite these advantages, Lilly recently launched an Evista DTC campaign to boost promotion of the breast cancer prevention indication. The Evista patent dispute between Lilly and Barr Labs, previously scheduled to begin on February 13, 2006, has not been rescheduled. The judge held that the suit is not ready for trial. Additionally, Lilly sued Teva in June 2006 and a trial date was set for March 9, 2009. In April 2008, the FDA granted Teva tentative approval of its ANDA, but Tevas ability to market a generic product before a decision at trial is subject to expiration of a current statutory stay and Lillys right to seek an extension of that stay on final FDA approval of a preliminary injunction barring marketing by Teva. Evista holds a strong position in the Japanese osteoporosis market because bisphosphonates are approved at half the U.S. dose. Evista once-weekly was recently launched in Japan with Lillys partner Chugai. We estimate Evista sales of $1.125B (+3%) in 2009, $1.2B in 2012, and $250MM in 2015.
Ixempra Approved For Taxane-Refractory Breast Cancer

In October 2007, the FDA approved Bristol-Myers Squibbs Ixempra (ixabepilone, a semi-synthetic epothilone) as monotherapy to treat patients with metastatic or locally advanced breast cancer after failure of an anthracycline, a taxane, and capecitabine, as well as in combination with capecitabine to treat patients with metastatic or locally advanced breast cancer after failure of an anthracycline and a taxane. The epothilones share the same mechanism of action with the taxanes, in that they stabilize microtubules to block cell division. However, these classes are structurally distinct, and there is evidence that the epothilones are superior to paclitaxel in both nave and paclitaxel-resistant cells. Additionally, the epothilones are not substrates for the PGP pump, which expels foreign material from cells, allowing epothilones to stay in cells longer. These compounds have been studied in several tumor types, and in light of both successes and failures, the lead indication for the epothilones is breast cancer. Bristol also gained a portfolio of promising, albeit earlier-stage epothilones via its May 2008 acquisition of Kosan. Ixempras registration program included a study in combination with Xeloda vs. Xeloda in taxane-refractory MBC and a monotherapy study in triple-refractory MBC. Data from the 046 open-label, multinational, Phase III study presented at ASCO 2007 demonstrated that Ixempra in combination with capecitabine in taxane and anthracycline refractory breast cancer patient prolonged PFS (5.8 months vs. 4.2 months) with a statistically significant reduction in disease free progression (HR, 0.75; 95,17% CI= 3.81 -4.50; p<0.0003). Results from a 126-patient triple-refractory MBC trial (Trial-081) were presented at ASCO 2006 and demonstrated an 18% investigator-assessed response and a radiology-assessed (gold-standard) response of 11%. Ixempra also is being studied for lung, prostate, pancreas and renal cancer, but this drug suffers from significant toxicities (including neuropathy and treatment related deaths) which leaves the door open for follow-on epothilones. In November 2008, the CHMP recommended against the approval of Ixempra citing an unfavorable risk-benefit in light of the modest PFS and concerns about the neurotoxicity. A
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Japanese submission was made in December 2007. We forecast Ixabepilone sales of $150MM in 2009, $300MM in 2012, and $450MM in 2015.
Colorectal Cancer
Colorectal cancer is estimated to have affected 148,810 people in the U.S. in 2008 and accounted for approximately 50,000 deaths. Symptoms of the disease typically include rectal bleeding, blood in the stool, and pain or a change in bowel movements. The disease is equally common in men and women, and most cases occur after the age of 60. Approximately half of patients present with localized stage II or III disease, which is treated surgically, and in most cases followed up with adjuvant therapy. Adjuvant chemotherapy (typically 5-FU, leucovorin, and Eloxatin) has demonstrated a benefit in prolonging disease-free survival and is given to an estimated 55,000 U.S. patients each year. Approximately 50,000-60,000 patients develop metastatic (stage IV) colorectal cancer each year, the majority of which present with metastatic disease as opposed to relapsing following adjuvant therapy. Approximately 30,000-40,000 of these patients are eligible for chemotherapy, typically a combination of 5-FU and leucovorin plus either Sanofi-Aventiss Eloxatin (FOLFOX) or Pfizers Camptosar (FOLFIRI). Eloxatin (oxaliplatin) and Camptosar (irinotecan) have roughly equal activity, although FOLFOX has become the preferred first-line therapy. Genentechs Avastin was approved in February 2004 and has been rapidly adopted (approximately 70% market share) into the standard of care in firstline therapy in combination with either FOLFOX or FOLFIRI. Eli Lilly and BristolMyerss Erbitux and Amgens Vectibix are used broadly in refractory disease. The string of advances, including the availability of several new drugs, has prolonged mean survival for metastatic patients to nearly two years from 12 months just a few years ago. Physicians estimate that 50-70% of all first-line patients may be eligible for second-line therapy and that another 50% of second-line patients might go on to receive a third-line regimen.
Genentech/Roches Avastin Remains Dominant In Stage IV Colorectal Cancer

Our consultants employ Avastin in the great majority (90%) of first-line patients and are comfortable combining the drug with any background chemotherapy. Patients not receiving Avastin are typically contraindicated for therapy (uncontrolled hypertension, recent arterial thrombosis, MI, or recent surgery). Genentech reports Avastins penetration in the first-line setting at just over 70%, a figure consultants suggest may not be particularly accurate, but in any case is unlikely to change much. Phase III data from Roches NO16966 study demonstrated that Avastin in combination with FOLFOX (the most commonly used first-line chemotherapy regimen in the U.S.) produced somewhat disappointing results in first-line disease. While certain findings from this study, such as a disappointing PFS benefit, can be explained by trial-specific issues, others such as the lack of a response rate benefit can not. Nonetheless, experts report that study NO16966 results, which were presented at ASCO GI in early 2007, have had hardly any impact on Avastins firstline market share. This reflects Avastins ease of use, entrenched status, and physician comfort with an earlier first-line study that demonstrated a very significant (4+ month) overall survival benefit. Similarly, consultants see little to no commercial impact on Avastin from Erbituxs front-line CRYSTAL study. Physicians believe there are no data to support the use of Avastin post-progression into second- and third-line disease and therefore do not use Avastin in this setting.
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However, they believe continued dosing of Avastin post progression on a first-line Avastin containing regimen has become common among community oncologists. According to consultants, Genentech has shown little interest in a study to validate Avastins benefit in this setting. A cooperative group study (SWOG 0600) is now testing this paradigm, but physicians believe recruitment will be very challenging due to the fact that the trial randomizes patients to drugs that are widely available today and includes an Avastin dose (10mg every two weeks) that is not standard in colorectal cancer. The study is randomizing patients to chemotherapy + Erbitux vs. chemotherapy + Erbitux + Avastin in second-line patients who have failed an Avastin regimen.
Avastin Adjuvant Data Shaping Up As The Mother Of All Binary Events

There are three ongoing Phase III trials on Avastin in adjuvant colon cancer (NSABP C-08, AVANT, ECOG 5202) and one in adjuvant rectal cancer (ECOG 5204). The first study, NSABP C-08, completed enrollment in October 2006 at roughly 2,700 patients. This study has passed several interim safety analyses and four interim efficacy analyses. Approximately 75-80K U.S. patients receive adjuvant chemotherapy for colorectal cancer each year. Of these it is estimated that approximately 70%, or just over 50K patients, have colon cancer (as opposed to rectal cancer). Assuming an average price per 12 months of $53,000/patient, the adjuvant colorectal cancer market would likely equate to a $2-3B opportunity for Avastin should the drug demonstrate acceptable tolerability and efficacy. Moreover, given Avastin has already demonstrated positive efficacy in the treatment setting in metastatic breast and metastatic lung cancer, the investment community will likely interpret positive data in adjuvant colorectal cancer as boding very favorably for Avastins ultimate success in the adjuvant breast and lung cancer markets. We estimate that Avastin has $5-10B revenue potential in the adjuvant setting. Safety Unlikely To Hold Avastin Back Consultants believe Avastin is generally well tolerated and do not expect safety to play a large role in determining success in the adjuvant setting. They note that Avastin is better tolerated than most chemotherapies and the extra six months of dosing has likely not been an issue given the NSABP-C08 trial has already passed two interim safety analyses. These took place after 300 patients per arm and 500 patients per arm, respectively, had been followed for at least six months. The safety analyses reviewed only grade V toxicities. Toxicity would have been considered unacceptable if 9 or more of 300 patients or 12 or more of 500 patients in either arm experienced grade V toxicity. As accrual was not suspended in this trial, mFOLFOX6 + Avastin must not have been associated with excess grade V toxicity. Safety data from the first 28 months of NSABP C-08 were presented at the ASCO meeting in May 2008. Avastin was well tolerated with no increase in Grade 4/5 adverse events and only a modest increase in Grade 3 adverse events (mostly hypertension, pain, proteinurea, would healing complications). Somewhat surprisingly, the Avastin arm of the trial received slightly more (not less) oxaliplatin chemotherapy (total of 880 mg/m2 vs. 850 mg/m2). This is counterintuitive as one might have assumed that Avastin's modestly additive toxicity would have reduced physicians' ability to give a full regimen of chemotherapy. While we doubt the modestly higher levels of oxaliplatin chemotherapy will positively impact outcomes in the Avastin arm, it is nonetheless good news that the Avastin arm will not be compromised by lower doses of chemotherapy.
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Efficacy No Better Than A Coin Toss, In Our View Whether Avastin will prove efficacious in improving 3-year disease-free survival (DFS), the primary endpoint in the NSABP trial, is less clear. First, consultants note that most, but not all drugs (irinotecan was a notable exception) that demonstrate efficacy in Stage IV disease also work in the adjuvant setting. They view Avastins consistent efficacy in first- and second-line therapy and in combination with multiple chemotherapy backbones as a major reason to support optimism. Second, Avastins anti-angiogenic mechanism is unique versus other chemotherapies. There are no clinical data to support the effectiveness of antiangiogenic agents at preventing growth of micrometastases. However, Consultants believe the biology of angiogenesis inhibition and preclinical data are more supportive of a role for Avastin in the adjuvant setting than not. They note that Avastin (like nearly all chemotherapeutics) works better in preclinical models that feature smaller, less bulky tumors and that even tumors as small as 1mm3 in size require vascularization. In addition, early immature vasculature may be more fragile and therefore more susceptible to Avastins effects. On the other hand, some hypothesize that Avastin works by normalizing the vasculature of larger tumors and enabling delivery of more chemotherapy. Such a mechanism might not be applicable to adjuvant disease. Lastly, consultants note that the regimen being studied in the Avastin adjuvant trials (FOLFOX + Avastin) has not proven particularly compelling in the treatment setting. Data from Roches study NO16966 demonstrated no response rate or overall survival benefit and only a modest improvement in PFS from the addition of Avastin to FOLFOX in first-line metastatic disease. Consultants note that no degree of efficacy (assuming the results are statistically significant) is too small and that even modest superiority for Avastin over the control arm would lead to rapid adoption of FOLFOX + Avastin as a new standard of care. Overall, they believe it slightly more likely that Avastin works in the adjuvant setting than not. NSABP Trial Includes Multiple Interim Looks The primary goal of the NSABP-C08 trial is to evaluate whether Avastin plus mFOLFOX6 improves disease-free survival (DFS) versus mFLOFOX6 alone. The study is 90% powered to detect a 25% reduction in risk of progression through 3 years with lesser effects over time. The trials secondary endpoint is an evaluation of Avastins effects on survival. The trial is 82% powered to detect a 5% absolute difference in survival (83% vs. 78%) at seven years. The NSABP-C08 includes multiple interim efficacy analyses. The first four interim looks occurred in Q2:07, Q4:07, Q2:08 and Q4:08 respectively, at which times the decision was made to continue the study. The NSABP-C08 protocol includes a table of statistical boundaries that would lead to an early termination (due either to superiority or futility) should the Avastin arm of the study perform particularly well or poorly. The initial interim analysis (Q2:07) occurred after a fixed number of events (n=148). Subsequent interim looks occur every six months. The final analysis will take place after a fixed number of events (592), which according to Genentech will occur in mid-2009.
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Schedule of Interim Analyses And Stopping Criteria for NSABP-C08
Interim Analysis 1 2 3 4 5 Final
Timing Q2:07 Q4:07 Q2:08 Q4:08 Q2:09 Mid 2009
p-value for superiority (Avastin better) 0.00025 0.0005 0.001 0.001 0.001 0.0246
p-value for futility (Control better) 0.05 0.25 0.5 0.5 0.5 NA
Estimated number of events 148 (fixed) 220 312 398 473 592 (fixed) or 4 yrs follow up
Source: NASBP-C08 protocol, Cowen and Company
Based on assumptions from the trials protocol, we calculate that the hazard ratio for Avastin at the time of the fourth interim analysis (October 2008) could have been anywhere from HR=0.72 (Avastin highly efficacious) to HR=1.06 (Avastin quite harmful). Given the wide range of potential hazard ratios, we believe investors can conclude little about Avastins efficacy from the most recent interim analysis. However, given event rates appear to be higher than projected, it is possible that the boundaries on Avastins efficacy have already narrowed. If this is the case, statistics indicate less chance of ultimate success. This reflects the fact that future analyses provide less and less incremental statistical power to detect a positive result. Some investors may be concerned that because the NSABP-C08 trial has not yet been halted, the final analysis (<9 months away) is also unlikely to prove successful. However, in addition to including another 100 or so events, the final analysis specifies a much less stringent p-value for success (p=0.0246) than do the interim analyses (p=0.001). This leads us to estimate that the study could achieve statistical significance if Avastin were associated with a hazard ratio of 0.83 or less (Avastin reduces the risk of death or disease recurrence by 17% or more) at the final analysis. Hence even at this juncture, the trial retains much power to detect a range of Avastin efficacy (HRs of between 0.72 and 0.83).
BMY/LLYs Erbitux: Another Option For Colorectal Cancer

Erbitux, a chimeric monoclonal antibody directed against the extracellular domain of the epidermal growth factor receptor (EGFR), inhibits EGF-mediated cell growth by blocking the receptor from binding EGF. Erbitux has proven to be safe and effective in the treatment of irinotecan-refractory metastatic colorectal cancer patients, either in combination with irinotecan or as a monotherapy for those who are intolerant to chemotherapy. With pricing of $10,000 per month, Erbitux rapidly penetrated the refractory colorectal cancer market and further benefited from a March 2006 label expansion into head and neck cancer. Sales of Erbitux began to flatten in 2006 as Erbitux appeared to have captured much of the low-hanging fruit in each of these markets. The launch of a competitive anti-EGFR antibody, Amgens Vectibix, contributed further to Erbitux sales weakness. However, negative data from Vectibixs PACCE trial in first-line colorectal cancer coupled with positive results from several new Erbitux trials have since put Vectibix on the defensive and Erbitux
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on more stable footing. Erbituxs best opportunity for growth now lies in non-small cell lung cancer (NSCLC). Despite the benefits provided by Avastin, an estimated 50K Americans died from colorectal cancer during 2008. Hence, there is a substantial need for a drug to treat refractory patients. Erbitux was initially developed to provide another treatment option for these patients. We estimate that approximately 26K patients in the U.S. are eligible for second-line antibody therapy and 13K patients are eligible for third-line antibody therapy.
Erbitux Well Adopted By Third-Line Patients

Third-line patients were the first to adopt Erbitux. Conversations with oncologists indicate that anti-EGFR therapy (roughly 10% monotherapy response rate) is the preferred regimen versus chemotherapeutic options in third-line disease. Based upon third-party market data, we estimate that approximately 13K third-line colorectal cancer patients receive treatment in the U.S. each year. In October 2006, top-line results were reported from Canadas NCIC-CTG trial, evaluating Erbitux in third-line disease. The trial was a 572 patient study on Erbitux monotherapy versus best supportive care. The trial achieved its primary endpoint of improved survival (median survival 6.0 months versus 4.1 months for best supportive care). Progression free survival and response rates were also positively impacted by Erbitux. While the NCIC-CTG is the first trial to demonstrate a survival advantage for an anti-EGFR antibody, the data do not appear convincingly different from Vectibix's pivotal trial which demonstrated improved response rates and progression-free survival versus best supportive care, but no survival advantage due to a crossover between best supportive care patients that allowed patients to receive Vectibix. In October 2007, the FDA updated Erbituxs label to include a survival claim in refractory colorectal cancer. We expect this label change to have little commercial impact, as EGFR antibodies are already broadly used in the salvage setting and market share changes are unlikely. We estimate Erbitux penetration of the U.S. thirdline market was 35% in 2008.
Erbitux Also Being Used In The Second-Line Market

We estimate that roughly 27K patients are treated for second-line colorectal cancer in the U.S each year. Perhaps 30% of second-line colorectal cancer patients have been exposed to an irinotecan-containing regimen in first-line. These patients are irinotecan failures and candidates for irinotecan plus Erbitux in second-line. It is also thought that as many as 20-30% of the second-line colorectal cancer market may be intolerant of chemotherapy and are therefore candidates for Erbitux monotherapy (Avastin has not shown monotherapy efficacy). In October 2006, ImClone (which previously marketed Erbitux, prior to the companys acquisition by Eli Lilly in 2008) reported Phase III results from the EPIC trial, which evaluated Erbitux in 2nd line disease. The EPIC trial randomized 1,300 patients to receive irinotecan or irinotecan + Erbitux. This trial did not meet its primary endpoint of improved overall survival for irinotecan + Erbitux. However, the combination did improve response rates and progression-free survival. Median PFS was improved by 54% in patients who received Erbitux + irinotecan, producing a 31% reduction in risk of disease progression (hazard ratio, 0.692; 95% CI = 0.617-0.776; p<0.0001). ImClone postulated that patients randomized to the irinotecan arm may have received and benefited from Erbitux in subsequent lines of therapy,
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confounding the survival analysis. While this explanation appears plausible, the study is unlikely to have much impact on physicians practices or Erbituxs label.
Use In First-Line Less Likely

In January 2007, ImClone and Bristol Meyers Squibbs E.U. partner Merck KGaA announced that the 1,200-patient CRYSTAL study comparing FOLFIRI vs. FOLFIRI + Erbitux in first-line colorectal cancer patients met the trials primary endpoint of improved PFS. Specifics of the data reported at ASCO 2007 showed that the magnitude of the benefit was modest (8.0 months median PFS for chemotherapy vs. 8.9 months median for chemo + Erbitux), and the hazard ratio (HR= 0.85) for risk of progression (primary statistical endpoint) was barely statistically significant (p=0.0479). ImClone also released data showing an increase in resection rates in the Erbitux arm (more patients on Erbitux were able to have their tumors surgically removed following therapy (6% vs. 2.5%). While some have suggested that this might make for a compelling reason to use Erbitux in first-line disease (despite modest improvements in PFS), we believe that there is little clinical benefit to a patient being resected if he/she does not live longer without disease. We believe the CRYSTAL data are unlikely to spur significant use of the drug in firstline disease and expect Erbitux's market opportunity in first-line CRCA will be limited to the 5-15% of patients contraindicated for Avastin. Our belief is based on: (1) Avastin's far more significant and proven efficacy (improved PFS from 6.2 months to 10.6 months AND improved overall survival from 15.6 months to 20.3 months); (2) Avastins better tolerability in colorectal cancer (EGFR-antibody associated rash has been a problem in patients on longer duration therapy); (3) Avastins 55% lower cost and greater convenience; and (4) Avastins entrenched status in the first-line CRCA market. In addition, based on CRYSTAL's modest PFS benefit and unknown survival outcome, we think there is risk that data from CRYSTAL will not be sufficient to support U.S. approval. Bristol and Eli Lilly intend to file for first-line approval in H2:09. In May 2008, Merck KGaA (which markets Erbitux in Europe), announced that it had received a positive opinion from the European CHMP for its MAA for Erbitux in 1st line colorectal cancer (CRCA), as supported by data from the CRYSTAL and OPUS studies, demonstrating a statistically significant increase in PFS in these patients. Specifically, the CHMP recommended use of this agent in frontline CRCA patients with wild-type K-Ras (roughly 60% of all patients), in combination with chemotherapy. Consultants expect Erbitux could be a more significant player in the E.U. CRCA market. Reasons to expect higher penetration among European oncologists include: 1) The fact that Avastin is far less entrenched in the European CRCA market; 2) Roches European (966) trial of Avastin in first-line CRCA produced far less compelling data than Avastins U.S. trial; 3) interest in surgical resection of CRCA post chemotherapy is higher in Europe (CRYSTAL suggests Erbitux can increase the percent of patients appropriate for resection); and 4) Merck KGgA has done a particularly impressive job of marketing Erbitux in Europe.
KRAS Analysis Gaining Further Steam In Colorectal Cancer

KRAS is a gene that codes for a protein that plays a key role in the EGFR pathway. The KRAS protein regulates other proteins, downstream in the EGFR signaling pathway, that are associated with tumor survival, angiogenesis, proliferation and metastasis. There are different types of the KRAS gene found in tumors, and the KRAS status (wild-type or mutant) may be predictive of response to EGFR inhibitors:
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In tumors with wild-type KRAS, the KRAS protein is only temporarily activated in response to EGFR signaling, allowing control of downstream effects. In tumors with the mutated version of the KRAS gene, the KRAS protein is permanently switched on even without being activated by the upstream EGFR-mediated signaling. As a result, the downstream effects that lead to tumor growth continue unregulated despite anti-EGFR treatment. The K-Ras status of EGFR-expressing tumors varies by tumor type. Mutant versions of K-Ras are found in approximately: 40% of colorectal cancers, 15% of NSCL cancers, and 5% of squamous cell carcinomas of the head & neck.
Prior data from multiple clinical trials have indicated a strong correlation between the activity of EGFR antibody therapy and KRAS status in patients with metastatic colorectal cancer. At ASCO 2008, KRAS subset data from 3 major trials on Erbitux in first-line colorectal cancer were presented that further confirm this correlation. These include the CRYSTAL (FOLFIRI +/- Erbitux), CAIRO2 (XELOX + Avastin +/Erbitux) and OPUS (FOLFOX +/- Erbitux) studies. As in prior Erbitux and Vectibix trials, patients with KRAS wild-type status (60% of colorectal cancer patients) performed much better than KRAS mutants on anti-EGFR therapy. However, unlike prior studies that showed anti-EGFR therapy had no benefit in KRAS mutants, there were indications from CRYSTAL, CAIRO2, and OPUS that anti-EGFR therapy could be harmful to such patients.
CRYSTAL K-Ras Subset Data: K-Ras Status A Key Predictive Factor Of Efficacy
Source: Merck KGaA
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OPUS K-Ras Subset Data: FOLFOX +/- Erbitux In 1st-Line NSCLC
KRAS status Wild-type Mutation
Median PFS (mo) Cetuximab + FOLFOX 7.7 (n=61) 5.5 (n=52)
Median PFS (mo) FOLFOX 7.2 (n=73) 8.6 (n=47)
Overall RR (%) Cetuximab + FOLFOX HR:0.57 61 (n=61) p=0.02 HR:1.83 33 (n=52) p=0.02
Overall RR (%) FOLFOX 37 (n=73) p=0.01 49 (n=47) p=0.11
Source: ASCO website
Commercial Impact Of K-ras Testing Less Clear Following the 2008 ASCO meeting, the impact of K-ras testing on Erbitux has been debated; physicians have been slow to adopt K-ras testing and FDA itself held an Advisory Committee meeting in December 2008 with input from ImClone and Amgen (Vectibix) to discuss K-ras testing and label implications. FDA required input on this subject because all the analyses on K-rass impact on clinical outcomes have been retrospective and this may be fraught with biases. Investors have worried that Erbitux sales in refractory cancer would decline rapidly as the 40% of patients with K-ras mutations were no longer deemed candidates for therapy. Erbitux sales trends have declined only modestly post-ASCO, and any eventual impact is likely to be far less significant for the following reasons. First, patients with K-ras mutations receive less benefit from Erbitux and therefore receive less drug on a per-patient basis. Hence K-ras testing will disproportionately remove patients who would be expected to receive shorter course of therapy (less valuable patients). Second, negative impact from stratifying patients by K-ras status could be offset by higher penetration of Erbitux in patients with K-ras wild-type status. Some of our consultants believe that K-ras testing could ultimately expand the market. According to consultants, it is plausible that K-ras testing will encourage some adoption of Erbitux earlier in the treatment paradigm in patients with wild-type status, thus prolonging their exposure to the drug.
Combining Targeted Therapies Doesnt Appear Prudent

Several studies have looked at the combination of EGFR antibodies with Avastin. CAIRO-2 evaluated the combination Xelox + Avastin +/- Erbitux in 755 patients firstline CRCA patients. Data were presented at ASCO 2008. In the analysis of 736 eligible patients, the combination of Erbitux and Avastin was associated with a statistically significant decrease in PFS, the primary endpoint of the study (9.6 months vs. 10.7 months; HR=1.21; p=0.018). Secondary endpoints of survival (20.4 months vs. 20.3 months) and response rate (44% vs. 44%) were similar between the two arms. Interestingly, an analysis of the results by K-Ras subset showed a statistically significant decrease in PFS in K-Ras mutant patients for the combination (8.6 months vs. 12.7 months; p=0.043) but not in K-Ras wild-type patients (10.5 months vs. 10.7 months; p=0.10). Although the addition of Erbitux to Avastin was associated with a significantly higher incidence of Grade 3/4 toxicities (72% vs. 82%), this difference
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was not significant when skin toxicities (associated with Erbitux) was removed from the analysis (72% vs. 75%). Although combined biologics did not appear to provide benefit in CAIRO-2, data from the ongoing CALGB 80405 study (n=2,289, FOLFOX or FOLFIRI + Avastin or Erbitux or Erbitux/Avastin, data in 2009) should provide more definitive evidence of Erbituxs activity in this setting. Following ASCO 2008, the latter study is now being revised to exclude K-Ras mutant patients from the study. Further support for the thesis that combined biologics are not associated with additive activity comes from AMGNs PACCE study (chemotherapy + Avastin +/Vectibix). Indeed, these data also raised the possibility that anti-EGFR antibodies in combination with anti-VEGF antibodies may be in fact be associated with greater toxicity.
Vectibix Limited To Refractory Colorectal Cancer

Amgen launched Vectibix (panitumumab), a fully human anti-EGFR antibody, in October 2006 for refractory metastatic colorectal cancer. Approval was based upon a pivotal Phase III trial of Vectibix that demonstrated a 46% decrease in progressionfree survival for twice-weekly Vectibix vs. supportive care in patients who had failed standard chemotherapy. In September 2007, CHMP overturned a previous negative recommendation and issued a positive opinion for Vectibix, with certain conditions. In December 2007, the E.U. approved Vectibix for the use in metastatic colorectal cancer patients who do not have a genetic mutation in KRAS (a gene that stimulates tumor growth in cancer cells). Currently, Vectibixs Opportunity Is Modest In March 2007, following an interim top-line analysis of a Phase III non-registrational trial (PACCE, >1000 patients) of Vectibix added to Avastin + oxaliplatin- or irinotecan-based chemotherapy in first-line colorectal cancer, Amgen announced that it would halt the trial based on an association between the combination of Vectibix and Avastin and worse outcomes. Surprisingly, chemotherapy/Avastin/Vectibix was associated with a statistically significant lower progression-free survival and overall survival rate versus chemotherapy plus Avastin, and Vectibix increased the toxicity of the combination regimen (this outcome was also seen in a recently released trial of Erbitux/chemotherapy/ Avastin).
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Summary Of Key Erbitux And Vectibix Data

Erbitux Phase II EMR-007 Study type Treatment arms Dosing Patient population Target enrollment # of patients enrolled # of patients evaluable Objective response (PR+ CR) Complete response (CR) Partial response (PR) Stable disease (SD) Disease control (DC) Progression free survival (PFS) Overall survival (OS) Time to progression (TTP) Median duration of response Median survival time (MST) Pre-medication requirement Grade 3 infusion reactions Grade 3+ hypomagnesia
a
Erbitux Phase II EMR-007 Randomized Erbitux + Irinotecan 1x every week EGFR+ Irino-refractory 218 218 189 23% 0% 23% (50/218) 33% (71/218) 56% n/a n/a 4.1 months 5.7 months 8.6 months Yes 3% d 10-15% d
Vectibix Phase III Study 408 Randomized Open-label Vectibix vs. BSC 1x every 2 weeks Chemo-refractory 463 (1:1) 463 n/a 8% vs. 0% 0% vs. 0% 8% (19/231) vs.0% 28% (64/231) vs.10% 36% (83/231) vs.10% 18% vs. 5% b 10% vs. 4% c n/a n/a 17 weeks n/a No 0% 3%
Vectibix Phase II Study 250 Open-label Vectibix 1x every 2 weeks EGFR low Chemo-refractory 150 88 23 13% a 0% 13% (3/23) a 30% (7/23) a n/a 13.3 weeks n/a n/a n/a n/a No 1% (1/88) 8% (7/88)
Vectibix Phase II Study 167 Open-label Vectibix 1x every 2 weeks EGFR+ Chemo-refractory 300 91 39 8% a 0% 8% (3/39) a 21% (8/39) a n/a 7.6 weeks n/a n/a n/a n/a No 1% (1/91) 12% (11/91)
Randomized Erbitux 1x every week EGFR+ Irino-refractory 111 111 95 11% 0% 11% (12/111) 22% (24/111) 32% n/a n/a 1.5 months 4.2 months 6.9 months Yes 3% (4/115) 10-15% d
At week 16 b At week 24 cAt week 32 dPer label
Source: ASCO abstracts, company releases, publications
With Future Growth Depends On Data From Ongoing Trials The failed PACCE study has limited Vectibixs market potential and AMGN is hopeful ongoing studies in first-line and second-line colorectal cancer patients will restore some of Vectibixs initial promise. We model sales of $147MM in 2008 and $350MM in 2013, driven almost exclusively by use in refractory colorectal cancer patients with wild type KRAS. Amgens PRIME and 181 Study are worldwide Phase III trials using Vectibix in firstline and second-line metastatic colorectal cancer respectively. PRIME (Panitumumab Randomized Trial In Combination With Chemotherapy for Metastatic Colorectal Cancer To Determine Efficacy) has enrolled 1,183 patients to receive either Vectibix + FOLFOX or FOLFOX alone. The primary endpoint is progression free survival and secondary endpoints include overall survival, objective response rate, duration of response, time to progression, and safety. Primary endpoint data are expected in 2009. Study 181 has enrolled 1,100 patients to receive either Vectibix + FOLFIRI or FOLFIRI. The primary endpoints will be progression free survival and overall survival with data for progression free survival in 2009 and overall survival in 2010. Data for both trials will be analyzed according to KRAS status. In January 2008, the DSMB recommended continuing both studies. At the June 2008 ASCO meeting, blinded safety data from PRIME and Study 181 demonstrated acceptable toxicity. Consultants, however, are awaiting efficacy results prior to increasing their use of Vectibix in metastatic colon cancer.
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Vectibix is also being tested in numerous Phase II cancer studies including head and neck, esophageal, and pancreatic. Data are expected in 2009-2010.
U.S. VEGF/EGFR Revenue Model
2007A COLORECTAL CANCER Newly diagnosed metastatic cases (000s) % Avastin penetration # Newly diagnosed patients treated Average price per patient Sales ($MM) % Erbitux penetration # Newly diagnosed patients treated Average price per patient Sales ($MM) % Vectibix penetration # Newly diagnosed patients treated Average price per patient Sales ($MM) Second-line metastatic cases (000s) % Avastin penetration # refractory patients treated Average price per patient Sales ($MM) % Erbitux penetration # refractory patients treated Average price per patient Sales ($MM) % Vectibix penetration # refractory patients treated Average price per patient Sales ($MM) Third-line metastatic cases (000s) % Avastin penetration # refractory patients treated Average price per patient Sales ($MM) % Erbitux penetration # refractory patients treated Average price per patient Sales ($MM) % Vectibix penetration # refractory patients treated Average price per patient Sales ($MM) Avastin colorectal cancer sales ($MM) Erbitux colorectal cancer sales ($MM) Vectibix colorectal cancer sales ($MM)
2008A 35.3 63% 22.3 43,489 969 4% 1.3 60,800 81 0% 0 48,640 0 27.6 13% 4 29,755 105 25% 6.9 32,600 224 9% 2.5 26,080 65 13.8 2% 0.2 18,311 4 32% 4.47 32,600 146 18% 2.48 26,080 65 1,078 451 130
2009E 36.0 64% 23.1 43,489 1,003 7% 2.5 60,800 151 0% 0 48,640 0 28.2 12% 3 29,755 97 26% 7.2 32,600 233 8% 2.2 26,080 58 14.1 1% 0.1 18,311 3 32% 4.44 32,600 145 18% 2.48 26,080 65 1,103 529 122
2010E 36.8 64% 23.5 44,358 1,044 8% 2.9 62,016 182 0% 0 49,613 4 28.7 11% 3 30,351 96 25% 7.2 33,252 239 7% 2.0 26,602 53 14.4 1% 0 18,677 3 34% 5 33,252 162 17% 2.4 26,602 65 1,142 583 122
2011E 37.5 64% 24.0 45,246 1,086 8% 3.0 63,256 192 0% 0 50,605 0 29.3 10% 3 30,958 88 24% 7.0 33,917 238 8% 2.3 27,134 64 14.6 1% 0 19,051 3 35% 5 33,917 172 19% 2.7 27,134 74 1,176 603 137
2012E 38.2 64% 24.5 46,151 1,130 8% 3.1 64,521 202 0% 0 51,617 0 29.9 9% 3 31,577 83 24% 7.2 34,596 248 9% 2.7 27,677 74 14.9 1% 0 19,432 3 35% 5 34,596 182 20% 3.0 27,677 83 1,216 632 157
2013E 39.0 64% 25.0 47,074 1,175 8% 3.2 65,812 210 0% 0 52,650 0 30.5 9% 3 32,208 86 24% 7.3 35,288 258 9% 2.8 28,230 80 15.2 1% 0 19,820 3 35% 5 35,288 189 20% 3.1 28,230 87 1,265 657 167
34.6 63% 21.8 43,489 949 1% 0.5 60,800 27 0% 0 48,640 0 27.1 14% 3.8 29,755 113 25% 6.8 32,600 222 12% 3.3 26,080 87 13.5 2% 0.3 18,311 5 34% 4.53 32,600 148 24% 3.19 26,080 83 1,067 397 171
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Merck KGaA/Takedas Matuzumab Fails In CRCA

Matuzumab (EMD 72000), a fully human anti-EGFR antibody, is being developed by partners Merck KGaA and Takeda. Although it has demonstrated encouraging efficacy data in gastric cancer, Phase II studies in metastatic colorectal cancer patients in Europe failed to meet its primary endpoint. Matuzumabs path forward in this tumor type is unclear.
ImClones IMC-11F8 Provides Another Potential Option

IMC-11F8 is a fully human EGFR monoclonal antibody that Eli Lilly believes could improve the safety/side-effect profile of Erbitux (a mouse chimeric mAb). Given the approval of Erbitux and Vectibix in the U.S., it is unlikely that BMY will market a redundant product in North America, where it has marketing rights to Lillys antiEGFR inhibitors. Hence, Lilly plans to develop IMC-11F8 solely in Europe outside its commercial agreement with Merck KGaA. Preliminary Phase I results from 31 refractory CRCA patients (out of a target enrollment of 40 patients) were presented at ASCO 2006. No infusion reactions were observed and a maximum tolerated dose was established. As the mechanism of action is well-established and similar to Erbitux and Vectibix, Eli Lilly is optimistic that it can initiate Phase III IMC-11F8 studies directly upon completion of Phase I studies.
Pfizers Camptosar Challenged By Competition And Upcoming U.S. Patent Expiration

Camptosar (irinotecan) has been a big success in the treatment of metastatic colorectal cancer, but the competitive landscape is intense, with Eloxatin (SanofiAventis) curtailing Camptosars growth. Avastin and Erbitux have shown encouraging data in combination with Camptosar in colorectal cancer but Eloxatinbased chemotherapy regimens dominate treatment. Our physician consultants indicate that Camptosar is now the second-line chemotherapy regimen of choice, and use in combination with Avastin or Erbitux has extended treatment duration modestly. European labeling includes combination therapy with Avastin and Erbitux. Camptosar is in Phase III trials as adjuvant treatment of colorectal cancer. Our physician experts believe Camptosar should work in the adjuvant setting, but note prior adjuvant studies with Camptosar that failed to show a clinically meaningful benefit. Trials in gastric cancer also are under way. Teva garnered approval of the 40mg/2ml and 100mg/5ml doses in March 2008 and began shipping immediately. Camptosar sales are forecast to be $300MM (-46%) in 2009, $50MM in 2012, and $20MM in 2015, post the February 2008 U.S. patent expiration.
Generic Pressure To Sanofi-Aventiss Eloxatin Likely To Impact Growth

Eloxatin (oxaliplatin) is a platinum-based anti-cancer drug indicated in the first- and second-line treatment of metastatic colorectal cancer in combination with 5fluorouracil (5-FU). In the second-line setting, this regimen has demonstrated an improvement in progression-free survival by three months to approximately 16 months. The drug has been marketed in France since July 1996 as a second-line treatment and as a first-line therapy since May 1998. In Europe, Eloxatin is marketed as a first-line treatment in the majority of countries. Eloxatin received U.S. approval in August 2002 as a second-line treatment for colorectal cancer, and the label was expanded to include front-line use in January 2004. In Europe and in the U.S.,
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Eloxatin was granted the adjuvant setting indication for stage III (Dukes C) colon cancer after complete resection of primary tumor, respectively in September 2004 and November 2004. In May 2003, Sanofi-Aventis published clinical trial (N9471) data that supported use in the first-line setting. In this NCI-sponsored Phase III trial, oxaliplatin + 5-FU/LV (FOLFOX regimen) demonstrated superiority versus irinotecan + 5-FU/LV (IFL or FOLFIRI regimen), in terms of response rate, progression-free survival, overall survival and safety profile. The overall survival was 19.5 months with the FOLFOX regimen versus 14.8 months with the IFL regimen (p = 0.0001), i.e., an improvement of 4.7 months. Our physician experts believe these data have quickly made FOLFOX plus Avastin the standard of care in first-line treatment. Eloxatin Being Used As Adjuvant Therapy In Colorectal Cancer In June 2004, positive data from the MOSAIC study in adjuvant colorectal cancer were published in the NEJM. MOSAIC examined the use of Eloxatin as adjuvant treatment post surgery in colorectal cancer, the primary end-point being DFS. Based on the results of the MOSAIC trial, Eloxatin was approved for adjuvant treatment of stage III colon cancer patients who have undergone complete resection of the primary tumor. We believe this has been a significant driver of growth due to more treatment cycles in a larger patient population (12 cycles or more versus 6 cycles in a metastatic patient, or 62% of the colorectal patient population) and selling prices that are much higher in the U.S. However, our physician experts estimate that peripheral neuropathy limits the duration of adjuvant therapy in up to 50% of patients. In the MOSAIC study, adding Eloxatin to standard of care 5-FU/LV reduced the relative risk by 23% versus chemotherapy alone, with a three-year disease-free survival rate of 78.2% versus 72.9% (p=0.002 by the stratified log-rank test). Although Eloxatin was generally well tolerated, the high number of cycles needed in the adjuvant setting (11 to 12 cycles versus 6 in second-line therapy) led to an increase in side effects, the most frequent being neutropenia and neuropathy, with an incidence of febrile neutropenia of 1.8 percent and an incidence of grade 3 sensory neuropathy of 12.4 percent during treatment (decreasing to 1.1 percent at one year of follow-up). Six patients in each group died during treatment (death rate, 0.5 percent). At ASCO in May 2005, follow-up results of MOSAIC were presented still showing the benefit of Eloxatin. Trials in new tumors types are planned or underway, including: 1) Pancreatic cancer: Phase III results from a European trial (Gercor/Giscad) of 326 patients presented at ASCO 2004 showed a statistically significant improvement for the GemOx combination over gemcitabine alone in response rate (28.7% vs. 16.7%, P=.02), median progression-free survival (5.5 months vs 3.7 months, P=.04), and clinical benefit response (38.9% vs 29.2%, P=.05). GemOx was well tolerated. Overall survival, although not statistically significant, was better than expected in both arms of the study (9.0 months vs. 7.1 months; P=.13). Projected survival for each arm was 8 months vs. 6 months. These results confirm Phase III study results presented at ASCO in 2003. Sanofi-Aventis is currently enrolling a 480-patient Phase III trial. 2) Gastric cancer: Results from a 1,000-patient European Phase III trial (REAL 2) in advanced stomach cancer presented at ASCO 2006 demonstrated a statistically significant improvement in median overall survival with
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oxaliplatin/capecitabine as compared to a standard regimen of epirubicin, cisplatin, and 5-FU (11.2 months vs. 9.9 months; HR=0.80). 3) Non-small cell lung cancer: Enrollment in a 480-patient Phase III of Gemcitabine/Oxaliplatin (GEMOX) vs. Carboplatin/Paclitaxel (CP) as first-line therapy for advanced NSCLC has completed, and data are expected in 2008/2009. 4) Other tumors, including lymphomas, breast cancer and ovarian cancer: several trials are under way. Eloxatin Generics On The Market In Europe, U.S. Challengers Have Filed Eloxatin lost marketing exclusivity in the U.S. in August 2007. However, three additional patents are listed in the Orange Book covering the process used to produce the high purity Eloxatin, which is the marketed drug. These patents claiming drug purity do not expire before 2013 (in Europe and the U.S.). SanofiAventis has extended the formulations with a new patented formulation ready to use (expiration in 2015), which was approved in January 2005. However, Barr filed Paragraph IV certifications to oxaliplatin in January 2008, and generics are likely to clip growth in the U.S.
Sanofi-Aventis/Regenerons Aflibercept Promising But Early

Regenerons aflibercept (VEGF trap) is a fusion protein consisting of portions of the extracellular domains of the human vascular endothelial growth factor (VEGF) receptor VEGFR1 (Flt-1) and VEGFR2 (KDR) fused to the Fc portion of human IgG1. Given that the circulating VEGF has a half-life of 30 minutes, the fact that Regenerons VEGF trap has a 17-day half-life enables the drug to be around to sop up the factor as it is released. While the half-life of Genentechs Avastin is equivalent to the VEGF trap, pre-clinical models suggest that VEGF trap binds to VEGF at a 100x greater affinity than Avastin. Phase I data presented at ASCO 2008 suggest that the drug can be dosed once weekly or every two weeks. The appropriate dosed appears to be 2mg/kg week. Multiple cases of stable disease have been observed, but it is difficult to conclude anything about VEGF-TRAPs efficacy in oncology at this time. Overall, the drug has been tolerated well and its safety profile appears similar to that of other anti-VEGF drugs in clinical development. Regeneron and partner Sanofi-Aventis have advanced aflibercept into four placebocontrolled Phase III trials evaluating it with chemotherapy in PRCA, NSCLC, CRCA, and pancreatic cancer, each of which is approximately 1/3 enrolled. Regeneron is also conducting a Phase II study in malignant ascites; data that could support FDA approval will be available in mid-2009. CTEP is also sponsoring up to ten exploratory efficacy/safety studies evaluating VEGF trap in a variety of cancer types.
Pfizers Celebrex Indicated For Prevention Of Colon Polyps

Pfizers Celebrex is approved for the prevention of colon polyps associated with familial adenomatous polyposis (FAP), a precursor of colorectal cancer. FAP is a rare genetic condition in which patients develop hundreds or thousands of colorectal polyps. It is estimated that only 1% of colorectal cancer stems from FAP, but the condition almost always leads to colorectal cancer. In September 2004, Merck announced the voluntary worldwide withdrawal of Vioxx due to evidence of cardiovascular risk in APPROVe. APPROVe, a 3-year study of Vioxx for prevention of
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colon polyps, was stopped early by a safety board because a higher number of cardiovascular events occurred in patients on Vioxx longer than 18 months versus placebo. These data were followed in December by evidence of a cardiovascular signal with Celebrex. APC, a 3-year NCI study of high-dose Celebrex for the prevention of adenomatous polyps, was stopped early by a safety board because of a higher number of cardiovascular events vs. placebo. By that point, most of the participants had been in the study for close to the full 3-year period. In APC, the relative risk with 200mg 2X/day and 400mg 2X/day was 2.5 and 3.4-fold greater than placebo. However, oncologists at the NCI levy a powerful argument in favor of the potential cancer prevention attributes of the Cox-2 inhibitors. Although traditional NSAIDs also have cancer prevention attributes, the NCI believes there is a good chance that Celebrex may have special properties in reducing the risk of colon polyps, and this may be revealed upon conclusion of follow-up for the APC and preSAP trial. This represents a modest $30-50MM market opportunity for Celebrex.
Head And Neck Cancer

Squamous cell cancer of the head and neck (SCCHN) is a collective group of diseases comprised of laryngeal (epiglottis, vocal cords, supraglottis, subglottis), oral (mouth, lip, tongue), and oropharyngeal (esophagus and pharynx) cancers. The incidence of new SCCHN patients in the U.S. is roughly 40K/year, of which roughly 60% present with stage III (locally advanced) disease and 10% with stage IV (metastatic) disease. First-line therapy in locally advanced patients (tumor has spread to the neck region) is usually surgery, radiotherapy and concurrent chemotherapy (typically cisplatin or carboplatin, sometimes in combination with other agents such as taxol, 5-FU, or methotrexate), although perhaps 25-40% of patients do not receive chemotherapy owing to its relatively harsh adverse event profile and slow adoption by community oncologists. In addition, Erbitux is increasingly being adopted in combination with radiation or chemotherapy as an alternative to chemotherapy in this setting. Of these locally advanced patients, the combined treatment modalities are curative in about 50-70% of all cases. The other 30-50% of patients (roughly 10,000 per year) are retreated with chemotherapy or Erbitux upon relapse, and eventually succumb to the disease. Typical response rates in patients with recurrent or metastatic disease are only in the 5-15% range with a duration of response of 3-6 months. Recurrent/metastatic SCCHN patients receive chemotherapy until tumor progression, an average of four months. Hence although fewer patients are treated for recurrent disease, this market represents a more substantial sales opportunity. Nearly 100% of SCCHN patients express the EGF receptor.
Erbitux Has Gained Acceptance In Head And Neck Cancer

In March 2006, the FDA approved an expanded label for use in combination with radiation for the treatment of locally or regionally advanced squamous cell carcinoma of the head and neck (SCCHN), and as a monotherapy for recurrent or metastatic SCCHN that are platinum-refractory. In April 2006, the EMEA approved Erbitux in combination with radiotherapy, for the treatment of locally advanced SCCHN. Late-stage clinical data on Erbitux for treating head and neck cancer, either in combination with radiation (first-line disease) or as a monotherapy (refractory patients), have demonstrated a benefit in both treatment settings. Final results from a randomized, placebo-controlled first-line Phase III study of radiation therapy +/Erbitux (IMCL-9815, n=424) were published in the New England Journal of Medicine
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in February 2006, and demonstrated a statistically significant improvement in locoregional control (primary endpoint) for Erbitux + radiation vs. radiation alone at one, two, and three years (63% vs. 55%, 50% vs. 41%, and 47% vs. 34% respectively, p<0.01), with a median duration of 24.4 months vs. 14.9 months (p=0.005). Progression-free survival (46% vs. 37% at two years, with a median duration of 17.1 months vs. 12.4 months, p=0.006) and overall median survival (55% vs. 45% at three years, with a median duration of 49.0 months vs. 29.3 months, p=0.03) also favored Erbitux with statistical significance. However, a subset analysis suggested that Erbitux may only benefit patients with oropharyngeal but not hypopharyngeal or laryngeal cancers. At ASCO 2007, data from Merck KGaAs Phase III EXTREME study were reported. This trial randomized 440 first-line recurrent/metastatic SCCHN patients to platinum chemotherapy + 5-FU +/- Erbitux demonstrated improved overall survival in Erbituxtreated patients. Consultants believe that use of Erbitux in recurrent/metastatic disease is widespread in the community, although a reluctance to use Erbitux in patients who have failed the drug in the front-line setting might moderate penetration somewhat. With approximately 12,500 recurrent/metastatic patients treated at an average cost of $40K/patient ($10K/month for an average of 4 months) the recurrent/metastatic H&N market could be worth $500M for Erbitux. Because neither IMCL-9815 nor EXTREME tested Erbitux on top of the standard of care of radiation plus cisplatin chemotherapy, our consultants do not believe that radiation or chemo + Erbitux has established itself as equivalent to the standard of care. Given the lack of comparison to chemo-radiation, our consultants (who practice in academic settings) use Erbitux only sparingly in this locally advanced SCCHN, including in elderly patients or patients with hepatic or renal dysfunction who do not tolerate chemotherapy (5-10% of their patients). On the other hand, consultants indicate that Erbituxs expanded label in SCCHN has driven rapid adoption by community oncologists. They note that Erbitux exhibits substantially lower toxicity than platinum-based chemotherapy (grade III and IV mucositis and xerostomia) and is more convenient (one hour infusion) than chemotherapy (four to six hour infusion). In addition, there may be financial incentives for physicians to support Erbituxs use. For these reasons, our consultants believe that Erbitux has penetrated approximately 50% of the locally advanced SCCHN market served by community oncologists. There are an estimated 40K newly diagnosed head and neck cancer patients in the U.S., two-thirds of which are believed to be aggressive or metastatic cases. Assuming 35% penetration into this 25K patient market (8,750 patients treated) and an average cost of $20K/patient (eight weeks therapy), Erbitux could capture $175MM in sales in the front-line locally advanced SCCHN cancer setting.
Erbitux Is An Alternative In Refractory SCCHN

Given the longer duration of therapy in the recurrent and metastatic disease setting, our consultants believe this represents a more attractive market for Erbitux. Supporting IMCLs label for recurrent/metastatic use are data from EMR-016, a 103patient study which demonstrated a 12.6% response rate with time to progression of 85 days and a median survival time of 175 days. A second study in 53 recurrent/metastatic patients (EMR-008) testing Erbitux + 5FU + platinum produced a 36% response rate, 5.2 months time to progression, and 9.9 months median survival (both studies were presented at ASCO 2004). However, a third trial (ECOG 5397) testing cisplatin +/- Erbitux) failed to demonstrate a statistically significant
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survival benefit for Erbitux (response rate trends were positive, but the study may have been underpowered.
Vectibix May Eventually Compete Versus Erbitux

Consultants expect that Amgens Vectibix will likely follow in Erbituxs footsteps. Amgen has initiated a Phase II trial in first-line locally advanced SCCHN (cisplatin and radiation +/- Vectibix) and a Phase III trial in first-line recurrent or metastatic SCCHN (cisplatin +/- Vectibix). Data from this study are expected in 2010. Consultants expect that Vectibix will demonstrate efficacy similar to Erbitux, but have advantages in safety (fewer hypersensitivity reactions). Although consultants expect very little initial off-label use for Vectibix in SCCHN, they believe these benefits could eventually allow Vectibix to capture significant market share versus Erbitux.
GenMabs Zalutumumab In Phase III For SCCHN

Genmab is developing another humanized anti-EGFR antibody for solid tumors. The company began Phase III trials in HuMax-EGFr (zalutumumab) in refractory head and neck cancer versus best supportive care in September 2006. Data are expected in 2009. In September 2007, Genmab began a second study in first-line disease in combination with radiation.
Leukemia
Leukemia is cancer of white blood cells. An estimated 44,270 new cases will be diagnosed in the U.S. in 2008. The major forms of leukemia are divided into two categories, myelogenous and lymphocytic, which denote the cell type involved (either granulocytes/monocytes or lymphoid cells, respectively). Both myelogenous and lymphocytic leukemia come in acute (rapid disease progression) and chronic (slower progression) forms. Acute myelogenous leukemia (AML) is the most prevalent form of adult leukemia, composing about one-third of new leukemia cases. It occurs when there are too many granulocytes present in the bone marrow. Patients with AML have a 19% five-year survival rate. Chronic lymphocytic leukemia (CLL) is expected to impact roughly 10,000 new patients and is characterized by an excessive amount of white blood cells in the bone marrow, blood, liver, spleen, and other organs. Chronic myelogenous leukemia (CML, approximately 4,800 new patients/year) is associated with a chromosomal abnormality of the Philadelphia chromosome. Tyrosine kinase inhibitors, such as Novartiss Gleevec, represent a major advancement in the treatment of CML, an increasingly attractive market opportunity given the transformational impact of these agents on disease progression and survival.
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Gleevec Can Still Deliver Strong Sales Growth

Gleevec (Glivec outside the U.S.) is a selective tyrosine kinase inhibitor specifically designed to inhibit bcr-abl, an abnormal tyrosine kinase that is critical to the development of chronic myelogenous leukemia (CML). Gleevec also inhibits receptor tyrosine kinases of platelet-derived growth factor (PDGF) and c-kit (stem cell factor), which is implicated in the development of GI stromal tumors (GIST). Gleevec is approved for treatment of CML, Ph+ ALL, several other rare hematological tumors (worldwide prevalence estimated at 2,000 patients), and GIST. In December 2008, FDA approved Gleevec to prevent recurrent GIST after surgery. Gleevec continues to show unprecedented levels of activity, with response rates over 90% in newly diagnosed CML patients and a high level of patients going into remission. In the common chronic phase of CML, 60% of patients achieve cytogenetic remission. Even in the accelerated phase (where response to chemotherapy is low), 70% of patients remain free of disease progression after one year of treatment. In the most advanced (and hard to treat) phase, blast crisis, median survival is seven months, well ahead of the best available chemotherapy. At seven years 75% of patients have a complete molecular response and 80% have major molecular response; the overall survival was 86%. These data cement indefinite use in Ph+ CML patients. Another potential driver in CML could have been increasing average starting dose up to 800mg. However, the TOPS data which were presented in June 2008 failed to demonstrate a significant difference in MMR in patients starting on 800mg versus 400mg (46.4% vs. 40.1% p=NS). While a higher risk subgroup benefited from the 800mg start, the majority of patients responded sufficiently on 400mg. Therefore there is unlikely to be a switch to the higher dose. Nonetheless, some physicians believe that the TOPS cut off of 12 months may have been too early to see the full benefit of the higher dose. While the majority of patients do not develop resistance to Gleevec, the guideline suggests the following timelines for assessing Gleevec failure:
Criteria For Gleevec Failure Response Time (mo) 3 6 12 18 Any Suboptimal No complete hematological response >35% Ph+ No complete hematological response 100% Ph+ >35% Ph+ >5% Ph+ >5% Ph+ oss of complete hematological respons Loss of complete cytogenetic reponse Mutation No MMR (<3-log BCR-ABL/ABL Clonal evolution Loss of major molecular response Mutation Failure No hematological response
Source: Blood, 15 September 2006, Vol. 108, No. 6, pp. 1809-1820.
Bristol-Myers Sprycel (a bcr-abl inhibitor), approved in resistant CML, has made little impact on Gleevec, in part because of an initial dose-related side-effect profile which includes pleural effusions and myelosuppression. Gleevec has sustained a 93-95% share in the CML market. However, Sprycel 100mg once-daily dose was recently approved and the lack of food effect may make it the second-line tyrosine kinase inhibitor of choice. Sprycels new dosing regimen offers comparable efficacy and an improved tolerability profile compared to the existing 70 mg bid dose. This may increase Sprycel share but the 70mg BID dose is required for other resistant CML forms. Sprycel is being studied in the first line setting but while early data appear promising these will require maturing before a full assessment can be made. Wyeths
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bosutinib in Phase III testing, appears significantly more potent that Sprycel with less toxicity and will also compete in the 2nd-line should it garner approval. Novartis believes that the launch of Tasigna should blunt Sprycel. Gleevec was approved for CML in Japan in 2001, and received approval for GIST in 2002. We forecast Gleevec sales of $3,750MM in 2009, $4,200MM in 2009, and $4,550MM in 2015. In November 2007, Sun filed a Paragraph IV certification against a Gleevec patent that expires in the U.S. in 2019. The basic compound patent, which expires in 2015 in the U.S., is not being challenged. Six-Year IRIS Data In CML Argue For Long-Term Therapy Six-year data from the IRIS (International Randomized Interferon versus STI571) study presented at ASH 2007 revealed that after two years of treatment, the rate of disease progression continued to decline and fell to 0% in the study's sixth year. In addition, the estimated overall six-year survival rate for patients treated with Gleevec was 88%. IRIS is an open-label Phase III clinical trial enrolling 1,106 newly diagnosed patients with Ph+ CML in chronic phase in 177 centers across 16 countries. There are two arms to the study: one group of patients received Gleevec 400 mg per day, while the other received a target dose of interferon (IFN) of 5 MIU/m2/day in combination with cytarabine (Ara-C) 20 mg/m2/day for 10 days each month. Because of tolerability issues, lack of response or loss of response, 65% of patients in the IFN/Ara-C arm crossed over to the Gleevec arm, whereas only 3% of patients in the Gleevec arm crossed over to the IFN/Ara-C arm. Cumulative best responses to Gleevec treatment improved dramatically between the first and sixth years of treatment. Over the period, the number of Gleevec-treated patients showing complete cytogenetic response (or elimination of the abnormal Philadelphia chromosome associated with CML) rose from 70% in the first year to 87% by the sixth year of treatment. The rate of disease progression continued to decline in the sixth year of the study, with a 0.4% event rate (including loss of response) and a 0% rate of progression to advanced disease between years five and six among patients who remained on Gleevec after five years. These data argue for lifetime Gleevec treatment, and aggressive control of bcr-abl levels.
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TOPS Misses The Mark; 400mg Starting Dose Sufficient TOPS (Tyrosine Kinase Inhibitor Optimization and Selectivity Study), a Phase III, international, open label, randomized, multi-center clinical trial that included 103 study sites from 19 countries was presented at the 2008 Congress of the European Hematology Association. The 476 patients with newly diagnosed, previously untreated Ph+ CML in chronic phase were randomized to receive Gleevec at either 800 mg/day or the standard 400 mg/day dose in a 2:1 ratio. Patients were stratified by Sokal score for evaluation. Sokal score is a clinical measure that is used to identify those at highest risk for disease progression. Numerically, more patients achieved a major molecular response (MMR) with the 800 mg dose than the 400 mg dose (46.4% vs. 40.1%); however, the difference between the two arms was not statistically significant. This trend of improved MMR rate at 12 months in the 800 mg vs. 400 mg arms was most pronounced in the subset of patients with the highest risk for disease progression (41.1% vs. 26.2%). Further, patients in the 800 mg arm achieved MMR significantly faster than those who started treatment with Gleevec at 400 mg. A secondary endpoint of the study was the rate of complete cytogenetic response (the elimination of Ph+ cells) at 12 months. Patients in the 800 mg arm achieved complete cytogenetic response (CCyR) faster than patients in the 400 mg arm. The response rates for the 800 mg and 400 mg arms were 56.7% vs. 44.6% by six months (p=0.0146) and 69.9% vs. 65.6% by 12 months (p=0.3470), respectively. More than 95% of patients on either dose achieved some cytogenetic response by six months. TOPS also demonstrated that patients with lower blood levels of Gleevec at one month had a lower molecular response at a year. The safety profile in the TOPS trial was similar to that previously reported for both doses of Glevec. At twelve months, discontinuation rates due to adverse events were 5.6% and 1.3% in the 800 mg arm and 400 mg arm, respectively. The 800 mg/day dose was associated with a higher frequency of adverse events, including grade 3/4 hematologic laboratory abnormalities. There was no difference between the two doses in the rate of grade 3/4 biochemical laboratory abnormalities. Adjuvant GIST Trial Stopped Early For Overwhelming Efficacy About 5,000 to 6,000 new patients are diagnosed with GIST each year in the United States. Because symptoms of GIST are no different than other GI complaints such as nausea and vomiting, the cancer is difficult to detect early. Patients initially undergo surgery to remove the tumor but GIST commonly recurs. At ASCO 2007, data from a 644 patient study in primary resectable GIST demonstrated that 97% of those who received Gleevec after surgery were alive after one year with no sign of recurrence, compared to 83% of patients who received placebo (p<0.001). After two years, 90% of Gleevec patients were alive without any sign of the cancer returning compared to 71% of patients receiving placebo. Two trials are ongoing in Europe, a one versus three-year treatment with Gleevec, and surgery only versus two years treatment with Gleevec. A global regulatory filing for adjuvant GIST was made in H2:08 and FDA approved Gleevec to prevent recurrent GIST in December 2008. Gleevec Has Yet To Succeed In Solid Tumors Novartis has studied Gleevec in several solid tumors. A Phase III trial for glioblastoma multiforme failed to meet its progression free survival end point (PFS) and further development was halted in 2007. Phase II trials for hormone refractory prostate cancer (prevalence 100,000) are under way. Novartis has discontinued trials in breast, small-cell lung, polycythemia vera, and Kit+ AML.
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IPF Study Terminated And PAH Misses Primary Endpoint Novartis terminated Gleevec studies in idiopathic pulmonary fibrosis but despite missing the primary endpoint in the PAH study, the results of the 6 minute walk and other study parameters trended favorably. Novartis is therefore advancing the PAH indication.
NVSs Tasigna A Gleevec Franchise Extension

Tasigna (nilotinib), a twice-daily orally active aminopyrimidine-derivative tyrosine kinase inhibitor, is more potent against CML cells in vitro than Gleevec. It was approved by FDA in October 2007 and the EMEA in November 2007. Tasigna was filed for approval in Japan in June 2007. Like Gleevec, Tasigna functions through competitive inhibition at the ATP-binding site of bcr-abl, leading to the inhibition of tyrosine phosphorylation of proteins that are involved in the intracellular signal transduction that bcr-abl mediates. Tasigna has a higher binding affinity and selectivity for the ABL kinase than does Gleevec. The FDA approved Tasigna for treatment of chronic-phase and accelerated-phase Ph+ CML in adult patients resistant or intolerant to prior treatment, that included Gleevec. This approval was based on an open-label multicenter clinical trial in which Tasigna produced MCyR in 40% of 232 chronic phase patients. The complete cytogenetic response in these patients was 28%. For patients in accelerated phase, a complete HR was reported in 18% of patients. Accelerated phase patients had a minimum follow-up of four months and median treatment duration of 6.4 months. The highest prior Gleevec dose was at least 600 mg/day in 77% of patients, with 44% of patients receiving doses of 800 mg/day or higher. In addition, 24 different mutations in bcr-abl were noted in 19% of chronic phase and 25% of accelerated phase CML patients who were evaluated for mutations. The most frequent Grade 3 or 4 adverse events for Tasigna were primarily hematological in nature and included neutropenia and thrombocytopenia. Elevations were seen in bilirubin, liver function tests, lipase enzymes and blood sugar, which were mostly transient and resolved over time. These cases rarely led to discontinuation. Pancreatitis was reported in less than 1% of cases. The most frequent non-hematologic drug-related adverse events were rash, pruritis, nausea, fatigue, headache, constipation, and diarrhea. Most of these adverse events were mild to moderate in severity. Eleven-month follow-up data from the pivotal study presented at ASH 2007 demonstrated a CHR of 77%, a MCyR of 57%, and CCyR of 41%. Data from 33 de-novo CML patients treated with Tasigna, demonstrated a 100% CCyR at six and 12 months versus 82 and 86% respectively for Gleevec 800mg, and MMRs of 45% at 6 and 12 months versus 34% and 47% for Gleevec. A registration study in 3rd line GIST has been initiated after solid Phase I results that were presented at ASCO 2007 and these data will be filed in Q2:09. We estimate Tasigna sales of $160MM in 2009, $200MM in 2010, and $450MM in 2015.
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ENEST Program To Be Filed In 2010 Novartis initiated the ENEST (Evaluating Nilotinib Efficacy and Safety in clinical Trials) program to address Tasignas role with Gleevec. ENESTnd (newly diagnosed) is a randomized trial comparing Tasigna 300 and 400mg BID and Gleevec 400mg QD in de novo CML patients. The primary endpoint is MMR at 12 months. Enrollment began Q3:07 and was fully accrued in December 2008. ENESTcr is comparing Tasigna 400mg BID with Gleevec 400mg BID in CML patients with suboptimal CyR. The primary endpoint is CCyR at 12 months. Novartis plans to file these data in 2010.
Second-Generation TKI In CML Chronic Phase Post-Gleevec Failure Tasigna Response (%) CHR MCyR CCyR Toxicity Myelosuppression Effusions Liver Rash Lipase/Glucose Medan FU (mo)
Source: Medscape.com
Sprycel (BMY) 91 59 49 ++ + + + 15
Bosutinib (WYE) 84 42 32 + + + 3
74 52 34 ++ + + + 12
BMYs Sprycel Continues To Make Inroads In CML

Sprycel (dasatinib), a dual SRC/ABL kinase inhibitor, has had a tepid U.S. market performance for the treatment of chronic myelogenous leukemia (CML) in patients who are Gleevec intolerant or refractory, and for acute Philadelphia chromosomepositive acute lymphoblastic leukemia (Ph+ ALL). Bristol filed Sprycel in Japan in Q3:07. Bristol believes that potential in the E.U. is greater than that in the U.S. for two reasons: 1) 75% of Gleevec (NVS) sales are ex-U.S., and 2) hematologists, who are
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more aggressive with therapy than oncologists, manage CML patients in the E.U. Bristol is looking to expand the dose and the label beyond refractory CML patients. Sprycels side-effect profile, including pleural effusion and edema, has tempered use. In September and November 2007, a 100mg once-daily dose was approved (versus 70mg bid) by the EMEA and FDA respectively for chronic phase CML based on data from a open-label dose optimization Phase III study; this dose resulted in reduced side effects while retaining efficacy in Gleevec resistant patients. Tasigna (NVS) launched in October 2007 bolstered Novartis CML franchise, preventing Sprycel from garnering significant share. Bristol-Myers initiated a Phase III registrational study in front-line CML head-to-head with Gleevec based on encouraging results from an ongoing pilot study that demonstrated a 100% complete cytogenic response at 12 months. Bristol is also pursuing breast, prostate, and other solid tumors. Phase I/II prostate cancer data presented at ASCO 2008 demonstrated encouraging results and Bristol has elected to advance Sprycel into Phase III trials. We forecast Sprycel sales of $390MM in 2009, $470MM in 2010, and $950MM in 2015. Updated Results From START. START encompassed studies -013, -005, -006, -015 with long-term follow-up in chronic, accelerated, blast myeloid, and lymphoid CML, as well as Ph+ ALL. The results confirm a high response rate and durability of response. START showed that Sprycel 70mg BID delivered compelling major cytogenic response at 12 months as depicted below:
Major Cytogenic Response at 12 Months
Intolerant Resistant Total

Source: Bristol-Myers Squibb
N 79 151 230
Number Progressed 1 6 7
Study (-017) Comparing Sprycel With High-Dose Gleevec Yields Mixed Results. Results showed that Sprycel provided significantly longer progressionfree survival than Gleevec 800mg in patients who progress on Gleevec to accelerated or blast phase and thus have a poor prognosis. Patients also experienced improved hematologic, cytogenic and molecular response rates, and cytogenic responses were durable. The most frequent toxicity is myelosuppression including Grade 3/4 thrombocytopenia but this is reversible upon dose reduction or discontinuation of treatment. Pleural effusions occur with Sprycel and are a point of concern: 11 patients treated with Sprycel suffered pleural effusion vs. zero for high-dose Gleevec. However, the difference in fluid retention was not significant. Sprycel indeed was associated with more cases of pleural effusion but Gleevec had more cases of superficial edema. Nonetheless, these results suggest that Sprycel is less well tolerated than Gleevec. Phase III Trials Exploring Alternative Doses And Schedules In Chronic And Advanced CML Target 100mg Dose. This study evaluated four Sprycel dosing regimens to determine the optimal regimen relative to efficacy and safety. The study concluded that Sprycel 100mg qd delivered the most favorable benefit/risk in chronic phase CML, with reduced incidence of cytopenia and pleural effusions.
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Cytotoxic Antibiotics Used To Treat AML

Cytotoxic antibiotics treat a variety of cancers, including AML, by disrupting DNA replication and protein synthesis. Commonly prescribed cytotoxic antibiotics include Doxorubicin (Pfizer; generics), Idamycin (Pfizer), Novantrone (Serono), and Daunorubicin. Sales of Adriamycin are forecast to be $220MM in 2008 and $100MM in 2012 as generic competition intensifies. Liposomal doxorubicins (J&Js Doxil in the U.S. and Schering-Ploughs Caelyx internationally) increase penetration into the tumor, thus providing efficacy with fewer side effects compared with standard doxorubicin. A number of newer cytotoxics in clinical development have shown signs of activity in a variety of cancers. Sunesiss SNS-595 represents a novel class of compounds with a differentiated mechanism. Results from Phase I trials support SNS-595s potential for use against leukemia and multiple solid tumor types, and Phase IIa data indicate promise for treating small-cell lung cancer. Antisomas AS1413 (formely Xanafide), a ATP-independent topoisomerase 2 inhibitor, has demonstrated promising activity in Phase I and II studies in secondary AML and the company has entered this candidate into a Phase III program in this population under an SPA. Vions Onrigin (formely Cloretazine) is a novel alkylating agent that is also being evaluated for the treatment of de-novo poor-risk AML in a pivotal Phase II trial in the elderly.
Genzymes Clolar Approved For Leukemia, Additional Trials Ongoing

In December 2004, Clolar (clofarabine) was granted FDA approval for use in refractory pediatric acute lymphoblastic leukemia (ALL). Clolar is a purine nucleoside analogue that is also being investigated in earlier trials in advanced solid tumors in both oral and intravenous formulations. Genzyme obtained U.S. rights to Clolar through its 2004 acquisition of ILEX oncology. To get worldwide rights, Genzyme announced in June 2007 that it would purchase Bioenvision for $345MM in cash (approved by Bioenvision shareholders on October 22, 2007). The deal will allow Genzyme to fully leverage all it is doing to develop Clolar in indications outside of pediatric ALL. We believe that Clolar is promising in pediatric ALL, pediatric refractory AML, and adult AML. Adult AML is diagnosed in 6,500 patients over the age of 60 each year in the U.S. The median survival is 1-13 months with a five-year survival of <15%. These patients are poor responders to current therapies since (1) they have had previously treated blood disorders, thus making them more resistant to current therapies, and (2) current therapies are poorly tolerated in this age group. Mortality from early induction with current regimens is >30%. As an unmet need, many companies are attempting to develop new medications for adult AML. Genzyme is currently conducting two trials: CLASSIC I and CLASSIC II. CLASSIC I is a Phase III randomized double-blind controlled trial being conducted in AML patients > 55 years old who have been previously treated with 1-2 induction cycles. Patients will either receive Ara-C + Clolar or Clolar. The primary endpoint is overall response rate (complete remission or complete remission with incomplete platelet recovery) and the secondary endpoints are duration of remission, disease-free survival, overall survival, safety, and 30-day mortality. CLASSIC II is a Phase III trial that enrolled 115 patients (>60 years old + 1 additional adverse prognostic factor) who have treatment-nave AML and are not considered to
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be responders to current regimens. The primary endpoint is overall response rate (complete remission or complete remission with incomplete platelet recovery) and the secondary endpoints are duration of remission, disease free survival, overall survival, safety, and 30-day mortality. Patients received induction therapy with 30 mg/m2 per day of Clolar for 5 consecutive days, and then depending on response, can receive up to five more cycles each being 5 consecutive days of 20 mg/m2 per day of Clolar. Data were presented at the 2008 annual ASH meeting. The data show that Clolar is an effective therapy for this hard-to-treat patient population. The ORR was 46% and the median duration of remission (lower bound of CI is 33.1 weeks), disease free survival (lower bound of CI is 33.1 weeks), and OS (lower bound of CI is 21.4 weeks) have not yet been achieved. The ORR for those patients with: 1) one predefined risk factor was 48%; 2) two pre-defined risk factors was 52%; 3) three predefined risk factors was 36%; and 4) four pre-defined risk factors was 50%. The allcause 30 day mortality was 9.6% and the drop out rate related to adverse events was 4%. Greater than 15% of patients experienced adverse events, mostly Grade 1 or 2. Most patients had Grade 4 neutropenia and thrombocytopenia. A Phase III trial is also being conducted by the Eastern Cooperative Oncology Group in AML patients > 60 years old. This trial will enroll treatment nave patients and compare current therapies to Clolar. Clolars sNDA For Adult AML Submitted, Priority Review Requested In November 2008, Genzyme announced it submitted a sNDA for Clolar in patients 60 years old or older with AML and at least one unfavorable prognostic factor. Genzyme requested priority review and hopes to receive approval in H1:09. The sNDA is based on CLASSIC II. Genzyme plans on submitting an EMEA application in 2009 for the same indication.
Genzymes Campath Used In Treatment Of B-Cell CLL

Campath (humanized anti-CD52 mAb) is on the market in the U.S and E.U. for the treatment of B-cell chronic lymphocytic leukemia (CLL) as either a first-line therapy or in patients who have failed alkylating agents and fludarabine therapy. While sales were sluggish initially due to lack of experience with managing side effects, sales have picked up in CLL and there is modest off-label use in relapsed and refractory NHL and renal transplants. For 2008, we estimate worldwide Campath sales of $81MM, and we estimate 50% of sales flow to Genzymes top line. Although initially labeled for use in relapsed or refractory patients, Genzyme recently expanded Campaths label to include first line therapy. The expanded label is based on results from a 297-patient Phase III study of Campath in first-line CLL. The trial demonstrated superior PFS in patients treated with Campath as compared to those treated with chlorambucil, with a 42% reduction risk of disease progression or death (p=0.0001). Secondary endpoint analyses showed a nearly 30% greater (83% vs. 55%) overall response rate with Campath vs. chlorambucil (p< 0.0001), and a 12fold increase (24% vs. 2%) in CR rates in Campath patients (p< 0.0001). Campath was notable for its activity in patients with poor prognostic cytogenetic abnormalities who are otherwise resistant to chemotherapies. Additional studies are ongoing to increase Campaths label further. A Phase III study will combine Campath with fludarabine, a commonly used agent in CLL. Two Phase I/II trials are testing Campath in NHL both as monotherapy and in combination with Rituxan. Genzyme and Schering AG have been working on a subcutaneous
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formulation that will improve the therapeutic window of this product. An estimated 7,300 patients suffer from CLL in the U.S., and we believe that Campath could generate $220MM over time in this indication alone. Genzyme believes that, across all indications, Campath sales can reach upwards of $500MM.
Cephalons Treanda Approved For CLL

Treanda has been marketed in Europe (principally Germany) for decades and was approved in the U.S. for the treatment of front-line CLL in March 2008. The drugs U.S. label was expanded to include indolent NHL in patients who have relapsed during or within six months of receiving Rituxan or Rituxan-containing treatments in November 2008. Treandas one Achilles Heel may be its IP position. The drug was discovered decades ago in East Germany and has no composition-of-matter patent. However, based upon Hatch-Waxman NCE regulations, five years must pass before an ANDA can be filed, making it likely that Treanda will enjoy six to seven years of market exclusivity. Cephalon is also exploring avenues by which to enhance Treandas IP, and we suspect several new patents are likely to be filed before HatchWasman exclusivity expires. Phase III Data Enabled Treandas Approval In CLL Cephalon's European partner Astellas conducted the Phase III trial in first-line CLL patients. The open-label study randomized 298 patients to receive either chlorambucil or Treanda. At the 2007 ASH meeting, Cephalon presented the efficacy and safety data in treatment-nave patients receiving up to 6 treatment cycles. Results for 264 (139 with Treanda, 125 with CLB) out of 298 patients were available for analysis. The overall response rate was 68% for Treanda vs. 39% for chlorambucil (p<0.0001). Median progression-free survival and duration of remission were 21.7 months and 18.9 months for Treanda vs. 9.3 months and 6.1 months for chlorambucil respectively (p<0.0001). The tolerability of Treanda was found to be roughly equivalent to that of chlorambucil, an important finding as chlorambucil is one of the better-tolerated chemotherapies for CLL. Treanda Gaining Steady Acceptance In Relatively Modest CLL Market There are approximately 12,000 new cases of B-cell CLL diagnosed in the U.S. each year. Despite some likely adoption in both first-line and refractory disease, the size of Treandas opportunity in CLL appears modest (the average CLL patient receives $30K of Treanda per course of therapy), we estimate in the range of $100-200MM. Consultants who have used Treanda view the drugs price as high, but report no reimbursement issues. We model 2008 and 2013 Treanda sales in CLL of $31MM and $115MM, respectively.
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Treatment Paradigm in CLL
Source: Cephalon
Physicians note that while Treandas pivotal trial design in CLL was outdated (chlorambucil is no longer the relevant comparator), they are convinced that Treanda is an effective agent in CLL. Most of our consultants plan to use Treanda as a second- or third-line treatment. The exception is in elderly first-line patients who dont tolerate a more aggressive combination regimen of fludarabine, cyclophosphamide and Rituxan (FCR). Elderly patients represent approximately 20% of the total first-line population. In refractory CLL, most physicians plan on using Treanda ahead of Campath as they are turned off by Campaths side-effect profile. As physicians gain more experience with Treanda (durability of efficacy, safety profile, infusion reactions), they expect it might be used more in combination with Rituxan. Cephalon is planning a Treanda + Rituxan Phase III trial in 100 patients with relapsed CLL.
Promising Activity Of Low Dose Revlimid In CLL, Safety Issues Have Tied Up Development, But Momentum Gaining
Revlimid has shown promising monotherapy activity in relapsed/refractory CLL, although safety concerns have made development more challenging than anticipated. Celgene's Phase 2 study of Revlimid (25mg/day) in relapsed refractory CLL was stopped due to Tumor Lysis Syndrome (TLS), a potentially lethal complication when the body is overwhelmed by the cellular debris from dying tumor cells. New data for Revlimid monotherapy in CLL at lower starting doses were presented for the first time at the ASH 2008 meeting. As a reminder, 10 mg and 25 mg Revlimid starting doses tested previously resulted in tumor lysis syndrome in 3% of patients, some of which were fatal, and CELG was forced to perform a dose titration study to mitigate the TLS risk. The data continue to suggest significant activity for Revlimid in CLL patients, with response rates of 52% and 65% in the two front-line CLL studies reporting data at the ASH 2008 meeting. Both studies implemented a low starting dose (2.5-5mg) followed by slow dose escalation and
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close monitoring for tumor lysis syndrome, and mandated allopurinol prophylaxis, which appears to mitigate TLS. Tumor flare remains a controversial topic, with vastly different prevalence reports (78% and 46%,) and we expect continued debate on whether steroids can be used to control tumor flare without compromising response. In addition, investigators presented CELGs Phase 1/2 dose titration study in relapsed refractory CLL, showing that 2.5 mg combined with TLS prophylaxis is safe. We believe these data are too new to encourage significant off label adoption prior to Phase 3 data release expected in 2010-2011.
Results From Revlimid Studies In Untreated CLL
Starting Revlimid dose 5mg to 10mg Median age 71 Enrolled n=45 Responses at cycle 9 n=33 PR + Nodular PR 52% SD 15% n=45 Safety Neutropenia Gr 3/4 27% Fever 7% Thrombocytopenia Gr 3/4 9% Tumor flare, Gr 1-3 46% TLS 0% Source: ASH '08 presentation, Ferrajoli et al Starting Revlimid dose 2.5mg to 10mg Median age 60 Enrolled n=25 Responses n=17 PR 65% SD 35% n=23 Safety Neutropenia Gr 3/4 43% Febrile neutropenia 17% Thrombocytopenia Gr 3/4 13% Tumor flare, Gr 1-2 78% Rash, Gr 1-2 48% TLS 0% Source: ASH '08 abstract, Chen et al
Revlimid Activity From Roswell Park Study

Patient Population Data at ASH 2006 Patients with poor prognostic factors Del (17) Del (11) fludarabine-refractory Zap-70+ Data at CLL Workshop 2007 Patients with poor prognostic factors Del (17) and Del (11) fludarabine-refractory * (5 molecular CR, 11%) n 45 6 10 23 10 45 CR 6 0 1 1 4 8 % CR 13% 0% 10% 4% 40% 18% PR 20 3 3 6 2 18 % PR 44% 50% 30% 26% 20% 40% ORR 26 % ORR 58%
26 44% 30%
58%
Source: ASH 2006, CLL Workshop 2007 Chanan-Khan et al
Future Directions for Revlimid in CLL (Key Studies) Maintenance CLL: Phase 3 study (CLL-002, CONTINUUM) comparing Revlimid vs placebo. N=680 who have responded (at least PR) to a purine analogue in first/second line. Patients receive Revlimid 2.5 mg for one month, escalate to 5 mg if well tolerated; after 5 cycles escalate to 10 mg if patients has minimal disease and 5 mg well tolerated; treat until disease progression; co-primary endpoints OS and PFS (enrolling)
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Front-line CLL: Phase 3 study (CLL-008) comparing Revlimid vs chlorambucil in first-line elderly CLL, not yet recruiting. N=428, start Revlimid 5 mg for first month and escalate to 10 mg second month if well tolerated, escalated to 15 mg after if well tolerated.
Sunesis Voreloxin Demonstrates Encouraging Data In AML

Voreloxin is a cytotoxic agent that has been studied in a broad Phase I and II development program in cancer. It represents a novel class of compounds with a differentiated mechanism of activity (replication-dependent NA-damaging). Results from Phase I trials support voreloxins potential for use against leukemia, and ovarian and lung cancer. Sunesis is most interested in pursuing AML as the initial registrational pathway for voreloxin. Final results from Voreloxin's Phase I dose escalation trial in relapsed/refractory AML were presented in December 2007 at ASH. Phase I data in 67 relapsed/refractory AML patients demonstrated the drug to be well tolerated with substantial indications of activity in highly refractory patients. The dose-limiting adverse event was reversible grade 3/4 mucositis. MTDs of 72 mg/m2 once weekly and 40 mg/m2 twice weekly were identified. Apart from mucositis, Voreloxin was well tolerated with mild GI upset. 12% and 14% of patients in the once weekly and twice weekly arms respectively achieved blasts reduction to <5%. At doses above 40mg/m2 in the weekly arm, 40% of patients achieved blasts <5%. There were 2 CRs (1 in each arm), and 1 CRi and 2 CRp (all 3 in the once weekly arm). We view these early signs of clinical activity as encouraging in a setting where salvage treatments typically achieve response rates <10%. Sunesis presented Phase II data on voreloxin in elderly AML patients at the 50th Annual Society of Hematology meeting in December 2008. These data are notable as elderly AML patients could represent Sunesiss initial registration strategy. In a trial called REVEAL-1 (Response Evaluation of Voreloxin in Elderly AML), 55 treatment nave patients were enrolled who were either 1) 60 years old with one of the following: poor performance status (PS2), intermediate or unfavorable cytogenetics, prior hematologic disease, 2) or were 70 years old. The desired primary endpoint of a 30-40% CR + CRp rate was met. Voreloxin dosed a 72 mg/m2 on days 1, 8, and 15 led to 11/29 patients (38%) achieving a CR or CRp. Duration of response has not yet been reached but one physician enrolling patients noted a duration of 10+ months. One potential concern was a 30-day all cause mortality rate of 17%, primarily due to infection. A subsequent protocol adjustment decreased dosing to days 1, 8 and allowed greater use of prophylactic anti-infectives. Early data from 18/21 patients receiving this new protocol suggest efficacy could be maintained while improving tolerability (30-day all cause mortality is 6%). Sunesis is also conducting a Phase Ib combination study on voreloxin with AraC in relapsed/refractory AML patients. This trial began in September 2007 and is evaluating safety and efficacy of multiple doses of voreloxin with a goal of 30-40% CR at the MTD. Data were presented at ASH 2008 on 45 relapsed/refractory AML patients. Data were evaluable from 38 patients and a MTD of 80 mg/m2 was established. Nine (24%) patients achieved a CR or CRp and five of those patients had extreme drug resistance to Ara-C. This compares favorably to a 20% ORR typically seen with Ara-C monotherapy. The predominant non-hematologic AE was infection (38%) and the 30-day all cause mortality was 21%. While still early, we view this
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initial Phase Ib data as encouraging that voreloxin may be able to improve upon AraCs efficacy as treatment for relapsed/refractory AML with a tolerable safety profile. Experts believe that voreloxin will ultimately play a role in the management of AML and believe that some of its best attributes include no cross resistance with other topoisomerases and a lack of cardiac toxicity as seen with anthracyclines. While early results are encouraging we anticipate additional data (in H1:09) from these two studies will be needed to secure a partnership and define voreloxin's pivotal Phase III program.
Liver Cancer
75K+ Patients With HCC In The U.S. And EU
According to the latest figures, there are 19K HCC cases each year in the United States. However, our consultants believe that this figure probably somewhat underestimates the true incidence. The estimate, and many other cancer incidence numbers, is derived from entries in tumor registries, which are built from hospital biopsy samples of tumors. Our consultants say that these estimates tend to be the most reliable figures available. However, the accuracy of the figures does depend on the number and proportion of patients that are biopsied. Because advanced liver cancer is universally fatal, and because many of the people who have it also have significant cirrhosis, our consultants note that many patients with liver disease are not biopsied. Many are sent directly to hospice. Therefore, consultants believe the true incidence in the U.S. is probably somewhat higher, although exactly how much higher is uncertain. In Europe, the data on incidence and prevalence would seem to be even less precise. Onyx (which markets Nexavar for liver cancer) has said that there are 55K cases of HCC in all of Europe, and 335K cases in the five largest nations. Our consultants believe that there are approximately 40-45K new cases of liver cancer each year in Europe. They suggest that the incidence is higher along the Mediterranean, and that it decreases further north. Our consultants cite figures that there are approximately 6K cases each year in France, 3-4K in Spain, 10-11K in Italy, 3K in the UK, and 4K in Germany. Our consultants expect the incidence of liver cancer to grow in the coming years as it can be caused by HBV and HCV infection. As the cohort of people infected by HCV and HBV ages, our consultants expect to see a relatively rapid increase in the incidence of liver cancer. In fact, our U.S. consultants expect the U.S. incidence of HCC to reach 50K cases per year within 15 years, implying an annual CAGR of nearly 7%. Our model assumes that there are 19K cases of HCC each year in the U.S. and that the incidence will grow by 2% per year through 2013. Our liver cancer model estimates that there were 45K cases of HCC in Europe in 2008 and that this will grow by approximately 2% per year through 2013 Aside from viral infections of the liver, the majority of HCC cases are associated with alcoholic liver disease, although approximately 25% of cases have no history of either. The median survival time from a diagnosis of HCC to death is estimated to be six months if untreated, and because liver function is often severely compromised in the setting of HCC, just as many patients die from liver failure as from the invasion of the tumor itself.
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Patients Managed By Surgery, Local Therapies, And Systemic Chemotherapy

Our consultants estimate that only 5-15% of people with HCC are cured. Liver transplant and surgical resection have curative potential, but unfortunately a small minority (20-25%) of patients is eligible for either. Liver transplant is appropriate for the 5-10% of patients who have cirrhosis and small HCC (typically defined as a single nodule < 5cm or up to 3 nodules < 3cm). Another 10-15% of patients are candidates for surgical removal of the tumor. These patients typically have a solitary mass in only a portion of the liver that can be excised with a 1-2cm margin, and either no cirrhosis or minor cirrhosis (Child-Pugh Grade A). Unfortunately, HCC will recur in about one-half of surgical patients, and these patients will eventually need palliative therapy. The aim of treatment in the majority of patients (75-80%) is palliative. Patients with localized and locally advanced unresectable disease who are not eligible for transplant are candidates for loco-regional therapy such as Transarterial Chemoembolization (TACE), percutaneous ethanol injection (PEI) or radiofrequency ablation (RFA). Our consultants estimate that such liver-directed therapy is appropriate for about 35% of patients. However, while these therapies shrink the tumor, their ability to significantly prolong life has not yet been clearly established by clinical data. Of the remaining 40-45% of patients, our consultants estimate that approximately one-third have cirrhosis too severe to receive any therapy. This suggests about 30% will receive only systemic chemotherapy.
Nexavar Demonstrates Survival Advantage In Phase III

Onyxs Nexavar (sorafenib) is a small-molecule, orally available inhibitor of raf kinase that was approved for advanced kidney cancer in December 2005. Since the ras oncogene is thought to be involved in the pathogenesis of liver cancer, Nexavar would seem to be well suited to this indication. Nexavars Phase III SHARP trial in hepatocellular cancer (HCC) enrolled 602 patients with first-line liver cancer, and randomized patients 1:1 to 400 mg of Nexavar twice-daily or placebo. In February 2007, partners Onyx and Bayer announced that the trial was stopped early because an interim analysis determined that Nexavar improved survival over placebo by a statistically-significant degree. Full results were presented in June 2007 at the ASCO meeting and revealed that treatment with Nexavar extended survival by 44%, from a median of 7.9 months in the placebo arm, to 10.7 months in the Nexavar arm (p=0.00058). Nexavar increased time to tumor progression by 73%, from a median of 2.8 months with placebo to 5.5 months with Nexavar (p=0.000007). There was no meaningful difference in serious adverse event rates between the two treatment arms, and Nexavar was well-tolerated with manageable side effects.
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Nexavar Phase III Data
Source: Llovet et al, ASCO 2007 presentation
Consultants Think Nexavar Is Appropriate For 40-50% Of HCC Patients

Our consultants expect Nexavar to be used widely in patients with advanced disease, not appropriate for either surgery or transplant, and without advanced cirrhosis. This is a relatively large group, encompassing 40-50% of all HCC patients. It includes patients with stage 3 or 4 HCC, and patients with liver function classified as Child Pugh A, Child Pugh B7, or Child Pugh B8. Consultants do not expect to use Nexavar in patients with Child Pugh grades B9, or C, as these patients are too compromised, and their expected survival is too short. Our consultants believe Nexavar will be adopted rapidly in the 30% of HCC patients for whom systemic chemotherapy is the only option, and in fact say Nexavar is already being used in many of these patients. Our consultants are also using Nexavar in some patients who receive liver-directed therapies (like TACE or PEI), either before, in conjunction with, or after the local therapy. Our consultants estimate that use with the liver-directed therapies opens up an additional 10-20% of the HCC population to Nexavar. In our past discussions with our consultants, they suggested that about 30-40% of all HCC patients would be appropriate for Nexavar. Our recent checks imply that the population has increased somewhat over the last several months, to 40-50%. Our consultants say there are two predominant reasons for this. First, the physicians report increasing adoption in conjunction with liver-directed therapies (like TACE) even though combination therapy was not allowed in Nexavars Phase III SHARP study. They say that increasing experience has led to more comfort that the two modalities can be successfully combined. Second, results from Nexavars Asian Phase III have given physicians increasing comfort in using the drug in patients with more serious liver dysfunction, like Child Pugh Class B7 and B8 patients. Most of the
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patients in the SHARP trial were Child Pugh A. Questions about Nexavars applicability to patients with more severe liver dysfunction lingered after the ASCO presentation of SHARP and were only satisfied after the Asian data were released in H2:07.
Consultants Believe Nexavars Adoption Will Be Rapid

None of our consultants report any problems with Nexavars reimbursement, and therefore it would seem that in France, Germany, and most regions of the United States HCC patients have easy access. Moreover, they think that following the presentation of the SHARP Phase III data at ASCO in 2007, and the announcement of the results of the Asian HCC Phase III during H2:07, Nexavars adoption has been rapid, particularly among academic physicians. They note a good amount of use among community physicians as well. In general our consultants expect that by mid2009 Nexavar will have penetrated about 80% of the addressable HCC market in the U.S. and western Europe.
Nexavar Is Generally Well Tolerated

Our consultants are satisfied with Nexavars safety and tolerability, and report few major surprises. The most common grade 3 side effects in our consultants practices are fatigue, which our consultants estimate affects 8-10% of people, hand-foot syndrome (10%), and diarrhea (10%). Although at times these can be troublesome to patients, in most cases the physicians said that they can be well managed by supportive therapies such as skin creams, or anti-diarrhea medicines. Cases not adequately controlled by supportive therapies can almost always be through dose reduction. A recent paper discussed Nexavars potential to cause hypertension, and in fact our consultants have seen some hypertension in their patients. They were not surprised, however, as they noted that Avastin can also cause high blood pressure, and so it is likely a class effect. Our consultants were not particularly concerned by Nexavars hypertension, and said in most cases it can be easily managed by anti-hypertensives.
400K HCC Patients In Asia

Approximately 400K people develop HCC in Asia each year. This represents twothirds of all HCC cases worldwide (600K), and nearly 6 times as many cases as the U.S. and Europe combined. HCC is far more common in Asian countries than it is in the U.S. and EU, due in large part to the much greater prevalence of HBV infection. Therefore, the cause of HCC in Asia is also different than in the West, as in the West a large percentage of HCC arises from HCV infection and alcoholism. As a result, Onyx and Bayer decided to conduct an Asian Phase III Nexavar trial in addition to the SHARP pivotal trial that was conducted in the West. The Asian study randomized patients with advanced, metastatic HCC (ECOG PS 0-2, Child-Pugh status A, no prior systemic chemotherapy, and life expectancy 12 weeks) in a 2:1 ratio to Nexavar 400 mg twice daily or placebo. Overall survival (OS), time to progression (TTP), time to symptomatic progression (TSP), progression free survival, disease control rate (complete or partial response or stable disease according to RECIST and maintained for 28 days from first demonstration) and safety were the endpoints. Positive top-line results from Nexavars Asian HCC trial were first released in the summer of 2007 when the study was stopped early for a survival benefit. Additional data were subsequently presented at the 2008 ASCO meeting. The median overall
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survival was increased from 4.1 months in the placebo arm to 6.2 months in the Nexavar arm, p=0.0155. The hazard ratio in the Asian study was on par with, to slightly better than, that of the SHARP trial (0.67 versus 0.69 respectively). The percentage improvement in median survival in the Asian study (51%) was also somewhat better than that in the SHARP trial (35%). Adverse events most commonly documented included hand-foot syndrome, diarrhea, hyperbilirubinemia, and fatigue. Serious adverse events for Nexavar vs. placebo were 9% and 1% respectively.
Phase III Nexavar Efficacy Results In Asian Patients With Advanced HCC
Endpoint Events on Nexavar Events on placebo OS 102 (68%) 62 (82%) TTP 108 (72%) 58 (76%) TSP 126 (84%) 65 (86%) PFS 134 (89%) 73 (96%) HR (95% CI) Median (months) Nexavar 0.67 (0.49-0.93) 6.2 0.58 (0.42-0.80) 2.8 0.89 (0.66-1.20) 3.5 0.62 (0.46-0.83) 2.8 Median (months) placebo 4.1 1.4 3.4 1.4 p-value 0.0155 0.0007 0.4458 0.0009
Grade 3 Or Greater Drug-Related AEs From Phase III Nexavar Trial In Asian Patients With Advanced HCC
Nexavar Placebo
Hand-Foot Skin Reaction 10.1% 0.0%
Diarrhea 6.0% 0.0%
Hyperbilirubinemia 3.4% 2.7%
Fatigue 3.4% 1.3%
Source: ASCO 2008 Annual Meeting
The totality of this data suggests that Nexavar is effective in Asian patients, in patients with more advanced disease (e.g. with extra-hepatic involvement, Stage C HCC, 4 tumor sites, lung metastases), and in patients with HCC secondary to the Hepatitis B virus.
Checks Suggest Reimbursement The Key Issue In Asia

The number of patients that will be medically appropriate for, have access to, and be able to afford, Nexavar is unclear. In order to get a better understanding of Nexavars Asian opportunity, we recently checked in with four physician consultants who treat HCC in Hong Kong/China, South Korea, Singapore, and Taiwan. Reimbursement is likely to determine the size of these markets.
Adjuvant STORM Trial Begins Enrollment

In August, Onyx and Bayer announced that enrollment commenced in the worldwide Sorafenib as Adjuvant Treatment in the Prevention of Recurrence of Hepatocellular Carcinoma Trial (STORM). This randomized double-blind placebo-controlled study will enroll 1,100 patients who have received either surgery or local ablation to either 400 mg twice daily of Nexavar or placebo for four years. The study, which is under an SPA with the FDA, has a primary endpoint of recurrence free survival and several secondary endpoints including overall survival and time to recurrence
No Near Term Competitive Threat To Nexavar In HCC

Our consultants expect Nexavar to dominate the HCC landscape at least through the end of this decade, as they are not aware of any major medications in Phase III today that could unseat it as a first-line therapy. The most likely competitors are Sutent, an Avastin + Tarceva combination regimen, and Bristol-Myers BMS-582664. On Sutent, our specialists believe that if the Phase III program (data likely in 2010) was placebo controlled, Sutent would likely succeed. However, because Sutent is being pitted against Nexavar, it will be tough for Sutent to have a superior risk/benefit profile,
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primarily because of Sutents greater adverse event profile. On Avastin + Tarceva, our consultants have varying levels of enthusiasm. Most note that the data presented at ASCO were intriguing, but all suggest that much more is needed before one can be confident that this regimen really has a place in the treatment of HCC. The regimen is expected to move into a Phase III program during 2009. Finally, our doctors are not impressed with BMS-582664 (in Phase II), an oral dual VEGF and FGFR tyrosine kinase inhibitor. They believe that BMS-582664 is similar in efficacy and safety to Sutent and therefore will not displace Nexavar as a first-line treatment for HCC. Sutents HCC Data Unimpressive Data from a 37-patient single arm study of Sutent in HCC were presented at ASCO 2007 and were unimpressive. The study was conducted in Europe and Asia and dosed patients with Sutent 50 mg/day, 4 weeks on, 2 weeks off, every six weeks. The primary endpoint of the trial was RECIST-defined response rate. Given that this was a Phase II trial, and that Phase II trials typically produce higher response rates and longer progression times than subsequent Phase IIIs, the efficacy data were not striking. One of the 37 patients had a partial response (2.7%), and 13 of the 37 (35.1%) had stable disease lasting longer than 3 months. Median time to tumor progression was 21 weeks, and median overall survival was 45 weeks. Sutent appeared to be quite toxic. 29.7% of patients had at least one dose delay, and 43% of patients had to reduce the dose of Sutent. Sutent produced high rates of hematologic toxicity, including 35% grade 3/4 thrombocytopenas, 24% grade 3/4 neutropenia, 19% grade 3/4 anemia, and 11% grade 3/4 leukopenia. Perhaps most worrisome, the deaths of 4 of the patients in the study, 10% of all patients, were attributed to Sutents side effects (bleeding, drowsiness, hepatic encephalopathy, and renal failure). Pfizer is conducting a Phase III trial of Sutent in HCC, with data expected in 2010. However, since Sutents efficacy seems at best on par with Nexavar in HCC, but its toxicity seems much worse, it would appear that Sutent is unlikely to be a strong competitor to Nexavar. Avastin/Tarceva Data Intriguing Our consultants have been optimistic for the combination of Avastin and Tarceva in liver cancer. In their experience the combination produces additive, and perhaps even synergistic, efficacy. They have used the combination in 30+ very sick patients (over half were CLIP 3 or CLIP 4), and the combination led to a high rate of responses, prolonged progression free survival, and overall survival. The combination seems to have acceptable safety and tolerability. Although our consultants note that the typical Tarceva side effects are exacerbated in the combination, they do not seem concerned. Our consultants are careful not to over-interpret this experience, as they say that often in cancer early, non-randomized, uncontrolled experience is not predictive of the results ultimately produced in Phase III. In interim data from a single arm Phase II trial of Avastin and Tarceva in liver cancer presented at a poster at 2007 ASCO, of 29 patients evaluable for response, there was one CR and 6 PRs. Median PFS was 9 months and survival was 19 months. The combination was generally well-tolerated.
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Lung Cancer
Lung cancer is a leading cause of cancer-related death in the U.S., where in 2008 an estimated 215,020 new cases were diagnosed. Lung cancer is categorized by cancerous cell type, most broadly divided into small cell (SCL) or non-small cell (NSCL). NSCL cancer, representing 80-85% of all lung cancers, is further subdivided into adenocarcinoma (40-45%), squamous cell (25-30%), and large cell (10%). Further subtypes exist: for example, bronchoalveolar cell carcinoma is classified as a subtype of adenocarcinoma. A persistent cough is the most common symptom, making early detection of lung cancer difficult. A minority of NSCL cancers are diagnosed when the disease is still localized, and therefore amenable to potentially curative therapy (surgery, radiation). The majority of NSCL cancer patients present with either stage IV metastatic (40%) or stage III locally advanced (30-40%) disease. Of those patients presenting with metastatic disease, approximately 85% might be candidates for chemotherapy (prognostic scores 0, 1, or 2). For non-small cell lung cancer, a chemotherapy doublet plus Avastin is becoming the standard of care in patients who are Avastin eligible (50-60% of the total). A platinum-based two-drug chemotherapy (cisplatin or carboplatin combined with gemcitabine, paclitaxel, docetaxel, pemetrexed or vinorelbine) regimen is standard in patients who are contraindicated for Avastin (due to squamous cell histology, brain metastases, anticoagulant therapy, or a prior history of hemoptysis). Consultants note that 5070% of patients typically receive second-line therapy, and 25-35% receive a third-line therapy. Refractory patients receive either Alimta (pemetrexed, now the preferred second-line agent), Taxotere, Tarceva, or Gemzar. One-year survival rates for patients with advanced lung cancer (40-45%) have been increasing, but the five-year survival rate remains around 15%.
Avastin Becoming The Standard In Eligible Patients

In 2005, Genentech announced data from the ECOG 4599 trial (N=878) testing carboplatin and paclitaxel +/- Avastin in advanced non-small cell lung cancer. Results were presented at ASCO 2005 and showed 12.3 months overall survival for Avastin plus chemotherapy versus 10.3 months for chemotherapy alone (p=0.007, primary endpoint), equivalent to a 20% reduction in the risk of death. Importantly, ECOG 4599 is the first trial to extend median survival beyond one year in patients with advanced lung cancer (typical one-year survival is 30-35%). Results also showed progression free survival of 6.4 months for Avastin plus chemotherapy versus 4.5 months for chemotherapy alone, with a 54% improvement in PFS equating to a 35% reduction in risk of progression. The response rate on chemotherapy plus Avastin was 29% compared to 13% for chemotherapy alone. Strangely, Avastin did not appear to have a positive effect on female patients, an outcome we believe may represent a statistical fluke. Grade 3/4/5 bleeding was 4.7% for the Avastin + chemo arm versus 1.1% for chemo alone, including a 2.3% incidence of pulmonary bleeding versus 0.5% for chemo alone (fatal hemoptysis was 1.6% vs. 0.2%). Avastins label was expanded in to include front-line NSCLC in October 2006. AVAiL Data Have Had Little Impact On Dosing In The U.S. In February 2007, Roche announced that the ex-U.S. 1,000 patient AVAiL study comparing chemotherapy (gemcitabine + cisplatin) +/- Avastin in first-line nonsquamous, non-small cell lung cancer met its primary endpoint of improved progression-free survival for Avastin. Both doses of Avastin (7.5 mg/kg and 15 mg/kg every three weeks) had a similar and statistically significant benefit on
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progression-free survival versus cisplatin/gemcitabine alone. Full data from this study were presented at ASCO 2007. Patients receiving 15mg/kg of Avastin + chemotherapy experienced a 22% improvement in risk of progression based on a hazard ratio of 0.82 (p=0.03) vs. patients receiving chemotherapy alone. Patients receiving 7.5 mg/kg Avastin + chemotherapy experienced a 33% improvement in PFS based on a hazard ratio of 0.75 (p-0.002). The confidence intervals of the two Avastin arms broadly overlapped, indicating the two Avastin arms had a similar effect on PFS. No safety differences between arms were observed. Based on these data, in August 2007 Genentechs partner Roche received European approval for both doses of Avastin in first-line NSCLC. In May 2008, Genentech announced that neither Avastin dose was associated with an improvement in overall survival vs. chemotherapy alone. Genentech has reported that AVAiL has entice few U.S. physicians to switch toward lower dosing of Avastin in lung cancer. Use of the higher (15mg/kg) has held roughly steady in the 70% range. Reasons to explain why a majority of U.S. physicians have stuck with the higher dose of Avastin in lung cancer include 1) 15 mg/kg is still the labeled U.S. dose and regulatory implications of AVAiL are unclear, 2) the majority of U.S. physicians use a carboplatin-based regimen, the regimen that was proven to work in combination with 15 mg/kg Avastin, 3) many future trials on Avastin in lung cancer employ the 15mg/kg dose, making it likely more difficult in the future for doctors to move away from the majority of the clinical experience, and 4) many physicians have accepted 15mg/kg as the standard in lung and see no reason to alter what has been working, especially if financial incentives continue to favor higher dosing. In addition, consultants do not expect the lack of a survival advantage in AVAiL to have a significant impact on Avastin's market share in the U.S. This reflects the solid survival advantage associated with Avastin in the U.S. ECOG 4599 study (12.3 month median survival for Avastin + carboplatin/paclitaxel vs. 10.3 months for chemotherapy alone). We expect the Avastin saga in lung cancer may be similar to that of Avastin in colorectal cancer were subsequent studies might not live up the initial clinical observation, but are also unlikely to derail adoption. As of Q4:08, Genentech estimates Avastin had penetrated approximately 35% of all first-line NSCLC patients and approximately 65% of its eligible market. Consultants are optimistic that Avastin will gradually capture the majority of the 40-60% of firstline patients who are not contraindicated for therapy. Contraindications include patients with tumors of squamous cell histology, patients on anti-coagulants, patients with prior MI, patients with brain metastases, and patients with a history of hemoptysis. With Genentech attempting to remove certain of these contraindications from Avastins label, physicians are optimistic that the drug could gain adoption in a broader set of patients over time. In particular, consultants are optimistic that the ongoing Phase II PASSPORT study (Avastin in first-line NSCLC patients with brain metastases) will provide favorable safety data in this setting, where the experience in GBM suggests that such patients can be safely treated. Consultants are somewhat less optimistic for Genentech's ongoing BRIDGE study (Avastin in squamous histology NSCLC) noting that these tumors are particularly prone to bleeding when treated with Avastin. Data from PASSPORT and BRIDGE are expected in 2009. Simultaneous with Avastins approval in NSLC cancer in October 2006, the company announced a program that caps the overall expense of Avastin at $55,000 per year per eligible patient for any FDA-approved indication. This should alleviate pricing
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concerns given the 2X higher dose of Avastin used in lung and breast cancers ($8,800 per month) versus colorectal cancer ($4,400 per month). In practice, however, few patients have registered for this program.
Tarceva Likely To Grow At A Modest Pace

In 2004, the FDA approved OSI Pharmaceuticals/Genentechs Tarceva as a monotherapy for treatment of refractory non-small cell lung cancer (NSCLC). Approval was based on a demonstrated improvement in median survival (6.7 months versus 4.7 months for best supportive care, p<0.001) from the BR.21 study in patients who had failed one or more lines of chemotherapy. Shortly afterwards, the failure of AstraZenecas Iressa in a similar study allowed Tarceva to capture essentially the entire U.S. EGFR inhibitor market. Although a series of price hikes and moderate adoption in pancreatic cancer (U.S. approval granted in 2005) have supported sales growth in the U.S., market penetration gains into lung cancer have been somewhat disappointing. Tarceva never meaningfully expanded the U.S. EGFRmarket in lung cancer and its share has held roughly steady at approximately 1015% of first-line patients, 20-30% of second line patients, and 40-50% of refractory patients. This in part reflects competition (principally Eli Lillys Alimta) and the bias of the U.S. reimbursement system against orally-delivered oncology drugs. Prescription trends even suggest that Tarceva may be losing a bit of ground.
IMS Reported Weekly Tarceva Scrips
3500 3000 2500 2000 1500 1000 500 0

2/11/05 5/11/05 8/11/05 2/11/06 5/11/06 8/11/06 2/11/07 5/11/07 8/11/07 2/11/08 5/11/08 11/11/04 11/11/05 11/11/06 11/11/07 8/11/08 11/11/08
Source: IMS Health, Cowen and Company
Positive SATURN and ATLAS Data Could Support Use In The Maintenance Setting
SATURN (Sequential Tarceva In Unresectable NSCLC) is an SPA-sponsored Phase III study conducted by Roche, that evaluated the role of Tarceva maintenance therapy in patients who have not progressed following first-line chemotherapy. The design of the trial is outlined below. 850 Stage IIIb/IV NSCLC patients who have not
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progressed (or experienced unacceptable toxicity) following four cycles of platinumbased chemotherapy were randomized 1:1 to receive either 150mg Tarceva daily, or placebo. The studys primary endpoint is PFS, with a co-primary endpoint of PFS in patients with EGFR-positive tumors (as measured by immunohistochemistry). In November 2008, OSI and partner Genentech announced that SATURN has met its primary endpoint of improved PFS in the Tarceva arm. Details will be released at ASCO 2009, though data from the trials secondary endpoint of overall survival are not expected until H2:09. The companies noted that there were no new or unexpected toxicities related to Tarceva, with the drugs adverse event profile similar to that seen in previous studies.
SATURN Trial Design
Source: OSI Pharmaceuticals
In February 2009, OSI and partner Genentech announced that the Phase III ATLAS study evaluating Avastin +/- Tarceva as a maintenance therapy in non-small cell lung cancer met its primary endpoint of improved Progression Free Survival (PFS) in the Tarceva arm. The study has been stopped early following an interim DSMB analysis that showed a statistically significant improvement in PFS, with no new or unexpected safety signals for the two agents. Although the trials early termination implies a strong improvement in PFS, data on this primary endpoint were investigator-assessed and have yet to be centrally reviewed. OSI expects data from SATURN to be filed with the FDA in H1:09. While OSIP has an SPA that specifies PFS as an acceptable primary endpoint, management expects the FDA will take any additional information, including overall survival data, into consideration (expected H2:09). In Europe, the EMEA continues to recognize PFS as an acceptable endpoint in lung cancer, hence we doubt a survival advantage will be needed for a European label expansion. Commercial Impact Of SATURN and ATLAS Likely Modest, In Our View While our physician consultants believe maintenance therapy is an interesting concept, they are uncertain whether the paradigm will be adopted. This reflects the fact that: 1) our physician consultants view maintenance treatment in NSCLC as an
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unproven paradigm in the absence of positive overall survival data (ie. sequential therapy may have a similar survival benefit to combination therapy); 2) all signs suggest that Alimta will outcompete Tarceva in the maintenance setting, based on Alimtas superior tolerability profile, improved physician economics, and greater convenience as a continuation therapy following first-line Alimta; and 3) physicians are unlikely to use Tarceva in more than one line of therapy, implying that any use of Tarceva in the maintenance setting will be offset to a degree by reduced sales in subsequent lines of therapy. Should SATURN or ATLAS produce compelling survival data, maintenance therapy could grow Tarceva sales by lengthening the duration of treatment.
AstraZenecas Zactima Unlikely To Unseat Tarceva

In November 2008, AstraZeneca announced data from the Phase III ZODIAC, ZEAL and ZEST studies. Although not free from caveats, the data appear to support Zactimas efficacy as an add-on to chemotherapy in second-line NSCLC and as a monotherapy in second-/third-line NSCLC. AZN expects to file for worldwide approval in H1:09. As these markets are key for Tarceva (we estimate refractory lung cancer accounts for over 50% of worldwide sales), approval of Zactima could represent a threat to Tarceva's growth. While the ZEAL study (Alimta +/- Zactima) failed to meet its primary PFS endpoint, the larger ZODIAC trial (Taxotere +/- Zactima) significantly extended PFS (primary endpoint). Meanwhile ZEST (Zactima vs. Tarceva) failed to demonstrate superiority to Tarceva, but did show equivalent efficacy (both PFS and overall survival) in a prespecified analysis. Physician consultants have been a bit skeptical of Zactimas safety profile and we expect full data from ZEST to better elucidate how the profiles of Zactima and Tarceva compare (data likely at ASCO 2009). In addition, AstraZeneca is completing a study on Zactima versus best supportive care (ZEPHYR) that could provide data in 2009 and support regulatory approval. Although we expect Zactima could become a meaningful competitor over time, with Tarceva holding first-mover advantage and Zactima failing to prove superiority, we believe the magnitude of any impact will be modest.
Erbitux Hits The Mark In First-Line Lung Cancer

In September 2007, partners ImClone (since acquired by Eli Lilly), Bristol-Myers, and Merck KGaA announced that the 1,100 patient FLEX trial met its primary endpoint of improved survival for Erbitux + vinorelbine/cisplatin vs. vinorelbine/cisplatin in first-line lung cancer. Full FLEX data were presented at the ASCO 2008 meeting by Dr. Robert Pirker. The study enrolled 1,125 patients with Stage IIIb/IV EGFR-positive NSCLC. The addition of Erbitux to chemotherapy was associated with a median overall survival benefit of 1.2 months (11.3 months vs. 10.1 months for chemotherapy alone), corresponding to a hazard ratio of 0.87 (p=0.044). This survival benefit was consistent across all subgroups, including ECOG performance status, smoking status, tumor histology, age and gender. Secondary endpoints were mixed: while Erbitux was associated with a statistically significant improvement in RR (36% vs. 29% for chemotherapy alone), there was no difference in median PFS between the two arms (4.8 months vs. 4.8 months). Several subgroup analyses were presented, and notable findings include significantly greater efficacy in the prespecified Caucasian patient population (hazard ratio = 0.80) vs. no benefit in Asian patients. In this subpopulation, Erbitux demonstrated efficacy on par with Avastin in adenocarcinoma patients (1.8 month survival benefit), and substantial efficacy in patients with squamous cell tumors (1.3 month survival benefit). Safety data were
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generally in line with Erbitux's known toxicity profile, although febrile neutropenia occurred at higher incidences than might be expected in both arms of the study (22% vs. 15% for chemotherapy alone). Prior to the presentation of these data, our consultants had commented that a median survival benefit of 4 weeks or more would likely be deemed clinically meaningful by the oncology community. It would seem that this view was also held by the presenters of the FLEX results at ASCO, who noted that the data position Erbitux to become an important option in first-line NSCLC. In particular, one physician stressed that overall survival represents a very high bar in lung cancer and that FLEX is only the second of 15 large randomized NSCLC trials in the last several years to have produced a survival benefit in this disease. Given the high unmet need, oncologists view Erbitux as an important new option in this disease. The FLEX data were filed with the FDA in Q4:08. However in January 2009, Bristol Myers Squibb and ImClone announced that, after discussion with the FDA, the decision had been taken to withdraw (and eventually resubmit) the Erbitux sBLA. According to the companies, this decision was based upon a Chemistry Manufacturing and Controls matter with regard to the pre-clinical pharmacokinetic comparability of the U.S. marketed version of ERBITUX with the clinical supplies used by Merck KGaA in Europe (where FLEX was conducted). Several Patient Subsets Could Be Candidates For Erbitux Based on comments from thought-leaders and physician consultants, we believe Erbitux will have a role in several NSCLC patient subsets. We expect use is most likely in the 40-60% of NSCLC patients that are Avastin-ineligible, in particular in patients with squamous histology tumors (roughly 20-25% of all NSCLC patients). Although approximately half of the NSCLC market is Avastin-eligible, Avastin has penetrated only a portion of this opportunity despite widespread availability in the U.S. Within this group, eligible subsets where Erbitux might gain share include caucasians and patients with wild-type K-ras (data pending). Alimta Approved In First-Line NSCLC In September 2008, Alimta, in combination with cisplatin, received FDA approval for first-line treatment of locally advanced or metastatic NSCLC of non-squamous histology. Alimta is also approved for mesothelioma and second-line NSCLC. In Europe, Alimta was approved for first-line therapy of non-squamous histology which is approximately 55-75% of the NSCLC opportunity. Lilly believes that the U.S. market opportunity for first-line therapy is double that of secondline: 90K patients versus 42-45K. Induction therapy will use 4-5 cycles of Alimta at $4,100 per cycle. Lilly believes that, while approval in first-line was based on couplet data with cisplatin, this should not be a barrier for adoption in the U.S., where carboplatin is used. Our oncology consultants support this view. In addition, Lilly has ongoing trials with Alimta and carboplatin. Lilly believes that the maintenance opportunity is significant and Alimta the ideal agent, given its superior tolerability profile and a PFS of 4.3 versus 2.6 months for best supportive care. Lilly is also conducting a combined induction and maintenance study using Alimta that likely will be completed in a couple of years further increasing the opportunity. Lilly is studying Alimta in several other solid tumors including head and neck cancer, breast cancer, and ovarian cancer, although no registration studies are planned for ovarian and breast cancers. Lilly recently filed for the maintenance indication suggesting that
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there may be a survival benefit. There are 17-ongoing Phase III trials including combinations with targeted agents. Alimta has been launched in 92 countries. We estimate Alimta sales of $1.4B in 2009, $1.85B in 2012, and $2.15B in 2015.
Source: Lilly
Alimta 1st Line NSCLC
Source: EMEA Gemzar Label
Lymphoma
Lymphoma is cancer of the immune system, affecting either B-cells (majority of cases) or T-cells. Non-Hodgkins lymphoma, a type of B-cell lymphoma, is the most common form of blood cancer accounting for an estimated 66,120 new cases and 19,160 deaths in 2008. According to consultants, the incidence of NHL has increased roughly 4% annually over the past 10+ years. Approximately 35-40% of NHL patients have an aggressive form of disease (such as diffuse large B-cell) and 25% have indolent or follicular disease (see chart below). Patients with early stage and less aggressive NHL are treated with radiation or Rituxan. More advanced and aggressive patients receive Rituxan plus chemotherapy (typically CHOP, CVP, or fludaribine).
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The prognosis for NHL patients is improving, in large part due to the introduction of Rituxan in 1997. Indolent NHL is a treatable, but not curable disease. Patients with indolent NHL typically receive multiple lines of Rituxan, sometimes in combination with chemotherapy, before succumbing to the disease. Median overall survival in indolent NHL is in excess of 10 years. Aggressive NHL can be cured via an aggressive front-line regimen of Rituxan plus chemotherapy. However, relapsed/refractory aggressive NHL is a deadly disease with few good therapeutic options. Median survival in aggressive disease is roughly five years.
Common NHL Subtypes
Source: Lichtman MA, Williams Hematology. 7th Ed.
Rituxan Achieves High Penetration Of Lymphoma Markets

Rituxan is still the #1 selling anti-cancer drug in the world. U.S. end-user sales of $2.9B in 2008 were up 14% Y/Y. Genentech attributes Rituxans success to high penetration of the non-Hodgkins lymphoma (NHL) and chronic lymphocytic leukemia (CLL) markets. An estimated 360K people in the U.S. suffer from NHL, of which 50% are considered to have aggressive NHL and 50% follicular/indolent NHL, Each year an additional 58K new cases of NHL develop in the U.S. Powered by the results of the GELA, ECOG4494, and MInT studies, an sBLA was approved in February 2006 for frontline diffuse large B-Cell NHL (the most common subtype of aggressive NHL) in combination with CHOP chemotherapy. In addition, Rituxan was approved in November 2006 for first-line use in combination with chemotherapy in low-grade NHL. Although these approvals could drive penetration rates modestly higher, it is becoming increasingly apparent that Rituxan has already deeply penetrated frontline NHL, given prior off-label use in an estimated 85% of patients with aggressive NHL, and 87% of low-grade NHL. Rituxan has also deeply penetrated the CLL market with Genentech estimating the drugs market share nearing 70%. One modest driver of Rituxan sales in NHL is increased use in the maintenance therapy market. Data on Rituxan in the maintenance setting have been mostly
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positive, showing the drug improves disease-free survival and may increase overall survival when used in relapsed low grade NHL. According to consultants, maintenance therapy (or scheduled retreatment) can increase the amount of Rituxan dosed per patient by up to three-fold. Use of Rituxan as a scheduled retreatment was approved by the FDA in September 2006. Expanded adoption of Rituxan in this setting looks to be occurring, providing increased support to sales. The use of maintenance therapy following a first-line regimen for low grade NHL is less proven, but the results of Roches 1,200-patient PRIMA study (Rituxan/chemo induction, followed by maintenance Rituxan vs. observation; final results expected H1:10) will provide important data in this setting. Despite scant data, physicians note that the majority of community oncologists and up to 50% of academic oncologists have already adopted first-line maintenance Rituxan into their treatment paradigm, a trend that is contributing to increasing difficulty in clinical trial patient accruals.
Zevalin Not Gaining Any Traction

Spectrum Pharmaceuticalss Zevalin (acquired via Cell Therapeutics), a radiolabeled antibody, was approved in 2002 for the treatment of relapsed or refractory low grade, follicular, or transformed B-cell non-Hodgkins lymphoma, including patients with Rituxan refractory follicular NHL. Since its launch, Zevalin sales have disappointed expectations. Zevalin faces multiple barriers that include: referral disincentives versus Rituxan, a cumbersome administration profile (including indium-111 imaging), a greater risk of bone marrow suppression versus Rituxan (43% versus 20%), coordination difficulties between nuclear medicine physicians and oncologists, and an unclear reimbursement environment. Sales and marketing efforts to combat these obstacles have yet to turn the corner on flat sales. It would seem that data from ongoing studies supporting combination therapy will be necessary for the drug to have any chance of success. To compound its problems, Zevalin is also competing with Bexxar (GSK).
GlaxoSmithKline's Bexxar Also A Niche Drug

In June 2003, then-partners Corixa and GlaxoSmithKline announced that the FDA had approved Bexxar for the treatment of patients with CD20 positive, follicular, nonHodgkins lymphoma (NHL), with and without transformation, whose disease is refractory to rituximab and has relapsed following chemotherapy. In December 2004, Corixa transferred worldwide development and marketing rights to GlaxoSmithKline. The market for radiolabeled monoclonal antibodies looks quite small. Sales of Bexxar have been minimal, with <$3MM recorded in each quarter since it was launched. Our physician consultants believe that only head-to-head data against Rituxan in the early treatment of NHL would cause a significant uptick in Bexxars use. The Southwestern Oncology Group (SWOG) is conducting a trial examining CHOP plus Bexxar vs. CHOP plus Rituxan in the treatment of NHL, but data from the trial are at least a couple of years away.
Excitement Abounds For Treanda In Refractory NHL

In refractory indolent NHL, Treanda has shown activity as a monotherapy and in combination with Rituxan. Treandas SPA-sponsored Phase III monotherapy study was a single-arm trial designed to show a 50-60% response rate in Rituxan-refractory
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patients. At the 2007 ASH meeting, Cephalon presented the Phase III data. Treanda showed a 75% response rate (p<0.0001) in Rituxan-refractory indolent B-cell NHL patients with a median duration of response of 9.2 months. Many patients were heavily refractory and had prior alkylator experience. Treandas efficacy in this setting indicates the drug is differentiated and not just another alkylator chemotherapy. Treanda was generally well tolerated (18% of doses delayed or reduced) with adverse events including reversible grade 3/4 myelosuppression, GI upset, and fatigue. Treandas dosing convenience (2 out of every 21 days) is a differentiating feature viewed favorably by physicians. Consultants view Treandas efficacy and safety profile in refractory NHL as compelling. In particular, they cite the long duration of response and favorable tolerability as differentiating versus other available agents. In fact, experts believe Treandas 75% response rate is the best among drugs in development or on the market for refractory indolent NHL. Physicians also appreciate Treandas novel mechanism of action and impressive activity as an alkylator in refractory patients. Consultants are knowledgeable about the Phase II data on Treanda plus Rituxan (published in JCO) in refractory NHL and view these data as impressive and supportive of combination use. The only downside to Treanda may be its potential to cause toxicity in patients with limited bone marrow reserves or the potential to render such patients ineligible for subsequent bone marrow transplant. However, even this minor concern can be overcome with careful dosing. Consultants believe the ideal Treanda patient is one with more rapidly progressing, bulkier NHL, and therefore not a great candidate for treatment with more Rituxan. Although Treandas is indicated for patients who have relapsed within six months of receiving Rituxan, physicians indicate they will not limit their use solely to such patients. They indicate Treanda will become their therapy of choice in certain 2nd-, 3rd-, and 4th-line indolent patients. Although Treanda is priced at a premium and consultants are broadly concerned about the high cost of oncology therapies, cost/reimbursement issues have not been a barrier to use in todays market environment. We expect a majority of the approximately 140,000 U.S. patients with refractory indolent NHL patients might see Treanda at some point in the course of their disease. We estimate the average price of Treanda per patient at $40,000 per course (when used in combination with Rituxan). STiL Group Trial Continues To Support Treandas Activity In 1st-Line NHL Data presented at the 2008 ASH meeting from the STiL group trial evaluating Treanda plus Rituxan in first-line indolent NHL continues to indicate the combination has equal efficacy, but better tolerability in comparison to CHOP plus Rituxan. Initial interim data from this trial were first presented at the 2007 ASH meeting. The update included a greater number of patients (n=462 vs. 331) and a further year of follow-up (27 months vs. 17 months). The overall and complete response rates for patients treated with Treanda + Rituxan were 94% and 41%. This compares to 93% and 32% for patients treated with CHOP + Rituxan. 53 deaths have been observed, equally split between the two arms (26 for Treanda + Rituxan, 27 for CHOP + Rituxan). Progressive or relapsed disease has occurred in 63 patients treated with Treanda + Rituxan and 88 patients with CHOP + Rituxan. There is no statistical difference in event-free survival (primary efficacy measure, p=0.09), but trends favor Treanda + Rituxan. The Treanda arm experienced less alopecia (0% vs. 91%), infectious complications (31% vs. 41%), and grade 3/4 leukocytopenia (14% vs. 38%).
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Given the apparent success of this trial, the STiL group is planning a study on Treanda + Rituxan followed by Rituxan maintenance in first-line indolent lymphoma. But More Data Needed To Support Broad First-line Use We do not model significant use of Treanda in first-line indolent NHL, a $500MM+ opportunity. This reflects the views of our consultants who believe additional data are required before Treanda plus Rituxan will challenge the role of R+CHOP or R+CVP as a standard of care in front-line NHL. Physician experts believe that, since R+CHOP/CVP has been studied in thousands of patients over several years in numerous trials and is well entrenched, a high bar has been set for Treanda and one study simply wont reach the threshold needed for doctors to change their treatment paradigm. Cephalon is aware that the U.S. oncology community wants first hand experience with Treanda in the first-line setting and additional trials to document its utility. Thus, Cephalon plans to initiate a 700-patient trial comparing Rituxan + Treanda to either Rituxan + CHOP or CVP in first-line indolent NHL patients in Q1:09. The trial will likely last five years, with the possibility that interim data (in conjunction with the STiL Groups trial) could support an earlier FDA filing. While the physicians are cautious on the prospects for broad first-line use of Treanda indolent NHL, they believe that Rituxan plus Treanda might be used offlabel near term in lieu of R+CHOP/CVP in elderly patients (due to cardiotoxicity, myelosuppression, and fatigue associated with R+CHOP/CVP), which make up 20% of the total patient population.
Celgenes Revlimid Continues To Show Promise in Aggressive NHL

Celgenes Revlimid has demonstrated activity in relapsed/refractory aggressive NHL in the 50-patient NHL-002 study and in the ongoing 200-patient NHL-003 study with an overall response rate of approximately 30%. Our consultant characterized it as an important new agent for aggressive NHL with a unique mechanism of action. Its oral administration makes Revlimid an attractive patient friendly alternative in a market dominated by IV therapies, and its novel mechanism, while poorly understood, provides a discrete rationale for combining with current agents to improve treatment outcomes. Additionally, he noted that some patients not classified as objective responders have prolonged stable disease on Revlimid, which is also compelling in this population with limited treatment options and rapidly progressing disease. In particular, duration of response is impressive, with some patients responding for 18+ months. While it is too early to define Revlimids exact role in aggressive NHL, our consultants speculate it may be used front line to improve CR rates given its unique mechanism of action; pending more mature combination data with established NHL agents such as Rituxan, Revlimid should have a role in relapsed-refractory aggressive NHL. One consultant indicated that work is still ongoing to define the dose schedule for long-term Revlimid use in NHL in an attempt to manage myelosuppression as well as to identify biomarkers able to predict what patients would respond to the therapy. Experts are generally mixed on the approvability of Revlimid monotherapy in aggressive NHL on the basis of data from NHL-003 and NHL-002. On the one hand, our consultants are unsure the FDA would accept durability of response without randomized controlled studies to support efficacy. However, they generally believe that 6-12 month+ duration of response, particularly
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in patients with Rituxan or chemo resistance disease, could be compelling for the FDA. Data continue to accumulate for Revlimid in Non-Hodgkins Lymphoma (NHL). Data cuts from the 200-patient NHL-003 study were shown at the ASH 2008 meeting for the relapsed refractory diffuse large B-cell lymphoma (DLBCL) and relapsed refractory MCL subsets both demonstrate single agent Revlimid is active in this heavily pre-treated patient population (DLBCL: 29% ORR, N=73, and MCL: 41% ORR, N=39) and slightly better with previously presented results from an earlier data update (DLBCL: 22%, ORR, N=49; MCL:36% ORR, N=22). The median PFS in the DLBCL subset analysis was 1.8 months and duration of response was 4.4 months in the current analysis; although the presenter indicated that with the most recent follow up the duration of response was 7 months with one patient responding for 18 months and several patients out to 12 months. A sub-analysis from the pooled NHL002 and NHL-003 studies of Revlimid monotherapy demonstrates Revlimid is effective in patients previously treated with Velcade (57% ORR, N=14). New data also were presented at the ASH 2008 meeting exploring Revlimid/Rituxan combination in a small set of relapsed/refractory indolent NHL patients (n=6) demonstrating 4 objective responses in 4 evaluable patients. Interestingly, tumor lysis syndrome was recorded in two patients.
Data From NHL-003
NHL subtype All patients MCL MCL post Velcade DLBCL Follicular lymphoma, Grade 3 Transformed lymphoma Source: ASCO 2008 presentation
Source: Czuczman et al, ASCO 2008
N 83 22 6 49 6 6
ORR 29% 36% 50% 22% 33% 50%
Data From DLBCL Subset From NHL-003 Study
Median follow up 1.7 months N 73 CR 4% PR 25% SD 15% PD 56% ORR 29% Safety Gr 3-4 Neutropenia 31% Thrombocytopenia 15% Asthenia 8% Anemia 7% Source: ASH 2008
First Publication Of Revlimid In Aggressive NHL

In July 2008, Wiernik et.al. published the results of the open label monotherapy study of Revlimid in 49 relapsed or refractory NHL patients (study NHL 002) in the Journal of Clinical Oncology. Patients received Revlimid at a dose of 25mg once
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daily. The study showed a 35% response rate, with a 12% CR/unconfirmed CR rate, a 3.6 months progression free survival (PFS), and a 6.2 months duration of response. Updated results were presented at the EHA conference in June, with a 4.0 months PFS and a 10.4 months duration of response. CELG stated that it expects a second publication required for compendia listing in 09, which would facilitate offlabel Revlimid reimbursement in NHL.
Revlimid Continues To Show Promise In Relapsed/ Refractory Indolent NHL, But Still Early Days
Data from a Phase 2 study of Revlimid in relapse/refractory indolent NHL were presented at ASH 2007. Patients received 25mg Revlimid 1x/day on day 1 through 21 in 28-day cycles with therapy continuing for 52 weeks. The overall response rate was 26%, Grade 3/4 neutropenia was observed in 15 patients. The median duration of response was >10.1months (range 2.6-11.8 months), with 9/11 patients still responding to treatment. Data are summarized below.
Revlimid in Indolent NHL
Data at ASH 2007 NHL subtype n % trial ORR % SLL 18 42% 4 22% FCL 22 51% 7 32% NML 2 5% 0 0% 2% 0 0% EMZ 1 Total 43 100% 11 26% SLL = Small lymphocytic lymphoma FCL = Follicular-center lymphoma NML = Nodal marginal zone B-cell lymphoma EMZ=extranodal marginal zone/MALT CRu = Complete response unconfirmed
details 1CRu, 3 PR 2 CR, 5 PR
2 CR, 1 CRu, 8 PR
Source: ASH 2007, Witzig et al

One of the experts we spoke with who has personal experience with Revlimid in indolent NHL indicated that Revlimid has single-agent activity; however it is still very early to define a role for Revlimid in this setting given the paucity of data. Our consultants would like to see results of combining Revlimid with other agents in indolent NHL before drawing any conclusions. Detailed data from the Phase II study led by the CALGB group testing Revlimid + Rituxan vs. Revlimid vs. Rituxan in 180 patients with follicular NHL should provide some answers to the issue (we estimate data in late 2009). Data at ASH 2008 showed Revlimid activity in patients with Rituxan resistance indolent NHL; however, our consultants are cautious in extrapolating data to a positive result for Revlimid/Rituxan over the Rituxan alone, given the multiple failures for new agent/Rituxan combinations trying to show a benefit over single agent Rituxan.
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Future Directions for Revlimid in NHL (Key Studies)

(1) Aggressive NHL NHL 003 N=200, relapsed/refractory aggressive NHL, Revlimid single agent, enrollment completed Planned: GELA Phase 3 Study Design-Assessing Revlimid As Maintenance 725 patients with elderly DLBCL will be given R-CHOP and responders (estimated 620) will be randomized to receive Revlimid or placebo. To be eligible for study entry, patients need to be newly diagnosed, higher risk and elderly between the ages of 60-80 yrs. The primary endpoint is PFS with OS as a secondary endpoint. The investigator expects the study to take 3 years to enroll and approximately 2 years for the study to reach its endpoint. Further, based on prior data, he expects PFS to be approximately 45% with the control arm and the study assumes Revlimid will show a 15% improvement in PFS. (2) Mantle Cell Lymphoma There are a number of studies planned or ongoing in MCL including: EMERGE: N=133, Relapsed/refractory MCL following Velcade; primary endpoints response rate and duration of response SPRINT: N=150 Relapsed/refractory MCL 2-4th line; Revlimid vs best choice; primary endpoint response rate.
PDX An Exciting Candidate For T-Cell Lymphoma

Alloss PDX is an anti-folate (DHFR inhibitor) that inhibits folate metabolism and appears to have more potent cytotoxicity than methotrexate as a result of greater affinity for the reduced folate carrier (RFC-1) and for folylpolyglutamate synthase, which drives higher polyglutamation and intracellular accumulation. In August 2006, following encouraging Phase I/II data, Allos initiated the SPAsponsored Phase II PROPEL study of PDX for peripheral T-cell lymphoma. This is a single-arm, open-label, multi-center study of up to 109 patients with relapsed/refractory pTCL, and carries a primary endpoint of response rate. The SPA did not specify required activity, but our consultants had estimated a response rate >20% would likely needed for approval. Data from this pivotal study were presented at ASCO 2008 and support PDX as an active agent in pTCL. 29 of 109 evaluable patients (27%) achieved the primary endpoint of tumor response, as assessed by central independent review. Median duration of response (secondary endpoint) was 9.4 months. Side effets were manageable and the most common grade 3/4 AEs were thrombocytopenia (32%), mucosal inflammation (21%), neutropenia (20%) and anemia (17% of patients). Of those who did not respond to the drug, several were late-addition tough cases for whom obtaining success with any therapy would likely be a challenge. In our view, these data are strong and position should support FDA approval (Allos expects to submit an NDA in H1:09).
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T-cell lymphoma represents up to 15% of all lymphoma. With approximately 55K new lymphoma cases each year in the U.S., this equates to approximately 7-8K new T-cell lymphoma cases annually. We estimate ex-U.S. prevalence of T-cell lymphoma to be comparable, with a sizable patient population in Japan due to the incidence of HTLV-1 associated T-cell lymphoma. Consultants estimate that over half of T-cell lymphomas are peripheral, with roughly 4-5K+ new cases annually in the U.S.
Melanoma
62,480 are estimated to have been diagnosed in the U.S. in 2008, with 8,420 deaths. Melanoma is primarily a disease of Caucasians and can present as any change in the skin. Risk factors include moles, family history, and sun exposure. About 82% of melanomas are diagnosed at a localized stage. These patients have a good prognosis, with 5-year survival rates of 97%. For patients with regional and distant metastases the survival rates are 60% and 14%, respectively. Excision is the treatment of choice. The outlook for patients with metastatic melanoma continues to be grim. Chemotherapies (typically with cisplatin, vinblastine, and dacarbazine) or immune therapy (IFN- and IL-2) are associated with response rates of 10-15% and median survival of about one year.
Current Treatment Options For 1st-Line Metastatic Melanoma Limited

Over the past 10+ years, there has been no success in developing new treatments for metastatic melanoma that extend overall survival. Our consultants estimate that 8090% of patients would benefit from systemic therapy, the remaining either opting for hospice or are too sick/elderly to tolerate treatment. Of those patients that qualify, our physicians prefer to enroll patients in clinical trials versus using immunotherapy or chemotherapy as they generally believe the available therapies have limited activity. Excluding clinical trials, treatment options are mainly limited to IL-2 and chemotherapy, albeit neither of these choices provide durable overall survival benefit. IL-2 has potent effects on the immune system (T-cells) and the malignancy itself. The preferred high-dose regiment of IL-2 (600,000-720,000 IU/kg) is administered every eight hours on days 1 to 5 and 15 to 19 (maximum of 28 doses per course). Objective responses are seen in 15-20% of patients (CR 4-6%). Data from 270 metastatic melanoma patients were retrospectively analyzed from 1985-1993 and demonstrated that high-dose IL-2 yielded an objective response of 16% for a median duration of 9 months. Impressively, 59% of complete responders remained free of disease for 7 years. However, the side-effects associated with high-dose IL-2 are numerous and one of our physicians described patients receiving this regiment as extremely sick for the first five days. Side-effects include hypotension, arrhythmias, pulmonary edema, fevers, generalized edema, metabolic acidosis, renal insufficiency, liver elevations, acute neurological decompensation (confusion, hallucinations, agitation, and somnolence), nausea/vomiting, infections (bacterial sepsis), skin rash/itching, and rarely death. Because of these adverse events, only a minority of patients (6-7% of all patients) can tolerate or are willing to try this therapy and only a small number of hospitals are equipped with the necessary oncology nursing staff to monitor and treat the complicated side-effects. Several chemotherapies have been tested in patients with metastatic melanoma but only one cytotoxic agent, dacarbazine, is FDA approved. Dacarbazine has a response
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rate (mostly PR) of 8-20% for 4-6 months. There is no Phase III well controlled trial that demonstrates an overall survival benefit vs. placebo. This agent is relatively well tolerated with its major adverse events being gastrointestinal (nausea/vomiting). Dacarbazine is administered over a five day period (200 mg/m2) or once a day (850-1000 mg/m2) every two to four weeks. Our consultants believe that dacarbazine only provides a modest benefit at best and they are not convinced that it provides any meaningful improvement in overall survival. They still use it given the very limited options beyond IL-2 therapy and clinical trials. Temozolomide is an oral analog of dacarbazine that was an up-and-coming favorite (used off-label) among oncologists given its oral convenience. However, data from a trial testing temozolomide head to head against dacarbazine were presented in September 2008 at the Annual European Society for Medical Oncology meeting, and were underwhelming. Results demonstrated that temozolomide is noninferior to dacarbazine in terms of progression free survival, overall survival, and quality of life. However, with temozolomide costing several times as much as dacarbazine, our consultants believe these data do not justify the increased cost. Our consultants have significantly curtailed their use of temozolomide. Cisplatin, carboplatin, nitrosureas, vinblastine, and paclitaxel have demonstrated only modest activity in terms of complete and partial response in small to mediumsized trials. Combination chemotherapies or combining chemotherapies with IL-2 have not shown a benefit in overall survival versus single agents.
Nexavar Fails In Second-Line Melanoma, But Phase III Frontline Data Intriguing
In December 2006, Onyx and partner Bayer announced that Nexavars SPA-supported 270-patient Phase III PRISM trial in second-line metastatic melanoma had failed. Unfortunately, Nexavar showed few signs of activity. In the trials primary endpoint, patients in the Nexavar arm had a median progression free survival of 17.4 weeks, while those in the comparator arm had a median PFS of 17.9 weeks, with a hazard ratio of 0.906, p=0.492. On the heels of the failed Phase III trial, Onyx announced supportive data from a Phase II study in first-line melanoma. The trial was subsequently published by McDermott and colleagues in the Journal of Clinical Oncology in May of 2008. The trial was a randomized, double-blind, placebo controlled, multicenter Phase II trial in 101 chemotherapy-nave patients with unresectable stage III or stage IV melanoma. Patients were randomized to dacarbazine 400mg b.i.d. Nexavar. The primary endpoint of the trial was progression free survival, while secondary endpoints included time to progression, response rate, and overall survival. Although the trials primary endpoint was missed, Nexavar did show signs of activity in the front-line patients. The median progression free survival in the Nexavar + DTIC arm was 21.1 weeks versus 11.7 weeks in the placebo plus DTIC arm. Although a strong trend in favor of Nexavar, it did not reach statistical significance with a hazard ratio of 0.665, p=0.068. However, other similar measures were statistically significant. The median time to tumor progression was 21.1 weeks in the Nexavar arm, vs 11.7 in the control arm, for a hazard ratio of 0.619, p=0.039. The progression free survival rate at 6 months was 41.0% for Nexavar vs 19.5% for control, and at 9 months it was 22.2% for Nexavar and 12.2% for placebo. The McDermott et al publication notes both the 6 and 9 month PFS differences are
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statistically significant, although no p-value is given. The objective response rate was 24% in the Nexavar arm, compared to 12% in the placebo arm, p=0.193. Unfortunately, there was no trend in overall survival with median overall survival of 45.6 weeks in the Nexavar arm vs 51.3 in the control, p=0.927. Nexavar appeared to be well tolerated in the trial, with the predominant grade 3 or 4 Nexavar-related side effects being thrombocytopenia (35% vs 18%) and nausea (8% vs 0%).
Nexavars Phase III Frontline Melanoma Data Likely In April or May 2009
Nexavars ongoing melanoma study is an 800-patient Phase III trial of carboplatin and paclitaxel with or without Nexavar in first-line metastatic melanoma. It is being conducted by the Eastern Cooperative Oncology Group (ECOG), and has survival as a primary endpoint. Secondary endpoints include progression-free survival and response rates. Our consultants note that the trial was designed primarily as a survival study. The tumor scans are not as frequent as they would be in a study designed to assess progression free survival (8 weeks apart vs 4-6 weeks), and therefore our consultants do not expect the assessment of the PFS secondary to be as rigorous as they would like. Patients are allowed to have prior interferon, interleukin-2, or sargramostim (GM-CSF) as long as 4 weeks have elapsed since discontinuing, but not prior chemotherapy or a targeted therapy. Upon study entry patients are to have unresectable stage III or stage IV disease (M1a, M1b or M1c), and ECOG performance status of 0 or 1. Our consultants believe the trial is 80-85% powered to detect a 30% improvement in overall survival, and believe that the final survival analysis is triggered at 580 or 600 events. With enrollment completed in Q2:08, data is likely in Q2:09. Our consultants believe that the trials data safety monitoring board has scheduled meetings every April/May and November. With enrollment having completed in Q2:08, and historical databases suggesting that <30% of patients will survive 12 months, our consultants expect the requisite number of events will be surpassed by the Q2:09 meeting, and therefore think results are likely at that time. If results are not released in Q2, our consultants think they would then almost certainly be released at the time of the November data safety monitoring meeting.
Consultants Believe Phase III Unlikely To Succeed

Nexavars Phase III is high risk, and in general our consultants suggest it has somewhat less than a 25% chance of succeeding, for two main reasons. First, the data produced by Nexavars frontline Phase II and refractory Phase III PRISM trials is not compelling, and second, because historically, the vast majority of metastatic melanoma Phase III trials fail. Without a strong and convincing signal from Nexavars prior studies, they think it is likely to follow. In support of their first point, they say that all of the data accumulated to date show Nexavar does not improve survival, the ECOG trials primary endpoint. Both arms in Nexavars Phase III PRISM trial had exactly the same median survival, 42 weeks, so there was not even a trend in favor of Nexavar. In Nexavars front line Phase II trial there was a very modest difference in survival (51.3 weeks vs 45.6 weeks), but the pvalue (p=0.927) implies that that difference was simply due to chance. Moreover, in Nexavars first Phase III trial it improved neither the response rate nor the progression free survival. Although Nexavar did improve the response rate in its
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frontline Phase II trial, the consultants note that this was a small study, and that in the past improvements in response rate in such small trials have not translated into benefits in survival in larger Phase IIIs. There was also an improvement in six month progression free survival (41% vs 19.5%, p<0.05). Our consultants perhaps find this difference most intriguing because Nexavars 41% rate is quite far above the 15% 6month progression free survival suggested by the historical databases (and the 19.5% of the comparator arm). Nonetheless, this one datapoint is not enough to sway their opinion in the face of the other information. Second, our consultants highlight the long history of failed melanoma survival studies as a reason to be skeptical that Nexavar can succeed, particularly given the lack of impact on survival in its prior studies. They have said there is a long list of Phase III trials that were negative after similar data were produced in Phase II. In fact, some of our consultants postulate that response rate is probably less predictive of benefits in overall survival in Phase III trials in metastatic melanoma than in other cancers. They suggest that once metastasized, melanoma can develop several different populations of cells. Some respond to treatment, while others dont, and history would suggest that survival is only impacted by the insensitive group. Therefore most responses probably result from impacting the wrong group of cells, and have no predictive value. With the majority of the data supporting Nexavars activity coming from response analyses, similar to the quality of data of many failed compounds, our consultants are not overly optimistic that Nexavar will break from the pack and succeed.
Although They Acknowledge A Surprise Is Possible

While generally pessimistic, our consultants suggest a surprise is possible, for three reasons (1) Nexavar's front-line Phase II did produce some signals of efficacy, (2) The PRISM study enrolled seemingly atypical melanoma patients and may not be predictive, and (3) There is precedent for anti-angiogenesis agents working in treatment nave patients despite having failed in treatment-experienced. First, the data from the Phase II is meaningfully better than that produced in the refractory Phase III trial, in which there were no trends in progression free survival, response rate, or overall survival. This suggests it is possible that Nexavar is more active in earlier stage patients. In particular, while our consultants are generally dismissive of response rate data, they do find the statistically significant difference in time to tumor progression, and the strong trend in progression free survival, in the Phase II quite intriguing. Our consultants think it is possible (although unlikely) that resistance to chemotherapy also confers resistance to Nexavar for some reason, which could explain why Nexavar could have more efficacy in treatment nave patients. Second, our consultants suggest that the design of the PRISM trial virtually guaranteed that it enrolled atypical patients, which could have lead to a false negative result not predictive of its activity in a more standard population. By virtue of it being a second line study, patients had to have failed one line of prior therapy. However, the enrollment criteria of the PRISM trial require that patient have an ECOG performance status of 0 or 1 at entry. Therefore our consultants think the design of the trial selected for a very special group of patients those who had failed DTIC or TMZ, but who were progressing so slowly as to still have ECOG performance status of 0 or 1 when they were subsequently enrolled in the Nexavar trial. Our consultants suggest the results of these enrollment criteria can be seen in the data produced whereas historical databases suggest median PFS on the order of 1.7 months, with
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only 15% of patients progression free at 6 months, in the PRISM trial median PFS was 4 months. Therefore the patients in the trial were quite atypical, and the results may not be generalizable to a more standard group of patients like you would expect in a first line trial. Last, there is precedent for an angiogenesis agent working in treatment nave patients after having failed in treatment experienced. In April 2005 Genentech announced that a Phase III trial of Avastin plus chemotherapy had met its primary endpoint (progression free survival) versus chemotherapy alone in front-line metastatic breast cancer patients (the ECOG 2100 trial). The rigorous improvement in PFS observed in ECOG 2100 came as a surprise to many because the first Phase III trial of Avastin in refractory breast cancer did not show any benefit on this metric. This provides some precedent, according to our consultants.
Filing On Bristol/Medarexs Ipilimumab Delayed

Bristol and partner Medarex are developing ipilimumab (MDX-010) for the treatment of metastatic melanoma. In April 2008, post a meeting with FDA, the companies announced a delay in the originally guided 2008 BLA submission for ipilimumab. FDA requested the addition of overall survival data to further demonstrate the benefit of ipilimumab. Such survival data may be available in 2009. The Phase III 024 study in Stage III or IV malignant melanoma as first-line therapy--that is with patients previously untreated--in combination with DTIC versus DTIC alone is ongoing under an SPA. The companies are in discussions with FDA to change the primary end point in this trial from PFS to OS. In December 2007, the companies revealed top-line data from the open-label Study 008. The response rate was below the 10% hurdle agreed upon in the SPA. The full data set presented at ASCO 2008 demonstrated a median overall survival of 10.2 months. Results of Phase I and II studies presented at ASCO 2007 supported activity at the 10mg/kg dose. In September 2008, Bristol and Medarex announced one-year survival rate data from the 008, 022, and 007 studies, which were 47, 48, and 51%, respectively. Follow-up for survival was up to 24.8, 21.88 and 26.32 months in studies 008, 022 and 007, respectively. A Phase III trial in the adjuvant melanoma setting in 1,050 patients managed by the European Clinical Oncology Group (ECOG) commenced in June 2008. Ipilimumab is also being explored in a number of tumors in various treatment settings and in combination with chemotherapy and other immunotherapies (Phase II lung cancer with carbo/taxol; Phase II prostate cancer plus radiation). We forecast ipilimumab sales of $25MM in 2013 and $75MM in 2015. Pfizer discontinued development of its anti-CTLA4 antibody in melanoma due to unfavorable efficacy results.
Vicals Allovectin Enrolling a Phase III Trial

Allovectin, a novel DNA-based therapeutic vaccine, delivers the HLA-7 gene to tumors to stimulate immune system rejection. In 2002, Vical announced that a 200patient controlled Phase III trial comparing Allovectin + dacarbazine to dacarbazine monotherapy as first-line treatment in patients with metastatic melanoma failed to meet its primary endpoint. Despite the disappointing Phase III results, physician interest in the product remains strong, leading Vical to continue developing higher doses (2 mg, roughly 100x higher) of Allovectin-7 in Phase II studies. At the American Society of Clinical Oncology (ASCO) meeting in June 2004, Vical presented results from a 127-patient Phase II trial in patients with recurrent metastatic melanoma (prior therapies included surgery, biotherapy, radiation, and chemotherapy). The overall response rate in this study was 10.2%, the estimated
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median duration of response was 12.1 months, and the estimated median survival was 18.0 months. Allovectin was well tolerated at the higher dose range. While we view these data as encouraging, the data must ultimately be borne out in a controlled trial setting. In May 2006, Vical announced that it had partnered with the Japanese firm AnGes MG to conduct a pivotal Phase III trial on Allovectin-7 for metastatic melanoma (AIMM). The open-label, multi-center study will enroll 375 patients with stage III and IV metastatic melanoma from 60 sites. Patients may have been treated with surgery, adjuvant therapy, and/or biotherapy, but cannot have been treated with chemotherapy. The trial design calls for randomization of patients to receive either Allovectin or one of two chemotherapy agents (dacarbazine or temozolomide) in a 2:1 ratio. The trials primary endpoint will be superiority for Allovectin in terms of "durable" objective response rate at or beyond 24 weeks. Vical may seek to expand to ex-U.S. sites and hopes to complete enrollment in late 2009 and release data in 2010.
Multiple Myeloma
Multiple myeloma (MM) is a disease of the blood that results from an overproduction of malignant plasma cells in the bone marrow. Normally, some B lineage cells mature into plasma cells whose sole function is to produce immunoglobulins (Ig), part of the humoral immune system that protects the body from pathogens. In the case of multiple myeloma, patients typically produce excessive amounts of a particular type of Ig called M protein that serves little function in protecting the host. However, these M-producing myeloma cells crowd normal cells out of the marrow. As a result, hematopoietic deficiencies can develop leading to anemia, leukopenia, thrombocytopenia, and a dependence on blood or platelet transfusions. The disease, like many hematological cancers, primarily affects adults above the age of 40 with a median incidence age of 65 years. Multiple Myeloma is a particularly fatal cancer that has 5-year survival rates ranging from 10% to 50%. It is estimated that up to 80% of newly diagnosed multiple myleoma cases suffer from bone lesions and/or osteoporosis, resulting in hypercalcemia as the bone is destroyed and calcium released into the surrounding tissues and blood. Roughly 40% of multiple myeloma patients will eventually develop renal failure due to the hyper-accumulation of M protein in the kidney, which can be exacerbated by hypercalcemia. While the exact cause of multiple myeloma is unknown, evidence suggests chromosomal abnormalities leading to dysregulation of oncogenes and tumor suppressor genes play a role.
Three Main Multiple Myeloma Subtypes

There are three main subtypes of multiple myeloma: smoldering asymptomatic MM, indolent asymptomatic MM, and symptomatic MM. Smoldering asymptomatic MM is defined by serum M-protein levels >3g/dL and/or bone marrow plasma cells 10%, along with absence of anemia, renal failure, hypercalcemia, or osteolytic bone lesions. Smoldering MM cases typically undergo treatment upon disease progression. Indolent asymptomatic MM is defined by stable serum or urine Mprotein levels, bone marrow plasmacytosis, mild anemia or few osteolytic lesions, and an absence of symptoms. Indolent MM is typically monitored every 3 months with treatment beginning upon disease progression. Monitoring typically involves a complete blood count (CBC), quantitation and immunoelectrophoresis of M-protein or immunoglobulins in the blood, analysis for calcium, creatinine, LDH, b2-M levels in the blood, CRP test, bone x-ray or other imaging tests to determine presence of
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bone lesions, bone density analysis, and potential bone marrow biopsy. Symptomatic MM is defined by the presence of serum or urine M-protein, bone marrow plasmacytosis (>30%), and anemia, renal failure, hypercalcemia, or osteolytic bone lesions. Treatment of symptomatic MM typically begins immediately.
Internaltional Staging System (ISS) For Multiple Myeloma
Stage Stage I Stage II Stage III Criteria Low 2-M and normal albumin Definition Median Survival
2-M <3.5 mg/L and albumin 3.5 g/dL 62 months
Meet neither Stage I nor III criteria 2-M <3.5 mg/L and albumin<3.5 g/dL 44 months or 2-M 3.5 to <5.5 mg/L High 2-M 2-M 5.5 mg/L 29 months
Multiple Myeloma Also Defined By Stage

In 1975, the Durie-Salmon Staging System was developed to help identify and categorize myeloma stage of disease. The system measures a variety of parameters including hemoglobin levels, number of bone lesions, type of plasmacytoma, Mprotein or immunoglobulin production, serum calcium levels, and myeloma cell count. More recently, researchers have identified additional markers that appear to correlate with stage of disease including serum concentrations of beta-2microglobulin and albumin. This revised system based on only 2 markers is called the International Staging System (ISS), and is being adopted more readily by the MM community due to the ease of its use.
Durie-Salmon Multiple Myeloma Staging
Stage Stage I (low cell mass) Patient Disease Characteristics All of the following: Hb >10 g/dL Serum caclcium value normal or 12 mg/dL Bone X-ray: normal bone or solitary plasmacytoma 1 bone lesion Low M-protein production: IgG < 5 g/dL IgA < 3 g/dL Urine M protein < 4 g/24 hours Myeloma cell concentration < 0.6 x 1012 cells/m2 Stage II (intermediate cell mass) Stage III (high cell mass) Fitting neither Stage I nor Stage III Myeloma cell concentration 0.6 x 1012 to 1.2 x 1012 cells/m2 One or more of the following: Hb <8.5 g/dL Serum caclcium value >12 mg/dL Advanced osteolytic bone lesions (>3 bone lesions) High M-protein production: IgG >7 g/dL IgA > 5 g/dL Urine M protein > 12 g/24 hours Myeloma cell concentration >1.2 x 1012 cells/m2 Subclassification A Subclassification B Source: Cowen and Company Relatively normal renal function (serum creatinine <2 mg/dL) Abnormal renal function (serum creatinine 2 mg/dL)
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Multiple Myeloma Affects 200K+ Individuals Worldwide

Multiple Myeloma (MM) is the second most common blood cancer behind nonHodgkins lymphoma (NHL), and afflicts roughly 200k+ people worldwide, with 74k new cases diagnosed in 2005, and nearly 60k estimated deaths. In the U.S. an estimated 60k individuals are believed to suffer from multiple myeloma with 16-20k new cases diagnosed, and 11k dying each year. In Europe the condition is thought to affect comparable patient numbers, and there are accessible patients in other territories, including Russia, Japan, other Asian territoies, and Latin America. While there are a number of therapies for multiple myeloma, all patients eventually suffer relapses, and the condition is nearly universally fatal.
Initial Treatment Depends On Diagnosis

Smoldering multiple myeloma. (also known as Stage I or indolent disease), represents an estimated 15%-20% of diagnoses and requires no treatment initially. While some patients with smoldering myeloma remain stable within their disease state, an estimated 10%-20% of patients worsen annually and require treatment. There is limited data indicating potential benefit of Thalomid therapy in these patients, and it is possible that the standard of care would eventually change to treat asymptomatic patients. Active Disease - Stem Cell Transplant Eligible. Traditionally, ASCT following a high-dose chemotherapy had been reserved only for patients under the age of 65 who were otherwise healthy. However, physicians have been relaxing restrictions on ASCT eligibility based on excellent response rates for ASCT, as well as relatively low safety risk of the procedure. In particular, feedback from physicians suggests ASCT is often used in patients in their early 70s that are otherwise healthy. An estimated 5,000 patients in the U.S. undergo transplant for myeloma, which represents approximately 30% of treated newly diagnosed patients. A poll conducted at the ASH meeting in December 2006 indicated that physician preference for pretransplant induction therapy was 46% for Thalomid (Thal)/Dexamethasone (Dex), followed by 30% for VAD, 9% for Rev/Dex, with the remainder using Dex alone or Velcade. However, as an indicator of just how quickly the field can move, the answers to the same poll changed significantly following presentation of the latest Revlimid data to the following: Thalomid/ dex 45%, Revlimid/dex 29%, VAD 12%. We expect these numbers to continue to shift towards Revlimid as additional data are presented and physicians gain comfort in using Revlimid. Active Disease - Stem Cell Transplant Ineligible. The remaining 70% of treated newly-diagnosed patients are not eligible for transplant due to age and/or other health conditions. For these patients the standard treatment is MP, although there is significant heterogeneity in the U.S. market in this setting. Over the past year or two, data suggesting Thalomids benefit in this setting has accumulated, it is now being added onto MP in the majority of patients. Back at the ASH meeting in 2006, a physician poll indicated non-transplant-eligible patients received 46% Thalomid/MP, 17% MP, 13% Thal/dex, 10% Velcade/MP, and only 5% Revlimid/MP. After data presentation, physicians were more apt to use Thal/MP (54%) or Velcade/MP (18%) or Revlimid/MP (13%). Velcade was approved in June 2008, and received a broad label. Most patients generally relapse, at which time our consultants tend to give salvage therapy in which the targeted agent is replaced by the one not used in the first course (e.g., Velcade instead of Thalomid).
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Front-Line Transplant Market

ASCT has become the standard of care for newly diagnosed MM in patients that can tolerate the myeloablative therapy that accompanies transplant. This therapy is generally performed in the following steps: (1) "induction," which involves treatment with a non-alkylating-based therapy to reduce the tumor mass (such as Thalomid/dex, Revlimid/dex, Velcade/dex, or most recently Velcade/Thal/dex); (2) peripheral stem cell mobilization and collection; (3) high-dose melphalan, which has shown excellent efficacy in reducing myeloma cell levels; (4) transplantation or infusion of stored stem cells into the patients bloodstream within a few days after completing the high-dose chemotherapy; and (5) watch and wait until a patient relapses or maintenance therapy often with the same agents used for induction therapy. Several clinical studies confirmed the benefits of Thal in combination with dex (see table below), and Thal/dex induction has been the standard of care in transplant, although Revlimid/dex is beginning to replace Thal/dex. Feedback from ASH 2007 and EHA 2008 suggests Velcade-based regimens, either in combination with Thal/dex or in lieu of Thal/dex, will gain popularity.
Key Clinical Data For Thal/Dex in Newly Diagnosed Pre-Transplant MM
Study Rajkumar et al 2002 Weber et al 2003 Cavo et al 2004 Cavo et al 2005 Rajkumar et al 2006
n 50 40 71 100 103
RR 64% 72% 66% 76% 63%
CR NA 16% 8% 10% 4%
Time To Response NA 0.7 months <1 month <2 months 1.1 months
Thrombosis/ Pulmonary Embolism 12% 15% 16% 15% 20%
Design single arm Thal/Dex vs Thal [1] single arm Thal/Dex vs Dex [2] Thal/Dex vs Dex [3]
[1] comparator arm was non randomized Thalomid alone [2] retrospective case matched control study [3] randomized prospectively defined study
Thal/dex Induction Was Standard Of Care, But Field Moving Rapidly

In 2002-2004, initial reports of Thalomid use (200 mg/daily) in combination with dexamethasone in the pre-transplant setting demonstrated response rates in 64%72% of patients, with a median time to response of approximately one month. In January 2006, the Eastern Oncology Cooperative Group (ECOG) published its results of Thal/dex vs. dex in the pre-transplant setting in 207 patients, the largest randomized study to date, with similar results, showing a best response within four months of therapy of 63% for Thal/dex (CR=4%) compared to 41% for dexamethasone alone (CR=0%) (p<0.0017). This study formed the basis of Thalomids approval in the frontline setting in May 2006. The most concerning side effect with Thal/dex is deep vein thrombosis and pulmonary embolism, ranging from 12%-20% of patients in various studies. Many of these clinical trials were conducted before routine anticoagulant prophylaxis was implemented. Reduced rates of thrombosis have been seen with Thalomid in other settings, so DVT rates are presumed to be lower with current clinical practice. There is limited evidence suggesting that Thal/dex is not only a convenient alternative to the infused VAD regimen, but also potentially superior in terms of efficacy. A retrospective case-matched study published in 2005
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showed that Thal/dex had a statistically significant higher response rate compared to VAD (76% vs. 52%, p<0.001), with Thal/dex having slightly higher complete response rates as well (10% vs. 8%), although this difference was not statistically significant. This was not a prospectively designed trial, however, and the response rates for Thal/dex lie on the upper end of what has been reported in the literature, and the VAD response rate was at the low end of what is quoted in the literature (55%-65%), so we believe more data will need to be generated to make a superiority claim for Thalomid. (Use of VAD in the U.S. has declined considerably, although European physicians still use VAD frequently.) Importantly, all of these trials assessed Thalomid treatment duration of four months or less because patients are treated only until response before ASCT. In clinical practice, checks with physicians indicate that Thalomid is typically dosed for 3-4 months pre-transplant (1-2 months after response), and a new agent is initiated if a sufficient response is not observed. Thus, given the relatively short treatment duration, the revenue per patient in this setting is modest compared to the non-transplant setting. Newer data from the Italian myeloma cooperative group has shown that layering Velcade on top of Thal/dex produces superior CR/nCR rates, with 32-41% vs 12% for Vel/Thal/dex and Thal/dex respectively.
Data For Revlimid Promising
In
Newly
Diagnosed
Myeloma
Is
The EA403 ECOG study evaluated Revlimid plus high dose dex (Rev Dex) to Revlimid plus low dose dex (Rev dex) in newly diagnosed multiple myeloma and data were updated at the ASCO 2008 meeting. ECOG reported a 22% CR and 56% CR+VGPR rate based on serum/urine samples in a subset of the 142 patients in the Revlimid/low dose dex arm that stayed on therapy for more than four cycles. Data indicate that Rev/dex was significantly better tolerated than Rev/Dex which translated into higher overall survival for patients on Rev/dex. One and two year survival for the 223 patients treated with Revlimid + Dex and the 222 patients on Revlimid + dex is impressive at 88% (1 yr RD), 75% (2yr RD), 96% (1 yr Rd) and 87% (2 yr RD). The information at the ASCO 2008 meeting hinted that a long-term Revlimid based regimen may yield survival results similar to patients going onto to transplant. Specifically, similar survival rates were observed for patients receiving long term Rev/dex compared to those patients who stopped Revlimid at 4 months and went on to transplant. While this analysis was not prospectively defined, these results strengthen the hypothesis that long term Rd therapy is an excellent alternative for older patients that are not good candidates for the SCT procedure. Nonetheless, before abandoning transplant as a key front-line regimen, we expect many experts will want a prospective trial comparing long term Revlimid therapy to transplant in order to delay transplant in the majority of myeloma patients.
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Oncology/Hematology
ECOG Study Treatment Schema
431 patients alive at 4 months Off study after 4 cycles N=176 Opted to continue N=255
No transplant N=91
transplant N=85
Rev/dex N=142
Rev/Dex N=113
Source: Rajkumar et al, ASCO 2008
2-Year Overall Survival Rates For Non-Prospective Subgroups
Non-transplant, off study Transplant, off study Continuous treatment

Source: Rajkumar et al, ASCO 2008
N 91 85 255
Rev/dex Rev/Dex 72% 69% 92% 94% 93% 82%
2-Year Outcome For Subset Of Patients Electing To Stay On Revlimid/dex
N ORR CR CR+VGPR Duration of response 2-yr overall survival
Rev/dex 142 89% 22% 56% 25 months 93%

Rev Dex 223 20 203 Rev dex 222 22 200
Source: Rajkumar et al, ASCO 2008; Note: CR defined by serum/urine samples, not bone marrow biopsies
ECOG Data Shows Improved Tolerability For Revlimid With Low Dose Dex
n Ineligible Eligible SAEs Hemoglobin Platelets Neutrophils Grade 3+ Events DVT/PE Infection Hyperglycemia Weakness Cardiac ischemia Atrial flutter Early Deaths
8.1% 5.4% 11.7% 25% 14% 11% 10% 3% 3% 5%
6.8% 5.5% 18.7% 9% 7% 6% 4% 0.5% 0.5% 0.5%
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Oncology/Hematology
Source: ASH 2007, Rajkumar et al;
The Southwestern Oncology Group (SWOG) investigated Rev+high dose Dex vs. high dose Dex monotherapy in newly diagnosed multiple myeloma patients. At ASH 2007 SWOG reported CR rates of 22% for Rev Dex, significantly better than the 4% for Dex alone. These results translated into improved PFS at 12 months for the Revlimid arm (77% vs 55%), although it is worth noting that these data are based on only 6070% of the enrolled population and thus are likely to change as more mature data become available. Nonetheless, survival data at one year were not meaningfully different between the arms at one year (93% vs 91% in favor of Rev Dex). At ASCO 2008, the updated response rates were CR+nCR of 27% for Rev Dex vs. 4% for Dex alone, and VGPR+ was 62% for Rev Dex vs. 19% for Dex alone. These results make it somewhat challenging to interpret the ECOG data, because the Rev Dex arm from SWOG showed one year survival that was similar to the Rev dex arm from ECOG (93% vs 96%), despite the higher Dex regimen. The data for patients with high risk cytogenetics or abnormal karyotypes presented at ASCO2008 suggest Revlimid does not overcome worse overall survival or PFS. The patient numbers available for analysis is small however, precluding any definitive conclusions that Revlimid should not be used in these patients. Nonetheless, while these results are similar to data for Thalomid, they stand in contrast to previously presented data for Velcade, in which Velcade data showed overall survival rates and PFS rates that were similar whether patients had high risk baseline cytogenetics. Additional studies will be required to confirm Revlimids role in this subgroup of patients. One thought leader we spoke with took issue with these data, saying that cytogenetics were not an issue in the large Phase 3 relapsed/refractory studies for Revlimid, and called into question the validity of these data.
SWOG: Updated Overall Metrics On Evaluable Patients
N CR VGPR+ 1-yr PFS 1-yr OS
Rev/Dex 73 15% 47% 77% 93%
Dex 84 2% 17% 55% 91%
Source: Zonder et al, ASCO 2008 ; Note response rates may improve when missing data are incorporated
PFS and OS Worse In Patients With High Risk Cytogenetics
Rev/Dex, CA Dex, CA Rev/Dex, no CA Dex, no CA Rev/Dex, HRCA Dex, HRCA Rev/Dex, no HRCA Dex, no HRCA
N 13 12 41 43 8 11 29 34
PFS 54% 27% 86% 67% 100% 55% 71% 57%
1-Yr OS 77% 80% 98% 98% 100% 80% 88% 100%
CA=abnormal karytope HRCA=cytogenetic abnomality by FISH

Source: Zonder et al, ASCO 2008
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Oncology/Hematology
Controversy: Are The ECOG/SWOG Data Adequate For FrontLine Label Extension?
We view the data from the ECOG and SWOG studies as messy from a regulatory perspective. The trials appear to have a fair amount of heterogeneity, and have missing response rate and perhaps other missing data. Additionally, Rev dex will be the regimen the FDA would want to label for, and there is no controlled trial showing the efficacy of this regimen. Celgene has had preliminary discussions with the FDA regarding potential submission of these results as the basis of label expansion for Revlimid in newly diagnosed myeloma. Currently, CELG is collecting additional data from the ECOG investigators for a more complete dataset and plans to update investors on its filing strategy in the coming months, although CELG has shifted out this timeline several times. We believe there is a coins toss or lower probability that the FDA approves Revlimid on the basis of these data alone. Celgenes back-up strategy is to file in front line on the basis of the controlled Revlimid MP study, which has completed recruiting patients with the initial data expected at the ASH meeting in 2009. In a best-case scenario, we expect Revlimid front-line approval in the U.S. in mid-2009; in a more realistic scenario, we expect formal label expansion in 2010/2011 based on the Revlimid/MP study. We view European approval as extremely unlikely on the basis of ECOG/SWOG data and look for a late 2010/2011 approval and launch.
But How Important Is A Front-Line Label?

Revlimid is already enjoying some usage in the front-line myeloma setting (the Mayo Clinic has been recommending Revlimid front line with low dose dex for the majority of 2007), and CELG recently disclosed third-party market research indicating that front-line myeloma penetration for Revlimid is greater than 20%. The delay in a label for Revlimid front line is certainly not good news; however, Revlimid in October 2007 received compendia listing for front-line treatment, which opens the door for Medicare reimbursement and other payors that follow compendia approvals. Celgene masterfully moved Thalomid into the front-line treatment paradigm years before the FDA granted formal approval. The uncertainty for 2009 and beyond is the impact of competitor Takeda having the ability to promote frontline after the late June approval. While we expect continued investor concern around Revlimid vs Velcade vs Thalomid, ultimately we expect Revlimid to secure a 60% market share in the front-line setting, suggesting plenty of room for growth.
Resolving Controversy: Is There A Problem With Revlimid And Stem Cell Harvesting?
Reports of stem cell harvesting difficulties after Revlimid induction were raised at ASH 2007. The ECOG study showed 97% success rate in 149 reported patients. However, additional studies at the ASCO 2008 meeting presented a different side of the story and echo the concerns voiced at the ASH meeting. Based on our recent discussions with clinicians, it appears that some lingering concerns with Revlimid as induction therapy remain; however, clinicians have found a method to manage the stem toxicity (collect stem cells early, mobilize with Cytoxan-based therapy), and this issue does not appear to be hurting Revlimid adoption in the front-line setting.
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Oncology/Hematology
FDA Safety Monitor Shows Association Of Stevens-Johnson Syndrome With Revlimid-More Noise Than Substance
In the FDAs Adverse Event Reporting System Database for 1Q:08, Revlimid is listed as potentially associated with several cases of Stevens-Johnson Syndrome (SJS), a potentially life threatening rash. In the FDA newsletter the agency concluded that there was a rare but probable link between Revlimid and severe rash based on reports in the database, and strengthened by its similarity to Thalomid (also linked to severe rash). The FDA noted 14 cases in its safety report of severe rash, including SJS, toxic epidermal necrolysis (TEN), and erythema multiforme (EM). All cases required medical intervention, the median time to onset was 25 days (range 3-112 days, N=12), 6 patients required hospitalization, and 3 patients died, although the description suggests only one death was possibly related to SJS with other deaths related to disease progression. In the Revlimid registration studies, rash was observed in 16% of relapsed/refractory myeloma patients in combination with dexamethasone (vs. 8% in the control), with 1 patient in the U.S. study (0.6%) reporting a Grade 3 rash. In the MDS del 5Q single arm study, the overall rash rate (36%) and severe rash rate (7%) incidence was higher. Rash is highlighted as one of the side effects of Revlimid therapy in the current label, and CME literature notes that physicians should discontinue Revlimid in the event of SJS. In its conclusions, the FDA provided three points of advice to prescribers: (1) be aware of the possibility of rare serious skin reaction with Revlimid; (2) discontinue Revlimid if skin rash occurs and rechallenge only after evaluation; (3) do not resume Revlimid if the rash appears like SJS or TEN, is exfoliative, purpuric, or bullous. While the Revlimid label may ultimately be updated to reflect Steven's Johnson Syndrome or other severe rashes, we do not expect this news to negatively impact prescribing habits based on the significant benefit of Revlimid in treating multiple myeloma, the seriousness of the disease, and what appears to be a rare SJS link.
Body Of Evidence Show Velcade-Based Induction Regimens Hold Significant Promise

Several studies reported in the past several years have demonstrated promising activity for Velcade as part of the induction regimen prior to ASCT. Updated data from a large IFM study evaluating Vel/dex vs. standard VAD as induction were presented at the ASCO 2008 meeting. Response rate data show a CR/nCR rate of 19% for Velcade/dex (47% VGPR or better) vs 8% for VAD (19% VGPR or better). Post transplant, similar trends were reported, with the Velcade/dex arm showing a CR/nCR rate of 35% (63% VGPR+ rate) vs a 23% CR/nCR rate for VAD (44% VGPR+). While response rates continue to be significantly stronger in the Velcade group, one year survival data did not yet separate from the VAD arm. This result is not surprising in light of similar results for Rev/Dex in the original SWOG study presentation at ASH 2007. Nonetheless, the Velcade/dex arm showed high 1-yr and 18-month survival rates that are comparable to those generated in the ECOG Revlimid front line study. Stem cell collection was comparable in both arms (97% for Vel/dex and 99% for VAD). The presenter believes these data make Velcade/dex the new standard regimen in induction therapy, although the independent reviewer believes it is too early to declare Velcade the new standard regimen based on lack of survival advantage demonstrated to date. Details are in the table below:
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Oncology/Hematology
Updated Results From IFM Velcade/Dex Induction Study
N CR/nCR VGPR+ 1.5 yr PFS 1.5 yr OS AE death
VAD 219 8% 19% 85% 89% 2.9%
Vel/Dex 223 19% 47% 90% 92% 0.8% 101 55% 139 41% 35% 63% 40% 72%
del13 N 103 VGPR+ 20% normal N 139 VGPR+ 18% Post ASCT CR/nCR 23% VGPR+ 44% Per protocol ASCT CR/nCR 28% VGPR+ 52%
Source: Harousseau et al, ASCO 2008
Additionally, there were a number of new and updated presentations at the ASH 2008 meeting showing that addition of Velcade to the induction regimen prior to autologous stem cell transplant significantly improves complete response rates over Thalomid+dex or adryomycin+dex. Collated data are shown in the table below. What is consistent among the three studies and with data reported previously is that the gap between CR rates pre-transplant is maintained in the post transplant data. The most mature data comes from the Italian group Cavo et al, which for the first time report on progression free survival. At 24 months follow up, PFS is significantly improved in the Velcade/Thal/Dex group compared to the Thal/Dex group (90% vs 80%, p=0.009), although overall survival was not statistically different at this time point (96% vs 91%, p=0.2). The Dutch (HOVON) and Spanish (PETHEMA) cooperative group studies have less follow up but show similar results. Data reported at ASCO 2008 from the IFM study which was designed similarly to the HOVON study better results for the Velcade based arm (CR/nCR rates in the Velcade arm pre (19% vs 5%) and post (35% vs 23%) transplant).
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Oncology/Hematology
Velcade Addition To Thalomid/Dex Is Impressive

Cavo study HOVON PETHEMA study Vel/Adry/ Vin/Adry/ Dex Dex Vel/Thal/Dex 150 NA 5% 42% NA NA NA 23% 80% NA NA 150 NA 1% 15% NA NA NA 9% 50% NA NA 56 30% 41% NA 11% 33 49% 64% NA NA NA
Pre transplant N CR CR+nCR VGPR+ PD Post transplant N CR CR+nCR VGPR+ PFS (24 months) OS (24 months)
Vel/Thal/Dex 226 NA 32% 62% 0% 226 43% 55% 76% 90% 96%
Thal/Dex 234 NA 12% 29% 5% 234 23% 32% 58% 80% 91%
Thal/Dex 63 6% 12% NA 19% 32 34% 53% NA NA NA
Vel/chemo 64 20% 28% NA 14% 34 43% 54% NA NA NA
Source: ASH 2008 presentations
Velcade/Revlimid Combo Continues To Look Promising

Studies exploring Velcade/Revlimid combination in newly diagnosed myeloma continue to demonstrate high complete and overall response rates yet manageable toxicity profile. Specifically, initial results from the Takeda/Millennium sponsored Phase 1/2 EVOLUTION study and evolving results from the Paul Richardsons study were presented at the ASH 2008 meeting. The EVOLUTION study explored Velcade/Revlimid/Dex/Cyclophosphamide (Cy) combination with escalating doses of Cy and showed high CR rates of 20%-36% (stringent CR, CR, near CR), a VGPR+ rate of 68%, and 100% overall response for a range of dosing schedules and a median of 6 cycles. The first part of the study enrolled 25 patients and the second part will enroll 39 patients in each of three arms evaluating Vel/Red/dex vs Velcade/Rev/dex/cy vs Velcade/dex/cy. In part 1, the combo was well tolerated with manageable hematologic toxicities (neutropenia Grade 3/4 in 24%, thrombocytopenia Grade 4 in 12%). Peripheral neuropathy (68%) included 16% Grade 3/4 events. Updated data from an ongoing 66-patient treatment nave myeloma combination study of Velcade plus Rev/Dex were also presented at the ASH 2008 meeting (median treatment duration of 9 cycles, range: 2-35), and data showed incrementally higher response rates relative to prior data releases. Updated data showed a CR/nCR rate of 44% (vs 36% previously) and VGPR+ rate of 74% (vs 71% previously). Efficacy results were independent of baseline cytogenetics or ISS disease stage. Again, side effects were manageable with Grade 3/4 hematologic toxicities of 3-15%, Grade 3 hypophosphatemia of 8%, deep vein thrombosis/pulmonary embolism of 3% and no Grade 4 peripheral neuropathy (but two patients discontinued due to neuropathy). Encouragingly, these data are similar to safety data for individual Revlimid/dex or Velcade/Dex combinations.
Battling For The Front-line, Non-Transplant Market

The standard of care for patients not eligible for transplant is less clear than for pretransplant induction. Physicians surveyed at the ASH 2006 meeting indicated that about half of them use Thal/MP, with interest in using Velcade or Revlimid plus MP. Velcade was approved on June 20 2008 for front-line myeloma, and received a broad label. Approval of Revlimid in this patient segment is highly sought because there is
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Oncology/Hematology
a greater percentage of transplant-ineligible patients, and the duration of therapy in the non-transplant setting could be much longer than in pre-transplant induction.
Thalomid Adds Significant Benefit to MP

Melphalan plus Prednisone (MP) has been the standard of care in patients intolerant to more aggressive therapy and transplant. Five studies (GIMEMA, IFM 99-06, IFM 0101, NMSG, and HOVON) have shown that the use of Thalomid in combination with MP (MPT) improves response rates, time-to-progression (TTP) and/or progression-freesurvival (PFS) compared to MP alone. The two of five studies (IFM 99-06, IFM 01-01) showed that MPT improves overall survival compared to MP, extending it by approximately 18 months. The GIMEMA and the Nordic NMSG study, however, did not demonstrate statistically significant improvement in OS for MPT vs. MP. The lack of Thalomid impact on OS in the Nordic study could be explained by a large proportion of high risk patients at baseline (30% WHO 3/4 category vs. 5-8% in other studies). The thought leaders at the EHA 2008 meeting suggested that MP could still be an appropriate regimen for a minority of patients with poor performance status and/or significant co-morbidities. In the GIMEMA study, a substantial number of patients crossed over from the MP group to Thalomid-based or Velcade-based salvage regimens after relapse or progression which could explain the absence of survival advantage. Below is the summary of patient characteristics and results from the five MPT vs. MP studies. Results from the Phase 3 VISTA study of Velcade/MP and a recently-updated Revlimid/MP Phase 1/2 study (Palumbo et. al.) indicate a clear benefit of adding Velcade or Revlimid to MP, and suggest a higher response rates than observed with Thalomid/MP. Although comparison of response rates across trials is not scientifically rigorous, we suspect Velcade and Revlimid will gradually replace Thalomid in this patient segment.
Thalomid/Dex Significantly Delays Tumor Progression In The Elderly

Final data from a Phase 3 trial of Thalomid and dexamethasone in newly diagnosed elderly (not eligible for transplant) multiple myeloma patients were published in the Journal of Clinical Oncology in 2008 (Rajkumar, et al.). The trial enrolled 470 previously untreated multiple myeloma patients, and randomized them to either Thalomid/dex (n=235), or placebo/dex (n=235). Cycles were repeated until progression or undue toxicity with no gaps between cycles. Patients receiving nonprotocol therapy or transplantation had to go off study. The time to tumor progression for Thal/dex was significantly longer than the dex control arm (22.6 months for Thal/dex, vs. 6.5 months for dex alone (p<0.0001)). Additionally, response rates were also higher. Specifically, Thal/dex produced an overall response rate of 63% vs. 46% for dex monotherapy. Thal/dexs responses included 8% CR and 36% VGPR, while dex monotherapy included 3% CR, and 13% VGPR, with a p-value of 0.001 for the difference between arms. However, adverse events with Thal/dex were also higher, particularly grade 3 and 4 neuropathy (12% vs. 2%) and deep vein thrombosis (19% vs. 6%). Physicians have indicated that using 5-7 cycles of Velcade in these patients ahead of Thalomid improved the peripheral neuropathy outcome compared with using Thalomid first.MP vs. MPT: Patient Characteristics and Results
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Oncology/Hematology
# patients (MPT) Age median range WHO 3/4 MPT regimen # cycles Melphalan dosing Thal dosing Maintenance Primary objective Response rate MP MPT CR rate MP MPT CR+VGPR rate MP MPT PFS (median, months) MP MPT P-value OS (median, months) MP MPT P
GIMEMA [1] IFM 99-06 [2] IFM 01-01 [3] 331 (167) 447 (125) 232 (113) 72 60-85 5% 69 65-75 8% 78.5 76-91 7%
NMSG [4] 362 (182) 74.5 (mean) 49-92 30%
HOVON [5] 301 (152) 72 NA 4%
6 4mg/m2 d1-7 100 + Resp/EFS 48% 69% 4% 16% 11% 29% 14.5 22 0.0004
12 0.25mg/kg d1-4 up to 400 OS 35% 76% 2% 13% 7% 47% 18 27.5 <0.0001
12 0.2mg/kg d1-4 100 OS 31% 61% 1% 7% 8% 23% 19 24 0.001
Until plateau Until plateau 0.25mg/kg 0.25mg/kg d1-4 d1-5 up to 400 200 + + OS EFS 40% 57% 4% 13% 7% 23% 14 16 TTP signif. 48% 63% 1% 1% 9% 29% <0.001
47 45 NS
33 51.5 0.0006
27.5 45 0.03
33 29 NS
NS
1. Palumbo et al, Blood 2008 4. Waage et al, Blood 2007 2. Facon et al, Lancet 2007 5. Wijermans et al, Interim analysis, EHA 2008 3. Hulin et al, Blood 2007 Source: Adopted from educational session at EHA 2008
ButThal/Dex in Elderly Has Inferior Survival to MP Alone!

Thal/Dex Shows Better Response Rates But Worse OS vs. MP
n CR CR+nCR VGPR+ ORR PFS (months) OS (months)
Thal/Dex 145 15% 30% 48% 69% 16.7 41.5
MP 143 7% 14% 15% 50% 20.7 49.4
p value
0.0014 0.453 0.1 0.024
Source: ASH 2007, Ludwig et al
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Oncology/Hematology
Results presented by Ludwig et al at ASH 2007 from a study comparing Thal/Dex to MP alone found higher response rates, but statistically inferior overall survival for Thalomid/dex. Inferior overall survival was driven by a higher early death rate for Thalomid/dex. These data could shake confidence in the many U.S. Thal/dex prescribers; although E.U. physicians more uniformly use MP-based regimens is patients >65 years, Thalomid/dex regimens are more popular in the U.S. Multiple studies have shown that Thalomid plus MP is superior to MP alone, which suggests that Thalomid usage may not be that negatively impacted overall. However, the strength of the VISTA results for Takedas Velcade is likely to eat into Thalomids market share, as discussed below.
Velcade Is Approved In Front-line Myeloma

Velcades FDA approval in front-line myeloma in June 2008 was based on the VISTA trial which reported efficacy results for the first time at the ASH 2007 meeting, comparing Velcade plus MP (VMP) to MP alone. Results from an interim analysis performed in September 2007 were overwhelmingly positive in favor of the Velcade arm, requiring the trial to stop early with patients receiving MP alone eligible for crossover to the VMP arm (see data in the table below updated at the ASH 2008 meeting). Additional analysis at the ASH 2008 meeting was available for patients requiring subsequent therapy in the VMP and MP arms (37% vs 57%, respectively). Retreatment with Velcade was slightly less effective in the VMP arm with CR rate of 6% vs. CR 10% in MP arm and re-treatment with Revlimid yielded slightly lower CR rates of 4% and 0% in VMP vs. MP arms. The investigators concluded that patients relapsing after VMP are not intrinsically more resistant than after using a traditional MP regimen. Also, use of Velcade does not preclude use of IMiDs at relapse, and retreatment with Velcade is feasible. The survival difference between VMP and MP continues to be maintained even after subsequent Velcade therapy is allowed following relapse on the initial MP regimen. Additionally, there were posters at the ASH 2008 meeting discussing sub-analyses of VISTA. One analysis shows that a complete response (CR) is associated with significantly longer time-to-progression vs. partial response (PR), although no significant difference was observed in OS with CR vs. PR, which investigators attribute to small number of deaths. Separately, the use of EPO was higher with MP than with VMP (30% vs 39%) and 2-year survival rates appeared higher among patients receiving EPO. Additionally, the use of EPO did not impact rate of thrombotic events with Velcade compared to the control arm (unlike Revlimid, which has increased thrombotic events with EPO), and Velcade efficacy was not influenced by baseline renal function (Revlimid needs to be dosed with caution in patients with renal insufficiency). When we discussed the results with community oncologists/hematologists prior to approval we learned that while they were impressed with the 30-35% CR rate in the Velcade arm and, most wanted a formal FDA approval and education on how to dose around common side effects (neuropathy) prior to adopting Velcade in the front-line setting. Given the positive physician outlook, we continue to expect Velcade sales to be promotion sensitive and accelerate in the second half of '08 and in '09 following label expansion.
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Oncology/Hematology
Velcade/MP Shows Solid Improvements Over MP Alone Follow up of 25.9 mos VMP MP p-value N 336 331 Response rates CR 33% 4% <0.000001 ORR 71% 35% <0.000001 Key Efficacy Metrics DOR (mos) 19.9 13.1 DOR in CRs (mos) 24 12.8 TTP (mos) 24 16.6 <0.000001 3-yr OS 72% 59% 0.0032
Grade 3+ events Neutropenia Platelets Hemoblobin GI Peripheral neuropathy AE related dropouts, cycle 1DOR=duration of response Source: ASH 2008 presentation
40% 38% 19% 20% 14% 17%
38% 31% 28% 5% 0% 15%
VISTA Study: Re-treatment data
VMP arm, n=129 MP arm, n=194 Subsequent therapy CR PR CR PR Velcade, n=105 6% 33% 10% 45% Thalomid, n=149 4% 44% 3% 52% Revlimid, n=37 4% 52% 0% 55% Source: ASH 2008 presentation, abstract #650
Once Weekly Velcade Plus MPT May Offer More Tolerable Alternative to Standard VMP Dosing
Data from a 393-patient study in newly diagnosed multiple myeloma study found significant improvements in response rates with the addition of Thalomid to a Velcade+MP regimen compared to Velcade+MP alone (CR rates: 39% vs 21%, VGPR rates: 16% vs. 24%, CR+VGPR: 55% vs. 4%). However, progression free survival and overall survival did not yet separate statistically (36-month estimated PFS: 74% vs 70%; 36-month OS: 88% vs 87%) and need longer follow up. Incidence of Grade 3/4 hematologic and non-hematologic events was numerically higher with the addition of Thal with sensory neuropathy statistically significantly higher in VMPT group. The protocol was amended to reduce the intensity of Velcade regimen to once weekly dosing due to high incidence of peripheral sensory neuropathy. Rates of peripheral neuropathy improved with weekly Velcade dosing (24% vs 6% with VMPT and 14% vs 2% with VMP), yet interestingly, CR rates were slightly higher with weekly vs. biweekly schedule in VMPT group (39% vs. 36%) but lower with weekly vs. biweekly in VMP group (20% vs. 27%), with the caveat of small patient numbers. The presenter indicated that although time to CR was slower with less intensive Velcade schedule, he favored the weekly dosing over the more intensive VISTA schedule for elderly patient population pointing to the much improved tolerability, yet good efficacy. Separately, he did not recommend incorporating VMPT regimen into standard of care yet pending longer follow up, based on no meaningful separation in PFS and OS, despite improved response rates with VMPT.
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Oncology/Hematology
Efficacy and safety for VMPT vs. VMP with Velcade dosed weekly or biweekly
VMPT group VPM group Velcade 2x/wk Velcade 1x/wk Velcade 2x/wk Velcade 1x/wk Patient number, n n=45 n=107 n=42 n=116 CR rate 36% 39% 27% 20% Peripheral neuropathy 24% 6% 14% 2% Neuralgia 4% 3% 12% 3% Discontinuations 22% 10% 24% 10% Source: Palumbo, et al, ASH 2008 abstract #652
But Thalomid Not A Safe Replacement For Melphalan With Velcade Regimen
The Spanish Myeloma Group presented at the ASH 2008 meeting results from its Phase 3 study where it explored Velcade/MP vs. Velcade/Thalomid/Prednisone with the goal of answering the question of whether an alkylating (melphalan) or IMiD (Thalomid) agent is an optimal combination partner for once-weekly Velcade (detailed data in the table below). The analysis found similar efficacy for VMP and VTP, however a higher rate of non-hematological toxicities, especially cardiac toxicity, with VTP, which resulted in more discontinuations in the VTP arm. Based on these results, investigators conclude that Thalomid might not be the best choice when combining with Velcade in elderly patients, which stands in contrast to very impressive results in the induction setting in younger patients eligible for transplant and also conflicts with data described above showing that Velcade onceweekly can be safely administered with Thalomid in combination with MP. The CR rate of 18% in this study with 1x/week Velcade dosing is similar to the VPM once weekly group in the Palumbo study above (21%) and both are lower than the CR of 30% in the VISTA study with the 2x/week dosing for Velcade. Grade 3/4 peripheral neuropathy in this study for VMP of 5% is lower than 2x/week dosing in VISTA but slightly higher than the VMP once-weekly arm from the Palumbo study. The thought leaders presenting these studies agreed that despite about 30% loss in responses with the less intensive Velcade regimen, they recommend the more gentle approach in older patients as it could improve the long-term outcome by reducing discontinuations due to adverse events.
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Oncology/Hematology
Velcade/MP vs Velcade/Thal/P Shows Better Tolerability Without Thal
median follow-up 16 mos VMP VTP 98 108 N CR 22% 27% CR/nCR 49% 29% PR 81% 81% Time to CR 4.4 mos 4.9 mos 2-yr TTP 72% 65% 2-yr OS 88% 93% n=130 n=130 Grade 3 toxicities Neutropenia 37% 21% Thrombocytopenia 22% 12% Anemia 11% 8% Non-hem toxicities Cardiac toxicity 0% 9% Thromboembolism <1% 4% Peripheral neuropathy 5% 9% Infections 7% <1% Dropouts due to SAEs 8% 17% Death due to AEs 4% 4% Source: ASH 2008 presentation, abstract #651
P-value
0.003 0.03 pNS 0.001 pNS pNS 0.01 0.03 pNS
Early Revlimid + MP Data Look Encouraging, But Waiting For Pivotal Data
Results from a Phase I/II study of Revlimid + MP in 53 front-line patients were updated by Palumbo et. al. at the EHA 2008 meeting. The four-arm study tested two doses of Revlimid (5mg and 10mg) and two doses of melphalan (0.18mg/kg and 0.26mg/kg) +2mg/kg prednisone. Median time-to-progression was 28.5 months after a median follow up of 29.5 months and the 2-year overall survival of 90.5% with no death reported in the first 18 months of treatment for 21 patients receiving Revlimid at 10mg/day + melphalan at 0.18mg/day. These data are very encouraging although are from a very small patient group and need to be confirmed in the larger ongoing Phase 3 study. As a reminder, the group previously reported 1-year overall survival of 100%. For comparison, the Velcade/MP VISTA study in front-line myeloma reported 2-year overall survival of 83% for Velcade/MP and 70% for MP. The response data from the highest Revlimid dose were quite good, yielding a CR + VGPR rate of 40%, with 0.25mg/kg of melphalan and 48% CR+VGPR with 0.18mg/kg melphalan. During the presentation of these data in 2006, Dr. Palumbo noted that previous studies of Thal/MP produced CR + VGPR rates of 37%, suggesting that Rev/MP may be more potent. Neutropenia was the most frequent adverse event, and ranged from 50% of patients in the Low Rev/ High M arm to 90% of patients in the High Rev/ High M arm. Across all treated patients, grade 3 adverse events were neutropenia (38%), thrombocytopenia (14%), febrile neutropenia (9.5%), vasculitis (9.5%), and thromboembolism (4.8%). Grade 4 adverse events were neutropenia (14%) and thrombocytopenia (9.5%) and researches highly recommend administering GCSF to patients on this regimen (G-CSF was administered in 43% of patients in the study). Revlimid with low dose melphalan was well tolerated, with a risk of thrombosis < 5% (no patients taking concomitant aspirin had thrombosis), and risk of infection around 10%. Based on these data, Celgene began enrolling the three-arm in MM-015 trial in January 2007, comparing nine courses of MP to nine courses of Rev/MP, with or without subsequent Revlimid maintenance therapy. This trial is critical for
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Revlimid front-line approval in Europe, and may be important for approval in the U.S. Celgene completed enrollment in late August 2008 and our statistical analysis of the study suggests that there is a reasonable possibility but not an inevitability that the trial will be stopped in summer 2009 based on an interim analysis.
New RMP Study At ASH 2008 Shows Less Impressive Results, But With Caveats
A small Phase 1/2 study by Roy et al (Mayo Clinic) evaluated Rev/MP in 26 elderly (74 years old) newly diagnosed MM patients and reported a 12% (3/26) CR rate, 19% (5/26) VGPR and 38% (10/26) PR rate. Median PFS on this small patient cohort was 16.7 months (95% CI: 11-23 months) and median overall survival was 23 months (95% CI 22-23 months). To put these data in perspective, we compared them to the large Phase 3 VISTA study of Velcade/MP vs. MP (median age 71) and the Phase 2 study of RMP led by Dr. Palumbo (median age 71) (see table below). The lower CR rate of 12% in this study vs. 24% for the Phase 2 RMP study is likely explained by the lower melphalan dose used (9.5mg/day vs. 13.5mg/day), but also slightly older patient selection. Median PFS of 16.7 month was significantly shorter than the 28.5 months from the Palumbo study. VMP generally produced higher CR rates vs. RMP, although it did not appear to translate into longer time to progression in the VISTA study vs. Palumbo et al study which have more comparable melphalan doses. Interestingly, the rate of Grade 3/4 hematologic toxicities in the Roy et al study was comparable to that in the Palumbo et al study for RMP despite lower melphalan dose in the Roy et al study. VMP appears has lower rates of neutropenia, not surprising given Velcade is known to be significantly less myelosuppressive than Revlimid, but higher rates of peripheral neuropathy.
Comparison of data available for VMP and RMP regimens
Study Dose Mayo Clinic R 10mg M 9.5mg/day PRED 26 12% 19% 38% 69% ?? 16.7 mos Palumbo et al R 10mg M 13.5mg/day PRED 21 24% 24% 33% 81% 28.5 mos 28.5 mos VISTA Velcade M 17mg/day PRED 337 30% 8% 33% 71% 24 mos NA 40% 37% 19% VISTA M 17mg/day PRED 331 4% 4% 31% 39% 16.6 mos NA 38% 30% 28% Mateos et al Velcade M 17mg/day PRED 60 32% NA 45% 89% NA NA 43% 51% 10%
N CR VGPR PR PR+ TTP PFS G3/4 hem tox Neutropenia 50% 52% Thrombocytopenia 28% 24% Anemia 16% 5% Note: melphalan dose conversions based on average weight of 75mg and BSA of 1.9m2 Source: ASH 2008 presentation and medical literature
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Relapsed/Refractory Myeloma
Revlimid FDA/EMEA Approval In Relapsed MM
Revlimid in combination with dexamethasone was approved by the FDA in June 2006 and by the EMEA in June 2007 for the treatment of patients with multiple myeloma who have received at least one prior therapy. In March 2005, the two ongoing Phase III trials of Revlimid were terminated early due to significantly lower mortality in patients on the Rev/dex arm of the trial. The latest results from this ongoing study were presented at the 2007 ASH meeting and indicated that the overall response rate in Rev/dex patients was substantially higher than in the dex control (61% vs. 23%, p<0.001), with improved CR/nCR rate (24% vs 3%). The median time to disease progression was 11.2 months for Rev/dex vs. 4.7 months for dex monotherapy. Revlimid also showed a survival benefit in relapsed refractory multiple myeloma, with an initial median survival of 29.6 months for Rev/dex, vs. 20.2 months for dex monotherapy. Updated data presented at ASH 2007 reported median survival of 35 months for Rev/dex vs 31 months for dex alone (p=0.015), although 47% of dex patients had crossed over to the Rev/dex arm. At the time of the analysis 58% of Rev/dex patients were alive, suggesting these numbers could shift again until the true median is reached. Not surprisingly, time to progression was significantly longer for patients receiving Rev/dex at first relapse compared to 2+ prior therapies (14.5 months vs 9.6 months). Subgroup analysis of patients with prior Thalomid exposure suggest some degree of cross resistance with Revlimid , although it is difficult to tease out because patients with prior Thalomid exposure had a longer time from diagnosis (2.8 yrs vs 4 yrs, p<0.05), and had a higher number of prior therapies (2 vs 3, p<0.05).
Prior Thalomid Exposure Negatively Impacts TTP
Thalomid nave Prior Thalomid CR/PR, then progressed SD Refractory

Source: ASH 2007, Weber et al
n 226 127 54 31 20
ORR 65% 54% 43% 45% 50%
Median TTP (months) 13.8 8.3 7.0 7.0 7.1
Additional analyses presented at the ASH 2007 meeting found a negative correlation between severe renal impairment (CrCl<30) and TTP specifically with Rev/Dex as shown in the table below. The poorer TTP may be related to poorer tolerability in this subgroup. Additionally, the presentation showed a higher risk of severe neutropenia in Rev/Dex patients with prior autologous stem cell transplant compared to those patients with no prior transplant. These findings show that Revlimid, while an extremely potent drug, needs to be used with caution in select myeloma patients.
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Patients With Severe Renal Impairment Have Lower TTP And Tolerability Issues With Rev/Dex
CrCl <30 30 to <50 50 to <80 80+
TTP (months) Rev/Dex Dex 7.9 4.7 11.4 2.8 12.1 4.7 11.2 4.7
Neutropenia Rev/Dex Dex 37.5% 8.3% 42.9% 5.9% 39.2% 1.5% 31.0% 4.3%
Thrombocytopenia Rev/Dex Dex 37.5% 0.0% 19.0% 17.6% 16.0% 5.3% 7.0% 5.5%
Infection Rev/Dex Dex 56.3% 33.3% 31.0% 17.6% 20.0% 14.5% 22.2% 15.3%
Patients With Prior Transplant Have Higher Risk Of Severe Neutropenia With Rev/Dex
n TTP (months) Neutropenia
No ASCT Rev/Dex Dex 147 148 13.2 4.7 28.6% 2.0%
Prior ASCT Rev/Dex Dex 206 203 10.9 4.7 40.3% 4.4%
Thalomid: First-Generation IMiD, Hard To Know How It Will Be Used After Revlimid
Thalomid has been studied in a number of trials in relapsed or refractory multiple myeloma. Thalomid was typically dosed between 200 mg/day and 400 mg/day, and was usually combined with dexamethasone at doses of approximately 40 mg/day on 12 days of every 28 day cycle. Published data from these studies suggest that Thalomid regimens typically result in responses in 50% to 70% of patients, with average progression-free survival of about 12 months. As Revlimid gains greater front-line share, it is unclear what role Thalomid will play in the salvage setting. Physician sentiment currently reflects a feeling that patients progressing on Revlimid would be resistant to Thalomid and that Thalomid would not be worth trying in this setting. Additionally, Dr. Rajkumar indicated at ASCO 2008 that none of the 20 patients from the recent ECOG study who failed Revlimid and went onto receive Thalomid responded. Although these data were not presented, it strengthens the idea that Thalomid post Revlimid has a more marginal role. It is not known whether a break between therapies with different drug pressure could change patient response to Thalomid. More data are clearly needed to better understand Thalomids future role in a market dominated by Revlimid-based firstand second-line regimens. That said, we expect Thalomid to maintain a minor role in roughly 10% of patients that cannot tolerate Revlimid (myelosuppression) or Velcade (peripheral neuropathy).
Future Directions for Revlimid In Myeloma (Key Clinical Trials)

Revlimids Future In Myeloma: Vying for Maintenance, Knocking Down Transplant, and Moving Into Pre-Myeloma. Three Phase 3 studies are assessing Revlimid as maintenance therapy following transplant (IFM study data could be available at ASH 2009), two Phase 3 studies are assessing the role of transplant vs. continuous Revlimid therapy, and one study is evaluating Revlimid in a pre-myeloma stage known as smoldering myeloma. These studies are in addition
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to four Phase 3 elderly myeloma studies, the first of which MM-015 could read out in 2H09. If successful, Revlimid could create a maintenance market where duration of therapy would be an est. 2 years+, pre-myeloma would expand the market by an est. 10%, and loss of transplant could also serve to increase treatment duration in those 30% going on to transplant.
Smoldering myeloma
QuiReDex: N=120 Observation vs Revlimid/dex for 9 cycles, followed by Revlimid maintenance 10 mg for 3 weeks every other month in patients with smoldering myeloma at high risk of progression; Endpoint: progression to symptomatic myeloma (San Miguel, currently enrolling)
First line, Stem cell transplant

PI-209: Phase 3 study assessing Revlimid/MP vs autologous stem cell transplant (Palumbo, currently enrolling) SWOG 0777: N=440 Rev/dex vs Rev/Velcade/dex,; randomized open label study, maintenance with Rev/dex in both arms until progression; PFS is primary endpoint
Assessing Role of Stem Cell Transplant

IFM-2009/DFCI: Velcade/Rev/dex for 3 cycles followed by randomization to Velcade/Rev/dex for 5 cycles and Revlimid maintenance until progression vs Transplant, Velcade/Rev/dex consolidation and Revlimid maintenance; N=1,000, goal is to see if stem cell transplant prolongs event-free survival by at least one year Phase 3 study evaluating Rev/dex until progression vs Rev/dex+ transplant+ Revlimid maintenance (Germany)
Assessing role of maintenance following transplant

IFM 2005-002, N=614, Phase 3 study for patients not relapsing within the first 6 months of stem cell transplant all receive 2 months of Revlimid consolidation, randomize to Revlimid maintenance vs placebo; primary endpoint is time to relapse; (enrollment complete) data expected at ASH 2009 CALGB-100104, N=544, Phase 3 study assessing Revlimid vs placebo as maintenance starting 3 months following transplant, primary endpoint TTP (enrolling) Total therapy 4 (TT4), Phase 3 study, N=350. Patients will receive two cycles of induction or 1 cycle of Vel/Thal/dex/chemo induction followed by tandem transplants; consolidation after transplant with two cycles of the same induction regimen. Maintenance with Velcade/Rev/dex will be administered for 3 years. (enrolling)
First line, Non-stem cell transplant

MM015: Revlimid/MP with Revlimid maintenance vs Revlimid/MP with placebo maintenance vs placebo/MP and placebo maintenance (N=450); Treatment allowed up to 9 cycles prior to maintenance; (enrollment complete) Data possible in 2009
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ECOG E1A06: N=560, Revlimid/MP vs Thal/MP for 12 cycles; maintenance with single agent Revlimid or Thal in respective arms; PFS is primary endpoint (enrolling) FIRST, MM-020: N=1,590, Rev/dex for 18 cycles vs Rev/dex until progression vs MPT for 12 42day cycles, primary endpoint PFS, >65 yrs or not eligible for transplant (enrolling) HOVON-335: Revlimid/MP vs Thal/MP in elderly patients; will evaluate Thal and Rev maintenance following fixed cycles of MPT and MPR (planned)
Future Directions For Velcade (Key clinical trials)

Velcades Future In Myeloma: Induction and Consolidation. A number of Phase 3 studies have already reported very impressive data for Velcade based induction regimens, and future studies are concentrated on moving Velcade into a "consolidation" role after transplant. This role is competitive with Revlimid maintenance, although it is a fixed duration of 4- 6 months.
First line, Non-stem cell transplant

UPFRONT: N=500 Velcade/dex vs Velcade/Thal/dex vs Velcade/MP in elderly newly diagnosed myeloma for 8 cycles, followed by 5 additional weekly Velcade cycles
Consolidation following transplant

ECOG: N=392 Velcade/Rev/dex vs Velcade/dex in patients who have completed a dex based induction regimen and transplant. Treatment will be given for 8 cycles following transplant. Primary endpoint is PFS. Phase 3 German trial N=385 giving Velcade for 4 6-week cycles following transplant or observation, primary endpoint is event free survival (follow up through 30 months). Velcade is administered weekly for 4 weeks followed by a two week rest period. Phase 3 Nordic study (N=400); patients are administered Velcade by 20 injections over a 4 month period following 3 months post-transplant. Primary endpoint is event free survival.
Formulation change
SubQ Velcade: Phase 3 study comparing Velcade IV vs subcutaneous administration (N=192), primary endpoint is response rate.
Novel Agents In Development For Multiple Myeloma

Bristols Tanespimycin In Pivotal Trials In Myeloma
Bristol gained tanespimycin via its acquisition of Kosan. It is a DMSO-free formulation of 17-AAG, a derivative of geldanamycin which blocks the association of heat shock protein 90 (Hsp90) and several client proteins (including p53, Bcr-Abl, Raf-1, ErbB2 and other kinases), leading to the degradation of the client proteins by
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the proteosome. Tanespimycin is showing promise in the treatment of multiple myeloma, in particular when used in combination with Velcade, and an improved formulation recently entered pivotal trials in this indication. Preclinical studies showed that tanespimycin can sensitize tumor cells to chemotherapies, including cytotoxic agents and MLNM/JNJs Velcade. Tanespimycin also increased survival in a mouse model of diffuse myeloma. Clinical results demonstrating the activity of tanespimycin in myeloma have been presented at several oncology conferences, with the most promising data being generated from trials in which this agent is used in combination with Velcade. Tanespimycin has Orphan Drug status for myeloma in the U.S. and E.U. The suspension-based formulation of tanespimycin in development offers advantages in convenience (less prep time and special handling), safety (no premedication needed), and stability (reduced shipping/storage requirements), which should help differentiate this agent versus follow-on Hsp90 inhibitors. Resulting novel intellectual property (2026 polymorph patent pending) provides a solid patent position. At the 2007 ASCO meeting, physicians presented updated Phase I/II data on tanespimycin in myeloma, including data for the first time of the drugs new formulation. The Phase I/II trial update reported on 41 patients treated with Velcade + tanespimycin, 18 of whom experienced a complete response, partial response, or minor response, for an overall response rate of 44%. Although this Phase I/II trial included patients who were experienced (n=16) and refractory (n=11) to Velcade, the overall response rate in this study compares favorably to that of Velcades SUMMIT monotherapy trial (35%) which included only Velcade nave patients. A poster at ASCO reported on five patients treated with the new formulation of tanespimycin (9 have now been treated in this trial and another 26 have been dosed in pharmacokinetic trials). Of the five patients, three exhibited a response. Common toxicities with tanespimycin are fatigue, GI disturbances, and thrombocytopenia, all of which are manageable and reversible. Further data from this trial were presented at the ASH meeting in December 2007. Of the 13 additional patients added to the analysis (since ASCO), only 1 patient exhibited a response. However, the majority of newly treated patients (n=7) were refractory to Velcade and multiple other therapies, and 4 patients were still active on protocol (with the potential to convert to responders). Updated Phase Ib results included CR/PR/MRs in 7/15 Velcade-nave patients (vs. 7/14 as of ASCO 2007), 9/19 Velcade pre-treated patients (vs. 8/14 as of ASCO 2007) and 3/18 Velcaderefractory patients (vs. 3/11 as of ASCO 2007). While the response rates were modestly below those reported at ASCO, opinion leaders were encouraged by the data, and noted that a lack of any grade 3+ neuropathy in the trial (vs. 13% in prior Velcade studies) could have important clinical trial and commercial implications. Tanespimycin Pivotal Trials Underway In August 2007, Kosan initiated its registration program for tanespimycin for the treatment of myeloma in combination with Velcade termed the Tanespimycin In Myeloma Evaluation (TIME-1 and TIME-2) trials. Tanespimycin is the first Hsp90 inhibitor to enter a Phase 3 trial. TIME-1 is an open-label, randomized, trial that will enroll 466 patients in the U.S. and Europe, with relapsed myeloma following a single prior course of treatment (first-
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relapse). The trial will test tanespimycin plus Velcade vs. Velcade monotherapy. Tanespimycin will be dosed at 340 mg/m2, with patients receiving standard doses of Velcade (1.3 mg/m2). Primary endpoint is progression-free survival.. TIME-1 is powered to demonstrate a 2.8 month improvement in PFS for the combination over Velcade (assumed 6.8 month PFS on Velcade monotherapy). Secondary endpoints include overall survival, TTP and response rate. Based upon TIME-1s proven design (a similar trial supported approval of Doxil+Velcade) and tanespimycins Tanespimycins Phase I/II data, thought leaders believe that the likelihood of success in this trial is high. The trial began enrolling patients in January 2008. Designed as a companion Phase II/III trial to support TIME-1, TIME-2 began enrolling patients in August 2007. The trial was enrolling 130 highly refractory patients in the U.S. and Europe when Kosan halted enrollment in January. The decision was based upon accumulating clinical data from a Phase I/II trial and discussions with thought leaders, that suggested demonstrating efficacy in heavily pre-treated patients was likely to prove challenging. We expect Bristol to adjust the design of this trial to include a less heavily pre-treated patient population that should have a greater likelihood of responding to tanespimycin. Apart from the Velcade combination setting, results from an ongoing Phase I trial of tanespimycin as presented at ASH 2005 suggest some single-agent activity in myeloma. In 19 evaluable patients with relapsed-refractory multiple myeloma (median number of five prior regimens, 41% having also failed transplantation), 12 patients (63%) demonstrated evidence of clinical benefit, including one patient with a minor response and eleven patients with stable disease for >3 cycles. Two episodes of dose-limiting toxicity (Grade 3-4 elevated liver function tests) were observed, and side effects (GI, myalgias, rash) were otherwise minor. Assessment at higher dose levels is planned in an effort to optimize dosing for future trials.
Novel IMiDs
Pomalidomide (POM) May Be A Useful Salvage Agent. Data from a Phase 2 study of 2mg daily POM in combination with 40mg 1x/week Dex in relapsed myeloma were presented at the ASH 2008 meeting. The study enrolled 60 patients with 1 to 3 prior therapies and 60% of patients with prior IMiDs experience. Grade 3/4 neutropenia was the key hematologic toxicity (32%), with low rate of thrombocytopenia and anemia. Fatigue Grade 3/4 was notable at 28% rate. No neuropathy of more than Grade 2 or DVT/PE were observed. CR+VGPR was recorded in 25% patients, ORR was 58% in the total study population and 29% in Revlimid refractory patients. The presenter noted that the ORR of 58% in this study with low dose Dex is similar to what was observed with Revlimid/Dex with the standard Dex dose in relapsed myeloma, yet no DVTs were recorded for POM/Dex vs. 11-14% recorded for Rev/Dex in prior studies. This study is to be expanded to 182 patients. Future Phase 2 trials will explore POM/Dex in Revlimid refractory and Velcade refractory myeloma patients.
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N sCR VGPR PR ORR SD PD NE Source: ASH 2008 presentation
POM/Dex 60 2% 23% 33% 58% 18% 22% 2%
Novel Proteasome inhibitors

Proteolixs carfilzomib continues to demonstrate single agent activity in heavily pretreated patients (median of 5 prior therapies), with 5/39 (13%) relapsed/refractory patients achieving a partial response, all of whom had been exposed to Velcade and most with exposure to Thalomid and/or Revlimid and/or stem cell transplant. The responses appear durable with a median of 240 days in patients who had clinical benefit response (CBR) and 93 days in all evaluable subjects. In Velcade refractory patients, 5/26 (19%) patients responded with a minimum response or better (MR+PR). Renal adverse events appear to be the key toxicity with carfilzomib, with 33% of patients reporting a creatinine increase. The presenter noted that creatinine changes are generally transient and non-cumulative. Four patients reported acute renal failure, with one coded as possible tumor lysis syndrome. GI toxicity and fatigue were also common. The presenter indicated that peripheral neuropathy is not an issue with carfilzomib and he observed <10% of patients experiencing low grade peripheral neuropathy (PN); one patient with a history of PN, experienced Grade 3 PN; no painful neuropathy was observed. Based on these results, the study was expanded to include 250 patients with the treatment beyond a year and could serve as a basis for accelerated approval in this unmet medical need population. In less heavily pre-treated patients (n=31), response rates were higher, with the best responses seen in patients not previously treated with Velcade (57% in Velcade nave vs 18% in Velcade experienced; 35% ORR in overall population), despite the majority of patients being classified as Velcade responsive. Responses were durable, similarly to the study above. Two cases of tumor lysis syndrome were reported in the Velcade-nave population, after which the protocol was amended to include allopurinol prophylaxis. Very low incidence of peripheral neuropathy was recorded with no Grade 3 or Grade 4 events. Most common adverse events were fatigue, anemia and neutropenia (majority of Grade 1 or 2). Carfilzomib demonstrated promising single agent activity in heavily pretreated myeloma patients (including patients previously exposed to Velcade and refractory to Velcade) and could be a good treatment option in the salvage myeloma setting. Its utility in the earlier disease settings should be explored. Nereus Pharmas NPI-0052 has enrolled 15 patients in a dose escalating Phase 1 study (0.025mg/m2 to 0.15mg/m2), with no objective responses to date, and dose escalation continues to determine a dose limiting toxicity. One patient had reversible serum creatinine increase.
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First-in-class signal transduction modulator Keryx Perifosine. Encouraging results were presented at the ASH 2008 meeting for Keryx Perifosine in highly pretreated myeloma patients (median 5 prior therapies). Peri is an orally bioavailable, novel transduction modulator with multiple effects including inhibition of Akt and activation of JNK. In 72 myeloma patients (all Velcade experienced), Peri + Velcade +/- Dex resulted in unprecedented 38% ORR and 4% CR. In a subset of 52 Velcade refractory patients, Peri + Velcade +/- Dex resulted in 31% ORR and 2% CR. Median time to progression in all evaluable patients was 6.3 months. Thrombocytopenia Grade 3/4 was common at 33% rate, followed by anemia (24%) and neutropenia (21%). Peripheral neuropathy Grade 1-3 was recorded in 16% patients. All toxicities have been manageable with dose reductions or supportive care.
Myeloma An Interesting Opportunity For CEPHs Treanda

EU and U.S. physicians believe multiple myeloma could be Treanda's next significant opportunity. The drug gained a Compendia listing for refractory myeloma in late 2008 based upon a 31-patient EU study that demonstrated a 55% response rate and 26-week median PFS in relapsed patients. These data compare reasonably well to results from other refractory myeloma studies, including Velcade's SUMMIT trial (35% response rate, 29-week PFS). Trials are being conducted in the EU and the U.S. to evaluate Treanda plus Velcade and Treanda plus Revlimid. The Compendia listing has cleared the way for U.S. physicians to gain reimbursement for off-label use in myeloma. Consultants report favorable clinical experience and view Treanda as one of the most promising new agents in this indication. With approximately 10,700 deaths due to myeloma in the U.S. each year, and an assumed cost of $40K per course of therapy, the refractory myeloma market represents a $400-500M opportunity.
Myelodysplastic Syndromes
Myelodysplastic syndromes (MDS) constitute a broad spectrum of hematological malignancies that have historically been difficult to diagnose, categorize, and treat. The disease results in anemia, neutropenia, and thrombocytopenia, and is the most common hematological disorder in the elderly. Although the etiology of MDS is unknown in the majority of patients, the disease may develop following exposure to high doses of radiation, chemotherapy, or other toxins. The condition is considered a pre-leukemia that can often progress to acute myelogenous leukemia (AML), a potentially lethal condition, in patients with more serious MDS. According to the American Cancer Society (ACS), roughly three out of every 10 cases of MDS turn into AML. Even in cases that do not progress to AML, MDS can still be lethal due to profound anemia and myelosuppression that results in up to 65% of patients.
MDS Results From Faulty Maturation Of Blood Cells

The condition develops when blood cells fail to mature and differentiate normally within the bone marrow. The resulting cells are called blasts that resemble an immature stage of development and lack normal functions. With time, the bone marrow becomes crowded with these blast cells and they eventually alter the normal development of other blood cell types as well. This shift in development processes often leads to an increase in the number of aberrantly-functioning white blood cells (WBC) resulting in neutropenia and cytopenia, and a concurrent decrease in red blood cells (RBCs) resulting in anemia. Thrombocytopenia may also arise if
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megakaryocytes do not form properly, resulting in a deficiency of platelets. Blood transfusions are commonly required in 75-80% of patients on a regular basis (typically once every few weeks to every few months depending on severity of disease), but studies conducted in MDS patients indicate a lower probability of survival for those who develop a regular need for blood transfusions versus those who remain transfusion-independent.
MDS Affects 300k Individuals Worldwide

MDS affects an estimated 300k individuals worldwide. In the U.S. it is believed to afflict roughly 40-60k people. Based on epidemiology surveillance data published by the NCI at ASH 2005, our consultants believe that approximately 12,000 patients in the U.S. are diagnosed with MDS each year. In Europe, the disease is estimated to affect 67k individuals with 15-25k new cases diagnosed each year. This incidence is on par with some leukemias such as CLL. The chance of developing MDS increases with age - the incidence is roughly 5 cases per 100k people each year in the general population, but increases to 20-30 per 100k individuals above the age of 60. Consequently the majority of patients (>80%) with the condition are over the age of 60. Men are also at higher risk than women. Other factors can contribute to the risk of MDS including environmental toxins, chemotherapy, radiation, and hereditary genetics.
CELGs Revlimid Approved For Low-Int-1 Risk 5Q (del) MDS

Based on the strong results from the MDS-003 trial and supporting studies Celgenes Revlimid was granted FDA approval for the treatment of low to intermediate risk-1 MDS 5Q (del) in December 2005.
Pivotal Revlimid MDS-003 Trial Shows Striking Efficacy In 5Q (del) MDS

In May 2005, Celgene presented data from the Phase II MDS-003 trial at the American Society of Clinical Oncology meeting. The study enrolled 148 patients with 5Q (del) disease who received Revlimid orally once a day for 21 days, repeated every 28 days for up to 6 cycles until disease progression or unacceptable toxicity was reached. Hematological parameters were assessed every 14 days. The primary endpoint was transfusion independence as defined by the International Working Group (IWG) criteria (8 weeks without need for blood transfusion). Results presented by Dr. Alan List, the lead investigator for Revlimids MDS trials, demonstrated a 66% (97/148) transfusion independence response rate by IWG criteria on an intent-to-treat basis, and a median increase in hemoglobin (Hb) levels by 5.3 g/dL. Of the responders, 73% remained transfusion independent at the time of analysis. The median duration of transfusion independence had not yet been reached in responders after a median of 58 weeks follow-up when these data were reported, and in November 2005, Celgene reported that the median duration still had not been reached at 75 weeks. Additionally, 70% of patients evaluated achieved a cytogenetic response, of which 63% achieved a complete response. Normalized bone marrow histology was observed in 36% of patients. The median age of patients in the study was 71 years (range 37-95) and the median time from diagnosis was 3.4 years. The most common adverse event was grade 3 or higher myelosuppression which appeared manageable with dose reduction and treatment interruption. The most common nonhematological adverse events were pruritus, rash, diarrhea, and fatigue. 8.8% of
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patients (15/148) died in the study of which 2 deaths were suspected to be drug related, but according to our physician consultants, this is not a reason for concern.
Physicians Embraced Revlimid For 5Q (del) MDS

Although multiple myeloma is a larger opportunity, MDS affect 80K-100K patients in developed countries each year, and therefore represent another potential market for Revlimid. Revlimid was approved in the United States for use in 5Q (del) MDS in late 2005, and our consultants are very enthusiastic about it in this indication. They believe that the observed decrease in transfusion requirements is meaningful and highly indicative of clinical benefit. They say that whereas the vast majority of their 5Q (del) MDS patients typically require regular blood transfusions, approximately two-thirds of them no longer are transfusion-dependent when on Revlimid. One consultant termed this home run efficacy. Our consultants are also satisfied with its safety and tolerability, with the most prominent safety concern being blood clots. All of this said, feedback from consultants suggests MDS penetration for Revlimid has peaked. The most recent feedback from a consultant was that while 5Q (del) represents a meaningful 30% of the total MDS, patients with the advanced disease do not benefit from Revlimid. He estimates that only third of 5Q minus are early stage patients with remaining two thirds being higher risk. However, physicians have been using Revlimid across 5Q minus subset thus far. Over time, he expects the community to start making the distinction between 5Q minus advanced patients and 5Q minus earlier stage with more data and experience, which could result in decreased usage of Revlimid in MDS. That said, we do not expect a meaningful impact on our Revlimid sales estimates given the majority of sales and all of the growth come from multiple myeloma.
DNA Hypomethylating Agents Effective In MDS

Two cytidine analogs are labeled for the treatment of MDS: Celgenes Vidaza (5azacytidine), and SuperGen/Eisais Dacogen (decitabine). As nucleoside analogs, both Vidaza and Dacogen are believed to have distinct mechanisms of action. They are thought to directly kill some cancer cells, by incorporating into RNA and DNA. They are also thought to inhibit DNA methylation, a process that plays a role in the silencing of genetic elements controlling the expression of tumor suppressor and cell cycle arrest genes. Both nucleoside analogs are incorporated into DNA and RNA as it is being produced. The analogs then irreversibly bind to the DNA methyltransferase enzyme, inhibiting its function. DNA methyltransferase catalyzes the methylation of CpG dinucleotides, an epigenetic modification that stops the expression of some genes. MDS cells have been shown to excessively methylate certain tumor suppressor genes, shutting those genes down and allowing the neoplasm to develop. By reducing methylation, the cytidine analogs allow the expression of the genes, and help to control the condition.
CELGs Vidaza Phase 3 Trial Shows Unmatched Survival Benefit

In December 2007, positive data from a 358-patient Phase III study (AZA-001) of Vidaza in patients with high-risk MDS were presented. The trial enrolled patients with a diagnosis of either refractory anemia with excess blasts or refractory anemia with excess blasts in transformation. All patients in the trial were at a relatively high risk of AML transformation, with an IPSS score of INT-2 or High. The trial randomized patients to Vidaza plus best supportive care, to conventional care plus best
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supportive care. Conventional care could be low-dose Ara-C, high-intensity chemotherapy, or just best supportive care. The primary endpoint of the trial was survival. Secondary endpoints include the time to transformation to AML, and transfusion independence. In the trials primary endpoint, Vidaza was associated with a median survival of 24.4 months, compared to 15 months for conventional care (p < 0.0001). The hazard ratio describing this treatment effect was 0.58 (95% confidence interval of 0.43 to 0.77). Two-year survival rates were 50.8% versus 26.2% for patients receiving Vidaza versus conventional care (p<0.0001). The median number of treatment cycles for Vidaza was nine. The survival benefits of Vidaza were consistent regardless of the conventional care treatment option (best supportive care (BSC) alone, low-dose cytarabine plus BSC or standard chemotherapy plus BSC) utilized in the control arm. Our consultants were impressed by the AZA-001 data, and said it had a powerful message. The most important conclusion to be drawn from the data is that Vidaza confers a statistically significant survival benefit; this was the first trial to demonstrate that effect, and therefore conclusively demonstrates Vidazas efficacy. These data were incorporated into the Vidaza package insert in 3Q08, and CELG began its relaunch of Vidaza with the survival message in early September.
CELGs Vidaza Maintenance Support Longer Duration

At the ASH 2008 meeting, updated data for Vidazas survival study showed that CRs were achieved over 12 months and that PRs was attained over 6 months with Vidaza. The presenter advocated that patients be treated for a minimum of 6 cycles with Vidaza and until progression in a maintenance fashion in responding patients. His longest patient on maintenance Vidaza is out 15 years, and he estimated that approximately 20% of his original patients are 5 year survivors, which impressed the audience. Based on these results and feedback from the meeting, we expect the average cycle length to increase in the U.S. for CELGs Vidaza, for cycle length to start higher when Vidaza is launched in Europe, and for Vidaza to begin taking more market share from Dacogen in the U.S.
Additional Data Slices From AZA-001 Support Expanded Use

Additional data slices were presented at the ASH 2008 meeting from the long-term survival AZA-001 study of CELGs Vidaza study which previously demonstrated a survival benefit vs best supportive care. New results include: (1) Vidaza significantly prolongs OS in the elderly AML subset (2 yr OS 50% vs 16%, N=116), with significantly fewer hospitalizations and serious infections as judged by IV antibiotic use; (2) Vidaza significantly improves survival in patients 75 yrs or older (2 yr OS 55% vs 15%, N=87), with modest increases in toxicity (AE related dropouts 13% vs 8%); (3) Only a small majority of patients achieved their best response at their first response (57%), while the remaining 43% of patients saw improved responses with 4 additional treatment cycles.
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Competitor Dacogen EORTC Phase III Fails To Show Survival Benefit- Vidaza Likely To Pick Up Market Share From Dacogen
The highly anticipated overall survival (OS) study of Eisai/JNJs Dacogen was presented at the ASH 2008 meeting. This study enrolled a total of 233 high risk MDS patients randomized to receive either 15mg Dacogen for 3 days in 6-week cycles or best supportive care. The median overall survival was slightly longer for Dacogen at 10 months vs. 8.5 months for best supportive care (BSC), but as previously announced was not statistically significant. This result compares to 24 months for CELGs Vidaza vs. 15 months for BSC in the long term survival Phase 3 study, making it very difficult to compare the results across studies since the best supportive care arms were so different. Study authors speculate that the OS curves in the Dacogen study did not separate due to shorter treatment duration (median cycle length 4 cycles, with 40% of patients receiving 2 cycles) and subsequent treatments administered after disease progression, and it remains an open question whether the trial design or the drug itself is associated with poor survival outcomes. Additionally, these data do not fundamentally address the question of whether Dacogen improves overall survival when the better tolerated 5-day regimen is employed. Nonetheless, this is the second Dacogen study to fail to show a survival benefit, while two independent Vidaza studies have shown survival improvements. Eisai plans to file for FDA approval of the 5-day Dacogen dosing schedule by the end of 1Q09, which would improve the current label if approved. Additionally, Eisai is planning to conduct starting in 3Q09 the first head to head study of Dacogen and Vidaza, using the 5-day Dacogen dosing regimen. The EORTC presenter acknowledged that Eisais planned study design for Dacogen vs Vidaza with CR as a primary endpoint was flawed, and indicated that a head to head survival study was required to definitively address outstanding issues. We see three positive implications for Vidaza: (1) Vidaza should gain increased market share in the U.S. (2) these data support increased cycle length, which should further expand Vidaza sales; (3) Dacogen will not be approved in Europe for MDS/AML unless new data become available.
Vidaza Approved For Subcutaneous and Intravenous Administration

In 2004, the FDA approved the subcutaneous formulation of Vidaza for the treatment of patients with refractory anemia, refractory anemia with ringed sideroblasts (if accompanied by neutropenia or thrombocytopenia requiring transfusions), refractory anemia with excess blasts, refractory anemia with excess blasts in transformation, and chronic myelomonocytic leukemia. In January 2007, the FDA expanded Vidazas label to include intravenous administration. Both intravenous and subcutaneous routes use the same dose and schedule, 75 mg/m2 daily, for seven days, every four weeks.
Vidaza Approved In E.U. In Dec 2008

Vidaza has not had as easy a time getting to market in Europe as it did in the U.S. Pharmion first filed for approval in Europe in Q3:04 with essentially the same data as the U.S. filing. However, the MAA filing was withdrawn in Q4:05 after the EMEA told Pharmion that additional data would be necessary. Pharmion has indicated that the EMEAs review of the data was centered on those patients enrolled in the studies
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with higher-risk subtypes of MDS. Unfortunately, half of the patients in the trial had lower-risk disease, and therefore the number of patients in the EMEAs analysis was only about half of the total. The EMEA wanted more high risk patient experience, and wanted clearer results on clinical endpoints. In January 2008, Pharmion announced that it has supplemented the previous package with the results from the Phase III study. In December 2008, CELG announced that EMEA approved Vidaza for the treatment of high risk MDS. In addition, Vidaza was approved for the second indication, acute myeloid leukemia (AML), a very niche chronic myelomonocytic leukemia. This broad label is likely to prevent competitor JNJ/Eisai.s Dacogen from coming to the E.U. market in the next 10 years.
Vidazas U.S. Exclusivity Expires Formulation Protect The Franchise?
2011
Can
Oral
The composition-of-matter patent for Vidaza has long since expired, and therefore azacitidine is in the public domain. Vidazas exclusivity in the United States is protected by its orphan product designation, which will expire in May 2011. There is similarly little IP protection for Vidaza in Europe, and following its approval exclusivity will be protected by Europes orphan drug laws. Those laws should give Vidaza 10 years of exclusivity, likely expiring in 2018 or 2019. Development of oral azacitidine (Vidaza) could extend the exclusivity of the franchise, as Celgene (previously Pharmion) holds composition-of-matter patents for oral azacitidine. Pharmion initiated a Phase I study of oral azacitidine in February 2007 in patients with AML, MDS, and malignant solid tumors. The study was to assess the safety, tolerability, bioavailability, and pharmacokinetics of escalating single doses of oral azacitidine. In April 2008, Pharmion announced that the results of the trial were positive: the trial demonstrated that oral azacitidine is orally bioavailable, and data demonstrating the oral bioavailability were presented in June 2007 at the ASCO meeting showing that an 80mg dose has 18% bioavailability relative to subcutaneous Vidaza. Published data from this pilot study show fairly wide pK variability, and simulations show that doses as high as 600 mg oral would not approximate blood levels from subQ. A poster at the ASCO 2008 meeting with updated data for an oral formulation of Vidaza showed detectable levels of Vidaza in the blood with 180 mg, but bioavailability was low at 6-15%. Dose escalation is ongoing, and it is unclear whether an oral dose can be found to give comparable blood levels to the subcutaneous formulation, and whether the pk variability will improve. An expert close to the development indicated to us that the dose now moved to 240mg. While he hopes for the formulation to pan out, he was very cautious in predicting a successful outcome. Variability in pk with an oral formulation will remain a big challenge.
Vidaza + Revlimid In Higher-Risk MDS Phase 1 Data Encouraging

Final results from a Phase 1 dose ranging study combining Vidaza and Revlimid in 18 higher risk MDS (IPSS: Int-1, Int-2, High) were presented at the ASH 2008 meeting. The combination was surprisingly well tolerated with no dose limiting toxicities observed and no maximum tolerated dose reached. Of the 18 evaluable patients, there were 72% overall responses with 7/18 (39%) complete responses, 1/18 (6%) partial response, 3/18 (17%) hematologic improvement and 2/18 (11%) marrow CR.
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These early results suggest overall responses comparable to single agent Vidaza activity in this patient population, however Revlimid/Vidaza combination appear to double the CR rates with a caveat of small patient numbers. The presenter indicated that there is a plan to explore concomitant vs. sequential dosing strategies with Revlimid and Vidaza in a Phase 2 randomized study, as well as to expand the combination to older adults with AML.
Revlimid E.U. MDS Application Has Experienced Delays; Approval Timing Uncertain
Celgene filed an MAA for Revlimid in August 2005. The EMEA has struggled over the past 2+ years to accept Celgenes single-arm, open-label study as a basis for Revlimids approval for MDS. They have requested longer-term data, which Celgene has supplied, and a case-matched control to create an artificial placebo arm to justify approval. After a failed appeal, CELG withdrew its application earlier this year based on the recommendation from CHMP regulatory body against approval for Revlimid in 5Q (del) MDS. We expect CELG to file a new MAA in 1H09 based on the controlled Phase 3 data expected in late 2008. However, there remains a risk of formally gaining approval for Revlimid in MDS in Europe, as the primary endpoint of the ongoing trial is transfusion independence, and not survival, and Europe has historically favored survival endpoints.
Pancreatic And Biliary Cancer

Roughly 37,680 new cases of pancreatic and 9,520 cases of biliary cancer are estimated to have occurred in the U.S. in 2008. Pancreatic cancer has few early symptoms and as a result diagnoses are often made late in the course of the disease. 80-85% of patients are unresectable at presentation. Common symptoms include pain, weight loss, and jaundice (yellowing of the skin from blockage of the biliary system). Mortality rates lead all other cancers, with 5-year survival rates of no more than 5%. Median survival for metastatic pancreatic cancer is only 3 to 6 months. Radiation, surgery, and chemotherapy are all viable treatment options. Standard of care chemotherapy includes gemcitabine (the only approved therapeutic), cisplatin or 5-FU monotherapy or combination therapy regimens. Survival and stable disease are more meaningful than response rate in pancreatic cancer. No single agents to date have consistently shown objective responses over 10%.
Gemzar Poised To Deliver Solid But Moderating Growth

Gemzar continues to make inroads into the cancer market, given solid effectiveness and a more tolerable side-effect profile compared with competing chemotherapeutics. It is approved for the treatment of pancreatic, non-small cell lung cancer (NSCLC), metastatic breast, recurrent ovarian, and bladder cancer (E.U.). Gemzar has 70% share of the pancreatic cancer market in the U.S. and Europe. In NSCLC, Gemzar has become the standard of care with 40%+ share. Lilly notes that 5070% of bladder cancer patients are treated with Gemzar. Two large trials sponsored by the NSABP and the NCI are under way for adjuvant treatment of breast cancer and include Gemzar, but will not report data for several years. Lilly is developing an oral Gemzar Prodrug with the potential for unique intellectual property protection; as of December 2008 it was in Phase I. We estimate Gemzar sales of $1,850MM in 2009, $750MM in 2012, and $100MM in 2015, assuming that an at-risk launch does not occur. Gemzars patent expires in the E.U. in 2009 and in the U.S. in 11/10.
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Gemzar Patent Challenges Sicor (Teva), Mayne, and Sun each submitted ANDAs seeking permission to market generic versions of Gemzar prior to the expiration of at least one relevant U.S. patent (compound patent expiring in 2010 and method-of-use patent expiring in 2013), and alleging that these patents are invalid. Lilly filed lawsuits in the U.S. District Court for the Southern District of Indiana against Sicor (February 2006) and Mayne (October 2006 and January 2008), seeking rulings that these patents are valid and are being infringed. The suit against Sicor has been scheduled for trial in July 2009. The statutory stay barring final approval of Sicors ANDAs has expired; however, Sicor must provide 90 days notice prior to marketing generic Gemzar upon receipt of final approval by the FDA to allow time for Lilly to seek a preliminary injunction. Both suits against Mayne have been administratively closed, and the parties have agreed to be bound by the results of the Sicor suit. In November 2007, Sun filed a declaratory judgment action in the United States District Court for the Eastern District of Michigan, seeking rulings that Lillys method-of-use and compound patents are invalid or unenforceable, or would not be infringed by the sale of Suns generic product. This trial is scheduled for December 2009. Lilly is confident in its U.S. IP and our patent attorneys confirm that, given the 1983/4 priority dates, the compound patents are likely solid. Generics are pending in Spain where there is no patent protection. In Canada, a method-of-use patent expired in 1/07.
Pancreatic Cancer A Second Tarceva Market

Historically, advanced pancreatic cancer has been a notoriously challenging tumor type for targeted anti-cancer agents. With the single exception of Tarceva, all other targeted agents have failed in late-stage trials, with some having previously demonstrated compelling efficacy data in Phase II as well as other tumor types. The most recent late-stage trial failures include Pfizers Axitinib, Bristol-Myers/Eli Lillys Erbitux, Roche/Genentechs Avastin and Bayer/Onyxs Nexavar. OSIP and Genentech received approval of the sNDA for Tarceva in pancreatic cancer in November 2005, while Roche received EU approval in January 2007. Approval was based on results reported in September 2004 that showed underwhelming but positive data from the pivotal PA.3 study, a 569-patient Phase III trial of gemcitabine plus Tarceva (100mg or 150 mg) or placebo for patients with locally advanced or metastatic pancreatic cancer. Median survival was improved by less than two weeks (from 5.91 months to 6.24 months), with a statistically significant survival hazard ratio of 0.82 favoring the Tarceva group (p=0.038), and one-year survival improved from 17% to 23%. Median progression-free survival (PFS) was 3.75 months in the Tarceva arm versus 3.55 months in the placebo arm, with a statistically significant hazard ratio of 0.77 (p=0.004). There was no significant difference in tumor response rates (8.0% for Tarceva vs. 8.6% in the placebo arm). Pancreatic cancer is a considerably smaller opportunity for Tarceva, relative to nonsmall cell lung cancer. Approximately 37,000 first-line cases are diagnosed each year in the U.S. and patients typically progress around three months after initiation of treatment. According to Genentech, Tarceva has penetrated roughly 45% of its eligible pancreatic cancer market in the U.S., a figure that has been relatively flat for the last 12 months. We estimate U.S. sales in pancreatic cancer of $114M in 2008, increasing to $183M in 2013, equating to roughly one fourth of total U.S. Tarceva sales.
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Prostate Cancer
An estimated 186,320 new cases of prostate cancer were diagnosed in the U.S. in 2008, with an estimated 28,660 deaths. The incidence of prostate cancer is increasing, as earlier diagnosis is possible through prostate-specific antigen screening (PSA). However, mortality rates from the disease are declining, aided by the trend toward earlier detection. Symptoms of prostate cancer include weak urinary flow, increased urinary frequency, and blood or pain accompanying urination. Treatment with surgery or radiation is recommended for locally-advanced prostate cancer, and cures can often be achieved if disease is detected in its initial stages. Nonetheless, up to 25% of patients will relapse, and prognosis for these patients becomes less clear. Patients with symptomatic or metastatic disease are usually treated with androgen-deprivation therapy, such as GnRH agonists like TAPs Lupron and AstraZenecas Zoladex, which serve to lower androgen levels, a key stimulator of prostate tissue growth. It is estimated that over 650K patients are on GnRH in the U.S. and in 2008, Zoladex and Lupron achieved worldwide sales of $1.1B and $650M, respectively. These therapies may be may be effective in controlling disease for several years, but prostate cancer eventually develops resistance to hormone therapy (hormone refractory prostate cancer or HRPC), enabling tumors to progress despite anti-androgen therapy. Approximately 30,000 patients develop HRPC annually in the U.S. The accepted standard of care for patients with HRPC is chemotherapy with Taxotere, which was approved for this indication in 2004 on the heels of results from the 1,006-patient TAX 327 study. This randomized Phase III trial determined that Taxotere given every three weeks yields a definitive median survival advantage (18.9 months, p=0.009) compared to once-every-three-week mitoxantrone (16.5 months). In the wake of TAX 327, mitoxantrone is generally reserved for second-line therapy. Although Taxoteres utility in the management of HRPC is clear, more than 50% of HRPC patients will die within two years of the initiation of therapy, providing a need for newer therapies. Drugs that could produce meaningful advances include DNA/RHHBYs Avastin (currently in Phase III) and CGRBs abiraterone (in two Phase III studies). Mercks Proscar and GSKs Avodart, currently indicated for benign prostatic hyperplasia, are both being tested in the prevention of prostate cancer.
TAPs Lupron Depot Under Pressure

TAPs Lupron Depot, a luteinizing hormone releasing analog that reduces testosterone levels, is the leading hormone therapy treatment for prostate cancer. Lupron Depot is effective in slowing the disease progression and reducing symptoms associated with prostate cancer, including difficulty urinating and bone pain. Lupron Depot is given via an injection once every 1-4 months depending on the dose administered. Common side effects include hot flashes, increases in urinary symptoms that typically only occur after the first injection, and impotence. Lupron (4 month depot) has been under pressure since 2003 as unit growth has flattened out and the pricing environment became more competitive with the entry of a competitor. Domestic sales declines were further accelerated in 2005 due to a Medicare Part B reimbursement change that went into effect early in the year which decreased physician incentives. International sales, which are booked directly by Abbott, were relatively strong but constitute less than 25% of the drugs overall sales.
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Moving forward, we expect volume declines in the U.S. to continue and lead to ongoing contraction in U.S. sales through 2012. International sales should continue to grow, albeit at a moderate, mid-single digit growth rate.
Generic Versions Of Mercks Proscar On The Market

Multiple competitors have launched generic versions of finasteride (Mercks Proscar). We peg Proscar sales at $180MM in 2009 and $100MM in 2012. Prevention data for Proscar has been mixed. Merck completed a 10-year, 18,000 patient, National Cancer Institute trial to determine its ability to prevent prostate cancer. Results showed that Proscar reduced the risk of prostate cancer by 25% versus placebo, although patients that developed tumors while on Proscar had more severe tumor types (Gleason grade 7-10).
GlaxoSmithKlines Avodart Targets BPH And Prevention of Prostate Cancer

Avodart is a dual 5-alpha reductase inhibitor (5-ARI) for the treatment of BPH. It inhibits type I and II dihydrotestosterone (DHT), and may be more effective than Proscar. Avodart has been marketed since November 2002 for symptomatic BPH in men with enlarged prostate. In the U.S., Avodarts label contains indications for reduction in the risk of acute urinary retention (AUR), BPH-related surgery, and prostate volume. The COMBAT (the combination of Avodart and tamulosin) study was presented at SIU in September 2007. COMBAT was a 4 year, 3-arm, randomized trial in over 4,800 patients that demonstrated that the combination of Avodart and tamsulosin (Flomax) was superior to monotherapy in symptom relief and flow but failed to demonstrate that Avodart monotherapy was superior to Flomax. In April 2008, approval was granted for the combination through the Mutual Recognition Variation Procedure. FDA approved Avodart in combination with tamsulosin in June 2008 based on these data. In December 2008, GlaxoSmithKline submitted an MAA for a Duodart, a fixed dose combination of Avodart and tamulosin. GlaxoSmithKline believes that there is a significant opportunity in BPH as 85% of patients on an alpha-blocker (e.g., Flomax) are not on a 5-ARI. GlaxoSmithKline is in Phase III with a fixed combination. Avodart is involved in a large clinical trial (REDUCE) to investigate the prevention of prostate cancer. The trial will report in 2009.
COMPARISON OF AVODART TO FINASTERIDE AND DOXAZOSIN
Incidence of Acute Urinary Retention (AUR) Prostate Volume % Ch. versus baseline Incidence of BPH - invasive therapy AUA symptom score points ch versus baseline at 12 months
Avodart ( 4 year open label data) US Prescribing Information# Avodart ( 2 year) Placebo (up to 2 years only) Proscar (4 year data) Placebo Medical Therapy of Prostatic Symptoms (MTOPS) study* placebo (4 year data) finasteride (Proscar) doxazosin (Cardura) finasteride plus doxazosin
Source: #Physician Desk Reference, *National Institutes of Health
-26.2 1.8% 4.2% 2.8% 6.6% -24.7% -3.4% -17.9% +14.1% 2.2% 4.1% 4.6% 10.1%
-6.1 -3.3 -2.0 -2.3 -1.6
0.6% 0.2% 0.4% 0.1%
+18% -18% -16.0% -13.0%
1.3% 0.5% 1.2% 0.4%
-4.0 -5.0 -6.0 -7.0
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Cougars CB7630 Vying To Be A Better Ketoconazole

There are a number of potential ways through which prostate tumors become resistant to androgen deprivation therapy. These include through the overproduction of adrenal androgens, the development of androgen receptor mutations, amplifications in the androgen receptor, and the outgrowth of cells no longer sensitive to androgens. Some of these mechanisms imply that HRPC tumors can still be androgen driven, but merely dependent on lower concentrations of testosterone for growth. Physicians have adopted ketoconazole (an anti-fungal agent) off-label as a second-line androgen deprivation agent in patients who might benefit from even lower levels of circulating testosterone. Ketoconazole is a cytochrome P450 14-demethylase inhibitor that interferes with sterol biosynthesis. While the drug has been shown to induce PSA responses in roughly one-third of patients, it is poorly tolerated (fatigue, vomiting, diarrhea) and most responses are transient. Cougar Biotechnology is developing CB7630 (aberaterone acetate, an inhibitor of 17-hydroxylase) as a potentially superior inhibitor of testosterone production. Physicians view the concept behind CB7630 as appealing and believe the drug is a good inhibitor of its target. While the long-term safety profile of CB7630 is unproven, this agent may be one of the more exciting molecules in development in HRPC. CB7630 entered a Phase III trial in chemo-refractory PRCA in H1:08 under an SPA. The pivotal study will enroll roughly 1,160 metastatic, hormone-refractory, taxotererefractory, ketoconazole-naive prostate cancer patients randomized 2:1 to receive prednisone + 1000mg CB7630 vs. prednisone + placebo. Use with prednisone is supported by recent findings which indicate that this combination is well tolerated and is associated with lower rates of hypertension, as well as significant activity. We expect the 2:1 randomization to facilitate rapid (less than 12 months) patient enrollment. The trial is 85% powered to detect a 25% reduction in risk of death. We expect CB7630s pivotal trial to produce data in 2010, and support FDA approval in 2011. The trial will feature an interim look, which will likely take place in late 2009. Cougar is also conducting an SPA-sponsored Phase III study In chemotherapy-nave prostate cancer patients. The trial will enroll 1,000 patients with metastatic prostate cancer who have failed androgen deprivation therapy. Patients will be randomized in 1:1 fashion to receive either CB7630 + prednisone or placebo + prednisone. The trial is 91% powered (p=0.01) to detect a 50% increase in PFS (from 4 to 6 months). The SPA defines PFS by objective radiographic standards, including the Prostate Cancer Working Group II criteria for a second confirmatory scan. By permitting Cougar to file for FDA and EMEA approval based upon PFS (measured in a matter of months), regulatory agencies have obviated the need to long (3+ year) overall survival studies in the pre market setting. Overall survival will be a co-primary endpoint that is required to support full FDA approval. We expect enrollment in the trial to be rapid, leading to potential U.S. and European regulatory filings in 2010. CB7630 Active In Patients Who Have Progressed On Hormonal Therapies A U.K. Phase I/II trial (AA-001) is testing escalating doses of CB7630 (up to 2000mg/day) in metastatic prostate cancer patients who had progressed on hormonal therapy (GnRH analogs plus additional agents including anti-androgens, diethylstilbestrol, and dexamethasone, but excluding ketoconazole). All patients remained on GnRH agonists throughout the trial, and patients were treated until
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progression. Of the 21 patients evaluable from the Phase I portion, 12 (57%) had a confirmed PSA decline of >50%, and six (29%) exhibited PSA declines of >90%. Of the eight evaluable patients with measurable disease per radiographic imaging (metastases to lymph nodes and bone), five (63%) had partial responses per RECIST criteria, and two (25%) showed evidence of bone disease regression. CB7630 was tested at doses as high as 2000mg/day with no dose-limiting toxicities.
Efficacy Results From U.K. Phase I/II Trial Of CB7630 In HRPC
Patients Phase I 21 (Evaluable) 8 (Measurable Disease) 44 (Evaluable) 21 (Measurable Disease)
Source: Cougar Biotechnology
50% PSA decline 12 (57%)
Partial Response
Bone Disease Regression
5 (63%) 27 (61%) 11 (25%) 12 (57%)
2 (25%)
Phase II
3 (14%)
The original Phase I population was allowed to continue on open-label therapy and the trial was expanded to include a Phase II portion at a dose of 1000mg/day. Updated Phase II results were presented at the ASCO Genitourinary Meeting in February. Of the 44 evaluable patients, 27 (61%) experienced a >50% decline in PSA levels, with 11 (25%) experiencing PSA declines of >90%. Of the 21 evaluable patients with measurable tumors, CB7630 led to partial responses per RECIST criteria in 12 (57%), with seven patients demonstrating stable disease and three patients demonstrating evidence of bone disease regression. Median time to PSA progression has not been reached and is estimated to be 8.4 months. This figure compares favorably to other commonly used second-line hormone therapies such as ketoconazole. Patients generally had improved pain and decreased opioid use. Including Those Who Have Failed Ketoconazole Data from a separate Phase I trial in chemo-nave patients, being performed in the U.S. (AA-002), were updated at the June 2008 ASCO Annual Meeting. Similar to the U.K. study, this trial is evaluating CB7630 in patients with HRPC who have progressed on several LHRH analogs and hormonal therapies, but a notable difference is that patients who had failed ketoconazole (63% of the evaluable patients) were allowed to enroll. Four entrants had PSA only disease (no detectable metastases), 27 had bone metastases, and three had visceral disease. CB7630 at up to 1000mg/day was well-tolerated, with no dose-limiting toxicity observed. Of the 30 evaluable patients, 27 (90%) experienced a decline in PSA and 16 (53%) were observed to have a PSA response (>50% decline on two subsequent measurements). Of 16 patients who had previously responded to ketoconazole, 9 (56%) had a >50% PSA decline, and one of the three patients who had no response to ketoconazole experienced >50% PSA decline while being treated with CB7630.
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Efficacy Results From U.S. Phase I Trial Of CB7630 In HRPC

Patients 30 Any PSA Decline? 27 (90%) 50% PSA decline 16 (53%)
And Is Also Active In Patients Who Have Failed Chemotherapy In a Phase II trial underway at centers in both the U.S. and U.K. (AA-003) that began in late 2006, 1000mg/day CB7630 is being evaluated in patients with prostate cancer who have failed chemotherapy with Taxotere. Updated data were presented at the ASCO GU Meeting in February 2008. The trial had enrolled 44 patients at the time of the presentation. Of the 31 patients who have been on study for >3 months, 15 (48%) demonstrated >50% reductions in PSA, and six (19%) experienced >90% PSA declines. Of 19 evaluable patients with measurable tumors, five (26%) showed a confirmed partial response, and 10 (53%) had stable disease. Patients reported symptomatic improvement and decreased use of opioids.
Efficacy Results From Phase II Trial Of CB7630 In Chemotherapy Failures
Patients 31 (Evaluable) 19 (Measurable Disease)
Partial Response 5 (26%) confirmed
Stable Disease 10 (53%)
To explore the addition of prednisone to CB7630, a U.S./U.K. Phase II trial of this combination in PRCA patients previously treated with Taxotere was begun in Q2:07. Preliminary data were presented by Dr. Daniel Danila of MSKCC at the ASCO meeting June, at which time 55 patients had enrolled into the trial in total. Of the 38 patients treated at MSKCC, 17 (45%) experienced a PSA decline of >50%. Of the 24 patients with evaluable bone lesions, after 12 weeks of treatment, 14 had lesions that were unchanged according to PSA Working Group consensus. Of the 18 with lymph node metastases evaluable by CT scan, one had lesions decreased in size and 12 had lesions that were unchanged according to PSWG2 consensus. Of the eight in the trial with radiologically-evaluable visceral disease, one had lesions that decreased in size and four had lesions that were unchanged according to PSWG2. Additional presentations at the June 2008 ASCO meeting added confirmation to CB7630s mechanism of action, in that a reduction in peripheral testosterone production is responsible for the drugs activity, and suggested that steroids may prolong patient response to CB7630, with investigators concluding that the time to progression on CB7630 could be extended from 231 days to 399 days with the addition of steroid. This latter observation is important given the design of CB7630s Phase III trial, for which the protocol includes steroid.
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Dendreons Provenge Gets Close, But No Cigar

Dendreons Provenge is an active cellular immunotherapy for hormone-refractory prostate cancer. In Provenges first Phase III trial (D9901), conducted in men with late-stage, metastatic, hormone-refractor prostate cancer, the drug failed to meet the primary endpoint of the study, time to objective disease progression (p=0.06). However, efficacy was demonstrated in a subset of patients with lower-grade tumors. At final three-year follow-up of the D9901 study, Provenge demonstrated a statistically significant survival benefit in the overall intent-to-treat population as well as in the Gleason score 7 subset. Based on the interim findings, Dendreon amended its pivotal study (D9902a, under an SPA with the FDA) to enroll only lowgrade patients. In January 2005, Dendreon reported preliminary data from 9902a in which statistical significance was not reached for delay in time to tumor progression, the primary endpoint, either in the overall group or in the Gleason score subgroups. In October 2005, a three-year survival analysis of the intent-totreat population of D9902a demonstrated that, in 98 men who met the defined enrollment criteria, patients who received Provenge had a 19.0 month median survival time compared with only 15.7 months for the placebo patients, representing a 3.3 month (21%) improvement (p=0.331, log-rank; =1.3). A Cox multivariate regression analysis of overall survival, which adjusts for imbalances in prognostic factors known to influence survival, met the criteria for statistical significance (p=0.023; adjusted hazard ratio=1.9). In addition, at the three-year final follow up, 32% of the men in the Provenge group were alive versus only 21% of the men in the placebo group (52% improvement). As in previous studies, Provenge was well tolerated with the most common adverse events reported being fever and chills lasting for one to two days.
Summary Of Provenge Studies
Source: Dendreon
An integrated analysis of the data from D9901 and D9902A showed a statistically significant survival benefit in the overall intent-to-treat population of 225 patients. In this analysis, Provenge-treated patients had a median survival of 23.2 months compared to 18.9 months for placebo patients (+4.3 months, +23%). In addition, at the three-year final follow up, 33% of the men who received Provenge were alive versus 15% of men who received placebo (>100% improvement). In March 2007, an FDA advisory committee voted 17 to 0 in favor of the safety of Provenge and 13 to 4 in favor of its efficacy for the treatment of patients with asymptomatic, metastatic AIPC. However, in May 2007 Provenge received an Approvable letter, a request for additional clinical data in support of the efficacy claim contained in the BLA, as well as additional CMC information. The FDA stated to Dendreon that it will accept either a positive interim analysis (October 2008) or final
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analysis (mid-2009) of survival from its ongoing IMPACT study. The interim analysis in October 2008 was inconclusive: the DMC reported a trend towards improved survival in the Provenge arm (HR=0.80, CI: 0.61-1.05) and recommended the study continue. The final analysis of survival data is expected in mid-2009, and Dendreon has disclosed that should the study demonstrate a 22% reduction in risk of death, based on 304 events, the trial would meet its primary endpoint of overall survival.
GTxs Toremifine May Prevent Prostate Cancer

Toremifene is a selective estrogen receptor modulator (SERM) that is marketed in the U.S. for the treatment of advanced breast cancer in post-menopausal women under the brand name Fareston. Based upon a wealth of clinical data implicating estrogen in the progression of prostate cancer, SERMs that block estrogens activity on the prostate might hold utility in prostate cancer prevention. GTx is developing Toremifene for the treatment of prostatic intraepithelial neoplasia (PIN), a precancerous condition that places patients at high risk of progression to prostate cancer. At the 2005 ASCO meeting, GTx presented final data from a Phase IIb study of Toremifene in males at high risk for prostate cancer, in which the 20mg dose reduced progression to full-blown prostate cancer. In this trial, 514 males with highgrade PIN were randomized to receive placebo, 20mg, 40mg, or 60mg of Toremifene. The primary endpoints in this study were the rate of progression to biopsyconfirmed prostate cancer at one year for each individual dose group versus placebo, as evaluated by intention-to-treat (ITT) analysis. The trial was powered at 80% with an alpha of 0.1, meaning the pre-defined p-value hurdle for statistical significance was 0.1. In the 20mg group, there was a 22% reduction in the risk for prostate cancer at one year, measured by intent-to-treat analysis, with a p-value of 0.081. Patients on placebo had nearly a 1 in 3 chance of being diagnosed with prostate cancer. Using as-completed analysis, the 20 mg Toremifene group experienced a 48% reduction in the risk for prostate cancer at one year, which was also statistically significant at a p-value of 0.045 using the binomial exact test. Toremifene was well tolerated, and it did not appear to select-out more aggressive forms of prostate cancer. Toremifene at 40mg and 60mg showed favorable efficacy trends that did not reach statistical significance.
SPA-Sponsored Trial Inconclusive At Interim Analysis

In January 2005, GTx initiated a Phase III trial in patients with PIN. The company had elected to start this trial prior to reaching a final SPA agreement with the FDA, which was finally achieved in September 2006. Under this SPA, GTx and the FDA have agreed that a single Phase III trial will be sufficient to support an NDA. This trial will evaluate 20 mg Toremifene or placebo for 36 months in men with diagnosed PIN and is powered to detect up to a 30-35% reduction in progression to prostate cancer. The trial has enrolled 1,590 subjects, and hence has exceeded its goal of 1,260 due to the co-enrollment of about 300 individuals into two concurrent safety studies. These trials are evaluating Toremifene for its impact on BMD as well as on cataract incidence (a potential class effect of SERMs, not yet observed with Toremifene). The trial included an interim efficacy analysis (but no futility assessment) any time after 281 events (prostate cancer diagnoses). In November 2007, the minimum hurdle of 281 events was achieved. However, management waited until May 2008 to
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conduct the analysis, at which time 350 prostate cancer events were achieved. After conducting the analysis GTx announced that the trial would continue, indicating that Toremifene did not reduce the incidence of prostate cancer with a statistical hurdle of p=0.003. This can be interpreted to mean that Toremifene did not reduce the incidence of prostate cancer by 28-30% or more relative to placebo. The final analysis, based on a certain number of undisclosed events occurring, will be conducted in mid-2009 and is powered to detect a 22% reduction in prostate cancer (p=0.01). This means Toremifenes relative efficacy versus placebo would likely have to range from 22-30% in order for the study to be positive.
PIN An Attractive Market Opportunity

GTx estimates that more than 110,000 new cases of biopsy-confirmed high-grade PIN are diagnosed each year in the United States. 30-40% of these patients ultimately will be diagnosed with prostate cancer at one year, with the proportion rising to over 50% at two years and 80% by 10 years. Because there are no approved treatments for patients with high-grade PIN, these patients are currently followed by repeat biopsies every 3-6 months. In anticipation of a commercialization strategy, GTx has formed collaborations with several diagnostic companies, including Tessera, diaDexus, and MacroArray, to develop tests for high-grade PIN that could simplify detection and expand the diagnosed pool of patients eligible for preventive therapy. We estimate that roughly 500,000 patients in the U.S. currently have biopsy-proven HG-PIN. At a price of $1,000-2,000 per patient per year, this translates into a $500MM+ potential market opportunity.
Toremifene Meets Primary Endpoint In Phase III ADT Trial

Increased awareness of the bone and lipid complications associated with ADT have begun to draw the attention of the biopharmaceutical industry, and SERM Toremifene appears to offer a combination of benefits (bone, lipids, hot flashes) in a once daily pill. As supported by positive bone mineral density data from a Phase II trial, GTx initiated a placebo-controlled Phase III trial of 80mg Toremifene in November 2003. Patients who had been on androgen deprivation therapy for at least two years were eligible. This trial randomized subjects to either a daily 80 mg dose of Toremifene or placebo for 24 months, with a primary endpoint of 40% reduction in combined vertebral and other clinical fractures vs. placebo. Secondary endpoints include BMD, hot flashes, gynecomastia, quality of life, bone turnover markers, and lipids. In February 2008, GTx reported that Toremifenes 1,394-subject Phase III ADT trial met its primary endpoint, with the demonstration of a 50% reduction in vertebral fractures according to the SPA-specified modified intent-to-treat population (p<0.05). Toremifene met several secondary endpoints including a decrease in cholesterol, LDL, and triglycerides and an improvement in gynecomastia (breast enlargement and pain) which may help differentiate the drug in a competitive market. Toremifene was associated with no negative trend in death, SAEs, or prostate cancer progression. Although Toremifene was associated with a higher incidence of venous thromboembolic events (17 vs. 7 on placebo), other SERMs have been approved for the treatment of osteoporosis despite higher VTE risk. Nonetheless, given the FDA's heightened interest in drug safety, we expect Toremifene's risk/benefit will be discussed at an FDA panel. An NDA was filed in December 2008 and requested priority review. A separate one-year Phase IIIb blinded extension study is ongoing. If approved, Toremifene will likely share a $200300MM market with bisphosphonates and denosumab.
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Renal Cell Carcinoma

There are approximately 51K cases of kidney cancer in the U.S. each year, and 200K cases worldwide, of which approximately 90% are renal cell carcinomas. Surgery is the standard of care for patients with local disease, and it will cure approximately 50% of patients. No adjuvant therapies are currently approved for those patients who have undergone surgery for locally advanced disease, and our consultants report that no therapies are used off-label in the adjuvant setting. According to our consultants, 25-35% of patients initially present with metastatic disease, and approximately 50% of all patients ultimately get metastases, suggesting that the opportunity for systemic therapies is about 15-20K people in the U.S. in total. Metastatic renal cancer is nearly universally fatal. Untreated metastatic renal cancer has approximately one year median survival, and there are 12-13K deaths in the U.S. each year from it. The prognosis of patients with metastatic disease (stage III or IV RCC) is described by the Motzer prognostic criteria, and patients are lumped into one of three categories: good risk, intermediate risk, or poor risk. At the time of presentation 25% of patients are considered good risk, 50-55% intermediate, and 2025% poor. In general our consultants estimate that patients can get about 3 lines of therapy before they are too sick to tolerate additional treatments. They estimate that patients are on their first line therapy for 6-9 months, second line for 3-5 months, and third line for 3 months or less. Whereas the majority of renal cancer patients were treated in specialist centers up to a few years ago, our consultants note that this has changed appreciably since the launch of Sutent and Nexavar. Now more and more patients are being treated by community oncologists. Prior to the introduction of Bayer/Onyxs Nexavar and Pfizers Sutent, the standard of care in metastatic renal cancer was high-dose IL-2 or interferon alpha, treatments that have been used for this condition since the mid-1980s. However, neither of these treatments is effective in most patients (response rates are typically only 1015%), and both rarely result in prolonged responses. Interferon alpha has shown only a modest increase in survival (1.5-5.5 months). While some patients on highdose IL-2 have had responses lasting 2+ years, the regimen is very toxic and is in fact associated with a 4% treatment-related death rate. Because high-dose IL-2 is so toxic and requires intensive supportive care, only those patients with very high performance status are generally considered for it, leading to use in only about 5% of RCC patients. Lower dose IL-2 regimens, although used, are thought to be much less effective, and use of low-dose forms of interferon alpha is on the decline.
Pfizers Sutent Is Consultants First-Line Agent Of Choice

Sutent (sunitinib) is an oral tyrosine kinase inhibitor that inhibits signaling through platelet-derived growth factor receptor (PDGFR), KIT, FLT3, and VEGFR. Sutent was approved in January 2006, and is indicated for the treatment of advanced renal cell carcinoma (RCC), as well as for the treatment of GI stromal tumors in patients intolerant of or refractory to Gleevec. Our consultants have a clear preference for Sutent as their first-line agent in renal cancer. They use Sutent in 75-80% of their first-line stage III/IV renal patients and believe that the data clearly suggest that Sutent is the more potent agent in these patients. Our experts think that, based on its proven efficacy and safety profile, Sutent is well entrenched as a first-line agent and will remain the favored therapy for the
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foreseeable future. They suggest that Avastins IV delivery and familiarity to physicians will allow it to take a minority share of the first line. Nonetheless, they expect Sutent to continue to be considered standard of care by most, and to therefore continue to used in the vast majority of patients. A Phase III trial of Sutent in the adjuvant setting is ongoing. Our consultants lack conviction that the trial will be positive, although suggest it is possible. Based on its Phase III data and their experience with the compound they think it is very potent, and therefore are hopeful that the trial could hit its endpoints. Nonetheless, they have some skepticism that any anti-VEGF or anti-angiogenesis therapies will be effective in the adjuvant setting. None of our consultants currently use Sutent as an adjuvant therapy today. We believe that the combined WW opportunity for Sutent in multiple cancers may be $1.06B in 2009, $1. 7B in 2012, and $2.3B in 2015.
Sutent Phase III Program (number of trials)
Adjuvant Breast cancer NSCLC GU CRC Other GI
1st Line Metastatic 2
2nd Line Metastatic 2 1 1(HRPC)
2(RCC) 1 1(HCC)
1(NET)
Phase III Data Solidify Sutents Position As A Preferred First-Line Agent The Phase III trial enrolled 750 patients with untreated clear-cell metastatic renal cell cancer. Patients were randomized to receive either Sutent (50mg orally once per day for 4 weeks, followed by 2 weeks off, every 6 weeks) or alpha-interferon (9MU via subcutaneous injection three times per week). The primary endpoint of the trial was progression-free survival, and secondary endpoints included response, survival, and safety. In the trials primary endpoint, Sutent produced a median progressionfree survival of 11 months, vs progression-free survival of 5 months for IFN, p<0.000001. The hazard ratio for progression was 0.415 in favor of Sutent. By independent review, and according to RECIST criteria, Sutent produced a 31% partial response rate, vs a 6% partial response rate for alpha-interferon, p<0.00001. Median overall survival had not been reached in the trial as there had been only 114 survival events. Nonetheless, the survival hazard ratio was 0.65 in favor of Sutent (p=0.0219). While this did not meet the prespecified criteria for statistical significance, it was a strong trend. Sutents toxicity is manageable. More patients withdrew from the study in the interferon arm (13%) than the Sutent arm (8%) for an adverse event. The major laboratory abnormality was neutropenia (12% of Sutent patients vs 7% of interferon patients had grade 3/4 neutropenia). Fatigue, a side effect that has been associated with Sutent in the past, was lower in the Sutent arm (7% grade 3/4 vs 11% for Interferon). Grade 3/4 diarrhea was modestly higher in the Sutent arm (5%) than the interferon arm (0%). Two Year Survival Analysis Misses P-Value But Unlikely To Change Use The final survival analysis was presented at ASCO 2008. The results demonstrated a median overall survival of 26.4 months for patients in the Sutent group, compared
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to 21.8 months in those patients taking IFN- (p=0.051, Log-rank). The median overall survival for patients who did not crossover from IFN- to Sutent was 26.4 months with Sutent, versus 20 months with IFN- (p=0.0362, Log-rank). The median overall survival for patients who received protocol therapy only, and no subsequent therapies, was 28.1 months with Sutent versus 14.1 months with IFN- (p=0.0033, Log-rank). Sutent was associated with a significant improvement in objective response rate (ORR), a measurable response in tumor size, compared with IFN- (47% vs. 12%). Our consultants do not believe that these data will change their use of Sutent as a first-line therapy, and suggested the data are largely of academic interest.
Pfizers Axitinib A Powerful Sutent Follow-On

Our physician consultants are intrigued by PFEs axitinib, and believe it is positioned as a powerful Sutent follow-on. At ASCO 2005, Pfizer presented data from a singlearm 52-patient Phase II trial of axitinib (AG-013736) in renal cancer. Axitinib produced a classical partial response in 46% of patients, while an additional 38% of patients had tumor shrinkage. At ASCO 2007, data on axitinib in 62 patients with metastatic RCC who had failed a sorafenib-based therapy were presented. Partial response and stable disease were achieved in 21% and 34% of patients, respectively. Axitinibs most prevalent adverse events are diarrhea and hypertension. Pfizer recently began a Phase III head-to head superiority study vs. Nexavar as a second-line agent (Sutent failures). 540 patients will be enrolled in this trial with a primary endpoint of PFS and secondary endpoints of OS, CR, and safety. Our consultants note that the trial just opened for accrual, and therefore expect it to take another 18-24 months to fully recruit patients. They therefore expect data from the trial in 2011 or early 2012. Based on its Phase II data, our consultants think Axitinib has a good chance of demonstrating superior efficacy to Nexavar in the trial and expect that if successfully developed Axitinib would take significant share from Nexavar. However, while physicians are convinced of Axitinibs efficacy, they are less convinced of Axitinibs safety. They note that Axitinib has produced a hypertension signal in its early trials, and think it is possible that that signal could be more pronounced in a larger Phase III. They think that hypertension could limit the use of the drug, and therefore Axitinibs true potential will not be known until the full Phase III data are available
Onyx/Bayers Nexavar Approved For Renal Cancer

Onyxs Nexavar (sorafenib) is a small-molecule, orally available inhibitor of raf kinase that was approved for advanced kidney cancer in December 2005. While Nexavar's trials were almost exclusively in patients who had been on prior systemic therapy, Nexavar's label indicates it for all patients with advanced renal cell cancer. Nexavar is priced at $6,209 per month, or about $31,000 for a five-month course of therapy. We estimate 2013 WW Nexavar sales in renal cancer of $105MM in the U.S. and $300MM in Europe. Nexavar Demonstrated A Striking PFS Improvement In Renal Cancer At ASCO 2005, Dr. Bernard Escudier of the Gustave-Roussy Institute in Paris presented the results of Onyx and Bayers pivotal SPA-supported Phase III trial in
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patients with unresectable and/or metastatic renal cell cancer who had failed at least one prior systemic therapy. This trial was an international, multicenter study that tested Nexavar vs placebo in 769 people of ECOG performance status 0-1 who had received one prior systemic therapy for advanced renal cell cancer. Patients received either Nexavar 400mg twice per day or placebo with best supportive care. Improvement in survival was the primary endpoint of the trial, while secondary endpoints included time-to-disease progression, overall response rate, safety, quality of life, and the pharmacokinetics of Nexavar. Nexavar doubled median progression-free survival (PFS) compared to placebo (24 weeks vs 12 weeks, hazard ratio Nexavar/placebo = 0.44; p<0.00001). In addition to doubling median PFS, the 12-week progression-free rate was also improved (79% for Nexavar, 50% for placebo). PFS was improved in all patient subgroups analyzed, including stratifications by age, Motzer score, site of metastases, and time from diagnosis. On the heels of these data, the study was unblinded and all placebo patients were put on therapy because of the compelling PFS benefit. Nexavar appeared to be a very safe and well tolerated therapy in this Phase III trial. Hand-foot rash was the only grade 3 adverse event that was recorded in 5% of patients, while all other grade 3 adverse events (including hypertension, fatigue and diarrhea) were recorded with 2% incidence or less. Drug-related adverse events (all grades) for Nexavar vs placebo included rash (34% vs 13%), diarrhea (33% vs 10%), hand foot skin reactions (27% vs 5%), fatigue (26% vs 23%) and hypertension (11% vs 1%).
Nexavar Widely Used In Refractory Patients, But Share Gradually Eroding

According to our physician consultants, Nexavar has been widely used in RCC since the early days of its launch. However, the subsequent approvals of PFEs Sutent and WYEs Torisel have eroded its share. Whereas shortly after its launch all patients received Nexavar at some point during their treatment, our consultants suggest today about 40% of patients probably see Nexavar. Nearly all of this use is in the refractory setting as only a small minority of patients (<5%) get Nexavar in the first line. Moreover our consultants believe that some of the newer entrants are more potent than Nexavar, leaving it susceptible further share loss in the future. In particular, Novartis Afinitor has a Q1:09 PDUFA. Our consultants expect it to be approved, and think its data position it as the second line agent of choice. They also expect the eventual approvals of DNAs Avastin, and GSKs pazopanib to provide other options to Nexavar. In addition to the approvals of competitors, physicians have highlighted two upcoming data releases as potential catalysts for share decline. First, they expect the publication of Nexavar's failed Ph. II front line study vs IFN sometime over the next several months. Data from the trial were first disclosed in late 2006. It was a head-tohead Phase II trial of Nexavar against interferon in the first-line treatment of renal cell cancer. The trial enrolled 189 patients, and its primary endpoint was progression-free survival. Based on the first 121 progression events, interferon and Nexavar had almost exactly the same PFS (5.6 months vs. 5.7 months, respectively). While this data has been presented at prior medical meetings, they expect its publication to spur a wider group of physicians to question Nexavars potency.
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Second, they think the share loss will be exacerbated in 18-30 months by the release of the data from Axitinib's Ph. III head to head trial vs Nexavar, which they generally expect will demonstrate that Axitinib is more potent than Nexavar. Our consultants suggest Nexavars share outside of the U.S. has probably held up somewhat better than in the United States and believe its early entry in the space provides a higher barrier to competition in these territories. They suggest that physicians outside of the United States are somewhat less data driven and perhaps more loyal to drugs with which they have become comfortable.
Nexavar Disappoints As A First-Line Treatment

Results from a Phase II trial of Nexavar head-to-head against interferon in the firstline treatment of renal cell cancer (announced in 2007) are limiting Nexavars use in the first line. The trial enrolled 189 patients, and its primary endpoint was progression-free survival. Based on the first 121 progression events, interferon and Nexavar had almost exactly the same PFS (5.6 months vs. 5.7 months, respectively). Sutent produced a PFS benefit over interferon (11 months vs. 5 months) in its Phase III trial head-to-head against interferon in the first line, and therefore these data would seem to corroborate consultants opinion that Sutent is a more potent firstline drug.
Wyeths Torisel Rolling Out For Renal Cell Carcinoma

Torisel (CCI-779), a selective mTOR inhibitor and related to Rapamune, is rolling out for advanced renal cell carcinoma (RCC) in the U.S. and in the E.U. Results presented at ASCO 2006 from a Phase III study in 662 severely refractory RCC patients demonstrated statistically significantly improved overall median survival with Torisel (10.9 months) vs. Torisel + alpha-interferon (8.4 months) or alpha interferon alone (7.2 months). Torisel also resulted in statistically superior progression-free survival vs. IFN alone. Rash, peripheral edema, hyperglycemia, and hyperlipidemia were more common in the Torisal group, whereas asthenia was more common in the interferon group. There were fewer patients with serious adverse events in the Torisel group than in the interferon group (P=0.02). Given its different mechanism of action, our physician experts believe that Torisel likely will be used second line in combination with Bayer/Onyxs Nexavar after Pfizers Sutent has failed or as third-line therapy. In addition, our consultants use Torisel in 5-10% of their first line patients. This represents the high-risk patients and the non clear cell papillary carcinoma tumor types. In May 2008, Wyeth announced the initiation of a Phase IIIb open-label study (INTORACT) comparing Torisel plus Avastin versus Avastin plus interferon in firstline treatment of advanced RCC. Our consultants are not convinced that Torisel plus Avastin will demonstrate a significant difference over Avastin plus interferon and are concerned that such a combination would be prohibitively expensive if approved. In February 2008 Novartis stopped a Phase II mRCC trial with its oral mTOR inhibitor RAD001 (Afinitor) because of a significant progression free survival benefit. The results of this study, RECORD-1, were presented at ASCO 2008 and Novartis filed these data in H2:08. RAD001 is likely to be a significant threat to Torisel given its effectiveness and oral dosing. Torisel has also been studied in numerous other tumor types with clinical responses observed in glioblastoma (36% PR as a single
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agent). Results from a Phase III trial in relapsed and/or refractory mantle cell lymphoma (MCL) demonstrated a statistical significant improvement in median PFS compared to single agent therapy (4.8 months versus 1.9 months p=0.0009). There was a non-significant trend to overall survival. MCL accounts for 6% of non-Hodgkin lymphoma cases. The Phase III HORIZON breast cancer study of Femara +/-Torisel was stopped in March 2006 due to lack of efficacy. We forecast Torisel sales of $150MM in 2009, $225MM in 2012, and $300MM in 2015.
Novartis Afinitor Should Be First Agent Approved In SutentRefractory mRCC

RAD-001 is an oral once-a-day mTOR inhibitor that recently successfully completed a Phase III trial. Full results from the trial were presented as a late-breaker at the 2008 ASCO meeting. The pivotal trial was a randomized, double-blind, placebocontrolled study in 400 patients who had failed Nexavar, Sutent, and/or Avastin. In February 2008, the trial was stopped early by an independent review board. The trials primary endpoint was progression free survival, and it was increased from 1.9 month in the placebo arm to 4.0 months in the RAD-001 arm (HR = 0.30, p<0.0001). Secondary endpoints like OS and RR were not hit with statistical significance. The most prominent side effects were mouth sores, weakness, and rash Our physician consultants have strong conviction that Afinitor will be approved by its Q1:09 PDUFA date. The consultants do not believe there are any efficacy or safety concerns that should hold up an approval. Afinitor will be the first drug approved for Sutent failures, providing a commercial advantage. They expect it will be quickly adopted as the standard of care second line therapy, and expect it will be used for a median of three to four months in this setting. Afinitor is particularly attractive to physicians who use a TKI (Sutent or Nexavar) upfront and prefer to use a different mechanism of action in the 2nd line (eg a mTor inhibitor). However, Afinitor may face several hurdles: 1) Major academic institutions are currently enrolling their 2nd line patients into clinical trials and are unlikely to put patients on Afinitor; 2) Many oncologists prefer patients to be on intravenous rather than oral therapy because of reimbursement and compliance concerns. This could potentially create an opportunity for Wyeths Torisel to be used in lieu of Afinitor, especially given that our consultants view these drugs as interchangeable; and 3) Should Avastin be approved for first line, physicians would have the option to try a TKI in the 2nd line and only afterwards consider an mTOR inhibitor, likely Afinitor. Our consultants are conservative about the role of any agent in the neoadjuvant setting and believe the mTOR inhibitors are less likely to demonstrate tumor reduction than the TKIs and therefore unlikely to succeed. The physicians believe that Novartis Phase II head-tohead study versus Avastin in the 2nd line is likely to be underpowered and therefore unlikely to produce meaningful data. Novartis is studying Afinitor in multiple tumor types and should file for NET indication in H2:09. We estimate Afinitor sales of $80MM in 2009, $250MM in 2012, and $400MM in 2015.
Avastin, If Approved, Could See Some 1st And 2nd Line Use
In December 2006, Genentech and Roche announced that the 649-patient AVOREN trial in renal cell carcinoma (RCC) met its primary endpoint of improved progression free survival (PFS) for Avastin+interferon alpha versus interferon alpha monotherapy. Full data were presented at ASCO 2007, and indicated that patients receiving Avastin plus IFN-alpha experienced a 59% improvement in PFS (based on a hazard ratio of 0.63) vs. patients receiving IFN-alpha alone. Patients in the Avastin+IFN arm had a median PFS of 10.2 months vs. 5.4 months for patients who
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received IFN-alpha monotherapy (p<0.0001). The tumor response rate was 31% (95/306) in the Avastin+ IFN-alpha arm vs. 13% (37/289) in the IFN-alpha monotherapy arm. Adverse events reported in the study were similar to those previously reported for IFN-alpha and for Avastin. An early analysis of overall survival (secondary endpoint) indicated a trend towards improvement for Avastin+IFN-alpha. Full survival data may become available in 2009. Avastin has been approved for use in RCC in Europe and Genentechs sNDA for U.S. approval has an August 1 PDUFA date. Our consultants believe that its likely, although not certain, that the FDA will approve Avastin for the treatment of RCC. The FDA will likely carefully review 1) recently collected, and independently reviewed radiographic data to confirm the reported PFS benefit, and 2) integrated safety data. Our specialists believe that IFN is very toxic and that the FDA will want to ensure that the benefits of the combination of Avastin+IFN-alpha outweigh the higher adverse event rate. Other issues the FDA might consider are whether it was appropriate for Genentech to change the primary endpoint of AVOREN from OS to PFS. FDA generally does not approve of such an action, but our consultants think FDA would be setting an unusually high bar if it were to require OS data for approval (other RCC therapies have been approved on PFS). Another issue our consultants have raised is whether the FDA will specifically state in the label that Avastin should be used only in combination with IFN-alpha. One specialist in particular believes that if he were working at the FDA he would label Avastin to be used only in combination with IFN-alpha since thats how the pivotal trials were conducted. Such a label could restrict usage based upon physicians distaste for IFN-alpha. Our consultants believe that if Avastin is approved, physicians will use it as a second- and potentially first-line therapy. They estimate that approximately 25% to 33% of patients could see Avastin during their treatment. Reasons to believe Avastin will capture some share if the U.S. RCC market include 1) community physicians will likely use it as a monotherapy irrespective of its label, 2) oncologists are already familiar with Avastins attributes, 3) Avastins intravenous delivery ensures compliance and provides more favorable economics to the physician, and 4) Genentech is very savvy at marketing Avastin. We model 2009 and 2013 U.S. Avastin sales in RCC of $35MM and $61MM respectively.
GSKs Pazopanib Is A Mystery

Pazopanib is GSKs oral, once-daily angiogenesis inhibitor targeting multiple tyrosine kinases including VEGFR, PDGFR and c-kit. A Phase II study of pazopanib was conducted in 225 treatment-nave patients with locally recurrent or metastatic renal cell carcinoma. The trial was stopped early for positive efficacy at its interim analysis, and the final results from the trial were presented at the annual ASCO 2008 meeting. Pazopanib resulted in an overall response rate (CR + PR) of 34.7%, and median progression free survival of 11.9 months. The most prominent adverse events were diarrhea, hair color changes, and hypertension. In December 2008, GSK filed a NDA for pazopanib as a first-line treatment for metastatic RCC. Assuming priority review, pazopanib could be approved and on the market in H2:09. The filing was based on the Phase II data and a randomized doubleblind placebo-controlled Phase III monotherapy trial. As the Phase III data have not yet been publicly disclosed, pazopanib remains somewhat of a mystery to our consultants. They expect to see the full Phase III data at the 2009 ASCO meeting, and to develop a more informed opinion at that time. Nonetheless, based solely on the Phase II data, the consultants are skeptical that pazopanib could replace Pfizers
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Oncology/Hematology
Sutent as the first line agent of choice. They note that Sutent is well-entrenched as the first-line agent and are skeptical that the Phase III will conclusively suggest any efficacy or safety benefits of pazopanib. Over the long haul, pazopanib could be more of a threat to Sutent if its ongoing Phase III head-to-head trial versus Sutent in the first-line setting can provide compelling data. This 876-patient trial will have a primary endpoint of PFS and secondary endpoints of OS, ORR, time to response, and duration of response. Our consultants think it is unlikely that pazopanib will prove to be more efficacious (the trial is not powered for superiority) and so the most likely differentiator would be its safety profile. We estimate 2009 and 2015 pazopanib worldwide sales of 25 and 175.
Physicians Less Excited About Other Therapies In Development

Our consultants are generally unimpressed with the pipeline of other agents in development for the treatment of metastatic RCC, in part because of a lack of data. However, one therapy that has caught their attention is Aveos AV-951, a VEGFreceptor tyrosine kinase inhibitor Our consultants think that AV-951 is a very potent TKI. AV-951 is currently in a 200-patient Phase II trial with primary endpoints of PFS, ORR, and safety. Data are expected in mid:2009. The physicians suggest that its possible that AV-951 could demonstrate an incremental improvement in efficacy, but both are worried that its safety profile could be incrementally worse, given the potency of TKIs go hand-in-hand with the severity of adverse events. Therefore their initial impression is that AV-951 is unlikely to be more than an incremental improvement over the preceeding TKIs. As both Keryxs Perifosine and Sanofi/Regenerons VEGF-Trap have been in development for many years, but have yet to produce compelling efficacy data in RCC, our consultants are skeptical that either will have a place in treatment. While they think it possible that VEGF Trap (starting a 120-patient Phase II soon) could be comparable to Avastin, its unclear to them what role it will play as it will be launched, in the best case, several years after Avastin.
Ariads Deforolimus In Phase III For Sarcoma

Deforolimus (AP23573) is Ariads mTOR inhibitor that is being evaluated in the clinic for sarcoma, metastatic breast cancer, endometrial cancer, and prostate cancer. Ariad is pursuing sarcoma as an initial registration path, and has received fast-track designation from the FDA. Sarcoma is cancer of the connective tissue, may arise from either bone or soft tissues, and can develop anywhere in the body. In the U.S., there are about 12K new cases of sarcoma each year. While a small market, this indication is an unmet medical need as the efficacy of current therapies is lackluster for early disease, and there are no good therapies for advanced soft-tissue sarcomas or refractory bone sarcomas that have metastasized. Therefore, any agent that shows benefit in this disease would likely be well received by regulatory agencies. In addition to other clinical studies, intravenous Deforolimus has been studied in a Phase II trial as a single agent in multiple sarcoma types. Final data from this trial were presented at the 2006 ASCO meeting, in which 29% of 212 evaluable patients treated with Deforolimus overall exhibited a clinical-benefit response (tumor regression and/or disease stabilization). In three of the four sarcoma subgroups in the trial (bone sarcoma, leiomyosarcoma, liposarcoma), Deforolimus resulted in a
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Oncology/Hematology
CBR of 25%, therefore achieving the trials primary endpoint in those three groups. An expanded analysis of the 61 patients with a clinical-benefit response determined that they had a 6-month PFS rate of 70% and a median PFS of 36 weeks. Deforolimus was well tolerated, The most frequent adverse events were oral mucositis, rash, fatigue, nausea and hypertriglyceridemia. These were generally mild to moderate in severity and readily reversible, with a low rate of Grade 3/4 toxicities, the most frequent being anemia (6%). Altogether, this Phase II trial demonstrated a six-month progression-free survival rate of 24%, with a median PFS of 15 weeks, suggesting that AP23573 resulted in PFS more than double that of historical control.
Deforolimus Phase II Results In Sarcoma
Sarcoma Group Bone sarcoma Leiomyosarcoma Liposarcoma Other soft-tissue sarcomas Overall
1 2
No. of Patients 542 57 44 57

3
Clinical Benefit Response1 30% 33% 30% 23% 29%
6-month PFS 25% 22% 25% 23% 24%
Median PFS (weeks) 16 16 15 15 15
212
Fishers Exact Test. No significant differences among groups. 4 PRs 3 1PR Source: Company data
In September 2007, Ariad and Merck announced that they secured a Special Protocol Assessment (SPA) with the FDA for deforolimuss Phase III. The double-blind 650patient SUCCEED trial opened enrollment in late Q3:07. It is evaluating deforolimus as a maintenance therapy in metastatic sarcoma patients who have had a favorable response to prior chemotherapy. Patients will be randomized to receive oral deforolimus or placebo. The trial is 90% powered to detect a 33% increase in median PFS. The trial will have two interim analyses, and both are expected to take place within about two years. The first interim analysis is expected to occur early in 2009, and is triggered once the first 1/3 of the trials expected progression events occur (although Ariad has not decided whether it will disclose results from the first interim look). Although the Phase II was conducted in patients who had relapsed after chemotherapy, Ariad believes that patients in the maintenance setting may be less challenging to enroll, since most currently receive no therapy after a successful course of chemotherapy. The Phase III trial is being conducted in collaboration with the Sarcoma Alliance for Research through Collaboration (SARC) and EORTC, which should facilitate both U.S. and E.U. enrollments. Ariad expects that the trial will take about two years to enroll.
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Oncology/Hematology
U.S. ONCOLOGY/HEMATOLOGY MARKET

Total Prescriptions (000's) % Market Share 2008 2009E 2013P 1987* 2008 2009E Chemotherapeutics 25,394 27,000 33,000 100% 68% 68% Chemopreventives 10,222 11,000 15,500 27% 28% Blood Cell 1,930 2,000 2,500 5% 5% Total 4,574 37,546 40,000 51,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates 1987* 4,574 CGR 2013P '87-08 '08-13 65% +9% +5% 30% NA +9% 5% NA +5% 100% +11% +6%
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company AstraZeneca Dainippon Sumitomo GlaxoSmithKline Zunrisa/Rezonic May-08 Product Iressa SM-11355 PC I II III NDA May-08 . MKT Comment EGFR-TK inhibitor; NSCLC; EU Miraplatin hydrate; hepatocellular carcinoma Casopitant (679769); NK1 antagonist; chemotherapy and vomiting Johnson & Johnson Johnson Sanofi-Aventis Fasturtec/Elitek . Rasburicase; malignancy/chemotherapyWatson Pharmaceuticals Wyeth Bayer Schering Pharma Mylotarg Bonefos . . . Relapsed AML, IV formulation; Europe Prevention of bone metastases in patients with breast cancer; filed in U.S.; PIII in Germany Bristol-Myers Squibb Ixempra . Sep-07 Ixabepilone; epothilone; lung, form; negative opinion from prostate, pancreas, renal; oral CHMP in Europe - BMY submitted request for re-examinion of the opinion; 12/07 in Japan Chugai EPOCH (epoetin beta) . Mar-02 Predeposit of autologous blood transfusions; subcutaneous induced anemia Eli Lilly Alimta . . . injection; PIII for chemotherapyThymidylate synthetase inhibitor; multi-targeted antifolate; Trelstar . Nov-08 Advanced prostate cancer associated hyperuricemia; Japan Johnson & Doxil (doxorubicin) Yondelis Sep-08 Nov-08 Filed In U.S. for metastatic breast cancer Relapsed ovarian cancer induced & postoperative nausea
947
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Product PC I II III NDA MKT Comment intravenous; similar to 5-FU and UFT; filed in U.S. and EU for NSCLC maintenance; locally GlaxoSmithKline Arzerra . Jan-09 advanced NSCLC, head/neck (PIII) Ofatumumab; high affinity, fully human monoclonal antibody; filed in U.S. and EU for refractory chronic lymphocytic leukemia; PII for relapsed refractory CLL, relapsed diffuse large B cell lymphoma Nektar Therapeutics Mircera . Apr-06 CERA (Continuous Erythropoiesis Receptor Activator); anemias; approval in E.U. for dialysis with Roche; recommended for indication; cancer indication pegylation Roche Xeloda . . Adjuvant breast cancer; adjuvant and metastatic combination in EU, U.S. Takeda Vectibix . Jun-08 treatment of colon cancer; filed Human MAB against EGRF; filed in Japan for progressive and head and neck cancer; with Amgen Wyeth Wyeth GlaxoSmithKline ReFacto AF Torisel Armala (Pazopanib) . . . . . . Dec-08 Albumin-free version of ReFacto; filed in Europe Temsirolimus (CCI-779); mantle cell lymphoma; filed in Europe VEGF 2 tyrosine kinase inhibitor; solid tumors; filed in U.S. for RCC; PIII for sarcoma and in for NSCLC and colorectal GlaxoSmithKline Promacta/Revolade . . Dec-08 Eltrombopag; thrombopoietin agonist; thrombocytopenia, ITP, short-term ITP indication approved Nov. 2008; filed in EU C, liver disease and long-term relapse colorectal cancer; PIII for PIII for NHL, follicular lymphoma;
filing targeted for 2009; uses
combination with other therapies
December 2008; PIII for hepatitis
948
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Novartis Product Afinitor PC I II . III . NDA Sep-08 MKT Comment ITP RAD001; oral mTOR inhibitor; filed for metastatic renal cell cell tumors & NET; PII solid tumors Roche Avastin . . 2006+ Anti-VEGF monoclonal antibody; filed for metastic breast cancer, recurrent glioblastoma previously treated CNS multiforme, NSCLC with metastases; various PII/III indications; combination ScheringPlough ScheringPlough PEG-Intron . . Temodar . . Jun-08 therapies; with Genentech IV formulation filed for brain tumors; various solid tumors; oral Incorporating Enzons PEG technology; malignant melanoma (filed) and solid tumors (PII), once daily AstraZeneca AstraZeneca Faslodex Zactima (ZD 6474) . . 200910 Anti-estrogen; 1st line advanced breast cancer; adjuvant therapy Anti-angiogenic (vascular receptor tyrosine kinase thyroid cancer AstraZeneca ZD 4054 . 2011 Endothelin A receptor antagonist; hormone resistant prostate cancer Bristol-Myers Squibb Ipilimumab . MDX-010; monoclonal antibody for malignant melanoma, prostate, other solid tumors; definitive 1st line combination with dacarbazine study initiated in June 2006; FDA seeks survival data; with Medarex Bristol-Myers Squibb Dainippon Sumitomo Calsed (SM-5887) . XL 184 . Small molecule inhibitor of MET, VEGFR2 and RET; medullary Small cell lung cancer thyroid cancer; with Exelixis endothelial cell growth factor inhibitor); NSCLC; medullary carcinoma; PIII pancreatic islet
949
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Eisai Eisai Eli Lilly GlaxoSmithKline Product Amolimogene Saforis Gemzar Elesclomol PC I II III . . . . NDA MKT Comment Cervical dysplasia; U.S. Oral mucositis; U.S. Adjuvant breast cancer inducer; metastatic melanoma; Synta Pharmaceuticals GlaxoSmithKline Johnson & Johnson Johnson & Johnson Johnson Merck Nektar Therapeutics Novartis PKC412 . 2011 Deforolimus Hematide . . 2010 2010 2011 Johnson & Procrit/Eprex (EPO) Velcade . . MAGE A3 Dacogen . . 200910 Recombinant; treatment of lung cancer; NSCLC, melanoma Injectable; AML and myelodysplastic syndromes; PIII in EU Extended dosing for chronic kidney disease PIII for non-Hodgkins lymphoma, 1st line mantle cell lymphoma; sub-Q formulation with ARIAD MK-8669; cancer; collaboration Takeda/Affymax; erythropoietin receptor activator; uses pegylation Tyrosine protein C kinase inhibitor; first positive results from pilot trial in advanced phase AML Novartis SOM230 . 2010 2nd generation Sandostatin; PIII for Cushing's disease, Novartis Novartis Roche Roche Roche Tasigna Zometa Epogin Herceptin MABTHERA/Rituxan . . . . . 2009 2009 200910 2010 Adjuvant breast cancer; PIII for colon cancer Chemotherapy-induced anemia; with Chugai; Japan Metastatic gastric cancer CLL (1st line); indolent NHL; aggressive NHL; chronic lymphocytic leukemia; with Genentech/Biogen Idec; failed in SLE (4/08) Roche Tarceva . 2009+ Various solid tumors; in-licensed from OSI; combination therapy, 1st line and adjuvant NSCLC
950
STA-4783; oxidative stress
acromegaly; GEP tumors . GIST; frontline CML with Gleevec
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Roche Sanofi-Aventis Sanofi-Aventis Product TNKase Alvocidib (HMR PC I II III . . . 2010 2011 NDA MKT Comment Catheter clearance; with Genentech 1275) Cyclin-dependent kinase inhibitor; CLL Combretastatin analog; vascular disrupting agent; sarcoma; in collaboration with Ajinomoto Sanofi-Aventis Sanofi-Aventis Taxotere TroVax . . 2009 1st line advanced renal cell carcinoma; Data Safety Phase III TRIST study Monitoring Board (DSMB) for recommended that the trial Tubulin inhibitor; PIII pediatric
AVE-8062
should continue, but that further vaccinations to be discontinued; with Oxford Biomedica Sanofi-Aventis Xaliproden (SR57746) . 2009 Neurotrophic; antimitoticfiling) Takeda Teva AMG706 Stem Ex . . Oral VEGFR-3 inhibitor; progressive NSCLC; with Amgen hemato-oncological indications;
induced neuropathies (2009
Umbilical cord blood stem cells; with Gamida-Cell
AstraZeneca
Recentin (AZD 2171)
201013
Anti-angiogenic (vascular receptor tyrosine kinase
endothelial cell growth factor inhibitor); NSCLC (PII); CRC, recurrent glioblastoma (PIII)
Bayer Schering Pharma
Nexavar
Raf kinase inhibitor (non-
cytotoxic); approved for renal cell and liver cancer; PIII in 1st line melanoma, NSCLC; PII for other cancers
Bayer Schering Pharma
Zevalin
Treatment of diffuse large-B-cell lymphoma (DLBCL) after firstline CHOP-rituximab therapy; PII for 1st and 2nd line aggr. NHL
Tanespimycin
Multiple myeloma as
monotherapy or in combination with Velcade (PIII); HER2-positive metastatic breast cancer in combination with Herceptin;
951
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Daiichi Sankyo Eisai Product Nimotuzumab (DE766) Dacogen . . Q4:08 PC I II . III . NDA MKT Comment from Kosan Biosciences Monoclonal antibody targets tumors expressing EGFR Treatment of advanced myelodysplastic syndromes (MDS, Q4:08E filing), acute and chronic myelogenous myelogenous leukemia (AML) leukemia (CML); PII for treatment of advanced renal cell carcinoma (RCC) in combination with interferon alfa-2b Eisai E-7389 . . Tubulin polymerase inhibitor; PIII for breast cancer; PII for NSCLC, prostate cancer, sarcoma Eli Lilly Enzastaurin . . 2013 Non-Hodgkin's lymphoma, diffuse large B-Cell lymphoma in Phase III; hematologic malignancies; glioblastoma, prostate and ovarian in PII; oral; granted orphan drug designation in EU Eli Lilly GlaxoSmithKline Erbitux Tykerb . . . . . Multiple indications in PII/III development; via ImClone Lapatinib; Erb-B2 and EGFR dual kinase inhibitor; approved for breast cancer; in PII/III targets PKC beta expression;
development for lung, bladder, gastric, head and neck, brain mets with breast cancer and inflammatory breast cancer; cancer Novartis ASA404 . . 2011 Treatment of non-small cell lung cancer (NSCLC), prostate; with Antisoma; ovarian cancer failed Novartis Novartis EPO906 Exjade . . . . 2010 . PIII for ovarian cancer Oral tablet for iron overload; PIII for porphyria cutanea tarda; PII hereditary hemocromotosis Novartis Gleevec . . GBM and non-oncology
metastatic NSCLS and colorectal
indications including IPF & PAH
952
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Novartis Product LBH589 PC I II . III . NDA 2010 MKT Comment Histone deacetylase inhibitor; PIII for cutaneous T-cell lymphoma; PII for solid & liquid tumors Novartis Pfizer, Inc. RAD001 CP-751871 . . . . 2009> PII for solid tumors PIII for NSCLC; PII for genitourinary, GI, breast cancer, Ewing's sarcoma; biologic Pfizer, Inc. Sutent . . VEGFR angiogenesis inhibitor; pan kinase inhibitor; PIII for breast, colorectal, hepatocellular, lung and prostate; PII for gastric cancer Roche R1273 (Omnitarg) . . >201012 Roche Sanofi-Aventis R1415 + R435 combo Aflibercept . . . . 2008 Solid tumors; ovarian cancer; PIII for metastatic breast cancer; HER2+ EGFT TK1 and anti-VEGF Mab; NSCLC 1st line AVE-0005; VEGF-Trap, solid tumors; single agent/combo; with Regeneron Sanofi-Aventis Sanofi-Aventis Takeda Wyeth Larotaxel (XRP9881) XRP6258 Velcade Bosutinib . . . . . . 2010 . . 2009 Taxoid; tubulin inhibitor; breast, pancreatic; PII early breast cancer Taxoid; tubulin inhibitor; PIII prostate; PII breast Proteasome inhibitor; PII for follicular NHL; PII other tumors inhibitor; PIII CML; NSCLC; PII breast cancer Wyeth CMC-544 . . Inotuzumab ozogamicin; calicheamycin (toxin that binds to cancer cells) conjugate for follicular lymphoma; PIII study in diffuse large B-cell lymphoma P3 study for treatment of enrollment Eli Lilly IMC-1121B . . . planned for 2010; discontinued follilcular lymphoma due to slow Human anti-KDR/VEGFR2; PIII in breast cancer; PII for RCC, malignant melanoma and liver
953
PIII for Neuroendocrine tumors;
SKI-606; cell signaling pathway pancreatic and colorectal cancer;
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Novartis Product EPO906 PC I . II . III . NDA 2010 MKT Comment cancers; via ImClone Epothilone; stabilize microtubules; IV bolus; broad activity; PIII ovarian cancer; PII solid tumors; PI for combination therapy Takeda Hematide . . . Synthetic, peptise-based erythropoiesis-stimulation agent; chronic kidney disease, cancerrelated anemia; with Affymax Enzon Abbott Abbott PEG-Intron ABT-263 ABT-510 . . . . Malignant melanoma, solid tumors; with Schering-Plough Laboratories Laboratories Abbott Restores apoptosis; various cancers; with Genentech Anti-angiogenesis; head and neck, lung, kidney, sarcoma, lymphoma Laboratories Abbott ABT-751 . Anti-mitotic agent; formerly E kidney, metastatic prostate Laboratories Astellas Astellas AstraZeneca ABT-869 ASP1517 ASP3550 AZD 0530 . . . . Kinase inhibitor; NSCLC, carcinoma; with Genentech HIF stabilizer; renal anemia, Degarelix; GnRH receptor antagonist; prostate cancer SRC kinase inhibitor; solid malignancies AstraZeneca AstraZeneca AstraZeneca AstraZeneca Bayer Schering Pharma Bayer Schering Pharma Daiichi Sankyo Sagopilone ARQ 197 . . ZK-EPO; lung, ovarian, breast and prostate cancer Treatment of advanced NSCLC, microphthalmia transcription (MiT) factor associated tumors;
954
7010; colorectal, breast, lung,
chemotherapy-induced anemia
tumors and hematological
AZD 1152 AZD 2281 AZD 4877 AZD 6244 Lonaprisan
. . . . . 2014 2012
Aurora kinase inhibior; hematological malifnancies PARP inhibitor; breast, ovarian cancer Cell cycle agent; hematological malignancies MEK inhibitor; solid tumors ZK-PRA; breast cancer
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Product PC I II III NDA MKT Comment pancreatic cancer; PI for advanced refractory solid tumors and multiple metastatic tumors Daiichi Sankyo Dainippon Sumitomo Eisai Eisai Eisai Eisai Eisai Eli Lilly Eli Lilly CS-1008 AG-7352 AKR-501 E-7820 Irofulven MORab-003 MORab-009 Anti-CD20 Ab IMC-11F8 . . . . . . . . . Anti-neoplastic antibody (antiDR5 antibody) TOPO V inhibitor; with Sunesis Pharmaceuticals Thrombocytopenia; U.S. Colon cancer Prostate cancer; U.S. Ovarian cancer Pancreatic cancer Non-Hodgkins lymphoma Human anti-EGFR; metastatic colorectal cancer; EU; via ImClone Eli Lilly Eli Lilly IMC-A12 LY2181308 . . Human anti-IGFR1; breast cancer; via ImClone Survivin ASO (antisense oligonucleotide); solid tumors and lymphomas; Phase II for liver, prostate and acute Eli Lilly Tasisulam .
myelogeneous leukemia; HCC ASAP; solid tumors: NSCLC, melanoma, ovarian, soft tissue sarcoma Enzon GlaxoSmithKline Hematide 1363089 . . 2009 2010 Takeda/Affymax; erythropoeitin receptor activator C-met kinase inhibitor; papillary renal cell carcinoma, gastric cancer and head & neck GlaxoSmithKline Medivation 184072 MDV-3100 . . squamous cell carcinoma SIRT1 activator; colon and hematologic cancers Hormone refractory and
hormone sensitive prostate cancer; licensed via UCLA
Merck
MK-0646
Treatment of metastatic
neuroendocrine tumors (NET); recurrent non-small-cell lung with erlotinib cancer (NSCLC) in combination
955
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Merck Merck Product MK-2866 Zolinza PC I II . . 201011 III NDA MKT Comment Sarcopenia Vorinostat; suberoylanitide hydroxamic acid (SAHA); leukemia, multiple myeloma, breast, colorectal, mesothelioma; via Aton Pharma Myriad Genetics Azixa . Glioblastoma, brain metastases; small molecule tubulin inhibitor and vascular disruption agent Nektar Therapeutics Nektar CDP791 . Pegylated, anti-VEGF antibody fragment for NSCLC; with UCB Pharma Therapeutics Novartis Novartis Novartis Novartis Pfizer, Inc. NKTR-102 AEE788 AUY922 BEZ235 BGT226 Axitinib . . . . . . 2011 2012 PEG-irinotecan; refractory tumor; multiple types Solid tumors Solid tumors Solid tumors Solid tumors VEGFR tyrosine kinase inhibitor; PII for lung, GI, thyroid, breast cancer Pfizer, Inc. CP-675206 . PII for genitourinary, GI, colorectal cancer and melanoma; PII for breast, pancreatic and Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche Roche Roche Roche Roche PF-3512676 PF-4948568 SU-14813 ABT-869 APO2L/TRAIL ARQ501 Mircera/CERA R1507 . . . . . . . . Lung cancer; biologic CDX-110; glioblastoma multiforme VEGFR inhibitor; breast cancer Small molecule; solid tumors; with Genentech Cancer; with Genentech/Amgen E2F modulator; solid tumors; via opt-in with ArQule Chemotherapy-induced anemia IGF-1R inhibitor huMAB; Ewing sarcoma Roche Roche R3502 R3616 . . >2011 Monoclonal antibody; T-DM1; metastatic breast cancer Small molecule; hedgehog metastatic breast cancer, NSCLC, renal cell carcinoma; biologic
pathway inhibitor; cancer; with
956
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Roche Sanofi-Aventis ScheringPlough Plough ScheringPlough Plough ScheringRobatumumab Rolapitant . . Anti-IGF-1R antobody; cancer SCH-619734; prevention and treatment of chemotherapyinduced nausea and vomiting and vomiting (PONV) ScheringPlough Sarasar . Lonafarnib; farnesyl protein transferase inhibitor; treatment pf Hutchinson-Gilford progeria syndrome in patients aged one cancer; solid tumors Takeda CBP-501 . . year and older; advanced breast G2 checkpoint abrogater (Inj.); malignant mesothelioma, lung cancer Takeda Wyeth MLN0518 HKI-272 . . Receptor Kinas inhibitor; glioblastoma, AML Cell signaling pathway inhibitor; irreversible ErbB inhibitor; breast cancer, lung cancer Astellas Astellas Bristol-Myers Squibb Bristol-Myers Squibb Brivanib . . YM-155 YM-311 BMS-599626 . . . . . . Survivin suppressant; cancer HIF stabilizer; renal anemia, chemotherapy-induced anemia ScheringProduct R7159 AVE-1642 CDK Inhibitor CHK-1 Inhibitor PC I II . . . . 2010 III NDA MKT Comment Genentech CD20 HuMab; NHL Anti-IGF; solid tumors Cancer Cancer
(CINV) and postoperative nausea
Pan Her + VEGF kinase inhibitor; cancer; wide range of tumors, including lung VEGFR/FGFR inhibitor; liver
cancer; advanced colorectal, advanced or metastatic solid tumors
Sprycel
Dasatinib; oral multi-targeted kinase inhibitor; solid tumors (prostate, breast); multiple myeloma; CLL; pediatric
indications; first line CML (NDA

957
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Chugai Product MRA PC I . II . III NDA MKT Comment 2010) Treatment of multiple myeloma PII in USA and France; PI in USA lupus erythematodes; anti IL-6 receptor Mab Novartis Novartis Roche HCD122 TKI258 Anti-CD40 . . . . . . >2012 >2012 Liquid tumors Solid and liquid tumors Dacetuzumab; anti CD-40 monoclonal antibody; PII for relapsed diffuse large B cell MM; with Genentech Roche Apomab . . Apoptosis modulator; PII NSCLC, non-Hodgkins' lymphoma; PI colorectal cancer; with Genentech Abbott Abbott Laboratories Astellas Astellas Astellas Astellas AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AGS-16M18 AGS-1C4D4 AGS-8M4 ASP0265 AZD 4769 AZD 6918 AZD 7762 AZD 8055 AZD 8330 AZD 8931 CAT-8015 MEDI-538 . . . . . . . . . . . . Laboratories ABT-828 ABT-888 . . Cancer Restores apoptosis; various cancers Cancer; with Agensys Cancer Cancer; with Agensys Prostate cancer; endometriosis EGFR tyorsine kinase inhibitpr; solid tumors TRK inhibitor; solid tumors CHK1 kinase inhibitor; solid tumors TOR kinase inhibitor; range of tumors MEK inhibitor; solid tumors erbB kinase inhibitor; solid tumors Recombinant immunotoxin; hematological malignancies chain T cell engager (BiTE) lymphoma; PI for NHL, relapsed for Castleman's disease, systemic
Recombinant bispecific singleantibody targeting the CD19 cell lymphoma, excluding
antigen; treatment of indolent B-
958
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Product PC I II III NDA MKT Comment chronic lymphocytic leukemia and non-hodgkins lymphoma with central nervous system Bayer Schering Pharma Pharma Bayer Schering Pharma Bayer Schering Pharma Pharma Bayer Schering Pharma Bristol-Myers Squibb Adnectin/Angiocept . Targeted biologics based on Adnexus acquisition Bristol-Myers Squibb Bristol-Myers Squibb XL 281 . Elotuzumab . Anti-CS1 antibody; multiple myeloma; with PDL BioPharma Small molecule inhibitor of RAF kinase; advanced solid tumor malignancies Chugai Chugai Chugai CIF CK127 GC33 . . . Solid tumors Humanized anti-CD20 monoclonal antibody Humanized anti-Glypican-3 monoclonal antibody; liver cancer Chugai Daiichi Sankyo Daiichi Sankyo Eisai Eisai Eli Lilly Eli Lilly Eli Lilly TP-300 CS-7017 U3-1287 E-7080 E-7974 Eg5 inhibitor elF-4e ASO Gemcitabine . . . . . . . . Topoisomerase I inhibitor; colorectal cancer activator) Anti-neoplastic (PPAR gamma Monoclonal antibodies; treatment of epithelial cancer VEGF receptor; tyrosine kinase inhibitor Cancer Cancer; kamesin inhibitor Solid tumors Oral formulation; prodrug naturally-occurring protein; via P13K inhibitor . Cancer Bayer Schering L19-SIP L19-TNF alpha . . Solid tumors Colorectal cancer L19-Interleukin 2 . Pancreatic cancer, melanoma Bayer Schering DAST Inhibitor Immunoconjugate . . Solid tumors Cancer involvement; from MedImmune
959
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Eli Lilly Eli Lilly Eli Lilly Eli Lilly Enzon Enzon Product IMC-18F1 IMC-3G3 Program TGF Beta Inhibitor PC I . . . (6) . . 2011 2011 II III NDA MKT Comment Cancer; from ImClone Cancer; from ImClone Solid tumors Cancer Cambridge Antibody Technologies/AZN; formerly SS1P irinotecan (PFE's Camptosar); testing in multiple cancers Enzon EZN-2958 . HIF-1 alpha antagonist; various cancers; uses Santaris' Locked Nucleic Acid technology GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline 1120212 461364 923295 Iboctadekin + Doxil . . . . Mitogen-activated protein kinase inhibitor cancer (MEK1/2) Polo-like kinase inhibitor Centromere-associated protein (CENP-E) inhibitor IL18 immunomodulator + topoisomerase ll inhibitor; ovarian cancer inhibitor GlaxoSmithKline Iboctadekin + rituximab GlaxoSmithKline GlaxoSmithKline Merck Merck Merck Merck Merck Merck Merck Merck Merck Merck Merck Mitsubishi Totrombopag (559448) WT1 INS-19 INS-20 MK-0752 MK-1775 MK-2206 MK-2578 MK-4101 MK-4827 MK-5108 MK-8033 V934/V935 MP-412 . . . . . . . . . . . . . . . IL18 immunomodulator + antiCD20 monoclonal antibody; nonHodgkin's lymphoma thrombocytopenia leukemia Neutropenia Neutropenia Cancer Cancer Cancer Follow-on biologic; anemia Cancer Cancer Cancer Cancer Solid tumors Tyrosine kinase inhibitor Thrombopoietin agonist; Treatment of acute myelogenous
Undisclosed CAT-5001 EZN-2208
PEG-SN38; active moiety of
960
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Tanabe Mitsubishi Tanabe Myriad Genetics Nektar Therapeutics Novartis Novartis Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche BHQ880 RAF265 CP-870893 PD-332991 PF-2341066 PF-299804 PF-3446962 PF-3732010 PF-3814735 PF-4217903 PF-477736 PF-4856882 PF-4856884 PF-4929113 PF-562271 3rd generation anti-CD20 . . . . . . . . . . . . . . . . MPC-2130 NKTR-105 . . T-0128 . DDS drug camptothecin derivative; solid tumors Metastatic and blood cancers PEG-doclataxel; refractory tumors Solid tumors Melanoma Cancer; biologic Cancer Cancer Cancer Cancer; biologic Cancer; biologic Cancer Cancer Cancer CovX 045; cancer; biologic CovX 060; cancer; biologic Cancer Cancer Third generation anti-CD20 monoclonal antibody; Genentech Roche ABT-263 . Small molecule; solid and hematological tumors; with Genentech Roche Roche Roche Roche Roche Roche Roche Roche Anti-cMet IAP antagonist MEK inhibitor P13K alpha R4733 R7112 R7160 R7167 . . . . . . . . Anti-cMet monoclonal antibody; cancer; with Genentech IAP antagonist; cancer therapy; with Genentech with Genentech therapy Small molecule; solid tumors MDM2 antagonist; small molecule; oncology Monoclonal antibody; solid tumors Solid tumors MEK inhibitor; cancer therapy; P13 kinase inhibitor; cancer hematological malignancies; with Product PC I II III NDA MKT Comment
961
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Roche Product R7204 PC I . II III NDA MKT Comment B-RAF kinase inhibitor; malignant melanoma; with Plexxikon Roche Roche Roche Roche Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis ScheringPlough R7304 R7334 R7347 TP300 AVE-9633 SAR-3419 SSR-244738 SSR-97225 AV-299 . . . . . . . . . Solid tumors Anti-PIGF huMAb; solid tumors Solid tumors Topoisomerase I inhibitor; colorectal cancer; with Chugai Mab; acute myelocytide leukemia Maytansin-loaded anti-CD19 MAB; non-Hodgkins lymphoma Anti-tumor agent; solid tumors Anti-mitotic agent Antibody targeting hepatocyte growth factor/scatter factor ligand; with Aveo Pharmaceuticals Takeda AMG655 . Human MAB agonist directed with Amgen Takeda Takeda Takeda Takeda Takeda Takeda Takeda Enzon MLN4924 MLN8237/8054 TAK-285 TAK-448 TAK-593 TAK-683 TAK-700 Oncaspar . . . . . . . . . Nedd 8 activating enzyme inhibitor; advanced malignancies Aurora A kinase inhibitor; advanced malignancies HER2 inhibitor; solid tumors GnRh modulator; prostate cancer VEGFR, PDFGR inhibitor; solid tumors cancer Prostate cancer Pilot study in solid tumors (pancreatic, head, neck) and combo with LLY's Gemzar; non-Hodgkin's lymphoma; in second generation Oncaspar in P/C (SC-PEG Asparaginase) Bristol-Myers Squibb Bristol-Myers Squibb Androgen Receptor Antagonists Antibody Anti-CD137 . . Cancer Cancer GnRH modulator (inj.); prostate against DR5; progressive cancer;
Maytansin loaded anti CD33
962
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company Bristol-Myers Squibb Bristol-Myers Squibb Squibb Bristol-Myers Squibb Bristol-Myers Squibb Squibb Bristol-Myers Squibb Bristol-Myers Squibb Eli Lilly Enzon VEGF-R Inhibitor DNA checkpoint . . . Cancer Cancer; from ICOS Up to an additional six targets using Santaris' Locked Nucleic Acid technology; all oncology indications Enzon SPC3042 . Survivin antagonist; various Nucleic Acid technology Myriad Genetics Myriad Genetics Nektar Therapeutics Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis MPC-3100 MPC-443803 Pegylated Factor VIII SAR-103168 SAR-131675 SAR-132885 . . . . . . Cancer; Hsp90 inhibitor Cancer Advate; with Baxter; clotting factor Multikinase inhibitor; AML VEGFR3 TK inhibitor CENP-E and a tubulin binding cytototix agent inhibitor; solid tumors Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis ScheringPlough SAR-566658 SAR-567530 SAR-650984 ORG 223119 . . . . Maytansin-loaded anti DS6 Mab; solid tumors HSP90 inhibitor; solid tumors Anti-CD38 naked MAB; liquid tumors Mitogen-activated protein (MAP) kinase p38 inhibitor; apoptosis inducer; cell proliferation cancers; uses Santaris' Locked Bristol-Myers IGF-1R Antagonist Met Kinase Inhibitors SMO Inhibitor . Cancer . . Cancer Cancer Hsp90 Inhibitor . Cancer Bristol-Myers Epothilone-Folate ErbB/VEGFR/FGFR . . Solid tumors; advanced cancer Cancer Product Cdc7 Inhibitor PC . I II III NDA MKT Comment Cancer
inhibitor
Other LNA targets
963
Oncology/Hematology
CANCER, ONCOLOGY, HEMATOLOGY R&D PIPELINE Company ScheringPlough Product ORG 48775 PC . I II III NDA MKT Comment inhibitor; cancer; from Organon Mitogen-activated protein (MAP) kinase p38 inhibitor; apoptosis inducer; cell proliferation HKI-357 Total Drugs In Development 25 112 72 62 24 295 . Oncology inhibitor; cancer; from Organon Wyeth
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Ophthalmology
Ophthalmology
Opportunities Are Coming Into Focus
An estimated 2-3MM people in the U.S. and 5-6MM people outside the U.S. are treated for glaucoma each year. An equal number of people likely have elevated intraocular pressure, a glaucoma risk factor. Glaucoma is a disease state in which the optic nerve is damaged and visual field is narrowed and ultimately lost. Glaucoma results from a variety of different 3% CAGR 2008-13 conditions, although elevated intraocular pressure (IOP) often is cited as a primary cause. In a normal eye, a watery fluid called aqueous humor fills the void between the cornea and iris, nourishing the cornea and the lens and providing the front of the eye its form and shape. Chronic simple (open, wide angle) glaucoma, the most prevalent type, results from increased resistance in the aqueous humor outflow tract, causing increasing pressure within the eye. As pressure builds, the optic nerves are damaged, which results in compromised vision. Therapies that relieve IOP by either reducing the inflow or increasing the outflow of aqueous humor are the preferred treatments. Age-Related Macular Degeneration (AMD) is one of the leading causes of blindness in the developed world. Approximately 15MM people in the U.S. have AMD, of which 10% have the wet subtype. The disorder is difficult to treat because of the location of the diseased tissue (back of the eye) and limited understanding of the pathogenesis of the condition. Currently, the most common treatment options include intravitreous anti-VEGF therapy, photodynamic therapy (PDT) and laser photocoagulation. Diabetic Retinopathy is the leading cause of vision loss in younger adults in the developed world. Diabetic Macular Edema (DME) is a common complication of diabetic retinopathy, and affects roughly 1-2MM people in the U.S. The only labeled treatment for DME is laser photocoagulation, although intravitreal steroids and antiVEGF agents are increasingly used off label.
Ophthalmology Category Market Share By $ Sales
PARTICIPANTS
2008 $6.4B
PFE 22% Other 36% MRK 8%
Other 12%
2013P $7.4
PFE 19%
ACL 8% AGN 15% DNA 17% NVS 11% MRK 11% AGN 18%
NVS 18%
ACL 5%
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MAJOR TRENDS ISSUES
&
Worldwide sales of ophthalmology treatments are expected grow 3% from $6.4B to $7.4B. Greater understanding of glaucoma and the importance of early treatment, driven by stepped up promotion of agents such as Lumigan (Allergan) and Travatan (Alcon), will be partially offset by generic competition to the Alphagan P (Allergan), Cosopt (Merck), and Travatan (Pfizer) franchises. Genentech is expected to lead the ophthalmology category in 2011, driven by its leading wet AMD therapy, Lucentis, though the drugs main competitor Avastin could garner additional share, depending on the outcome of the NIHs ongoing CATT trial. Prostaglandins and related analogs (Pfizers Xalatan, Allergans Lumigan and Alcons Travatan) are expected to dominate the glaucoma market through 2011. Pfizers Xalatan/Xalcom franchise is expected to grow steadily through 2010, before being clipped by generics beginning in 2011. Mercks Cosopt/Trusopt franchises will lose share through 2011, due to generic competition beginning in 2008. Increasing sales of Allergans Lumigan could offset anticipated generic competition to the Alphagan/P franchise. Alcons Travatan franchise is expected to continue its steady share gains, bolsetered by the recent launch of Travatan Z. Genentechs Lucentis has rapidly emerged as the treatment of choice for wet AMD. Off-label use of intravitreous Avastin has declined with Lucentis launch and with a generous charitable assistance program to offset co-pays for Lucentis. The NIHs ongoing CATT trial is comparing Avastin and Lucentis headto-head, and data from this trial (expected in 2010) is likely to dictate future market share of these two agents. Novartis licensed ex-U.S. rights for Lucentis, with European approval secured in Janaury 2007. Allergan/Inspires Restasis is expected to lead the dry eye market through 2011, driven by good efficacy. The regulatory future of Inspire Pharmaceuticals Prolacria is uncertain. A number of other dry drugs are making their way through clinical development, including Novartis OPC-759 (rebamipide; Phase III) and Alcons 15-HETE (Phase III). Our scatter plot shows that Pfizer, Novartis and Allergan are expected to dominate the ophthalmology category in 2013. Alcon is an emerging participant.
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Ophthalmology
PFE
967
Ophthalmology
Glaucoma Market Is >$4.0B Worldwide But Sales Are Declining

DETAILED DISCUSSION
Worldwide sales of pharmaceutical treatments for glaucoma were an estimated $4.1B (+7%) in 2008. Greater understanding of glaucoma and the importance of early treatment, aided by promotional spending behind agents such as Pfizers Xalatan, Allergans Lumigan, and Alcons Travatan, is expected to drive the growth of this market over the next couple of years. However, generic competition to Allergans Alphagan, Mercks Cosopt, and Pfizers Xalatan franchises will clip sales growth beginning in 2009. An estimated 2-3MM people in the U.S. and 5-6MM people outside the U.S. are treated for glaucoma each year. An even greater number of people likely have elevated intraocular pressure, a glaucoma risk factor. Our physician consultants estimate that only approximately 50% of people in the U.S. suffering from glaucoma are diagnosed and receiving treatment. Early diagnosis and aggressive treatment to lower IOP are increasingly important components of effective glaucoma management. We project total worldwide pharmaceutical sales for treatment of glaucoma of over $3.3B in 2013.
Glaucoma Is A Progressive Disease

Glaucoma is caused by damage to the optic nerve, resulting in a gradual narrowing and ultimate loss of the visual field. Glaucoma results from a variety of different conditions; elevated IOP usually is the primary cause, although some patients with normal IOP may have optic nerve damage. Glaucoma can be differentiated into several forms, depending on the underlying abnormality. Adult forms strike people over thirty years of age, and include chronic simple glaucoma and narrow angle glaucoma. Congenital glaucoma affects people under thirty years of age and also has infantile and juvenile forms. In a normal eye, a watery fluid called aqueous humor fills the void between the cornea and iris, nourishing the cornea and the lens and providing the front of the eye its form and shape. Chronic simple (open, wide angle) glaucoma, the most prevalent type, results from increased resistance in the aqueous humor outflow tract, causing rising pressure within the eye. As pressure builds, the optic nerves are damaged. Narrow angle glaucoma, which is less common, usually occurs in eyes that are smaller than normal. Because the eye is smaller, the draining angles are also narrower. Anything that further narrows the angle prevents adequate drainage and causes the pressure to build up. Elevated Intraocular Pressure Is Believed To Play Primary Role The cornea, a clear transparent layer, lies in front of and protects the eye. The iris, the circular pigmented band within the eye, widens and narrows to different light intensities. Aqueous humor fills the void between the cornea and the iris. Aqueous humor is produced constantly and an elaborate outflow mechanism allows for drainage. Aqueous humor leaves the eye via the canal of Schlemm, but first must pass through a porous group of cells called the trabecula. Chronic simple (open, wide angle) glaucoma results from increased resistance in the aqueous humor outflow tract and the accompanying increase in ocular pressure. The constriction could lie in the trabecula, the canal of Schlemm, or vessels draining the canal. Aqueous humor production continues at a steady rate, despite slowing outflow, causing a buildup of pressure within the eye. As pressure rises, the optic nerve may be damaged, causing compromised vision. This type of glaucoma follows a chronic, progressive course, often in the absence of symptoms. Initial symptoms may occur late in the course of the disease. A defect in dark adaptation during night driving, such as a slow recovery of vision when oncoming headlights disturb adaptation,
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may be the first sign. As the disease progresses, patients may experience additional vision problems, but the narrowing of the visual field may be so gradual as to be little noticed until imminent blindness.
Types Of Glaucoma Summary Type
1.) Open-Angle
Description
Open-angle glaucoma accounts for 80% of all glaucoma cases. It is a chronic condition with no noticeable symptoms. Elevated IOP is the main risk factor and usually goes unnoticed. If IOP remains too high too long, this can cause damage to the optic nerve and may result in progressive visual field loss. Rare and considered a medical emergency. Acute angle-closure glaucoma happens when IOP rapidly increases to an excessively high level. This type of glaucoma has severe symptoms such as severe eye pain, and patients may experience nausea, vomiting, sweating, severe headaches, slow heart rate, and blurred or "halo" vision. Patients may also have moderate symptoms such as dilated pupils, cloudy corneas, and very red eyes. Similar to acute angle-closure glaucoma but is considered to be less severe. Patients with subacute angle-closure glaucoma may have a series of minor attacks characterized by blurry or "halo" vision, but without the severe eye pain or redness associated with acute angle-closure glaucoma. A long-term disease and is the least severe form of angle-closure glaucoma. Patients may have some symptoms ranging from mild to severe. Some patients may have no symptoms at all. Caused by an injury to, or inflammation, of the eye. It can also be caused by a complication of an underlying disease such as diabetes, high blood pressure, or cataracts. Even though there are over 60 different possible causes for secondary glaucoma, this type of glaucoma is still considered to be uncommon.
2.) Acute Angle-Closure
3.) Subacute Angle-Closure
4.) Chronic Angle-Closure
5.) Secondary
Source: Lumigan web site
Drug Therapies Target Intraocular Pressure (IOP)

If diagnosed early, optic nerve damage and vision loss from glaucoma can be minimized. Because increased intraocular pressure (IOP) usually precedes the optic nerve damage and visual field changes by several years, early reduction of intraocular pressure can preserve ocular health and vision. Drug therapy for chronic simple (or open, wide angle) glaucoma usually begins with a single first-line agent gradually titrated to the maximum tolerated dose. Additional agents may be added to the treatment regimen to augment IOP control. An estimated 50% of glaucoma patients eventually require combination treatment to control elevated IOP. Topical medications (i.e., eye drops) are the treatments of choice, as they minimize the systemic side effects common with oral administration. If drug therapy fails to adequately control IOP levels associated with chronic simple glaucoma, surgery is typically performed to reduce IOP levels.
Mechanism Of Action Of Glaucoma Medications Decrease aqueous Increase aqueous production outflow Prostaglandin derivatives X Beta-agonists X Alpha-agonists X X Carbonic anhydrase Inhibitors X Cholinergic agonists X
Source: Current Opinion in Ophthalmology
Glaucoma drugs act by either decreasing the rate of aqueous humor production or by increasing the rate of aqueous humor drainage. Topically administered beta blockers historically were the preferred first-line glaucoma treatment and continue to be used as a first-line option. However, first-line use of prostaglandins has been rising. Timolol (Mercks Timoptic/XE and multiple generics) and other beta blockers
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are the most commonly used first-line treatments. Timolol is effective in reducing aqueous humor production and, to a lesser extent, also increases aqueous humor outflow. However, timolol has been associated with a number of side effects consistent with the beta blocker class, including decreased heart rate and cardiac output, and asthma exacerbation. Prostaglandin-based therapies, led by Pfizers Xalatan, currently are the preferred second-line agents. Because prostaglandin-based therapies have a complementary mechanism of action to timolol, the dugs are often used in combination with one another if a patients IOP is not sufficiently reduced with just one of them. Xalatans strong efficacy, good safety profile, and once-daily dosing have increased its first-line use and have made it the most widely prescribed branded glaucoma treatment. Allergans Alphagan P, an alpha2-receptor agonist, is the second most widely prescribed glaucoma treatment. Alphagan P is believed to reduce IOP by limiting aqueous humor production and by easing aqueous humor outflow. Alphagan P is used predominantly as second-line therapy, although oncedaily dosing for many patients has led to increased first-line use. Allergans Lumigan and Alcons Travatan also are prostaglandin-based glaucoma therapies and their use continues to grow steadily. Carbonic anhydrase inhibitors, such as Mercks Trusopt (dorzolamide) and Alcons Azopt (brinzolamide) decrease aqueous humor secretion by the ciliary epithelium. Merck also markets Cosopt, a combination of dorzolamide and timolol. Pilocarpine, a mitotic (pupil contraction), may also be used as additive therapy, but requires multiple doses per day, which limits its use to the more severe IOP patients.
Xalatan
35.0%
Travatan franchise
Lumigan
Alphagan
Combigan
Cosopt
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0% Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08
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Ophthalmology
Timolol Plus Xalatan Is The Standard Of Care

The average IOP in a healthy individual is in a range of 14 to 20 millimeters of mercury (mmHg). IOP of 22 mmHg or higher generally is considered abnormal and treatment is usually initiated, even in absence of signs of visual field loss or nerve damage. While it generally is believed that stabilizing IOP below 20 mmHg may prevent glaucoma and the resulting visual field loss, our consultants indicate that many patients may develop visual field loss at IOP levels below 20 mmHg. Largescale studies of glaucoma patients suggest that greater stability in visual fields can be achieved with lower IOPs. Therefore, physicians are beginning to adopt lower IOP targets. Drug therapy also is focused on higher efficacy regimens, providing the greatest level of IOP reduction. Standard first-line treatment of glaucoma is usually twice-daily timolol (beta blocker). Monotherapy treatment with timolol reduces IOP by 6-7mmHg; this is the comparative basis for all new glaucoma treatments. The package insert for Xalatan indicates that once-daily dosing reduces IOP by 68mmHg, similar to Timolol. However, physicians believe that Xalatan is superior to timolol in clinical practice. For more difficult to treat patients, timolol dosed in the morning combined with an evening dose of Xalatan has emerged as the preferred standard-of-care glaucoma treatment.
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Currently Available Glaucoma Treatments

Topical Medications Beta Blockers Nonselective Timolol Maleate Generics Mercks Timoptic Mercks Timoptic-XE Burning/stinging; transient blurred vision; photophobia; conjunctivitis; blepharitis; punctate keratitis; contact dermatitis; eyelid erythema Decreased heart rate/ cardiac output; bronchospasm; hypotension; depression; decreased libido; impotence; worsened lipid profile; decreased stress response to hypoglycemia Levobunolol Carteolol Beta Blockers Selective Betaxolol Miotics Pilocarpine Isopto Carpine Ocusert Pilo Burning; blurred vision; difficulty with night vision; miosis or accommodative spasm; lens opacity (rare); retinal detachment (rare); precipitation of closedangle glaucoma (rare) Carbonic Anhydrase Inhibitors Dorzolamide Mercks Trusopt Burning; punctate keratitis; ocular allergies; increased ocular side effects relative to timolol Brinzolamide Alcons Azopt Possibly decreased ocular side effects compared with dorzolamide; blepharitis; foreign-body sensation Dorzolamide plus Timolol Dipivefrin Mercks Cosopt Propine Same as dorzolamide and timolol Burning; follicular conjunctivitis; macular edema in patients who are aphakic Conjunctival blanching; ocular allergy Sympathomimetics Epinephrine-like Increased blood pressure; arrhythmias; tremor Headache; drowsiness; fatigue; variable blood pressure response Increased central nervous system effects change visual activity Headache; upper respiratory infection Headache; upper respiratory infection Headache; upper respiratory infection Headache; upper respiratory infection Same as timolol; obstructive pulmonary disease; reactivity to allergens; potentiation for muscle weakness
Source: American Academy of Family Physicians and Cowen and Company
Brand
Ocular Side Effects
Systemic Side Effects
Allergans Betagan Ocupress Alcons Betoptic Betoptic S
Increased relative to timolol Same as timolol Increased relative to timolol
Same as timolol Same as timolol Rare; fewer cardiopulmonary side effects than timolol Sweating; salivation; urinary frequency; nausea; diarrhea; bronchospasm; biliary colic; mental status change; variable cardiovascular response Bitter taste; headache; nausea; asthenia; kidney stones (rare) Bitter taste; headache; rhinitis sensation Same as dorzolamide and timolol
Sympathomimetics Clonidine-like, -agonists Brimonidine Generics Allergans Alphagan/P Apraclonidine Lopidine Allergic/local reaction; transient change in visual activity Burning; iris pigmentation; hyperemia Burning; iris pigmentation; hyperemia Hyperemia, burning/stinging Burning; iris pigmentation; hyperemia Same as timolol
Prostaglandin And Like Analogs Latanoprost Unoprostone Bimatoprost Travoprost Combination Therapy Brimonidine/Timolol Allergans Combigan Pfizers Xalatan Novartis Rescula Allergans Lumigan Alcons Travatan
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Ophthalmology
Pfizers Xalatan Remains The Market Leader

Xalatan (latanoprost) is the most prescribed drug for the treatment of glaucoma. As of January 2009, Xalatan held 29.3% total U.S. prescription share of the glaucoma market, down from 31.3% in January 2008. Pfizer is focusing on the sustained efficacy of Xalatan, a message that has worked well in international markets. Xalatan is indicated for the first-line treatment of glaucoma. Pfizer continues to work on a new delivery technology for Xalatan, but it has not disclosed any details, indicating that it is too early to tell if the new delivery approach will prove successful. Xalcom, a fixed combination dose of Xalatan and timolol, has been launched in Europe; however, it appears unlikely that it will reach the U.S. market given that the FDA has already issued three approvable letters for the product. In July 2004, Pfizer prevailed in a patent infringement suit against Par Pharmaceuticals. The U.S. District Court for the district of New Jersey ruled that the Xalatan patent 5,296,504, expiring in March 2011, was valid, infringed, and enforceable against Par. Par subsequently appealed the decision; in August 2005 the appellate court upheld the lower courts decision. We do not expect generic competition for Xalatan prior to 2011. We estimate worldwide Xalatan/Xalcom sales of $1.8B (+2%) in 2009, and $750MM in 2013, due to generic competition beginning in March 2011.
Alphagan Franchise In Transition Once Again

Alphagan P is Allergans third largest ophthalmology product, after Restasis and Lumigan. The Alphagan franchise includes Alphagan (0.1% brimonidine; alpha-2 agonist) and Alphagan P (0.15% brimonidine and 0.1% brimonidine formulations). Alphagan is indicated for the treatment of intraocular pressure in patients undergoing surgery related to glaucoma. In 2002, Allergan discontinued Alphagan following conversion of the franchise to Alphagan P (0.15%), and that conversion was wildly successful. Alphagan P uses a different preservative formulation than Alphagan, reducing allergic reactions. It is primarily used as adjunctive therapy to beta blockers and/or prostaglandins. A strong efficacy and safety profile and convenient once-daily dosing have bolstered use. Generic Alphagan is not substitutable for Alphagan P, meaning that physicians need to write a prescription specifying brimonidine if they want the generic form. Following an agreement with Alcon, settled in March 2006, 0.15% Alphagan P will face generic competition in October 2009. A generic launch could occur earlier if Allergan was able to convert a certain portion of the 0.15% formulation to the new 0.1% and Combigan (Alphagan and Timolol). We do not believe this threshold will be met. The 0.1% concentration of Alphagan P was approved by the FDA in August 2005 and was launched in early 2006. Allergan is now focusing its marketing on the conversion of patients from 0.15% Alphagan P to 0.1% Alphagan P. In addition to a lower brimonidine concentration, the new version of Alphagan P has been reformulated to further reduce the allergic reactions seen with the product while maintaining its efficacy via increased bioavailability. Our ophthalmology consultants note that despite the incremental improvement to the 0.1% formulation, clinicians see little difference between the two doses. Therefore, they believe that generic competition to the 0.15% could meaningfully affect the 0.1%. As of January 2009, the Alphagan franchise held 10.7% total U.S. prescription share of the glaucoma market, down from 11.9% share in January 2009. The Hatch-Waxman exclusivity for Alphagan P 0.1% expired in August 2008. However, Allergan has a number of patents that cover the product until 2021 in the U.S. and 2009 in Europe. We estimate worldwide Alphagan/P sales of $290MM (-17%) in 2009 and $140MM in 2013, given the impact of an Alphagan P generic (via Alcon) in 2009.
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Allergan Developing Alphagan P For The Japanese Market In May 2004, Allergan entered into an exclusive license agreement with Kyorin Pharmaceutical Co. to develop and market Alphagan/ P in the Japanese market. Under the terms of the agreement, Kyorin and Allergan will collaborate on overall product strategy and management, with Kyorin responsible for all development and commercialization costs associated with the efforts in Japan. Allergan will receive undisclosed development and commercialization milestone payments, along with a royalty on product sales.
Allergans Lumigan Continues To Perform Well

Lumigan (bimatoprost ophthalmic solution) is a synthetic structural analog of prostaglandin (prostamide) and is marketed globally for the treatment of open-angle glaucoma and for the reduction of intraocular pressure. Lumigan reduces intraocular pressure by increasing the outflow of aqueous humor from the inner chambers of the eye. The FDA approved Lumigan for second-line use in 2001. In 2002, Lumigan was approved in Europe. Lumigan was initially expected to be a formidable competitor to Xalatan given its greater perceived efficacy, comparable price, room-temperature stability, and a two-month prescription option. However, side-effect issues, primarily hyperemia (irritation), have capped Lumigan use. In June 2006, Lumigan was awarded a first-line indication by the FDA for the treatment of elevated IOP associated with open-angle glaucoma or ocular hypertension. Lumigans total prescription share of the U.S. glaucoma market has been increasing gradually since 2006. As of January 2009, Lumigan held 11.8% total U.S. prescription share of the glaucoma market, up 30BP since January 2008. Our physician consultants view Lumigan as a well-entrenched treatment option. However, Pfizers Xalatan, which is the market leader in the category, will see generic competition in September 2011 and this could meaningfully impact Lumigans future growth prospects. Our consultants indicate that while Lumigan is perceived to be more efficacious than Xalatan or Alcons Travatan, it is also believed to carry side-effects, primarily hyperemia. Therefore, most of our consultants have indicated that Lumigan does not appear to have a compelling enough advantage which will allow for significant prescribing over Xalatan generics. Additionally, aggressive managed care will likely encourage the increasing use of Xalatan generics when they become available. Our model reflects this likelihood, but the impact could still be more severe than we forecast. Lumigan Demonstrates Efficacy Advantage Over Xalatan Allergan conducted a three-month, head-to-head trial comparing Lumigan with Xalatan. The trial was a randomized, blinded comparison of Lumigan 0.3% (119 patients) and Xalatan 0.005% (113 patients) each dosed once daily (at night) over three months. Trial patients had baseline IOPs ranging from 22 to 34mm Hg, averaging 25.7mm Hg at entry. The endpoints included mean IOP at 8:00am, percentage of patients achieving pressure of 17mm Hg at 8:00am, and diurnal pressure at 8:00am, 12:00pm, 4:00pm and 8:00pm. Patients on Lumigan achieved a lower mean IOP than the patients on Xalatan at 8:00am on all days measured. This difference was not statistically significant, although the lack of statistical significance was attributed to the small number of patients in the study. The number of patients achieving a target pressure of 17mm Hg was not statistically different in the Lumigan and Xalatan groups. At lower target pressures of 13-15mm Hg, a statistically greater number of Lumigan patients achieved target IOP levels. Importantly, patients on Lumigan achieved consistently lower diurnal pressures, and the pressures were statistically lower at 12:00pm and 4:00pm relative to Xalatan.
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While Lumigan was associated with statistically more hyperemia (eye irritation) than Xalatan, Xalatan was associated with more stinging and headache. Lumigan X Awaiting FDA Action; EP-Receptor Agonist In Development Allergan is looking to introduce a line extension to the Lumigan franchise with the potential approval of Lumigan X towards the end of the year. Lumigan X is a reformulation of Lumigan and is expected to be Lumigan lite, with an improved side effect profile. Since Lumigans patent expires only in 2014, Lumigan X will arrive well in advance of that expiration and should give Allergan the opportunity to convert its franchise. Additionally, an improved profile may help blunt the impact from a Xalatan generic, although this is unlikely. The Lumigan franchise could also see growth due to entry into new markets. In May 2004, Allergan announced an agreement with Senju Pharmaceuticals, whereby Senju received exclusive rights to develop and market Lumigan in Japan. Japanese marketing approval for Lumigan is expected by the end of 2009. Allergan is also in development for an EP receptor agonist. It targets a different prostaglandin receptor than Lumigan and potentially could show a couple of millimeters better IOP lowering than Lumigan with mild or less hyperemia. If successful, the product could serve as a franchise extension for Lumigan. However, timing of this program remains vague and we have no contribution in our model.
Alcons Travatan Z Hits The Market

Alcons Travatan also is a prostaglandin-based glaucoma therapy, launched in the U.S. concurrent with Lumigan in April 2001. In October 2006, Alcon launched Travatan Z, a benzalkonium chloride-free formulation of Travatan. The benzalkonium chloride was replaced with Sofzia, a proprietary ionic buffered preservative system that is gentler on the ocular surface and reduces the negative effects associated with long-term use of the drug (e.g. dry eye). Overall market share gains for the Travatan franchise have accelerated since the launch of Travatan Z. As of January 2009, Travatan held a 13.7% total U.S. prescription share of the glaucoma market (vs. an 11.9% share one year previously). Travatan Z now accounts for approximately 55% of the Travatan branded franchise, up from 37% in January 2008. Travatan/Z is approved for reducing elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension for patients who are inadequately controlled on, or intolerant to, other intraocular pressure lowering medications. In July 2007, Travatan Z received final approval in Japan. Extravan, Alcons Travatan/timolol combination therapy, is currently available in Europe (see below for more detail). Travatan Compares Favorably To Xalatan/Timolol Alcon sponsored an 800-patient study comparing Travatan with timolol and Xalatan. Mean IOP at baseline was similar for the three groups. Patients received either timolol twice per day, Xalatan once per day, or Travatan once per day. IOP was measured at 8:00am, 10:00am and 4:00pm on eight different days during the 12month study. At the 8:00am measurement, Travatan patients recorded a mean IOP 1 mm Hg below that of the timolol patients. At 4:00pm, the difference increased to 1.6 mm Hg. Travatan and Xalatan were found to be equally effective in lowering IOP at 8:00am. However, mean IOP in the Travatan group was 1 mm Hg lower than that of the Xalatan group at 4:00pm. In Phase III studies, Travatan also provided an additional 1.8mmHg of IOP lowering in African-American patients beyond that
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observed in other patients. Alcon is promoting Travatan as the first prostaglandin analog to demonstrate increased efficacy in African-American patients.
Mercks Trusopt/Cosopt Faces Generic Competition

Mercks Trusopt (dorzolamide) is a carbonic anhydrase inhibitor that reduces the production of aqueous humor. Merck also markets Cosopt, a combination of dorzolamide and the beta blocker timolol. Cosopt is indicated for the reduction of elevated intraocular pressure in patients with open-angle glaucoma or ocular hypertension who are insufficiently responsive to beta blockers. The Trusopt/Cosopt franchise has faced since October 2008. The Cosopt package insert indicates that the IOP-lowering effect of Cosopt b.i.d. is slightly less than concomitant administration of 0.5% timolol twice-daily and 2.0% Trusopt three-times daily. As of January 2009, Cosopt held a 2.0% total U.S. prescription share of the glaucoma market, down from 11.2% in January 2008 due to the launch of generics. Cosopt is widely used in patients who are not well controlled on timolol and are non-responsive to Xalatan. We estimate Cosopt/Trusopt sales of $100MM in 2009 (65%), due to the impact of generic competition that began in 2008.
Pfizers Xalcom Targets Improved Compliance

Xalcom, a fixed combination dose of Xalatan and timolol, has been issued three approvable letters by the FDA. Xalcom is currently marketed in Europe. Pfizer indicates that it is continuing to work with the FDA to obtain a final approval. The FDA has been reluctant to approve fixed-dose combination therapies for glaucoma, indicating that filers need to demonstrate superiority of the combination product over treating patients with the two component drugs separately. The Xalcom Phase III program enrolled 418 patients, all with either unilateral or bilateral primary openangle glaucoma. Patients were randomized to receive once-daily Xalcom, once-daily Xalatan or twice-daily timolol. After six months of treatment, the Xalatan and timolol treatment groups were switched to Xalcom. At six months and one year, Xalcom demonstrated efficacy superior to either of the compounds used in monotherapy. Additionally, Xalcom maintained continuous benefit for the full 52 weeks of treatment. The observed adverse events of iris color change and eyelash growth were not statistically greater than with Xalatan monotherapy. The study concluded that Xalcom is a safe and effective glaucoma treatment option, and the convenience of once-daily dosing may be helpful in improving compliance. Xalcom had no higher adverse events in the twelve months of treatment compared with either timolol or Xalatan. If Xalcom gains final approval in the U.S., we believe the simplified dosing of Xalcom will be well received by both physicians and patients, as glaucoma patients tend to be elderly and have difficulties administering eye drops. However, at this point, final FDA approval appears unlikely.
Allergans Combigan Off To A Good Start

In October 2007, Allergan received FDA approval of its combination glaucoma treatment, Combigan (Alphagan plus timolol), which was designed to improve dosing convenience and patient compliance. Combigan is dosed as an eye drop, twice a day, and is available as a solution containing 2mg/mL Alphagan and 5mg/mL timolol. Having initially received an approvable letter, we believe the FDA sought to see clinical evidence of a synergistic effect when dosing the drugs in combination versus separately. In the 12-month pivotal trials, Combigan significantly reduced mean IOP up to 7.6 mm Hg from baseline and was well tolerated. Studies found that Combigan provided an additional IOP lowering versus either brimonidine or timolol,
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Combigan administered twice a day provided an additional 1 to 3 mm Hg decrease in IOP over brimonidine treatment three times a day and an additional 1 to 2 mm Hg decrease over timolol treatment twice a day. In January 2009, Combigan had 3.4% share of the glaucoma market, up from 0.5% a year ago. Our consultants believe that Combigan is a differentiated product. While specialists appear to be more reluctant to prescribe combination products, they acknowledge that combinations like Combigan have gained widespread acceptance. Additionally, our consultants believe that Combigan should weather through the arrival of generics to Alphagan 0.15% in 2009. While Alphagan 0.1% could get hit, they believe Combigan does remain differentiated. Combigan should benefit as the glaucoma market is increasingly moving towards combination therapy. Allergan has noted that it expects Combigan growth to come from three areas: (1) from Mercks Cosopt, which went generic in 2008, (2) from opthalmologists who want to move patients from two prescription regimens of Alphagan and timolol to a single prescription, and (3) from cases where patients on prostaglandins alone are reaching the desired intraocular pressure. Combigan has a method-of-use patent that expires in 2022. We currently estimate Combigan sales of $120MM in 2009 or 30% of the Alphagan franchise, growing to $180MM (+50%) in 2009 or 47% of the total Alphagan franchise.
Ganfort Marketed In Europe; Approvable In U.S.

Ganfort is a Lumigan/timolol combination formulation. It is currently marketed in Europe, having received approval in May 2006. However, it has not been approved in the U.S. and we do not believe it will ever make it on the market. Allergan filed an NDA for Ganfort in November 2003 and in August 2004 received an approvable letter from the FDA. An additional clinical trial was requested by the FDA prior to approval. The necessary study was completed and the data were re-filed with the FDA in mid-2005. In December 2006 however, Allergan received another approvable letter, requesting an additional confirmatory trial. Given the low probability of approval, we have no sales estimates for the Lumigan/timolol combination product in the U.S. at this time. However, we do separately attempt to break-out the Lumigan versus Ganfort estimates internationally, with 2009 Ganfort estimated sales of $80MM (+5%), rising to $150MM in 2013.
Alcons Extravan Rolling Out In The E.U.

In April 2006, Extravan (DuoTrav) received final approval by the EMEA and the product is rolling out in a number of E.U. markets. The approval of Extravan (Travatan/ timolol combination) in the E.U. was not surprising, given the EMEAs more lenient view of combination products relative to the FDA. Visibility on Extravans regulatory future in the U.S. continues to be low. In September 2004, Alcon received an approvable letter from the FDA for Extravan. Following meetings with the FDA, Alcon management has decided to not perform any additional trials; however, Alcon continues to analyze the data in an attempt to generate a more compelling case for a refiling. Given the FDAs relative reluctance to approve combination therapies, we believe that Extravan will likely not garner approval in the U.S. Partial Phase III results for Extravan were presented in January 2004. At sixweeks, Extravan was shown to reduce IOP by up to 12 mmHg. Extravan was shown to be more effective than Travatan alone (up to 2 mmHg greater reduction in IOP). Extravan was not shown to be statistically different from Travatan plus timolol therapy at a majority of the time points tested. Extravan was shown to have a safety and tolerability profile consistent with the individual component agents.
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Inspire Initiates Phase I For Rho Kinase Inhibitor In Glaucoma

In November 2004, Inspire licensed a novel technology from the University of Wisconsin for use in developing potential new glaucoma therapies. This technology may enable the release of excess aqueous humor through temporary junctions in the trabecular meshwork in the front of the eye, a unique approach to treating glaucoma. Inspire initiated a Phase I trial of INS117548 in October 2008. The placebo-controlled, dose-escalating trial is designed to evaluate the safety, tolerability and intraocular pressure (IOP)-lowering effects of INS117548 in approximately 60 subjects with early stage glaucoma or ocular hypertension. INS117548 is a Rho kinase inhibitor designed to lower IOP in glaucoma patients by disrupting the actin cytoskeleton (cellular skeleton) of the trabecular meshwork, an ocular tissue responsible for most of the outflow of aqueous humor. Inspire also has a Latrunculin B compound, INS115644, related to this platform that is in Phase 1 clinical testing.
U.S. Glaucoma Market Model
U.S. GLAUCOMA/ELEVATED IOP MARKET DYNAMICS ($MM)
2007 2008 2009E 2010E 2011E 2012E 2013E CGR 08-13 Comments
U.S. Glaucoma Sufferers (MM) U.S. Additional Elevated IOP (MM) Total Target Population (MM) % Treated Patients Treated (MM) Growth Rate Total Rx's (MM) Rx Growth Rate Xalatan/Xalcom Market Share (PFE) Rx's (MM) Average Daily Cost Sales ($MM) Cosopt Market Share (MRK) Rx's (MM) Average Daily Cost Sales ($MM) Lumigan Market Share (AGN) Rx's (MM) Average Daily Cost Sales ($MM) Alphagan Franchise Market Share (AGN) Rx's (MM) Average Daily Cost Sales ($MM) Combigan Market Share (AGN) Rx's (MM) Average Daily Cost Sales ($MM) Travatan Market Share (ACL) Rx's (MM) Average Daily Cost Sales ($MM) Generic Timolol Market Share Rx's (MM) Average Daily Cost Sales ($MM) Others Market Share Rx's (MM) Average Daily Cost Sales ($MM)
2.9 3.5 6.4 49% 3.1 9% 23.8 1% 32% 7.6 $2.28 $520 11% 2.7 $4.35 $350 12% 2.7 $3.34 $275 12% 2.8 $2.92 $245 0% 0.0 $3.00 $5 11% 2.7 $3.14 $250 13% 3.2 $0.95 $5 9% 2.1 $1.30 $70
2.9 3.6 6.5 50% 3.3 4% 23.9 1% 31% 7.4 $2.41 $536 9% 2.2 $4.33 $291 11% 2.7 $3.85 $315 11% 2.7 $3.16 $255 2% 0.5 $2.51 $35 13% 3.0 $3.32 $300 13% 3.1 $0.05 $5 10% 2.3 $1.02 $70
3.0 3.7 6.7 51% 3.4 4% 25.3 6% 34% 8.5 $2.41 $615 3% 0.8 $4.33 $100 11% 2.8 $3.85 $320 11% 2.7 $3.00 $175 4% 0.9 $2.51 $70 13% 3.3 $3.32 $325 12% 3.0 $0.05 $5 13% 3.3 $1.00 $100
3.0 3.7 6.8 51% 3.5 2% 25.6 1% 35% 9.0 $2.41 $650 2% 0.4 $4.33 $50 12% 2.9 $3.85 $340 8% 2.1 $3.00 $150 5% 1.3 $2.51 $100 14% 3.5 $3.32 $350 12% 3.0 $0.05 $5 13% 3.3 $1.00 $100
3.1 3.8 6.9 51% 3.5 2% 23.9 -6% 6% 1.4 $2.41 $100 1% 0.2 $4.33 $20 11% 2.6 $3.85 $300 5% 1.1 $3.00 $100 8% 1.9 $2.51 $145 16% 3.8 $3.32 $375 13% 3.0 $0.05 $5 42% 10.0 $1.00 $300
3.2 3.9 7.1 52% 3.7 4% 23.2 -3% 3% 0.7 $2.41 $50 0% 0.1 $4.33 $15 9% 2.2 $3.85 $250 4% 1.0 $3.00 $75 9% 2.2 $2.51 $165 17% 4.0 $3.32 $400 13% 3.0 $0.05 $5 43% 10.0 $1.00 $300
3.2 4.0 7.2 52% 3.7 2% 23.2 0% 3% 0.7 $2.41 $50 0% 0.1 $4.33 $15 9% 2.2 $3.85 $250 4% 1.0 $3.00 $75
+2% - Patient population increasing due to aging dynamics +2% - Could be conservative; increased awareness could increase +2% - Could be conservative; most prevalant in 45 years old + +3% - Better therapies may increase - Driven by improved/convenient therapies -1% - Multiple combination therapies requiring various Rx's - Increased competition from Lumigan slows growth -38% - Growth driven by increasing first-line use - Once-daily; solid market penetration/first-mover -38% - Generics expected in March 2011 -45% -45% Dorzolamide-HCl Newer agents clip Patent expires 10/08 Moderating growth forecast
- Superior efficacy to Xalatan; does not need refrigeration -5% - High incidence of hyperemia has tempered use - Once-daily dosing -5% - Majority of franchise has converted to Alphagan P -18% - Generic formulations of Alphagan pressuring; 0.15% goes generic in - Priced in-line with Xalatan; once-daily dosing -22% - Declining market share assumed; generics clip
9% - Combination of Alphagan and Timolol 2.2 +36% - Likely to hold onto share in face of Alphagan P 0.15% generics $2.51 $165 +36% 17% 4.0 $3.32 $400 13% 3.0 $0.05 $5 - Similar efficacy to Xalatan should cap upside +6% - Growth driven by increasing first-line use - Once-daily; does not need to be refrigerated +6% - Includes Travatan Z formulation -0% +0% - Generic beta-blockers
43% - Includes Alcon's Azopt and Timolol formulations, NVS' Rescula 10.0 +34% - Includes generic Alphagan, Xalatan, Cosopt $1.00 $300 +34% - Generics -7% - Cosopt, Xalatan generics clip
Total Market Sales (MM) $1,720 $1,810 $1,710 $1,750 $1,350 $1,260 $1,260 % Growth +15% +5% -6% +2% -23% -7% +0% Source: Company reports, IMS America, Cowen and Company estimates
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International Glaucoma Market Model

INTERNATIONAL GLAUCOMA / ELEVATED IOP MARKET DYNAMICS ($MM)
2007 2008 2009E 2010E 2011E 2012E 2013E CGR 07-12 Comments
Total Target Population (MM) % Treated Patients Treated (MM) % Growth Total Rx's (MM) % Growth Xalatan /Xalcom Market Share (PFE) Rx's (MM) Average Daily Cost Sales ($MM) Cosopt/Trusopt Market Share (MRK) Rx's (MM) Average Daily Cost Sales ($MM) Lumigan/Ganfort Market Share (AGN) Rx's (MM) Average Daily Cost Sales ($MM) Travatan/Extravan Market Share (ACL) Rx's (MM) Average Daily Cost Sales ($MM)
19.8 31% 6.1 8% 42.9 11% 51% 21.90 $1.65 $1,084 16% 6.67 $2.20 $440 3% 1.11 $3.00 $100 4% 1.75 $2.00 $105
20.4 31% 6.3 3% 46.4 8% 53% 24.42 $1.65 $1,209 16% 7.44 $2.20 $491 3% 1.28 $3.00 $115 4% 1.75 $2.00 $105 3% 1.60 $2.40 $115 7% 3.33 $0.15 $15 6% 2.90 $1.15 $100 8% 3.70 $0.90 $100
21.0 31% 6.5 3% 47.1 1% 56% 26.46 $1.65 $1,310 10% 4.55 $2.20 $300 3% 1.33 $3.00 $120 5% 2.42 $2.00 $145 4% 1.67 $2.40 $120 7% 3.33 $0.15 $15 5% 2.32 $1.15 $80 11% 5.00 $0.80 $120
21.7 31% 6.7 3% 48.3 3% 58% 27.78 $1.65 $1,375 5% 2.27 $2.20 $150 3% 1.39 $3.00 $125 6% 2.75 $2.00 $165 4% 1.74 $2.40 $125 7% 3.33 $0.15 $15 4% 1.88 $1.15 $65 15% 7.14 $0.70 $150
22.3 31% 6.9 3% 54.2 12% 43% 23.23 $1.65 $1,150 2% 1.21 $2.20 $80 4% 2.22 $3.00 $200 5% 2.92 $2.00 $175 4% 2.15 $2.40 $155 6% 3.33 $0.15 $15 3% 1.45 $1.15 $50 33% 17.67 $0.50 $265
23.0 31% 7.1 3% 60.8 12% 32% 19.19 $1.65 $950 1% 0.53 $2.20 $35 4% 2.22 $3.00 $200 5% 3.33 $2.00 $200 4% 2.36 $2.40 $170 5% 3.33 $0.15 $15 2% 1.16 $1.15 $40 47% 28.67 $0.50 $430
23.7 31% 7.3 3% 60.8 0% 32% 19.19 $1.65 $950 1% 0.53 $2.20 $35
+3% +3% - Modest growth +7%
- Growth expected to slow
- Xalcom approval improves competitive position -3% - Favorably efficacy profile driving near-term -3% - Increased competition from Lumigan slows growth - Trusopt is combination dorzolamide-HCl and timolol -40% - Newer agents clip -40%
4% - Superior efficacy to Xalatan; does not need refrigeration 2.22 +15% - Ganfort launched in Europe $3.00 - Once-daily dosing $200 +15% 5% 3.33 $2.00 $200 4% 2.36 $2.40 $170 5% 3.33 $0.15 $15 2% 1.16 $1.15 $40 47% 28.67 $0.50 $430 - Similar efficacy to Xalatan should cap upside +14% - Extravan marketed as DuoTrav in Europe - Once-daily; does not need to be refrigerated +14% - Includes Combigan (Alphagan plus timolol) +9% - Increasing recognition of neuroprotective properties +9% +0% +0% -20% - Includes Merck's Timoptic Timoptic XE; beta-blocker - Other generic timolol; beta-blockers
Alphagan/Combigan Franchise Market Share (AG 4% Rx's (MM) 1.53 Average Daily Cost $2.40 Sales ($MM) $110 Generic Timolol Market Share Rx's (MM) Average Daily Cost Sales ($MM) Timoptic/XE Market Share (MRK) Rx's (MM) Average Daily Cost Sales ($MM) Others Market Share Rx's (MM) Average Daily Cost Sales ($MM) Total International Market Sales (MM) % Growth Total Worldwide Glaucoma Market (MM) 8% 3.33 $0.15 $15 8% 3.48 $1.15 $120 7% 3.17 $1.00 $95
-20% - Generic beta-blockers clip +55% - Includes Novartis's Rescula, generic Alphagan, Cosopt, Trusopt
+35% - Generics -0% -3% - Growth expected to slow, clipped by generics
$2,070 $2,250 $2,210 $2,170 $2,090 $2,040 $2,040 +13% +9% -2% -2% -4% -2% +0% $3,790 +14% $4,060 +7% $3,920 -3% $3,920 +0% $3,440 -12% $3,300 -4% $3,300 +0%
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AMD Is A Leading Cause Of Blindness

Age-related Macular Degeneration (AMD) is the leading cause of blindness in people over the age of 55. (Legal blindness is defined as a person who is only able to see 20/200 or less with glasses.) According to the National Eye Institute, more than 1MM people will be diagnosed with AMD in 2009 and the annual incidence is expected to grow as the population ages. AMD is subdivided into wet lesions (characterized by new blood vessel formation in the retina) and dry AMD (a precursor of the wet form). Approximately 15M people in the U.S. have macular degeneration, of which 10-15% have active blood vessel growth and leakage (wet AMD). The medical literature suggests there are approximately 1.5M people with wet AMD in the U.S., although Genentech estimates the size of the treatable market at approximately 180,000 patients. We estimate the U.S. AMD market opportunity at $1.5-2B and with a similar opportunity ex-U.S. The market opportunity for wet AMD drugs may be further expanded by penetration into other back-of-the-eye conditions such as diabetic retinopathy or central retinal vein occlusion. As the population ages, the prevalence of vision loss associated with AMD is expected to nearly double by 2020.
What Is AMD?
AMD gradually destroys a persons central vision function. The early stages of the disease may be barely noticeable to some, but symptoms can vary. Sometimes only one eye loses vision and the other maintains good vision for many years. Some patients have milder symptoms in both eyes that may not impair vision significantly for many years. Other frequent symptoms include distortion, or when straight lines look wavy, such as the lines on an Amsler grid (an ophthalmic diagnostic tool in the picture below) or if a doorframe or blinds look bent. Sometimes colors don't look quite right or there may be a purple or gray spot in the center vision. (See picture below.)
AMD & Amsler Grid Diagnostic Tool
Source: Macular Degeneration Foundation
Upon onset of macular degeneration, many people have trouble adjusting quickly between bright sunlight or dim light or shadows. This may be especially dangerous when driving in bright sunlight and then entering the shade or vice versa. Whereas a normal retina takes 3-5 minutes to adjust from bright light to dim (when entering a
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movie theater, for example), a person with macular degeneration may take 8-12 minutes or longer.
AMD Typically Starts As Slowly Progressive Dry Form

Roughly 85-90% of patients have the dry form of AMD, which involves thinning of the macular tissues and disturbances in its pigmentation. Up to 15% of AMD patients have the wet form, which can involve bleeding within and beneath the retina, opaque deposits, and, eventually, scar tissue. The wet form accounts for 90% of all cases of legal blindness in macular degeneration patients. The dry, or atrophic, form of AMD features slowly progressive, degenerative changes in the retinal pigment epithelial cells, Bruchs membrane, and the choroid (the area beneath the retina). Many people can go for a long time with the dry form and not experience any vision problems, and when vision eventually deteriorates, it occurs gradually in the absence of wet AMD lesions. Only about 25% of people reach the stage of severe vision loss with only the dry form of AMD. Although it has been suggested that supplemental vitamins and minerals may slow the progress of the disease (as was found in the AREDS study by the NIH), more research is needed to find additional ways to prevent, slow, or cure dry AMD. A number of companies (mostly private) are conducting clinical trials in dry AMD. Otheras OT-551 is a small molecule that acts through multiple pathways to downregulate the overexpression of the protein complex Nuclear Factor kappa B (NFkB). In June 2007, Othera enrolled its first patient in the OMEGA Study, a multi-center Phase 2 clinical trial to evaluate OT-551 eye drops in the treatment of geographic atrophy, an advanced form of dry age-related macular degeneration (AMD). The NEI is also conducting a Phase 2 trial to study OT-551 in dry AMD to evaluate the impact of OT-551 on disease progression in patients with bilateral (both eyes) Geographic Atrophy. Neurotech is using its Encapsulated Cell Technology (ECT) for sustained delivery of therapeutic factors to the back of the eye. The companys lead product, NT-501, consists of encapsulated human cells genetically modified to secrete ciliary neurotrophic factor (CNTF). NT-501 is designed to continually deliver a therapeutic dose of this neurotrophic factor to the back of the eye. The company believes that CNTF activates dying retinal photoreceptors and products them from degeneration. In late 2006, Neurotech initiated two Phase II/III studies in Retinitis Pigementosa and one Phase II study in geographic atrophy. In September 2008, the company was granted fast track designation by the FDA for NT-501 in RP and dry AMDA. The company expects data from the Phase II studies in these indications in early 2009. In addition, a number of companies have early stage programs targeting the complement pathway for treating dry AMD. These include Alexion, Jerini Ophthalmics, and Potentia Pharmaceuticals.
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Conversion To Wet AMD Can Result In Abrupt Deterioration

About 10-15% of people who start out with the dry form progress to the wet form of AMD. As dry AMD worsens, new, fragile blood vessels grow from the outer part of the eye towards the center of the retina, known as the macula. The formation of new blood vessels (choroidal neovascularization or CNV) is characteristic of wet AMD and these vessels often leak blood and fluid, causing rapid damage to the macula and quickly leading to a loss of central vision. Wet AMD typically presents with acute-onset visual deterioration super-imposed on a background of more gradual visual deterioration characteristic of dry AMD. Etiology Of AMD Not Well Understood, But VEGF Clearly An Important Player Any number of factors, including genetics, age, race, gender, menopause, nutrition, smoking, and exposure to sunlight, may cause AMD. Based on striking results from pan-VEGF inhibition therapy with Genentechs Lucentis, it is clear that VEGF is an important driver of new blood vessel formation in the retina and conversion from dry to wet AMD. Research is ongoing to identify additional molecules that drive the wet AMD process and to better understand the pathophysiologic processes that result in VEGF overexpression. Three Categories Of Wet AMD: Occult, Minimally Classic & Classic Based on the appearance of the blood vessels at the back of the eye when visualized using fluorescein angiography, wet AMD can be subdivided into predominantly classic (25%), minimally classic (35%) and occult (40%). In predominantly classic choroidal neovascularization (CNV), greater than 50% of the neovascular AMD lesion can be clearly defined, and this is generally regarded as the most aggressive subtype. In minimally classic choroidal neovascularization, 1% to 50% of the neovascular AMD lesion can be clearly defined, and this is generally regarded as the intermediate subtype in terms of progression. In occult choroidal neovascularization, none of the neovascular lesion can be clearly defined, and this is generally regarded as being the least aggressive subtype. It is helpful to think of the AMD lesion as an expanding vascular membrane which penetrates into an area underneath the retina. Angiography lights up the blood vessels in this membrane, and physicians use the angiogram to discern the outline of the membrane. However, leakage of dye from these blood vessels can obscure a physicians ability to clearly see the membrane, and the extent to which this visibility is obscured determines its classification. While it is important to identify lesion subtypes to determine eligibility for photodynamic therapy with Visudyne, the intra-vitreous anti-VEGF therapies have utility across wet AMD subtypes, making differentiation less critical.
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The Blood-Eye Barrier Can Be Bypassed With Direct Injection The eye, like the brain, is protected from the systemic blood circulation; therefore, it is very difficult to deliver drugs into the posterior segment of the eye, particularly the retina, with sufficient concentration and reduced side effects. This is a primary reason that diseases of the posterior segment of the eye are treated by intravitreal injections (directly into the eye), intravenous, or latero-bulbar injections, exposing the patient to pain and potential side effects. Thus, the mere location of AMD and other back-of-the-eye diseases makes it difficult for pharmaceutical/device companies to target with therapies.
Wet AMD Treatment Paradigm Evolves Rapidly

Current treatment methodologies for wet AMD include three options: anti-VEGF therapy, photodynamic therapy (PDT), and laser photocoagulation. Retina specialists are quick to adopt new therapies, often before they have undergone rigorous clinical testing or have received FDA approval. The wet AMD treatment paradigm therefore evolves rapidly and sometimes unexpectedly. OSIP/Pfizers Macugen, the first anti-VEGF therapy, was approved for wet AMD in 2004 and rapidly gained widespread uptake with an outstanding commercial launch. Macugen is an aptamer that binds to and inhibits activity of the VEGF165 isoform and was shown to decrease the rate of visual acuity loss in wet AMD patients versus placebo in the Phase II/III VISION trials. Macugen revenue has since plummeted as pan-VEGF antibodies have emerged as a superior treatment option for preserving or restoring vision of wet AMD patients. Genentechs Lucentis is a monoclonal antibody fragment targeting all VEGF isoforms and has set a new bar for wet AMD therapies. Data from the Phase II/III MARINA trial of Lucentis demonstrated an impressive ability to improve visual acuity in wet AMD patients, a goal never before achieved in advanced clinical trials for this indication. Lucentis secured U.S. approval in June 2006 and EMEA approval in January 2007. The drugs U.S. launch has been impressive (Genentech estimates that Lucentis achieved 55% penetration of the wet AMD market just 6 months after FDA approval), relegating Macugen and photodynamic therapy to niche market roles. While waiting for Lucentis to reach the market, retina specialists began to use off-label intravitreous Avastin, a cheap and commercially available anti-VEGF option. While lacking clinical trial data to support its use, intravitreous Avastin has nonetheless captured the majority of the remaining (non-Lucentis treated) market. First Wave Of AMD Treatment Used Lasers Until March 2000, the only primary treatment for neovascular wet AMD was laser coagulation. This technique involves the use of a strong light source targeted on extrafoveal and juxtafoveal CNV lesions to coagulate the diseased tissue. The laser produces a thermal effect within the lesion that causes necrosis of its cellular components. In the 1980s, the National Eye Institute conducted the Macular Degeneration Photocoagulation Studies (MPS), and the results demonstrated that photocoagulation of well-demarcated CNV membranes effectively prevented large decreases in visual acuity compared with observation for CNV. However, the thermal effect of the laser can damage viable photoreceptor cells, resulting in retinal scarring and loss of visual acuity. Use of laser coagulation in the current practice setting is rare, as superior treatment options have emerged.
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Ophthalmology
QLTI/Novartis Visudyne Destroys Vessels

Visudyne is a photosensitizer that attaches to lipoproteins which tend to accumulate in rapidly proliferating cells. Visudyne traps energy from light and converts oxygen in cells to a highly energized state that results in cell death. Visudyne therefore must be activated at the site of desired effect by light. Photodynamic therapy (PDT) with Visudyne consists of administering the lightactivated drug by intravenous infusion and then shining a light to the back of the eye to activate Visudyne in the retina. Clinicians must therefore purchase the machinery to administer the light (up to $40K), and hire personnel to administer the intravenous infusion. Therapy is repeated every three months if patients continue to have active lesions, and our consultants estimate that, on average, patients receive three to four treatments before the CNV lesion is converted to a quiescent scar. Side effects of Visudyne include transient skin sensitivity to bright light, acute onset and transient back pain, and rarely, acute visual deterioration, which may not be reversible. Visudyne achieved worldwide sales of $68MM in 2007, down 48% Y/Y as pan-VEGF therapies (Lucentis, Avastin) have begun eroding Visudynes commercial presence. In the U.S., Visudyne achieved sales of just $39MM in the 12 months following Lucentiss FDA approval on June 30, 2006.
Anti-Angiogenesis Treatments Come Into Focus

The most promising development in wet AMD therapy is angiogenesis inhibition. Given its vascular and progressive nature, AMD thrives on new blood vessel growth. By blocking the development of new blood vessels, researchers are hoping to cut off the supply of oxygen and nutrients and, therefore, the diseases proliferation throughout the back of the eye. Researchers have identified relevant molecular targets (e.g., VEGF) that play a key role in neovascularization in the eye. Pfizer/OSIPs Macugen targets the VEGF 165 isoform and was approved by the FDA in December 2004 for the treatment of all forms of wet AMD. However, outstanding Phase II/III data presented from Genentech/Novartiss Lucentis (which targets all VEGF isoforms), have set a new benchmark for treating wet AMD lesions. Lucentis was approved on June 30, 2006, and Genentech began shipping product the same day.
Genentechs Lucentis The New Wet AMD Leader

Lucentis data have been stellar. Lucentis is a pan anti-VEGF antibody fragment, and while the VEGF165 isoform is thought to account for most VEGF activity in AMD, blocking all VEGF activity in the retina appears to translate into superior clinical activity. In June 2003, Genentech licensed ex-North American rights for Lucentis to Novartis Ophthalmics. The BLA for Lucentis was filed in December 2005 and final approval was received on June 30, 2006. Lucentis is priced at $1950 per vial, nearly twice the cost of a vial of Macugen. Genentech estimates that the average wet AMD patient will require five to seven injections per year. Lucentis has had an impressive launch in its first year on the U.S. market, the drug achieved $800MM in sales. Sales of Lucentis have since flattened, partly because of a higher frequency of Lucentis injections given in a patients first year on therapy. Lucentis achieved 2008 U.S. sales of $875MM, and we estimate sales of $990MM in 2009 and $1.2B in 2012.
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MARINA Data Off The Chart

At the July 2005, ASRS meeting in Montreal, one-year results from the ongoing twoyear MARINA trial of Lucentis were presented. The study evaluated 716 patients with minimally classic and occult wet AMD lesions. Impressively, the rate of 3-line vision gain in the MARINA study was 33.8%/24.8%/4.6% for the Lucentis 0.5 mg, Lucentis 0.3 mg and sham arms, respectively. Average vision change at one year was +7.2/+6.5/(10.5) letters for the same trial arms, respectively. Subset analysis showed a sizable clinical benefit from Lucentis was achieved regardless of lesion size or subtype. Side effects were in an acceptable range. Based on these compelling findings, the retina community has embraced Lucentis with open arms.
Comparison Of One-Year Results From Lucentis And Macugen Pivotal Studies
Sham Study No. patients Lesion size (DA) Occult Minimally Classic Predominantly Classic # of injections/total possible Received PDT 3 line vision loss or better 3 line vision gain or better Change in visual acuity from baseline (letters) MARINA 238 4.41 63.4% 36.6% 0% 10.8/12 10.50% 62.20% 4.6% (10.5) Lucentis Lucentis 0.3 mg 0.5 mg Sham Macugen 0.3 mg VISION 295 3.7 38% 38% 24%
MARINA MARINA VISION Baseline Demographics 238 240 298 4.26 4.47 4.2 63.5% 61.7% 40% 36.1% 37.9% 34% 0.40% 0.40% 26% 11.5/12 0.40% 94.50% 24.8% 6.5 Treatment 11.3/12 0% Results 94.60% 33.8% 7.2 Adverse Events 0% 0.8% 0.8% 0.4% 8.4% 0.4% 1.3%
8.5/9 N/A 13%-30% 11%-22% 55% 2% (15.0) 70% 6% (7.0)
Culture-positive endophthalmitis Culture-negative endophthalmitis Total endophthalmitis Uveitis Hypertension Myocardial infarction Cerebrovascular event
0% 0% 0% 0% 9.7% 0.4% 0.4%
0% 0.4% 0.4% 0.8% 8.4% 0.4% 0.4%
N/A N/A 0% N/A 5% 1% 1%
N/A N/A 2% N/A 7% 1% <1%
Source: Company data, FDA briefing documents
ANCHOR Confirms Lucentis Potency Results of the 423-patient Phase III ANCHOR study were presented in January 2006 at Macula 2006 in New York by Dr. Peter Kaiser. The ANCHOR study compared intravitreous Lucentis to photodynamic therapy with Visudyne in patients with predominantly classic wet AMD lesions, and further established Lucentis as the most potent therapy ever to be developed for wet AMD. After 12 months of therapy, the 0.3 mg arm of Lucentis beat Visudyne by 18 letters while the 0.5 mg arm of Lucentis beat Visudyne by 21 letters. Patients receiving 0.3 mg of Lucentis gained an average of 8.5 letters after one year, while patients receiving 0.5 mg of Lucentis gained an average of 11 letters. Among patients receiving 0.3 mg of Lucentis, 94% lost 3 lines or less of visual acuity while 36% gained 3 or more lines of vision. Among patients receiving 0.5 mg of Lucentis, 96% lost 3 lines or less of visual acuity while 40% gained 3 or more lines of vision. These groups were both clearly superior to the Visudyne arm, in which only 64% of patients lost 3 lines or less of visual acuity and only 6% gained 3 or more lines of vision. Adverse ocular events in this study were consistent with those in other Lucentis trials. There was a slight increase in myocardial infarction rate in the high-dose Lucentis arm (2.1%) compared to the low dose arm (0.7%) and the Visudyne arm (0.7%), although the absolute number of
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patients with events was quite low. Genentech also indicated that the combined rate of cerebral vascular events and myocardial infarctions was 1.3% in the control arm, 1.3% in the low-dose Lucentis arm and 2.9% in the high-dose Lucentis arm. Genentech received approval for the high-dose (0.5 mg) option.
12-Month Data, ANCHOR Study
Lucentis 0.5 mg (n=140) 96% 40% 11.3
Outcome Loss of < 15 letters in visual acuity Gain of > 15 letters in visual acuity Mean change in visual acuity (letters)
Visudyne (n = 143) 64% 6% -9.5
Difference 33% 35% 21.1
Source: Lucentis package insert
Dear Doctor Letter Issued In January 2007 In January 2007, Genentech issued a Dear Doctor Letter to retinal specialists, warning that interim data from an ongoing Phase IIIb safety monitoring study of Lucentis (SAILOR) demonstrated a slightly higher risk of stroke in elderly patients on 0.5mg Lucentis vs the 0.3mg dose (1.2% vs 0.3%, respectively), with no significant difference in the rate of MIs between the two groups. At the February 2008 Bascom Palmer Angiogenesis meeting, one year results from Cohort 1 of SAILOR were presented, showing that the 0.5mg dose of Lucentis was not associated with a higher risk of stroke, in contrast to the six-month interim analysis. Full data will be presented at a future medical meeting. Lucentis FOCUS Data Also Impressive One-year data from the ongoing Phase I/II FOCUS study were also presented at ASRS in July 2006. The FOCUS trial is a single-masked study that randomized patients with predominantly classic wet AMD lesions to receive either PDT alone or PDT plus Lucentis (0.5 mg). The addition of Lucentis to PDT resulted in substantial efficacy benefit and greatly reduced the need for subsequent PDT administrations. Benefit was seen regardless of prior PDT therapy. Data from this study are presented in the table below.
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One-Year Data From Lucentiss FOCUS Study
No. patients Lesion size (DA) 3 line vision loss or better 3 line vision gain or better Change in visual acuity from baseline (letters) Average number of PDT administrations Culture-positive endophthalmitis Culture-negative endophthalmitis Total endophthalmitis Uveitis Hypertension Myocardial infarction Cerebrovascular event
Source: Company presentation
Sham 56 2.56 67.9% 5.4% (8.2) 3.4 0% 0% 0% 0% 7.1% 3.6% 0.0%
Lucentis 0.5 mg 106 2.51 90.5% 23.8% 4.9 1.3 1.0% 3.8% 4.8% 8.6% 12.4% 0.0% 3.8%
p-value
p=0.0003 p=0.0033
While there was an increase in inflammatory adverse ocular events seen with PDT plus Lucentis, our consultants do not believe this represents a significant concern. The presenting investigator noted that the risk of ocular inflammation was likely related to the Lucentis formulation used in the trial (lyophilized powder, switched to pre-mixed formulation for the Phase II/III studies) and to the timing of Lucentis and PDT administration (which prompted a change in the study protocol to avoid administering both drugs simultaneously). Furthermore, visual outcomes even in the group of patients who had inflammatory ocular complications were better than seen in the PDT-alone arm. Additionally, there was a trend of increased hypertension and cerebrovascular events seen with Lucentis plus PDT, although this was offset by a trend of increased cardiovascular events seen with PDT alone. These findings seem to have had little impact on Lucentiss adoption. PIER, PrONTO Provide Clarity On Lucentis Dosing Requirements In June 2006, results of the Phase IIIb PIER study, which evaluated a less frequent dosing regimen for Lucentis, were presented at the Retinal Physician Symposium in the Bahamas. While the MARINA and ANCHOR trials evaluated monthly intravitreous administration through the course of therapy, the PIER study treated patients with monthly injections for the first three months after which injections were administered every three months. After three months of therapy, patients receiving 0.3 mg Lucentis gained 2.9 letters of visual acuity and patients receiving 0.5 mg Lucentis gained 4.3 letters of visual acuity, while patients receiving sham injections lost 8.7 letters of visual acuity. However, vision gains were not sustained, and by month 12, patients treated with Lucentis had returned to baseline while those receiving sham injections deteriorated further.
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12-Month Data From PIER Study

Lucentis 0.3 mg (n = 60) 83% 12% -1.6 Lucentis 0.5 mg (n=61) 90% 13% -0.2
Outcome Loss of < 15 letters in visual acuity Gain of > 15 letters in visual acuity Mean change in visual acuity (letters)
Sham (n= 63) 49% 0% -16.3
One-year data from 40 patients in the open-label PrONTO study were presented at the 2006 Retinal Physicians Symposium. PrONTO evaluated the role of OCT imaging in determining the need for additional Lucentis injections following an initial course of three monthly injections. The trial demonstrated a rapid and meaningful benefit with Lucentis, with average visual acuity gain of nearly two lines after one year of therapy. The average patient in the PrONTO study required five or six injections over the first year of therapy as determined by OCT imaging. 2-year data from the PrONTO study (presented at ARVO in May 2007) illustrated that patients received a median of 5 doses in their second year of treatment. Genentech has reported that in the first year of Lucentis therapy, the average patient had 3-4 Lucentis injections in the first four months of treatment, followed by an average of 3 injections in the remaining 8 months.
Intravitreous Avastin Use Preceded Lucentis Approval

Despite relatively scant clinical data, use of intravitreous Avastin gained traction prior to the approval of Lucentis, based on highly positive anecdotal experience and a retina community willing to experiment with new therapies. The dose of intravitreous Avastin is just 1.25 mg, drawn up from a standard vial of Avastin, which translates to a cost of only about $10/day. Retina specialists indicate intravitreous Avastin is clearly more efficacious than Macugen and may be comparable to Lucentis. However, momentum for Avastin has slowed considerably with the approval of Lucentis and a charitable program that lessens the burden of Lucentis co-pays. Retina specialists note that to qualify for reimbursement of Lucentis co-pays (often 20% of the drug cost), patients income must be less than $75K. This generous program should capture most of the patient population and neutralize the financial incentive to use Avastin. Genentech estimates that Lucentis had captured roughly 45% new patient market share, and approximately 50% of the total wet AMD market. Genentech has no plans to further explore Avastin for wet AMD and has suggested that certain excipients in Avastins formulation may render the drug unsuitable for intravitreal treatment. In early October 2006, the National Eye Institute (NEI) announced plans to fund a multicenter clinical trial comparing intravitreous Lucentis to intravitreous Avastin for wet AMD. The Comparison of AMD Treatments Trial (CATT), which began enrolling patients in February 2008, will be chaired by Dr. Daniel Martin of Emory University and will enroll about 1,600 patients (across 40 U.S. centers) with newly diagnosed AMD. Patients will be randomized to one of four arms: (1) Lucentis dosed once every four weeks; (2) Avastin dosed once every four weeks; (3) Lucentis with variable dosing; and (4) Avastin with variable dosing. The regimens
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are based upon the fact that Avastin is generally given on a variable basis and Lucentis has only been formally tested in a fixed regimen. The main objective will be to assess changes in visual acuity, and secondary objectives including change in lesion size, fluid found on OCT and cost. Physicians expect the trial to enroll a targeted 1,600 patients very quickly, in part owing to the economic discontent around Lucentis. Physicians expect the trial to be fully enrolled by mid-2009, hence 12-month efficacy data could be available by late 2010. We believe these results will either establish Lucentis as superior to Avastin, allowing Lucentis to capture the remaining 50% of the AMD market, or indicate the therapies are roughly equivalent, driving a wholesale switch back to the lower cost product (approximately $50/injection for Avastin vs. >$2,000for Lucentis). Physicians note that, as a four-arm study, the CATT trial is not particularly large, and hence will not be powered to detect smaller differences in efficacy or safety between Lucentis and Avastin. For example, it is estimated that CATT might be powered to detect a 10-20% difference in vision gain at one year (p=0.05). Given the highly favorable off-label experience with Avastin, physicians expect the efficacy of the drug to be equivalent (within the limits of detection) to that of Lucentis. According to consultants, directionally lower efficacy for either Avastin or Lucentis is unlikely to cause much concern as patients who dont respond well to their initial therapy could always be switched to the other. In contrast, any small differences in adverse events (stroke, MI, hemorrhage) between Avastin and Lucentis are likely to be highly scrutinized, even if not statistically significant, as these could put patients and physicians at risk. Given that many believe that the higher incidence (p=0.02) of stroke associated with 0.5 mg Lucentis (1.2%) vs. 0.3 mg Lucentis (0.3%) observed in the 2,400 patient SAILOR study was likely a fluke, predicting how the safety of Avastin might stack up versus that of Lucentis in the CATT trial is anyones guess.
Lucentis And Avastin At A Standstill, At Least For Now

Genentech recently reported that Lucentis holds roughly 50% total market share and 45% new patient share, statistics that are consistent with consultants views. While physicians we spoke with view their clinical experience (efficacy, safety, convenience) with Lucentis and off-label Avastin as comparable, there are a few (single center) analyses that suggest that patients switched from Avastin to Lucentis may experience improved responses. However, experts caution that these studies are retrospective and that the converse experiment (switching patients from Lucentis to Avastin) has not been conducted. In terms of preference for Lucentis vs. Avastin, academic physicians have tended to migrate toward Lucentis based upon the availability of controlled clinical trial data. More private practice physicians have elected to stick with Avastin, mainly due to reluctance to track and account for every vial of Lucentis (even one lost vial has economic implications) and some backlash against Genentech for pricing Lucentis at a premium. Physicians report injecting Lucentis once monthly for three or four months followed by injections every 1.5 to 3 months thereafter depending on the patient. These figures are largely consistent with those reported by Genentech (average patient receives 6-7 doses over the first 12 months).
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Economic Considerations Could Curtail Market Share Gains For Lucentis In Wet AMD
In the absence of data from the NIHs head-to-head Lucentis versus Avastin study, it would be reasonable to expect that Lucentis might continue to make modest market share gains in AMD at Avastins expense. However, our checks indicate growing frustration and resentment on the part of physicians with Genentechs reimbursement policy for Lucentis might prevent this from happening. One consultant even indicated he may dramatically reduce use of Lucentis based upon his view that his center is losing money on the drug and that a recent policy change may escalate losses. The problem appears to be complex, with physicians complaining about multiple aspects of Genentechs policy. First, they note that Genentech is distributing Avastin solely through wholesalers which extract an approximate 2% economic cut as middlemen. Hence CMSs ASP-based reimbursement policy actually provides the physician with a 4% and not 6% margin. According to consultants, Genentech considered allowing physicians to purchase Lucentis directly from the company, but did not want to set a precedent for other drugs. Second, Genentech is not allowing physicians to purchase Lucentis using a personal credit card. Retinal specialists are used to purchasing other drugs (Macugen, Visudyne) via credit cards and keeping the rewards (1% cash back, airline miles, etc) for themselves. Although this may sound trivial, it has caused discontent as physicians view credit card rewards as one of the key perks of managing their own practices. Third, physicians complain that their practices are not set up to track ultra-expensive drugs and that even one or two lost vials can tip the economics of Lucentis from modestly profitable to negative. Physicians report having to devote additional resources (clerical time) to prevent this from happening. Lastly, Genentech has recently enacted a more restrictive reimbursement policy. Whereas the company had instituted a rather lenient 120 day payment policy during Lucentiss first year on the market, Genentech reduced the time allotted for repayment to 85 days as of July 1, 2007, and according to consultants, further reduced the allotted time to 50 days as of October 2007. Although physicians note that CMS is paying claims rapidly, other payors may take up to six months. In addition, the abbreviated payment period will have the effect of making physicians foot the bill for four months worth of Lucentis in one month. According to consultants, the upshot of these economic considerations is that less efficient practices may revert to using more Avastin.
DME Market Opportunity At Least As Large As Wet AMD

Diabetic retinopathy is the most prevalent cause of vision loss in working-aged adults. Diabetic macular edema (DME), the most common complication of diabetic retinopathy, refers to a swelling of the retina that results from leakage of fluid from blood vessels within the macula. DME results from chronically elevated blood sugar levels, which cause structural changes in the endothelium of retinal blood vessels, leading to vascular dysfunction and eventually vascular occlusion. It is believed that upregulation of growth factors in the retina such as IL-6 and VEGF, induce vascular permeability, leading to a breakdown of the blood-retina barrier. This causes fluid and proteins to leak into the retina, thickening the macula and resulting in stretching and distortion of nerve cells. This leads initially to a reversible decrease in visual acuity, with permanent vision loss over time.
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The diabetes epidemic has made the diagnosis of DME increasingly common and we anticipate much future growth in this market. The medical literature indicates that up to 1-2 million Americans might be affected by DME. This prevalence is similar to that reported for wet AMD (an estimated 1.2-1.5M Americans). However, our consultants and Genentech put forth more conservative estimates on the size of the treatable market. According to Genentech, roughly 193,000 patients are treated for DME each year, a figure that is again similar to that of wet AMD (178K patients). Based upon the size of the wet AMD market, where Lucentis holds roughly 50% market share and posts annual sales of $800-900MM, we estimate that the DME market is also worth at least $1.5-2B. However, taking into account that Lucentis would likely be dosed more frequently in DME (12 injections/year) than wet AMD (5 to 7 injections per year on average), we believe the potential commercial opportunity for Lucentis in DME could be worth $3B+.
Laser And Steroids Form The Standard Of Care In DME

One of the differences between DME and wet AMD is that the VEGF-based therapies will face more competition from established alternatives in DME. Hence the unmet medical need in DME is less substantial. The majority of DME patients are treated with laser photocoagulation and/or intravitreal steroids. Laser is the only labeled treatment for clinically significant macular edema, and is usually performed when a patient is diagnosed with DME. In patients for whom laser may be inappropriate (for example patients presenting with severe edema, where laser often does not penetrate the retina), off-label intravitreal treatments are usually used in the firstline. Efficacy of laser photocoagulation was demonstrated in The Early Treatment Diabetic Retinopathy Study, in which 1,490 eyes with DME were randomized to receive either focal laser photocoagulation or observation. This study demonstrated that laser photocoagulation reduced moderate visual loss by over 50%, with the greatest benefits seen in eyes with clinically significant macular edema. However 12% of eyes in the study still experienced vision loss of 3 or more lines within 3 years, and only 3% of patients experienced a gain of 3 or more lines of vision. Thus while laser photocoagulation generally halts long-term vision loss, it rarely restores vision.
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Photocoagulation For Macular Edema Slows The Rate Of Visual Loss
Source: Early Treatment Diabetic Retinopathy Study Research Group, 1991.
Laser is usually given at intervals of 3-4 months to reduce fluid leakage from vessels into the macula. Because laser is effective in slowing the rate of deterioration in DME patients (as opposed to restoring vision), it is often 2-3 years before the benefits of therapy become apparent. Because laser therapy has set a precedent for long-term clinical trial outcomes, the FDA has generally required 3-year visual acuity data for approval of new DME therapies. However, Genentech has successfully negotiated a 2-year endpoint with the FDA for Lucentiss Phase III trials. Consultants believe the agency will closely monitor the 12-24 month data visual acuity data in order to be convinced there is no diminution in Lucentiss efficacy. Intravitreal triamcinolone (BMYs Kenalog and multiple generics) is a steroid that has been used increasingly as an off-label treatment for DME. Triamcinolone has potent anti-inflammatory, anti-permeability, anti-angiogenic, and anti-fibrotic effects. Most of the evidence supporting its effectiveness in macular edema has come from small, physician-sponsored studies, although the Diabetic Retinopathy Clinical Research Network (DRCR.net) is conducting a number of more formal studies to compare triamcinolone with laser treatment. A small randomized controlled trial evaluated triamcinolone (4mg) in 43 diabetic patients (69 eyes) with relatively mild visual loss from macular edema, comparing treatment and placebo-treated eyes at two years. Visual acuity improved by 5 letters in 56% of steroid-treated eyes, versus 26% of placebo-treated eyes. However significant side effects have been noted with triamcinolone, including elevated intraocular pressure in up to half of eyes, as well as increased risk of cataract formation, and increased risk of endophthalmitis. Given the relatively short-lasting effects of intravitreal treatments, there is concern regarding recurrence of DME as the drugs effect wears off. Our physician consultants are of the opinion that combining intravitreal trimacinolone (or antiVEGF treatments) with laser therapy provides patients with the short-term benefit of the intravitreal drug, and long-term reduction in fluid leakage as a result of photocoagulation. Several ongoing NEI studies are evaluating combinations of laser
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and intravitreal treatments, and should provide further clarity on the optimal combinations and frequencies of treatment.
VEGF Emerging As An Important Therapeutic Target In DME

There is a growing body of evidence suggesting that VEGF is implicated in the pathogenesis of DME. Studies have shown VEGF-A levels to be significantly higher in DME patients versus patients with non-diabetic eye disease. Further studies have shown that DME patients with extensive macular leakage have significantly higher levels of VEGF-A compared with patients showing minimal leakage. It is thought that VEGF is upregulated in DME in response to the retinal hypoxia that results from hyperglycemic changes in retinal vasculature. In addition to being a potent stimulator of angiogenesis, VEGF is also known to induce vascular permeability, causing fluid and proteins to leak into the central retina.
VEGF-A: A Key Mediator Of Angiogenesis And Vascular Permeability
Source: Ferrara et al. Nat Med. 2003; 9:669
Clinical Trial Experience With Lucentis In DME Is Modest

Although laser photocoagulation/trimacinolone is considered the standard of care for DME, there are instances when it may be inappropriate or does not provide adequate results. Recently, increased understanding of VEGFs role in the pathophysiology of DME combined with the retina communitys wildly positive experience with anti-VEGF therapy in wet AMD (Lucentis, Avastin, Macugen) has driven some specialists to experiment with anti-VEGF therapy in refractory DME patients. Several Phase II studies (mostly physician-sponsored studies) have evaluated Lucentis in DME, each of which associate Lucentis with encouraging activity. The first of these trials, a single-center, open-label pilot study, conducted by Chun et al, evaluated a total of 10 eyes in 10 patients with DME. Patients were treated with a
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series of 3 monthly injections of Lucentis (0.3mg or 0.5mg) and then followed for 2 years. At 3 months, 4 patients gained 15 or more letters of vision, 5 patients gained 10 or more letters, and 8 patients gained at least 1 letter. Mean central retinal thickness was reduced by 45 m in the 0.3mg group, and 198 m in the 0.5mg group. In this study, vision gains in both dose groups appeared to diminish significantly between the 3-month and 6-month visits, indicating the need for repeated Lucentis injections to sustain visual acuity gains. The second set of published data are interim results from the READ-1 study (Ranibizumab for Edema of the mAcula in Diabetes), a non-randomized single-center study in which 10 patients with chronic DME received intraocular injections of 0.5mg Lucentis at baseline, and at one, two, four and six months. At month seven, mean and median visual acuity in these patients improved by 12.3 and 11 letters, respectively. Results also demonstrated a mean decrease in central retinal thickness of 246 m at seven months, with a strong correlation between foveal thickness and improvement in visual acuity. Additional Lucentis injections were associated with reduction in foveal thickness.
Interim Data From READ Study: Effect Of 0.5mg Lucentis Injection in DME Patients
Source: Nguyen et al.Am J Ophthalmol. 2006 Dec; 142(6): 961-9
In addition to these studies, data sets from two ongoing Phase II studies (RESOLVE, READ-2) were recently presented at the American Academy of Ophthalmologys 2008 annual meeting. The RESOLVE trial, a 150-patient Phase II being conducted by Genentechs European partner Novartis, is a randomized, double-blind study comparing 0.3mg and 0.5mg Lucentis vs. placebo in patients with CSME. 12-month data from this study were presented in November 2008 by Dr. Pascale Massin, and used to inform the design of the ongoing Phase III RESTORE study (see below). The trial included 151 patients with central macular thickness of 300 m or more and a best corrected visual acuity (BCVA) letter score of between 39 and 73. Patients had type 1 or type 2 diabetes and DME with center involvement in at least 1 eye (focal or diffuse). Patients were randomized to receive 3 monthly injections with
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either 0.3 or 0.5 mg Lucentis or placebo. Treatment was then administered on an asneeded basis, depending on response to initial treatment. If edema resolution was incomplete, then the dose of Lucentis was doubled after 1 month. Photocoagulation after 3 injections was given if needed. Lucentis was superior to placebo with respect to changes in BCVA letter score and central retinal thickness. The safety profile of Lucentis was comparable to that observed in patients with AMD. When the pooled data from the doubled-dose ranibizumab group (n = 77) were compared with the placebo group (n = 32), the difference in mean average change in BCVA was 6.7 for the pooled group (P = .0002). Likewise, the reduction in central retinal thickness was higher in the pooled-dose group than in the placebo group. The READ-2 study (Ranibizumab for Edema of the mAcula in Diabetes), is a physician-sponsored Phase II, randomized, multicenter trial that was initiated in December 2006. 6-month data from this study were presented by Dr. Peter Campochiaro, in November 2008. 126 patients were randomized to receive either laser photocoagulation, Lucentis, or a combination of both laser and Lucentis, with a primary endpoint of visual acuity following 6 months of treatment. Patients have since entered an 18 month extension phase. 115 patients completed the study visit at month 6. Improvement in visual acuity of at least 3 lines was observed in 9 patients in the Lucentis group, compared with 5 in the combination group and 0 in the laser-only group. Visual acuity improved by a mean of 8 letters in the Lucentis group and 3.8 letters in the combination group; there was a 1-letter loss in the laser-only group. No drug or laser-related adverse events were reported. However, while consultants note that the visual acuity results after six months of Lucentis dosing are impressive, they are uncertain whether these visual gains are likely to last through 2 years.
Anecdotal Experience With Lucentis More Mixed

In addition to clinical trials, many retina specialists have accumulated anecdotal experience with either Lucentis or Avastin in a handful or more DME patients. Retina consultants believe Lucentis and Avastin are somewhat effective in DME. However their early experience indicates efficacy is underwhelming compared with that seen in the wet AMD setting. In attempting to explain this difference, consultants have hypothesized that DME may be of multifactorial etiology in which VEGF is just a single piece of a larger puzzle that includes additional inflammatory and propermeability factors. That said, our consultants have been encouraged by Lucentis/Avastins activity in certain subsets of DME patients. Physicians have noted the best results in patients with severe diffuse edema, and also in patients with proliferative diabetic retinopathy, where targeting VEGF appears to counteract rapid proliferation of new blood vessels. In addition, consultants have used the drugs with some success in patients who have responded poorly to standard therapies (including a number of patients in whom triamcinolone has induced elevated intra-ocular pressure) where no other treatment options exist. However, even in these subsets of patients, consultants have been somewhat disappointed by the short-lived (<1 month) effect of anti-VEGF therapy, and the need for recurrent dosing to produce a durable effect.
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Lucentis Entering Pivotal Trials

Genentech is now conducting two registrationally directed trials of Lucentis in DME. The RIDE and RISE trials will each enroll 366 patients (across 70 U.S. sites) with clinically significant macular edema (CSME), including patients who may have failed laser treatment. Patients will be randomized to receive 24 monthly injections of Lucentis (0.5mg) or placebo. The 24-month endpoint reflects the FDAs view that new therapies for DME should demonstrate long-term therapeutic benefits. The primary endpoint for both trials is percentage of patients who gain at least 15 letters of vision vs. baseline, with a number of other secondary endpoints that include mean change in retinal thickness (as measured by OCT) and mean number of focal laser treatments. Both trials began in late 2007, and in January 2009 Genentech commented that these trials are now completing enrollment (RISE completed enrollment in Q4:2008, while RIDE will complete enrollment in Q1:09). Data from both studies is expected in 2011, with potential 1-year interim data in 2010. While positive anecdotal experience and intriguing data from pilot studies give our consultants optimism that these trials will meet with success, views on how positive data might affect treatment practices are somewhat more mixed.
Phase III RIDE/RISE Trials: Summary of Key Inclusion & Exclusion Criteria
Inclusion Criteria Retinal thickening secondary to DME involving the central fovea, with central macular thickness >275 m Known duration of DME 2 years BCVA score in the study eye of 20/40 to 20/320 at an initial testing distance of 4 meters Exclusion Criteria Laser photocoagulation in the study eye within 3 months of study entry Intraocular steroids in the study eye within 3 months of study entry Anti-angiogenic drugs in either eye within 3 months of study entry History of vitreoretinal surgery in the study eye PDR in the study eye (except inactive, fibrotic PDR that has regressed following laser) Iris neovascularization, vitreous hemorrhage, traction retinal detachment, or preretinal fibrosis involving the macula in the study eye Area of retinal ischemia within 500 um from the center of the fovea of the study eye Ocular inflammation in the study eye Uncontrolled glaucoma in the study eye
Source: www.clinicaltrials.gov
In parallel with the RIDE/RISE studies, Novartis (Genentechs ex-U.S. partner for Lucentis) is running the Phase III RESTORE study, that was initiated in Q2:2008. This study is randomizing 315 patients to receive either Laser treatment, Laser + Lucentis (0.5mg), or Lucentis (0.5mg), with a primary endpoint of change in BCVA at 12 months compared to baseline. Novartis expects to complete enrollment in this study in Q1:2009, with data expected in H1:2010.
Lucentis Sales In DME Unlikely To Grab Any Headlines

Although physicians are optimistic that Lucentis will achieve its primary endpoint in Phase III DME studies, they believe the drug is unlikely to meet with the same commercial success in DME as was seen in wet AMD. Our consultants beliefs are
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based on 1) Lucentiss more modest efficacy in DME patients (relative to its efficacy in AMD), 2) a shorter durability of effect that will necessitate monthly injections, and 3) the existence of (relatively) satisfactory treatment options. Efficacy in DME vs. AMD. The limited data from pilot studies on Lucentis in DME make for difficult comparisons to full Phase III data in wet AMD. Studies also differ in terms of drug dosing intervals and the time point at which visual acuity was measured. Nonetheless, consultants clearly believe that Lucentiss efficacy in DME lacks the same wow factor that was noted in wet AMD. Requirement for monthly dosing. While wet AMD patients receive an average of 5-7 injections of Lucentis per year, pivotal trials in DME are evaluating monthly injections of Lucentis over a 2 year period. In our consultants experiences, responses to Lucentis are rapid, and short-lived if the drug is discontinued, thus it is less likely that dosing intervals can be extended as they were in wet AMD. Consultants foresee practical barriers to frequent dosing in a younger DME population that is likely to be less accepting (and less compliant) of monthly intravitreal injections. Lucentis would likely have to demonstrate overwhelming efficacy in Phase III to overcome this convenience hurdle. Laser Therapy Is A Viable Alternative. Consultants do not expect Lucentis to displace laser treatment as standard-of-care, but rather expect to use Lucentis selectively in combination with laser. Indeed the design of Genentechs Phase III RIDE and RISE studies is such that Lucentis is being tested versus sham. In contrast, Genentechs Phase II/III ANCHOR trial in wet AMD demonstrated superiority of Lucentis over Visudyne PDT (the previous standard-of-care), accounting for Visudynes rapid displacement by Lucentis. In addition, we believe there are economic/reimbursement incentives that would favor physicians continuing with laser treatments. Our retina experts believe that Lucentis is likely to gain most traction either in the subset of DME patients who are refractory to laser/trimacinolone or in patients who suffer severe diffuse DME, or proliferative diabetic retinopathy, where results have been most impressive. Unlike current practices in wet AMD, it seems likely that a laser/Lucentis combination approach (for sustained visual stabilization) might be utilized in these patients. Longer-term data from the ongoing READ-2 study should provide greater clarity on such combination approaches.
DME Sales Unlikely For Some Time

While Phase II data from the RESOLVE and READ-2 trials have provided physicians with a strong sense of Lucentiss activity in DME, consultants do not expect much off-label use ahead of Phase III data. Rather they anticipate a label will be needed to overcome reimbursement constraints associated with Lucentiss likely high cost ($24K/year) in DME. Assuming data are available from RIDE and RISE in mid-2010 (612 months to enroll, 24 months to treat), Lucentis might gain FDA approval in 2011 or 2012.
Avastin May Be Less Of A Competitive Threat In DME

A discussion on the prospects of Lucentis in DME would not be complete without mention of Avastins prospects in DME. A number of our physician consultants have used off-label Avastin in DME patients, particularly in patients with poor responses to laser or steroids, where no other medical treatment options remain. In contrast to
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wet AMD, physicians use of off-label Avastin in DME has been somewhat tempered, owing to both modest efficacy and specialists reluctance to use an off-label agent with known thrombosis risk in a younger patient population. An ongoing NEIsponsored Phase II study is comparing laser vs. Avastin vs. laser/Avastin. Although this is a short-term study with a 9-week primary endpoint, it may provide a greater indication of Avastins promise in DME, and positive data could spur the NEI to conduct a larger and more long-term Phase III study. Interestingly, while most retina specialists would posit that Lucentis and Avastin have somewhat similar efficacy in wet AMD, there is some thought among consultants that Lucentis might be a bit more efficacious than Avastin in DME. It may be that Lucentiss smaller size and more specific, higher-binding-affinity for VEGF provides it with an advantage over Avastin, though this has yet to be proven.
Retinal Vein Occlusion A Smaller Opportunity

In parallel with DME trials, Genentech is conducting registrational trials of Lucentis in retinal vein occlusion (RVO). Retinal vein occlusion is a disruption of blood flow in the retina and is a common precursor condition in patients who go on to develop macular edema. The Phase III BRAVO and CRUISE trials were initiated in Q2:07 and completed enrollment in Q4:2008. The studies will evaluate Lucentiss safety and efficacy in BRVO (branch retinal vein occlusion) and CRVO (central retinal vein occlusion), respectively. The trials, which are similar in design to RIDE and RISE, will enroll 390 patients across 70 U.S. sites, and will test Lucentis vs. placebo. Data from both studies are expected in H2:09. According to Genentech, the incidence of RVO is similar to that of DME (138K BRVO patients and 53K CRVO patients in the U.S.). However, physician consultants report far fewer RVO patients than either DME or wet AMD patients in their practices. Physicians believe Lucentis works well in RVO and that it will likely succeed in Phase III trials, but are discouraged by the need for frequent re-treatments and the rebound edema that occurs when Lucentis is stopped. This appears to be a story similar to DME, which is unsurprising given that macular edema accounts for the majority of vision loss in retinal vein occlusion (owing to increased vessel permeability and back flow from venous stasis). Consultants are more optimistic for Lucentiss potential in the CRVO population, versus the BRVO population where existing treatments (laser) are likely to dampen Lucentiss impact.
Allergans Posurdex In Phase III For Macular Edema

Allergan acquired Posurdex via its 2003 acquisition of Oculex. Posurdex is an extended-release biodegradable ocular implant containing dexamethasone (corticosteroid), and is under development for the treatment of macular edema. Macular edema is the swelling of the macula region of the eye, which is the region of the retina critical for vision. Macular edema can be a complication of diabetes and can also result after cataract surgery. Four double-blind, dose comparison Phase III trials of Posurdex currently are being enrolled, two in patients with macular edema (860 patients each) and two in patients with retinal vein occlusion (650 patients each). The primary endpoint for all four Phase III trials is visual acuity and the secondary endpoint is macular thickness. Allergan intends to file an NDA for Posurdex in 2009. We estimate a launch of Posurdex in 2010, with sales of $45MM that year, and $300MM in 2015.
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According to our retina consultants, the largest market for Posurdex would be as a treatment for diabetic macular edema. About 85% of patients with diabetic macular edema are treated by laser photocoagulation. Of these patients, about 20% are inadequate responders and move to second-line therapy. These patients would be candidates to receive Posurdex, other potential implants, or corticosteroid injections. Currently, pSivida, a Massachusetts-based company, is developing a rival implant to Posurdex called Medidur, which is in Phase III. While Posurdex has a duration of 35-40 days, Medidur is designed to have a duration of between 18 to 36 months. For this reason, our consultants believe that Medidur could be more successful. However, this will obviously be driven by the clinical data. They estimate that of the 20% of diabetic macular edema patients that are non-responders to photocoagulation, about 50% will eventually use Medidur, 25% will use Posurdex and another 25% will remain on corticosteroid injections. Posurdex is also being studied as an implant for retinal vein occlusion and here too, the split for the market could be similar to the split in the case of diabetic macular edema. While physicians see Posurdex as a useful drug, they believe its use might be limited by issues such as carrying costs for physicians, the overall cost to the patient and the need for repeat use. Our consultants like the biodegradable nature of the implant, which dissolves after 37 days of use. However, they note that the shorter duration would mean that patients would have to come in for repeat procedures. In comparison, generic tramcinolone injections cost a fraction of the potential cost of Posurdex (which might be between $600-1,000). The decision to use Posurdex or Medidur over intravitreal triamcinolone injections, therefore, will depend on the patients comfort with intravitreal injections, which cause significant side effects but are also relatively much cheaper. Additionally, our consultants note that another implant, Bausch and Lombs Retisert, has not gained much traction in the market. Retisert is a similar implantable product to Posurdex but contains fluocinolone. Nevertheless, our consultants note that Retisert is limited by its indication for uveitis, a condition with a much smaller patient base that in the case of macular edema, and therefore, not an accurate comparator. Phase II Data Have Been Encouraging Results from a 306-patient Phase II trial were presented by Oculex at the Association for Research in Vision and Ophthalmology (ARVO) in 2003. Patients with macular edema associated with diabetes, retinal vein occlusions, uveitis, or post-cataract surgery were enrolled in the trial. The trial had three arms; patients were randomized to receive a single 350g Posurdex treatment, a single 700g Posurdex treatment, or observation without drug therapy. Statistically significant improvements in visual acuity, as defined by vision improvement of greater than or equal to two lines (primary endpoint) via a standard eye chart, were seen at day 90 and day 180 in the 700g treated group vs. placebo (see table below). Statistically significant decreases in retinal thickness and fluorescein leakage were seen at both doses tested. A dose response was seen with the two doses tested, although the 350g dose did not hit statistical significance.
SUMMARY OF PHASE II POSURDEX DATA 350g Dose (n=100) 2 Lines of Improvement Day 90 Day 180 3 Lines of Improvement Day 90 Day 180 Source: Company reports 26.1% 27.2% 13.0% 13.0% 700g Dose (n=101) 36.7% 35.7% 16.3% 19.4% No Drug Rx (n=105) 19.0% 19.0% 9.0% 8.0% P-value [700g dose vs. No Drug] 0.005 0.006 0.115 0.020
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Trivaris Likely A Niche Product

In June 2008, the FDA approved Allergans Trivaris (triamcinolone 80-mg/mL), a synthetic glucorticoid corticosteroid. Trivaris is delivered via intravitreal injection and is indicated for retinal diseases such as sympathetic ophthalmia, temporal arteritis, uveitis, and ocular inflammatory conditions unresponsive to topical corticosteroids, all of which can cause vision loss. Triamcinolone acetonide injectable 10-mg/mL injection (Kenalog 10; Bristol-Myers Squibb Company) previously was approved by the FDA for intraarticular and intralesional use; a 40mg/mL formulation (Kenalog 40; Bristol-Myers Squibb) was approved for intramuscular and intraarticular use. Triamcinolone creams, ointments, lotions, and sprays are also available at lesser concentrations for topical anti-inflammatory use. We estimate sales of $15MM in 2009, growing to $80MM in 2015.
Lillys Arxxant Receives Approvable Letter For DME

In August 2006, Eli Lilly received an approvable letter from the FDA for Arxxant for diabetic macular edema. In September 2006, Lilly announced that the FDA requested that an additional Phase III trial be conducted to support the potential approval of Arxxant. Lilly believes such a trial would take up to five years to complete, and it is weighing options for future development. The drug is currently in two Phase III trials for DME. Eli Lilly has made the decision not to pursue approval in Europe. Arxxant (ruboxistaurin) is an oral PKC inhibitor being tested for multiple indications including back-of-the-eye diseases. The molecule targets the underlying microvascular damage associated with diabetes complications such as diabetic neuropathy, diabetic retinopathy, and diabetic nephropathy. Millions of diabetics suffer from these complications, which can lead to ulcerations or amputation of extremities, vision loss or blindness, or renal failure. Phase III studies in diabetic nephropathy have been mixed and, as a result, Lilly management anticipates that Arxxants first indication may be for the treatment of symptoms of diabetic retinopathy. We believe that the company may progress toward AMD trials as well, but the drug is unlikely to reproduce the potency of the anti-angiogenic agents. However, if Lillys drug eventually proves efficacious, it has a significant advantage as a systemic oral therapy. Thus far, there have been no major safety issues discovered during clinical studies. Patients in clinical trials are being followed for immunologic reactions. No tachyphylaxis has been seen, which theoretically would be driven by up regulation of other PKC isoforms. Ruboxistaurins half-life is 4 hours, but has an active metabolite whose half-life persists longer than 4 hours. The drug undergoes hepatic metabolism and there is a minor interaction with the P450 enzyme. There is a substance patent on Ruboxistaurin which expires in 2018. In July 2006, Eli Lilly and Alcon announced a U.S. co-promotion deal for Arxxant, under which Alcon is responsible for targeting ophthalmologists and retina specialists, while Lilly is responsible for promoting to endocrinologists and primary care specialists. Retinopathy Trial Endpoint Rigorous But Full Data Set Key In June 2006 at the ADA meeting in Washington DC, Eli Lilly reported an analysis of pooled data from two 3-year Phase III trials of Arxxant that demonstrated a 41% reduction in the rate of sustained moderate vision loss versus placebo for patients with moderate to severe diabetic retinopathy. SMVL over 3 years among patients treated with Arxxant was 6.1% versus 10.2% in the placebo group (p= 0/011). There
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was no reduction in the progression from nonproliferative to proliferative retinopathy. Arxxant was well tolerated, and only indigestion occurred at a rate greater than that of placebo. Our physician consultants believe that the sustained moderate visual loss (SMVL) endpoint in the Phase III trial was a higher hurdle than the moderate vision loss (MVL) endpoint measured as a secondary outcome in the Phase II/III study. Moderate vision loss is defined as a loss of at least 15 letters or three lines of visual acuity. In the Phase II/III study, Arxxant 32mg showed a 32% risk reduction (p = .029) of moderate visual loss compared with placebo although it failed to achieve the primary endpoint of retinopathy progression. As a result, the primary endpoint of the Phase III study, which initially had been progression to retinopathy, was changed to sustained moderate vision loss. Sustained moderate visual loss implies moderate visual loss for six months or longer. Because SMVL excludes those patients that have improved vision within six months, sustained moderate vision loss is a more rigorous standard to meet. The Phase III retinopathy trial had expanded enrollment criteria compared to the Phase II/III study. The Phase II/III study included patients with retinopathy severity between 47B and 53E (moderately severe to very severe nonproliferative diabetic retinopathy). The entry criteria in the Phase III study were expanded to include patients with retinopathy classified as 47A. Patients with a 47A classification have vision loss less frequently and therefore the inclusion of this subset drove down the per patient event rates. One of our physician consultants clinics treats 8,000 patients per year. He expects that about 50% of these patients could be placed on Arxxant if it eventually secures an indication for sustained moderate vision loss. If the entire result is driven by the DME population, then our consultant anticipates use in 20-30% of the patient group.
Other Promising Candidates Include New VEGF-Inhibitors

VEGF Trap (Regeneron/Bayer Healthcare) is being developed as an intravitreallydelivered recombinant fusion protein for the eye that actively binds and sequesters all isoforms of VEGF-A and PIGF to prevent the formation of new blood vessels. Regeneron believes the mechanism is well validated by other anti-VEGF drugs such as Macugen and Lucentis. Furthermore, the company believes VEGF Traps longer half-life and broad pan-VEGF inhibition characteristics will potentially provide a meaningful benefit over Lucentis. In October 2006, Regeneron announced a collaboration with Bayer Healthcare for the ex-U.S. development and commercialization of VEGF Trap-Eye. In March 2007, Regeneron announced positive interim data from a Phase II study of VEGF-Trap and simultaneously announced the start of a Phase III 1200-patient study in wet AMD. The Phase 2 study is a 12-week trial involving 150 patients randomized to 5 groups, and treated with VEGF-Trap in one eye. Two groups received either 0.5 or 2.0 mg of VEGF Trap-Eye administered every four weeks, and three groups received a single dose of 0.5, 2.0, or 4.0 mg of VEGF Trap-Eye. The interim analysis was conducted on the first 78 patients who completed 12 weeks of study, and data were presented at ARVO in May 2007. VEGF Trap-Eye met its primary endpoint of a statistically significant reduction in retinal thickness after 12 weeks compared with baseline (all groups combined, decrease of 135 microns, p < 0.0001). Mean change from baseline in visual acuity also demonstrated statistically significant improvement (all groups combined, increase of 5.9 letters, p < 0.0001). Patients in the dose groups that received only a single dose, on average demonstrated a decrease in excess retinal thickness (p < 0.0001) and an increase in visual acuity (p =
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0.012) at 12 weeks. There were no drug-related serious adverse events. All but one patient maintained or improved vision at 12 weeks. Although improvement in visual acuity was numerically larger in patients receiving injections every 4 weeks, there were no statistically significant differences across the five dose groups in either retinal thickness or visual acuity at 12 weeks. The 52-week results from this study were presented at the Retina Society meeting in late September 2008. Top-line data were announced in September 2008. Following the 12-week fixed-dosing phase of the trial, patients continued to receive the same dosage on an as-needed basis for 52 weeks. Patients were monitored for safety, retinal thickness, and visual acuity. Patients in the 2-mg or 0.5-mg dose groups who received four monthly doses of VEGF Trap-Eye in the initial 12 weeks followed by asneeded dosing for 52 weeks achieved mean improvements in visual acuity from baseline of 9 letters (P<.0001) and 5.4 letters (P=.085), respectively, and a mean decrease in retinal thickness compared with baseline of 143 m (P<.0001) and 125 m (P<.0001), respectively. During the as-needed dosing phase, patients initially given the 2-mg dose on a monthly schedule received an average of 1.6 additional injections, and those initially given 0.5 mg on a monthly schedule received an average of 2.5 injections. Investigators observed a mean 5.3-letter gain in visual acuity compared with baseline (P<.0001) and a mean 130-m decrease in retinal thickness compared with baseline (P<.0001) at week 52 across all dose groups. During the as-needed dosing period, all dose groups in the study population received an average of two additional injections. At the end of 52 weeks, VEGF Trap-Eye was well tolerated, and no drug-related serious adverse events were observed. The randomized, double-blind Phase 3 VIEW-1 trial (VEGF Trap: Investigation of Efficacy and safety in Wet AMD) will enroll 1200 patients at 200 centers worldwide. The study will evaluate VEGF Trap-Eye at doses of 0.5 mg and 2.0 mg dosed at fourweek intervals and 2.0 mg at an eight-week dosing interval, compared to 0.5 mg Lucentis dosed every four weeks. The primary endpoint of the study is the proportion of patients treated with the VEGF Trap-Eye who maintain or improve vision at the end of one year, compared to Lucentis-treated patients. After the first year of treatment, patients will continue to be treated and followed for another year. Our retina consultants view VEGF-Trap as a very potent VEGF-inhibitor, but unproven in terms of safety and somewhat lacking in terms of differentiation from Lucentis and Avastin. Given most commercial patients are already receiving Lucentis on an extended dosing interval (injections every 1.5 to 3 months), physicians dont believe the VIEW 1 trial will set a new standard for convenience. Moreover, while VEGF-Trap might be able to gain share from Lucentis based upon price, a favorable outcome for Avastin in the NIH CATT trial would obliterate the market for all branded therapies. Sirna-027 (Allergan/Merck) is a novel RNAi-based product under development for the treatment of age-related macular degeneration (AMD). RNA interference (RNAi) is an early-stage, but promising area of drug development. RNAi leverages a natural selection process inherent to all cells in order to turn off genes that are responsible for a given disease state. Per a September 2005 agreement, Allergan has assumed all development and commercialization responsibilities for Sirna-027. Final results of a Phase I open-label, dose escalation study of Sirna-027 in patients with AMD were released in August 2006. In this study, 26 patients received single ascending intravitreous injections of Sirna-027 and were followed for three months. Sirna-027 was safe and well tolerated, and 100% of the patients lost less than 3 lines of visual acuity after 8 weeks of follow-up. Additionally, 19% of patients experienced
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3 lines or greater increase in visual acuity. Three months after the initial injection, 92% of patients still had lost less than 3 lines of visual acuity and 15% had 3 lines of vision gain or more. The Phase I/II trial includes six patient cohorts, receiving doses of Sirna-027 ranging from 100 to 1600g.
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Focus On Dry Eye

Will Allergans Restasis Be Challenged?
Dry eye (keratoconjunctivitis sicca) typically is defined as a chronic deficiency of moisture in the eye, and usually is caused by inadequate tear production and/or a change in tear composition that leads to rapid evaporation. The drying of the ocular surface causes itching and irritation, and may lead to corneal damage. Dry eye often is associated with certain autoimmune diseases, including hypergamma-globulinemia (abnormally high blood levels of antibodies) and rheumatoid arthritis. An estimated 9MM people in the U.S., and as many as 30MM worldwide, suffer from moderate-tosevere dry eye. Nearly 75% of Americans over age 65 will experience epsiodes of dry eye: post-menopausal women, Asians, and Hispanics are the sub-populations most likely to experience symptoms. Prior to the launch of Allergans Restasis (cyclosporine ophthalmic emulsion) in April 2003, dry eye treatment options were limited to over-the-counter artificial tear products, which remain the first-line therapy. However, OTC artificial tear products provide only short-term symptom relief, and do not provide adequate protection against potential corneal damage, leaving the market open to new, more efficacious treatments. For more severe dry eye, silicone plugs may be inserted in the lacrimal (tear) ducts to prevent tear drainage. A number of dry eye products are currently in development. However, if the protracted regulatory path of Insipres Prolacria (diquafosol) is any indication, it could be a rough road to approval.
Source: www.prof-vision.com
Allergans Restasis Reigns As King Of The Dry Eye Market

Restasis (cyclosporine) became the first FDA-approved prescription dry eye therapy on the market when it was launched in the U.S. in April 2003. Restasis is covered by two patents, a use patent that expires in 2009 and a formulation patent that expires in 2014. Restasis anti-inflammatory mechanism increases tear production, relieving the symptoms of dry eye and improving the overall integrity of the ocular surface. Restasis sales were disappointing in 2003, due to multiple factors: in the clinical studies, 17% of patients experienced initial irritation upon administration; a slow
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onset of action (3-4 weeks); and a high price relative to OTC artificial tear products. DTC ad campaigns and good clinical experience have accelerated Restasis sales growth. Our clinical consultants have become increasingly positive on the outlook for the product. We estimate Restasis sales of $435MM in 2008 and $600MM in 2012. Inspire Co-Promotion Adds Marketing Support Under the June 2001 Diquafosol joint development and marketing agreement with Inspire Pharmaceuticals, Allergan provided Inspire with an option to co-promote Restasis in the U.S. Inspire exercised this option and began co-promoting Restasis to ophthalmologists, optometrists and allergists via its specialty sales force in January 2004, and receives royalties on U.S. sales of Restasis in exchange for its efforts. Inspire receives a scaled royalty based on Restasis sales; the specific royalty rate has not been disclosed, but we estimate the rate at approximately 7-8% of Restasis sales.
Prolacria Still A Long Shot

Prolacria (diquafosol) is a P2Y2 receptor agonist that is believed to stimulate the release of natural tear-film components: water, salt, mucins, and lipids. In December 2005, Inspire announced the receipt of a second FDA approvable letter for the Prolacria NDA. In the approvable letter, the FDA noted that the submitted clinical studiesare inadequate to demonstrate efficacy. Based on our review of the submitted data, consistent findings of corneal clearing need to be demonstrated to support the efficacy of the drug product. Inspire has met with the FDA multiple times to discuss Prolacria since the second approvable letter. Inspire has consistently been arguing that complete clearing of the central cornea is a valid measure of efficacy in dry eye. Prolacria successfully achieved this endpoint in its latest Phase III, but the primary endpoint of the trial, which Prolacria missed, was complete clearing of the entire cornea (not just the central region). During the first half of 2008, Inspire conducted a pilot clinical trial, a validation exercise for the FDA to support the use of central corneal clearing as a clinical efficacy endpoint for dry eye. Management also indicated that if it validates central corneal clearing as an efficacy endpoint in the eyes of the FDA, it will seek an SPA for an additional clinical trial. Inspire expects to provide an update on the status of the dry eye program by the end of Q3:08. Given the lack of visibility on the regulatory outlook for Prolacria, we have removed all development and sales contributions from Prolacria from our model. Regulatory Hurdles May Impact Overseas Development Allergan is responsible for Diquafosol clinical and regulatory development in Europe. Presently, the European regulatory authorities lag behind the U.S. in terms of clearly defining clinical standards for a prescription dry eye treatment. Inspire and Allergan have shared the 03-109 trial data with the European regulatory agencies. However, the European authorities are focused on symptomatic dry eye endpoints. Therefore, the European authorities will likely require longer trials to demonstrate a statistically significant effect with Diquafosol in the treatment of the symptoms of dry eye. Given Diquafosols past difficulties hitting symptomatic endpoints in the U.S. trials, we believe development of the product for the E.U. market will likely be abandoned. In 1998, Inspire entered into development and commercialization agreements with Santen Pharmaceutical for Diquafosol in Japan. Santen completed Phase II clinical trials with Diquafosol in Q1:06, and completed a
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Phase III trial in May 2008. Santen filed for marketing approval in Japan on May 30th, and expects a decision on approval within the next 18 months. Continued development of Diquafosol in Europe, or the U.S. would represent upside to our numbers.
SUMMARY OF DIQUAFOSOL PIVOTAL PHASE II/III TRIALS
Trial 03-104 # Patients Enrolled Trial Duration Time To Primary Endpoint Placebo-Controlled Primary Endpoint(s) Results
558 48 weeks 12 weeks Yes
Trial 03-105
Trial 03-108
Trial 03-109
640 6 weeks 6 weeks
Corneal staining*; worst symptoms Corneal staining; Clearing of foreign body sensation* Improvement trend, but not statistically significant Statistically significant improvement (p<0.05) in corneal staining - both doses - vs. placebo at most time points; improvement trend in clearing rate (foreign body sensation), but not statistically significant vs. placebo Conjunctival staining; Schirmer test*; individual symptom scores
Yes Ocular staining* (both corneal and Complete corneal clearing conjunctival); Ocular discomfort* Statistically significant improvement in ocular staining endpoint during environmental portion; no statistical significance in either endpoint in the CAE portion Conjunctival staining, ocular clearing Did not demonstrate statistically significant improvement in complete corneal clearing
Secondary Endpoint(s)
Conjunctival staining; Schirmer test*; individual symptom scores
Corneal staining,Conjunctival staining; Ocular Surface Disease Index (OSDI); patient's worst symptom score; conjunctival clearing; mean corneal staining Did not demonstrate statistically significant improvement in OSDI and patient's worst symptom score; did achieve statistical significant benefit in mean corneal and conjunctival staining scores, conjunctival clearing, and central corneal clearimg 2% sol'n Enrollment initiated in June 2004, completed in Nov 2004; postissuance of FDA "approvable" letter in Dec 2003; OSDI is subjective measure, but relatively more objective than patient diary approach; corneal clearing is reduction of corneal staining to zero
Results
Improvement trend, but not statistically significant
Statistically significant Demonstrated statistically improvement (p<0.05) in significant benefit in ocular conjunctival staining - 2% dose clearing. vs. placebo at weeks 4, 6, 10, and 12; statistically significant tear production improvement (p<0.05) 2% dose - vs. placebo at week 6 1% and 2% sol'n Schirmer test is a measure of tear production via use of a paper strip, accuracy questionable; foreign body sensation is a subjective measure, scored by patient diary 2% sol'n Environmental lead-in portion of study was 4 weeks; followed by Controlled Adverse Environment (CAE) chamber portion; ocular discomfort measured every 5 minutes during CAE portion; staining measurements made preCAE and post-CAE
Diquafosol Doses Tested Comments
1% and 2% sol'n Schirmer test is a measure of tear production via use of a paper strip, accuracy questionable; corneal staining is an objective measure via fluorescein staining, scored on a 0 to 3 scale
Source: Company reports, Cowen and Company
Novartis/Otsukas Rebamipide Is In Phase III Trials

In February 2005, Novartis licensed OPC-759 (rebamipide; dry eye) from Otsuka Pharmaceuticals. While information on Rebamipide is scarce, particularly as it relates to the treatment of dry eye, the available data look promising. A Phase III clinical trial was initiated in May 2007. Target enrollment is 300 patients. The primary endpoint is fluorescein corneal staining score at 4 weeks, with a secondary endpoint of Lisamingreen conjunctive staining score at week 4. Rebamipide is believed to increase mucin secretion levels, adequately covering the conjunctiva and cornea of the eye, relieving dry eye signs and symptoms. Our consultants have been impressed by the Phase II data for Rebamipide. Originally developed as an antiulcer medication by Otsuka Pharmaceuticals (brand name: Mucosta), Rebamipide has also been shown to be a potent inhibitor of inflammation (e.g., neutrophil activation) and oxidative stress (e.g., lipid peroxidation). Data from this trial are expected in late 2008. In September 2008, Otsuka entered into an agreement with Acucela to codevelop Rebamipide. We estimate sales of $25MM in 20010 and $75MM in 2012.
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Phase II Data For Nascents iDestrin Look Promising

iDestrin is a topical formulation of 17-beta-estradiol under development for the treatment of dry eye in postmenopausal women. It is estimated that 30% of all postmenopausal women suffer from dry eye symptoms. In January 2006, Nascent released positive top-line results from a 90-patient, placebo-controlled, doseranging Phase II trial of iDestrin. All of the top-line data provided were from patients with moderate-to-severe dry eye, which was approximately half of the patients enrolled. The primary objective endpoint for the trial was the Schirmer test. At the high dose of iDestrin tested, a significant improvement was seen at 8 weeks (p=0.027) and 12 weeks (p=0.004). The average improvement was 75% compared to baseline measures. The primary subjective endpoint for the trial was a Foreign Body Sensation measure (via questionnaire). At both doses tested, iDestrin demonstrated efficacy (p<0.04) via the subjective measure. iDestrin also demonstrated statistically significant efficacy at the high dose via superficial keratopathy (p=0.02) and corneal staining (p=0.045) measures at 12 weeks. The fact that those patients with mild disease were excluded from the top-line data suggests that the trial data were either not as impressive or failed to achieve statistical significance. Nascent will likely target the enrollment of postmenopausal patients with moderate-to-severe dry eye for the Phase III program. Nascent is currently seeking additional funding and a strategic partner for continued clinical development and commercialization. Assuming successful development, this will likely mean a narrower label indication.
Mixed Phase IIb Data For Istas Ecabet Sodium

Ecabet sodium stimulates mucin secretion and improves the overall quality of the mucin produced by the eye. In February 2005, Ista released mixed preliminary results from a 162-patient Phase IIb trial of Ecabet Sodium. The dose-finding study tested two different strengths of Ecabet Sodium (3.0% and 3.9%) versus placebo. Patients were treated with Ecabet Sodium four times per day for 90 days. At the low dose, Ecabet Sodium demonstrated a positive trend toward efficacy, as measured by corneal staining and blink rate. However, no efficacy trends were seen with the higher dose. The trial evaluated a number of ocular signs, including corneal and conjunctival staining, tear film breakup time, and blink rate, Ocular symptoms were also evaluated, including burning, stinging, itchiness, grittiness, foreign body sensation, and blurriness. A confirmatory Phase II trial was undertaken to better define the target patient population and confirm efficacy prior to moving into Phase III. Data from this Phase IIb trial were announced in May 2007. Patients in the ecabet sodium group achieved a strong trend in the objective sign of blink rate, a strong trend in the Ocular Symptom Disease Index (OSDI) and a positive trend in the subjective assessment of patients' most bothersome symptom. While the Phase IIb study was not powered to show statistical significance, ecabet sodium did achieve statistical significance in the OSDI assessment. Management expects to initiate Phase III trials in 2008. We target a 2010 launch for Ecabet Sodium and estimate sales of $20MM in 2010 and $35MM in 2011.
Allergans Androgen Tear Offers A Unique Approach

Hormone deficiency has been linked to dry eye. Androgen deficiency is believed to both cause dry eye and increase the pain associated with the disorder. Androgen acts by increasing the quality of the tears produced by stimulating a hormonal response that ultimately leads to an increased concentration of oily secretions in the tears. These oily secretions act as both a lubricant and a moisturizer by preventing
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abnormally rapid tear evaporation. Allergans Androgen Tear eye drops are an androgen replacement therapy in development for the treatment of dry eye. Because it works via a different mechanism than Restasis (anti-inflammatory), Androgen Tear may be used in combination with Restasis and could be useful for patients who fail Restasis therapy. Androgen Tear is currently in Phase II trials. We estimate Androgen Tear sales of $25MM in 2011 and $45MM in 2012.
Visibility Low On Other Dry Eye Drugs Under Development

Novartis is investigating the utility of Elidel, currently approved for the treatment of eczema, as a treatment for dry eye. Elidel is a cyclosporine-like compound, acting via the same anti-inflammatory mechanism of action as Restasis, and is in Phase II clinical development. Alcons Rimexolone is also in Phase II trials for dry eye. Rimexolone is an ocular steroid that Alcon markets under the brand name Vexol for the treatment of inflammation post ocular surgery. Clinical development of Alcons 15-HETE, a dry eye agent previously terminated in Phase III due to lack of good symptom data, has been restarted, but visibility is low. Alcon indicates that Phase III trials of 15-HETE have demonstrated efficacy treating the clinical signs of dry eye (corneal staining), but demonstrating efficacy via a statistically significant improvement in symptoms has proven difficult. We currently have no sales estimates for these products, pending improved visibility.
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Ophthalmology
OPHTHAMOLOGY R&D PIPELINE Company Inspire Pharmaceuticals Product Prolacria PC I II III NDA . MKT Comments Diquasosol; P2Y2 receptor agonist; topical ophthalmic solution for dry eye; 2nd approvable letter 12/05; confirmatory Phase III trial failed to meet primary endpoint; future - June 2008 Pfizer, Inc. Bayer Schering Pharma Novartis Pfizer, Inc. Roche Merck Merck Mitsubishi Tanabe Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Bayer Schering Pharma Inspire GlaxoSmithKline Pharmaceuticals Xalacom VEGF-Trap Eye Lucentis Macugen Lucentis MK-0140 SIRNA-027 Y-39983 PF-3187207 PF-4217329 PF-4523655 VEGF-Trap Eye Pazopanib Glaucoma Program . . . 2012 . . . . . . . . . . 2010 Feb-08 Wet AMD Ranibizumab; with DNA, rights outside North America; diabetic macular edema Diabetic macular edema Diabetic macular edema, retinal vein occlusion; with Genentech Ophthalmology Age-related macular degeneration; with Allergan Japan ROCK (rho-kinase) inhibitor; glaucoma; Glaucoma Glaucoma Age-related macular degeneration Diabetic Macular Edema VEGF tyrosine kinase inhibitor; AMD Technology licensed from University of Wisconsin 11/04; reduction of intraocular pressure via aqueous humor the trabecular meshwork Novartis Novartis ACZ885 SAD-448 Total Drugs In Development 0 5 6 4 2 17 . . Wet AMD Glaucoma uncertain; partner Santen filing in Japan Filed in Japan for treatment of glaucoma
outflow through temporary junctions in
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Notes
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Orphan Diseases
Orphan Diseases
Big Profits From Rare Conditions
Orphan diseases are comprised of numerous different conditions, each of which afflicts only a small number of individuals but that together make up one of the most lucrative therapeutic areas in biotechnology. Though long 14% 2008-13 CGR overlooked by most major pharmaceutical companies, orphan disorders represent attractive opportunities for clinical development based on their well-understood pathologies, straightforward paths of intervention (enzyme replacement), accelerated development timelines, and premium pricing. Such attributes are likely to make orphan disorders a hotbed of biopharmaceutical research for years to come.
Orphan Disease Category Market Share By $ Sales
PARTICIPANTS
BMRN 8%
2008 $3.2B
ALXN 8% ATLN 1% BMRN 10%
2013P $6.2B
ATLN 1%
ALXN 13% SHPGY 15%
GENZ 68% SHPGY 15% GENZ 61%
Via its lysosomal disorder franchise, Genzyme (Cerezyme, Fabrazyme, Myozyme, Aldurazyme) had the greatest dollar share (68) in 2008. We look for Genzyme to retain the leadership position in 2013. Shire had the second largest franchise in 2007 and likely will maintain its position, driven by sales of Replagal and Elaprase. Other companies with strong orphan disorder franchises include BioMarin and Alexion.
Enzyme replacement therapies are the cornerstone of treatment of many orphan disorders, particularly the lysosomal storage diseases. We project that enzyme replacement therapies will reach $5.2B in 2013. Small molecules are expected to become a larger participant in the orphan disorder market. BioMarins Kuvan received FDA approval in December 2007, and other small molecules are in development at Genzyme (GENZ- 112638 for Gauchers) and Amicus (Amigal for Fabrys, Plicera for Gauchers, AT2220 for Pompes). Although historically an area of monopolies and little competition, a number of companies are developing second-generation products that could challenge the first entrants. Diseases in which competition could come in the next 5 years include Gaucher, Fabry, and Pompe.
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Orphan Diseases
Our scatter plot shows that, through 2013, Genzyme should dominate this category. This category is critical to sales growth for Genzyme, BioMarin, Alexion and Shire.
Orphan Diseases
BMRN 100% % Of Company 2008-13 Sales Growth From Category ALXN
80%
60% SHPGY 40% GENZ
20%
0% ATLN -20% $0.00 $0.40 $0.80 $1.20 $1.60 $2.00 $2.40 $2.80 $3.20 $3.60 $4.00 2013 Sales Contributed By Company To Category ($ In B)
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Orphan Diseases
Orphan Diseases Are Rare, Although 25MM People Have One

A disorder is considered orphan if it affects fewer than 200,000 people in the United States, or fewer than 5 per 10,000 people in the European Union. The National Institutes of Health lists 7,000 disorders that qualify as orphan or rare diseases, and estimates that 25,000,000 people in the United States have one. A wide range of conditions qualify as orphan disorders, including Huntingtons disease, amyotrophic lateral sclerosis, Tourett syndrome, cystic fibrosis, and Duchenne muscular dystrophy. This review will focus on those of most interest to public company investors, not covered in other chapters, including Fabry, Gaucher, Hunter, MPS-I, MPS-VI, paroxysmal nocturnal hemoglobinuria (PNH), phenylketonuria, and Pompe.
The Orphan Drug Act Provided Incentives

Given the relatively small patient markets, the commercial potential for therapies to treat lysosomal disorders historically held little appeal for large pharmaceutical companies. Prior to 1983, few drugs for rare conditions were developed, as pharmaceutical companies thought it would be impossible to recoup their development costs. Because there were no effective therapies for most rare conditions, and those drugs that were effective were not manufactured or marketed, this group of disorders became known as orphan diseases, and their abandoned therapies orphaned drugs. To motivate companies to develop therapies for U.S. patients, the Orphan Drug Act of 1983 was passed. This law established tax reductions and, most important, a 7-year period of market exclusivity for companies that develop and commercialize drugs for orphan disorders in the U.S. The market exclusivity, called Orphan Drug status, can only be broken by another preparation of the same molecule that provides a superior safety or efficacy profile. In cases where a manufacturer cannot provide ample supply of a drug, orphan status can also be broken. The Orphan Drug Act has been a resounding success. In the 25 years since it was passed, more than 300 orphan drugs were granted marketing authorization in the U.S. In comparison, during 1973-1983, fewer than 10 such products came to the U.S. market. To duplicate the success of the U.S. Orphan Drug Act, in December 1999 the European Commission passed The Orphan Regulation to provide incentive to develop orphan drugs in Europe. This law defines an orphan drug as any medicinal product intended for the diagnosis, prevention, or treatment of life-threatening or very serious disease affecting fewer than 5 in 10,000 people in the E.U. It established incentives for drug manufacturers, including a 10-year period of exclusivity, protocol assistance, and access to the Centralised Procedure for Marketing Authorization. The Orphan Regulation seems to be successful. As of November 2008, 564 orphan designations were granted by the Committee for Orphan Medicinal Products, and 50 orphan medicinal products were granted either marketing authorization or a positive opinion from the CHMP.
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Orphan Diseases
Rare Diseases Provide Attractive Niche Opportunities

It was not until Genzyme commercialized Ceredase that the revenue potential of treating rare diseases was fully recognized. Commercializing such therapies has several advantages: (1) Faster development times. The rarity and severity of the diseases and absence of effective treatment resulted in the acceleration of clinical development timelines. (2) 7-10 years of market exclusivity, which can only be broken under limited circumstances. (3) High operating margins. Because treatment is usually restricted to a relatively few physicians/centers, small sales forces can detail the drugs.
Premium Pricing Is The Norm, Reimbursement Adequate

One of the biggest trends in the treatment of orphan disease has been the premium prices accorded to novel drugs. High pricing reflects a dearth of existing products that safely and effectively treat each condition, and the severe nature of the diseases. Examples of pricing well in excess of Street expectations include Alexions Soliris ($370,000+ per patient per year), Shires Elaprase ($300,000+ per patient per year), BioMarins Kuvan ($80,000+ per patient per year), BioMarins Naglazyme ($300,000+ per patient per year), Genzyme/BioMarins Aldurazyme ($175,000+ per patient per year), Genzymes Cerezyme ($165,000+ per patient per year), and Genzymes Myozyme ($300,000+ per patient per year). High pricing of these novel agents is in part accepted by payors because any single payor is likely to have only a handful of patients on each therapy, and therefore any particular drug is not a major cost center. While we question whether the favorable pricing environment will last forever, particularly in light of the recent administration change and economic woes, we are not aware of any specific initiative that threatens the status quo.
Lysosomal Storage Disorders Are A Major Class

Lysosomal storage disorders are rare genetic diseases characterized by intracellular accumulation of glycolipids that eventually lead to a compromise in organ function. Mutations in the genes encoding the enzymes can result in inactive enzymes, inadequate enzyme production, or inaccurate trafficking of the enzymes to the lysosome. The biological underpinning is a defect in the degradation of specific macromolecules within an intracellular lysosomal compartment, thereby resulting in a gradual accumulation of substrates. Because the compounds may accumulate in various organs, the subsequent clinical manifestations vary. Skeletal abnormalities, defects in both the immune and neural systems, and death at an early age are common. At least 40 lysosomal disorders have been identified. Prevalence rates for each disease range between 1,000 and 10,000 people worldwide. The success of Genzymes Cerezyme highlights the potential for recombinant enzyme replacement as a viable therapeutic strategy. However, the inability of large proteins to cross the blood-brain barrier limits the utility of systemically administered enzyme to correct underlying neurological manifestations. More progress will have to be made in developing delivery systems before such manifestation of LSD diseases can be effectively treated.
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Orphan Diseases
Fabry Disease
Fabry disease is an X-linked lysosomal storage disorder caused by a deficiency in the enzyme, alpha galactosidase. The resulting accumulation of globotriaosylceramide (GB3) in multiple tissues of the body (kidneys, heart, CNS) is responsible for the progressive organ dysfunction associated with the disease. Patients with Fabry usually progress to suffer from severe pain of the extremities, impaired kidney function often progressing to full kidney failure, early heart disease, stroke and disabling gastrointestinal symptoms. Patients with Fabry disease are typically diagnosed in their late 20s by nephrologists (poor kidney function), geneticists (family pedigree analysis) or dermatologists (angiokeratomas). Prior to enzyme replacement therapy there were no effective therapies for Fabrys and average life expectancy was 40-50 years.
How Many Fabry Patients Are There?

Given the lack of other treatment options for Fabry disease, the market opportunity for enzyme replacement therapies appears limited only by the number of treatable patients. However, due to the diseases late onset and more mild nature (Fabry patients on average live longer than patients with other lysosomal storage disorders), accurate data on disease prevalence are hard to find. Genzyme estimates that 2,500-3,500 patients suffer from Fabry disease in the U.S., and that a similar number are affected in other countries. Nonetheless, as the disease has historically been under-diagnosed, our consultants believe that these numbers could be low. Because of its familial inheritance, once a new patient is identified, additional family members are often found to have the disease. With Genzyme and Shire actively looking for patients, incidence estimates could increase in the next several years.
Fabrazyme And Replagal Are Enzyme Replacement Therapies For Fabry

In August 2001, the European Union approved replacement therapies for Fabry disease from TKT/Shire (Replagal) and Genzyme (Fabrazyme). Each was granted coorphan drug status and market exclusivity for 10 years. In April 2003, the FDA approved Genzymes enzyme replacement therapy for the treatment of Fabry disease (Fabrazyme) and provided it with Orphan Drug Exclusivity - while declining to approve TKTs Replagal. Both Replagal and Fabrazyme are formulations of alpha galactosidase given once every two weeks via an intravenous infusion. While the protein backbone of these products is identical, the dosing of, and data supporting, the two are different.
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Comparison Of Enzyme Replacement Therapies For Fabry Disease NIH (Replagal)

# Patients (Treated/placebo) Enzyme source/dose Trial Centers Infusion rate/pre-medication Primary endpoint Secondary endpoint Study duration Gb3 clearance: Plasma Kidney Urine sediment Histology Improvement in pain 54% decrease 20% decrease 29% decrease 20% increased fraction of normal glomeruli (p=0.01), 33% decrease mesangial widening (p=0.01) Trend toward decline in pain scores compared with placebo, 36% patients discontinued analgesics compared with none in placebo Renal function Cardiac function QOL Body weight Infusion reactions IgG antibodies Treatment arm showed stable GFR (p=0.02) and inulin clearance (p=0.19) compared with deterioration in placebo Decrease QRS-complex duration (p=0.047) Pain improvement (p=0.05) Increased body weight (p=0.02) 57% rigors 21% by ELISA at 6 mos Stable serum creatinine, no change in GFR without followup, no evidence for protective effect No change Improved significantly No change 48% rigors, 24% fevers 88% by ELISA at 12 mos Undetectable 23% decrease 34% decrease 69% had no or trace microvasculature deposits (p<0.001), skin (p<0.001), heart (p<0.001) Both treated and placebo improved in pain scores 26 (14/12) Human/0.2 mg/kg q2wks Phase II Single center (U.S.) 40 minutes/no pre-medication Effect on neuropathic pain Glomerular filtration rate (GFR), renal histology, Gb3 in plasma, kidney, 24-hr urine sediment 24 wk randomized, 24 wk open label
MSSG (Fabrazyme)
56 (27/29) Chinese hamster ovary (CHO)/1.0 mg/kg q2wks Phase III Multi-center (U.S./Europe) 4-6 hrs/1000mg paracetamol, 25-50mg hydroxyzine Gb3 deposit clearance of renal interstitial capillary endothelium GFR, Gb3 clearance from heart & skin, pain, QOL, Gb3 in plasma, kidney, heart, 24-hr urine sediment 20 wk randomized, 24-wk open label
Source:Cowen and Company, adopted from Pastores, G. Lancet:Vol. 358:August 25, 2001. Pp. 601-603.
Why Is Fabrazyme On The U.S. Market, But Replagal Not?

In January 2003, the Endocrinologic & Metabolic Advisory Committee of the FDA determined that Fabrazymes Phase III data were robust enough to support approval, and concluded that the results suggest important activity in this progressively debilitating disease. The panel voted 14:1 that Gb3 clearance (the primary endpoint of Fabrazymes trial) is an appropriate surrogate marker of disease given that the biochemical pathway is well validated and that this substrate is the culprit of the pathology of this disease. While the panel stated that the long-term clinical benefit of Gb3 is unknown, clearance theoretically should lead to clinical improvement. The next day the Endocrinologic & Metabolic Advisory Committee voted 15:0 against recommending Replagal for approval based on a lack of clinical efficacy. Prior to the panel, the FDA had ruled that the pain data from TKTs pivotal Phase II trial (the primary endpoint) was uninterpretable and did not support approval. As a result, TKT tried to convince the panel that it merited approval based on its renal and cardiac clinical endpoint data (secondary endpoints), but the panel believed these data were not robust enough. Additionally, the panel voted 8:7 against accelerated approval due to relatively weak surrogate data. The panel also discussed at great length that Replagals dose may be insufficient to render clinical benefit and that the
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disappointing clinical data on multiple parameters do not lend evidence to the drugs activity. Shire/TKT Discontinued U.S. Development Of Replagal With Fabrazymes approval came sole orphan drug status and market exclusivity for seven years. The FDA informed Shire/TKT that a head-to-head trial demonstrating superior efficacy or safety would be necessary to break Fabrazymes orphan drug exclusivity. Given the expense and risk associated with such a program, in January 2004, TKT announced its intentions to discontinue U.S. development of Replagal. However, Shire/TKT are considering developing a follow-on version of Replagal as a possible route into the 2,500patient U.S. Fabry market. Management has not confirmed or denied this possibility.
With Exclusivity In The U.S., Fabrazyme Has Been Successful

With Replagal not commercialized in the U.S., Fabrazyme has had the entire 2,5003,500-patient market all to itself, setting it up for a successful launch. Fabrazyme sales grew from $80MM in 2003 to $494MM in 2008. Our worldwide 2009-13 Fabrazyme estimates are $565MM, $680MM, $755MM, $850MM, and $935MM, respectively, implying a 14% 2008-13 CAGR.
Replagal Holding Steady In Europe

Despite the U.S. disappointment, Replagals European market share has held steady in the 40-50% range, and Replagal posted $176MM in 2008 sales. We believe that switches between the drugs are split nearly evenly to date and that Replagals superior E.U. label and convenience advantage position it to be a steady grower. Replagal could also benefit from a growing appreciation that female carriers are symptomatic, a trend that could lead to a significant increase in the size of the European treatment population. Unlike Replagal, Fabrazyme is not labeled for use in females. Continued approvals and launches in other territories are likely to support additional sales growth. We currently estimate 2009-2013 Replagal sales of $200MM, $240MM, $265MM, $290MM, and $315MM.
Amicus/Shires Amigal To Move Into Phase III For Fabry In H1:09

Amicus is developing a stable of products to compete with Genzymes lysosomal storage disorder franchise. It has a small molecule candidate for Fabry disease called Amigal (AT1001) that has completed four Phase II trials in a total of 27 Fabry disease patients. Data from the studies was disclosed in December of 2007, and Amicus expects to initiate a Phase III program during Q2:09. Amicus has retained full U.S. commercial rights, and has partnered ex-U.S. commercialization with Shire. Amigals four trials enrolled 18 men and 9 women in total, and dosed all with 150mg Amigal every other day. Twenty-six patients completed the treatment phases of the studies, and all entered open-label extension phases. The primary endpoint of the studies was the safety and tolerability of Amigal. Secondary endpoints included effects on a-GAL and levels of GL-3 in tissue. Amigal was safe and well tolerated in the study, with no serious adverse events attributed to drug. 24 of 26 patients demonstrated an increase in a-GAL as measured
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in white blood cells, kidney cells, and the skin. Of the 17 men who completed the trial, 11 were classified as good responders as their white blood cell a-GAL increases of an average of 630%. 4 were classified as moderate responders, as their WBC a-GAL increased by 170%, and 2 were considered non-responders. The good responders demonstrated a 38% decrease from baseline in urine GL-3. The moderate responders showed a 91% increase in urine GL-3, while the non-responders had a 8% increase. For the 9 females in the trial, all showed an increase in white blood cell aGAL. 5 were classified as good responders, and they had an average decreasein urine GL-3 from baseline to last visit of 20%. The 4 not classified as good responders showed a 184% increase in urine GL-3 from baseline to the last visit. The definition of a good WBC a-GAL response was post-hoc, and somewhat arbitrary. With large swings in effect on urine GL-3 between good responders and the other groups, in our opinion, these efficacy data are equivocal. As of January 2009 23 of the 26 patients in the extension study continue to receive Amigal. Amicus is using the extension to study alternative, higher dose regimens in order to better define the Phase III dose. Whereas the Phase II dosed all patients at 150mg every other day, in the extension phase patients are dosed at 250mg in a 3day on, 4-day off regimen, and at 500mg again in a 3 day on, 4 day off regimen. Amicus expects to release safety and efficacy data from the extension phase at the ASHG meeting in March 2009. In addition to longer term safety, the data are expected to include enzyme levels and analyses of GL-3 levels. Amicus and partner Shire had an end of Phase 2 meeting with the FDA in August of 2008 during which the FDA agreed that the data from the Phase 2 supports the initiation of Phase 3 trials. Furthermore the FDA said that a surrogate marker could be used as the primary endpoint in the Phase 3. Amicus submitted a special protocol assessment to the FDA during Q4:08, and hopes to finalize a Phase III design during Q2:09. Amicus expects the Phase III study to be similar in size to Fabrazymes (56 patients), and expects the primary endpoint will be a measure of the change in level of kidney GL-3. Amicus believes the trial is likely to be placebo controlled. Shire and Amicus have begun a Scientific Advice procedure to finalize with the EMEA a protocol for a European registration strategy. Based on initial feedback, the partners expect the European trial will have to compare Amigal head-to-head against enzyme replacement therapy. Shire and Amicus expect to begin the ex-US Phase III during H2:09 or early in 2010.
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Global Fabry Disease Market Model

2008A Ex-U.S. No. of Patients
Population growth
2009E 3,525
2.0%
2010E 3,595
2.0%
2011E 3,667
2.0%
2012E 3,740
2.0%
2013E 3,815
2.0%
3,455
2.0%
Total Population Replagal's Percent Penetration Fabrazyme's Percent Penetration No. of Patients Treated w/ Replagal No. of Patients Treated w/ Fabrazyme Approximate Cost of Therapy Replagal Sales (MM) Fabrazyme Sales (MM) U.S. No. of Patients
Population growth
3,421 31.2% 45.9% 1067 1,572 $165,001 $176.1 $259.3 2,309

2.0%
3,489 34.7% 50.1% 1212 1,748 $165,001 $200.0 $288.4 2,355

2.0%
3,559 40.9% 60.3% 1455 2,145 $165,001 $240.0 $353.9 2,403

2.0%
3,630 44.2% 70.0% 1606 2,542 $165,001 $265.0 $419.5 2,451

2.0%
3,703 47.5% 78.3% 1758 2,898 $165,001 $290.0 $478.2 2,500

2.0%
3,777 43.0% 87.5% 1909 3,303 $165,001 $315.0 $545.0 2,550

2.0%
Total Population Fabrazyme's Percent Penetration No. of Patients Treated w/ Fabrazyme Approximate Cost of Therapy Fabrazyme Sales (MM) WW Revenues to Shire (MM) WW Revenues to Genzyme (MM)
2,378 52.0% 1,237 $190,000 $235.0 $176.1 $494.3
2,426 60.0% 1,456 $190,000 $276.6 $200.0 $565.0
2,475 69.3% 1,716 $190,000 $326.1 $240.0 $680.0
2,524 70.0% 1,766 $190,000 $335.5 $265.0 $755.0
2,575 76.0% 1,957 $190,000 $371.8 $290.0 $850.0
2,626 78.3% 2,056 $190,000 $390.6 $315.0 $935.5
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Gaucher Disease
Gaucher disease is an autosomal recessive disease that results from the deficiency of the enzyme glucocerebrosidase (GCR). GCR is involved in the breakdown of glucocerebroside, a lipid abundant in cell membranes. As red blood cells die and disintegrate, they are taken up by macrophages for breakdown. In the absence of adequate levels of GCR, lipid accumulates inside the macrophages and aggregates in the liver, spleen, and bone marrow. As a result, many systems are disrupted: the liver and spleen are enlarged (hepatosplenomegaly), anemia develops, and bone deteriorates. Gaucher disease has traditionally been divided into three clinical types depending on the involvement of the nervous system. The most prevalent is Gaucher disease type 1, which involves only visceral (non-nervous system) organs. Even Type 1 Gaucher can be debilitating, since if untreated most patients will become disabled as skeletal damage accumulates. Gaucher disease types two and three are called neuronopathic because in both cases the central nervous system deteriorates, typically leading to mental retardation. Enzyme replacement therapy has successfully treated patients with type 1 disease, but not types 2 or 3 as the enzyme does not cross the blood brain barrier. Patients with type 2 Gaucher typically do not survive to their second birthday, while those with type 3 disease live only into their twenties to forties. Gaucher disease occurs in about 1 out of 75,000 births, suggesting that there are about 6,000 people with the disease in developed nations worldwide.
Clinical Features Of Gaucher Disease
Clinical Features Onset Hepatosplenomegaly Skeletal disease Neurodegeneration Survival Frequency Type 1 Childhood/adulthood Mild to severe Mild to severe Absent <5 to >80 years 1/40K 1/300K Type 2 Infancy Moderate Minimal Severe 2 years <1/100K Type 3 Childhood/adolescence Mild to severe Mild to severe Mild to severe <5 to 50 years <1/100K
Source: Cowen and Company, adopted from G.A. Grabowski, Curr Opin Pediatr 17:519-524.
Enzyme Therapy Is An Effective Treatment For Gaucher

Enzyme replacement therapy has been a very effective treatment for Gaucher disease. Enzyme is administered by infusion every two to four weeks and the glucocerebrosidase is taken up by the macrophages, thereby reversing the inherited deficiency. Once inside the macrophage, the enzyme degrades the accumulated glucocerebroside. As glucocerebroside is cleared from the body, over time the clinical manifestations of the disease diminish. Liver and spleen shrink and become normal. Hemoglobin levels rise, and anemia resolves. If a patient starts treatment early enough, skeletal weakening and the resulting disability are avoided. However, if a patients disease has been untreated for some time, much of the skeletal damage and scarring can not be reversed, and therefore most specialists emphasize the importance of early diagnosis and treatment. Although some type 1 patients used to die of their disease before their 10th birthday prior to the advent of enzyme replacement therapy, many today live a normal lifespan with a near normal quality of life.
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Responses To 12-24 Months Of Therapy

Clinical Features Hepatomegaly Enlarged Spleen Anemia Thrombocytopenia Response to 12-24 Months Of Enzyme Therapy 16-20% decrease in hepatic volume 40-50% decrease in volume of the spleen 1.5gm% haemoglobin increase, with about 40% of patients returning to normal Normalize platelet counts if mild, double counts if severe
Source: Cowen and Company, adopted from G.A. Grabowski, Curr Opin Pediatr 17:519-524.
Trials In Small Number Of Patients Got Cerezyme And Ceredase On The U.S. Market
The first product approved for the treatment of Gauchers disease was Genzymes Ceredase, a preparation of glucocerebrosidase purified from human placenta, which was approved in 1991. Ceredase was approved with data from a single, open-label, 12-patient trial. Study results showed that the hemoglobin concentration in all 12 patients, and platelet counts in seven (58%), increased. In addition, serum acid phosphatase and plasma glucocerebroside levels decreased in 10 and nine patients, respectively. Splenic volume decreased in all patients and hepatic volume in 5 (42%). Initial evidence of skeletal improvement was seen in three patients (25%). Cerezyme is a recombinant human enzyme produced in Chinese hamster ovary (CHO) cells that differs by one amino acid from Ceredase. Cerezyme was approved based a single, open-label study in which 30 patients were randomized to receive Ceredase or Cerezyme. The study demonstrated that there was no significant difference in improvement in hemoglobin levels, platelet counts, serum acid phosphatase, and hepatic or splenic volumes between the two groups. The Ceredase group had a 40% incidence of IgG antibodies versus 20% in the Cerezyme group. Even though Cerezyme did not show a statistically significant difference over Ceredase, the fact that the enzyme elicited fewer IgG antibodies and was far easier to produce was sufficient to warrant approval.
Cerezymes IP Claims Only CHO Produced Product

Until May of 2001, Cerezyme had orphan drug status, and was therefore protected from competition from any other glucocerebrosidase. Now that orphan drug has expired, Cerezymes exclusivity is protected only by its patents. However, since the natural enzyme itself has long been in the public domain, Genzyme does not have a composition-of-matter patent covering glucocerebrosidase. Instead, Cerezyme is protected by a series of U.S. Patents that claim the production of glucocerebrosidase in Chinese Hamster Ovary (CHO) cells: 5,236,838 (expires August 17, 2010); 5,549,892 (expires August 27, 2013); and 6,451,600 (expires September 17, 2019); and corresponding international counterparts. Therefore, any formulation of glucocerebrosidase that is not produced in CHO cells would not infringe Genzymes patents.
Cerezyme A Cash Cow For Genzyme

Cerezyme is marketed in over 60 countries and Genzyme estimates that 4,600 4,700 patients are on drug worldwide. Cerezyme carries an average price tag of $175,000/patient/year for a 70-kg adult. In Japan, Cerezyme has secured a price of $350,000/patient/year due to a special agreement with the Japanese health authorities. Cerezyme recorded $1,239MM in sales in 2008. If one assumes that there
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are 4,650 patients on therapy, then the average patient is paying about $275K/year. While Cerezyme was only 27% of Genzymes 2008 revenue, we believe that its contribution to net income was significantly higher. We believe that Cerezyme has a typical pharmaceutical gross margin, but that only very limited R&D and SG&A spending is needed to support the franchise, yielding a very high operating margin. If one assumes that the Cerezyme franchise has a 50% operating margin, then Cerezyme contributed about $679MM of Genzymes non-GAAP 2008 pretax net income, which was about $1.56B, suggesting Cerezyme is about 40% of Genzymes pretax profit.
Increased Per-Patient Dosing, Trickle Of New Patients To Drive 4% CAGR

Going forward, the two principal drivers of Cerezyme sales growth are increasing patient dosing and further market penetration through ongoing efforts to identify patients. Because Cerezymes dosage is related to body weight, as Gauchers patients age (and gradually gain weight) the corresponding dosage requirements gradually increase. Additionally, our consultants note that new patients with Gaucher continue to be identified, and they expect more to be found in the coming years as awareness of the disease continues to increase. While there is not a torrent of patients coming to therapy, our consultants note that 1 or 2 new patients are identified each month. Our model projects 2009-13 Cerezyme sales of $1,275MM, $1,340MM, $1,410MM, $1,465MM, and 1,525MM, a 4% CAGR.
Cerezymes Patient Experience Is Impressive

More than a decade after Cerezymes launch, our consultants remain happy with Cerezyme, and think it is a safe and effective therapy. Most type 1 patients are well managed by Cerezyme, and if patients are started on therapy early enough, most of the symptoms and problems associated with the disease are prevented. Whereas the patients used to face a life of skeletal problems, disability, and possibly early death, today if the disease is caught early enough, most problems associated with it will be avoided. Patients will have a normal quality of life, and live a normal lifespan. Moreover, our consultants note that Cerezyme is a very safe therapy, and none had any real concerns about using the product. Perhaps Cerezymes most impressive feature is its patient experience. Our consultants note that the Cerezyme registry contains 4,500 patients, many of whom have been followed for many years. They believe that Cerezymes track record, and its long and well documented patient experience, are hard to beat.
So New GCB Must Be Clinically Or Economically Differentiated To Be Used

Given Cerezymes long track record, our consultants note that they would need a compelling reason to switch a patient from Cerezyme to a new entrant. In general, there are four ways in which a new entrant could differentiate itself: (1) better efficacy; (2) better safety; (3) better convenience; or (4) lower price.
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Shires Velaglucerase In Phase III Trials, H2:09 Filings Expected

Through its purchase of TKT, Shire has assumed control of TKTs Gaucher program. Shires offering is called velaglucerase (GA-GCB), and it is a human glucocerebrosidase that is produced by Shires gene-activation technology in a human cell line. Because Shires production does not use CHO cells, it should not infringe Genzymes patents. Velaglucerase is very similar to Cerezyme, and in fact differs in only one amino acid. Cerezyme is not exactly the endogenous form of the enzyme as at residue 495 a histidine was substituted for an arginine. Velaglucerase has exactly the same amino acid sequence as the human form. However, in all studies to date the amino acid change to Cerezyme has had no effect on its in vitro catalytic or stability properties, and so our consultants consider velaglucerase and Cerezyme to be different preparations of the same enzyme. Shire began enrolling Phase III trials of velaglucerase in January of 2007, and has guided to registration filings in the U.S. and EU in H2:09. We expect Shire to launch the product in the United States in 2010, and we project 2010-13 velaglucerase sales of $45MM, $55MM, $80MM, and $110MM, respectively.
Velaglucerase Phase I/II Data Good, Suggest Likely Phase III Success
Shire has completed a Phase I/II trial of velaglucerase in 12 patients, and results from the study were presented at the 2006 annual meeting of the American College Of Medical Genetics. Twelve adult patients with Gaucher were enrolled in the Phase I/II clinical trial at the Shaare Zedek Medical Center in Jerusalem. Patients received velaglucerase every other week for 39 weeks. The first 3 patients underwent a staggered dose escalation (15 U/kg at the first infusion, 30 U/kg at the second infusion, and 60 U/kg every other week), while the last 9 patients received 60 U/kg throughout the course of the study. Velaglucerase was safe and well tolerated in the trial. There were no drug-related serious adverse events, and no patient discontinued because of an adverse event. One of the patients in the 60 U/kg arm withdrew after the third infusion for a reason not judged by the investigator to be related to the study drug. Infusion-related reactions and adverse events were generally limited and mild no infusions were interrupted, no patient received pre-infusion medication. Most impressive to our consultants, none of the treated patients developed anti-GCB antibodies. The results of the trial were good, with velaglucerase increasing both hemoglobin and platelets, and decreasing the size of liver and spleen.
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Results Of Velaglucerases Phase I/II Trial

Endpoint Change, Baseline to Week 25 Hemoglobin (g/dL) Platelets (x 103 /mm3) Normalized Liver to Body Weight Normalized Spleen to Body Weight
Source: Shire
% Change From Baseline +16.5% +37.8% -14.7% -41.4%
p-value
Change, Baseline to Week 37
% Change From Baseline +19.2% +67.6% -19.2% -49.5%
p-value
1.92 0.82 23.4 24.6 -0.67 0.64 -1.62 0.67
<0.001 0.011 0.007 <0.001
2.24 0.89 40.6 30.7 -0.79 0.48 -1.89 0.75
<0.001 0.003 <0.001 <0.001
In fact, our consultants said that the magnitude of the changes seen after 37 weeks of velaglucerase were similar to, if not greater than, the changes typically seen after 1 2 years of Cerezyme therapy. They also found the fact that no patients developed antibodies to velaglucerase remarkable. Shire recently presented updated data from the extension portion of the Phase I/II trial at the annual meeting of the American Society of Human Genetics in November of 2008. The presentation included efficacy data through 48 months of therapy, and continued to suggest that velaglucerases efficacy is at least on par with that of Cerezyme.
Velaglucerases Results Vs. Expected Efficacy Of Cerezyme
Endpoint Hemoglobin GA-GCB % Change From Baseline to Month 48 2-2.5 g/dL increase Typical response To 12-24 Months of Cerezyme 1.5g/dL haemoglobin increase, with about 40% of patients returning to normal Platelets Liver Size Spleen Size +150% -35% -70% Normalize platelet counts if mild, double counts if severe 16-20% decrease in hepatic volume 40-50% decrease in volume of the spleen
Source: Shires Analyst Day presentation, November 18, 2008
In general, our consultants have been impressed by velaglucerases data, and believe that they suggest that velaglucerase is an approvable preparation. In fact, based on the data, some of our consultants think velaglucerase might be somewhat better than Cerezyme. However, most are not convinced of velaglucerases superiority. Those not convinced think the better results could simply be attributed to the fact that the trial enrolled a relatively small number of patients at a single center, and that the difference is unlikely to hold up in a larger trial. They see no compelling scientific reason that velaglucerase should be more effective. They think the specific activity of the enzyme should be the same, and can think of no reason why it would be better targeted to the macrophages. Moreover, since all symptoms of and problems associated with Gaucher are resolved in most patients on Cerezyme, our consultants note that no matter how good velaglucerases short term data, there is
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really no room to improve on Cerezymes long-term performance. Since Gaucher is a lifelong condition, they note that that is probably all that really matters.
Shire Conducting Extensive Phase III Program

Shire has completed enrollment in velaglucerases Phase III program, and has guided for US and EU registration filings during H2:09. The program consists of four trials: TKT032, a randomized, double-blind, parallel group, two-dose study of velaglucerase in patients nave to enzyme replacement therapy; TKT034, an openlabel study of velaglucerase in patients previously treated with Cerezyme; HGT-GCB 039, a double-blind, parallel-group study of velaglucerase compared with imiglucerase in patients with type 1 Gaucher disese, and HGT-GCB 044, an openlabel extension study of velaglucerase.
Not Much Data Available On Protalixs GCB

The other enzyme replacement therapy in development for Gaucher is from the Israeli company Protalix. Protalix uses flexible plastic bioreactors to grow industrialscale, GMP-compliant cultures of carrot cells. Protalixs glucocerebrosidase is produced in those carrot cultures, and is called prGCD. Protalix believes that this production system will give prGCD far lower cost of goods than the mammalian cell culture-derived versions. Protalix believes that its system has two major advantages. First, the cost of the cell culture media for plant cells is much less than that for CHO cells. Second, and more important, carrot cell-produced enzyme does not need to be modified post production to ensure targeting to the macrophages. While Cerezyme must be modified to expose mannose residues in its sugars in order to target it to the macrophages, those mannose residues are already exposed in the carrotproduced prGCD. Protalix has not publicly announced pricing. However, because of the production advantages, some of our consultants believe that prGCD could be priced at up to a 75% discount to Cerezyme. Protalix has completed a Phase I study of prGCD, and results from the study were presented at the at the European Working Group of Gaucher Disease (EWGGD) meeting held on July 2006 in Cambridge, U.K. The Phase I trial tested weekly intravenous administration of the enzyme to healthy volunteers. Three escalating doses (15, 30 and 60 U/kg) were administered. In the trial, prGCD was well tolerated with no serious adverse events the only side effects were mild and transient infusion-related. No antibodies were detected against the prGCD.
prGCD In Phase III For Gaucher

Protalix completed enrollment in prGCDs Phase III trial in December of 2008. The trial is a multicenter, randomized, double-blind placebo controlled trial in 30 adult treatment-nave patients with Gaucher disease. The trial will test two doses of prGCD, 30 U/kg and 60 U/kg given every other week for nine months. The primary endpoint of the trial will be the change from baseline in spleen volume measured by MRI; secondary outcomes include change from baseline in liver volume, hemoglobin measurement, platelet count, and biomarkers (e.g., chitotriosidase). The trial is being conducted under an SPA with the FDA. Protalix expects to report results from the trial in H2:09, and file for FDA approval in Q4:09.
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In December 2008 Protalix began an open-label switching study of prGCD. The trial is expected to enroll 15 patients currently on Cerezyme every two weeks, and will switch them to prGCD every two weeks for nine months. Once completing the nine month period patients will be eligible to enroll in prGCDs extension study.
Without Much Data, Consultants Have Taken Wait-And-See Attitude Toward prGCD
Our consultants note that prGCD could differ from Cerezyme in several ways, and have taken a wait-and-see attitude toward the product until there are data better defining the effect of those differences in its safety and efficacy. Since our consultants see little room to improve on Cerezymes safety and efficacy, they more specifically would like to know that those differences do not diminish prGCDs activity. First, since prGCD is produced in plant cells, its glycosylation pattern is different than that of either Cerezyme or GA-GCB. Although the different glycosylation pattern eliminates a manufacturing processing step, the effects of that different pattern on immunogenicity, safety, and efficacy have yet to be determined. Protalix believes that the different glycosylation targets the enzyme more effectively to the macrophages, and increases its catalytic activity. However, without much published data, our consultants are not yet convinced. One of our consultants noted that, in the past, a company tried to produce a version of Fabrazyme in tobacco plants; but that plant-produced a glycosylation pattern that was so immunogenic that development was discontinued. The Phase I trial didnt show it to be immunogenic in healthy volunteers, and Protalix has disclosed that as of December 2008 there have been no Serious Adverse Events in the Phase III, suggesting that thus far severe allergic reactions have not been an issue. Nonetheless, the effect of longer term use in Gaucher patients remains to be determined. Second, Protalix has indicated that prGCD is a different isoform of the glucocerebrosidase enzyme. Our consultants do not know exactly how its structure differs from that of Cerezyme, or how those differences affect safety or efficacy. Our consultants expect the Phase III trials to better define its clinical profile. Third, Protalix notes that prGCD has a half-life twice as long as Cerezyme. However, the Phase 1 trial tested only weekly infusions of drug, and the Phase III is testing infusions every other week (Cerezyme is also dosed once every two weeks). The significance of the longer half-life is uncertain. Last, Protalixs plant cell technology has yet to be used to produce any commercial products. While the system may produce product more cheaply, the ability of the technology to be scalable, consistently produce commercial product, and pass the rigors of FDA inspection, remains to be determined.
In The Absence Of A Compelling Clinical Difference

Our consultants think it unlikely that either the Shire or the Protalix enzyme preparations will be conclusively clinically superior. If a type 1 Gaucher patient is diagnosed early enough, our consultants say that Cerezyme will make the patient normal that all of their symptoms will be completely resolved, and they will live a normal life. Therefore, the hurdle for one of the new drugs to be safer or more effective is very high and, in fact, our consultants think Cerezyme leaves little to be desired. Our consultants think it unlikely that either Shire or Protalixs preparations
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will provide a meaningful safety or efficacy benefit over Cerezyme. Moreover, neither seems to be much more convenient than Cerezyme. Since all three will have the same amino acid sequence (give or take an amino acid), our consultants are generally of the belief that all are more or less different preparations of the same enzyme. Last, since the pivotal trials of GA-GCB and prGCD will be small, our consultants think it will be hard for either clinical program to produce data of the quality necessary to significantly distinguish them from Cerezyme.
The New Entrants Must Be Discounted

Therefore, the majority of our consultants think that the new entrants will probably have to compete on price. They believe that they will stay with Cerezyme because of its impressive clinical experience 4,500 patients on therapy, and available for over 10 years unless there is a compelling economic reason to switch. In the words of one of our consultants, price, price and price is likely to determine which glucocerebrosidase is used in most patients. In general, our consultants think a 2025% discount relative to Cerezyme will be necessary to entice them to try the new agents. While neither company has provided formal guidance on how much cheaper they will price their products, both suggest that they are likely to come at a discount. Protalix, for example, indicates that its plant production technology was developed with the explicit aim of reducing the cost of therapy.
Oral Gaucher Products Intriguing, Physicians Await Longer Term Data

While Cerezyme leaves little room for improvement in safety or efficacy, our consultants think its biggest drawback (other than its high price) is the fact that patients must be infused every two weeks. Therefore, they find the prospects of a safe and effective oral treatment to be enticing. Most consultants think that Actelions Zavesca, an oral therapy currently on the market, is a very poor drug. They say it is not very potent, with a narrow therapeutic window. They reported having only a handful of patients on it. However, they are more excited about the oral drugs in development at Genzyme and Amicus.
Genzymes GENZ-112638 To Enter Phase III In Mid-2009

GENZ-112638 is a novel ceramide analog that is an inhibitor of glucosylceramide synthase. GENZ-112638 works through a different mechanism than the enzyme replacement therapies. While an infusion of Cerezyme helps to break down the glucocerebroside after it accumulates, GENZ-112638 is designed to stop the glucocerebroside from being produced in the first place. Therefore GENZ-112638 has a mechanism similar to Actelions Zavesca. However, our consultants note that GENZ-112638 differs in important ways from Zavesca. First, in preclinical models, it has been shown to be many-fold more potent than Zavesca. Preclinical characterization of GENZ-112638 has shown it has an IC50 of about 24nM, and our consultants estimate it is 1000+ times more potent than Zavesca. Second, our consultants believe that GENZ-112638 is likely much more specific for glucosylceramide synthase than Zavesca, preventing some of Zavescas off-target side effects. Genzyme recently completed a 26-patient Phase II trial of GENZ-112638, and data were presented at the Lysosomal Disease Network WORLD meeting in February 2009.
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The open-label trial dosed all patients with 50mg or 100mg BID GENZ-112638 for one year. The study had a composite primary efficacy endpoint: a clinically meaningful response in at least two of three endpoints (improvements in spleen size, hemoglobin and platelet levels) in patients after the 52-week study period. Secondary outcomes include change in liver volume compared to baseline; levels of biomarkers (ACE; TRAP; CCL18; GL-1); changes in patient-reported quality of life; changes in mobility, bone pain, and bone crisis; changes in radiographic measures of bone disease. At baseline patients had hemoglobin of 11g/dL, platelets of 69,740/mm3, mean plasma GL-1 of 13 ug/mL, and spleen volumes of 19.9x normal. Twenty-two of 26 patients completed at least 52 weeks of treatment, and all 20 of the patients who were eligible remained on therapy. The efficacy data were impressive 91% of those who completed the 52 weeks achieved the primary endpoint. After 52 weeks spleen volumes decreased from baseline by a mean of 39% and liver volume decreased from baseline by 17%. Hemoglobin levels increased from baseline by a mean of 1.62g per deciliter of blood. At 12 months, platelet counts increased from baseline by a mean of 40%. Chitotriosidase levels decreased by a median of 51% among the 21 patients treated who chitotriosidase measurements. The safety of the compound was acceptable, with most adverse events being mild or transient. 91% of adverse events were thought to be unrelated to drug treatment. Adverse events thought to be related to GENZ-112638 treatment include diarrhea (2), abdominal cramps (2), headache, palpitations, and asymptomatic non-sustained ventricular tachycardia (NSVT, 2). Both of the two NSVT occurred when drug levels were below quantifiable limits, and reviews by three cardiologists concluded an unlikely relationship to GENZ-112638. In addition to the Phase II, Genzyme completed a thorough QT study of 112638 in late 2008, which showed no changed in QTc at the expected therapeutic dose. Genzyme believes that no further QT studies will be required. Genzyme expects to begin a Phase III program for 112638 in mid-2009. The Phase 3 program is expected to consist of two studies, one in treatment-nave patients and a maintenance study in Cerezyme treated patients.
Amicuss Plicera Gives GCR A Helping Hand

Amicus is developing a pipeline of novel, small molecule, orally-administered pharmacological chaperones to treat several diseases. In diseases such as Gaucher or Fabry, where the condition is caused by the deficiency of a single protein, these candidates are to bind to the protein after it is produced, and help it fold into the correct structure. By acting as a chaperone for the defective proteins, it is hoped that they will allow the enzyme to perform its normal function and increase the level of active enzyme in the patient. In general, our consultants think the theory behind Amicuss technology is very exciting, but that it is likely to be very difficult to successfully develop a chaperone. Therefore, while intrigued, they will remain skeptical until they see pivotal data. That being said, our consultants are encouraged by preclinical data on Plicera (AT2101) which suggest that it can increase the activity of several of the mutant forms of glucocerebrosidase that are known to cause Gaucher. In particular, our consultants are convinced by the in vitro data that the activity of the N370S and L444P mutant form of glucocerebrosidase is increased by AT2101. The clinical
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relevance of these in vitro assays remains to be seen, and in particular, the level of enhancement in activity that needs to be achieved in a patient to change the clinical course of the disease is unknown. However, our consultants note that these two missense mutations are present in about 90% of Gaucher patients, suggesting Plicera could have activity in the vast majority of Gaucher patients. Amicus presented preliminary Phase II data at the American College of Medical Genetics (ACMG) Annual Meeting in March of 2008. The trial enrolled 30 patients with Gaucher disease, including 8 men and 22 women. Patients were between the ages of 18 and 63, and there were 12 unique alleles represented including N370S and L444P. Patients had been treated with Cerezyme previously. Cerezyme was discontinued, and patients received one of four doses of AT2101 for one month. The primary endopoint of the study was the safety and tolerability of AT2101. Secondary endpoints include pharmacodynamic effects of AT2101, including measures of betaglucocerebrosidase (GCase), glucocerebroside (GlcCer), chitotriosidase, platelets, hemoglobin, and pulmonary and activation regulated chemokine (PARC). Plicera was safe and well tolerated in the trial, and no serious adverse events were reported. GCase activity in white blood cells was increased in 20 of 26 patients. Five of the 6 patients without an increase were either in the lowest dose cohort or the cohort dosed most infrequently. The levels of Gaucher disease markers such as platelet counts, hemoglobin levels, glucocerebroside, and chitotriosidease activity were maintained. Amicus and partner Shire are currently conducting a 6-month Phase 2 study in 16 patients nave to enzyme replacement therapy. Two dose regimens are being tested, and the trial will evaluate Pliceras impact on several well-verified Gaucher endpoints including platelet count, hemoglobin levels, and spleen volume. Results from the trial are expected in Q3:09. Following this study, Amicus and Shire expect to rapidly move Plicera into a Phase III program.
Zavesca Only A Minor Player

Actelions Zavesca (miglustat) is an inhibitor of glucosylceramide synthase, and therefore like GENZ-112638, aims to stop the production of glucocerebroside. However, our consultants have only a handful of patients on Zavesca, and do not expect to significantly increase its use in the coming years. Zavescas label indicates it for the treatment of adult patients with mild to moderate type 1 Gaucher disease for whom enzyme replacement therapy is not a therapeutic option, and it is in those patients that our consultants generally use Zavesca. In general, our consultants believe that Zavesca is hamstrung by a narrow therapeutic window: the dose at which its efficacy begins to approach that of Cerezyme is also the dose at which side effects begin to become intolerable. Zavesca is in a trial in which patients who have been stable on enzyme are transitioned onto the oral therapy. However, our consultants are not optimistic that this will increase the use of Zavesca. In particular, some noted that patients switched from Cerezyme to Zavesca were associated with decreases in platelet counts, suggesting that the disease may not be as well managed over the long term. We project that Zavesca sales will grow from $37MM in 2008 to $60MM in 2013.
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Global Gaucher Disease Market Model
Prevalence
Population Growth
2008A 6,202
2.0%
2009E 6,298
2.0%
2010E 6,396
2.0%
2011E 6,496
2.0%
2012E 6,598
2.0%
2013E 6,702
2.0%
Newly Diagnosed Deaths Total Population Cerezyme Mkt Penetration Total Cerezyme Patients New Patients Price ('000) Cerezyme Sales (MM)
% Change
124 28 6,298 88.1% 5,507 (622) 225 $1,239.0

9.3%
126 28 6,396 85.5% 5,426 (81) 235 $1,275.0

2.9%
128 28 6,496 84.8% 5,469 44 245 $1,340.0

5.1%
130 28 6,598 84.5% 5,529 60 255 $1,410.0

5.2%
132 28 6,702 83.1% 5,528 (1) 265 $1,465.0

3.9%
134 28 6,808 83.6% 5,648 120 270 $1,525.0

4.1%
GA-GCB Mkt Penetration Total GA-GCB Patients New Patients Price ('000) GA-GCB Sales (MM) Zavesca Mkt Penetration Total Zavesca Patients New Patients Price ('000) Zavesca Sales (MM)
Source: Cowen
0.0% 0 0 190 $0.0 3.1% 196 47 190 $37.2
0.0% 0 0 195 $0.0 3.2% 205 9 195 $40.0
4.3% 275 275 200 $55.0 3.5% 225 20 200 $45.0
6.5% 425 150 200 $85.0 3.8% 250 25 200 $50.0
7.9% 525 100 200 $105.0 4.1% 275 25 200 $55.0
9.6% 650 125 200 $130.0 4.4% 300 25 200 $60.0
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Hunter Syndrome
Hunter syndrome, also know as Mucopolysaccharidosis Type II, or MPS II, is characterized by a deficiency in the enzyme iduronate-2-sulfatase (I2S). Patients with this X-linked deficiency accumulate glycosaminoglycans (GAGs, also called mucopolysaccharides) in a variety of tissues, leading to loss of cardiac function, obstructive airway disease, enlargement of internal organs, bone and joint abnormalities, impaired speech and hearing, mental retardation, and a life expectancy as low as 10-15 years. Current treatment includes bone marrow transplantation or palliative surgical correction of hernias, joints, and eye problems. Approximately 1 in 81,000 males are affected. Female carriers are almost never symptomatic. The detection of Hunter syndrome usually occurs early in life based on the appearance of skeletal abnormalities. Diagnosis is confirmed by a blood test for I2S deficiency. Unlike Gaucher and Fabry disease, nearly all patients with Hunter syndrome have been diagnosed, and thus the indication is attractive in terms of enzyme replacement therapy. We estimate that roughly 2,000 patients worldwide are candidates for enzyme replacement therapy, and Shire/TKT believe that it will be able to ultimately reach 75% penetration in this market. Pricing is in line with other ERT therapies (approximately $300-400K/yr).
Elaprase The Only Game In Town

Elaprase has orphan drug status in the U.S. and Europe, which guarantees 7 (U.S.) and 10 years of market exclusivity, respectively. In the 1990s, scientists at the University of Adelaide in Australia discovered and cloned the gene coding for I2S. TKT/Shire subsequently obtained exclusive intellectual property rights to the discovery including a 1999 issued U.S. patent covering therapeutic uses of the gene, cDNA, and method of I2S protein production. We think these patents give TKT proprietary rights to the Hunter protein above and beyond the orphan drug exclusivity.
Elaprase Is A Promising Option In Hunter Syndrome

Elaprase (idursulfase) was approved for the treatment of Hunter syndrome in the United States in July 2006, in Europe in January 2007, and partner Genzyme began Elaprases Asian launch during 2008. Shire estimates that there are around 2,000 Hunter syndrome patients worldwide in countries where reimbursement is possible and that approximately 400 patients have been diagnosed in Europe.
Phase III Hunter Data Show Solid Efficacy

In October 2005, Shire/TKT released full results of the pivotal clinical Elaprase trial. The 12-month trial enrolled 96 patients randomized to receive either weekly or every other week infusions of 0.5 mg/kg I2S or placebo. The composite primary endpoint of the trial was pulmonary function as measured by FVC and functional capacity as measured by a six-minute walk test. Of the 96 who enrolled, 94 completed the 52-week study (there were two deaths) and all remaining patients elected to participate in the open-label extension study of idursulfase at a dose of 0.5 mg/kg weekly. At 53 weeks, patients receiving once-weekly 0.5mg/kg Elaprase demonstrated statistically significant improvement in the six-minute walk test and improved respiratory capacity (as measured by forced vital capacity) compared to placebo. Specifically, in the weekly dosing regimen, the difference in meters walked was 35 meters compared to placebo (p=0.0131) and in the every other week Elaprase group, the difference in meters walked was 24 meters, compared to placebo (p=0.0732).
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Model adjusted percent predicted FVC in the weekly group was 4.3% greater compared to placebo (p=0.0650); the every other week group showed no treatment difference in percent predicted FVC over placebo (p=0.9531). Additionally, in both Elaprase dosing arms there was statistically significant maintenance of lower urinary GAG excretion and decrease in liver and spleen size. However, there were no statistically significant differences between treatment groups for joint range of motion (JROM) compared to placebo. There were two patient deaths during the study, both of which were considered unrelated to treatment with Elaprase. Our consultants indicate that infusion-associated reactions may occur when patients develop antibodies against the infused recombinant enzyme, but these reactions are generally transient and can be managed conservatively. Furthermore, most resulting IgG antibodies have been observed to be non-neutralizing.
Results Of Elaprases Phase III Trial
0.5 mg/kg Endpoint vs. Placebo FVC Six-Minute Walk Test Liver & Spleen Size Left Ventricular Mass Urinary GAG Levels
Source: Shire/TKT
52 Infustions 4.3% greater (p=0.0650) 35MM improvement (p=0.0131) -25.8%, p<0.0001
26 Infusions No Change (p=0.9531) 24MM improvement (p=0.0732) 23.7%, p<0.0001
14.1% vs. +4.3% for placebo (p=.1524) Significantly lower in both treatment arms (p<0.00001)
Hunter Could Be A $750MM+ Opportunity

Checks with expert physicians, MPS II societies, and a review of the literature suggest that there are at least 1,500-2,000 MPS II patients in the developed world. Unlike the situation with MPS I, bone marrow transplantation is not viewed as a viable alternative to enzyme replacement therapy, so almost all Hunter patients are candidates for this therapy. This includes patients with CNS involvement who a majority of physicians indicate should be treated. At a price of $300-400K per patient per year, the Hunter market is estimated at over $750MM. Moreover, the launch of Elaprase should be relatively rapid as compared to other enzyme replacement therapies for lysosomal storage disorders as nearly all patients are diagnosed and all exhibit clinical symptoms of disease. To gain a more detailed picture of the regional markets for Hunter syndrome, we spoke with MPS societies in several countries around the world. These societies serve as resource centers for patients, and often maintain records on the number of MPS patients in their respective countries and are knowledgeable on the local systems for diagnosis, treatment, and reimbursement. From our discussions, it became clear that the completeness of such records varies considerably, and these differences may ultimately affect the efficiency of region-specific penetration for Elaprase. In our questioning, the countries for which patient numbers could be obtained with the greatest accuracy were Germany (approximately 60), the U.K. (65), Australia (40-60) and Brazil (150), and Japan (approximately 240). These countries continue to update their records as new MPS patients are diagnosed and as a result could be territories where Elaprase therapy is adopted more rapidly. Unlike other countries, the U.S. healthcare system does not refer all MPS II patients to specialized treatment centers. As a result, consultants estimates of the Hunter population vary widely (from 500 up to 1,000).
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Geographic Distribution Of Hunters Disease Patients

Country Australia Brazil Germany Japan United Kingdom
Patients Identified 40-60 150 ~60 ~240 65
Nearly all of Hunter patients in the developed world have been diagnosed. This reflects the fact that deformities associated with the disease are severe and generally apparent by age one or two. Hence most parents continue to push for a diagnosis until one is made. As a result, Shire will not have to spend significant resources facilitating a diagnosis by educating physicians about Hunter and encouraging testing. In this regard, Hunter is more similar to MPS I than the more nebulous patient populations affected by Gaucher or Fabry. While the fact that all Hunter patients are diagnosed may be an initial advantage to Shires marketing efforts, the company is also unlikely to benefit in the longer term from significant new patient diagnoses. In addition, although the great majority of Hunter patients are diagnosed, Shire will still have some difficulty in identifying and coordinating therapy for patients spread across numerous geographies.
We Expect Quick Ramp

Elaprase recorded $305MM in 2008 worldwide sales. We project 2009-13 worldwide sales of $345MM, $390MM, $440MM, $470MM, and $500MM, respectively.
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Mucopolysaccharidosis I (MPS-I)
Mucopolysaccharidosis I (MPS-I) is a lysosomal storage disease caused by an autosomal recessive transmission of deficiency of alpha-L-iduronidase, an enzyme that cleaves the terminal alpha-L-iduronic acid residues in the glycosaminoglycans heparan sulfate and dermatan sulfate. In patients lacking alpha-L-iduronidase, the degradation of these glycosaminoglycans is impaired, resulting in accumulation in lysosomes of bone, connective tissues, cornea, and major organ system cells. MPS-I includes three distinct syndromes. Hurlers syndrome, the most severe form, is diagnosed within the first 18 months of life and carries the poorest prognosis. Hurlers syndrome patients manifest multiple medical problems, including progressive developmental delay, corneal clouding, upper airway obstruction, reduced pulmonary function, sleep apnea, cardiac disease, hepatosplenomegaly, lung and ear infections, and severe joint restriction. Most patients die by the age of 10. Patients afflicted with Hurler-Scheies syndrome, the intermediate form, have many of the same symptoms, but show a slower rate of deterioration, have little or no mental retardation, and succumb to the disease in their teens or 20s. Patients with Scheies syndrome, the mildest form, have less extensive disease and may live a normal life span. The effect of various mutations on the presence or absence of the alpha-L-iduronidase enzyme leads to the distinct severity of each syndrome.
MUCOPOLYSACCHARIDOSIS I (MPS I)
Incidence Severit y Age at diagnosis Age at death Joint stiffness Corneal clouding Visual loss St ature Hepatosplenomegaly Deafness Cardiac disease Upper airway obst ruct ion Lung/ ear infections Hydrocephaly Mental retardat ion Scheie 1/ 600,000 Mild Teens Normal Yes Yes No Normal No No No No No No No Hurler-Scheie Int ermediate 3-8 yrs 20s Yes Yes Yes Short Yes Yes Yes Yes Yes Yes Mild Hurler 1/ 100,000 Severe 6-18 mos 10 Yes Yes Yes Immobile Yes Yes Terminal illness Terminal illness Yes Yes Severe
Source: Medical literature and Cowen and Company
MPS-I Is A $250MM+ Opportunity

An estimated 3,000-4,000 patients suffer from MPS-I in developed countries, including approximately 1,000 patients in the U.S. and Canada. The incidence of Hurlers syndrome is estimated at less than one in 100,000 live births. Scheies syndrome is believed to occur in one in 600,000 live births, while the frequency of Hurler-Scheies syndrome is in between. Assuming a price of $175,000/patient/year the worldwide potential for an MPS-I therapy would be $350-525MM. However, approximately one-half of patients with MPS-I opt for bone marrow transplant, leaving about 1,0001,500 patients as the addressable market for an enzyme replacement therapy, suggesting the worldwide opportunity for Aldurazyme is $250MM+.
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Aldurazyme Was Approved For MPS-I In 2003

BioMarin and Genzymes Aldurazyme (laronidase) is the pharmaceutical form of alpha-L-iduronidase and is an enzyme replacement therapy for the treatment of mucopolysaccharidosis I (MPS I), a lysosomal storage disorder. Aldurazyme was approved by the FDA and EMEA in Q2:03 for the long-term treatment of the nonneurological symptoms of patients with a confirmed diagnosis of MPS-I. One 2.9 mg vial of Aldurazyme is priced at $568, implying a price of $195.86/mg. Aldurazyme is dosed at 0.58mg/kg every week. While the weight of patients can vary over a wide range, we estimate an average price per patient per year of $165,000.
Aldurazymes Phase III Results Were A Mixed Success

Aldurazymes registration study was a Phase III multi-center, double-blind, placebocontrolled trial of Aldurazyme versus placebo in 45 patients with MPS-I. In the fivecenter (U.S., Canada, and Europe) trial, 22 patients were treated with weekly Aldurazyme and 23 patients with placebo infusions for 26 weeks. The 45 patients ranged in age from 6 to 43 years and all chose to enter an open-label Aldurazyme extension study. Data from the first 26 weeks showed a statistically significant increase in forced vital capacity (p=0.028), and demonstrated a positive trend in endurance as measured by a six-minute walk test (p=0.066), co-primary endpoints. A prospectively defined covariance analysis (secondary endpoint) accounting for age and ability to walk showed that p value was 0.039 on the six-minute walk test. The reductions in liver size and urinary glycosaminoglycans (GAGs) excretion noted in the Phase I/II trial were confirmed. The safety profile was comparable between the Aldurazyme and placebo groups. Our consultants are encouraged by these data given the small size of the trial in a heterogeneous patient population. They believe that these data are as good as can be expected in this population.
Randomized Phase III Aldurazyme Data Symptoms Pulmonary capacity 6-minute walk test Mean reduction liver size Mean urinary GAG reduction
Improvement Improved Increased endurance Confirmed Confirmed
p value 0.028 0.066* ~0.001 ~0.001
*Prospectively defined covariance analysis of age and ability to walk showed p=0.039.
Aldurazyme Extension Data Showed Important Improvement

At the 7th International Symposium on Mucopolysaccharide and Related Diseases and the 3rd Scientific Lysosomal Storage Disorders Congress in Paris in June 2002, data were presented outlining results from the 24-week open-label extension study. The data showed that patients who received Aldurazyme in the first 24-week, double-blind phase of the study and continued receiving the drug in the 24-week extension phase showed further +0.6% (5.3% 5.9%) improvement in forced vital capacity (FVC). These patients also improved their six-minute walk test from 19.7 meters after the first six months to 42.9 meters after an additional six months of treatment.
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At the conference, data from the 24-week extension period showed that patients who were switched from placebo to Aldurazyme experienced a slight decrease in FVC (0.6%) compared to the end of placebo period. Given that these data contradicted the response seen in the randomized group, it was hypothesized that the winter months (the time in which these patients were switched) may have contributed to this deterioration. In the six-minute walk test, patients showed a mean increase of 23.8 meters after 24 weeks of Aldurazyme treatment, a result consistent with the increase shown in the treated group. In November 2002, BioMarin and Genzyme released data from a 36-week extension period showing that the improvement in the six-minute walk and FVC was sustained in the patients who were originally treated with Aldurazyme (these patients have now been on Aldurazyme for 62 weeks). Overall, these patients have shown a mean 40.0m increase in the six-minute walk and 5.4% improvement in FVC compared to pre-treatment baseline. Most important, data emanating from the additional 12 weeks showed that patients who were originally on placebo and initially deteriorated when first switched to Aldurazyme reversed their initial deterioration and showed tangible improvement in FVC (+2.6%) during weeks 25-36 over pretreatment baseline (these patients have now been on drug for 36 weeks). Additionally, these patients were able to walk 32.4m over six minutes, a further improvement from the 23.8m noted after 24 weeks of treatment. Our consultants are enthusiastic about these results and believe that they outline Aldurazymes important clinical activity. In their view, the previous deterioration in FVC function noted may have been an aberration due to poorer pulmonary function during the winter months.
Randomized Phase III Aldurazyme Data (Extension Phase) Primary Endpoint Aldurazyme Placebo
6-Minute walk Forced vital capacity (FVC) 6-Minute walk Forced vital capacity (FVC)
24 Wk Randomized
+19.7m +5.3% -18.3m -0.6%
24 Wk Extension
+42.9m +5.9% +23.8m -1.2%
36 Wk Extension
+40.0 +5.4% +32.4m +2.6%
p value
0.066 0.016
All values are compared to baseline measurements at study onset.

Bone Marrow Transplant Is Option In MPS-I

Bone marrow transplant (BMT) is another treatment option for MPS-I patients. By replacing the hematopoietic cells that secrete alpha-L-iduronidase, some level of enzyme function is restored in the patients by BMT. Given that preparative regimens and use of placental-derived stem cells or donor match transplants have managed to reduce the rate of graft versus host disease (GVHD), the success of BMT has been on the rise. Physicians recommend that BMT should be undertaken in all Hurlers patients under the age of 2 years when a suitable bone marrow match is found. This is due to the fact that BMT results in a survival advantage, quality of life improvement, and slows or prevents mental retardation. Overall, our consultants estimate that bone marrow transplant is the preferred option for approximately 5075% of the MPS-I patient population.
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Aldurazyme Commercialized Via Genzyme, Royalty To BioMarin

In 1998, Genzyme and BioMarin entered into a 50-50 joint venture agreement to develop and market Aldurazyme. However, that agreement was modified in early 2008. Under the revised agreement, the operational responsibilities of the companies remained the same as in the original Genzyme continues to market and sell Aldurazyme, while BioMarin manufactures it. However, instead of sharing all costs and profits equally, Genzyme will now record sales and pay BioMarin a tiered royalty of between 39.5% and 50% of worldwide sales.
Global Aldurazyme Revenue Model ($MM)
2008A Ex-U.S. Prevalence Population Growth Deaths Total Population Mkt Penetration Total Patients Price ('000) Sales (MM) % Change U.S. Prevalence Population Growth Deaths Total Population Mkt Penetration Total Patients Price ('000) Sales (MM) % Change Worldwide Sales Y/Y Growth Royalty to BioMarin 1,491 3.0% 44 1,447 34.0% 492 $175 $86.1 34.5%
2009E 1,491 3.0% 44 1,447 38.4% 555 $175 $97.1 12.8%
2010E 1,490 3.0% 44 1,446 42.8% 620 $175 $108.4 11.7%
2011E 1,490 3.0% 44 1,446 47.4% 686 $175 $120.0 10.7%
2012E 1,489 3.0% 44 1,445 52.0% 751 $175 $131.4 9.5%
2013E 1,488 3.0% 44 1,444 58.6% 846 $175 $148.0 12.6%
1,156 3.0% 3 1,153 32.3% 373 $175 $65.2 19.9% $151.3 28% 59.8
1,187 3.0% 3 1,184 39.0% 462 $175 $80.9 24.0% $178.0 17.6% 70.6
1,220 3.0% 3 1,217 43.0% 523 $175 $91.6 13.2% $200.0 12% $82.3
1,253 3.0% 3 1,250 48.0% 600 $175 $105.0 14.7% $225.0 13% $94.9
1,288 3.0% 3 1,284 52.8% 678 $175 $118.6 13.0% $250.0 11% $107.4
1,323 3.0% 3 1,320 55.0% 726 $175 $127.0 7.1% $275.0 10% $119.9
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Mucopolysaccharidosis VI (MPS VI)

Mucopolysaccharidosis VI, or MPS VI, is a lysosomal storage disorder resulting from the deficient activity of N-acetylgalactosamine 4-sulfatase, or arylsulphatase B, and the accumulation of dermatan sulphate. MPS VI is also known as Maroteaux-Lamy syndrome. The disease affects many different organ systems, and therefore the clinical problems associated with it are wide ranging. Because the skeletal system is one of the most severely affected systems, MPS VI patients are usually much shorter than normal. In the most severe cases, patients may not grow taller than 3.5 feet, although some patients can reach five feet tall. Most MPS VI patients look similar and have large heads, short necks, chubby cheeks, broad noses, and wide nostrils. Patients have breathing difficulties, as the tonsils and adenoids often become enlarged and can partially block the airway. The chest tends to be rigid and cannot expand to let the lungs take in a large volume of air. Sleep apnea is also common. Hepatosplenomegaly, cloudy cornea, and cardiac disease are also frequently associated with the condition. However, MPS VI has no neurological manifestations and affected individuals often have normal intelligence. The majority of patients with MPS VI die from the condition between childhood and early adulthood.
BioMarins Naglazyme Having A Successful Launch

Naglazyme is a recombinant human N-acetylgalactosamine 4-sulfatase (also known as arylsulfatase B) for the treatment of mucopolysaccharidosis VI (MPS VI). Naglazyme received FDA approval on May 31, 2005, and it was launched in June 2005. Naglazyme was approved by the EMEA in January 2006. In the United States, Naglazyme is priced at $1,450/vial. Each vial contains 5mg, and Naglazyme is dosed at 1mg/kg i.v. every week. With the average patient weighing about 20kg, Naglazyme costs about $5,800/week, or just over $300K/patient/year. Naglazyme is having a strong launch, and has consistently outpaced estimates. BioMarin believes that there are at least 1,100 patients with MPS-VI worldwide. With a $300K/patient/year price, this implies an overall opportunity of $300MM $400MM. Our model projects worldwide sales of $170MM, $215MM, $260MM, $300MM, and $340MM in 2009-13, respectively.
Naglazymes Phase III Data Strong

Naglazyme is supported by solid Phase III data, showing it to be efficacious, safe and well tolerated. The Phase III trial enrolled 39 patients between ages 5 and 29 at six sites in the U.S., Europe, and South America. Patients were randomized 1:1 to receive either a weekly 3-5 hr intravenous infusion of 1.0mg/kg Naglazyme, or placebo, for 24 weeks. The primary endpoint of the trial was the change relative to baseline in the distance walked in 12 minutes. Secondary endpoints were the change in GAGs excreted in the urine and the change relative to baseline in the number of stairs climbed per minute. In the trials primary endpoint, patients receiving Naglazyme improved their 12minute walk by 92 meters more than patients on placebo (p=0.025). Patients receiving Naglazyme also experienced a statistically significant reduction (p<0.001) in GAGs excreted in the urine compared with patients receiving placebo. The average reduction in urinary GAG in patients receiving Naglazyme was 75.5%. Patients on
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Naglazyme increased the number of stairs they could climb per minute by six more than placebo patients. While this improvement was not statistically significant, the trend was nearly so (p=0.053). Naglazyme was also safe and well tolerated. The most common drug-related adverse events were related to the infusions themselves, and were readily managed. All 38 patients who completed the trial (one placebo patient dropped out) rolled onto an open-label extension study, for which data were released in March 2005. Patients switching onto Naglazyme from placebo began to show improvement on drug, and the cohort of previously-treated patients continued to show further benefit during the extension. Following the controlled study phase, patients treated with Naglazyme for the entire 48-week period improved their mean walk distance by an additional 36 meters for a total of 145 meters, improved their mean number of stairs climbed per minute by an additional 2.9 stairs for a total of a 10.4 stairs per minute, and maintained their reduction in urinary GAG levels. While nearly all patients developed antibodies as a result of treatment, the level of the immune response did not correlate with adverse events or impact the improvement experienced in endurance. Importantly, no patient discontinued treatment as a result of adverse events.
Naglazymes Pivotal Data
Endpoint Distance Walked In Twelve Minutes (1) Urinary GAGs (2) Number Of Stairs Climbed Per Minute (2)
Naglazyme vs. Placebo +92 meters 75.5% reduction +6
P-Value 0.025 <0.001 0.053
Naglazyme Is The Standard Of Care In MPS VI

Our consultants do not believe that bone marrow transplant is a viable option for most patiants with MPS-VI, and consider Naglazyme the standard of care. Because there are no neurological manifestations of the condition, the majority of MPS VI patients are not candidates for bone marrow transplant. That is not to say there is no bone marrow transplant in MPS VI. While the percentage of patients receiving BMT varies from physician to physician, most use it in a small minority of patients. Moreover, our consultants think that Naglazyme has a better profile than bone marrow transplant. Our consultants note that bone marrow transplant is a horrific process in which as many as 10-15% of patients will die from complications of the procedure. Additionally, the physicians note that bone marrow transplant has a relatively slow onset of activity, and that enzyme replacement therapy may actually produce faster results. Because enzyme replacement therapy is faster and safer our consultants think that it will be used in the majority of patients. Our consultants believe that therapy with Naglazyme should begin as early as the patient is diagnosed with MPS VI. Because some of the more severe manifestations of the condition, such as the skeletal or cardiac problems, can be irreversible, these physicians believe that all patients should be treated as soon as possible.
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Global MPS VI Model

2008A Ex-U.S. Prevalence Population Growth Deaths Total Population Mkt Penetration Total Patients Price ('000) Sales (MM) % Change U.S. Prevalence Population Growth Deaths Total Population Mkt Penetration Total Patients Price ('000) Sales (MM) % Change Total Sales 782 3.0% 7 775 46.5% 360 $310 $111.7 61.9% 392 3.0% 4 388 17.4% 67 $310 $20.9 $132.6 54%
2009E 798 3.0% 7 791 61.3% 485 $310 $150.5 34.7% 399 3.0% 4 395 15.9% 63 $310 $19.5 $170.0 28%
2010E 815 3.0% 7 808 77.8% 629 $310 $195.0 29.6% 407 3.0% 4 403 16.0% 65 $310 $20.0 $215.0 26%
2011E 832 3.0% 7 825 90.3% 745 $310 $231.0 18.5% 415 3.0% 4 411 22.7% 94 $310 $29.0 $260.0 21%
2012E 850 3.0% 7 843 100.2% 845 $310 $262.0 13.4% 424 3.0% 4 420 29.2% 123 $310 $38.0 $300.0 15%
2013E 868 3.0% 7 861 100.0% 861 $310 $267.0 1.9% 432 3.0% 4 428 54.9% 235 $310 $73.0 $340.0 13%
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PNH Is A Rare, Poorly Treated Medical Disorder

Paroxysmal nocturnal hemoglobinuria (PNH) is a chronic hematologic syndrome in which red blood cells are abnormally sensitive to destruction by the complement arm of the immune system. Complement serves to destroy foreign cells, such as bacteria, and hence plays a key role in host defense. In normal individuals, circulating red blood cells evade destruction by complement via their expression of certain inhibitory proteins linked to their cell membranes. PNH patients harbor mutations in genes that anchor complement inhibitors to the red blood cell membrane, resulting in a population of red cells that are susceptible to complementmediated recognition and destruction. The destruction of red blood cells leads to the release of hemoglobin, resulting in dark-colored urine, a hallmark of the disease. The affected gene in PNH is PIG-A, which encodes a sub-unit of an enzyme required early in the biosynthesis of a glycan phosphatidylinositol (GPI) cell surface anchor to which complement inhibitor proteins (CD55, CD59) are ligated. When this anchor is deficient or absent, cells lose their ability to surround themselves with a protective coating of complement inhibitors, and hence become vulnerable to attack by complement. PNH results from somatic mutations in PIG-A that cause severe or total loss of gene function, and since PIG-A occurs exclusively on the X chromosome, a single allelic mutation is sufficient to result in the PNH phenotype. Since the mutations that underlie PNH are acquired within hematopoietic stem cells following X-chromosome inactivation, this disorder occurs with equal frequency in men and women.
PNH Results From An Acquired Genetic Defect
Source: University of Osaka
PNH is believed to afflict between 8,000 and 10,000 patients worldwide, with an estimated prevalence of 1 to 10 per million individuals. Patients are typically in their mid-30s when diagnosed, and suffer anemia, fatigue, muscle and abdominal pain, and difficulty swallowing. Patients experiencing these symptoms in the setting of hemolysis are usually diagnosed via flow cytometric analysis, and the serial detection of peripheral blood cells deficient in the GPI anchor protein is confirmatory for PNH. The severity of the hemolysis and the clinical course of PNH are highly variable from patient to patient, and may be exacerbated by factors that tend to activate complement (infection, trauma, surgery, pregnancy, other stressors). In addition, there are two major forms of PNH: (1) classical disease in which anemia is the result of a high rate of red blood cell destruction and (2) secondary PNH in which patients have lower levels of hemolysis, but anemia that is exacerbated by
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some bone marrow defect (such as aplastic anemia) that prevents proper red blood cell formation. These two forms of PNH are not mutually exclusive and patients present with a range of hemolytic and bone marrow symptoms. Prior to Soliris, treatment options included transfusions, steroids, iron replacement, and anticoagulants. However, these are palliative only, and tend to yield inconsistent responses and unfavorable toxicity. Stem cell transplantation is considered in very severe patients, but is associated with high treatment-related mortality. Average life expectancy post-diagnosis is estimated to be 10-20 years. The most common cause of mortality is thrombosis, typically within the liver or CNS.
Soliris Perfectly Suited To Treat PNH

Alexions Soliris (eculizumab) is a humanized full-length antibody directed against C5 complement. Complement consists of more than 20 serum proteins that act in a complex cascade to defend humans against various infectious organisms. Activation of the complement cascade typically leads to clearance of pathogens via lysis of the target cells membrane. Soliris interferes with one of the downstream arms of the complement cascade. It blocks the conversion of C5 to C5a and C5b-9, two inflammatory molecules that activate immune cells. Via this mechanism, Soliris is thought to reduce complements ability to induce red blood cell lysis, but preserve the upstream activity of complement that is important for defense against a majority of pathogens.
Complement Cascade
Source: Octapharma
Trial Data Indicate Magic Bullet-Like Efficacy

Alexion initiated development of Soliris for PNH approximately seven years ago. The first clinical experience from an 11 patient, 12-week Phase I/II trial was presented at the 2002 American Society of Hematology meeting. Based on the data from this early pilot study, the results of which were subsequently published in the New England Journal of Medicine, it is clear that Soliris is a highly efficacious agent for PNH. Soliris treatment was associated with a dramatic reduction in hemolysis (red blood cell lysis) as measured by an 80% decrease in lactate dehydrogenase and a 22% absolute increase (from 37% to 59%, p=0.001) in the proportion of Type III PNH red blood cells (those red blood cells that are deficient in complement inhibitors and therefore usually destroyed in PNH patients). Ten of 11 patients from this original pilot study were treated for at least 36 weeks with Soliris. Data presented at the
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2005 American Society of Hematology meeting indicated these patients had mean transfusion rates of 0.3 units/patient/month on Soliris versus a baseline transfusion rate of 2.1 units/patient/month (p=0.002). Seven of the 10 patients treated with Soliris were transfusion-independent for at least the last 17 months of the threeyear treatment period. Soliris has been well tolerated in this study, with the most common adverse events (headaches, upper respiratory tract infection, nausea) occurring at a rate similar that of untreated PNH patient populations.
Soliriss Pivotal Trial Was Alexions TRIUMPH

Under an SPA agreement with the FDA, Alexion initiated a pivotal Phase III trial (TRIUMPH) with Soliris in the treatment of PNH in November 2004. This multinational double-blind, placebo-controlled trial enrolled 87 predominantly classic PNH patients at 40 sites. Patients were randomized to receive placebo or roughly 900 mg Soliris every 12-16 days for six months. The trial includes an extension phase allowing all patients to remain on Soliris therapy. TRIUMPH enrolled patients with at least four transfusions over the preceding 12 months and who had preserved bone marrow function (platelet counts >100,000/L). TRIUMPH measured Soliriss effect on clinical endpointsstabilization of hemoglobin levels and the requirement for blood transfusions. Transfusion requirements were rigorously defined by objective criteria. In January 2006, Alexion announced strongly positive top-line results from TRIUMPH. Full TRIUMPH data were presented in June 2006 at the 11th Congress of the European Hematology Association. The trial demonstrated high significance in its co-primary endpoints of median transfusion rate (0 units/pt on drug vs. 10 units/pt on placebo, p<0.000000001) and hemoglobin stabilization (49% of Soliris patients vs. 0% of placebo, p<0.0000001) over six months. Secondary endpoints of intravascular hemolysis (an 86% decrease in the lactate dehydrogenase levels relative to placebo, p<0.00000000001), quality-of-life scales (fatigue, global health status, physical functioning, emotional functioning, cognitive functioning, social functioning, pain, dypsnea, appetite loss, insomnia, p<0.02 for each), and transfusion avoidance (51% of Soliris patients were transfusion independent on study versus 0% of placebo patients) all favored Soliris. The full TRIUMPH data were published in September 2006 in the New England Journal of Medicine.
SHEPHERD Trial Corroborates Soliriss Efficacy

Also in 2006, Alexion announced positive six- and 12-month results from its companion Phase III open-label trial (SHEPHERD) designed to provide additional safety and efficacy data on Soliris in PNH. SHEPHERD is a single arm, 97-patient worldwide study that enrolled a broader patient population, including those with less classical forms of disease (patients with platelet counts as low as 30,000/L, indicating some bone marrow defect, were eligible) and less severe disease (no requirement for transfusion dependency). Soliris easily achieved the trial's primary efficacy endpoint at six-months, an 87% reduction in intravascular hemolysis as measured by area under the curve lactate dehydrogenase (LDH) levels relative to baseline (p<0.00000000001). This result was maintained through 12 months and is highly consistent with the 86% reduction observed in TRIUMPH. Quality of life measures, a secondary endpoint in SHEPHERD, were also positive. In SHEPHERD, the most commonly observed adverse events were nausea, sore throat, and headache. Adverse events associated with Soliris (in TRIUMPH and SHEPHERD) were similar to those associated with placebo (in TRIUMPH).
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On a cautionary note, two cases of Neisseria-related sepsis have occurred in patients treated with Soliris for extended periods. While both cases resolved with therapy, it is clear from these reports that Soliris is not free of potential side effects. Soliris' slabel does feature a black box warning about this risk and the need to vaccinate patients accordingly. Nonetheless, the drugs risk benefit appears highly favorable.
Soliriss Benefits Extend To Thrombosis, Suggests Marked Survival Benefit

Thrombosis is the most common cause of mortality in PNH patients, and is responsible for approximately 45% of deaths. While thrombotic events are unpredictable, a study has demonstrated PNH patients with a clone size >50% have a 44% risk of thrombosis over 10 years. Pooled results from Soliriss clinical trials presented at the 2006 ASH meeting showed that the drug reduced thrombosis by a staggering 85%. There were 7.37 major thrombotic events per 100 patient years prior to starting Soliris therapy versus 1.07 events per 100 years on therapy (p<0.001). The benefit of Soliris was observed for patients regardless of whether they were treated with antithrombotic therapy. Experts suggest that Soliriss ability to reduce thrombosis rates will be a key claim favoring adoption.
Soliris Improves Kidney Function

Data presented at the 2007 ASH meeting showed the benefits of Soliris therapy in patients with renal insufficiency. Out of the 195 patients in the SHEPHERD and TRIUMPH Soliris trials that received up to 18 months of Soliris therapy, 65% of patients presented with some degree of renal insufficiency, and 40 (21%) were diagnosed as severe CKD. 166 patients completed 18 months of Soliris therapy, with 54 (37%) showing renal function improvement, and 100 (60%) maintaining their kidney functionality throughout the trial. Patients in the earlier stage of kidney disease showed the best renal function improvement.
Benefits Extend To Patients Independent Of Anemia

At the 2008 European Hematology Association meeting, investigators showed that quality of life metrics with Soliris were independent of the impact of anemia. Moreover, the benefits seen with Soliris on quality of life were greater as measured by the FACT-It scale compared across trials to other indications when EPO is used to correct anemia. These data are not surprising, given the drugs mechanism of action addresses the underlying disease side effects. Nonetheless, these data should strengthen ongoing reimbursement discussions across Europe supporting the high cost of therapy.
New Soliris Data At ASH 2008 Support Clinical Benefits

Soliris AEGIS Study. The results of the Japanese PNH pivotal study for Soliris were positive, and continue to support the profile of Soliris in reducing hemolysis and related anemia complications, significant reductions in baseline thrombosis, and improvements in kidney function. ALXN expects to file a marketing application in Japan in early 2009, suggesting approval in 2010. Dose Modifications In PNH. New data in PNH patients experiencing breakthrough symptoms while on Soliris show that increasing the dose can effectively address breakthrough symptoms.
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Soliris Reduces Pulmonary Hypertension. Sub-analysis of the TRIUMPH Phase 3 study of Soliris shows that Soliris treated patients had a 50% reduction in the incidence of pulmonary hypertension (PAH) over the course of the 26-week treatment period. The authors note that PAH is prevalent in approximately 50% of PNH patients at baseline.
Experts Eager To Use Soliris

Leading PNH specialists are uniformly impressed with Soliris efficacy and safety profile, and they view it as a breakthrough therapy for patients with PNH. The results obtained with Soliris clearly differentiate it from any treatments currently in use for the management of PNH, and our consultants are not aware of any competing products in development. Apart from efficacy, our consultants place an emphasis on Soliris safety and tolerability. No systemic infusion reactions have been reported, and antibodies to Soliris are rare and of no clinical consequence. In addition, no untoward effects of blocking complement have been observed. A theoretical safety issue that has raised some concern among investors relates to the sudden discontinuation of Soliris treatment. Since the protection of complement-prone red cells from hemolysis facilitates clonal expansion of these cells over time, chronic Soliris therapy typically results in a PNH clone comprising a large fraction of the total erythrocyte mass. While our consultants recognize that patients who miss even a single dose of Soliris might experience some hemolysis, they believe that this would not be catastrophic. In their view, the severity of the resulting hemolysis would increase over time as Soliris is gradually cleared from the body. At peak levels, they believe that such hemolysis is likely to be on par with what the patients endured prior to initiating Soliris therapy. Several patients over the course of clinical trials have discontinued Soliris safely.
Patients Continue To View Soliris As The Best Treatment For PNH

Our discussion with PNH patients from both the U.S. and E.U. revealed that most patients are aware of their PNH status, and speak highly of the benefits that Soliris offers. Although not all patients immediately start Soliris therapy upon diagnosis of PNH, those that do start therapy are very diligent about compliance, and often schedule their life around the bi-weekly infusion schedule. Patients that are not on Soliris are typically younger and/or have a relatively mild form of PNH. However, all patients that we spoke to recognized Soliriss benefits and stated that they will go on the drug if their symptoms worsen. A PNH thought leader at a recent patient conference of bone marrow disorders acknowledged that roughly 40-45% of his PNH patients are on Soliris, which is roughly consistent with the feedback that weve received from the patients themselves.
First 7 Quarters Post-Launch Show Rapid Commercial Adoption

Alexion is currently executing on its commercialization plan, which includes identifying PNH patients, generating demand for Soliris, facilitating access to the drug, and supporting its utilization. Notably, Alexion is seeing demand for Soliris from a broad range of patients, including those newly diagnosed with no transfusion history and patients who are interested in starting Soliris based on expected improvements in fatigue, anemia, and thrombosis history.
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Soliris is priced at $389,000/year of therapy in the U.S. market, and drug was first shipped to wholesalers in early April 2007. ALXN reported sales of $21.8MM in 3Q07 and added an average of $12.2MM in sales each quarter since (range $12MM to 14MM). Alexion reported 2008 Soliris sales of $259MM, which is also strong despite a weakening euro. The sales were supported by new patient adds as well as commercial conversion of some clinical trial patients. The demand has been steadysince launch, negating the bear thesis that Alexion will run out of patients. We are also encouraged that a significant number of U.S. patients newly identified in H2:08 were also newly diagnosed. This trend validates Alexions education/disease awareness/diagnostic pathway approach, and gives us comfort that Soliris will have a sustainable source of future U.S. growth. Importantly, Alexion has not come close to fully penetrating U.S. oncology practices, and we view broader and deeper market penetration sources for additional patient demand. Soliris is currently available in 13 countries and management has stated that a further 6 countries in the next 12 months would be a reasonable expansion rate. We expect the UK and Canada will come online in 09, with Japan to follow in 10. The UK government announced in 3Q08 that national reimbursement should be available in April 2009; however, Alexion indicated that the reimbursement already started for some patients in late 2008.
EXPLORE: An Educational Tool Creating PNH Awareness

Alexion initiated the EXPLORE trial in June 2006 with an initial target of screening 2,000 patients with bone marrow failure syndromes for PNH. In June 2007, ALXN expanded its goal to screen 10,000 patients in EXPLORE. By the end of 1Q08, ALXN had screened 4,500 patients for PNH through EXPLORE, up from 1,500 patients by early June. Alexion has consistently reported a 2-5% PNH hit rate from EXPLORE, and some of these patients have gone on to receive commercial drug. That said, to date the new patients identified in the commercial launch appear to stem primarily from sales efforts. Alexion has reported that EXPLORE is a useful tool to help educate physicians about PNH. Nonetheless, we expect the combined education and identification efforts will help sustain strong U.S. demand for Soliris.
We Think Soliris Has $700MM+ Potential

Based on prevalence estimates from several sources, including major PNH clinical research centers in the U.K. and France, as well as literature reports, we assume a prevalence of 10 per million worldwide. At this rate, there are approximately 4,000 patients with PNH in Western Europe, 3,200 in the U.S. and Canada. In Japan and Korea, where aplastic anemia (a condition known to be associated with PNH) occurs at an elevated rate, we estimate 3,800 patients. Our model of Soliriss potential is based upon these figures, with no contribution for South American or Middle Eastern geographies. Our prevalence assumptions might prove conservative over time, since, now that Soliris is commercially available, the possibility of finding PNH patients that would otherwise go undiagnosed in the absence of a therapeutic option could augment current prevalence estimates. Based on our assumptions for patient numbers and modest penetration rates, we estimate 2009-13 Soliris sales of $381MM, $502MM, $616MM, $744MM, and $852MM, respectively.
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Soliris In Additional Chronic Rare Conditions

ALXN detailed a number of rare diseases it plans to explore in 2009 that have the potential to significantly expand the current market opportunity for Soliris beyond PNH. Currently trials are recruiting patients with myesthenia gravis and kidney transplant patients with an anti-HLA antibody specific for their living donor. The company also plans to conduct a trial in patients with atypical hemolytic uremic syndrome. At a recent investor conference, management stated that it expects topline data in 2H09 from these trials. ALXN previously pointed out that frequency of administration in these chronic indications is likely to be similar to PNH, and dosing could actually be higher given the poor risk/reward of patients breaking through with these indications. These points suggest pricing should be preserved or higher in newer indications. Myasthenia gravis individually would double the potential Soliris market (3,000 severe patients for each indication in the U.S. alone). While the initiatives are encouraging, they are still early and we need to dive deeper to better assess likelihood of success. At the ASH meeting in December 2008, investigators presented two posters showing promising activity of Soliris in novel indications. Larger datasets will be required to confirm the activity and to support labeling, which will be critical to support sales outside of the labeled PNH indication. Atypical hymolytic uremic syndrome (aHUS) The poster demonstrates Soliris activity in two patients, showing dramatic improvement in kidney function, reversal of thrombocytopenia and normalization of hemolytic parameters following one dose of Soliris. Alexion provided a few additional case reports for impressive Soliris activity in aHUS at its analyst event. The company expects to initiate four single arm aHUS trials that will enroll 40-45 patients in total. The trials will be global and recruit from multiple centers starting in early 2009, evaluating adult, adolescent, plasma therapy sensitive and plasma therapy resistant aHUS. Alexion will evaluate platelet counts, hemolysis, plasma therapy usage and renal function as primary measures in the trials. In 2H09, Alexion plans an additional study in younger pediatrics. We speculate the initial data from these trials may be available by ASH 2009. Cold agglutinin disease (CAD) - One patient, who was refractory to previous treatments, received Soliris for one year. The result showed reduction in hemolysis by 46% and subsequent improvement in anemia, leading to transfusion independence. The investigator was very encouraged by the results and indicated that he has another CAD patient with a similarly impressive outcome but shorter follow up. Alexion expects investigator sponsored trials for this indication. Kidney transplant At its analyst event, Alexion provided case reports for impressive Soliris activity in kidney transplant. Three patients treated with Soliris experienced no worsening in kidney function despite poor prognosis.
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Orphan Diseases
Phenylketonuria
Phenylketonuria Is A Fairly Common Genetic Disorder
Phenylketonuria (PKU) is an autosomal recessive disorder in which phenylalanine hydroxylase, the enzyme that metabolizes the amino acid phenylalanine, is deficient. Phenylalanine is a common component of dietary protein and occurs ubiquitously in foods. In patients with PKU, levels of phenylalanine are elevated, and since it crosses the blood-brain barrier and is directly neurotoxic, if left untreated these patients suffer severe mental retardation and have shortened life spans. Patients are identified via newborn screening, which consists of a blood test that is now standard in much of the world including North America, Europe, and most of Asia including China and India. Essentially all patients born with PKU are identified by screening. According to our consultants, approximately 400 patients are born with PKU in the U.S. each year. With these patients now surviving a normal life span, and it being about 45 years since the advent of PKU screening and treatment with dietary restriction, there could be about 18-20K PKU patients alive in the U.S. today. Our consultants think that there is a slightly higher number of patients in Europe, as its population is somewhat larger, and the incidence is somewhat higher, than in the U.S. Regional variations in incidence occur due to ethnic differences. For example, while about 1/10,000 children are born with PKU in Massachusetts, only 1/25,000 children born in California are diagnosed with it. These differences also occur among countries. For example, while the incidence of PKU in China is on par with that of the Western world, India has a much lower incidence of the disorder.
Dietary Restrictions For PKU Are Challenging

PKU is currently managed by following a diet that is low in phenylalanine. In children, keeping phenylalanine levels in check is critical as their nervous systems are developing and hence they are most vulnerable to excess phenylalanine. It has been shown that there is a correlation between average phenylalanine levels during childhood and intelligence, with IQ scores decreasing 3-5 points for every 100uM phenylalanine above 600uM (the level of phenylalanine in healthy patients is about 100uM). Since breast milk contains phenylalanine, infants are started on a lowphenylalanine regimen at birth, and plasma phenylalanine levels are typically monitored weekly until about four years of age. Our consultants have mentioned that, while the goal is to achieve levels of 360uM or better, most physicians are satisfied with levels up to 600uM until the age of 10. Most patients with PKU are able to achieve this goal in the early years as parents are able to control their childrens intake, and can titrate the diet according to their phenylalanine levels. However, as patients enter the teen years and have greater choice in what they eat, they tend to find it increasingly difficult to avoid meat, eggs, milk, cheese, fish, poultry, beans, nuts, and many other foods that are rich in phenylalanine. In order to supplement their restrictive diet, virtually all PKU patients must take a synthetic phenylalanine-free formula to provide them with a sufficient amount of nutrients. However, our consultants describe the formulas taste as unappealing at best. It tastes so bad that our consultants have said that many would rather take an equivalent amount of formula in capsule form (100+ capsules) each day rather than eat the prepared form. The formula can cost $10 - $15K/year.
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PKU Patients Need To Stay On Diet For Life Our consultants believe that the PKU community has become increasingly adamant that maintaining a low-phenylalanine diet is recommended throughout adulthood. While intelligence itself may not be irreversibly affected after age 18-20, elevated phenylalanine levels have been demonstrated to cause varying degrees of cognitive impairment, psychological problems, seizures, and even skin disorders in some patients. Our experts believe that it is particularly important for women of childbearing age to adhere closely to their regimen, as high phenylalanine levels put a fetus at risk for damage. Although a decent fraction of patients are able to be remain within the limits of the diet and continue on the formula as adults, many become less compliant. Our consultants think that many adult PKU patients are partially compliant, in that, although they continue to take the formula, they eat foods that contain phenylalanine and hence reduce the benefits of the formula.
Kuvan Is The First Oral Pill For PKU

Kuvan (formerly Phenoptin) is BioMarins oral synthetic form of tetrahydrobiopterin (BH4). Tetrahydrobiopterin is a naturally occurring cofactor of phenylalanine hydroxylase, the endogenous enzyme that breaks down phenylalanine and is responsible for regulating the bodys phenylalanine levels. For many years BH4 was not thought to be a potential therapeutic for PKU, as most PKU patients have elevated levels of biopterin owing to the action of guanosine triphosphate cyclohydrolase I feedback regulatory protein. More recently, however, BH4 has emerged as the first non-diet treatment for PKU, as clinical data have demonstrated that BH4 is able to decrease blood phenylalanine concentrations in patients with PKU. BioMarin has received orphan drug designation in the U.S. and E.U. for Kuvan to treat patients with PKU.
Data From Screening Study Strong

A multicenter, international Phase II study screened PKU patients, 8 yrs of age, with blood Phe levels >600 M/L, for response to Kuvan. Patients were given Kuvan at a dose of 10 mg/kg once daily for eight days. Plasma phenylalanine levels were measured at baseline and after 8 days, and patients were considered responders if they had a 30% reduction in blood Phe levels. Of the 485 patients who completed the 8-day treatment, 96 (20%) demonstrated at least a 30% reduction in blood Phe levels. Our consultants have noted that the bar for response in the Phase II trial was high, and that they expect to keep patients on Kuvan in practice even if their reduction in Phe levels is somewhat lower (15-20%). Moreover, historical data have suggested a dose-response to Kuvan, with higher doses leading to greater reductions in Phe levels. Both Kuvans Phase III extension study, and its Phase III diet study tested higher doses of Kuvan. These studies suggested that there is a dose-response in patients response to Kuvan.
Kuvan Produced Impressive Data In Its Pivotal Trial And Extension Study
The subset of patients who responded to Kuvan in the Phase II was eligible to enroll in a pivotal Phase III study. This double-blind pivotal trial was conducted at 30 sites
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in the U.S. and E.U., and randomized 87 patients to Kuvan or placebo for a six-week period. The primary endpoint of the trial was a comparison of phenylalanine levels between treatment and control. At six weeks, treated patients had a Phe reduction of 29% compared to a 3% rise in the placebo group, p<0.0001, thus meeting the primary endpoint. Notably, 54% of treated subjects (vs. 23% placebo) achieved Phe levels less than or equal to 600 M/L, the accepted goal for PKU patients treated by the medical diet. Blood Phe levels in treated patients showed consistent decreases over the course of the study, and Kuvan was well tolerated. The extension phase of the Phase III trial was requested by the FDA to provide longterm safety information. The open-label 22-week study enrolled 80 people who had completed Kuvan's Phase III and tested 3 doses of Kuvan, 5 mg/kg, 10 mg/kg and 20 mg/kg. The data were good, with the trial hitting all pre-specified safety and efficacy endpoints. Kuvan continued to look very safe, with no withdrawals due to adverse events, and the incidence and type of adverse events were comparable to the placebo group of the Phase III. Kuvan produced a dose-dependent reduction in blood Phe levels, with average Phe decreases vs. baseline of 100 umol/L, 204 umol/L, and 263 umol/L for the 5mg, 10mg, and 20 mg doses, respectively. Previous studies have shown that each 100 umol/L decrease in plasma Phe during a child's critical years translates into a gain of about 3-5 IQ points, suggesting the magnitude of decreases produced by Kuvan could meaningfully improve a PKU child's intelligence.
Kuvan Runs The Table In Its Diet Study

The diet study was a double-blind, placebo controlled trial in PKU children on a phenylalanine-restricted diet. All patients were required to have a blood Phe level of 480 mol/L at screening, and were also required to have at least 6 months of blood Phe control (480 mol/L) prior to enrolling in the study. Patients also needed to have an estimated daily Phe tolerance of 1000 mg/day. Of the 89 patients screened, 50 (56%) responded to Kuvan (20mg/kg) with blood phenylalanine reductions of at least 30%. Patients who responded to Kuvan were then randomized 3:1 to 20 mg/kg/day Kuvan or placebo during a 10-week double-blind phase in which phenylalanine was added back to the patients' diet to determine how Kuvan changed tolerance. Kuvan enabled a mean increase of 20.9 mg/kg/day in Phe supplementation, and at the end of the trial patients were able to take a mean total Phe of 43.8 mg/kg/day (p<0.001 vs. placebo) while still being able to maintain acceptable plasma Phe levels. This is a meaningful increase in tolerance, and should allow patients to have a much better quality of life as it suggests the "average" patient on Kuvan was able to tolerate half as much Phe as is in a "normal" diet.
Kuvan Approved A Day Before Its PDUFA Date With Healthy Price
On December 13, 2007, BioMarin announced that Kuvan was approved by the FDA, one day ahead of its December 14 PDUFA. Promotion of Kuvan and shipping into the distribution channel started the next day. Kuvans label seems to be quite favorable with no specific definition of response, suggesting that what is considered a response is entirely under the control of the physician. BioMarins post-approval commitments are benign, and include a PKU registry program, a 2-year extension study for pivotal study patients (ending in mid-2008 for U.S. patients), a single-dose QT study in healthy volunteers, and a 7-year open label trial in 50 PKU patients age 8 or younger.
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Kuvan pricing exceeded even the highest of Wall Street estimates and is $0.29/mg. Based on assumptions for a 45kg average weight, 80% compliance rate, and 20mg/kg average dose suggests an average price of $70K/patient/year.
Kuvans Launch Off To Slower Than Expected Start

We have conducted periodic surveys of 13 PKU specialists to track Kuvans uptake. With all PKU patients identified at birth, physicians initially expected Kuvans launch to be quite rapid as the identified patients sought out therapy. In our first five surveys, physicians believed they would be able to screen, on average, 75-85% of patients for Kuvan sensitivity within the first 12 months of its launch. However, in more recent surveys, the majority of physicians (83%) have encountered some impediments that prevented them from achieving this goal. Forty-two percent of physicians believe that the dietician serves as a bottleneck. Dieticians play an important role in screening patients to determine who will benefit from Kuvan therapy. They evaluate patients food diaries to make sure that patients are not being more strict than usual with their diet (in order to appear to be Kuvan responders during the 30-day screening period) or being less strict than usual (and obscuring a response to Kuvan). This role also requires much interaction between the dietician and patient, as well as a lot of time spent carefully studying a patients food diary. Each dietician can work with only a handful of PKU patients each month. As most PKU clinics have only one dietician, they have limited capacity for screening patients each month. Fifty percent of specialists note that some patients need convincing to try Kuvan. Patients may be reluctant to try it because of: (1) the extra clinic visits (weekly checks of serum Phe when initiating Kuvan for the first four weeks and when increasing serum Phe in the diet); (2) concern over the cost of Kuvan and adverse events or lack of long term safety data; and (3) the commitment necessary to be compliant with Kuvan. Forty-two percent of respondents documented other factors that serve as an impediment to screening patients for Kuvan. These include: (1) the time it takes to contact all in-clinic patients and schedule their visits and to spark interest among patients who are disconnected from the PKU community; (2) shortage of staff time (e.g. nurse practitioners and other clinical support personnel); and (3) the time it takes to get reimbursement arranged for patients, especially from Californias Childrens Services.
Impediments To Screening Patients As Reported By Physicians
Impediments To Screening Patients For Kuvan % Of Physicians Cit ing Im pedim ent
60% 50%
50% 42% 42%
40% 30% 20% 10% 0% Dietician Patients Other None
17%
Source: Cowen and Company Kuvan Tracking Survey August 2008
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Respondents Expect 49% Of PKU Patients To Remain On Long-Term Therapy

Of those patients who have been or will be tested for Kuvan sensitivity, respondents expect that 49% of PKU patients and 54% of hyperphenylalanemia patients will remain on Kuvan as long term therapy. Physicians believe that a patients chance of responding to Kuvan is inversely correlated with the baseline serum phenylalanine level. They expect about 70% of moderate PKU patients (serum Phe levels of 6001200 mol/L), and only about 20% of severe PKU patients (serum Phe levels of >1200 mol/L) to remain on long-term therapy.
Percent of Patients Expected To Be On Longer Term Therapy
Proportion Of Tested Patients Expected To Be On Long Term Therapy
100% 90% 80% 70%
92%
December
65% 45% 46% 42% 49% 56%
Percent
60% 50% 40% 30% 20% 10% 0%
58% 58%
54%
February
March
May
June
August
38% 39%
PKU
Hyperphenylalanemia
Source: Cowen and Company Kuvan Tracking Survey August 2008
Response Rates, Long-Term Compliance Suggest $300MM+ In U.S. Kuvan Sales

Our consultants expect that 84% of their PKU patients will undergo a Kuvan trial, 49% of those screened will remain on long term therapy with Kuvan, their practices will grow by about 4% annually as babies are born and older patients get back in touch, and on average each patient is will pay about $95K per year. BioMarin believes there are 7,400 PKU patients actively managed by physicians in the United States today. Assuming a 4% annual growth rate, there will be about 9,000 patients managed by physicians in the U.S. by 2012. If 84% of those are screened for Kuvan, 49% of screened patients stay on long term therapy, and BioMarin receives $90K per patient (assuming about 5% in discounts), then Kuvan will achieve $333MM in U.S. sales in 2012.
But Physicians Estimates Of Screening Penetration Sounds A Note Of Caution

We have learned to interpret physicians projections of future penetration cautiously as physicians are notoriously overly optimistic early in the launch of drugs, and therefore it can be instructive to assess physicians responses in a variety of ways. In addition to the patient-based approach, we think it is also instructive to simply extrapolate from the current sales run rate, based on physicians impressions of current penetration. The respondents to our survey believe that they have screened about 27% of their in-clinic patients for response to Kuvan. If one assumes that the physicians practices will grow negligibly over the next several years, and
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that Kuvans peak potential in the U.S. is simply its current run rate (we estimate $13.5MM in Q3 sales, translating into a $54MM/year run rate), divided by 0.27, then at peak Kuvan will be a $200MM product. Kuvan achieved $47MM in 2008 revenue. Our model projects U.S. Kuvan sales of $77MM, $105MM, $128MM, $150MM, and $175MM, and worldwide sales of $90MM, $152MM, $194MM, $242MM, and $285MM in 2009-2013, respectively.
Global Kuvan Model
2008A U.S. Prevalence Population Growth % responsive to BH4 BH4 Responsive Population Mkt Penetration Total Patients Price ($) Sales ($MM) % Change Ex-U.S. Prevalence Population Growth % responsive to BH4 BH4 Responsive Population Mkt Penetration Total Patients Price ('000) Sales ($MM) Royalty Rate Revenues ($MM) % Change Total Sales % Change Total Revenues to BMRN
2009E 13,500 1.9% 35% 4,725 22.4% 1,058 $72,800 $77.0 65%
2010E 13,750 1.9% 35% 4,813 28.8% 1,387 $75,712 $105.0 36%
2011E 14,000 1.8% 35% 4,900 33.0% 1,619 $78,740 $127.5 21%
2012E 14,000 0.0% 35% 4,900 37.4% 1,832 $81,890 $150.0 18%
2013E 14,000 0.0% 35% 4,900 41.9% 2,055 $85,166 $175.0 17%
13,250 1.9% 35% 4,638 14.4% 667 $70,000 $46.7 11575%
30,500 1.7% 33% 10,167 0.0% 0 $50,000 $0.0 4.0% $0.0 $46.7 $46.7
31,000 1.6% 33% 10,333 2.6% 269 $50,000 $13.4 4.0% $0.5 $90.4 94% $77.5
31,500 1.6% 33% 10,500 9.0% 945 $50,000 $47.3 4.0% $1.9 $152.3 68% $106.9
32,000 1.6% 33% 10,667 12.5% 1,333 $50,000 $66.7 4.0% $2.7 $194.2 28% $130.2
32,500 1.6% 33% 10,833 17.0% 1,842 $50,000 $92.1 4.0% $3.7 $242.1 25% $153.7
33,000 1.5% 33% 11,000 20.0% 2,200 $50,000 $110.0 4.0% $4.4 $285.0 18% $179.4
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Pompe Disease
Pompe disease is an inherited glycogen storage disease due to a deficiency of glucosidase. The disease primarily affects skeletal and cardiac muscle and manifests as cardiomyopathy (cardiac muscle wasting), progressive skeletal muscles atrophy, and respiratory distress. The infantile form (most severe form characterized by less than 1% of normal enzyme activity) exhibits a rapidly deteriorating course that is commonly fatal within the first 12 months of life. Infants present with respiratory and feeding difficulties, hypotonia (muscle weakness), and hypertrophic (enlarged heart) cardiomyopathy. The juvenile form presents during childhood and teen years with a skeletal weakness and signifies a slowly deteriorating course with a life span of 20-30 years. Patients typically die of respiratory failure in the juvenile form, as the cardiac muscle is typically spared. The adult form may go undetected well into adulthood, usually manifesting itself in the third or fourth decade of life as respiratory insufficiency. Skeletal and muscle weakness are the main symptoms, with respiratory failure the overriding cause of death. Life span is variable in that population. Enzyme levels for the juvenile and adult forms range between 10-25% of normal levels. As the juvenile and adult onset forms are difficult to differentiate from other muscular dystrophies, there can often be a several year lag between the onset of symptoms and a definitive diagnosis of Pompe disease.
Pompe Disease
Incidence Prevalence Severit y Age at diagnosis Age at deat h Progression rat e Cardiomyopat hy Hypot onia Respirat ory insufficicncy
Juvenile Adult 1/ 20,000 - 1/ 100,000 5,000 - 10,000 Severe Int ermediat e Mild 0-12 mos 2-15 yrs >15 yrs 9-15 mos 2-30 yrs >15 yrs Rapid Gradual Slow Yes No No Yes Yes Yes Yes Yes Yes
Inf ant ile
Consultants Suggest There Are About 5K Pompe Patients Worldwide

The reported incidence of this disease in the medical literature is estimated to be between one in 20,000 to one in 100,000 live births translating into a global prevalence of 2,000-10,000 patients. Our consultants believe the true incidence is approximately 1:40,000 births, suggesting a worldwide population of about 5,000 patients. Our consultants estimated that about 20% of people identified with Pompe disease had the infantile or early onset form, and that 80% juvenile or adult onset forms. Our consultants think that Pompe disease is currently under-recognized, as until Myozymes approval, there were no effective treatments. Additionally, our consultants believe that the majority of patients are adults with mild disease whose condition can go undetected or be misdiagnosed for years. However, our consultants are optimistic that Myozymes launch, combined with the implementation of easierto-use blood spot diagnostic tests, could help bring a correct diagnosis to a larger
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portion of patients. Therefore over time the number of identified Pompe patients could more closely match the prevalence suggested by the literature.
Myozyme The First Treatment For Pompe Disease

In April 2006, Myozyme, recombinant, human -glucosidase (rhGAA) enzyme, was approved in the U.S. and E.U. with a broad label for the treatment of patients with Pompe disease. Despite capacity constraints that limited uptake in 2008 and 2009 , Myozymes early launch has been strong and has consistently outpaced our estimates.
Consultants Impressed By Myozymes Pivotal Data

Myozymes pivotal study in infants, AGLU01602, enrolled 18 patients with infantileonset Pompes disease who began receiving Myozyme by six months of age. In the trials primary endpoint, 83% of patients treated with Myozyme were both alive and free of invasive ventilator support at 18 months of age, compared to 2% of historical controls. All patients in the trial showed a reversal of cardiomyopathy, and 72% had gains in motor development. Our consultants think that these data are very clinically meaningful, particularly the fact that all patients who would otherwise have been expected to die were still alive after 18 months. While the physicians are impressed by the data, they note that Myozyme is clearly not a cure. They believe the response can be variable from patient to patient, with some having an excellent response, and others a minimal one. Moreover, while patients cardiomyopathy reversed, the physicians believe that no children dependent on a respirator were able to be removed and allowed to breathe on their own. Our consultants think that Myozyme is generally safe and well tolerated. Although 83% of patients in the pivotal study developed antibodies to Myozyme, and 44% experienced infusion reactions, our consultants think that such reactions are generally mild, and could be managed easily with medication.
Myozymes Adult Onset Trial LOTS Is Successful

In December 2007 Genzyme announced that Myozymes trial in patients with lateonset Pompes disease succeeded. In this 90-patient trial, patients received either Myozyme at 20mg/kg or placebo every other week for 18 months. The average age of patients was 44 years. The study had two primary efficacy endpoints (1) Six minute walk test, and (2) Forced Vital Capacity, and both were reached. Patients treated with Myozyme increased their distance walked in six minutes by an average of approximately 30 meters compared to placebo (p=0.0283). Percent predicted forced vital capacity in Myozyme-treated patients increased by 1% at 18 months, while it declined by 3% in the placebo group (p=0.0026). This is the first data showing efficacy in older patients. Given that adults make up 80% of patients with Pompe, and therefore use in that population is vital, the positive results are a welcome addition to the Myozyme database. However, our consultants are already using Myozyme in their adult patients and do not expect the data to change treatment dramatically. The decision to use Myozyme in adults is made on a case-by-case basis, depending on the severity of disease and the benefits of getting therapy versus the therapeutic risk and cost with payors playing some role in the decision. Our consultants note that the correct diagnosis of late onset
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patients is perhaps the biggest limiting factor to getting them on therapy. Many are classified as muscular dystrophy not otherwise specified and are seen by other specialists (e.g., pulmonologists).
EMEA Acts Quickly And Approves 4000L Produced Myozyme

On February 26, Genzyme announced that the EMEA approved Myozyme produced at the 4000L facility in Belgium. This came a short two months after Genzyme filed for European approval of the facility in December 2008. The approval of this facility should relieve any supply constraints that Myozyme faced outside of the U.S. Genzyme anticipates filing Myozyme produced at the 4,000L scale facility for FDA approval during H1:09.
While The FDA Does Not. Lumizyme Receives Complete Response, Approval Likely In 3-6 Months
In April 2008, Genzyme announced that the FDA has decided that Myozyme produced at the 2000L scale should be classified as a different product from that produced at the 160L scale. Therefore an entirely new BLA needed to be submitted for the 2000L material, and Genzyme chose the name Lumizyme for the 2000L produced material. The BLA was based on data from the LOTS (late onset) study and in October 2008 the FDAs Endocrinologic and Metabolic Drugs Advisory Committee voted strongly in favor of approving Lumizyme for the treatment of the noninfantile form of Pompes disease. Much of the panels discussion centered on the clinical relevance of the LOTS endpoints of six minute walk distance, and forced vital capacity (measures of lung function), as well as on trials adaptive design and statistical methods. Overall the panel seemed somewhat underwhelmed by the magnitude of the improvements, and frustrated by the fact that the endpoints and statistics were changed during the study. However, the panel seemed to recognize that the current capacity constraint leaves much of the U.S. market without access to drug. In the end, the urgency to get patients drug outweighed any concerns over the trials methods, and the vote in favor of approval was clear. The panel voted 16 to 1 that the LOTS data has established the effectiveness of the 2000L product. Of the 16 voting in favor of approval, the vast majority (12) suggested Lumizyme should receive Accelerated Approval under Subpart E, where the data from LOTS is considered to show effects on a surrogate market, and therefore a future confirmatory study will be required. In fact, the panel voted 15 to 2 that post-marketing efficacy studies should be required, and 17 to 0 that postmarketing safety studies should be conducted. The panel voted 16 to 8 against restricting the use of Lumizyme to patients over the age of 18. The panel did suggest, however, that infantile patients with cardiomyopathy should receive 160L Myozyme. In November 2008, Genzyme announced that Lumizyme will receive an accelerated approval from the FDA. However, the FDA still needed to review and finalize Lumizymes post approval verification study and REMS program and thus extended Lumizymes PDUFA date by 90 days to February 28, 2009. Unfortunately, Lumizymes launch was delayed a second time when on March 2, 2009 the filing received a Complete Response letter. Genzyme expects this letter will push out Lumizymes introduction by 3-6 months. Genzyme must (1) Finalize the design of the clinical verification study for Lumizyme; (2) Finalize Lumizyme's Risk Evaluation
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and Mitigation Strategy (REMS); and (3) Resolve issues in a manufacturing warning letter. The first two issues were discussed at the FDA panel, and Genzyme believes it has made good progress in satisfying them, but simply ran out of time to complete the process prior to the PDUFA date. It expects to be able to complete them and resubmit by the end of March. The warning letter on manufacturing issues addressed deficiencies found in September and October 2008 inspections of Genzyme's Allston facility related to monitoring, maintenance, and controls. This facility produces Myozyme, Cerezyme, and Fabrazyme, although Genzyme does not expect the supply of the latter two will be affected. Genzyme has committed to a plan to resolve all issues by March 31, 2009. The FDA must agree that all issues have been satisfied before Lumizyme can be approved. In the meantime, there will be continue to be Lumizyme supply constraints in the U.S. and increased costs associated with supplying free Myozyme to 140 U.S. patients. We project 2009-13 Myozyme/Lumizyme sales of $375MM, $550MM, $750MM, $900MM, and $1,050MM respectively.
Most Infants Likely To Get Myozyme, Adults At Physicians Discretion

Our consultants note that all infantile patients who present with the condition are likely to be offered Myozyme therapy, and suggest that most would probably get it because of its demonstrated survival advantage. Our consultants are much less certain about what proportion of older patients will receive Myozyme. They say there is no consensus among physicians about how these older patients should be treated. They think for each individual patient it comes down to the severity of their disease and the benefits of getting therapy vs the risks of taking the therapy and the cost of the therapy.
Amicus AT2220s Development In Pompe Disease On Hold

AT2220 (1-deoxynojirimycin HCL) is a small molecule orally-administered chaperone in development for the treatment of Pompe disease that is being developed by collaborators Amicus and Shire. AT2220 is designed to bind to, stabilize and elevate the cellular activity of acide alpha-glucosidase (GAA) the enzyme that is deficient in Pompe disease. AT2220 has completed a Phase 1 program in healthy volunteers, as well as an ex vivo respone study. In the ex vivo response study blood and skin samples were collected from 30 Pompe patients who had a variety of GAA mutations. Cells were treated with AT2220, and GAA activity was assessed. Of the 26 patients with data available as of a June 2008 update, 24 had cells that showed a dose response increase in GAA activity. In June of 2008 Amicus and Shire initiated a Phase II, open-label trial. The trial will enroll 18 adult patients diagnosed with Pompe disease. The primary endpoint of the study is the safety and tolerability of AT2220 over 12 weeks. The trial will also assess pharmacokinetic and pharmacodynamic measures including GAA activity, and glycogen levels, as well as pulmonary and muscle function. Unfortunately, in February 2009 Amicus disclosed that the FDA had put the trial on clinical hold after two patients in the study experienced self-reported adverse events and subsequently withdrew from the trial. The events were categorized by
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the site investigator as serious and probably related to treatment with AT2220. Amicus will analyze the data from the trial, and work with the FDA to restart the study as soon as possible.
Global Pompe Model

2008A Ex-U.S. Prevalence Population Growth Deaths Total Population Mkt Penetration Total Patients Price ('000) Sales (MM) % Change U.S. Prevalence Population Growth Deaths Total Population Mkt Penetration Total Patients Price ('000) Sales (MM) % Change Total Sales 4,041 3.0% 117 3,924 28.2% 1,105 $175 $193.5 69.8% 2009E 4,041 3.0% 120 3,921 33.0% 1,295 $175 $226.6 17.2% 2010E 4,039 3.0% 115 3,924 45.8% 1,797 $175 $314.5 38.8% 2011E 4,042 3.0% 115 3,927 60.0% 2,356 $175 $412.3 31.1% 2012E 4,045 3.0% 115 3,930 76.5% 3,005 $175 $525.9 27.6% 2013E 4,047 3.0% 115 3,932 88.3% 3,471 $175 $607.4 15.5%
3,046 3.0% 85 2,961 19.8% 587 $175 $102.7
3,050 3.0% 87 2,963 28.6% 848 $175 $148.4
3,052 3.0% 86 2,966 45.4% 1,346 $175 $235.5
3,055 3.0% 86 2,969 65.0% 1,930 $175 $337.7
3,058 3.0% 86 2,972 71.9% 2,138 $175 $374.1
3,061 3.0% 86 2,975 85.0% 2,529 $175 $442.6
$296.2 48%
$375.0 27%
$550.0 47%
$750.0 36%
$900.0 20%
$1,050.0 17%
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ORPHAN DISEASE R&D PIPELINE Company Protalix Shire Amicus Amicus Genzyme Amicus BioMarin Altus Product prGCD GA-GCB AT1001 AT2101 GENZ-112638 AT2220 Phenylase ALTU-236 Total Drugs In Development . . 1 1 4 2 PC I II III . . . . . . NDA 2009 2009 MKT 2010 2010 Comment Gaucher Disease; produced in carrot cells Gaucher Disease Fabry disease; small molecule chaperone Gaucher disease; small molecule chaperone Gaucher disease; Inhibitor of glucosylceramide synthase Pompe disease; small molecule chaperone PKU; enzyme replacement therapy PKU; oral enzyme replacement therapy 8
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Notes
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Pain Management
Pain Market Is Large, Diverse, And Growing
The many types of pain include back pain, orthopaedic injury pain, breakthrough cancer pain, post-surgical pain, and neuropathic pain. Recent surveys suggest that 9% of adults in the U.S., or approximately 26-27MM individuals, suffer from 11% 2008-13 CGR moderate-to-severe pain, and approximately 57% of adults in the U.S. have experienced chronic or recurrent pain within the past year. These statistics are expected to increase significantly over the coming years as the U.S. population ages. The market for prescription pain drugs was approximately $5.7B in 2008. We expect the demand for prescription pain management products to continue to grow due to favorable demographics, increasing incidence of chronic pain conditions, increasing physician recognition of the benefits of pain management, and a steady stream of new pain products expected to enter the market.
Pain Management Market Category Market Share By $ Sales
2008 $5.7B
PARTICIPANTS
Other 30% ENDP 22% ABT 3% PFE 4% Other 15%
2013P $9.4B
ENDP 21%
CEPH 7% KG 5% CEPH 9% JNJ 20% PURDUE 20% JNJ 13% KG 17%
PURDUE 14%
MAJOR TRENDS &

ISSUES
In 2008, Endo led the pain market with an estimated 22% dollar share. JNJ held the second position with a 20% share. Endo and Purdue are expected to lead the market in 2013 (21% and 20% shares, respectively). King is expected to capture the third position with a 17% share and JNJ is expected to fall to the fourth position with a 13% share. The FDA announced in early February 2009 that it plans to implement a Risk Evaluation and Mitigation Strategy (REMS) requirement for all extended opioid analgesics. We believe the REMS plan may drive prescribing of newer tamperresistant extended release opioids. OxyContin (oxycodone ER) currently holds the leading total prescription share of the U.S. strong opioid market, with an estimated 23% total prescription share. With the re-branding of the oxycodone ER market following the removal of most of the generics in H1:2008, the pricing umbrella for the extended release oral opioid market has been raised. Endo/Penwests Opana ER, King/Ligands Avinza, and Kings Remoxy and Embeda should benefit.
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Several tamper-resistant formulations of oral opioid analgesics are being developed. The FDAs move to restrict prescribing of extended-release opioid analgesics should benefit tamper-resistant formulations from King, Pain Therapeutics, and Acura Pharmaceuticals. The first topical prescription NSAID patch, King/IBSAs Flector Patch (diclofenac), launched in January 2008, and Endo/Novartis Voltaren Gel (diclofenac gel) launched in April 2008. Zars Thermoprofen (Phase III), Nuvo Researchs Pennsaid (diclofenac cream; approvable at FDA), Cerimons topical diclofenac patch (Phase II/III), and King/IDEA AGs Diractin (ketoprofen gel; Phase III) are in late-stage development. The transmucosal fentanyl market is becoming increasingly competitive. Cephalons Actiq is being clipped by generics, and Cephalons Fentora. BioDelivery Sciences Onsolis has completed Phase III trials. Schering-Plough/Organons Sugammadex (approved by EMEA, not-approvable at FDA), a novel modified gamma-cyclodextran, selective non-depolarizing neuromuscular blocker reversal agent, is the first novel agent for anesthesia in 20+ years. Pfizers Lyrica and Eli Lillys Cymbalta have found success in neuropathic pain and fibromyalgia syndrome, despite widespread availability of generics of Pfizers Neurontin (gabapentin). Our scatter plot shows that Endo, Purdue, and King will dominate the pain management category in 2013. While we project pain management will remain a sales growth driver for Endo, Purdue and King, it is expected to be a drag on sales growth for JNJ and Cephalon.
Pain Management
120%
100%
KG
ENDP PURDUE
80%
60%
40%
CEPH
20%
0%
AZN
JNJ
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Multiple Types Of Pain

The most common pain classifications and causes include back pain, orthopaedic pain, cancer pain, post-surgical pain, and neuropathic pain. Typically, pain will be classified as either acute or chronic, and will also be described by the relative severity of the pain (mild, moderate, and severe). Individual patients will have differing perceptions of pain, making generalizations and diagnosis challenging. In most instances, pain intensity is calibrated using a visual analog scale (e.g., 1 to 10; 1 equals no pain and 10 equals worst pain imaginable). Physicians may run a battery of tests when patients complain of pain, as pain is often the symptom of an underlying condition, such as cancer or diabetes. Pain is treated via surgery, physical therapy, alternative treatments such as acupuncture, pharmacotherapy, or any combination of these.
ESTIMATED SIZE OF KEY PAIN MARKET SEGMENTS Market Segment Cancer Pain Lower Back Pain Orthopaedic Pain Post-Operative Pain
Estimated Market Size $1.9B $1.2B $400MM $725MM
Cancer Pain Is The Largest Segment

We estimate sales of drugs specifically indicated to treat various forms of cancer pain at nearly $2B, led by JNJs Duragesic (and generics), Cephalons Actiq (and generics), and Cephalons Fentora. Oral morphine products (Actaviss Kadian, Kings Avinza and Embeda, Purdues MS-Contin, and generics) also are used for cancer pain. An estimated 50% of cancer patients experience some form of pain, which increases to 90% for patients with advanced-stage disease. A recent study estimated that among the cancer patient population who experience pain, 30% suffer from breakthrough pain. Furthermore, as many as 50% of patients may be under-treated for cancerassociated pain. Awareness of breakthrough pain and its treatment has been on the rise since the launch of Actiq in 1999.
Pain Drug Markets Segmented By Pain Severity

Mild-to-moderate pain, such as orthopaedic and soft tissue-related pain, generally is treated with NSAIDs, celecoxib (PFEs Celebrex), or mild opioid analgesics, such as tramadol. Moderate-to-moderately severe pain, such as post-operative pain, orthopaedic pain, and chronic back pain, generally is treated with opioid analgesics, including short-acting opioids such as hydrocodone, oxycodone, oxymorphone, and morphine, as well as extendedrelease formulations of oxycodone, oxymorphone, and morphine. Severe pain, including post-operative and cancer pain, generally is treated with fentanyl products, such as Duragesic, Actiq, and Fentora, as well as morphine formulations, such as Avinza and Kadian.
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PAIN TREATMENT MATRIX Pain Severity: General Causes Mild/Moderate Orthopaedic, softtissue injuries, back pain NSAIDs, COX-2 inhibitors, mild opioids (tramadol) Tylenol, Motrin, Celebrex, tramadol Moderate/Moderately Severe Orthopaedic, post-operative pain, back pain (chronic) Mild opioids, immediate-release stronger opioids, controlled-release stronger opioids Tramadol, hydrocodones, oxycodones, controlled-release oxycodones, controlled-release oxymorphone, controlled-release morphines Severe/Breakthrough Post-operative pain, cancer pain, back pain (acute) Immediate-release stronger opioids, controlled-release stronger opioids Immediate- and controlledrelease oxycodones, fentanyl products (Duragesic, Actiq, Fentora), immediate- and controlled-release morphine
Treatment Classes
Common Drugs
DEA Now Allows 90-Day Rxs For Schedule II Opioids

In December 2007, the DEA enacted a new regulation that allows physicians to write multiple prescriptions (up to a 90-day supply) for oral opioids and other DEA Schedule II substances during a single office visit. Previously, DEA regulations limited patients to one 30-day prescription for a Schedule II drug per physician office visit. Physicians can prescribe the 90-day supply if several conditions are met, including: (1) providing instructions on each prescription indicating the earliest date a pharmacy may fill each of the prescriptions; (2) providing directions for pharmacists to refuse to fill at least two of the prescriptions before a certain date; and (3) prescribing physicians must conclude that providing the patient with multiple prescriptions will not create an undue risk of diversion or abuse of the medication. Our physician consultants believe the new regulation is positive, because it will make prescribing Schedule II substances more convenient. However, our consultants do not expect the new regulation to have a significant impact on the overall use of Schedule II substances.
OxyContin Re-Branding May Bolster Opioid Market

Purdue Pharmas settlement agreements with Endo, Teva, and Impax/Dava to discontinue sales of their respective OxyContin generics effectively rebranded the OxyContin (oxycodone ER) market in 2008. All generic manufacturers halted shipments of generic OxyContin by late January 2008. However, via a patent litigation settlement agreement, Purdue authorized Mallinckrodt to sell a limited quantity of generic OxyContin under a royalty bearing license agreement beginning in September 2008 and running through mid-2009. Under the settlement with Mallinckrodt, the validity of Purdues Oxycontin formulation patent (expires April 2013) is preserved. Therefore, barring another authorized generic settlement (patent litigation is ongoing with KV Pharmaceuticals), Purdue should be able to convert the remaining 15-20% of the oxycodone ER prescriptions currently held by generics back to OxyContin by late 2009. We expect branded extended-release oral opioids (e.g., Endo/Penwests Opana ER, Kings Remoxy and Kadian) to benefit from the withdrawal and subsequent inventory workdown of the remaining OxyContin generics, since a low-cost direct competitor will have exited the market.
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U.S. EXTENDED-RELEASE OPIOID MARKET BUILD-UP

U.S. EXTENDED-RELEASE OPIOID MARKET BUILDUP ($MM) Total Prescriptions (MM) % Change OxyContin Rx Share (Purdue) TRx's (MM) Avg Daily Cost Sales ($MM) OxyContin ER Rx Share (Purdue) TRx's (MM) Avg Daily Cost Sales ($MM) Remoxy Rx Share (KG/PTIE) TRx's (MM) Avg Daily Cost Sales ($MM) Generic Oxycodone ER Rx Share TRx's (MM) Avg Daily Cost Sales Oxycodone NT Rx Share (KG) TRx's (MM) Avg Daily Cost Sales ($MM) Opana ER/IR Rx Share (ENDP/PPCO) TRx's (MM) Avg Daily Cost Sales ($MM) Generic Fentanyl Patch Rx Share TRx's (MM) Avg Daily Cost Sales ($MM) Duragesic Rx Share (JNJ) TRx's (MM) Avg Daily Cost Sales ($MM) Sufentanil Patch Rx Share (ENDP) TRx's (MM) Avg Daily Cost Sales ($MM) Generic Morphine Sulfate Rx Share TRx's (MM) Avg Daily Cost Sales ($MM) Embeda Rx Share (KG) TRx's (MM) Avg Daily Cost Sales ($MM) MS-Contin Rx Share (Purdue) TRx's (MM) Avg Daily Cost Sales ($MM) Avinza Rx Share (KG) TRx's (MM) Avg Daily Cost Sales ($MM) Kadian Rx Share (Actavis) TRx's (MM) Avg Daily Cost Sales ($MM) Total Market ($MM) % Change Source: IMS; Cowen and Company estimates 0% 0.1 $10.00 $20 2% 0.6 $9.34 $164 3% 0.7 $7.85 $168 $2,953 0% 0.1 $10.00 $15 2% 0.5 $9.45 $135 3% 0.8 $7.85 $184 $3,140 +6% 23% 5.6 $1.70 $285 25% 5.8 $1.70 $295 24% 5.8 $1.70 $295 0% 0.1 $8.00 $15 0% 0.1 $10.00 $15 2% 0.5 $9.45 $130 4% 0.9 $7.85 $205 $3,640 +16% 2% 0.4 $8.15 $93 24% 6.0 $4.85 $868 3% 0.8 $15.97 $391 4% 0.8 $8.15 $202 29% 6.7 $4.00 $800 2% 0.6 $16.00 $274 4% 0.9 $8.15 $215 30% 7.1 $3.75 $800 1% 0.3 $16.00 $150 4% 1.0 $8.15 $245 30% 7.1 $3.75 $800 1% 0.2 $16.00 $100 0% 0.1 $15.00 $30 24% 5.8 $1.70 $295 2% 0.4 $8.00 $100 0% 0.0 $10.00 $10 1% 0.3 $9.45 $90 2% 0.4 $7.85 $90 $3,805 +5% 3% 0.8 $8.15 $200 30% 7.1 $3.75 $800 0% 0.1 $16.00 $50 1% 0.2 $15.00 $70 24% 5.8 $1.70 $295 2% 0.6 $8.00 $140 0% 0.0 $10.00 $10 1% 0.3 $9.45 $75 1% 0.1 $7.85 $35 $3,870 +2% 25% 6.1 $2.65 $485 21% 4.9 $2.95 $435 2007 24.5 +7% 8% 2.0 $8.15 $480 2008 23.3 -5% 14% 3.3 $8.15 $800 2009E 23.7 +1% 29% 7.0 $8.15 $1,700 0% 0.0 $8.15 0% 0.1 $8.00 $15 5% 1.1 $2.95 $100 2010E 23.7 +0% 32% 7.6 $8.15 $1,850 1% 0.3 $8.15 $75 2% 0.5 $8.00 $120 0% 0.0 $2.95 $0 2011E 24.0 +1% 32% 7.6 $8.15 $1,850 2% 0.5 $8.15 $125 4% 0.9 $8.00 $220 0% 0.0 $2.95 $0 2012E 24.3 +1% 30% 7.4 $8.15 $1,800 3% 0.7 $8.15 $175 5% 1.3 $8.00 $300 0% 0.0 $2.95 $0 1% 0.1 $9.00 $40 3% 0.6 $8.15 $150 29% 7.1 $3.75 $800 0% 0.1 $16.00 $25 1% 0.2 $15.00 $90 24% 5.8 $1.70 $295 3% 0.8 $8.00 $180 0% 0.0 $10.00 $10 1% 0.2 $9.45 $65 0% 0.1 $7.85 $20 $3,950 +2% 2013E 24.3 -0% 29% 7.0 $8.15 $1,700 3% 0.8 $8.15 $200 7% 1.7 $8.00 $400 0% 0.0 $2.95 $0 1% 0.2 $9.00 $65 1% 0.2 $8.15 $50 29% 7.1 $3.75 $800 0% 0.0 $16.00 $15 1% 0.2 $15.00 $110 24% 5.8 $1.70 $295 4% 0.9 $8.00 $220 0% 0.0 $10.00 $10 1% 0.2 $9.45 $55 0% 0.1 $7.85 $15 $3,935 -0% 2014E 24.4 +1% 27% 6.5 $8.15 $1,600 4% 0.9 $8.15 $225 8% 2.0 $8.00 $475 0% 0.0 $2.95 $0 2% 0.4 $9.00 $100 0% 0.1 $8.15 $25 29% 7.1 $3.75 $800 0% 0.0 $16.00 $10 1% 0.3 $15.00 $130 24% 5.8 $1.70 $295 4% 1.0 $8.00 $250 0% 0.0 $10.00 $10 1% 0.2 $9.45 $50 0% 0.0 $7.85 $10 $3,980 +1% 2015E 24.6 +1% 25% 6.1 $8.15 $1,500 4% 1.0 $8.15 $250 9% 2.2 $8.00 $525 0% 0.0 $2.95 $0 2% 0.6 $9.00 $150 0% 0.1 $8.15 $25 29% 7.1 $3.75 $800 0% 0.0 $16.00 $5 1% 0.3 $15.00 $150 23% 5.8 $1.70 $295 5% 1.2 $8.00 $280 0% 0.0 $10.00 $10 1% 0.2 $9.45 $45 0% 0.0 $7.85 $10 $4,045 +2% -6% -6% -15% -15% -34% -34% +4% - Clipped by Duragesic and OxyContin generics - Newer products could drive upside - From Alpharma - Clipped by generics in 2010 - Morphine sulfate ER - Ligand Pharma sold rights to King in 2007 +0% +0% - From Alpharma - Includes Kadian NT (abuse-deterrent formulation) - Uses low-dose naltrexone - Morphine sulfate - Generics clipped -26% -26% +1% +0% -44% -44% - Endo w/ Durect - 7-day patch - Phase II underway - MS-Contin generics; multiple companies - Includes Kadian generics NM NM - Oxycodone ER plus low dose naltrexone; Alpharma - Currently in Phase II CGR +1% Comments - Moderate growth - Purdue's branded extended-release oxycodone - Generics clip in 2005; assume remaining generics pulled in early '0 - Competition from "abuse-deterrent" products clips - Purdue's abuse deterrent branded extended-release oxycodone
+9% +9%
- King/Pain Therapeutics - Tamper-resistant formulation of oxycodone ER - Assume modest discount to OxyContin - Teva, Dava/Impax - All generics stopped shipping by end of Jan 2008
- ENDP and Penwest (ER); oral oxymorphone for pain - Immediate- and extended-release formulations - Priced in-line with OxyContin - Launched in July 2006; generics assumed in H2:2011 - Generics of JNJ's Duragesic - 72 hour patch - Currently only Mylan, Watson, and Sandoz "authorized" generic - Add'n entrants possible in 2008 - JNJ's transdermal fentanyl patch - 72 hour patch
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SELECT ORALLY-DELIVERED PAIN MANAGEMENT PRODUCTS

SELECT ORALLY DELIVERED PAIN MANAGEMENT PRODUCTS Brand Name Actiq Avinza Combunox Kadian Ultram ER Ultram ODT MS-Contin OxyContin Percocet/Percodan Fioricet/Fiorinal Codiene Lortab ASA Tylenol Codeine Ultracet Ultram Vicodin/Lorcet/Zydone Vicoprofen Opana Fentora Onsolis Tramadol ER Vicodin CR ELI-216 Oxytrex Remoxy Acurox Embeda NRP-290 Oxycodone NT PW4142 TRPV1 Antagonist Combo analgesic ELI-154 TQ-1015 TQ-1017 ALO-03 PTI-202 Generic Name/Mechanism Oral Fentanyl Morphine Sulfate ER Oxycodone + Ibuprofen Morphine Sulfate ER Tramadol ER Tramadol disintegrating tablet Morphine Sulfate Oxycodone ER Oxycodone + Acetaminophen/Aspirin Butalbital + Acetaminophen/Aspirin Hydrocodone + Acetylsalicylic Acid Codeine/Acetaminophen Tramadol/Acetaminophen Tramadol Hydrocodone + Acetaminophen Hydrocodone + Ibuprofen Oxymorphone IR/ER OraVescent Fentanyl Transmuscosal Fentanyl Tramadol ER Hydrocodone + Acetaminophen Oxycodone ER + Low Dose Naltrexone Oxycodone + Low-Dose Naltrexone Oxycodone ER Oxycodone IR Hydrocodone CBD Oxycodone ER + Low Dose Naltrexone Nalbuphine ER TRPV1 Antagonist Alvimopan/APAP/Hydrocodone Oxycodone ER Undisclosed CR oral opioid Tramadol CR Hydrocodone CR Undisclosed Company Cephalon/Barr King/Ligand Forest Actavis Biovail/JNJ Biovail/JNJ Purdue/generics Purdue/generics Endo/generics Watson/generics Forest/generics JNJ/generics JNJ/generics JNJ/generics Abbott/generics Abbott/generics Endo/Penwest Cephalon Meda/BioDelivery Sciences Labopharm/Purdue Abbott Elite Pharmaceuticals Pain Therapeutics King/Pain Therapeutics King/Acura Pharma Shire King Penwest Eli Lilly Adolor Elite Pharmaceuticals TheraQuest Biosciences TheraQuest Biosciences King King/Pain Therapeutics Stage Market Market Market Market Market Market Market Market Market Market Market Market Market Market Market Market Market Market NDA NDA NDA Phase III Phase III NDA NDA NDA Phase II Phase II Phase II Phase II Phase II Phase I Phase I Phase I Phase I Phase I Peak Sales Est. ($MM) $195 $200 NA $188 $400 $200 NA $1,750 NA NA NA NA NA NA NA NA $420 $500 NA NA NA NA NA $500 $150 $230 NA $400 NA NA NA NA NA NA NA NA Comments - Generics launched in September 2006 - Licensed from Elan in 1998; acquired by King in 2/07 - Launched in early-2005; FRX pulled marketing support in late-2005 - Growth slowing; new dosage strengths help - FDA approval granted in 9/05; launched 2/06; 3-years Hatch-Waxman exclusivity - FDA approval 5/05; launched 2/06 - Multiple generics available - Generics expected to be removed from market in 2008-2009 - Endo markets Percocet and its generic Endocet - Multiple generics - Multiple generics - Multiple generics - Multiple generics - Multiple generics - Multiple generics; Watson a key player - Multiple generics - Launched in August 2006; oral IR, oral ER, and injectable formulations available - Launched in October 2006; acquired via CIMA - Complete response letter in August 2008 - 2nd FDA "approvable" letter issued in May 2007, appealing decision; uses Labopharm's Contramid formulation technology - OA-related and lower back pain; NDA filed in Q4:07 - Abuse resistant formulation; SPA with FDA; Ph. III to begin shortly - Failed to hit primary endpoint in Phase III trial in 11/05; add'n Phase III studies ongoing - Phase III results positive, abuse-deterrent formulation; NDA under review - Tamper-resistant formulation plus niacin; 505(b)(2) FDA approval path; SPA with FDA - Phase III results positive; NDA under review - Prodrug approach prevents overdose, deters abuse - Extended-release oxycodone plus low dose naltrexone - Tablet formulation (TIMERx) of existing I.V. product; I.V. form is not DEA scheduled - Investigating in multiple pain types - Component study currently ongoing - Uses Elite's proprietary CR delivery for 1x daily dosing - Tamper-resistant formulation; 1x daily - Tamper-resistant formulation; 1x daily - Tamper-resistant formulation - Tamper-resistant formulation of undisclosed opioid; positive Phase I results
Morphine Sulfate ER + Low Dose Naltrexone King
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SELECT TOPICAL/TRANSDERMAL PAIN MANAGEMENT PRODUCTS

SELECT TOPICAL/TRANSDERMAL MEDICATIONS FOR THE TREATMENT OF PAIN Brand Name Lidoderm Duragesic Ionsys Flector Patch Voltaren Gel Zingo Pennsaid Pliaglis NGX-4010 ThermoProfen Topical Diclofenac Neuracept Diractin Sufentanil Patch Eladur Ketoprofen Durapeel NGX-1998 Generic Name/Mechanism Topical Lidocaine (5%) Patch Transdermal fentanyl patch Transdermal fentanyl Diclofenac topical patch 1% diclofenac topical gel Needle-free lidocaine Diclofenac cream Lidocaine/tetracaine peel Capsaicin Patch Topical ketoprofen patch + CHADD Diclofenac topical patch Amitriptyline + Ketamine cream Ketoprofen Gel Transdermal Sufentanil Patch Transdur-Bupivacaine Ketoprofen peel Topical, concentrated liquid capsaicin Company Endo JNJ JNJ King Endo/Novartis Anesiva Nuvo Research Zars/Galderma Neurogesx Zars Cerimon EpiCept King/IDEA AG Endo/Durect Durect Zars Neurogesx Stage Market Market Market Market Market NDA NDA NDA MAA/Phase III Phase III Phase II/III Phase II/III Phase II Phase II Phase II Phase I Phase I Peak Sales Est. ($MM) $1,045 $1,200 NA $275 $200 NA NA NA NA NA NA NA $250 $100 NA NA NA Comments - Indicated for PHN; used predominantly for chronic lower back pain - Generics available - Uses low-level electrical energy to facilitate drug absorption - FDA approved in Jan '07; early 2008 launch - FDA approved in Oct '07; April 2008 launch targeted - FDA approval in August 2007 - "Approvable" at FDA; marketed in Canada - Approved in July 2006; launch pending - HIV-related pain; PHN; MAA filed in Q4:07 - Heat-assisted delivery; topical patch - 7x10cm patch; Phase III started in 1/08 - Topical cream; chemotherapy-induced peripheral neuropathy; DNP; PHN - Approved in Switzerlan; to enter Phase III trials in US in 2008 - 7-day patch vs. 3 days for Duragesic - 3 day patch for PHN; positive Phase II results released in 12/07 - Topical NSAID; applied as a cream, then solidifies; flexible - Neuropathic pain
SELECT INJECTABLE/INTRANASAL PAIN MANAGEMENT PRODUCTS

SELECT INJECTABLE/INHALED PAIN MANAGEMENT PRODUCTS Brand Name DepoDur Prialt Sugammadex Acetavance Dyloject Rylomine PMI-150 M6G Adlea Posidur AeroLEF Fentanyl TAIFUN CNS-5161 Gantacurium PF-4383119 TQ-1011 CNS-7056 Generic Name/Mechanism Depot Morphine Injection Ziconotide Neuromuscular blocker Intravenous acetaminophen Injectable Diclofenac Intranasal Morphine Intranasal Ketamine Morphine metabolite Injectable Capsaicin SABER-Bupivacaine Inhalation fentanyl Inhalation fentanyl NMDA receptor antagonist undisclosed Injectable ketoprofen GABA-A receptor modulator Company SkyePharma Elan Schering-Plough Cadence Javelin Javalin Javelin CeNeS Anesiva Durect YM Biosciences LAB International/Janssen CeNeS Pfizer TheraQuest Biosciences CeNeS/Ono Pharmaceuticals Stage Market Market NDA NDA Q2:2009 Phase III Phase III Phase III Phase III Phase II Phase II Phase II Phase II Phase II Phase II Phase II Phase I PC Peak Sales Est. ($MM) NA $40 $140 $300-$500 NA NA NA NA NA NA NA NA NA NA NA NA NA Comments - Disappointing rollout; Endo returned rights to SkyePharma Q1:07 - Intrathecal injection; N-type Ca-channel blocker - I.V. anesthetic; modified gamma-cyclodextran - Positive results for Phase III trial (Study 304) - NSAID for acute pain; positive results from first U.S. Ph. III trial; marketed in U.K. - Opioid for surgical, acute pain - Anesthetic for surgical pain - Injectable; post-operative pain - Investigating multiple pain-related indications - Post-operative pain depot - Formulation of free and liposomal fentanyl - Dry powder inhaler; Janssen licensed E.U. rights in June '07 - Injectable; neuropathic pain - Developing as adjunct to general anesthesia to enable rapid patient intubation - Antibody targeting nerve growth factor - Moderate-to-severe post surgical pain - Phase I studies in U.S. and Japan to begin in 2008
Ultra short-acting neuromuscular blockAvera Pharmaceuticals
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SELECT NEUROPATHIC PAIN PRODUCTS

SELECT NEUROPATHIC PAIN MEDICATIONS Peak Sales Est. ($MM) $1,045 NA $3,350 $1,815 $2,135 $3,700 $2,550 NA $450 NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA NA
Brand Name Lidoderm Neurontin Lyrica Viagra Lamictal Cymbalta Lexapro Vimpat Savella NGX-4010 NP-1 Gabapentin GR ABT-894 ADL5859 Bicifadine Brivaracetam XP13512 GSK-681323 S,S-Reboxetine Eladur CNS-5161 Undisclosed TQ-1019 iGluR5 antagonist NGX-1998
Generic Name/Mechanism Topical Lidocaine (5%) Patch Gabapentin Pregabalin Sildenafil Lamotrigine Duloxetine Escitalopram Lacosamide Milnacipran Capsaicin Patch Amitriptyline + Ketamine cream Gabapentin GR Neuronal nicotinic acetylcholine receptor modulator Delta opioid receptor agonist Bicifadine Brivaracetam Gabapentin Prodrug P38 kinase inhibitor S,S-Reboxetine Transdur-Bupivacaine NMDA receptor antagonist Undisclosed Undisclosed iGluR5 antagonist Topical, concentrated liquid capsaicin
Company Endo Pfizer/generics Pfizer Pfizer GSK Eli Lilly Forest/Lundbeck UCB /Schwarz Pharma Forest/Cypress Biosciences Neurogesx EpiCept Depomed Abbott/NeuroSearch Pfizer/Adolor XTL Biopharmaceuticals UCB Pharma GSK/XenoPort GSK Pfizer Durect CeNeS Acadia/Allergan TheraQuest Biosciences Eli Lilly Neurogesx
Stage Market Market Market Market Market Market Market NDA/Phase III NDA MAA/Phase III Phase III Phase II/III Phase II Phase II Phase II Phase II Phase II Phase II Phase II Phase II Phase II Phase II Phase I/II Phase I Phase I
Comments - Indicated for PHN; used predominantly for chronic lower back pain - Anti-seizure medication; primarily used to treat neuropathy - Follow-on to Neurontin; also FDA-approved for FMS - Small Phase IV study in diabetic neuropathic pain - Exploratory study in facial neuropathy - SNRI antidepressant; indication for diabetic neuropathy; approved for fibromyalgia in June 2008 - SSRI antidepressant; Phase IV study in polyneuropathy - In Phase III for diabetic neuropathy; Ph. II for FMS; filed for epilepsy - SNRI, similar to LLY's Cymbalta, approved for fibromyalgia in January 2009 - HIV-related pain; PHN; MAA filed in Q4:07 - Topical cream; chemotherapy-induced peripheral neuropathy - Uses AcuForm delivery technology; could be 1x or 2x daily dosing; PHN and DPN - Diabetic neuropathy - Phase II trial in diabetic neuropathic pain started in 12/07; partnered with Pfizer in 12/07 - SNRI; Phase III trials in low back pain failed; pursuing DNP indication - Neuropathic pain; similar structure to Keppra (levetiracetam) - PHN; in Phase III for RLS - Neuropathic pain - Neuropathic pain; 1x daily dosing - 3 day patch for PHN; positive Phase II results released in 12/07 - Neuropathic pain - Selective alpha adrenergic receptor agonist; neuropathic pain - Local anesthetic patch; neuropathy - Multiple types of pain, including neuropathic pain - Neuropathic pain
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Oral Pain Products

Tamper-Resistant Formulations Awaiting FDA OK
Several companies (see table below) are developing tamper-resistant oral opioid formulations. The FDA is reviewing the NDAs for King/Pain Therapeutics Remoxy (tamper-resistant oxycodone ER) and Kings Embeda (tamper-resistant morphine sulfate ER). King/Pain Therapeutics filed Remoxy for FDA approval on June 10, 2008 and received a complete response letter on December 11, 2008, which requested additional non-clinical data. The FDA simply extended the December 30, 2008 review deadline for Embeda. The FDAs Risk Evaluation and Mitigation Strategy (REMS) plans extended the reviews. While Remoxy and Embeda labels are not expected to include broad tamper-resistance claims, differentiated REMS plans may provide adequate product differentiation over the longer term. The market penetration of tamper-resistant oral opioids will depend on the abuse and hospitalization data and relative pricing. The FDA remains highly-motivated to get tamper-resistant opioids to the market, but is concerned that primary care physicians may gain a false sense of security about the tamper-resistant benefits of Remoxy and Embeda and over-prescribe both opioids as they did with OxyContin. Our consultants believe that the REMS discussion could drag on through H1:2009 and potentially delay the Embeda and Remoxy approvals into H2:2009.
SELECT TAMPER-RESISTANT ORAL OPIOIDS IN DEVELOPMENT
\ Brand Name Oxycontin AR Remoxy Embeda Acurox Oxytrex ELI-216 NRP-290 Oxycodone NT TQ-1017 SELECT "TAMPER-RESISTANT" PAIN PRODUCTS UNDER DEVELOPMENT Generic Name Oxycodone ER Oxycodone ER Oxycodone IR + niacin Oxycodone + Low Dose Naltrexone Oxycodone ER + Low Dose Naltrexone Hydrocodone CBD Oxycodone ER + Low Dose Naltrexone Tramadol CR Company Purdue King/Pain Therapeutics King/Acura Pharma Pain Therapeutics Elite Pharmaceuticals Shire King TheraQuest Biosciences King/Pain Therapeutics Stage Filed Filed Filed Phase III Phase III Phase III Phase II Phase II Phase I Phase I
Morphine Sulfate ER + Low Dose Naltrexone King
PTI-202 Undisclosed Source: Company reports; Cowen and Company research
FDA Moving Forward With Opioid Class REMS Plan

The FDA announced in February 2009 that extended-release opioid analgesics will be subjected to Risk Evaluation and Mitigation Strategies (REMS) in order to reduce mis-use, diversion, and abuse. According to our clinical and regulatory consultants, the FDA has been working for several months to develop a class REMS plan for opioid analgesics, and it now seeks the input of the companies whose products will be regulated. We believe the impetus for this move was to provide a more level playing field for Kings tamper-resistant opioid analgesics, Remoxy and Embeda, which will be restricted by comprehensive REMS programs. While the class REMS requirement adds additional uncertainty to FDA approval timing for Remoxy and Embeda, we believe the REMS requirement enhances the ultimate competitive position of both opioids and positions the FDA to remove competitive extendedrelease opioids from the market. The FDA also plans to meet with the DEA, prescriber groups, and patient advocacy groups to solicit input on the REMS plans.
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The FDA did not provide any timelines or schedules for implementing the REMS requirement, but our consultants believe the process will take at least 3-6 months. Will The FDA OK Embeda And/Or Remoxy Ahead Of The Class REMS? We believe the FDA has some urgency to get tamper-resistant opioid analgesics to the market. The FDA advisory committee noted that both Remoxy and Embeda have superior extraction and abuse liability profiles to existing oral extended-release opioids; therefore, we believe an approval of at least Embeda and potentially Remoxy ahead of the completion of the broader opioid class REMS program is possible. On the other hand, the FDA may want Remoxy and Embeda to launch into a market where REMS programs appropriately restrict the prescribing of other opioid analgesics. Differentiated labeling and risk management plans would provide the appropriate incentives for physicians to preferentially prescribe tamper-resistant opioids, such as Remoxy and Embeda, over standard extended-release opioids. Purdues OxyContin Patents A Potential Barrier With Purdues OxyContin patents reinstated, our patent attorney consultants indicate that Purdues patents may potentially block or delay extended-release oxycodone tamper-resistant formulations, such as Remoxy, from reaching the market. One remaining FDA Orange Book listed patent covers OxyContin, as two of the patents expired last year and three additional patents expired in October 2007. The final formulation patent does not expire until April 2013 (US # 5,508,042). The 042 patent has just two claims, which broadly cover OxyContin. In January 2008, the U.S. District Court for the Southern District of New York issued an opinion and order in the ongoing OxyContin patent litigation. Mallinckrodt, KV Pharmaceuticals, and Actavis have active paragraph IV challenges against the OxyContin patents. In the opinion, the district court judge found that Purdue did not commit inequitable conduct while securing the OxyContin patents. This opinion is important because it invalidates a prior ruling made by the same district court judge on the same patents. Endo successfully challenged the OxyContin patents at the district court and (initially) at the appellate court level by arguing that Purdue had committed inequitable conduct while securing the patents. However, in February 2006, the appellate court withdrew its initial decision and remanded the case to the district court for review. Before the district court could issue a follow-up decision, Purdue entered into a settlement agreement with Endo and the lawsuit was dismissed. At the time, our patent consultants believed that there was a high likelihood that the district court judge would have upheld his original ruling, if given the opportunity. Subsequent to the agreement with Endo, Purdue also entered into settlement agreements with the other generic manufacturers selling generic OxyContin, including Teva, Impax/Dava, and recently Mallinckrodt. Given that multiple generic manufacturers have settled their patent litigation with Purdue, Purdues case may have been stronger than generally perceived. Purdue May Use Patent Litigation To Delay KGs Remoxy In late June, Purdue filed a citizens petition with the FDA, seeking to delay the FDA approval of King/Pain Therapeutics Remoxy, a tamper-resistant reformulation of oxycodone ER. Purdue may file a patent infringement suit against King and Pain Therapeutics prior to the Remoxy launch and request an injunction against the launch. Ultimately, we predict that King and Pain Therapeutics will negotiate a royalty bearing license with Purdue in order to gain market access. Purdue also is
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developing an tamper-resistant OxyContin reformulation, but we believe Purdues program remains 6-12 months from the market following an unsuccessful FDA advisory committee review in May 2008.
ER Oral Opioids Scrutinized Over Alcohol Interaction Issues

In July 2005, Purdue halted promotion of Palladone, a controlled-release formulation of hydromorphone. Clinical data submitted by Purdue to the FDA demonstrated that when Palladone is taken with alcohol, the controlled release mechanism rapidly erodes, causing a dose-dumping effect. Even with a relatively small amount of alcohol (8oz), the study showed that some patients could be exposed to very high levels of hydromorphone. Subsequent to the Palladone decision, the FDA has required human alcohol interaction trials for other sustained-release opioid formulations, and has imposed stricter label warnings for Kings Avinza (extended release oral morphine). The alcohol interaction trial data for Endos Opana and Kings Kadian were clean, but other controlled-release opioids with less robust delivery systems may encounter regulatory problems.
Opioid Receptor Research Continues To Advance

Scientists have identified different opioid receptor subtypes which appear to influence patient response to opioid therapy. The efficacy and side effects of different opioid analgesics vary unpredictably among individual patients, but the reasons for the differential responses have not been well characterized. Ten different opioid receptor subtypes have been identified and researchers believe there are likely more, laying the ground work for the use of genetic profiling prior to prescribing an opioid. However, for the next several years at least, the choice of opioid analgesic will remain an empiric exercise, and opioid rotation will continue to be a common practice. The inherent variability in patient response to different opioid analgesics implies that the market will continue to accept new therapies. This also encourages the development and commercialization of novel chemical entities.
Testosterone Issues May Temper Chronic Opioid Use

Our physician consultants have noted that chronic opioid use appears to be linked to significant endocrine effects, most frequently reduction in testosterone levels in men. Early studies have shown this effect to be highest for intrathecal morphine use, which is the highest, most direct form of opioid dosing. Decreased testosterone levels increase patients sensitivity to pain, while reducing the response to opioid analgesics. No clinical studies have yet been completed documenting similar effects with any of the currently marketed oral opioids, but studies are expected to commence over the next few years.
King/Pain Therapeutics Remoxy Ready To Go

King and Pain Therapeutics first announced their strategic alliance to develop Remoxy in November 2005. Remoxy employs Durects Oradur technology in a sustained release oral gel-cap. Remoxys gelatinous formulation allows for the controlled release of the active pharmaceutical ingredient and may deter abuse of the drug. [Try to frame this so that it appears to add info rather than summarizing the work that already appears in this section.]
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Phase III Remoxy Results Presented At IASP The complete results of the second Remoxy Phase III trial were presented at the International Association for the Study of Pain (IASP) 12th World Congress on Pain in Glasgow, Scotland in August 2008. The trial was a 12-week placebo-controlled study in 412 patients with moderate-to-severe pain associated with osteoarthritis of the hip or knee. Patients were allowed to titrate the dose in the first 4 weeks of the study (range 10-80mg) and then the dose was fixed for the duration of the study. Patients on Remoxy reported significantly lower pain intensity scores over the 12-weeks according to the primary endpoint: area under the curve for change in pain intensity (p=0.007). Several other secondary endpoints also displayed significant results favoring Remoxy: global assessment (p=0.007), quality of analgesia (p=0.004), and pain sub-scales of the WOMAC osteoarthritis index (p=0.023). Adverse events in the trial were limited to common and expected opioid-related side-effects. Dropout rates were similar between treated and placebo groups at 34 and 36%, respectively. Remoxy Gains Favorable Advisory Committee Review King and Pain Therapeutics announced in August 2008 that the FDA granted the Remoxy NDA priority review status, setting a December 11, 2008 FDA review deadline. On December 11, 2008, the FDA issued a complete response letter requesting additional non-clinical data. King and Pain Therapeutics plan to meet with the FDA in Q2:2009 to determine the next steps. Our clinical consultants believe the FDA is requesting additional in vitro opioid extraction and dissolution studies for Remoxy. At the November 2008 FDA advisory committee reviews of Remoxy and Embeda, FDA representatives noted that they were in the early stages of designing appropriate risk evaluation and mitigation strategies (REMS) for tamper-resistant opioids. They also noted that the primary goals of the REMS guidelines for Remoxy and Embeda will be to: (1) enable some product differentiation relative to standard oral controlled-release opioids; (2) require King to educate physicians that both products only deter certain types of tampering and abuse; and (3) ensure that King does not over-promote the benefits of Remoxy and Embeda. The FDA is concerned that primary care physicians may gain a false sense of security about the tamper-resistant benefits of Remoxy and Embeda and overprescribe both opioids, as they did with OxyContin, and is taking great care with the REMS requirements to avoid such an outcome. We Now Assume Q4:09 Launches For Both Embeda And Remoxy We now assume that Embeda and Remoxy are approved and launched in Q4:09. Embeda may be approved sooner, depending on whether the FDA holds the approval for completion of the opioid class REMS regulations or approves it with its own REMS plan (which we believe is likely). We now estimate Remoxy sales of $15MM in 2009, $120MM in 2010, $225MM in 2012, and $450MM in 2013. Our sales estimates assume 2% prescription share of the opioid analgesic market in 2010, rising to 4% in 2011 and 8% in 2013. We believe the strong awareness of oxycodone abuse, Remoxys more gradual release profile, and a high price ceiling, will drive relatively rapid adoption of Remoxy.
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Kings Embeda Could Be First Tamper Resistan Oral Opioid

Embeda (formerly Kadian NT and ALO-01) is a tamper-resistant formulation of Kadian that combines morphine sulfate with low-dose naltrexone, an opioid receptor antagonist. Embeda is formulated with the naltrexone enclosed in the core of each of the coated beads of morphine sulfate. If the capsule is ingested normally, the morphine sulfate beads erode, and the morphine sulfate is released steadily for 24 hours. The low dose of naltrexone in the core of the beads remains inactive, unless the beads are crushed or chewed, which is the most common method of abuse. When the naltrexone is released, it blocks the activity of the morphine in the brain, discouraging abuse behavior. Checks with our consultants reveal that relative to other oral opioids, such as oxycodone, the abuse concerns with oral morphine formulations are relatively low. Therefore, the market demand for a tamperresistant formulation of morphine sulfate may be limited. Phase III Results Should Support Approval At its analyst day in December 2007, Alpharma presented efficacy data from study 301, the 343-patient pivotal Phase III trial for Embeda. These data showed that Embeda achieved statistically significant (p=0.005) pain relief at 12 weeks relative to placebo, as measured by mean Brief Pain Inventory (BPI) score of average pain. Embeda also achieved statistically significant pain relief relative to placebo at week 12 on the secondary endpoint measures of WOMAC pain subscale (p=0.023) and WOMAC composite score (p=0.031). The efficacy trial was designed to enroll opioidenriched patients (those patients tolerating and responding to opioids following a two-week dose titration phase), which is the current clinical trial standard for opioids. This trial design diminishes relative efficacy, so the Embeda efficacy results are positive. The overall dropout rate was 35-37% in the randomization phase of the trial, which is standard for opioid trials. Naltrexone levels were measured via a highly sensitive assay: Management indicated that no appreciable naltrexone levels were detected, and there was no observed correlation between naltrexone level and clinical effect. Euphoria Data Yielded Mixed Response From Clinicians In December 2007, Alpharma management also presented the results of study 205, which measured the pharmacodynamic effects of crushed Embeda tablets (2X60mg per day, designed to simulate abuse and release the naltrexone core) relative to immediate-release morphine solution (120mg) , whole Embeda tablets (2X60mg), and placebo. Each of the 32 patients received each dose for two days in a crossover design with a 14-21 day washout period between doses, and was asked to record their rate of euphoria from each of the treatments on multiple euphoria scales. The data showed that crushed Embeda tablets yielded statistically significantly lower peak and average euphoria levels than immediate-release morphine sulfate solution at all measuring points, which may indicate lower abuse potential. However, our consultants noted that crushed Embeda tablets did yield euphoria measures about twice those of whole Embeda tablets, so there is some reward for crushing the tablets, thereby implying some abuse potential. Embeda FDA Review Deadline Extended On November 14, 2008, the FDA advisory committee strongly supported FDA approval of Embeda (no formal vote was taken, but the informal poll was 14-4 in support of Embedas superiority over existing oral morphine sulfate formulations).
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The FDA representative at the advisory committee meeting also was supportive of Embedas approval. We believe that the Embeda label negotiations have been completed, so we speculate that the FDA review extension likely is related to the FDAs work on REMS (Risk Evaluation and Management Strategy) requirements for tamper-resistant opioids. We now estimate Embeda sales of $15MM in 2009, $100MM in 2010, $140MM in 2011, and $220MM in 2013. We project slower adoptions and lower peak sales of Embeda, as morphine abuse is not a high-profile issue with physicians and Embeda will be competing against generic morphine sulfate products. Positive Long-Term Trial Results For Embeda A Modest Plus King announced results from a 12-month, open label trial of Embeda in 467 patients (160 completers) with moderate-to-severe chronic pain presented at the 2008 American Academy of Pain Medicine annual meeting. Top-line results of this trial had been presented previously. The data show Embeda to be well tolerated for longterm chronic pain therapy and Embeda demonstrated sustained pain relief over a 12-month period in opioid-tolerant patients with moderate-to-severe pain. The data are helpful in that they demonstrate that the naltrexone core of Embeda (which is released upon crushing or chewing the capsules) does not impact the efficacy or tolerability profile when Embeda is dosed normally over an extended period.
U.S. TAMPER-RESISTANT OPIOID MARKET BUILDUP ($MM)
U.S."TAMPER-RESISTANT" OPIOID MARKET BUILDUP ($MM) Total Opioid Prescriptions (MM) % Change Total Strong Opioid Prescriptions (MM) % Change Abuse deterrent Prescriptions (MM) % Change % of total opioid market Remoxy Rx Share (KG/PTIE) TRx's (MM) Avg Daily Cost Sales ($MM) Embeda Rx Share (KG) TRx's (MM) Avg Daily Cost Sales ($MM) Oxycontin ER (Purdue) TRx's (MM) Avg Daily Cost Sales ($MM) Acurox Rx Share (ACUR/KG) TRx's (MM) Avg Daily Cost Sales ($MM) Oxycodone NT Rx Share (KG) TRx's (MM) Avg Daily Cost Sales ($MM) Acuracet Rx Share (ACUR/KG) TRx's (MM) Avg Daily Cost Sales ($MM) Vicavert Rx Share (ACUR/KG) TRx's (MM) Avg Daily Cost Sales ($MM) Total Market ($MM) % Change Source: IMS; Cowen and Company estimates $35 $355 +914% $575 +62% 2008 2009E 2010E 2011E 2012E 2013E 2014E 2015E CGR Comments
23.3 -5%
23.7 +1% 0.1 0.6% 40% 0.1 $9.00 $15 60% 0.1 $8.00 $20 0% 0.0 $9.00 $0
23.7 +0% 2.1 +1406% 8.8% 21% 0.4 $9.00 $120 20% 0.4 $8.00 $100 13% 0.3 $9.00 $75 46% 1.0 $2.10 $60
24.0 +1% 3.2 +53% 13.3% 26% 0.8 $9.00 $220 18% 0.6 $8.00 $140 14% 0.5 $9.00 $125 32% 1.0 $2.25 $70 0% 0.0 $9.00 $0 9% 0.3 $2.25 $20
24.3 +1% 4.2 +31% 17.2% 27% 1.1 $9.00 $300 18% 0.8 $8.00 $180 15% 0.6 $9.00 $175 19% 0.8 $2.50 $60 4% 0.1 $9.00 $40 14% 0.6 $2.25 $40 3% 0.1 $2.50 $10 $805 +40%
24.3 -0% 5.4 +29% 22.3% 27% 1.5 $9.00 $400 17% 0.9 $8.00 $220 14% 0.7 $9.00 $200 13% 0.7 $2.65 $55 4% 0.2 $9.00 $65 17% 0.9 $2.30 $65 7% 0.4 $2.55 $30 $1,035 +29%
24.4 +1% 6.4 +18% 26.1% 28% 1.8 $9.00 $475 16% 1.0 $8.00 $250 13% 0.8 $9.00 $225 9% 0.5 $2.75 $45 6% 0.4 $9.00 $100 20% 1.3 $2.40 $90 9% 0.6 $2.60 $45 $1,230 +19%
24.6 +1% 7.3 +14% 29.6% 27% 1.9 $9.00 $525 16% 1.2 $8.00 $280 13% 0.9 $9.00 $250 7% 0.5 $2.75 $40 8% 0.6 $9.00 $150 19% 1.4 $2.50 $105 11% 0.8 $2.65 $65 $1,415 +15%
- Moderate growth
- King/Pain Therapeutics - Tamper-resistant formulation of oxycodone ER - Assume pricing in-line with OxyContin - King's acquisition of Alpharma - Includes Kadian NT (abuse-deterrent formulation) - Uses low-dose naltrexone - Purdue - Abuse-deterrent oxycontin extended release - Uses gelatinous core - King/Acura - tamper resistant oxycodone plus niacin - Uses galatinous material - Oxycodone ER plus low dose naltrexone; Alpharma - Currently in Phase II
- Oxycodone IR/APAP/Niacin (Percocet + niacin) - In pivotal registration trials
- Hydrocodone/APAP/Niacin (Vicodin + niacin) - Proof-of-concept studies completed
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Pain Therapeutics Oxytrex Is In Phase III

Oxytrex is an immediate-release formulation of oxycodone (4x daily dosing) coformulated with low-dose naltrexone to reduce physical dependence, tolerance, and to deter abuse. In November 2005, Pain Therapeutics announced top-line results from a 12-week, 775-patient Phase III trial of Oxytrex in patients with moderate-tosevere osteoarthritis pain. The primary endpoint of the trial was reduction in physical dependency as measured by SOWS (Short Opioid Withdrawal Scale). While Oxytrex reduced clinical symptoms of physical dependence by 28% compared to patients who received oxycodone (10mg QID), the result was not statistically significant. The doses of Oxytrex tested were 10mg BID, 20mg BID, and 10mg QID. Pain Therapeutics pointed to the high dropout rates seen in the study as the reason for the statistical shortfall: Dropout rates were 48% to 60% in the drug arms and 37% in the placebo arm. Oxytrex did achieve the secondary endpoint: non-inferior analgesic effects compared to oxycodone. In December 2006, Pain Therapeutics initiated the 120-patient Phase III Extreme study. The trial enrolled only patients who require relatively high (>120mg for greater than 1 year) daily doses of oxycodone in order to relieve their pain. Patients enrolled in the study received 2x daily doses of low-dose naltrexone (100 nanograms) or placebo for two weeks. After the treatment period, patients received an injection of a high-dose opioid antagonist to precipitate withdrawal. During the withdrawal phase, patients were monitored for signs and symptoms of physical dependence and withdrawal. The primary endpoint of the study was physical dependence/withdrawal scores using SOWS. Pain Therapeutics has not yet disclosed results or an update on the status of this trial.
Abbotts Vicodin CR Denied Approval In 2008

Vicodin CR is a controlled-release formulation of hydrocodone and acetaminophen. Multiple generics of the immediate-release formulation of Vicodin are available. The Vicodin CR NDA was filed in Q4:07. Two Phase III trials were completed: an 800patient trial in patients with OA-related pain and a 450-patient trial in patients with chronic lower back pain. The primary endpoints for both trials are the change in mean absolute pain intensity from baseline to week 12. Data from the first of the Phase III studies were presented in May 2008. A total of 773 patients were entered into a three-week active-drug, open-label period in which all patients were titrated to receive two tablets of Vicodin CR, twice daily. At the end of the open-label period, 511 patients entered the 12-week double-blind portion of the study and were randomized to receive one tablet of Vicodin CR, two tablets Vicodin CR or placebo twice daily. Vicodin CR met the primary and secondary efficacy endpoints compared to placebo. The mean change from baseline chronic low back pain intensity score was significantly lower in patients receiving either one or two tablets taken twice daily of Vicodin CR compared to those taking placebo (8.6, two tablet, p=0.001; 13.3, one tablet, p=0.002 versus 22.2, placebo). AEs were comparable for all treatment arms and typical for opiod analgesic therapy, including nausea, constipation, diarrhea and headache. In October 2008, the FDA issued Abbott a complete response letter for Vicodin CR. Abbott continues to evaluate the letter with the FDA and will offer further guidance on Vicodin CR at a future date. Abbott projected peak sales of Vicodin CR would be close to 500 MM.
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Meda/BDSIs Onsolis May Be OKd In 2009

Onsolis (BEMA fentanyl) is formulated using BioDelivery Sciences (BDSI) BEMA delivery technology and consists of a dissolvable, dime-sized buccal disk for mucosal delivery. The FDA issued a complete response letter to the Onsolis NDA in August 2008. BDSI indicated that the FDA has requested modifications to the risk management plan for Onsolis; BDSI anticipates final NDA approval in H1:2009. In April 2007, BDSI announced positive top-line Phase III data for BEMA fentanyl for the treatment of breakthrough cancer pain. In the 80-patient trial, BEMA fentanyl demonstrated a statistically significant (p<0.004) improvement in patient pain scores (vs. placebo) at 30 minutes via the Summary of Pain Intensity Difference (SPID 30) score. A statistically significant effect was also seen via the SPID 15 measure. The trial design did require a titration phase prior to enrollment in the double-blind phase of the study. A total of 80 patients were enrolled in the double-blind phase of the study and just 3% of the patients who enrolled in the titration phase did not advance to the double-blind phase. In September 2007, Meda licensed North American rights to BEMA fentanyl. Per the agreement, BDSI received $30MM upfront and will receive an additional $30MM upon final FDA approval of BEMA fentanyl. BDSI will also receive a double-digit royalty on net sales of BEMA fentanyl and additional milestone payments triggered by predetermined sales thresholds: $10MM payment when annual BEMA fentanyl sales exceed $75MM, $10MM when annual sales exceed $125MM, and $10MM when annual sales exceed $175MM. In August 2006, Meda AB licensed European commercialization rights to BEMA fentanyl. Meda paid BDSI $2.5MM upfront and agreed to pay an additional $7.5MM in milestones and a double-digit royalty on net sales of the product, assuming successful commercialization. Meda is responsible for all clinical development and regulatory submissions for BEMA fentanyl in Europe.
Acura Developing Multiple Tamper-Resistant IR Opioids

In October 2007, King licensed rights to Acura Pharmaceuticals tamper-resistant immediate-release oral opioid products utilizing Acuras Aversion technology. The lead program is Acuras Acurox, a tamper-resistant reformulation of immediaterelease oxycodone currently under review at the FDA for acute treatment of moderate to moderately-severe post-operative pain. Acurox combines immediaterelease oxycodone with niacin and other ingredients to deter abuse. King paid Acura $30MM upon the December 2007 closing of the deal and has also agreed to pay development and regulatory milestones of up to $28MM in aggregate for Acurox. King will make similar milestone payments on at least two additional tamperresistant opioid products developed under the agreement. King will reimburse Acura for all related R&D expenses and pay Acura a royalty (tiered at 5-25%) on net sales of any product commercialized via this agreement. King has also agreed to make a one-time cash payment of $50MM in the first year that combined net sales of all products covered under this agreement exceed $750MM. King/Acura Release Positive Phase III Results For Acurox A 405-patient Phase III trial was initiated in September 2007, and enrollment completion was announced in April 2008. The placebo-controlled trial measured pain relief over 48 hours following bunionectomy surgery via a 100mm visual analog scale (VAS). King and Acurox conducted the trial under a special protocol
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agreement (SPA) with the FDA. The study tested 3 dose groups administered every six hours: Acurox tablets 5mg oxycodone/30mg niacin, Acurox tablets 7.5mg/30mg, and placebo. The two Acurox tablet dose groups achieved statistically significant pain reduction (measured by VAS) relative to placebo at 48 hours (p=0.001 and p<0.001 respectively). The most frequently-reported adverse events for Acurox patients were nausea, vomiting, dizziness, pruritis, and flushing. Six patients (2.2%) in the Acurox treatment group withdrew from the study due to treatment-related adverse events, versus no withdrawals in the placebo group. Acuras Aversion Technology Seeks To Deter Tampering and Abuse Acuras Aversion technology co-formulates opioids with various non-therapeutic ingredients in order to deter abuse of the product. Acurox is co-formulated with a sub-therapeutic amount of niacin, which will cause uncomfortable flushing should a patient take more than the recommended dose. An important issue in the Phase III trials will be whether trial patients suffer any flushing symptoms in normal dosing, which could discourage use of Acurox. In addition, the Aversion formulations (including Acurox) convert into a viscous gel matrix upon exposure to solution, effectively trapping the drug in the gel if a patient seeks to extract the opioid via dissolution. The Aversion technology does not use opioid antagonists such as naltrexone in its formulations. Acuras patent (US #7,201,920) covering the Aversion technology expires in March 2025. King and development partner Acura Pharmaceuticals filed a 505(b)(2) NDA for Acurox in December 2008. In early March 2009, the FDA granted priority review to the NDA for Acurox (immediate-release oxycontin/niacin co-formulation), setting an FDA review deadline of June 30, 2009. Acura is conducting additional tamperresistance studies for Acurox and hopes to have data from these trials included in the Acurox label. Assuming extra time to negotiate the label language, we estimate an early-2010 market launch for Acurox and follow-on product sales of $60MM in 2010, $90MM in 2011, and $150MM in 2013. An explicit label claim for abuse resistance post generation of market-use data, could double or treble our 2013 sales target. Immediate-release opioids currently do not have REMS plans, so it is unclear whether the FDA will require a REMS for Acurox. Acura Discloses 2 Additional TR Opioid Programs With King In early March 2009, Acura disclosed for the first time the formulations of the second and third (of four) immediate-release opioid candidates in development with King. The second compound is Acuracet, a co-formulation of IR oxycodone, acetaminophen and niacin (Percocet plus niacin). The third compound is Vicavert, a co-formulation of IR hydrocodone, acetaminophen and niacin (Vicodin plus niacin). These two compounds include acetaminophen (APAP), which boosts their analgesic efficacy and puts them on par with Percocet and Vicodin, respectively. More than 220MM total prescriptions were written for immediate-release opioids in the U.S. in 2007, nearly 10 times the 23MM total prescriptions written for extended-release opioids, and the rate of abuse is similarly 10 times as high.
Kadian Divested To Actavis

Kadian is a 24-hour, controlled release oral formulation of morphine sulfate indicated for moderate-to-severe pain, and competes with other extended-release
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oral opioids, including Kings Avinza, Purdues OxyContin and generics, and Endos Opana ER. Kadian now is available in eight dosage strengths (10, 20, 30, 50, 60, 80, 100, and 200mg). Kadian can be delivered via three different routes of administration: (1) the capsules can be swallowed, (2) the capsules can be opened and the contents sprinkled on apple sauce, while maintaining Kadians extendedrelease profile; and (3) the contents of the Kadian capsule can be mixed with water and delivered via a gastrostomy tube. We estimate Kadian sales of $150MM in 2009, $55MM in 2010, and $10MM in 2013. We project that Kadian sales will be cannibalized in 2009-2010 by the launch of Embeda, Kings tamper-resistant Kadian formulation, as well as the launch of Kadian generics, post expiration of Kadians main patents in March and April 2010. Key Kadian Patents Expire In March, April 2010 Kadian is protected by two Orange Book listed patents (#5,202,128 and #5,378,474), both of which are composition-of-matter patents. The 128 patent expires in April 2010 and the 474 patent expires in March 2010. Kadian also is protected by a method-of-use patent (766), which expires in July 2011. No Paragraph IV certifications have been filed against Kadian, but we assume that ANDAs with Paragraph III certifications have been filed. FTC Resolution Favorable For King Under the FTC consent order for Kings acquisition of Alpharma, King was required to divest Alpharmas Kadian (oral controlled-release morphine sulfate) as a condition to the closing. The Kadian divestiture was completed yesterday via the sale of the Kadian assets to Iceland-based generics manufacturer Actavis for quarterly payments through June 30, 2010 totaling up to $127.5MM. The contingent payments are based upon the achievement of quarterly gross profit milestones for Kadian through Q2:2010. Kadian sales were $168MM (+21%) in 2007, and we project Kadian sales of $192MM (+14%) in 2008. Actavis is a logical buyer: Actavis acquired Alpharmas U.S. and international generic drugs franchises in 2006 and manufactured Kadian for Alpharma. We had anticipated that Kadian would be the divested asset, given the competitive overlap with Kings Avinza (oral controlledrelease morphine sulfate: $140MM in estimated 2008 sales) and Kadians short patent life.
King Sticks With Avinza

Avinza is an extended-release morphine sulfate capsule approved for the treatment of moderate-to-severe pain. King acquired Avinza from Ligand Pharmaceuticals in February 2007. Avinzas capsule formulation encapsulates coated beads, containing aliquots of active drug. The capsule contains both immediate-release and extendedrelease beads, providing a rapid increase in blood plasma concentration and sustained release of the drug. Avinza is available in 30, 60, 90, and 120mg strengths, and dosing is typically once daily. The 60, 90, and 120mg doses are used in opioidtolerant patients only. In July 2005, the FDA requested that the Avinza label include strengthened warnings about alcohol consumption while using the drug. In vitro studies have demonstrated that alcohol leads to rapid erosion of the coated beads, compromising the extended-release characteristics of Avinza and causing uncontrolled dumping of the morphine sulfate dose. King paid Ligand a 15% royalty on Avinza sales for the first 20 months of the agreement, followed by a scaling royalty of 5-15% of sales. In addition, King pays a 6.0-6.5% royalty to Organon (Ligands former co-promotion partner), plus a low-single-digit royalty to Elan on the
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drug delivery technology. Avinza is protected by a composition-of-matter patent (339) that expires in November 2017. Actavis has filed a paragraph IV certification challenging the validity of the 339 patent. King sued Actavis for infringement in October 2007, triggering the 30-month stay. We estimate U.S. Avinza sales of $130MM in 2009, $90MM in 2010, and $55MM in 2013, as we project that Kings Embeda sales will cannibalize Avinza sales.
ACTION Trial A Success In Chronic Back Pain Patients

In May 2006, Ligand presented the final results of the ACTION trial at the APS meetings. The 392-patient trial compared Avinza (once-daily) to OxyContin (oxycodone twice-daily) for the treatment of chronic lower back pain in opioid nave patients. The study included a titration phase, an eight-week evaluation phase, and four-month extension (data collection) phase. Pain intensity was measured at weeks 1, 4, and 8 during the entire eight-week evaluation phase. Patients taking Avinza demonstrated significantly better pain control (assessed using Brief Pain Inventory instrument), better sleep quality (assessed using Global Quality of Sleep Index), and a reduction in the number of rescue medications used compared to those patients on oxycodone ER.
COMPARISON OF SELECT BRANDED ORAL STRONG-OPIOIDS
Brand Name Avinza Duragesic Kadian MS Contin Opana ER OxyContin Generic Name Morphine Sulfate ER Transdermal Fentanyl Morphine Sulfate ER Morphine Sulfate CR Oxymorphone ER Oxycodone ER Company King JNJ and generics Alpharma Purdue and generics Endo/Penwest Purdue and generics Dosing Interval 24h 72h 12h; 24h 12h 12h 12h Available Strengths 30/60/90/120 mg 12.5/25/50/75/100 mcg/hr 10/20/30/50/60/80/100/200 mg 15/30/60/100/200 mg 5/7.5/10/15/20/30/40 mg 10/15/20/30/40/60/80 mg Administration Capsule, Sprinkle Patch Capsule, Sprinkle, G-tube Tablet Tablet Tablet Bolus? Yes No No Yes No Yes Ceiling Dose 1600 mg -
Source: Product labels; Company reports
Rollout Of Endo/Penwests Opana ER Is Building Momentum

Opana ER is a twice-daily, extended-release formulation of oxymorphone, a mu opioid receptor agonist. Opana ER is indicated for the treatment of moderate-tosevere pain in patients requiring continuous opioid therapy. Opana ER was formulated using Penwests TIMERx drug delivery technology. Opana ER was launched in the U.S. in July 2006, and Endo began actively detailing the product in August 2006. Opana ER is supported by Endos ~700-rep specialty sales force. Several factors conspired to slow the initial rollout of Opana ER, but the issues have been substantially resolved and Opana ER sales reached an estimated $175MM in 2008. Endo redeployed its 70-rep hospital sales force, which had been previously detailing DepoDur, to focus on the Opana rollout and expanded its sales force by 95 reps in H2:07. In July 2007, Endo initiated a rebating program, to reduce patients out-of-pocket cost for Opana ER. Opana ER is currently on tier 3 for a majority of managed care formularies. Endos adjustments on the marketing front appear to be having a positive impact on Opana ER prescribing, and we anticipate this trend will continue. We estimate Endos Opana franchise sales at $215MM in 2009, $245MM in 2010, and $50MM in 2013. Penwest receives a scaled royalty (22-30%) on Opana ER net sales. Endo also markets immediate-release and injection formulations of Opana. Opana ER
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accounts for approximately 75% of the franchise prescriptions, and 80% of Opana franchise net sales. The three primary Opana ER patents have been challenged by Impax Laboratories, Actavis, Sandoz, and Barr/Teva. On February 20, 2009, Endo and Penwest announced a settlement agreement with Actavis to launch an authorized generic of Opana ER at the low doses. Under the settlement agreement, Endo and Penwest have agreed to dismiss the patent litigation suit with prejudice and Actavis has dropped its counterclaims (also with prejudice). Therefore, Endo and Penwest now have put a firm outside date on the launch of Opana ER generics.
SUMMARY OF OPANA CLINICAL DEVELOPMENT PROGRAM
SUMMARY OF OPANA CLINICAL DEVELOPMENT PROGRAM Study Type Phase I Phase II Phase II/III Phase III Phase III Phase III Phase III Open-Label Pain Model NA OA-related Pain Acute Post-Surgical Pain OA-related Pain Chronic Low Back Pain Chronic Low Back Pain Chronic Low Back Pain Cancer-related Pain Description - Multiple studies; both IR and ER formulations - ER dose ranging study - IR study; placebo-controlled; multi-dose - ER study; OA patients with chronic, severe pain - ER study; compared to oxycodone ER; equally as effective; Opana dose half the mg dose of oxycodone - ER study; opioid nave patients - ER study; opioid experienced patients - ER study; Patients on morphine CR or oxycodone ER were easily converted to Opana ER; all drugs demonstrated comprabale efficacy - In vivo alcohol interaction study
Open-Label
NA
Generic Actiq Available (On A Limited Basis)

Actiq is an oral transmucosal formulation of fentanyl used for the treatment of breakthrough cancer pain. Actiq is indicated for use in opioid-tolerant patients only, and comes in six dosage strengths (200/400/600/800/1,200/1,600mcg). Actiq is used by the patient for approximately 15 minutes to reduce the severity of pain episodes; typically patients begin with the 200 mcg dose and increase the dose as necessary. Despite safety concerns of fast-acting fentanyl, our physician consultants believe Actiq is a valuable treatment option for their patients. We estimate U.S. Actiq sales of $75MM in 2009, $55M in 2010, and $20MM in 2013. Cephalon acquired CIMA Labs in 2004 in order to gain rights to oravescent fentanyl (Fentora), then in late-stage development for breakthrough pain. As part of the companys settlement with the FTC, Cephalon agreed to allow Barr Labs to market a generic version of Actiq (oral transmucosal fentanyl, OTF) up until the earlier of: (1) September 2009 or (2) approval of BRLs own pending ANDA for OTF. Currently, Barr is the only non-authorized generic competitor, and Barr could lose access to Cephalons supply if it is unable to gain approval of its ANDA (now pending for over 3 years) before September 2009. Meanwhile, although other ANDAs are thought to be pending at the FDA, any approvals are uncertain given the requirements for stringent REMS plans. Barr priced generic Actiq at an approximate 35% discount to the reference brand. However as Cephalon had instituted price hikes of 50%+ in the prior 12 months leading into generic competition, Barrs version is selling at prices roughly equivalent to those Cephalon was charging in 2005. Given duopoly status and some
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brand loyalty, Cephalon seems likely to hold on to at least 50% of Actiq's market share (branded + Watson authorized generic).
Cephalons Fentora Picking Up The Slack

Cephalon broadened and extended its pain franchise with Fentora, an effervescent tablet formulation of fentanyl, which launched for breakthrough cancer pain in 2006. Fentora incorporates CIMA Labs oravescent oral drug delivery technology. Data from a 123-patient Phase III trial on Fentora showed significant benefit to patients with breakthrough cancer pain who already were receiving around-theclock pain medication, and the formulation was well-tolerated. Physician consultants believe Fentoras therapeutic profile compares well to other alternatives for breakthrough pain including Actiq. This is predominantly based upon Fentoras rapid absorption profile and speed of onset (the key attribute in treating breakthrough pain). Importantly, Fentora acts within 5-10 minutes, as opposed to Actiqs 10-15 minute time to onset. We estimate Fentora sales of $193MM in 2009, $235MM in 2010, and $290MM in 2013. Dear Doctor Letter Has Slowed Fentora Prescriptions In September 2007, Cephalon and the FDA issued a Dear Doctor letter to physicians, pharmacists, and managed care organizations regarding Fentoras dosing, administration, and appropriate patient population. The letter stated that Cephalon has learned of four deaths and one suicide in patients who have received Fentora. The company ascribes these deaths to improper dosing or improper product substitution with Fentora, or its use in patients who have not become tolerant to chronic opioids. As fentanyl is a very potent opioid that has been employed in pain management in other forms (including transmucosal, intravenous, and topical patch), sometimes with negative consequences, this does not signal a new issue with Fentora itself, but rather highlights improper physician prescribing patterns. Nonetheless, sales of Fentora have seen some impact as physicians adjust their prescribing habits. Consultants Are Skeptical Of Fentoras U.S. Growth Opportunity IMS prescription data indicate a steady 15+ month decline in the overall market for breakthrough cancer pain products (branded Actiq, generic OTF, and Fentora). Our consultants can not definitively explain the trend, but postulate that reduced off label use and lingering safety concerns, including the Dear Doctor letter, might be to blame. Going forward, specialists see no reason for trends to reverse. Experts would like to use more Fentora and value the drugs convenience and speed of onset. However, Fentoras high cost (up to $100/day) and resistance from insurance companies have forced physicians to go with generic opiates in place of Fentora as their mainstay for breakthrough cancer pain. Fentoras sNDA Stalled at FDA Fentora may be applicable to a broader range of breakthrough pain indications, as suggested by positive data from Phase III trials of Fentora in breakthrough back pain, neuropathic pain, and non-cancer-related breakthrough pain. Three randomized, placebo-controlled studies have been conducted, and Cephalon filed an sNDA to expand Fentoras label into breakthrough back pain, neuropathic pain, and non-cancer-related breakthrough pain in November 2007. The application included a total of 941 opioid-tolerant patients having been treated up to 18 months.
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In May 2008, an FDA panel voted 17-3 against expanding Fentora's label to include non-cancer-related breakthrough pain. The three main issues that prevented panel members from recommending broader approval were: (1) lack of an accurate definition of "non-cancer breakthrough pain" and consensus on the appropriate target patient population; (2) a need for additional clinical trials comparing Fentora to other opiates; and (3) lack of evidence that Cephalon's proposed novel and impressive risk management program could be relied upon to control abuse/misuse. In general, panelists and the FDA were of the view that off-label use of Fentora (currently 80% of prescriptions) in non-cancer opioidtolerant patients is acceptable, and were reluctant to interfere with the physician/patient decision making. In September 2008, Cephalon received a complete response letter from the FDA on its sNDA. As expected, the FDA did not approve Fentoras broader label for noncancer pain. The FDA has asked Cephalon to launch its novel REMS program called COVERS (expected to occur in Q1:09) and also asked management to provide routine safety updates. No new efficacy or safety data were requested by the FDA. Cephalon believes that the new REMS will prevent abuse, misuse, and diversion and may allow, over time, for Fentora to obtain a label for non-cancer breakthrough pain in opioidtolerant patients. We believe that the FDAs more stringent stance on preventing abuse, misuse, and diversion may also serve as a greater barrier to approval of generic Actiq. We Expect Fentora To Grow Modestly Over Time The breakthrough pain market may become more competitive with additional agents potentially entering the market in 2009. Its possible, as seen by Barrs inability to get its own generic Actiq version approved for the last 41+ months, that the FDA might not approve any new fast-acting opiate medications given concerns over abuse, misuse, and diversion. If other agents are approved, competition could mitigate Fentoras growth. Meda/BDSIs Onsolis (BEMA fentanyl) received a complete response letter from the FDA in late-August (also related to its risk management plan). BDSI hopes to launch Onsolis in 2009. Endo recently terminated development of Rapinyl in the U.S. for business reasons. Cephalon announced in April 2008 that the European Commission approved Effentora (effervescent tablet formulation of fentanyl) in opioid tolerant cancer patients with breakthrough pain. We believe that a stable Fentora business in the U.S., coupled with modest price hikes in the U.S and growth in the EU, will allow Fentora to hit our 2% CAGR estimate for 2008-2013. Fentora's Patents, RiskMAP Create Hurdles For Possible Generics Cephalon received notification that Watson (April, 2008) and Barr (June, 2008) have filed ANDAs to sell generic versions of Fentora. In the applications both companies allege that Cephalon's patents (6,200,604 and 6,974,590 expiring in 2019) are invalid, unenforceable, and/or not infringed. Checks with our industry and litigation consultants suggest that '604 and '590 method of use patents are broad and sophisticated and will be difficult to circumvent while still demonstrating bioequivalence. Specifically, in order to work outside Cephalons patents, Watson and Barr would need to utilize a different mechanism to convert a generic fentanyl from an acid formulation to a base, thus enabling absorption in the buccal mucosa. Our experts believe achieving this is a difficult task without violating Cephalons patent estate. It is possible, that should Watson and Barr attempt to work outside
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these patent claims, the FDA may want these companies to conduct Phase III trials and file under section 505 (b)2.
Growth Of JNJ/Biovails Ultram ER Has Slowed

Ultram ER is an extended-release formulation of tramadol, a central-acting synthetic opioid approved for the treatment of moderate-to-moderately severe pain. Ultram ER is thought to be non-narcotic; however, tramadol metabolites have been reported to act on opioid receptors in a manner that may cause morphine-like dependence. Nonetheless, Ultram ER is not scheduled by the DEA. Tramadol is typically prescribed for pain that is relatively less severe compared to pain treated with the strong opioids (oxycodone, morphine, fentanyl, etc). Ultram ER uses Biovails Smartcoat extended-release technology. Ultram ER is available in 100, 200, and 300mg strengths and is dosed once-daily. Ultram and tramadol generics are typically dosed every 4-6 hours. Ultram ER was launched by JNJ in February 2006, and after a solid start, prescription growth slowed in 2007 and 2008. Ultram ER is protected by three years of Hatch-Waxman exclusivity (expired September 2008) and a formulation patent that expires in May 2014. Multiple paragraph IV certifications have been filed against Ultram ER. Biovail is responsible for the manufacture of Ultram ER and supplies the product to JNJ. JNJs Ortho-McNeil and Biovail co-market Ultram ER in the U.S. We estimate U.S. Ultram/Ultracet/ER sales of $65MM (+17%) in 2009, $75MM in 2010, and $114MM in 2013.
Purdue/Labopharms Ryzolt (Tramadol ER) Approved

In May 2007, the FDA issued its second approvable letter for Purdue/Labopharms Tramadol ER. The FDA indicated that the clinical results submitted as part of the NDA did not demonstrate the efficacy of Tramadol ER because of the manner in which the dropouts were handled in the statistical analysis. Labopharm submitted a complete response to FDA in early July 2008, including the additional analysis of existing data as suggested by the FDA. Labopharms re-submission was accepted as a complete, Class 2 response. The original Tramadol ER NDA included six clinical studies and 12 PK studies, with data on more than 2,400 patients. On December 31, 2008, the FDA approved Ryzolt (Tramadol ER) in the U.S. for the management of moderate to moderately severe chronic pain in adults. The once-daily product is a centrally acting analgesic for the treatment of moderateto-moderately severe pain. Like Ultram ER, Purdue/Labopharms Ryzolt is not expected to be DEA-scheduled, despite its opioid-like properties. The drug utilizes a dual matrix delivery system (Labopharms Contramid technology: controlled-release technology for oral administration of solid dosage medications) to provide both rapid and sustained drug release to maintain therapeutic blood levels over a 24 hour period. Purdue/Labopharms Ryzolt will compete directly with JNJs Ultram ER, which was launched in the U.S. in February 2006. Purdue licensed U.S. rights to Tramadol ER from Labopharm in November 2005. Purdue paid Labopharm $20MM up front, and Labopharm is eligible to receive up to $150MM in future payments, including $40MM in potential milestones. Labopharm also receives a scaling royalty of 20-25% based on net sales of the product. Tramadol ER is currently approved and marketed in multiple international markets. GlaxoSmithKline has agreed to market Tramadol ER in Mexico, Latin American, and the Caribbean markets. Paladin Labs holds the Canadian marketing rights.
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JNJ/Grunenthal GmbHs Tapentadol IR Gets FDA Approval

Tapentadol is a new chemical entity being developed for the treatment of moderateto-severe pain. Tapentadol was originally developed by Grunenthal GmbH, a private pharmaceutical company based in Germany. In February 2003, Grunenthal licensed co-development rights to JNJ. Tapentadol has a dual mechanism of action: it is a mu opioid receptor agonist and also acts as a norepinephrine reuptake inhibitor. Three formulations of Tapentadol are in development: oral (including an immediaterelease and an extended-release formulation), intravenous, and buccal. In January 2008, JNJ announced the submission of the NDA for the immediaterelease formulation of Tapentadol. JNJ has designed a comprehensive Phase III program, including six Phase III trials targeting models of chronic (lower back, osteoarthritis of the knee, diabetic peripheral neuropathy) and acute pain (pre- and post- joint replacement surgery). On November 21, 2008, the FDA approved 50mg, 75mg, and 100mg doses of tapentadol IR tablets for the relief of moderate to severe acute pain in adults. However, as of late February 2009, the DEA has not yet issued a ruling on the scheduling of Tapentadol, so a commercial launch has not yet commenced. The Phase III data demonstrate that tapentadol offers significant pain relief for a number of indications compared to placebo and is well tolerated. The first look at clinical data for tapentadol prolonged-release (PR), now in Phase II and Phase III trials for the treatment of moderate to severe cancer pain, will be presented in March 2009 at the 5th WIP World Pain Congress. We estimate U.S. Tapentadol sales of $50MM in 2009, $175MM in 2010, and $425MM in 2013. Phase III Data Demonstrates Favorable GI Tolerability of Tapentadol Results from two ongoing phase II studies of Tapentadol versus oxycodone IR were presented in June 2008. A study in patients with end-stage joint disease showed that treatment with a 50 mg or 75 mg tapentadol IR resulted in significantly higher pain relief compared to placebo (P<0.001) when assessed over five days of treatment. The 50 mg and 75 mg tapentadol IR treatment groups showed similar efficacy to that seen in patients treated with 10 mg of oxycodone IR. Compared to oxycodone IR, both doses of tapentadol studied were associated with a significant reduction in the incidence of GI side effects such as nausea, vomiting and constipation. Twenty-five percent of patients treated with 10 mg oxycodone IR experienced constipation compared to only 4% and 7% of the tapentadol IR groups, treated with 50 mg and 75 mg, respectively (P<0.001). The second study presented at the EULAR congress in June 2008, a randomized 4:1 vs. oxycodone IR, double-blind, flexible dose study, was to assess the safety of tapentadol IR for treating low back pain or OA pain of the hip or knee over 90 days. Tapentadol IR 50 or 100 mg was given every 4-6 hours as needed up to 600 mg per day or oxycodone IR 10 or 15 mg every 4-6 hours as needed up to 90 mg per day. A total of 679 and 170 patients in the tapentadol IR and oxycodone HCl IR groups, were included in the efficacy and safety analyses. Both treatment groups indicated a comparable analgesic effect at the specified doses. The incidences of nausea, vomiting, constipation, and the composite of nausea and/or vomiting in the tapentadol IR group were significantly lower than in the oxycodone HCl IR group (P<0.001 for all treatment comparisons).
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U.S. MARKET BUILD-UP FOR TRAMADOL & RELATED PRODUCTS

ESTIMATED U.S. MARKET DYNAMICS FOR TRAMADOL & RELATED PRODUCTS 2007 Total Prescriptions (MM) TRx Growth Ultram/ER (JNJ) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Tramadol Generics Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Ultracet (JNJ) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Tramadol ER (Purdue) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Tapentadol (JNJ) Rx Share TRx's (MM) Average Daily Cost Sales ($MM) Total Sales (MM) % Growth $385 +14% 0% 0.0 $4.00 $5 $401 +4% 24.5 +9% 6% 1.5 $4.51 $198 94% 22.9 $0.25 $175 0% 0.1 $3.47 $13 2008 23.0 -6% 8% 1.7 $4.60 $240 92% 21.2 $0.23 $146 0% 0.1 $3.50 $10 2009E 26.7 +16% 5% 1.4 $4.60 $200 92% 24.7 $0.25 $185 0% 0.0 $3.50 $5 0% 0.1 $4.85 $15 2% 0.4 $4.00 $50 $455 +14% 2010E 27.8 +4% 3% 0.7 $4.60 $100 92% 25.7 $0.35 $270 0% 0.0 $3.50 $5 2% 0.5 $4.85 $75 3% 0.8 $4.00 $100 $550 +21% 2011E 29.3 +5% 1% 0.4 $4.60 $50 90% 26.5 $0.34 $270 0% 0.0 $3.50 $5 4% 1.0 $4.85 $150 4% 1.3 $4.00 $150 $645 +17% 2012E 30.8 +5% 1% 0.2 $4.60 $30 89% 27.3 $0.33 $270 0% 0.0 $3.50 $5 4% 1.2 $4.85 $175 5% 1.7 $4.00 $200 $730 +13% 2013E 31.7 +3% 1% 0.2 $4.60 $30 89% 28.1 $0.32 $270 0% 0.0 $3.50 $5 4% 1.3 $4.85 $185 7% 2.1 $4.00 $250 $740 +1% +13% CGR 08-13 Comments +7% - Moderate growth projected Tramadol/ER Not scheduled by DEA Ultram ER launched in Feb 2006; uses Biovail formulation technology Ultram ER has 3 years Hatch-Waxman, multiple paragraph IV challenges pending
-34% -34% +6% +13%
- Mu receptor agonist, weak NSRI - Not scheduled by DEA - Includes tramadol/APAP generics; assume Ultram ER generics in late 2009 - Tramadol/APAP - Not scheduled by DEA - Clipped by multiple generics
-13% Partnered with Labopharm; uses Contramid technology 2nd FDA "approvable" letter issued in May 2007 Add'n Phase III trial requested, but re-analysis of statistics may suffice; assume 2009 launch Assume not scheduled by DEA
- Partnered with Grunenthal; mu agonist plus norepinephrine uptake inhibitor - NDA filed in January 2008 for IR; ER in development - Assume not scheduled by DEA - Newer branded products drives growth; generics clip
Penwests Nalbuphine ER Awaiting A Partner

Nalbuphine ER is a synthetic opioid agonist-antagonist in development for the treatment of moderate chronic pain. Nalbuphine acts as a kappa opioid receptor agonist and as a partial mu opioid receptor antagonist. The agonist mechanism of nalbuphine dominates until the drug is given at high doses, when the antagonist activity begins to blunt nalbuphines analgesic effects. This ceiling dose effect has potential advantages in reducing risk of an overdose. Penwests Nalbuphine ER is a controlled-release tablet designed to be dosed twice daily. The drug is formulated using Penwests Geminex technology. Nalbuphine ER is an oral formulation of a previously FDA approved intravenous drug known commercially as Nubain (Endo). Multiple generic versions of Nubain are available and sales of generic Nubain were approximately $10MM in 2008. Nubain is not scheduled by the DEA. Our consultants indicate that Nubain is often used in the hospital setting, in patients who are taking a mu opioid receptor agonist and begin to experience relatively mild, unwanted side effects (e.g., itching). Nubain can be given and its mu opioid receptor antagonist effect will relieve the side effects, while Nubains kappa receptor agonist effect helps to maintain the overall analgesic effects for the patient. Management currently is designing the Phase IIb trial protocol for Nalbuphine ER (moderate pain). This trial will explore a lower dose given the drugs higher-than-expected potency. Nalbuphine May Offer Advantages Over Tramadol Penwest believes Nalbuphine ER may offer key advantages over tramadol (JNJs Ultram/ER), a leading drug for the treatment of moderate chronic pain. Tramadol is a mu opioid receptor agonist and also acts as a weak serotonin/norepinephrine reuptake inhibitor. The potential advantages of Nalbuphine ER vs. tramadol include easier patient titration and a more favorable side-effect profile. Our consultants indicate tramadol takes approximately 10 days to titrate; therefore, if Nalbuphine ER can be titrated in significantly less than 10 days, this would be viewed as a meaningful advantage. The most common dose-dependent side effects seen with tramadol are dizziness (16-28%), nausea (15-26%), and constipation (12-30%). The most common side effect seen with Nubain (I.V. nalbuphine) is sedation (36%). Nausea (6%) and dizziness (5%) appear to be minor issues with Nubain. Constipation
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is not an issue with Nubain, presumably due to its mechanism of action: opioidinduced constipation is mediated via the opioid receptors in the GI tract. Our consultants indicate that seizures are also a significant, albeit relatively rare, side effect associated with tramadol use. Phase IIa Results Not Perfect, But Good Enough In February 2008, Penwest announced top-line results from a 138-patient, 21-day, escalating dose Phase IIa trial of Nalbuphine ER. While the trial failed to hit its primary endpoint (Sum of Pain Intensity Differences vs. baseline), there was significant evidence of efficacy seen via multiple secondary measures (Global Assessment of Pain Control, p=0.006 and Integrated Assessment of Pain Intensity and Rescue Medication Use, p=0.009). Patient dropout during the first week of dosing appears to have been the primary reason for the primary endpoint miss. While the primary endpoint miss was a bit of a disappointment, we believe that the Phase IIa trial served its purpose by providing Penwest with initial clinical experience with the drug in the chronic pain setting and providing the company with enough of a clinical signal to advance the product into a larger Phase IIb trial. Further development of Nalbuphine ER is contingent upon a partnering deal, and we assume Penwest will receive a 15% royalty on net sales of Nalbuphine ER.
Shires NRP-290 Looks Interesting, But Visibility Low

NRP-290 is pro-drug of hydrocodone in which the active drug is covalently bound to a lysine, and remains pharmacologically inactive until the lysine group is cleaved off via an enzymatic reaction in the body. Since the enzyme responsible is exclusive to the GI tract, parenterally-administered NRP-290 would not be expected to yield active hydrocodone. Also, since the rate of this transformation is relatively slow, this step governs the bioavailability of circulating efficacious hydrocodone. While increasing the amount of ingested NRP-290 may accelerate the enzymatic step somewhat, a point is reached at which the enzyme becomes saturated and additional NRP-290 simply builds up and gets eliminated by the kidneys. This approach of conditional bioreversibility is appealing, since it uncouples the actual dose of a drug from the quantity that is ingested, potentially serving as a window to reduce abuse potential. NRP-290 is in development for the treatment of acute pain. Despite its tamper-resistant feature, NRP-290 is still expected to be classified as a DEA Schedule II drug. Our consultants are enthusiastic NRP-290s potential. Since NRP290 is a derivative of hydrocodone, Shire may be able to reference data in the public domain (e.g. long-term carcinogenicity studies) for FDA filing purposes, which may speed the path to approval. Shire has not yet moved NRP-290 into Phase IIb or Phase III trials: Shire is evaluating whether or not additional Phase II trials will be required or if they can advance NRP-290 directly into Phase III. Shire may seek to partner the product prior to commercialization.
King/Pain Therapeutics PTI-202 Is In Phase I

PTI-202 is an tamper-resistant formulation of an undisclosed long-acting opioid, which completed Phase I clinical development in 2007. PTI-721 is the third tamperresistant opioid being developed under the King collaboration; an IND was filed in August 2008. The active opioids in PTI-202 and PTI-721 have not been disclosed.
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Amrix Gaining Muscle Relaxant Share

In August 2007, Cephalon acquired rights to Amrix, an extended-release formulation of cyclobenzaprine. Amrix was approved by the FDA in February 2007 for short-term adjunct use in treating painful muscle spasms. Terms include a $100MM upfront cash payment and potential future milestones to ECR Pharmaceuticals, a private company. Cephalon will also owe undisclosed royalties to Eurand, the products manufacturer. Generic versions of cyclobenzaprine (originally JNJs Flexeril) have been available for some time, and according to IMS, accounted for 45MM prescriptions in 2006. However, available formulations of the drug are dosed 3x/day, compared with Amrix, which is dosed 1x/day. Kings Skelaxin (metaxolone) achieved sales of $440MM (+6%) in 2007 behind aggressive marketing and pricing. Cephalon made Amrix available in the U.S. in November 2007. In June 2008, the U.S. PTO issued a formulation patent for Amrix (#7,387,793) which expires on February 26, 2025. With a more favorable outlook for Amrixs longevity, Cephalon plans to make additional investments in Amrix marketing. At Cephalons 2008 R&D Day, management presented market research indicating Amrix's profile is viewed as best in class among prescribers, but that awareness of Amrix was lower than other branded muscle relaxants. As this market has proven to be promotionally sensitive (70% of prescriptions are written by PCPs), Cephalon's decision to dramatically increase sales support (from 570 in 2008 to 840 in 2009) should pay dividends in 2009 and beyond. We project 2009, 2010 and 2013 sales of $155MM, $225MM, and $375MM, respectively. In October 2008, Cephalon was notified that Mylan and Barr filed ANDAs with the FDA for 15mg and 30mg Amrix tablets. In November 2008, Cephalon filed suit against both pharmaceutical companies, and since Amrixs formulation patent was listed in the Orange Book, a 30-month stay preventing a generic launch automatically began. We expect that Cephalon will settle with the generic challengers and see little risk to Amrix sales. In fact, a settlement could substantially increase Amrixs long-term revenue visibility by making it clear to investors that no generics are likely during a defined (10-15+ year) period. A less likely scenario is Cephalon challenging these filings in court. However, we believe that, if Cephalon takes this route, it would likely succeed in defending the 793 patent based on a lack of prior success in challenging Eurands sustained release technology (the technology employed in Amrix has not been successfully challenged to the best of our knowledge) and the speed at which a paragraph IV challenge was filed. Cephalon wont know for some time whether the paragraph IV challenges contain any real chemistry/formulation work (allowing the challengers to operate outside the claims of the 793 patient) or whether the challengers are simply mounting a legal assault on the 793 patent in the hope of gaining first-to-file status. However the timing of the challenge (just 10 months after Amrixs commercial availability) suggests to us it may be the latter.
Skelaxin Generics Likely On The Way In 2009

King announced in January 2009 that the judge presiding over Kings Skelaxin patent litigation against Sandoz in the U.S. District Court for the Eastern District of New York issued an order invaliding Kings patents 6,407,128 and 6,683,102 covering Skelaxin. These patents cover the increased bioavailability of Skelaxin (metaxalone) when administered with food. These claims were strengthened via the FDAs inclusion of the food effects data in the Skelaxin label in November 2006, which now requires generics to perform food effects studies. The order was issued in response
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to Sandozs summary judgment motion filed in August 2007, but without a hearing. King plans to file an appeal. We now assume that Skelaxin will encounter generic competition from Sandoz and an authorized generic from Corepharma beginning in Q2:2009: 1. Sandozs current GMP issues are expected to delay ANDA approval of its generic metaxalone at least into Q2. But visibility on final ANDA approval timing remains low, as GMP resolution tends to be protracted. 2. Because the judge issued the order without the benefit of a hearing, King may seek to at least temporarily enjoin the launch of Sandozs metaxalone generic. 3. Given the early stage of the separate litigation on a third patent 7,122,566, Sandoz may be liable for treble damages in an at-risk launch, so may elect use its strengthened position in the litigation on the 128 and 102 patents to pursue a favorable (to Sandoz) settlement of the 566 patent litigation. 4. Sandoz holds first-filer exclusivity on generic metaxalone, but the only ANDAs known to be currently pending are those of Sandoz, Corepharma (now acting as the authorized generic via settlement), and Mutual (no tentative approval and not pursuing litigation). Therefore, the generic metaxalone market is likely to be a duopoly for 6+ months post launch, regardless of launch timing. We estimate Kings Skelaxin sales declining to $230MM (-48%) in 2009 (assuming generics hit in Q2:2009), $50MM in 2010, and $30MM in 2013.
Neuropathic Pain Is Poorly Understood

Neuropathic pain is characterized by systemic pain as a result of nerve damage, most often in the feet and legs. While no direct cause of neuropathy has been identified, several factors appear to increase a patients risk of developing neuropathy, including: alcoholism, amputation, back, leg, and hip problems, chemotherapy, diabetes, HIV, multiple sclerosis, shingles (post-herpetic neuralgia or PHN), and spine surgery. Neuropathy often results in numbness and abnormal sensations that may occur either spontaneously or in reaction to external stimuli. Neuropathy is characterized by pain, termed neuropathic pain or neuralgia, which is different than typical nociceptive pain. Neuropathic pain varies and is often described as a steady burning, a "pins and needles" sensation, or an "electric shock" sensation. Neuropathic pain is notoriously challenging to treat and is not successfully treated with traditional pain medications, such as opioid analgesics. Classes of drugs not typically thought of as analgesics are often effective in treating neuropathic pain, including tricyclic antidepressants, anticonvulsants, and serotonin/norepinephrine reuptake inhibitors (SNRIs).
Pfizers Neurontin Now A Generic Market

Neurontin (gabapentin) is indicated for adjunctive therapy in the treatment of partial seizures and neuropathic pain. Gabapentin is widely prescribed for neuropathic pain and has been shown to have neuropathic pain efficacy equivalent to that of tricyclic antidepressants. Besides its efficacy, gabapentin is often prescribed for neuropathic pain because it is generally well tolerated, easily titrated, and has few drug-drug interactions. Generics to gabapentin were first launched in
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2004, and the U.S. generic substitution rate is now 97%+. We estimate worldwide Neurontin sales of $350MM (-7%) in 2009, declining to $50MM in 2015.
Lyrica First To Enter Sizable FMS Market

Pfizers Lyrica (pregabalin) was launched in September 2005 in the U.S. for three indications: 1) neuropathic pain associated with diabetic peripheral neuropathy; 2) postherpetic neuralgia; and 3) adjunctive treatment of partial seizures in adults with epilepsy. Despite the fact that Lyrica is classified as a Schedule V controlled substance, which increases the complexity of prescribing, in tandem with the availability of inexpensive and similar gabapentin generics, Lyricas performance on the market has been impressive. In the E.U., Lyrica is indicated for treatment of central neuropathic pain, add-on epilepsy, and generalized anxiety disorder (GAD). In June 2007, Lyrica received final FDA approval for the management of fibromyalgia (FMS). Pfizer submitted an MAA in Europe for FMS in March 2008. Lyrica typically is used as monotherapy first-line in patients who present with FMS, but do not have depression or anxiety issues. Plans to expand Lyricas target market include indications in: neuropathic pain (positive study in spinal cord injury and HIV neuropathy), restless leg syndrome, and partial seizures (monotherapy in Phase III). Development in GAD (7 positive studies completed; non-approvable letter in 2004) was discontinued. We estimate Lyrica sales (all indications) of $3B (+15%) in 2009, $3.9B in 2012, and $4.8B in 2015. Anti-Epileptics Get Warnings For Suicide But These Are Unlikely To Impact Use An FDA analysis of suicidality reports released in January 2008 from placebocontrolled studies of 11 antiepileptic drugs shows that patients taking antiepileptic drugs, including Lyrica, have about twice the risk of suicidal thoughts and behaviors (0.43 percent) compared with patients receiving placebo (0.22 percent). This risk corresponds to an estimated 2.1 per 1,000 more patients in the drug treatment groups who experienced suicidality than in the placebo groups. An FDA Advisory Committee meeting in July 2008 concluded that additional warnings should be added to the labels of antiepileptic drugs. In December 2008 FDA issued a release requiring manufactures of anti-epileptic drugs, including Lyrica, to add warnings of increased risk of suicidal thoughts and behaviors to the products' prescribing information or labeling. We believe the label warnings are unlikely to materially impact use.
Cymbalta Appears Poised To Continue Impressive Performance

Eli Lillys Cymbalta (duloxetine; SNRI) is marketed for acute and maintenance treatment of MDD, diabetic peripheral neuropathic pain (DPNP), fibromyalgia (FMS) and generalized anxiety disorder (GAD) in the U.S. and for MDD and DPNP in the E.U. As of January 2009, Cymbalta held a 7.1% new prescription share of the U.S. antidepressant market. Cymbalta is differentiated from other SNRIs because of an approval in DPNP and FMS. Lilly estimates that 15-20% of prescriptions are for DPNP and that approximately 2-3MM diabetic patients in the U.S. currently experience painful symptoms of DPNP. DPNP is a smaller market than depression but growing more rapidly (+15-20%). Cymbaltas fibromyalgia sNDA (approved in June 2008) was supported by five clinical trials enrolling approximately 1,400 patients in total. Lilly believes the fibromyalgia market may be larger than expected given that there is a mood component in 80% and MDD in 30% of FMS patients. Pfizer has done
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significant work building the FMS market for Lyrica and thereby facilitating a Cymbalta launch; recent concerns with Lyrica and suicidality could benefit Cymbalta further. Lilly believes its current sales force is sufficient to cover the target physicians: primary care physicians; neurologists; psychiatrists; and rheumatologists. Cymbalta Chronic Pain Filing Withdrawn In November 2008 Lilly withdrew its Cymbalta sNDA for chronic pain, but intends to refile. The submission was based on outcomes of clinical trials in chronic osteoarthritis pain of the knee and chronic low back pain, in addition to data from previously completed pain studies in diabetic peripheral neuropathic pain and fibromyalgia. Cymbalta was studied in chronic pain of at least moderate severity in adults who required daily treatment for an extended period of time. The results of two 13-week trials in lower back pain were presented at EFNS and World Congress of Pain in 2008 and were mixed. The 230 patient international study met its primary endpoint but the 408-patient U.S. study missed. Of concern was the statistically significant dropout rate in the Cymbalta arm in the successful study. In October 2007, Lilly completed a Phase III study in 230 patients with knee OA. Data from this study were presented at EULAR and demonstrated that Cymbalta 60-120 mg once daily was effective in the reduction of pain and improvement in function in patients with OA knee pain. A second Phase III study in 230 patients is complete. We estimate Cymbalta sales of $3.3B (+18%) in 2009, $3.9B in 2012, and $500MM in 2015 assuming generic competition. In June 2008, Lilly filed suit against Teva given its Paragraph IV filing against Cymbalta. Chronic Pain Cymbaltas Next Frontier Data from a Phase III OA of the knee study were presented at EULAR 2008. This was a 13-week, randomized, double-blind, parallel group, placebo-controlled trial in patients with clinical and radiographic criteria for OA of the knee, with pain for 14 days of each month for 3 months prior to study entry and a mean 24-hour average pain score of 4 on a scale of 0 (no pain)-10 (worst pain imaginable). Patients with major depressive disorder were excluded. Patients were randomized to receive either Cymbalta 60 mg once daily (n=111) or placebo (n=120) and stratified by nonsteroidal anti-inflammatory (NSAID) use. At week 7, those receiving active treatment were re-randomized to either Cymbalta 60 mg or Cymbalta 120 mg to assess differences between the two doses. The Cymbalta groups were combined for overall analyses. The primary efficacy variable was reduction of pain severity as measured by the weekly mean of the 24-hour average pain scores, analyzed using a mixedeffects repeated measures (MMRM) approach. Secondary measures included Patient Global Impressions of Improvement (PGI-I), Western Ontario and McMaster Universities (WOMAC) pain and physical functioning subscales, Clinical Global Impressions of Severity (CGI-S), and Brief Pain Inventory (BPI)-Severity. Safety and tolerability measures were included. At baseline, there were no significant differences in demographics or disease characteristics between treatment groups; mean WOMAC pain scores were 10.98 for Cymbalta and 10.96 for placebo. Cymbalta was superior to placebo on the primary outcome of mean 24-hour average pain reduction from baseline (P<0.001). Statistical separation from placebo was seen starting at week 1 of treatment (P0.05), and continued throughout the treatment period. Cymbalta treatment resulted in a greater reduction in WOMAC scores for pain (Cymbalta -4.64, placebo -3.24, P=0.003),
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and physical functioning (Cymbalta -16.36, placebo -11.18, P=0.001) compared to placebo. Cymbalta-treated patients had significantly greater reductions in BPI average pain severity (P<0.001) compared to placebo-treated patients; overall clinical improvement was substantiated by greater improvement in Cymbalta groups on patient (PGI-I P=0.002) and clinician (CGI-S P=0.001) global assessments. Efficacy was seen regardless of NSAID strata. There were no significant differences in rates of treatment-emergent adverse events. Discontinuations due to adverse events (Cymbalta 13.5%, placebo 5.8%), and lack of efficacy (Cymbalta 1.8%, placebo 2.5%) did not differ significantly between treatment groups.
UCB Pharmas Vimpat (Lacosamide) Is Non-Approvable

Vimpat is a functionalized amino acid in development for epilepsy and diabetic neuropathy. Preclinical studies suggest that Vimpat works via the selective enhancement of sodium channel slow inactivation and the modulation of CRMP-2 (collapsin-response mediator protein 2). In July 2008, UCB announced receipt of a non-approvable letter from the FDA for the Vimpat NDA for the treatment of diabetic neuropathic pain in adults. Vimpat remains under active review at the FDA for the adjunctive treatment of epilepsy seizures indication and also remains under active review by the EMEA for the treatment of diabetic neuropathic pain indication. In August 2005, Schwarz (now UCB Pharma) released top-line results from the first two Phase III trials (one conducted in the U.S. and the other in the E.U.) of Vimpat in diabetic neuropathy. The U.S. trial was a 370-patient, double-blind, placebocontrolled, dose-ranging study. Patients received placebo or one of three doses of Vimpat tested: 200mg/daily, 400mg/daily or 600mg/daily. Patients were treated for up to 20 weeks. The primary endpoint of the trial was change in pain score from baseline measures to the end of treatment. Pain scores were measured twice daily via the Likert scale (1 to 10). Vimpat demonstrated a statistically significant effect via the primary endpoint when compared to placebo. Vimpat also demonstrated a statistically significant effect via a patient global impression of change. The 357patient E.U. trial had a similar design, although just the 400mg/daily and 600mg/daily dose of Vimpat were tested. The E.U. trial failed to achieve statistical significance. Vimpat appeared safe and well tolerated, with 90% of patients enrolled opting to continue in open-label follow-on trials. In March 2006, top-line results were released from a third Phase III trial of similar design as the previous two. While the company indicated that statistical significance was achieved for a number of secondary endpoints, the study failed narrowly to reach significance for the primary endpoint (p=0.0507 at the 400mg/day dose). In February 2007, UCB released positive top-line results from a 106-patient withdrawal-design trial. During the 16-week trial, Vimpat was withdrawn and reintroduced in a blinded fashion at pre-defined time points. Patients were treated with daily doses of Vimpat up to 400mg/day. The trial demonstrated that Vimpat achieved a statistically significant effect versus placebo as measured by change in average daily pain score from baseline. In December 2007, UCB announced top-line results from a 551-patient Phase III trial of Vimpat in patients with diabetic neuropathy. The goal of the trial was to test the safety and efficacy of two different titration regimens of Vimpat: a standard titration whereby patients reached the target dose by day 22, and a fast titration whereby patients reached the target dose by day 8. The target dose was 400mg/day. The
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primary endpoint was average daily pain score (baseline vs. last four weeks of 12week treatment period). The standard titration arm achieved a statistically significant difference (p=0.041) vs. placebo; however, the fast titration group did not (p=0.2902; a numerical trend was seen). The incidence of adverse events was also significantly higher in the fast titration arm vs. the standard titration arm (dizziness, nausea, and headache).
GSK/XenoPorts Solzira Improves Upon Gabapentin

Solzira (formerly XP13512) is a transported prodrug of gabapentin (Pfizers Neurontin). Solzira is more readily absorbed in the GI tract than gabapentin, leading to a more favorable PK profile. After it is absorbed in the GI tract, Solzira is converted into gabapentin and works via the same mechanism. While the maximum dose of gabapentin is capped due to side-effect issues, clinical results thus far indicate that patients can tolerate significantly higher doses of Solzira and achieve higher gabapentin plasma levels versus treatment with standard gabapentin. In addition, gabapentin is typically dosed 3x daily and has not proven to be amenable to a controlled-release formulation; while Xenoport expects Solzira to be dosed either 1x or 2x daily. In February 2007, Xenoport and GlaxoSmithKline signed an exclusive co-development agreement for Solzira. Solzira has completed Phase III trials for restless legs syndrome (RLS) and is in Phase II for neuropathic pain. GlaxoSmithKline and Xenoport filed the Solzira NDA with data from XP053, XP060, QTc, PK/PD, and driving studies in September 2008. However, in November the companies announced that they would withdraw and resubmit the application as FDA requested that data in a single study required reformatting. The application was resubmitted in January 2009. The Phase II studies in PHN and PDN began in May 2009 with results expected in 2009; these will help determine the design of the Phase III neuropathic pain program. We expect a 2011 launch of Solzira for neuropathic pain. GlaxoSmithKline is evaluating an FMS indication, but no studies have been initiated. We forecast worldwide Solzira sales of $124MM in 2010, $316MM in 2011, and $804MM in 2015. Solzira In Neuropathic Pain Solzira has been tested in one Phase II study for the treatment of postherpetic neuralgia (PHN). PHN refers to pain persisting for three or more months after the disappearance of the rash (shingles) caused by varicella-zoster virus. The parent drug of Solzira, gabapentin, is approved for the treatment of partial seizures in patients with epilepsy and for the treatment of postherpetic neuralgia, a subtype of neuropathic pain. Additionally, it is being widely prescribed off-label in a number of neurological and pain conditions. However, gabapentin has a number of pharmacokinetic disadvantages including: (1) high absorption variability; and (2) short half-life, requiring three times a day dosing. Phase IIa Initial Proof Of Concept In PHN Efficacy and safety of Solzira vs. placebo in reducing pain associated with PHN were evaluated in a 33-day 115-patient Phase IIa study. The study included two phases. The first part started with a run-in gabapentin/Neurontin dosing and resulted in the average reduction in pain scores of -1.7 points over baseline. On day 19, patients were randomized to either receive Solzira or placebo for 14 days, to assess the ability of Solzira to maintain the benefit seen with gabapentin/Neurontin. The study
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resulted in a statistically significant reduction in mean pain score from baseline of -2.1 points vs. -1.2 points for placebo (p=0.0321), demonstrating that Solzira was able to modestly improve upon the efficacy of gabapentin/Neurontin; the placebo patients showed a modest loss in efficacy. Furthermore, the response rate at the end of treatment in the Solzira and placebo groups were about 28% and about 19%, respectively. These data compare favorably to gabapentin/Neurontin treatment, which demonstrated approximately a 22% response rate. The study suggested that Solzira is able to at least maintain efficacy seen with gabapentin/Neurontin and possibly improve upon it. Next Development Steps In Neuropathic Pain For Solzira Xenoports partner GSK is conducting three Phase II studies in neuropathic pain for Solzira initiated earlier in 2008. GSK expects to report the outcomes as well as the Phase III designs for these trials in 2009. Solzira In PHN Gabapentin Responders This dose-finding placebo-controlled study is investigating 1200, 2400, and 3600 mg/day of Solzira versus placebo in 368 patients over a period of 14 weeks. Solzira In PHN Gabapentin Non-Responders The non-responder trial is investigating 1200 and 3600mg/day of Solzira in a 2 period cross-over design. The study will include 164 patients with a baseline pain intensity score above 4, and will utilize gabapentin as a control. Solzira in PDN Patients This trial is testing 1200, 2400, and 3600 mg/day of XNPT Solzira in 392 patients over a period of 12 weeks. The study will include both a negative control (placebo), and a positive control (Lyrica). Estimated study completion date is April 2009, and this study has completed enrollment. We expect this study to be the first of the three to report data in 1H:2009. GSK Also Evaluating Solzira In Migraine Prophylaxis Although Solzira itself has not been studied in migraine prophylaxis, the active ingredient gabapentin has demonstrated activity in this setting. Given the wealth of data GSK and Xenoport have generated that correlates blood levels and activity of Solzira with gabapentin, we view the proof-of-concept efficacy of gabapentin in migraine prophylaxis as a good surrogate for Solzira. GSK has initiated a Phase II/III study of Solzira in 450 patients suffering from migraine headaches, which could serve as one of the registration studies provided it demonstrates significant efficacy. The study will evaluate Solzira vs. placebo over a 5-week titration period followed by a 12-week maintenance period. The primary endpoint is change from baseline in the number of migraine headache days during the last 4 weeks of treatment. We expect data in late 2009/1H:2010. A confirmatory Phase III will follow. Solzira Vs. Gabapentin There is no head-tohead data showing Solziras superiority over generic gabapentin. However, the improved pK profile for Solzira suggests to us that it would out-compete gabapentin on a number of key efficacy parameters, particularly
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on nighttime sleep metrics, while addressing early evening RLS symptoms. We believe that physicians would opt to continue generic gabapentin use in pricesensitive patients with less severe symptoms. It is unclear if Xenoport/GSK plan to conduct head-to-head studies to definitively demonstrate Solziras superior efficacy. Nonetheless, with marketing attention focused on Solzira, we expect the improved efficacy profile to lead to meaningful Solzira adoption.
Topical/Transdermal Pain Products

Endos Lidoderm, Dominates the Market
Lidoderm (5% topical lidocaine patch) was launched in 1999 and has become Endos flagship product. While Lidoderm is FDA-approved for the treatment of postherpetic neuralgia (PHN), it is estimated that 80%+ of Lidoderm use is off label for the treatment of lower back pain and other orthopedic-related pain. Lidoderm offlabel use has been driven by the safety concerns surrounding NSAIDs and COX-2 inhibitors. Because Lidoderm is a topical patch applied directly to the site of pain, and is not systemically absorbed, physicians are comfortable with its safety profile. In early 2008, Alpharma launched its Flector Patch (diclofenac transdermal patch), providing an alternative safe treatment for orthopedic pain. Flector Patch was rapidly adopted, clipping Lidoderm prescribing, notably in the primary care setting. However, Endo countered by launching Voltaren Gel (diclofenac topical gel) in May 2008, and adding 275 primary care sales reps via a contract sales organization (CSO). Our new Lidoderm sales projections reflect slowing growth trends for Lidoderm, given the growing list of topical and transdermal pain treatment alternatives. Lidoderm is protected by five Orange Book listed formulation and method-of-use patents, the last of which expires in October 2015. Despite investor concerns about potential ANDA filings and patent challenges against Lidoderm, our patent consultants believe the October 2015 formulation patent will present formidable challenges to generic manufacturers. We now estimate Lidoderm sales of $825MM (+7%) in 2009, $870MM (+6%) in 2010, and $1,000MM in 2013. OGDs Guidance Creates A Hurdle For Generics Guidance issued by the FDAs Office of Generic Drugs (OGD) in October 2006 set the bar for potential generics of Lidoderm lower than most had anticipated. The OGD proposed that generic manufacturers be required to run a bioequivalence study characterizing the pharmacokinetic profile of the lidocaine (via blood levels) and a skin irritation/sensitization study of the patch formulation. Our expectation was that the FDA would require that generic manufacturers demonstrate therapeutic equivalence to Lidoderm via a post-herpetic neuralgia clinical study. However, Lidoderm poses a vexing bioequivalence problem for generic manufacturers: only 35% of the lidocaine in the Lidoderm patch is absorbed into the bloodstream, and that release profile is highly variable. Therefore, matching Lidoderms release profile within 80-120% will be a difficult target. Moreover, the FDAs draft guidance for potential Lidoderm generics also requires the generics to match Lidoderms patch size/surface area and beginning and ending lidocaine concentrations in the patch. These specifications are claimed in Endos Lidoderm formulation patent, which expires in October 2015. While an ANDA filing with a paragraph IV certification against Lidoderm technically could be filed at anytime, we and our patent consultants believe the Lidoderm patents are likely to protect Lidoderms exclusivity into 2015.
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Lidoderm Compares Favorably To Celebrex In March 2005, Endo released results of a clinical study comparing Lidoderm (5% lidocaine patch) to Celebrex (celecoxib; 200mg) for the treatment of osteoarthritis (OA) pain. While the results of this preliminary study indicate that Lidoderm was slightly less effective than Celebrex in treating OA-related pain, the relative performance of Lidoderm was better than expected. The study was voluntarily halted by Endo after 12 weeks in the fall of 2004 after concerns arose regarding the overall safety of the COX-2 inhibitor class following the Vioxx withdrawal. The original target enrollment for the study was 200 patients, but enrollment reached 143 patients prior to the discontinuation. The trial included a 7-14 day washout period (all analgesic medications discontinued) after which patients with an average daily pain score greater than or equal to 5 (1 to 10 scale) were randomized and received treatment with either Lidoderm (n = 56) or Celebrex (n = 63). Patients pain intensity was measured at 6 and 12 weeks. At 6 weeks, 54% of the patients in the Lidoderm group experienced a 30% or greater improvement in average daily pain intensity vs. 62% of patients on Celebrex.
Recall And Generics Clip JNJs Duragesic

Duragesic (transdermal fentanyl patch) worldwide sales peaked at approximately $2B in 2004, before being clipped by the launch of generics in early 2005. Duragesic is a 3-day transdermal fentanyl patch indicated for the treatment of persistent, moderate-to-severe pain, requiring continuous drug treatment. Duragesics label states that it should only be used for pain that cannot be adequately managed using NSAIDs, opioid combo products, or immediate-release opioids. Furthermore, Duragesic is only recommended for use in patients already receiving opioid therapy and who have demonstrated tolerance. Hyperventilation is the most severe adverse event observed in Duragesic clinical trials, observed in 4% of post-operative pain patients studied and in 2% of cancer pain patients.
DESIGN OF DURAGESIC RESERVOIR PATCH
Source: Duragesic label
The abuse potential of Duragesic has been an issue with the FDA, and slowed approval of additional generics. Duragesic is a reservoir patch: the fentanyl is stored in a compartment, separated from the skin by an ethylene-vinyl acetate copolymer membrane that controls the release of the drug to the skin surface. Via a needle, it is possible to extract the entire 3-day supply of fentanyl from the reservoir. Mylans generic of Duragesic employs a matrix transdermal patch design: the fentanyl is mixed with the adhesive polymer and slowly diffuses over time. The relative abuse potential of the patch designs was debated in Citizens Petitions filed with the FDA, which were ultimately dismissed. Our consultants believe that both designs have equal abuse potential. The co-formulation of the fentanyl with the adhesive
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apparently has a negative impact on the matrix patchs adherence to the skin. Adhesion problems are common with the Mylan matrix patch. In August 2006, Dava/Lavipharm received final FDA approval of its generic, but manufacturing issues delayed the launch. In August 2007, Watson received final FDA approval of its generic Duragesic patch, becoming just the third generic Duragesic product to receive final approval. Sandoz has marketed an authorized Duragesic generic (manufactured by JNJ) since early 2005. In October 2008, Teva announced its launch of a generic version of Duragesic, similar to the matrix formulation of Mylans patch where fentanyl is incorporated into the patch adhesive. In February 2007, a recall was issued for the 25 microgram/hour patches sold by JNJ and Sandoz in the U.S. and Canada. The patches were recalled due to inadvertent cuts along one side of the drug reservoir. The cuts could allow for the fentanyl gel to leak out of the reservoir and expose the patient to dangerously high levels of fentanyl. Most recently, in December 2008, Johnson & Johnson announced that it was voluntarily recalling one lot of Duragesic 50 mcg/hr patches and one lot of generic fentanyl 50 mcg/hr patches sold by its authorized distributor Sandoz. The recall was initiated after JNJ identified a defect in the manufacturing process, as JNJ noted that the recalled patches may have had a cut along one side of the drug reservoir. This is also the exact same issue as in February 2008 when JNJ and Sandoz announced a voluntary recall of 25mcg Duragesic products. Additionally, two other participants in the marketplace (Watson and Actavis) have also continued to experience more limited recalls of their products. In August 2008, Watson announced that it was recalling one lot of its 75 mcg/hr fentanyl patch from wholesalers and pharmacies. We estimate U.S. Duragesic sales of $225MM in 2009, $203MM in 2010 and $148MM in 2013. We estimate international Duragesic sales of $704MM in 2009, $634MM in 2010, and $462MM in 2013.
Flector Patch Has Plateaued After A Strong Start

Alpharma (acquired by King in 2008) launched Flector Patch, a 1.3% topical diclofenac epolamine patch, in January 2008. Alpharma acquired the U.S. rights to Flector Patch in August 2007 from Switzerland-based Institut Biochimique SA (IBSA; private). Flector Patch is indicated for the topical treatment of acute pain due to minor strains, sprains, and contusions (recommended dose: 2x patches daily). The Flector Patch label is undifferentiated from that of generic oral diclofenac, carrying the same black box warning pertaining to the cardiovascular and gastrointestinal risks. The Flector Patch received FDA approval based upon two (out of four) positive clinical studies comparing the Flector Patch to a placebo patch (data summarized below). The Flector Patch is covered by one FDA Orange Book listed patent, expiring in April 2014 (formulation). King is actively pursuing a patent term extension. We estimate Flector Patch sales of $165MM (+28%) in 2009, $210MM (+27%) in 2010 and $275MM in 2013.
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SUMMARY OF FLECTOR PATCH PHASE III RESULTS
Source: Flector Patch label
King has priced the Flector Patch at a price of $4.50/patch (WAC), compared to approximately $0.30/day for generic oral NSAIDs. The recommended dosing for the Flector Patch is two patches per day; however, we project that on average patients will use between 1-2 patches per day (our model assumes 1.2 patches per day). Checks with our consultants indicate that initial prescriptions generally are for 30 patches (estimating 1-2 patches/day). Adoption Has Plateaued Since May 2008 The clinical data in the Flector Patch label imply modest efficacy. Given this modest efficacy, Flector Patch has been prescribed primarily by primary care physicians, not pain specialists. Our clinical consultants have highlighted the cardiovascular concerns with diclofenac and the fact that the Flector Patch safety label is undifferentiated from generic oral NSAIDS: these issues have impeded formulary coverage. Managed care prescribing restrictions implemented in mid-08, as well as competition from Endos Voltaren Gel have slowed primary care physician prescribing growth of Flector Patch since May 2008.
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COMPETITION HEATS UP IN THE TOPICAL NSAID MARKET
FLECTOR PATCH VS. VOLTAREN GEL WEEKLY TRx 30,000 25,000 20,000 TRx 15,000 10,000 5,000 0
Voltaren Gel Performing Well

In March 2008, Endo acquired U.S. marketing rights to Novartis Voltaren Gel, a 1% topical diclofenac (NSAID) gel. Per the agreement, Endo paid $85MM upfront and Novartis is eligible to receive a one-time milestone payment of $25MM if annual sales exceed $300MM. Endo will only pay Novartis royalties on annual sales over $150MM for the next three years. Voltaren Gel was approved by the FDA in October 2007 for the chronic treatment of osteoarthritis pain, but was never launched by Novartis. Endo began shipping Voltaren Gel in mid-March 2008 and added a 275-rep contract sales force in late May to support the rollout. Voltaren Gel has Hatch-Waxman exclusivity through October 2010, but no listed patents. Voltaren Gel competes most directly with Kings Flector Patch (1.3% topical diclofenac patch), although the Flector Patch carries an acute use indication. Both the Flector Patch and Voltaren Gel have labels consistent with oral NSAIDs, including the class warnings. Voltaren Gel prescription trends were surprisingly strong in H2:2008, despite the four-times daily dosing regimen. Unlike the Flector Patch, Voltaren Gel can be applied directly to the joint for direct pain relief. However, Voltaren Gel sells at a steep discount to Flector Patch on a per Rx basis, so we estimate Voltaren Gel sales at just $85MM in 2009, $120MM in 2010, and $185MM in 2013.
20 5/ 08 2/ 2 5/ 00 30 8 /2 6/ 0 0 27 8 /2 7/ 0 0 25 8 /2 8/ 0 0 22 8 /2 9/ 0 0 19 8 10 /20 /1 08 7 11 /20 /1 08 4 12 /20 /1 08 2/ 20 1/ 08 9/ 20 2/ 09 6/ 20 09

WEEK FLECTOR PATCH
VOLTAREN GEL
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U.S. TOPICAL NSAID MARKET BUILDUP ($MM)

Estimated # NSAID Prescriptions (MM) Topical NSAID Market Share (%) Total Prescriptions (MM) % change Flector Patch (KG) Market Share TRx's (MM) Daily Cost Flector Patch Sales ($MM) Voltaren Gel (ENDP/NVS) Market Share TRx's (MM) Daily Cost Voltaren Gel Sales ($MM) Diclofenac Patch (Cerimon) Market Share TRx's (MM) Daily Cost Diclofenac Patch Sales ($MM) Diractin (KG) Market Share TRx's (MM) Daily Cost Diractin Sales ($MM) Total Sales ($MM) % change Source: Company reports; Cowen and Company $160 NM $250 +57% $330 +32% TOPICAL PRESCRIPTION NSAIDS - ESTIMATED U.S. MARKET BUILDUP 2008 2009E 2010E 2011E 2012E 2013E Comments 85.0 86.7 88.4 90.2 92.0 93.8 - Assumes modest 2% annual growth 1% 1.1 NM 53% 0.6 $5.70 $128 47% 0.5 $4.25 $32 2% 1.6 +39% 61% 1.0 $5.70 $165 39% 0.6 $4.50 $85 2% 2.1 +30% 59% 1.2 $5.70 $210 41% 0.9 $4.70 $120 3% 2.8 +36% 50% 1.4 $5.70 $240 38% 1.1 $4.70 $150 5% 0.1 $5.90 $25 3% 0.1 $5.25 $15 $430 +30% 4% 3.8 +35% 40% 1.5 $5.70 $260 32% 1.2 $4.70 $170 11% 0.4 $5.90 $75 8% 0.3 $5.25 $50 $555 +29% 4% 3.9 +4% 41% 1.6 $5.70 $275 33% 1.3 $4.70 $185 13% 0.5 $5.90 $90 13% 0.5 $5.25 $80 $630 +14% - Diclofenac patch - 10x14cm patch; 2x daily - Launched January 2008 - Diclofenac gel - Assume priced at a modest discount to patch - Approved by FDA in October 2007; Launched May 2008 - 7x10cm patch; signficantly smaller than the Flector Patch - 1x daily dosing vs. 2x daily for the Flector Patch - Phase I initiated in October 2007 - Ketoprofen gel - Currently in Phase III - Consultants est. topical NSAIDs could capture 4-6% share
Anesiva Looking to License Zingo, sNDA Approved

Zingo is a single-use, needle-free, local lidocaine (0.5mg) product developed to reduce pain associated with needle-sticks for blood draws and i.v. line placements. In August 2007, Zingo received final FDA approval and Anesiva launched in June 2008 for children ages 3-18. In May 2008, the company announced FDA-acceptance of a sNDA to expand the indication for Zingo to treat the pain associated with peripheral IV insertions and blood draws in adults. On January, 9, 2009, the FDA approved the sNDA for the expanded indication. Anesiva halted all Zingo commercial activities in November 2008 to focus on the development of its nonopioid analgesic Adlea for post-surgical acute pain management. Anesiva is actively seeking to license Zingo and the associated drug-delivery technology platform. Zingo utilizes Anesivas PowderJect needle-free technology. The results from the first pivotal study (#003) of Zingo were released in October 2005. The study enrolled 574-patients, 3-18 years of age. Patients pre-treated with Zingo (n=285) prior to undergoing a venipuncture procedure experienced significantly less pain than those who received placebo (p=0.007). Pain intensity was measured using the FACES pain scale. The second pivotal study (#004) enrolled 535 patients and the patients pretreated with Zingo experience significantly less pain than those who received placebo (p=0.002). In both studies, pretreatment with Zingo occurred 1-3 minutes prior to the venipuncture procedure. Zingo was well tolerated in both studies. Unlike Endo/Zars Synera, which is indicated for all patients over the age of 3, Zingo is currently indicated for children ages 3-18. In October 2007, Anesiva announced positive top-line results from a Phase III trial of Zingo in adults and a sNDA was submitted in March 2008. Anesiva plans to support Zingo via a 15-rep proprietary sales force in the U.S., as well as via a 3-year co-promotion agreement with Sagent Pharmaceuticals. Anesiva has partnered with Sigma-Tau and Medical Futures for the development/commercialization of Zingo in the E.U. and Canada, respectively.
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FACES PAIN SCALE
Source: http://www3.us.elsevierhealth.com/WOW/
JNJs Ionsys Uses Electrical Stimulation To Boost Flux

Ionsys is a transdermal system that uses Alzas E-TRANS ionophoretic drug delivery system to deliver fentanyl on demand. Activated by the push of a button, E-TRANS uses low-level electrical energy to facilitate rapid transport of the drug through intact skin. Ionsys received European approval in January 2006 and FDA approval in May 2006. The Ionsys launch was delayed in both markets indefinitely by manufacturing issues. Ionsys was being developed for the short-term management of acute post-operative pain in adults requiring opioid analgesia during hospitalization. In January 2009, JNJ announced that due to on-going technical challenges, all research, development, and commercial activities related to Ionsys have been halted.
DIAGRAM OF E-TRANS DELIVERY DEVICE
Source: Alza website
NeurogesXs Transacin Patch Is In Phase III

Transacin (NGX-4010) is a trans-capsaicin (synthetic capsaicin) topical patch in development for the treatment of PHN and HIV-associated neuropathy. Capsaicin is a potent TRPV1 (transient receptor potential vanilloid receptor) agonist and is also the chemical that makes spicy chili peppers hot. Patients are prepped with a topical anesthetic for one-hour before being treated with the Transacin patch for one hour. Each treatment session will potentially provide patients with pain relief for up to 12 weeks. In October 2006, NeurogesX released positive top-line results from a 402patient Phase III study of Transacin in PHN. Patients treated with Transacin achieved statistically significant (p<0.001) pain reduction over the course of the 12-week trial. Positive top-line results from the second Phase III PHN trial were released in September 2007. In the 12-week, 416-patient trial, Transacin demonstrated a 32% reduction in pain from baseline, versus a 24% reduction in the control group (p=0.01). In February 2006, NeurogesX released positive top-line results from the first Phase III trial of Transacin in HIV-associated pain. The trial demonstrated a statistically significant (p=0.0025) reduction in pain over the 12-week trial following a single
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treatment with Transacin. Data from a 40-week extension phase of this trial were released in September 2006 and suggest that Transacin remains effective and well tolerated in a multiple dose regimen. Results from a second Phase III trial (494patients) in HIV-associated neuropathy were reported in February 2008. The trial failed to reach statistical significance (p=0.1) via the primary endpoint of reduction in pain over the 12-week trial. Patients treated with the Transacin patch achieved a 29.5% reduction in pain, compared to 24.6% in the placebo arm. In the Phase III trials, Transacin was compared to a low dose capsaicin patch (instead of placebo) to prevent unblinding of the trials, which was likely the cause of the higher placebo response. Transacin has been granted orphan drug status and fast-track designation by the FDA for the HIV-associated pain indication. NeurogesX is currently evaluating potential next steps with regards to the HIV-associated pain indication. An NDA for PHN was filed in October 2008 and NeurogesX anticipates a standard review for Transacin with a PDUFA date in H2:2009. Transacin is currently under review at the EMEA. We believe NeurogesX is actively looking to partner Transacin in both the U.S. and Europe. In 2007, NeurogesX completed a Phase I study of NGX-1998, a liquid, highconcentration topical capsaicin product candidate. The application time for NGX1998 is potentially just five minutes, implying a total patient treatment time of 3045 minutes, significantly shorter than the two hours required for the Transacin patch. The company started another Phase I trial, study C203, in July 2008. The randomized, single-blind Phase 1 trial is designed to evaluate potential control formulations for future NGX-1998 clinical trials. The results of the trial should be reported in H1:2009.
Mixed Data For EpiCepts NP-1 Cream

NP-1 is a topical cream containing 4% amitriptyline and 2% ketamine. NP-1 is in development for the treatment of chemotherapy-induced peripheral neuropathy (CPN), post-herpetic neuropathy (PHN), and diabetic peripheral neuropathy (DPN). In February 2008, EpiCept released mixed top-line results from a Phase II trial of NP-1 in DPN. The 215-patient trial failed to reach statistical significance (p=0.0715) via the primary endpoint, which was the difference in pain intensity (vs. placebo) over the 4-week trial. However, a strong positive trend towards efficacy was seen and the effect appeared to build over the course of the trial. EpiCept plans to advance NP-1 into pivotal trials for the DPN indication. In July 2007, EpiCept announced the start of the Phase III ATTRACT-CPN trial, which is being conducted in collaboration with the National Cancer Institutes Community Clinical Oncology Program. The 12-week, double-blind, placebo-controlled study is expected to enroll approximately 400 patients with CPN. The primary endpoint is the change in average daily pain intensity scores from baseline. The secondary endpoints include the percentage of patients whose pain intensity decreases greater than or equal to 30% versus baseline and various other measures. NP-1 Positive Phase IIb Results Epicept reported positive results in January 2009 for its Phase IIb trial of NP-1 for the treatment of PHN (360 patients; vs. placebo and gabapentin). The trial met its pain intensity change and pain reducing primary end points and NP-1 showed an improved safety profile compared to gabapentin, most notably in the categories of dizziness and somnolence. NP-1 achieved efficacy with statistical significance compared to placebo (p = 0.024) and in a responder analysis of the treatment group, 63% of patients showed reduced pain scores of at least 30% , a considerably higher
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percentage than the placebo group (p = 0.033). Epicept is currently seeking a partner to run a larger Phase III PHN study.
Alpharma (Now King) Developing IDEA AGs Diractin

IDEA-033 (branded as Diractin) is a topical ketoprofen (NSAID) gel based on IDEAs Transfersome formulation technology. Transfersome gel is described as a creamy suspension containing micro-encapsulations which carry the ketoprofen through the skin barrier to peripheral target tissues, such as muscles and joints. The Transfersome carrier minimizes ketoprofen absorption into the systemic circulation by delaying the release until the microencapsules have passed into the targeted tissue area. Diractin was approved in Switzerland in June 2007 based upon one positive 6-week trial, but has been filed with the E.U. with a broader clinical trials package, including a 12-week, double-blind, placebo-controlled trial conducted in Germany, Poland, Croatia, and Serbia. JNJ licensed U.S. and Canadian marketing rights to ketoprofen Transfersome gel in February 2003, and terminated those rights in mid-2006. In September 2007, Alpharma licensed the U.S. rights to ketoprofen Transfersome gel. Phase III trials were initiated in the U.S. in Q2:2008 for the treatment of chronic mild-to-moderate pain associated with osteoarthritis. King targets a 2010 NDA filing and a 2011 market launch for Diractin: we estimate peak sales potential at $200MM. We estimate ketoprofen Transfersome gel sales of $15MM in 2011, $50MM in 2012, and $80MM in 2013. U.S. Phase III Trials Under Way Two U.S. pivotal Phase III trials of ketoprofen Transfersome gel began in May and June 2008. One of the Phase III trials tests ketoprofen Transfersome gel 100mg (bid dosing) against a placebo gel in a 12-week, double blinded trial, in patients with osteoarthritis of the knee, using a primary endpoint of relative reduction in WOMAC pain score from baseline. The second Phase III trial is a two-component trial enrolling a total of five arms. One component of the trial tests ketoprofen Transfersome gel 50mg and 100mg versus placebo (12-week, double blind); the other component of the trial tests Celebrex against an oral placebo. The trial will enroll 1,320 patients with osteoarthritis of the knee in the five arms. The primary endpoint is relative reduction of WOMAC pain score from baseline. The second trial is designed to yield a placebo-controlled registration study, as well as noninferiority data against Celebrex. The non-inferiority component will not yield a label claim (as it is a single study), but may yield marketing material. European Phase III Results Have Been Predominantly Positive Results from the first European Phase III trial were presented at the American College of Rheumatology (ACR) meeting in November 2005. The six-week, 397patient trial compared Diractin (~100mg 2x daily) to placebo and Celebrex (100mg 2x daily). Patients enrolled in the trial suffered from osteoarthritis of the knee. Diractin achieved a statistically significant effect vs. placebo via the WOMAC pain subscale (p=0.0041) and the patient global assessment (p=0.0015) at week six. However, Diractin did not achieve a statistically significant effect vs. placebo via the WOMAC physical function subscale at six weeks. Results from a second Phase III trial of Diractin were released in August 2006. The 12-week, 866-patient trial enrolled subjects suffering from osteoarthritis of the knee (one or two knees). Three doses of Diractin were tested: 100mg, 50mg, and 25mg per knee, 2x daily. The two highest doses of Diractin tested achieved a statistically significant effect vs. placebo via the WOMAC pain scale (p<0.05 and p<0.01, respectively) at 12 weeks. Significant
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improvements in pain were seen as soon at 24 hours following the first dose, as measured by the OMERACT-OARSI responder criteria.
SUMMARY OF SELECT TOPICAL NSAIDS
TOPICAL NSAID PATCHES MARKETED AND IN DEVELOPMENT Launch Date (projected) Comments Active Ingredient diclofenac diclofenac diclofenac ketoprofen 2005 8-Jan 2011 2011 - Only available in E.U.; 10x14 cm patch; 1x - Launched in 1/08; 10x14 cm patch; 2x da - 7x10 cm patch; 1x daily; in Phase II/III - Heat-assisted delivery; 1x daily; in Phase III; butterfly-shaped (172 cm2)
Company Novartis Alpharma/IBSA Cerimon Zars
Product Voltaren Patch Flector Patch Diclofenac Patch ThermoProfen
Company Endo/Novartis Nuvo Research
Product Voltaren Gel Pennsaid
TOPICAL NSAID CREAMS/LOTIONS MARKETED AND IN DEVELOPMENT Launch Date (projected) Comments Active Ingredient diclofenac diclofenac 8-Apr 2-Jul - Launched 5/08; 4x daily - Approvable in U.S., pending safety studies; marketed in Canada, some E.U. markets - Approved in Switzerland; Phase III in U.S., other E.U. markets
Alpharma/IDEA AG
Ketoprofen Transfersome Gel
ketoprofen
2011 (U.S.)
Cerimons Diclofenac Patch Advances Into Phase II/III

Cerimon is developing a once-daily topical diclofenac patch. A 16-pateint Phase I study was completed in late 2007, and in January 2008 a 300-patient Phase II/III trial in patients suffering from acute mild-to-moderate ankle sprains was initiated. Cerimons patch is 7x10cm, which is significantly smaller than Kings Flector Patch and Endos ketoprofen patch, which are both 10x14cm. Cerimon targets a 2010 NDA filing, followed by a 2011 U.S. launch.
Phase IIa Results For King/Durects Eladur Were Positive

Eladur is a 3-day bupivacaine transdermal patch for the treatment of neuropathic pain. In December 2007, Durect released positive top-line results from a 60-patient Phase IIa trial of Eladur. Patients enrolled in the crossover study suffered from PHN. Eladur achieved improved pain control vs. a placebo patch over a three-day treatment period. Durect received orphan drug designation in June 2008 for Eladur for relief of persistent pain associated with post-herpetic neuralgia (PHN). Alpharma licensed Eladur development and commercialization rights in Q4:2008. King inherited those rights via the acquisition of Alpharma in December 2008. King plans to initiate a Phase IIb trial of Eladur in PHN in 2009. We project a 2013 market launch for Eladur and 2013 sales of $50MM.
Sufentanil Patch (Phase II) Offers Seven-Day Relief

In March 2005, Endo licensed development and commercialization rights to Durects sufentanil transdermal patch for the treatment of moderate-to-severe pain. The product is in Phase I/II clinical trials; Endo will be responsible for completing clinical and regulatory development, and marketing the sufentanil patch. Our physician consultants expect the efficacy of the sufentanil patch to be similar to the transdermal fentanyl patches now available (JNJs Duragesic and generics), but because sufentanil is far more potent than standard fentanyl (10-100 times), the sufentanil patch can be considerably smaller than fentanyl patches (60-70% smaller),
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and can be formulated to last for seven days, rather than the three day duration of fentanyl patches. Our physician consultants indicate that the ability to use the sufentanil patch for a longer period of time would be an advantage and a differentiating feature for the product, but higher abuse potential may pose regulatory hurdles. The sufentanil patch employs Durects proprietary Transdur drug adhesive formulation. Endo initiated a Phase II trial of the sufentanil patch in June 2007. No data have yet been released. We now target a 2010 NDA filing, followed by a 2011 launch. We estimate Endos sufentanil patch sales at $30MM in 2011 and $90MM in 2013.
Injectable/Inhaled Pain Products

Elan/Eisais Prialt A Niche Product
Prialt (ziconotide) is an injectable non-opioid, N-type calcium channel blocker believed to selectively block the nerve channels responsible for transmission of pain signals. Prialt is delivered via intrathecal pump (directly into the fluid surrounding the spinal cord) to avoid systemic side effects, such as hypotension and somnolence. Therefore, Prialt is reserved for use in patients with opioidrefractory, intractable pain. Prialt is approved for use with: (1) Medtronics SynchroMed EL and SynchroMed II infusion systems and (2) the Simms Deltec Cadd Micro External microinfusion device and catheter. Prialt was launched in the U.S. in Q1:2005. Prialt received final E.U. approval in February 2005. Elan never launched Prialt in Europe and in February 2006 sold the European rights to Eisai. We estimate U.S. Prialt sales of $15MM in 2009, $16MM in 2010 and $10MM in 2013.
Javelins Dyloject launched In The U.K.

Dyloject is an injectable (75mg/2ml) formulation of diclofenac (NSAID) under development for the treatment of moderate-to-severe pain, including postoperative and orthopedic indications. There are no injectable formulations of diclofenac on the U.S. market, but Novartis Voltarol (injectable diclofenac; approved 1988) is sold in the E.U. A significant limitation with Votarol is that it must be infused over 30 minutes, because the solvents in the formulation can irritate patients veins. Dyloject employs a more patient friendly formulation, enabling Dyloject to be administered via a bolus injection, providing more rapid pain relief. A 353-patient Phase IIb trial of Dyloject demonstrated statistically superior pain relief vs. placebo and statistically significantly faster onset of pain relief vs. Roches Toradol (injectable ketolorac; marketed in both the U.S. and E.U.). Positive top-line results from a pivotal 360-patient Phase III study in postoperative pain patients (abdominal surgery) were announced in December 2007. The primary endpoint was the Sum of the Pain Intensity Differences (SPID) over 48 hours as measured on the 0-100mm VAS (p<0.002). A second, 242-patient pivotal Phase III trial was initiated in July 2007: enrollment was completed in September 2008. The trial enrolled patients suffering from moderate-to-severe postoperative pain following orthopedic surgery. Patients received one of three doses of Dyloject (18.75, 37.5, or 50mg IV injection every 6 hours), one of two doses of IV ketolorac (15 or 30mg IV every six hours), or IV placebo. The primary endpoint is Sum of Pain Intensity Differences (SPID score) as measured on the VAS scale. Assuming success, Javelin plans to submit an NDA for Dyloject in 2009. Dylojects Abridged Marketing Authorization Application (MAA) was approved in October 2007 and Javelin launched Dyloject in the U.K. in December 2007. Javelin is seeking additional E.U. country approvals via the mutual recognition process.
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Schering-Plough/Organons Sugammadex: First Novel Agent For Anesthesia In 20+ Years

Sugammadex, a novel modified gamma-cyclodextran, selective non-depolarizing neuromuscular blocker reversal agent, was filed with FDA in Q4:07 and received priority review; the EMEA filing was accepted in July. Sugammadex was unanimously recommended for approval by the FDAs Anesthetic and Life Support Drugs Advisory Committee on March 11. However, on August 1, 2008, Schering-Plough announced that it had received a not-approvable letter for sugammadex from FDA requiring that hypersensitivity-related concerns be addressed, but there were no issues related to efficacy. In June 2008 the EMEAs CHMP recommended approval of sugammadex for routine reversal of the muscle relaxants rocuronium or vecuronium and for immediate reversal of rocuronium in adults, and for routine reversal following rocuronium in children and adolescents (2-17 years of age). The biggest barrier to sugammadexs ultimate commercial success (assuming FDA approval) is the availability of the broadly adopted inferior generic reversal agents. These are likely to create a ceiling for sugammadexs price, or alternatively limit its use. Premium pricing above $40/vial is likely to require pharmacoeconomic data which is currently not available. We estimate sugammadex sales of $65MM in 2009, $90MM in 2010, and $215MM in 2012. Neuromuscular blockade is used by anesthesiologists in surgical procedures especially involving the abdomen, chest and brain. These agents are designed to cause paralysis, and therefore patients require ventilatory support until the agents either wear off or are reversed. Reversal agents (e.g., neostigmine and edrophonium) compete indirectly with neuromuscular blockers by creating excess acetylcholine at the neuromuscular junction (NMJ) thereby reversing the paralysis. Sugammadexs mechanism of action is different. Sugammadex selectively binds aminosteroidal neuromuscular blocking agents such as Zemuron (rocuronium) and, with slightly less affinity with vecuronium, completely reversing their blockade in a significantly shorter time than the cholinergics and with potentially fewer sideeffects. Sugammadex is likely to allow for improved surgical care due to less concern with the depth and timing of the neuromuscular blockade and result in rapid and more complete reversal (no recurarization). Recurarization is the result of residual or incompletely reversed neuromuscular blockade post anesthesia, usually out of the operating room, that leads to re-paralysis, potentially requiring ventilation. Sugammadex does not have the cholinergic side-effects hypotension, nausea and dry mouth, which are seen with neostigmine and edrophonium. Sugammadexs ability to reverse Zemuron completely and rapidly also creates an opportunity for this combination to replace succinylcholine, which is used in rapid sequence induction anesthesia. More data on safety are required, especially on repeat and pediatric dosing and their impact on the immune system. Ultimately, if safety is confirmed, initial use likely will parallel Zemurons and be keyed to hospitals cost-benefit assessment. Increased awareness about its utility with vecuronium, together with pharmacoeconomic data that will be generated in the Phase IIIb studies, should drive sugammadex to become standard of care, replacing neostigmine and edrophonium.
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Positive Phase III Results For Paion AG/CeNeSs M6G

M6G (morphine-6-glucuronide) is an active metabolite of morphine that may offer advantages over the parent compound. CeNeS, acquired by Paion AG in June 2008, is developing M6G for the treatment of post-operative pain. In September 2004, CeNeS released positive results from the first E.U. Phase III trial of M6G. The 167-patient trial enrolled patients who had just undergone knee replacement surgery. Patients receiving M6G suffered less nausea and vomiting compared to patients receiving morphine, while pain control was equivalent. Drug consumption via patient controlled analgesia (PCA) was significantly lower (p<0.05) for those patients receiving M6G versus those who received morphine. Positive results from a second E.U. Phase III study of M6G were released in February 2007. The 517-patient trial enrolled patients who had just undergone major abdominal surgery. The efficacy of M6G was again consistent with morphine. Patients receiving M6G experienced a 28% reduction (p=0.018) in the severity of post-operative nausea/vomiting versus those patients receiving morphine during the 6-24 hours post treatment. The incidence of dry retching/vomiting in the M6G treated arm was 32% lower (p=0.044) when compared to the morphine treated arm. CeNeS planned to seek EMEA approval of M6G on the strength of the Phase III results, and we expect Paion AG to continue this strategy. CeNeS has completed the necessary prerequisite studies in order to initiate Phase III trials of M6G in the U.S.
Acetavance Poised To Become A Foundation Of U.S. Surgical Pain Management

Cadence is developing Acetavance, a proprietary, intravenous (i.v.) form of acetaminophen, for the treatment of acute pain and fever in the U.S. The company licensed North American rights to this product from Bristol, which has successfully commercialized it as Perfalgan (IV APAP) in ex-U.S. markets. Acetaminophen is a wellknown component of a wide variety of oral pain medications, but IV APAP is the only commercial injectable acetaminophen product. IV APAPs unique qualities distinguish it from other injectable analgesics, and its efficacy, safety, and infusibility have made it an important player for surgical patients who are unable to take oral medications in the early stages of their recovery. European physicians are using IV APAP in surgical patients as a standard baseline agent upon which other injectable pain drugs such as opioids and NSAIDs are layered. Such a multi-modal strategy in which different analgesic classes are combined is believed to provide superior pain control and reduce or avoid the side effects of opioids (nausea, vomiting, constipation, sedation) and NSAIDs (bleeding, GI and kidney toxicity), which are a common contributor to patient morbidity and medical expense. Pain associated with surgery is poorly addressed in general, and the lack of an injectable acetaminophen equivalent in the U.S. represents a key shortcoming in the postsurgical pain management paradigm. Anesthesiologists expectations to broadly incorporate Acetavance into practice and Cadences high-leverage, hospital-focused business approach support our $300-500MM+ U.S. peak revenue estimate for this innovative product.
Acetavance In U.S. Phase III Development For Surgical Pain, Fever

IV APAP is approved in Europe and in a number of other ex-U.S. territories for the management of pain and fever and is sold by Bristol in all regions where it is made available. Approvals for the pain indication were supported by Phase III trials which
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demonstrated efficacy in controlling acute pain during the immediate postoperative period in a number of surgical settings as well as an excellent safety profile.
Selected Clinical Data On IV APAP For The Treatment Of Post-Operative Acute Pain
Phase III (U.S) Population Adults N 152 Setting Pain Level Efficacy Of Acetavance Injection Site Pain Significantly lower incidence of injection site pain vs. IV propacetamol. Parallel cohorts: Acetavance, IV propacetamol, placebo Total hip/knee ModerateMultiple dose; up to four doses in 24 replacement severe hours post-op; IV APAP demonstrated significant improvement (p<0.05) vs. placebo in pain measures from 15 min to 6 hrs after the first dose; significant reduction (p<0.01) in pain intensity over 24 hrs vs. placebo; significant reduction in morphine consumption; IV APAP demonstrated similar results in all efficacy parameters to IV propacetamol. 3rd molar extraction Moderatesevere Two Phase III trials; single-dose; IV APAP demonstrated significant improvement (p<0.01) vs. placebo in pain relief, pain intensity difference, duration of analgesia, patients global evaluation.
III (E.U.)
Adults
349
Significantly lower incidence of injection site pain vs. IV propacetamol.
III (E.U.)
Adults
163
Parallel cohorts: Acetavance, IV propacetamol Gynecologic ModerateSingle-dose; IV APAP demonstrated surgery severe similar results in all efficacy parameters to IV propacetamol. Hernia repair Moderatesevere Mildmoderate Single-dose; IV APAP demonstrated similar results in all efficacy parameters to IV propacetamol. Multiple-dose; up to four doses in 24 hours post-op; supports multiple dosing.
Significantly lower incidence of injection site pain vs. IV propacetamol. Significantly lower incidence of injection site pain vs. IV propacetamol. N/A
III (E.U.)
Children
183
IV (E.U.)
Adults
1,061
Surgery
Source: Cadence Pharmaceuticals
Cadence has licensed U.S. rights to Acetavance from Bristol and is pursuing FDA approvals in pain and fever. Within Acetavances U.S. pivotal pain program, positive results have been for a placebo-controlled trial in orthopedic surgery, in which this drug provided adequate pain relief while significantly decreasing opioid use.
Secondary Endpoints From U.S. Phase III Orthopedic Surgery Trial
Measure Median time to rescue medication ITT Responder* Pain intensity over 24 h Total morphine dose Reduction of PCA morphine after first dose# Patient global evaluation was fair-excellent
IV APAP 3.0 h 4.0 h -8 mm 9.7 mg 38.3 mg 8 mg 79.6%
Placebo 0.8 h 1.6 h 17.8 mg 57.4 mg 65.4%
P value <0.0001 <0.001 <0.01 <0.01 <0.01 <0.01
Morphine consumption over 6 h post first dose
*Per FDA communication, time to rescue should be relevant to subset of subjects who responded to treatment. Subjects whose pain intensity reduction was at least one unit (on a 4-point verbal score) were included in the analysis. Reduction vs. placebo. #46% reduction vs. placebo. Source: Sinatra et al, Anesthesiology. 2005, 102, 822.
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Study 301 Miss Disappoints, But Positive 304 Data Redeems

In January 2008, Cadence announced results from two pivotal Phase III trials of Acetavance: one in pain following gynecologic surgery and one in fever. The pain trial (Study 301) evaluated Acetavance in patients who had undergone openabdomen gynecologic surgery (mostly hysterectomies). The 331-subject trial evaluated serial doses of Acetavance (containing 1g acetaminophen) given every six hours during the initial 48-hour post-operative period in patients who reported moderate to severe pain at rest (visual analog scale 65 upon wakening). A rescue opioid was added at patients request. The primary endpoint was pain intensity versus placebo at 48 hours (SPI48) as measured by the visual analog scale (VAS). This trial failed to achieve its primary endpoint of reduction in pain intensity over 48 hours following surgery vs. placebo, possibly because of a flaw in the trial design. The study began at two hours on average following patient exit from the operating room, a time when residual effects of surgical anesthesia were likely high. A poster presented by Cadence at the 2008 ASRA annual meeting in April provided data supporting the conclusion that the randomization of patients during this period confounded subjective assessments, with a clear relationship between time from OR exit to randomization and level of efficacy.
Effect Of Time From Exit From Operating Room To Randomization On SPI48
Data derived from a Modified Intent-To-Treat analysis; p-values from an analysis of covariance (ANCOVA) model with treatment group and duration of surgery stratum (short vs. long) as the fixed effects and baseline pain intensity VAS rest score as the covariate. Source: Cadence Pharmaceuticals
Also, the levels of pain experienced were, on average, higher than expected, causing many patients to resort to opioids early in the trial. It is believed that the trend in recent years toward minimally-invasive (i.e., laparoscopic) surgery for all but the most complex, extensive procedures predisposed patients entering the trial to having high levels of pain for which acetaminophen would not be sufficiently effective. Following the Study 301 report, several changes were made to an ongoing Phase III laparoscopic surgery trial (Study 304) to favor success. These included a tightening of eligibility criteria, more frequent pain assessments, and improved control of rescue medications. CADX believes that these changes will serve to address issues encountered in Study 301. These were implemented early in the enrollment process, and increase our comfort that this trial will achieve its endpoints. Top-line data reported in Q4:08 validated these changes, as the primary endpoint was met in the study. Positive data were also generated for an alternative dose form (650mg vial), which, if approved, could facilitate a commercial launch due to physician comfort with that dose of APAP as typically used with oral forms.
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No New Trials Needed, Acetavance Filing In Q2:09

In July, Cadence announced that trials already completed on Acetavance (i.v. acetaminophen) are sufficient to meet the FDA's pivotal requirements for an NDA filing and that no new studies need to be conducted. Per written guidance from the FDA, pivotal results from one post-operative pain trial and one fever trial are sufficient for the agency to evaluate Acetavance for approval in these indications in both adults and children. With positive data from a Phase III trial in each category in hand, Cadence meets these requirements. Cadence has guided to an FDA submission in Q2:09 pending data from three ongoing additional studies (PK, safety) to be included in the package. This timing anticipates an approval and launch in H1:10 following a standard review under Section 505(b)(2).
Acetavance Trials To Be Submitted For FDA Approvals In Acute Pain And Fever
Trial Pivotal placebo-controlled Phase III hip/knee replacement* (Sinatra) Phase III adult fever (Study 302) Phase III gynecologic surgery (Study 301) Phase III adult laparascopy (Study 304) Other Adult pharmacokinetics (Study 101) Pediatric pharmacokinetics (Study 102) Adult safety pain (Study 351) Pediatric safety pain (Study 352) Completed Completed Completed Data 1Q09 Completed Completed Missed primary endpoint Completed Status
*Conducted by BMS. Source: Cadence Pharmaceuticals, Cowen and Company
Summary Of Positive Clinical Data On Acetavance For The Treatment Of Acute Pain And Fever
Population Adults N 152 Setting Total hip/knee replacement; moderatesevere pain Data Multiple dose; up to four 1g doses in 24 hours post-op; IV APAP demonstrated significant improvement (p<0.05) vs. placebo in pain measures from 15 min to 6 hrs after the first dose; significant reduction (p<0.01) in pain intensity over 24 hrs vs. placebo; significant reduction in morphine consumption; safety on par with placebo, well-tolerated. Reduction in SPID24 1000 mg every six hours (p<0.01) and 650 mg every four hours (p=0.02), compared to placebo over 24 hours Single 1g dose; statistically-significant reduction in fever over six hours vs. placebo; safety on par with placebo, well-tolerated.
Adults Adults
244 60
laparascopy Fever
Source: Cadence Pharmaceuticals, Cowen and Company
We See $500MM+ In Peak Acetavance Sales

We model an average use of 4 vials of Acetavance for inpatients, and 1.5 vials for ambulatory patients. Approximately 50M surgeries are performed each year in the U.S., split roughly 50/50 between patients who stay in the hospital and those who go home the same day of their procedure. As supported by these figures, we forecast 2010E-2014E Acetavance revenues of $24MM, $109MM, $199MM, $320MM, and $400MM. We note that our model does not include any forecasts for use in acute
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pain outside of peri-operative analgesia. It also does not include use in fever, for which a separate indication should be granted as supported by positive data.
Acetavance U.S. Market Model In Surgical Pain
Inpatient surgeries (MM) Penetration of Acetavance Patients who receive Acetavance Average number of vials/patient Number of vials of Acetavance Price/vial Inpatient Sales ($MM) Ambulatory surgeries (MM) Penetration of Acetavance Patients who receive Acetavance Average number of vials/patient Number of vials of Acetavance Price/vial Ambulatory Sales ($MM) Total number of vials used Total U.S. Acetavance Sales ($MM) Source: Cowen and Company 2010E 26.8 1.7% 0.5 4.0 1.9 9.5 18 28.1 1.7% 0.5 1.5 0.7 9.5 7 2011E 27.4 6.0% 1.6 4.0 6.6 9.9 65 29.5 10.0% 2.9 1.5 4.4 9.9 44 2012E 27.9 10.0% 2.8 4.0 11.2 10.4 116 31.0 17.0% 5.3 1.5 7.9 10.4 82 2013E 28.5 15.0% 4.3 4.0 17.1 10.9 187 32.5 25.0% 8.1 1.5 12.2 10.9 133 2014E 29.0 18.0% 5.2 4.0 20.9 11.5 240 34.1 27.2% 9.3 1.5 13.9 11.5 160 2015E 29.6 20.0% 5.9 4.0 23.7 12.1 286 35.8 30.0% 10.8 1.5 16.1 12.1 194 2016E 30.2 20.0% 6.0 4.0 24.2 12.7 306 37.6 30.0% 11.3 1.5 16.9 12.7 214
2.6
24
11.0
109
19.1
199
29.3
320
34.8
400
39.8
480
41.1
521
Javelins Rylomine Is A Single-Use, Intranasal Morphine

Rylomine is an intranasal formulation of morphine (75mg/ml) under development for the treatment of acute moderate-to-severe pain. Javelin believes Rylomine will offer two important advantages over I.V. morphine: (1) simple, patient-administered pain relief via a disposable, single-use device, and (2) no injection is required. The first pivotal Phase III trial for Rylomine was initiated in May 2006: positive results from this 278-patient Phase III trial were announced in June 2007. Patients enrolled in the study had undergone orthopaedic-related surgery. The primary endpoint was the Sum of the Pain Intensity Differences (SPID) over 24 hours as measured on the 0100mm VAS. All doses of Rylomine (7.5 and 15mg) tested achieved a statistically significant (p<0.01) effect via the primary endpoint vs. placebo. The Phase III trial included an I.V. morphine arm, and Rylomines performance was equivalent to that of I.V. morphine.
Additional Study Requested For Javelins PMI-150

PMI-150 is an intranasal formulation of ketamine (150mg/ml) being developed for the treatment of moderate-to-severe acute pain and breakthrough pain. The U.S. Department of Defense is providing financial support for the development of PMI150 for battlefield analgesia. The doses of intranasal ketamine for analgesia are 1/10th to 1/16th of those required for general anesthesia, which should reduce toxicity risk. In May 2006, Javelin released top-line results from a Phase II trial of PMI-150 in postsurgical patients who had just undergone a bunionectomy. The 60patient trial demonstrated that PMI-150 treatment resulted in a numerical reduction in total pain scores over three hours vs. placebo as measured by a VAS. However, the trial failed to reach statistical significance. Management indicated that a higher than expected placebo response rate was seen, as well as significant variation in results between clinical sites. Previous randomized, double-blinded, placebo-controlled Phase II clinical studies have demonstrated statistically significant (p<0.05) relief of
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moderate-to-severe post-operative and breakthrough pain. PMI-150 was fast-acting, with statistically significant (p<0.05) pain relief occurring as early as 4 minutes post administration. PMI-150 also appeared to be safe and well-tolerated by patients. In January 2007, Javelin met with the FDA to discuss the development plan for PMI150. Based on their discussions with the FDA, the initial understanding was that no additional efficacy trials would be required for approval of PMI-150 as an emergency analgesic for military and civilian use. However, in December 2007, management disclosed that during a pre-NDA meeting in November the FDA requested that one additional efficacy study be completed before filing the NDA. Javelin is currently running a Phase III trial in acute, orthopedic surgery pain patients to fulfill this requirement. In June 2008, Javelin announced dosing of the first patient in this study. The trial is expected to enroll approximately 200 patients from the U.S. with postoperative pain following orthopedic surgery. Patients will receive study drug treatment (double-blinded PMI-150 or placebo) starting when they experience moderate-to-severe pain in the immediate postoperative period. The primary measure of efficacy is the sum of the differences from initial pain intensity as measured on a 0-100 mm visual analog scale over 6 hours. In July 2007, Javelin initiated a Phase III trial of PMI-150 in patients suffering from breakthrough cancer pain. The trial will enroll 90 patients and is expected to be completed in mid-2009. The primary endpoint of the trial is pain intensity difference at 60 minutes.
Phase II Results for Anesivas Adlea Are Encouraging

Adlea (formerly 4975) is an injectable formulation of capsaicin, a TRPV1 (transient receptor potential vanilloid receptor) agonist being developed for the treatment of OA-related pain and post-surgical pain. Phase II results for Adlea have been encouraging to date (summarized below), and in October 2007, Anesiva announced its intentions to advance Adlea into pivotal Phase III trials. The two pain models to be used in the pivotal studies will be total knee replacement and bunionectomy. Enrollment in both trials was completed in Q3:08, and top-line results may be reported in Q4:08. A 15mg dose of Adlea was tested in the knee arthroplasty trial and a 1mg dose was tested in the bunionectomy trial. Two Phase II trials of Adlea are ongoing, one in patients having undergone a total hip replacement, and the other in patients with arthroscopic shoulder surgery: results of these trials are expected in mid-2009. In addition, Anesiva also plans to run a Phase II/III in patients having undergone total knee replacement surgery. Anesiva now plans an NDA filing for the management of acute post-surgical pain in mid-2010. Adlea has been shown to be effective post bunionectomy surgery via two previously completed Phase II trials. A 40-patient trial demonstrated that 1mg of Adlea was superior to placebo. A 185-patient, multi-dose (100ug, 500ug and 1mg) trial demonstrated that treatment with 1mg of Adlea resulted in statistically significantly less pain in the first 32 hours following surgery (p = 0.0183) and a significantly lower proportion of patients requiring rescue medication (p = 0.0125) vs. placebo. However, the lower two doses tested did not reach statistical significance. In July 2007, Anesiva released positive top-line results from a 12-week follow-up of patients from a previously completed Phase II trial. The original trial enrolled 55 patients suffering from moderate-to-severe osteoarthritis of the knee. Patients enrolled in the study were randomized to receive either: (1) a single injection of 1 mg of Adlea (n=36); or (2) three stepped ascending weekly doses totaling 1 mg of
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Adlea (n=19). Patients treated with Adlea experienced a 61% reduction in pain at one week versus baseline, and the analgesic effect was sustained throughout the eight week trial (64% reduction). Fifty patients were followed out to 12 weeks and 65% of the patients demonstrated a reduction in pain at 12 weeks.
Toxicology Study For Akelas Fentanyl TAIFUN Rejected By The FDA

Fentanyl TAIFUN is an inhalation formulation of fentanyl under development for the treatment of breakthrough cancer pain. The product uses Akelas proprietary TAIFUN hand-held dry powder inhaler. In February 2008, Akela announced that the FDA rejected the 6-month inhaled toxicology studies for Fentanyl TAIFUN due to deviations from good laboratory practices (GLP). In July 2008, Akela announced that it has re-started the required inhalation toxicology studies. The studies performed at US based CRO are expected to produce results allowing Akela to start the longer term safety arm of the Phase III trial in patients in Q2:09. The company believes it is still on track to deliver the required toxicology studies results for regulatory submission timelines of Q1:2010 for the E.U. and Q3:2010 for the U.S. Janssen (JNJ) has licensed the Canadian and E.U. rights to Fentanyl TAIFUN.
Pfizers Tanezumab (PF-4383119) A Novel Biologic For Pain

PF-4383119 is a humanized IgG2 monoclonal antibody that blocks nerve growth factor. An Fc mutation limits antibody dependent cell mediated toxicity and complement activation. Tanezumab has been infused in over 675 people and its side-effect profile appears favorable. Phase II data in OA with doses of 0.1, 0.3 and 1.0mg/kg in patients with baseline pain of 43-48mm did not demonstrate a dose response but all doses separated from placebo. In patients with a baseline pain of 54-60mm, only the 0.1mg/kg dose was statistically different. Similar improvements over placebo were observed with the 25-, 50-, 100-, and 200-mcg/kg doses of the drug, at -36%, -31%, -42.5%, and -45.2%, respectively (all P < .001). Tanezumab Phase II data presented at the World Congress of Pain in August 2008 demonstrated that patients treated with tanezumab experienced significantly less knee pain on walking. The mean change in walking pain in the affected knee from baseline to week 16 was a decrease of 15.5% in the placebo group and a decrease of 32.1% in the group given tanezumab 10 mcg/kg (P < 0.001). Headache, upper respiratory tract infection, and paraesthesia were the 3 most commonly reported adverse effects associated with tanezumab use, reported by 8.9%, 7.3%, and 6.8% of patients, respectively. A 450 patient Phase II study presented at ACR 2008 demonstrated that tanezumab once every 8 weeks resulted in a significant benefit for patients with painful knee OA, as assessed by OMERACT-OARSI responder index and WOMAC physical function, pain and stiffness score. Phase II data demonstrated that tanezumab affects the peripheral nervous system albeit at a low frequency (10%). The most frequently reported abnormalities include parathesias, hypoathesisa, and hyperasthesias. According to Pfizer these are not associated with any structural damage and are transient. There have been no reports on anti-tanezumab antibodies. Based on it the Phase II data Pfizer believes that tanezumab can be dosed six times a year as a fixed dose. Pfizer has initiated two Phase III trials, one in OA of the hip, one in OA of the knee. Pfizer is studying tanezumab in chronic lower back pain, neuropathic pain, interstitial cystitis, endometriosis, and prostatitis. A Phase II trial, as add-on therapy in cancer patients with bony metastases is scheduled to begin in Q1:09. Pfizer is
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developing a subcutaneous formulation and a RTU liquid formulation. We forecast tanezumab sales of $100MM in 2012 and $400MM in 2015.
Adolor And Pfizer Developing Delta Receptor Agonists

Adolor, in collaboration with Pfizer, is developing oral agonists of the delta opioid receptor, a program driven by in-house discovery efforts. As compared to currentlyavailable opioids, which act via the mu receptor, agonists of the delta receptor may offer unique efficacy benefits and potentially an improved safety profile. Although an earlier Phase IIa trial of ADL-5859 in third-molar dental surgery did not show benefit vs. placebo, we believe agonists to the delta receptor may be better suited for the management of chronic pain. In October 2007, a Phase IIa study of ADL-5859 (PF-04856880) was initiated to assess the safety and efficacy of a single dose (200mg) of ADL5859 in relieving inflammatory pain in 46 rheumatoid arthritis patients compared to naproxen (500mg) and placebo. The primary endpoint for the first part of the trial, the average distance between baseline and post-dose Evoked Lower Extremity Pain Intensity (ELEPI), was not met for the study. The primary endpoint for the second part of the study, mean Lower Extremity Pain Intensity (LEPI) score, also was not met. In November 2007, a Phase IIa trial of ADL-5859 was initiated to evaluate ADL-5859 in relieving pain associated with diabetic peripheral neuropathy (DPN) in 226 patients compared to duloxetine and placebo. Top line results showed no benefit for ADL-5859 in the Numeric Pain Rating Scale (NPRS) assessment over a 4-week period compared to placebo. The pharmacokinetic profile for ADL-5859 across the Phase IIa trials was highly variable, which may account for the lack of statistically significant data compared to placebo. This was not expected given the favorable pharmacokinetics observed for ADL-5859 in the Phase I study. Adolor plans on reinitiating Phase II proof of concept studies in H2:2009 with a reformulation of ADL5859. The second delta receptor agonist in clinical development, ADL-5747 (PF04856881), recently completed a Phase I study. A dose-limiting-toxicity was not determined for ADL-5747 in this study and no adverse side-effects were observed. Adolor and Pfizer are planning to initiate proof-of-concept studies in 2009 for ADL5747. ADL-5747 and ADL-5859 are structurally similar compounds, but show distinct pharmacokinetics and animal pharmacology. In December 2007, Adolor received a $31.9MM upfront payment of $31.9MM from Pfizer for its delta opioid agonist program, and will be eligible to receive $232.5MM in milestones for the two compounds in development, over half of which may be earned prior to approvals. In the U.S., Pfizer and Adolor will share all revenues and expenses 60/40, respectively. Pfizer will support all ex-U.S. development and commercialization, with ADLR to receive royalties on net sales.
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PAIN MANAGEMENT R&D PIPELINE Company Forest/Lundbeck GSK Pfizer Johnson & Johnson Product Lexapro Lamictal Viagra Ionsys PC I II III NDA MKT . . . Comments Ph. IV in polyneuropathy Pilot in facial neuropathy Ph. IV in neuropathic pain Transdermal fentanyl; uses Alza E-TRANS technology; approved by FDA 5/06; manufacturing issue Diclofenac cream; approvable at FDA 2nd FDA approvable letter in 6/07; Tramadol ER Oxycodone IR; tamperresistant formulation Kadian plus low-dose naltrexone; Q1:09 launch targeted Tamper-resistant oxycodone ER; Q4:2009 launch targeted I.V. APAP Morphine metabolite; postop pain Topical patch Oxycodone ER plus lowdose naltrexone Amitriptyline & ketamine topical cream; PHN Injectable diclofenac; approved in UK Intranasal morphine Intranasal ketamine OROS hydromorphone; launched in E.U.; addn Phase III studies requested by FDA HIV-related pain; PHN Oxycodone plus low-dose naltrexone; failed to hit primary endpoint in 1st Phase III trial "Selective relaxant binding agent" (SRBA), a new class of agents to reverse neuromuscular block; not FDA approvable 8/1/08 Diabetic neuropathy; lacosamide Ketoprofen patch plus heat Alpha adrenergic receptor agonist; neuropathic pain Inhaled fentanyl
2003
Nuvo Research Purdue/Labopharm Acura/King King
Pennsaid Ryzolt Acurox Embeda 11/05 Q4:08 6/08 2010 2009
King/Pain Therapeutics Cadence CeNeS Cerimon Elite EpiCept Javelin Javelin Javelin JNJ/Neuromed
Remoxy
6/08
2009
Acetavance M6G Topical Diclofenac OxyNal NP-1 Dyloject Rylomine PMI-150 Jurnista
. . . . . . . . .
NeurogesX Pain Therapeutics
NGX-4010 Oxytrex
. .
Schering-Plough
Sugammadex
Schwarz Pharma Zars Acadia/Allergan Akela
Vimpat Thermoprofen Undisclosed Fentanyl TAIFUN

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PAIN MANAGEMENT R&D PIPELINE Company King King Anesiva Avera CeNeS Depomed Durect Durect/King Eli Lilly Endo/Durect Merck Merck Neurogen/Merck Penwest Shire XTL Biopharmaceuticals YM Bioscience King Elite King/Pain Therapeutics NeurogesX TheraQuest TheraQuest TheraQuest Zars Product Ketoprofen Transfersome Gel Oxycodone NT Adlea Gantacurium CNS-5161 Gabapentin GR Posidur Eladur TRPV1 antagonist Sufentanil Transdermal Patch MK-0686 MK-0759 VR1 antagonist Nalbuphine ER NRP-290 Bicifadine AeroLEF ALO-03 OxyOD PTI-202 NGX-1998 TQ-1017 TQ-1015 TQ-1011 Ketoprofen DuraPeel Total Drugs In Development PC I II . . . . . . . . . . . . . . . . . . . . . . . . . 0 8 19 13 5 3 III NDA MKT Comments Phase III in 09 Oxycodone plus low-dose naltrexone Injectable capsaicin Neuromuscular blocker Injectable; neuropathic pain Extended-release; neuropathic pain Bupivacaine depot Bupivacaine patch; w/King Multiple pain types 7-day patch vs. 3 days for Duragesic PHN PHN Oral; post-operative pain Uses TIMERx delivery technology Prodrug; hydrocodone derivative Diabetic neuropathy Inhaled fentanyl Hydrocodone CR Oxycodone ER; 1x daily dosing Undisclosed; tamperresistant formulation Concentrated capsaicin Tamper-resistant; 1x daily Tramadol CR; tamperresistant; 1x daily Injectable ketoprofen Topical peel 48
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Notes
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Respiratory
Differentiation Will Be Key For NextGeneration Products

The respiratory system is comprised of the upper and lower airways, the lung tissue, and the vasculature supplying them.
3% 2008-13 CGR
Asthma is a chronic inflammatory airways disease. There is reversible narrowing of the airways due to external stimuli, such as viruses, exercise or exposure to cold air. These stimuli prompt the release of histamine and leukotrienes from mast cells, creating mucus secretion and inflammation. Symptoms, which are episodic, include cough, wheezing, and chest tightness. The incidence of asthma is increasing worldwide, especially in children, perhaps due to pollution or degradation of the ozone layer. Chronic obstructive pulmonary disease (COPD) is a chronic, slowly progressive, and poorly reversible airflow obstruction. Smoking is the biggest risk factor for COPD. COPD usually involves two related diseases - chronic bronchitis (irreversible inflammation of the mucous membranes) and emphysema (destruction of the lung tissue). Symptoms include shortness of breath, cough, phlegm, and activity limitation. COPD mortality is expected to double over the next three decades, making it the third leading cause of death worldwide during this time. Currently, the disease is largely hidden, with 50-75% of patients undiagnosed. Thirty million patients in the U.S. suffer from COPD, with 6MM receiving treatment. Pharmacological treatments are unable to reverse the underlying scarring of the lung and airways but do relieve symptoms and potentially decrease exacerbations and hospitalization. Seasonal and perennial allergies result from degranulation of mast cells, which release histamine, leukotrienes, and other mediators, which result in mucous membrane inflammation and mucus hypersection, in turn leading to airways constriction. This leads to allergic symptoms that commonly manifest in the nose and eyes. An estimated 45MM Americans suffer from allergies, but only 8MM seek prescription treatment. Pulmonary artery hypertension (PAH), is continuous high blood pressure in the pulmonary artery, the vessel that supplies the deoxygenated blood from the heart to the lungs. The average blood pressure in a normal pulmonary artery is about 14 mmHg when the person is resting. In PAH, the average is usually greater than 25 mmHg. Over time, PAH results in right heart failure, which is the most common cause of death. Despite the relatively small patient size of the pulmonary arterial hypertension market, it is quite large in dollar terms. Infused prostanoids can demand $100K+/patient/year for treatment. With 110K patients worldwide, and perhaps 50K+ patients in the U.S., the worldwide and U.S. markets for PAH therapies are sizable, at an estimated $4B+ and $2B+, respectively.
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Respiratory Diseases Category Market Share By $ Sales

2008
$25B
Other 10% Other 14% SNY 3% MRK 4% PFE 9%
2013P
$29B
GSK 33%
PARTICIPANTS
SNY 5% PFE 7%
GSK 42%
SGP 12%
SGP 11% AZN 16% MRK 17% AZN 17%
MAJOR TRENDS &

ISSUES
In 2008, GlaxoSmithKline dominated the respiratory category with a 33% dollar share, and we expect the company to retain its leading position through 2013. Merck is expected to lose its 2008 #2 position to AstraZeneca in 2013. Schering-Plough is expected to move up to the #3 position in 2013, driven by Asmanex and the anticipated launch of an Indacaterol/Asmanex (with Novartis) combo. Pfizers share should be about stable as Spirivas contribution offsets declining Zyrtec sales following the introduction of generics in 12/07. Steroid/long-acting beta agonist combination inhalers (GlaxoSmithKline and AstraZeneca) should continue to dominate the asthma market, given their ability to control both asthma and COPD. Sales of GlaxoSmithKlines Advair could reach $8B+ in 2013, making it one of the most successful drugs ever. The FDAs label change for long acting beta agonists (including Advair), emphasizing the increased risk of worsening bronchospasm (wheezing), should present only a modest negative. AstraZenecas Symbicort has gained only modest share thus far, given its undifferentiated profile. Schering-Plough/Novartis expect to file formoterol/mometasone (MMF258), a twice-daily combination, in 2009 but the filing for the once-daily combination, QMF149, is not expected until after 2012. Good effectiveness, ease of administration, and pediatric application should drive average leukotriene antagonist growth through 2011 but Mercks Singulair patent expiration in 2012 will clip growth. Singulair continues to expand its franchise through a label expansion in exerciseinduced asthma in April 2007. However, the Claritin/Singulair combination filed in August 2007 received a non-approvable letter a year later. The FDAs response is not too surprising considering the modest efficacy benefit of this combination. Boehringer-Ingelheim/Pfizers Spiriva (once-daily anticholinergic, LAMA) has rapidly gained share for treating the symptoms of COPD, although GlaxoSmithKlines Advair seeks a prominent position here despite the non approval for the 500/50mcg dose based on the TORCH data. On April 30th 2008, the FDA approved the 250/50mcg dose combination for
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reduction of exacerbations in patients with COPD and/or with emphysema. Combination use of Spiriva and Advair should allow both products to be successful as newer once-daily LAMAs are several years from market. The outlook for phosphodiesterase type 4 inhibitors is dim post GlaxoSmithKline dropping Ariflo. Non-sedating antihistamines dominate the allergy market in terms of units, but generic Allegra and Zyrtec, and OTC Claritin have clipped sales and pressured pricing. Sanofi/UCBs Xyzal seeks to reverse this trend. Inhaled steroids remain the most effective agents for allergic rhinitis, with Scherings Nasonex leading the market. Veramysts (GlaxoSmithKline) slightly broader label is not viewed as clinically meaningful and its launch has been tepid. New treatment options in pulmonary arterial hypertension, including Gileads Letairis, Actelions Tracleer, Pfizers Revatio, and infusional agents such as United Therapeutics Remodulin and GlaxoSmithKlines Flolan, have led to a clear improvement in survival and quality of life. Awareness of the disease is steadily improving. Letairis, Tracleer and Revatio are the preferred first-line therapies. Thelins (ENCY, acquired by PFE in June 08) future in the U.S. is unclear given three approvable letters, but it was approved in Europe in August 2006 and has been launched in many European countries, including the U.K., Ireland, Germany, Austria, France, Belgium, Holland and Spain. Pfizer plans to conduct a pivotal Phase 3 trial to support a U.S. registration. Our scatter plot shows that, through 2013, GlaxoSmithKline should dominate this category. This category is important to the growth of AstraZeneca and GlaxoSmithKline.
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Respiratory
80% NVS 60% GSK AZN
40%
20% DNA RHHBY PFE -20% FRX SGP
0%
-40%
ESTIMATED WORLDWIDE MARKET FOR RESPIRATORY DRUGS BY CLASS ($MM)

2008 Market % Total $11,076 44% 1,605 1,828 922 2,619 4,463 705 74 1,955 $25,247 6% 7% 4% 10% 18% 3% 0% 8% 100% 2013P Market % Total $14,080 48% 3,799 2,457 1,663 1,562 1,103 335 32 3,195 $29,253 13% 8% 6% 5% 4% 1% 0% 11% 100% $ 08-13 CGR 5% 19% 6% 13% -10% -24% -14% -16% 10% 3% NRx 87-08 CGR Comments 21% - GSK's Advair and Flovent, AZN's Pulmicort and Symbicort, SGP's Asmanex, SEPR/AAA's Alvesco NM - BI's Atrovent, BI/PFE's Spiriva 17% - SGP's Nasonex, SNY's Nasacort, GSK's Veramyst NM - GSK's Serevent, NVS' Foradil, AZN's Oxis 10% - SGP's Claritin/Clarinex, SNY's Allegra, PFE's Zyrtec, generics NM - MRK's Singulair and AZN's Accolate 5% - GSK's Ventolin, SGP's Proventil, generics -9% - SGP's Unidur/Theodur NA - DNA/NVS/RHHBY's Xolair 7% - Driven by steroids, leukotriene antagonists, and COPD therapies
Drug Class Steroids (Inhaled) COPD Therapies Steroids (Nasal) Beta Agonists, Long Acting Antihistamines Leukotreine Antagonists Beta Agonists, Short Acting Xanthines Other Allergy/Asthma Total Market
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DETAILED DISCUSSION
Asthma Guidelines Recommend Steroids First Line

An estimated 20.5MM people suffer from asthma in the U.S., with roughly 30% of these having mild, persistent illness. 4,000 Americans die from asthma every year. About one-third of asthma patients are compliant with drug therapy consistently, one-third are compliant inconsistently, and one-third are not compliant. The National Asthma Education and Prevention Program (NAEPP) Asthma Guidelines issued in 1993, updated in 2002, were reupdated in August 2007 post the most comprehensive review in a decade. The new guidelines are called Expert Panel Report 3 (EPR-3): Guidelines for the Diagnosis and Management of Asthma - Full Report, 2007. The major updates apply to the pediatric sections, with targeted approaches now for patients 0-4 years, 5-11 years and over 12 years. There is also a focus on monitoring, education and controlling environmental triggers. The medication section is largely unchanged and reiterates treatment via a stepwise approach, emphasizing the use of inhaled corticosteroids (ICS) as safe and effective and the preferred first-line long-term therapy for children and adults with persistent asthma. The 2005 FDA warning concerning LABAs is incorporated in the guidelines and there is an updated section on new alternative treatment adjuncts, including Xolair. The new guidelines expand on the original stepwise approach and include 6 steps versus 4 previously, thereby simplifying the actions within each step (see below). Additionally, in Step 3, for children 0-4 years old, the guidelines now recommend increasing the ICS dose before adding a LABA. In children 5-11 years, increasing the ICS dose or adding adjunctive therapies are viewed as equal options but the avoidance of LABA is key. The guidelines point out that the evidence for the selection of adjunctive therapy is limited in children under 12 years and that Steps 5-6 for everyone over 12 years include the consideration for Xolair.
Guideline For The Treatment Of Youths >12 and Adults
Intermittent asthma Preferred: SABA PRN Step 1 Persistent Asthma Prefered: Low-dose ICS Step 2 Alternative: Cromolyn, LTRA, Nedocromil, or Theophylline Preferred: Low dose ICS+LABA or Medium Step 3 dose ICS Alternative: Low dose ICS+either LTRA, Theophylline, or Zileuton Preferred: Medium-dose ICS+LABA Step 4 Alternative: Medium Dose ICS + either LTRA, Theophylline, or Zileuton Preferred: High-dose ICS+LABA; consider Step 5 Omalizumab Preferred: High-dose ICS+LABA+oral Step 6 corticosteroid; consider Omalizumab Source: Medical literature
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Asthma Therapeutic Modalities Long Term Therapy Inhaled corticosteroids (ICS) Cromolyn sodium/nedocromil Xolair Leukotriene modifiers (Singulair, Accolate, Zileuton) LABAs Methylxanthines (theophylline)
Short-Term/Quick Relief Anticholinergics SABAs Systemic corticosteroids
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Inhaled Asthma/COPD Products

Class
Twice daily
Molecule
Salmeterol Formoterol Formoterol (Nebules) Arformoterol (nebules) Indacaterol (QAB149) Multiple compounds (Horizon) GSK: 642444 ('444)
Brand Name
Serevent Foradil (Oxis) Perforomist Brovana
Company
GSK Novartis/Schering-Plough Dey Sepracor Novartis GSK/THRX GSK/THRX GSK/THRX GSK/THRX Tanabe/Chiesi AstraZeneca
Stage
Marketed Marketed Marketed Marketed Phase 3 COPD, Phase 2 asthma Filing in 2H:08 Phase 2b in asthma, data expected 4Q:08 Phase 2b COPD, data expected in 1Q:09 Phase 2a dose optimization ongoing Phase 2a completed Phase 2 in EU Phase 1 asthma/COPD Marketed Marketed Marketed Phase 3 in COPD completed Phase 2 in COPD completed Phase 2 in COPD completed Phase 2 in COPD ongoing Phase 2a COPD (single dose study) Phase 1 in COPD completed Phase 1 in COPD completed Phase 1 in COPD completed Phase 1 in COPD completed Marketed Marketed Phase 2 COPD Marketed Marketed ex-U.S., US approval in Jan '08 Three Phase 2b in asthma, data in 1Q09 Phase 1 completed Marketed Marketed Phase II COPD Phase II asthma; COPD Phase II in COPD Discontinued Discontinued Discontinued Discontinued Marketed Marketed Asthma filing in 1Q:09 Phase 3 in COPD, data expected mid-'10 Phase 3 in severe COPD completed Small Phase 2 in COPD, data in 1Q:09 Single dose study completed Phase 2 in asthma completed Large Phase 2b in COPD ongoing Small Phase 2 in COPD, data in 1Q:09 Phase 2a in COPD ongoing Phase 2 formulation 7-day ongoing Marketed Phase 2 in asthma Phase 2 in asthma Phase 2 COPD ongoing Phase 2 COPD, data in 1Q:09 Phase 2 COPD Phase 2 COPD Phase 2 COPD Phase 2 severe asthma Phase 2 asthma suspended Phase 1 asthma ongoing Phase 1 asthma ongoing
Long-Acting Beta2-Agonist (LABA)-inhaled
Once daily
Bronchodilator
THRX: 159797 ('797) THRX: 159802 ('802) Carmoterol AZD 3199 Short-Acting Beta2-Agonist (SABA) Salbutamol/Albuterol Twice daily Once daily Ipratropium bromide Tiotropium bromide Aclidinium NVA 237 (glycopyrronium bromide) BEA 2180BR GSK 233705 GSK 573719 GSK 1160724 GSK 704838 QAT 370 QAX 028
Generic Atrovent Spiriva
multiple Boehringer Ingelheim Pfizer/Boehringer Ingelheim Forrest/Almirall Vectura/Novartis Boehringer Ingelheim GSK GSK THRX GSK Novartis Novartis GSK AstraZeneca Topigen Pharmaceuticals Schering Nycomed GSK GSK Merck AstraZeneca AstraZeneca GSK Forest/Glenmark GSK Nycomed Almirall Merck/Napp/Bayer etc.
Long acting muscarinic antagonists (LAMA)-inhaled
Inhaled Corticosteroid (ICS)

Twice daily Fluticasone propionate Flovent/Flixotide Budenesonide Pulmicort TPI 1020 (modified budesonide steroid for COPD) Mometasone Asmanex Ciclesonide Alvesco GSK 685698 (fluticasone furoate) GSK 870086 (novel glucocorticoid) Monterlukast Singulair Zarfirlukast Accolate AZD 1981 (CRTh2 receptor antagonist) GSK 256066
Anti-inflammation Agents
Once daily
Anti-Leukotriene-oral
Phophodiesterase-4 (PDE4) Inhibitors-oral

Oglemilast Cilomilast Roflumilast Arofylline Multiple other compounds Ariflo Daxas
LABA/ICS Combination-inhaled
Twice daily
Combination Products
Once daily
Salmeterol / fluticasone Formoterol / budesonide Formoterol / fluticasone Formoterol / mometasone Beclometasone/formoterol GSK 642444 / 685698 combo Indacaterol /mometasone (QMF149) Formoterol / ciclesonide Salmeterol/GSK 233705 GSK 642444 / 233705 NVA 237 / Indacaterol (QVA149) GSK 573719/Tiotropium (Spiriva)
Advair/Seretide GSK Symbicort AstraZeneca Flutiform SkyePharma/Kos Schering / Novartis Chiesi Pharmaceutici GSK Novartis / Schering Nycomed GSK GSK Novartis/Vectura GSK Boehringer Ingelheim GSK/THRX Topigen Pharmaceuticals BI GSK AstraZeneca AstraZeneca GSK GSK AstraZeneca AstraZeneca AstraZeneca
LABA/LAMA
Anti-Cholinergics / SABA
Ipatropium bromide / Albuterol Combivent GSK 961081 (MABA) TPI ASM8 (multiple inflammatory cytokines modulator) Inhaled 2x/day BIBW 2948 (map kinase inhibitor) GW 856553 (p38 map kinase) AZD 4818 (CCR1 Receptor antogonist) AZD 9668 (neutrophil elastase inhibitor) Single oral dose GSK 681323 (p38 map kinase) IV every 4 wk mepolizumab (anti-IL-9mAb) SubQ 2-4/w MEDI-528 (anti-IL-9mAb) CAT-354 (anti-IL-13 mAb) SubQ 4/w MEDI-563 (anti-IL-5R mAb) Inhaled 1x/day
Source: Company websites/press releases, conversations with the companies and clinical trial database.
Novel Approaches
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COMPARISON OF MARKETED ASTHMA THERAPIES

Aerobid Manufacturer Type Dosage Form Forest Labs Steroid MDI Advair GlaxoSmithKline Steroid/ LABA MDI Flovent GlaxoSmithKline Steroid MDI Pulmicort AstraZeneca Steroid DPI Symbicort AstraZeneca Steroid/ LABA MDI Asmanex ScheringPlough Steroid DPI/MDI Accolate AstraZeneca Leukotriene Antagonist Tablet 2X/day 12% 67% Singulair Merck Leukotriene Antagonist Tablet 1X/day 10-15% 66% Zyflo Abbott/Critical Therapeutics 5-LO Inhibitor Tablet 4X/day Xolair Genentech / Novartis Anti-IgE Ab IM Injection every 2-4 weeks NA NA
Change in FEV1 (Baseline % of predicted lung function) Possible Side Effects
NA NA
20-30% 63-72%
10-22% 63-73%
20% 68%
17.5-18% 68%
5-13% (PII) 65%
22% 62%
URI, oral candidiasis
Adrenal suppression, glaucoma, decreased BMD Age = 4
Adrenal suppression, URI, oral candidiasis Age = 12
Adrenal suppression, URI, oral candidiasis Age 12
Comparable to placebo
Comparable to placebo
Elevated LFT in 4% of pts.
Anaphylaxis
Pediatric labeling
Age = 6
Age 12
Age 5
Age 2
Age > 12
Age > 12
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Short-Acting Beta Agonists Widely Prescribed For Symptom Relief, But Face Generics Pressure
The front-line positioning of short-acting beta agonists (SABAs) should allow them to retain a significant share of asthma prescriptions over the next few years. CFCbased metered dose inhalers (MDIs) traditionally dominated the market, with Schering-Plough garnering over a 50% share. Scherings share has declined significantly due to generics. The conversion of CFC albuterol to HFA albuterol is well underway post the Montreal Protocol, which is an international treaty to protect the ozone layer by eliminating the use of harmful substances, including CFCs. In March 2005, the FDA extended the medical use exemption for CFCs as a propellant for albuterol in the U.S. through December 2008. Although the deadline for conversion was December 2008, the forces of supply and demand have resulted in a far more rapid conversion. HFA albuterol products captured roughly 55% and 73% prescription share of short acting beta agonists in the U.S. in 2007 and 2008, respectively, and we expect that share to grow to 90% in 2009. This could allow for upside for each of the participants in the HFA market.
Teva/Ivaxs ProAir HFA Could See Significant Growth

Teva/Ivaxs EasiBreathe formulation remains pending final approval at the FDA. The formulation should allow for more efficient dosing than other HFA products because it does not require a coordinated press and inhalation, but rather delivery during inspiration. We believe that this device is differentiated and therefore has a marketing advantage over the other HFA formulations. We project Teva/Ivax proprietary HFA albuterol franchise sales of $615MM (+36%) in 2009, $630MM (+2%) in 2010, and $700MM in 2012.
Schering-Plough Thus Far Fails To Take Advantage Of CFC To HFA Conversion

In 12/06, Schering-Plough indicated to various distributors, PBMs and managed care organizations that it would begin to curtail its supplies of generic CFC albuterol, with complete discontinuation of CFC manufacturing in 2007. Schering-Ploughs Warrick division was the leading supplier of generic CFC albuterol, holding roughly 90% share of total CFC albuterol prescriptions in January 2007. However, Teva beat Schering to market with its HFA albuterol (Proventil HFA) and at this point is also the price leader. It is unlikely that Schering-Plough will be able to recapture its preeminent market position. We estimate that Schering-Ploughs HFA albuterol sales will be flat at $170MM per year from 2008 to 2012.
Sepracors Xopenex HFA Running Into Tough Competition

Xopenex HFA (non-CFC metered dose inhaler version) is the (R)-enantiomer (levorotatory) of albuterol and is indicated for the treatment or prevention of bronchospasm associated with reversible obstructive airway disease (asthma or COPD) in patients 4 years old and older. Sepracor launched Xopenex MDI in December 2005 on the back of the Xopenex nebules. Full promotional efforts behind the product began in January 2006. The rollout had been very slow, and while prescription trends accelerated in late H2:06, as the conversion from CFC-based albuterol inhalers began to accelerate, recent performance has been disappointing. In the race to gain market share through the mandated phase-out of CFC-based beta
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agonist inhalers on December 31, 2008, Sepracor had been making deep pricing concessions (30-40%) with managed care organizations. Xopenex HFA competes against other HFA-based inhalers marketed by Teva (Proair HFA), Schering-Plough (Proventil HFA), and GlaxoSmithKline (Ventolin HFA). We now estimate Xopenex HFA sales of $70MM in 2009, $75MM in 2010, and $90MM in 2013. Sepracor and Breath Limited Settle On Xopenex Nebules Xopenex Nebules five method-of-use and one formulation patent are not airtight. The final method-of-use patent (the 994 patent) expires in August 20, 2013. On March 30, 2008, Breath Limiteds 30-month stay on its ANDA expired, and on May 1st Sepracor announced a settlement with Breath Limited. Under the terms of the settlement, (1) Breath Limited can launch its generic version of Xopenex, (2) Sepracor will manufacture the product and supply it to Breath Limited on a cost-plus-margin basis, and (3) Breath Limited will pay Sepracor a double-digit royalty on gross profit generated from generic Xopenex sales. Several other generic companies have filed Paragraph IV certifications as well. We project Xopenex nebules sales of $395MM (10%) in 2009, $380MM (-4%) in 2010, $370MM (-3%) in 2011 and $75MM in 2013 (Breath Limiteds authorized generic Xopenex nebules will be launched in August 2012).
Inhaled Corticosteroids Supported By Asthma Guidelines

ESTIMATED U.S. INHALED CORTICOSTEROID MARKET DYNAMICS 2006 Inhaled Steroids - TRxs (MM) TRx Growth Inhaled Steroids - Sales ($MM) Sales Growth Inhaled Steroids - Pediatric Rxs Ped Rx Growth Flovent (GSK) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Asmanex (SGP) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Pulmicort (AZN) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Alvesco (SEPR) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Azmacort (ABT) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) 8% 0.9 $3.20 $90 6% 0.8 $3.59 $85 43% 5.32 $3.45 $551 6% 0.8 $4.37 $103 33% 4.05 $6.87 $835 $1,923 3.3 12.3 2007 12.9 +5% $2,154 +12% 3.5 +6% 40% 5.15 $3.67 $568 11% 1.4 $3.79 $162 33% 4.22 $7.61 $964 35% 4.67 $3.75 $525 14% 1.8 $3.65 $200 33% 4.36 $7.65 $1,000 0% 0.0 $4.50 $6 6% 0.7 $3.65 $80 33% 4.44 $3.75 $500 17% 2.3 $3.65 $250 33% 4.44 $7.65 $1,020 3% 0.4 $4.50 $60 5% 0.7 $3.65 $75 28% 4.00 $3.75 $450 19% 2.7 $3.65 $300 32% 4.53 $7.65 $1,040 5% 0.7 $4.50 $95 5% 0.6 $3.65 $70 25% 3.56 $3.75 $400 22% 3.2 $3.65 $350 32% 4.62 $7.65 $1,060 7% 1.0 $4.50 $130 4% 0.6 $3.65 $65 21% 3.20 $3.75 $360 24% 3.7 $3.65 $400 31% 4.68 $7.65 $1,075 7% 1.0 $4.50 $140 4% 0.5 $3.65 $60 -7% -7% - Inhaled steroid - Relaunched by KOSP 8/04 - KOSP acquired by ABT in 12/06 +2% - Inhaled steroid (from Nycomed) - Differentiated by low systemic absorption - To be launched 9/08 +2% +20% - Inhaled steroid - patent ruling on 9/23/08 +21% -9% - Losing share to Advair - Competitive inhaled steriod market - Differentiated by lower systemic absorption -9% - Inhaled steroid - Includes Diskus formulation and HFA 2008E 13.3 +3% $1,936 -10% 2009E 13.7 +3% $2,030 +5% 2010E 14.1 +3% $2,080 +2% 2011E 14.5 +3% $2,130 +2% 2012E 14.9 +3% $2,160 +1% +0% CGR +3% Comments - Growth clipped by slowing market; LRA's
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Comparison Of Steroid Only Inhalers

Aerobid
Steroid Manufacturer Status Dosage Form Dosing Change in FEV1 (Baseline % of predicted lung function) Possible Side Effects flunisolide Forest Labs Marketed MDI BID N/A N/A
Flovent
fluticasone GlaxoSmithKline Marketed MDI BID 10-22% (63-73%)
Pulmicort
budesonide AstraZeneca Marketed DPI/Respules BID/QD 0.2 -0.68
Asmanex
mometasone ScheringPlough Marketed DPI/MDI BID 5-13% (PII) -0.65
Azmacort
triamcinolone Abbott Marketed MDI+spacer BID 0.173 N/A
Alvesco
ciclesonide Sepracor Approved
QD
Pediatric labeling
Age = 6
Age 12
Adrenal suppression, URI, oral candidiasis Age=6
Limited effect on HPA
Age >12
Source: Company Data; Package Inserts
Steroid Inhalers NRx

Inhaled Bronchial Steroids Market Dynamics
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
ov -0 6
06
07
7 Se p07 N ov -0 7
08
ay -0 8
6 Se p06
8 Se p08
ay -0 6
08 N ov -
07
Ja n0
Ja n0
M ay -
M ar -
Ja
Flovent (GSK)
Pulmicort (AZN)
Azmacort (ABT)
QVAR (TEVA)
Aerobid (FRX)
Asmanex (SGP)
Source: IMS Monthly NRx
Physicians embrace steroid-based products because steroids treat inflammation, the cause of asthma. In countries where steroids are used heavily, such as in northern Europe, asthma deaths occur at a lower rate than in countries where steroid usage is less. Differences in hospitalization rates are less clear, but rates should decline
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Ju l-0
Ju l-0
Ju l-0
ar -
n0
ar -
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where steroids are used more extensively. Our physician experts believe that steroids will continue to grow in asthma, based on favorable morbidity and mortality data, and the improved compliance with asthma guidelines. The new EPR3 guidelines reiterate the role of ICSs and, in children, recommend stepping up the steroid dose before moving onto alternate therapy.
SGPs Asmanex Continues To Increase Share

Asmanex has benefited from recent concerns over long-acting beta-agonists (LABAs) and is developing into an attractive niche product. Our physician consultants note that Asmanex is becoming the steroid of choice for new asthma patients given good tolerability and once-daily dosing. The Asmanex device is viewed as effective and easy to use although not particularly intuitive. However, our physician experts view the lack of a corticosteroid/LABA combination as a handicap since most asthma patients progress to combination therapy. Schering and Novartis are in the process of developing a twice-daily Asmanex/Foradil combination (MFF) and a once-daily Asmanex/indacaterol (QMF 149; COPD filing 2010; asthma filing >2011) combination. Asmanex is available in a dry powder form in its Twisthaler delivery device. A CFC-free metered dose inhaler is in Phase III trials. Asmanex has been approved in 34 countries, and will roll out worldwide over time. Asmanex is protected by device and use patents that expire in 2017 and 2014, respectively. In February 2008, Schering-Plough announced that FDA approved Asmanex Twisthaler 110 mcg for the maintenance treatment of asthma as a preventive therapy in patients 4 to 11 years of age, broadening the label significantly. However, Schering only launched the Twisthaler into this age group in August 2008. Sepracors September 2008 launch of Alvesco (ciclesonide; approved 01/08) may pressure Asmanex market share but fluticasone generics, if eventually approved, may exert greater pressure. Our Asmanex sales forecasts are $210MM (+17%) in 2009, $240MM (+14%) in 2010, and $390MM in 2015. SGPs MFF To Be Filed In 2009 For Asthma But Advantage Over Existing Therapies Unclear. MFF, the foradil/mometasone combination therapy, will be filed for asthma in 2009 and COPD about one year later. Phase III pivotal studies in mild and severe asthma met their primary endpoints. MMF will be commercialized in a MDI with a dose counter. MMF is dosed twice-daily, which is identical to Advair (GSK) and Symbicort (AZN). Schering will be responsible for the ex-U.S. commercialization and Novartis the U.S. piece. Details of the profit split have not been revealed. We estimate MMF sales of $50MM in 2010, $100MM in 2012, and $175MM in 2015. SGPs Mometasone/Oxymetazoline Fixed-Dose Combination In Phase II. Phase II data of a novel mometasone/oxymetazoline FDC demonstrated superior efficacy and faster onset of action (by 15 minutes) than the single agents on their own. There was no rebound decongestion seen because the oxymetazoline dose that is used is lower than in monotherapy preparations. Schering-Plough plans to file the combination in 2012/13. We have no sales projections for this product in our models.
AZNs Pulmicort Patent Settled But Growth Clipped

Pulmicort (budesonide) is an inhaled corticosteroid indicated for maintenance treatment of asthma in children and adults. In some countries, Pulmicort is also indicated for maintenance treatment of COPD. Pulmicort is available in three administration forms: Pulmicort Turbuhaler, a dry powder inhaler; Pulmicort
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Respules, a nebulising suspension; and Pulmicort pMDI, a pressurized metered-dose inhaler. In the U.S., only the former two are available, with the Turbuhaler currently being phased out and replaced with the Pulmicort Flexhaler. In the U.S., Pulmicort Respules is indicated for maintenance therapy in pediatric patients 12 months to 8 years and constitute 90% of the franchise sales. The Flexhaler is given twice-daily up to 360mcg and 720mcg in children less than six years old and adults, respectively. Pulmicort has also been shown to be safe in pregnant woman and has a class B rating. In November 2008, Teva launched at-risk its generic Pulmicort Respules after FDA denied AstraZenecas Citizens Petition. AstraZeneca managed to win a temporary restraining order (TRO) against Teva requiring it not ship additional supply. While the TRO did not require that Tevas customers comply with the decree, our attorney consultants believe that it is likely that major distributors would be less inclined to sell the Teva generic Pulmicort Respules in the trade. The TRO prohibited further distribution of AstraZenecas authorized generic that was being distributed by PAR. On November 25th, the day of the preliminary injunction hearing, AstraZeneca announced that it had settled with Teva. The agreement allows Teva to commercialize its version of the Respules under an exclusive license beginning December 15 2009 for undisclosed royalties. Teva agreed to pay damages for the unauthorized launch of its generic but allows for any shipped generic to remain in the market. AstraZeneca discontinued its agreement with PAR to sell the authorized generic. AstraZenecas patent infringement litigation against Breadth Limited remains ongoing. Pulmicort sales are forecast to be $1.2B in 2009, $0.7B in 2010, and $300MM in 2015.
Abbotts Azmacort A No Go
Abbotts Azmacort is indicated for the maintenance treatment of asthma as prophylactic therapy and for asthma patients who require systemic corticosteroid administration, where adding Azmacort may reduce or eliminate the need for the systemic corticosteroids. Our clinical consultants are not overly enthusiastic about Azmacort, citing a high side-effect rate. The FDA issued an approvable letter for Azmacort HFA pending the resolution of CMC-related issues. We believe Abbott has no plans to re-file the NDA in the near future.
The Ciclesonide Portfolio Is A Good Fit For Sepracor

Ciclesonide is an inhaled corticosteroid developed by Altana (now part of Nycomed). SanofiAventis held development rights to the ciclesonide franchise, but terminated those rights last year due to competing internal development programs. Sepracor licensed U.S, development and marketing rights to the five-product ciclesonide portfolio in January 2008, paying $150MM up front and up to $280MM in development and sales milestones. The first two ciclesonide formulations, Omnaris (intranasal ciclesonide for allergies) and Alvesco (inhaled formulation for asthma) are FDA-approved. Omnaris was launched in late-April and Alvesco was launched in early-September. Clinical trial results suggest that ciclesonide has an efficacy profile similar to mometasone (SGPs Asmanex), but may have a slightly superior tolerability profile based on its pro-drug mechanism. Our clinical consultants believe that Alvescos once-daily dosing and low systemic absorption may provide a competitive advantage in the adolescent asthma market. Marketing this profile leverages Sepracors Xopenex nebules marketing prowess: Sepracor has created Xopenex nebules franchise against much-cheaper generic albuterol nebules by selling
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Xoponexs relative safety benefits: we expect Sepracor to pursue a similar strategy with Alvesco. Three additional ciclesonide formulations are in development. These formulations include: Omnaris HFA (HFA MDI formulation) currently in Phase 3 clinical trials Alvesco inhalation solution (nebulizer solution) currently in pre-clinical development Alvesco/formoterol combination currently in Phase I clinical trials U.S. composition-of-matter patents protect ciclesonide into 2017, while various formulation patents may provide extended exclusivity. Sepracor management believes that patent term extensions could extend ciclesonides exclusivity into 2020.
Alvesco Clinical Data Support A Differentiated Profile

Data from the Alvesco Phase III studies show that ciclesonide is at least as effective as budesonide (AZNs Pulmicort) and fluticasone (GSKs Flovent) but with lower systemic absorption. A study published in the September 2005 issue of CHEST showed that moderate and high doses of ciclesonide did not suppress hypothalamic-pituitary-adrenal-axis (HPA-axis) function in adults with moderate-tosevere persistent asthma as compared with placebo. Multiple Ciclesonide Vs. Fluticasone Trials Presented At ATS Meetings Data from a Phase IV trial designed to differentiate ciclesonide from fluticasone were presented at the ATS meetings in May 2008. The trial examined 32 asthma patients in a double blind, placebo-controlled, 5-period crossover design. Patients received ciclesonide (160 and 320g, bid), fluticasone propionate (250 and 500g, bid), ciclesonide/fluticasone (160/500 and 320/500g, bid) or placebo. The primary endpoint was change in cortisol levels (plasma and urine) as a means of examining the effects of drug on adrenal suppression. Secondary endpoints were changes in PC20FEV1 for both methacholine and adenosine monophosphate. Suppression of cortisol secretion was seen in the moderate and high doses of fluticasone but not in the ciclesonide treatment groups. Also presented was a non-inferiority study comparing ciclesonide with fluticasone propionate. The trial was a randomized, double-blind, double-dummy, parallelgroup 24-week study with two treatment groups: ciclesonide 80g qd (n = 240) and fluticasone propionate 88g bid (n = 240). The primary endpoint was change in FEV1. Significant increases in FEV1 were observed for both ciclesonide and fluticasone treatment (0.46 and 0.52 L respectively) demonstrating non-inferiority for ciclesonide. A poster on comparative efficacy of ciclesonide and fluticasone in children (ages 611, n = 744) was presented. The study examined asthma control in a randomized, double-blind, 3-arm parallel group design (ciclesonide 80g qd, ciclesonide 160g qd, fluticasone 88g, bid). Asthma control improved for all dose groups, regardless of definition of asthma control. Dose differentiation in the ciclesonide groups was seen only in patients experiencing asthma exacerbation (7.1% vs. 2.9%, p<0.05). The percentage of patients exhibiting AEs was similar across all groups.
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Systemic exposure of ciclesonide as a function of route of administration was explored in a single dose, randomized, 3-period crossover study in healthy volunteers (n = 30). Patients received ciclesonide 300g (aqueous, nasal), ciclesonide 300g (hydrofluoroalkane, nasal) or ciclesonide 320g (HFA-MDI oral inhalation). The systemic bioavailability of ciclesonide and its active metabolite, as measure by HPLC/MS, was significantly less for nasal administration versus oral inhalation. Pulmonologists Positive On Alvesco In our conversations with pulmonologists, we have been surprised by: (1) the high level of awareness of Alvescos profile and potentially differentiating features; and (2) the overall enthusiasm for Alvesco. The primary differentiating feature highlighted by clinicians is Alvescos pro-drug mechanism: the ciclesonide remains inactive until it is activated by certain enzymes on the surface of the lung. This selective activation may lead to lower local irritation (thrush, throat irritation, dry mouth, and cough) as well as reduced systemic absorption and related side effects. Most of our clinical consultants believe that patients will be attracted to try Alvesco by the better tolerability relative to other inhaled steroids, and physicians may be attracted to Alvesco by the lower systemic side effects, especially when treating adolescent asthmatics. One of our pulmonologist consultants opined that Alvesco could become the first-line inhaled corticosteroid (ICS) of choice for adolescent asthmatics, due to data which indicate no or minimal impact on patient growth. Alvesco has been approved for the treatment of asthma in patients 12 and older. Sepracor also is developing a once-daily Alvesco/arformoterol single-dose combination (Phase II), which would compete with GSKs Advair and AZNs Symbicort. We now estimate Alvesco sales of $15MM (-11%) in 2009, $40MM in 2010, $65MM in 2011, and $95MM in 2013. The nasal spray form of ciclesonide, Omnaris, was launched in May 2008. We estimate Omnaris sales of $33MM in 2009, $55MM in 2010, and $100MM in 2013.
LABAs Target COPD As Guidelines And Label Warnings Clip Use In Asthma; Joint Advisory Committee Meeting Panel Takes Harsh Stand On LABA Monotherapies
In November 2005, the FDA requested manufacturers of long-acting beta agonists (LABAs) including Schering-Ploughs (Foradil) and GlaxoSmithKline (Serevent; salmeterol), and the combination products including Advair, to update their existing product labels with new black box warnings. All newly approved LABA-containing products, including Brovana (Sepracor) and Symbicort (AstraZeneca), contain this warning. The FDA required the prescribing information to state that LABAs should not be the first medicine used to treat asthma and should be added to the asthma treatment plan only if other medicines do not control asthma, including the use of low-or-medium dose corticosteroids. This impetus resulted from an analysis of GlaxoSmithKlines Salmeterol Multicenter Asthma Research Trial (SMART). The interim analysis of 26,355 subjects showed an increased risk in several secondary endpoints associated with salmeterol use, including an increased risk of asthmarelated death, with 13 deaths among those taking salmeterol versus three in the control group (RR: 4.37; 95% CI: 1.25 to 15.34). The occurrence of the primary outcome (respiratory-related deaths or life-threatening experiences) was higher in
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patients receiving salmeterol, although not statistically different compared to placebo (50 vs. 36; RR: 1.40; 95% CI: 0.91 to 2.14). The imbalance of adverse events occurred largely in the African American subpopulation where the risk of respiratory death or life-threatening experience occurred more frequently in those receiving salmeterol (20 vs. 5; RR: 4.10, 95% CI: 1.54 to 10.90). The FDA Pulmonary-Allergy Drugs Advisory Committee, Drug Safety and Risk Management Advisory Committee and Pediatric Advisory Committee met in December, 2008 to review the benefit/risk of long-acting beta-2 agonists (LABA) in adults and children. These medications have been under review since 2003 for potential risks, including an association with an increased risk for life-threatening asthma attacks or death, particularly in African Americans. The Joint Committee recommended the continued availability of long-acting beta-2 agonists Advair (fluticasone propionate and salmeterol) and Symbicort (budesonide/formoterol fumarate dihydrate) but said Serevent (salmeterol xinafoate) and Foradil (formoterol fumarate) should no longer be used for treating asthma. The advisory panel voted 10 to 17 on whether the benefits of Serevent outweighed its risk as maintenance therapy for adults, and voted 6 to 21 on the same question for adolescents ages 12 to 17. Foradil received similar votes on the same questions: 9 to 18 for adults and 6 to 21 for adolescents. The panelists were unanimous in voting that the benefits of the two drugs did not outweigh risks when used for children ages 11 and younger. The Joint Committee recommended that Serevent and Foradils labeling should be reworded to urge doctors to use the drugs along with an inhaled corticosteroid. The American College of Allergy, Asthma and Immunology (ACAAI) and the American Academy of Allergy, Asthma and Immunology (AAAAI) issued a statement supporting the efficacy and safety of long-acting beta-2 agonists when used as recommended. The medications are typically used in combination with inhaled corticosteroids. Advair and Symbicort are combination products containing both long-acting beta-2 agonists and inhaled corticosteroids. The ACAAI and AAAAI based their recommendation on research that confirms the proper use of LABAs in combination with inhaled corticosteroids is safe and provides excellent long-term control of asthma. 2007 guidelines from the National Heart, Lung and Blood Institute (NHLBI) on the diagnosis and treatment of asthma also support the appropriate use of these medications in patients 12 and older. The ACAAI and the NHLBI note the need for additional studies to determine the benefits of the medication in younger children and agree that the medications should not be used alone for asthma management in adults or children. Until additional studies are conducted in children, the ACAAI recommended that the FDA follow the NHLBI guidelines which support the effectiveness of the medications as a supplemental therapy to inhaled corticosteroids
Newer LABAs Not Differentiated From Older Drugs

Sepracors Brovana (arformoterol) and Deys Perforomist (formoterol) are newer 1x/day LABAs. However Brovana and Perforomist are nebules indicated for COPD patients only. Indacaterol (Novartis) and 444 (GlaxoSmithKline/Theravance) are in clinical development for both COPD and asthma. A hotly debated topic among industry representatives and researchers is the pros and cons of different degrees of beta receptor selectivity. Brovana and indacaterol are highly selective betaagonists and viewed as having complete receptor binding, resulting in once-a-day dosing. Serevent is a partial agonist and may be shorter acting. Our physician experts have seen little evidence that favors complete vs. partial receptor binding; however, once-daily dosing as a result of longer half-lives should support improved
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compliance. Our consultants previously noted that a higher Cmax for uLABAs may be a potential safety concern relative to twice-daily administered LABAs. However, for GSKs 444, it is difficulty to assess the importance of Cmax, considering pharmacokinetic data have not been presented. Additionally, the large ongoing dose-ranging studies for 444 are testing doses an order of magnitude lower than the doses investigated in earlier Phase 2a trial, and it is unclear how Cmax of the dose advanced into Phase 3 will compare to the current twice daily standard, salmeterol.
Glaxos Serevent Declining; Asthma Indication At Risk

Serevent, a LABA, is indicated for long-term, maintenance treatment of asthma, including nighttime asthma; prevention of exercise-induced bronchospasm; and treatment of COPD. Serevent was approved in 2002 based on two 24-week Phase III trials in 366 patients with chronic bronchitis and airflow limitation, with and without emphysema. Serevent showed an average of 20% improvement in FEV1, two hours post dose versus 5% for placebo. Serevent improves COPD symptoms, but does not slow disease progression. Serevent has carried a black box warning since August 2003 highlighting increased risk of asthma-related deaths. Post FDAs December 2008 Joint Advisory Committee meeting, Servent could face enhanced label warnings or potentially have the asthma indication rescinded. We estimate total Serevent sales of 250MM (-5%) in 2009, 225MM (-10%) in 2010, and 100MM in 2015. The U.S. patent expired 8/08 but there have been no ANDA filings to date.
NVS/SGPs Foradil A Minor Factor In U.S. And Off Patent In Foreign Markets
Foradil (formoterol fumarate) is a long-acting bronchodilator that offers onset of action within five minutes and 12-hour relief of symptoms for patients with asthma and COPD, which includes chronic bronchitis and emphysema. It was first registered and launched in Europe in 1994. U.S. approval was granted in 2001, and in 2002 Novartis licensed Foradil to Schering-Plough but maintained rights in the rest of the world. Foradil Aerolizer is a single-dose dry powder inhaler available in the U.S., while a metered-dose inhaler is available in some countries. Foradil Certihaler was approved in the U.S. in December 2006, and previously was approved in 27 other countries. Certihaler is a novel, breath-activated multi-dose dry powder inhaler technology developed by SkyePharma. Foradil Certihaler was launched in Germany and Switzerland in September 2005, but was withdrawn due to a patient mishandling issue and is not currently marketed there. Schering-Plough books U.S. sales and pays a royalty to Novartis. Foradils composition-of-matter patent has expired in major countries. As a result, revenue from Foradil has declined. Novartis and ScheringPlough are in late stage development with MMF258, a fixed dose combination of mometasone and formoterol for COPD and asthma. This would compete with GlaxoSmithKlines Advair and AstraZenecas Symbicort. However, once-daily combinations (GlaxoSmithKline/Theravance; Novartis/Schering-Plough) may enter the market in 2011/12. A 2009 filing for MMF258 is planned. We forecast U.S. Foradil sales of $105MM in 2009, $110MM (+5%) in 2010, and $135MM in 2015.
RELIEF Study Supports AstraZenecas Oxis

Novartis and AstraZeneca both market single-agent formoterol in Europe (where the AstraZeneca product is sold as Oxis), and differentiate the two based on differences in delivery device. Oxis combines a fast onset and long duration of action, making it useful in acute asthma exacerbations. It offers a number of potential advantages in
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effectiveness and patient convenience, which should contribute to improved asthma control. In a study published in Lancet in January 2001, 362 patients with moderate asthma who were using inhaled steroids at a mean daily dose of 870mcg but not receiving long-acting beta agonists were randomized to Oxis 4.5mcg or Terbutaline 0.5mg, both given via Turbuhaler, for 12 weeks. Oxis was associated with a significantly greater improvement in lung function, and a reduction in the number of extra relief inhalations needed. The probability of remaining free from a severe asthma exacerbation was higher in patients receiving Oxis. Positive results of the RELIEF study (Real Life Effectiveness) of Oxis Turbuhaler were published in the November 2003 issue of the European Respiratory Journal. This six-month study involving 18,000 patients compared Oxis with salbutamol. Oxis 4.5mcg demonstrated similar safety and was superior to salbutamol 200mcg when used as the only reliever medication. Prescribed controller medication for asthma was permitted. Oxis was associated with fewer severe exacerbations, less asthma symptoms, and a lower requirement for asthma medication than salbutamol. These benefits were seen irrespective of the level of maintenance asthma treatment the patients took. Indeed, Oxis also was more effective than salbutamol in reducing exacerbations when added to maintenance treatment with inhaled steroids plus regular long-acting beta-agonist therapy. Oxis is not being developed for the U.S. market. AstraZeneca completed the mutual recognition procedure in the E.U. in December 2002 for use of Oxis as maintenance therapy for COPD. We estimate Oxis sales of $65MM in 2009, $60MM in 2010 and $45MM in 2013.
Sepracor Focusing More Resources On Brovana In 09

Brovana (arformoterol) is a nebule formulation of a long-acting beta-agonist (LABA) used to treat COPD. Arformoterol is the r-isomer of formoterol. At the time of its launch in April 2007, Brovana was the only LABA available in a nebulized formulation, but Mylan/Deys Perforomist (nebule formulation of formoterol) was launched in October 2007. Brovana offers a rapid onset of action (via the nebulizer delivery) and twice-daily dosing. The Brovana label carries a black-box warning (asthma-related death), consistent with other LABAs. Our consultants believe Sepracor is looking to develop a handheld inhaler version of Brovana. Brovana was awarded an independent Medicare reimbursement J-code in November 2007 which became effective on January 1, 2008. Performomist does not yet have an independent J-code, and is not expected to receive one until early 2009. Also, since CMS reduced the effective reimbursement rate on generic albuterol nebules as of April 1, 2008, Brovana now carries the highest reimbursement margin for the home health care providers of any nebulized asthma drug. We believe that margin expansion is driving increased adoption. Sepracor has exploited Brovanas reimbursement advantage to drive an acceleration in Brovana sales trends. In 2009, Sepracor announced that Brovana will receive the dedicated focus of an institutional sales force following the restructuring efforts at the company. We estimate Brovana sales of $80MM (+40%) in 2009, $100MM (+25%) in 2010, and $145MM in 2013. Brovana Phase III Data Were Solid Phase III results for Brovana were presented at the ATS in May 2006. The trials compared nebulized Brovana to GSKs Serevent delivered via dry powder inhaler and to placebo. Brovana demonstrated superior efficacy and faster onset of action compared to both Serevent and placebo. Three different doses of Brovana were studied in the trial: (1) 50g once-daily; (2) 25g twice daily; or (3) 15g twice daily. The Serevent dose was 42g delivered via dry powder inhaler twice daily. The percentage of COPD patients achieving at least a 10% improvement in lung function
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(as measured by FEV1) over the 12 week treatment period of the trial was 77.1-87.5% for the Brovana arms, 58.4% for patients on Serevent, and 47.6% for patients on placebo.
SUMMARY OF BROVANA PHASE III DATA
Source: Brovana label
Deys Perforomist Rollout Underway

Dey Labs (division of Merck KGaA) launched Perforomist in September 2007. Performist is a nebulizer solution formulation of formoterol (the racemate of Sepracors Brovana). Perforomist is indicated for the long-term maintenance treatment of chronic obstruction pulmonary disease (COPD). In March 2007, Critical Therapeutics signed a co-promotion agreement with Dey covering Critical Therapeutics Zileuton CR and a binding letter of intent providing Critical Therapeutics with co-promotion rights to the then undisclosed, Perforomist. Perforomist has been a slow and steady performer, although the launch underperformed initial expectations. Perforomist received a J-code from Centers of Medicare and Medicaid Services in November 2008. Brovana already has a J-code. We estimate Perforomist sales of $45MM in 2009 (+80%), $65MM in 2010, and $85MM in 2012.
GSKs Advair Poised For Continued Growth In Asthma And Potentially In COPD
Advair (Seretide ex-U.S.) was the first combination long-acting beta agonist (LABA) /steroid to be launched into the European and U.S. markets. First-line use of Advair in asthma has slowed due to FDA label changes in 2005 regarding the risk of rare but serious exacerbations associated with long-acting beta agonists. Pediatric asthma now accounts for a small percentage of Advair sales in the U.S. FDA revisited the concern with LABAs at a Joint Advisory Committee Meeting held in December 2008. FDAs meta-analysis presented to the Joint Advisory Committee showed that LABAs were associated with an increased risk of asthma-related events relative to nonLABA treatment, as measured by the asthma composite endpoint consisting of asthma-related death, asthma-related intubation, and asthma-related hospitalization. Three of the four drugs (Foradil (NVS/SGP), Serevent (GSK), Symbicort (AZN)) had positive risk difference estimates for the asthma composite endpoint, but Advair did not; however, only Serevent had a statistically significant estimate. The Joint Advisory Committee endorsed Advairs use in both children and
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adults with a similar recommendation for Symbicort. However, it recommended removal of the LABA monotherapies, Serevent and Foradil, from the market. Advairs use in COPD is likely to offset any potential decline in asthma, although post this meeting, Advair appears well poised even in asthma. The approval of AstraZenecas fixed-dose combination (Symbicort) in the U.S. in June 2007 and the July 2007 not-approvable letter for Advair 500/50 in COPD (based on the TORCH data) had a modest impact on Advair sales. In response to a request in the notapprovable letter, GlaxoSmithKline completed two studies in COPD (in emphysema and chronic bronchitis) with Advair 250/50 that were part of a new sNDA for COPD at the lower dose. In April 2008, FDA approved Advair 250/50 for the reduction of exacerbations and the improvement of lung function in COPD. Our physician consultants do not believe that this approval (previously only indicated for the maintenance of chronic bronchitis) will change Advair prescribing for COPD given that Advair is already broadly used. In addition, Pfizers Spiriva (tiotropium) failed to demonstrate any disease modification in UPLIFT and therefore will be unable to claim additional benefits over Advair. Advair HFA was launched in October 2006. We forecast Advair sales of 4.8B (+16%) in 2009, 5.2B (+8%) in 2010, and 6.7B in 2015.
Clinical Trial Results: Advair vs. Combivent

Mean Change from Baseline at Endpoint Advair Combivent (n=182) (n=183) AM predose FEV1 (mL) FEV1 6-hr AUC (L-hr)* AM PEF (L/min) Dyspnea score (TDI) Overall Daytime Sx score (% change) % Sx-free nights Nighttime awakenings (per night) Sleep Sx score (% change) % Albuterol rescue-free nights % Albuterol rescue-free days *change from baseline at Week
Source: Chest 2003;124:128S
p value <0.001 <0.001 <0.001 <0.001 0.030 <0.001 <0.001 0.010 0.004 0.124
+111 1.39 +37 2.7 -23.9 +28.4 -0.58 -29.3 +22.4 +37.6
-4 0.90 +7 1.2 -14.9 +7.7 -0.20 -10.8 +8.7 +27.7
TORCH Non-Approvable At Higher Dose A Minor Setback FDAs August 2007 non-approvable letter for Advair 500/50 for COPD was based on the agencys need to better understand Advair efficacy at a lower Advair dose. This was partly in line with the May 2007 FDA Pulmonary-Allergy Drugs Advisory Committee vote of 9-2 against approving Advair 500/50 for a survival benefit but the committee was unanimous in its recommendation for an indication of a reduction in COPD exacerbations. The FDA was likely concerned with the increased rate of adverse events associated with the higher steroid dose demonstrated by the higher pneumonia rate seen in TORCH. An approval for Advair 500/50 in line with the Advisory Committee recommendations would have accelerated Advair franchise sales for the following reasons: 1) the reduction in exacerbations in the label would be a significant differentiating attribute, and 2) Advair would benefit from a more favorable product mix, with increased 500/50 sales. FDA Issued Non-Approvable Letter For High-Dose, Approval of Lower Dose. In May 2007, the FDA issued a non-approvable letter for the Advair 500/50 sNDA for
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the treatment of COPD. The main reason cited was the concern about approving the higher dose if the lower 250/50 strength may be as effective and potentially result in fewer adverse events. No such 250/50 long-term data exist and it remains unclear whether GlaxoSmithKline would commit to another 6,000 patient COPD outcomes study. The FDA's Pulmonary-Allergy Advisory Committee voted 9-2 against approving Advair 500/50 for increasing survival in COPD but was unanimous in voting for its reduction in COPD exacerbations. It also was unanimous in Advair 500/50's survival advantage over salmeterol and the need for additional studies evaluating respiratory tract infections. In April 2008, the agency approved the lower dose, 250/50mg for the reduction of exacerbations of COPD symptoms.
Selected Results From The TORCH Study
Variable Placebo Group Probability of death at 3 years % Efficacy analysis for Exacerbation Annual Rate Moderate - Severe Requiring Steroids Severe (requiring hospitalization Adjusted mean change in St. Georges Respiratory Questionnaire score averaged over 3 yr (units) Adverse Event Of specific interest during treatment % of patients Pneumonia Fractures Total Non-traumatic
* Statistically significant (better than placebo) **Statistically significant (inferior to placebo) Source: NEJM 356,8
Salmeterol Group (N=1521) 13.5 0.97 0.64 0.16 0.8
Fluticasone Group (N=1534) 16.0** 0.93 0.52 0.17 1.8
Combination Therapy Group (N=1533) 12.6 0.85* 0.46* 0.16* 3.0*
(N=1524) 15.2 1.13 0.80 0.19 +0.2
12.3 5.1 1.8
13.3 5.1 2.5
18.3** 5.4 1.7
19.6** 6.3 1.7
INSPIRE Demonstrates A Mortality Benefit For Advair Over Spiriva

INSPIRE (Investigating New Standards for Prophylaxis in Reduction of Exacerbations), a multi-centre, multinational, randomized, double-blind controlled trial that enrolled 1,323 patients from 20 E.U. countries with severe or very severe COPD was presented at ESR 2007. It is the first large prospective study to compare the impact of two different treatment approaches, using either Advair or Spiriva, in COPD exacerbations (sudden worsening of symptoms) over two years. INSPIRE randomized patients with an FEV1 less than 39% predicted; 658 to Advair and 668 to Spiriva. The primary objective of INSPIRE was to compare the effects of both drugs on the rate, over two years, of moderate and/or severe exacerbations. All patients were allowed short-acting inhaled beta-agonists for relief therapy, as well as standardized short courses of oral corticosteroids and/or antibiotics where indicated for the treatment of any COPD exacerbation. The patients in both groups were reviewed at weeks 2 and 8, and every 12 weeks thereafter, to record details of any COPD exacerbations or adverse events. The results show that the two treatments have a similar impact (1.28 for Advair and 1.32 for Spiriva) on the overall exacerbation rate defined as exacerbations requiring extra health care resource utilization. However, there was a difference in the nature of the exacerbations. Advair demonstrated a sustained improvement in quality of life over two years compared to Spiriva. INSPIRE
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demonstrated a statistically significant difference in the relative risk of dying from any cause, with a 52% risk reduction with Advair compared to Spiriva (p = 0.012). However, in terms of adverse effects, Advair proved slightly worse than Spiriva, with 66% of patients on Advair suffering a side effect during the treatment, compared to 62% in the Spiriva group. The most common adverse event was an exacerbation of symptoms.
ASTHMA MARKET
18.0%
16.0%
14.0%
12.0% Market Share
10.0%
8.0%
6.0%
4.0%
2.0%
0.0% 2-May-08 16-May-08 30-May-08 14-Nov-08 28-Nov-08 6-Feb-09 21-Mar-08 20-Feb-09 17-Oct-08 31-Oct-08 13-Jun-08 27-Jun-08 23-Jan-09 4-Apr-08 3-Oct-08 7-Mar-08 12-Dec-08 26-Dec-08 11-Jul-08 25-Jul-08 22-Aug-08 19-Sep-08 8-Aug-08 18-Apr-08 5-Sep-08 6-Mar-09 9-Jan-09
Advair
Singulair
Flovent
Asmanex
Symbicort
Source: IMS Health
GlaxoSmithKline And Theravances Horizon Program (Beyond Advair) Advancing

THRX and GSK entered into a collaboration in 2002 to develop a follow-on to GSKs blockbuster Advair. The key differentiating aspect of Horizon is the goal of creating a product with a duration of action that allows for once-daily dosing, which would represent a convenience benefit and potentially an efficacy benefit over the current twice-daily dosing regimen. Under this collaboration, Theravance and GSK have pooled their respective ultra long-acting beta agonists (uLABA), with the plan of combining one of these products with GSKs once-daily corticosteroid (known as 698 and fluticasone furoate) that is currently in development. In April 2007, Phase 2b data were announced for the two most advanced uLABAs in development, 797 discovered by THRX and 444 discovered by GSK. Both compounds achieved functional lung improvement compared to salmeterol. Due to the higher efficacy of 444 compared to 797, GSK and THRX elected to advance 444 into a Phase 2b combination study with GSKs once-daily inhaled corticosteroid (dosed separately), while 797 will serve as a backup molecule and will undergo further dose optimization. Separately, GSK initiated a Phase I study to assess a fixed dose combination of 444 with 698 in a single device. In December 2007, GSK announced positive top-line results from a Phase 2 study of 698 in asthma and initiated three Phase 2b monotherapy studies of 698 in mild, moderate, and severe asthma (600 patients each), and a Phase 2b of 444 (600 patients) in persistent asthma with a background of ICS. Positive top-line data from the Phase 2b of 444 were announced
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in December 2008. Positive data from the 698 asthma studies were announced in February 2009. GSK also conducted a 600-patient Phase 2b dose-optimization study of 444 monotherapy vs. placebo in a new inhaler in COPD. Positive data from this study were announced in December 2008. We currently expect a Phase 3 start for Horizon around mid-year, and a product launch in late 2012. Sign-off by the FDA on the study protocols should occur in the next few months. We expect COPD may have an easier time of getting off the ground relative to asthma. While Horizon appears to be on the right track, there are a number of uncertainties for the program longer term: 1) potential regulatory delays; 2) potential entry of a generic Advair (FDA panel to discuss bioequivalence for inhaled drugs on March 9-10, 2009 has relevance); 3) competition from branded products (NVS/GSK). Phase 2: Positive Efficacy And Safety For 444. The 600-patient Phase 2 study evaluated 5 doses of 444 1x/day for 4 weeks and demonstrated significant improvements in FEV1 in all but the two lowest doses, which is encouraging given the study was designed to find the minimally effective dose level. Specifically, the 12.5mcg, 25mcg and 50mcg doses produced a change in trough FEV1 of 278mL, 269mL, and 309mL, respectively, vs. an unexpectedly high 147mL for placebo (p<0.05). The highest dose 50mcg produced a modest change in heart rate (0.5 beats/min) that is less than is typically observed for salmeterol (1-2 beats/min inc). No serious adverse events were reported in the study, and no other side effects or lab measures stood out over placebo. Phase 2b: Positive efficacy and safety for 444 in asthma. In December 2008, THRX and partner GSK announced positive results from a Phase 2b study of their long-acting beta agonist (LABA) 444 in moderate-to-severe asthma demonstrating dose-dependent improvements in lung function and safety profile consistent with the LABA class. The 600-patient Phase 2 study evaluated 5 doses of '444 1x/day for 4 weeks and demonstrated significant improvements in FEV1 in all but the two lowest doses, which is encouraging given the study was designed to find the minimally effective dose level. Specifically, the 12.5mcg, 25mcg and 50mcg doses produced a change in trough FEV1 of 278mL, 269mL, and 309mL, respectively, vs. an unexpectedly high 147mL for placebo (p<0.05). The highest dose 50mcg produced a modest change in heart rate (0.5 beats/min) that is less than is typically observed for salmeterol (1-2 beats/min inc). No serious adverse events were reported in the study, and no other side effects or lab measures stood out over placebo. Phase 2b: Positive efficacy and safety for inhaled ICS fluticasone fuorate (698). In February 2009, THRX and partner GSK announced positive results from three Phase 2b studies of GSKs inhaled corticosteroid (ICS) fluticasone furoate (698). GSK evaluated a series of doses in mild (25, 50, 100, 200mcg), moderate (100, 200, 300, 400mcg) and severe (200, 400, 600, 800 mcg) asthma over an 8-week dosing period, with trough FEV1 as the primary endpoint in the studies. These studies were each approximately 600 patients, were placebo controlled, and also contained a positive control, which allows for some comparison of '698 to the current 2x/day ICS (Flovent). All doses showed a statistically significant improvement in FEV1, with the exception of the lowest 25 mcg dose. Only the highest dose 800 mcg was associated with a statistically significant reduction in 24hour urinary cortisol levels, a known ICS side effect. In each of the studies, '698 appeared to yield numerically greater improvements in FEV1 compared to the active control. While the study evaluated higher '698 doses in severe asthma vs moderate vs mild groups, it is unclear whether doses >200-300 mcg will be evaluated further.
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Phase 2b: Positive results for 444 in COPD. In December 2008, GSK/THRX announced positive top-line results for their once-daily long-acting beta agonist (LABA) '444 from a Phase 2b monotherapy study in COPD. '444 efficacy looks comparable or better to 2x/day salmeterol, although no definitive conclusion can be drawn. The gold standard FEV1 endpoint in the 605-patient, 6 arm study (5 doses and pla) showed a statistically significant increase at the three highest doses (12.5, 25 and 50 mcg, p<0.05). FEV1 improvement over placebo of 119 mL-165mL for '444 is similar to or better than data shown for single-agent salmeterol (91mL), although detailed baseline characteristics were not disclosed, and lack of head-to-head data make it difficult to draw definitive conclusions. The two highest doses in the study met a predefined efficacy benefit of >130 mL improvement. Safety data for '444 across the doses tested were not different from placebo.
AZNs Symbicort Loses Another Patent In Europe But Survives FDAs Asthma Advisory Committee Meeting
Symbicort is an inhaled combination of budesonide (ICS) and formoterol (LABA) indicated for the treatment of asthma and COPD (88 countries ex-U.S.). AstraZeneca launched Symbicort pMDI (budesonide/formoterol) in the U.S. in July 2007 for the maintenance treatment of asthma in patients age 12 and older based on an NDA package that included 27 trials using the Turbuhaler dry powder device. The filing included the OPTIMA and FACET trials which showed that the combination of budesonide and formoterol reduces exacerbations and improves lung function. In Europe, the adjustable dose version of Symbicort dominates. However, U.S. physicians traditionally have been reluctant to place dosing in the hands of individual patients. Therefore, AstraZeneca pursued Symbicort at two fixed doses in the U.S. Superiority of Symbicort has only been demonstrated with the adjustable dosing regimen and we expect this factor to be a hurdle in promoting the fixed dose. Budesonide is an important alternative inhaled steroid, given that it shares Flovents (fluticasone) efficacy but with less systemic absorption. Additionally, patients might benefit from the faster onset of action of formoterol, the long-acting beta agonist in Symbicort (as opposed to salmeterol, the long-acting beta agonist in Advair). This has potential utility in an acute asthmatic attack. However, other than these two attributes, there appears to be little to distinguish GlaxoSmithKlines Advair from Symbicort. In Europe, where the products were launched in similar timeframes, Advair has 70% share and Symbicort 30%. A COPD sNDA for adults and asthma sNDA for children as young as six years old were filed in April and June 2008, respectively. According to AstraZeneca, 27% of new patient starts for fixed combinations are going to Symbicort. In December, the Joint Advisory Committees of the FDA, including the Drug Safety and Risk Management Advisory Committee, the Pediatric Advisory Committee, and the Pulmonary-Allergy drugs Advisory Committee, completed an in-depth review of the all LABA containing inhalers, including Symbicort. Unlike Advair, which was found not to be associated with increased risk of morbidity and mortality, Symbicorts data trended unfavorably. The Joint Committees concluded that Symbicorts benefit-risk profile was favorable for the treatment of asthma in adults and adolescents. It is therefore unlikely that Symbicort will be approved for the less than twelve years of age asthma indication. This is unlikely to cap any growth for Symbicort given that pediatric guidelines already adopted a more conservative approach to monotherapy LABA use in 2007, and combination therapies are likely safe. In addition, the biggest growth segment is COPD.
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In May 2008, the EPO Technical Board of Appeal made its final ruling that the European combination patent covering the use of Symbicort for COPD (EPB1014993) had been revoked following an appeal of a generic manufacturer. In October 2008, the EPO Technical Board of Appeal made its final ruling that the European combination patent for Symbicort (EPB0613371) had been revoked following an appeal of several generic manufacturers. The original patent expiration date for EPB0613371 was 2012 with an extension in most European countries to August 2015. The remaining European patent (EPB1210943) claiming Symbicort for use in COPD is under opposition. The proceedings instituted by Teva in the UK and Ireland with respect to the Symbicort patents will remain stayed until the EPO Technical Board of Appeal decision on the COPD patent. Symbicorts market exclusivity expires August 2010. Medium-term competition is likely to come from Novartis/Schering-Ploughs MMF (foradil/mometasone) and in the long-term from potential twice-daily generics and once-daily branded combinations. We forecast Symbicort sales of $2.2B in 2009, $2.5B in 2010, and $3.5B in 2013. Admittedly, our estimates beyond 2010 are at-risk pending additional visibility on the patent litigation. OPTIMA Study Positive For Symbicort In Mild Asthmatics In OPTIMA, 1,970 mild asthmatics were randomized to one of two groups. Group A consisted of 698 previously untreated patients who received placebo, Pulmicort 100mcg (Budesonide) or Pulmicort 100mcg and Oxis 4.5mcg (Formoterol) twice daily. Group B was comprised of 1,272 patients refractory to steroids that were treated with Pulmicort 100 or 200mcg, or Pulmicort and Oxis/Foradil (Formoterol) either 100/4.5 or 200/4.5mcg twice daily. The results show that, in group A, Pulmicort reduced exacerbations by 60% and improved lung function. Adding Oxis improved lung function slightly, but did not decrease exacerbations. In Group B, adding Formoterol to Budensonide reduced the risk of the first severe exacerbation by 43%; lung function and asthma symptoms also improved in patients receiving both drugs. All treatments were well tolerated. In Group A, OPTIMA showed that Pulmicort alone reduced the risk of severe exacerbations by 60%; the addition of formoterol increased lung function but there was no change in the endpoint. Group A suggested that there was no difference in patients with mild persistent asthma that were steroid-free to begin with between monotherapy with an ICS and ICS + LABA combination. Therefore, OPTIMA suggested that patients who were steroid free benefited the most from a combination of ICS and LABA. FACET Study Supports Use of Symbicort In Moderate Asthma FACET was a 12-month study that randomized patients with moderately severe asthma already taking an average dose of Budesonide 800mcg per day to one of four groups: (1) Budesonide 800mcg daily; (2) Budesonide 200mcg daily; (3) high-dose Budesonide plus Formoterol; and (4) low-dose Budesonide plus Formoterol. The results showed that patients treated with high-dose Budesonide plus Formoterol had significantly greater improvement in FEV1 and severe exacerbations than those receiving Budesonide separately.
Novartis Indacaterol Once-Daily Exciting; Multiple Combinations On Tap

Indacaterol (QAB149), an ultra long acting beta-2 agonist (uLABA), is being developed as a monotherapy for COPD and then as a combination therapy for both asthma and
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COPD. QB149s major advantage over existing long-acting inhaled beta-2 agonists is its long duration of action (24 hours) over currently approved twice-daily LABA such as GlaxoSmithKlines Serevent (salmeterol) and Novartis/Schering-Ploughs Foradil (formoterol). Top-line data also suggest incremental FEV1 improvement with no increased toxicity. Initial Phase II studies for indacaterol were performed with a multidose DPI Certihaler device co-developed with SkyePharma. However, the device was removed from the market due to patient mishandling. Novartis has opted to use a single-dose dry powder inhaler device, the Concept-1 inhaler. Novartis was on track to file QAB149 for COPD by the end of 2008. Novartis is filing the 150ug and 300ug doses as the 75ug was not effective and there was a flat dose response seen at 150ug and higher doses. Safety appears robust with no QTc signal seen at 600ug. In the Phase III trials that included over 6,000 patients, patient reported cough rates were no different from placebo but investigator reported rates were higher. However, cough did not interfere with compliance or QAB149s effectiveness. 0ur physician consultants believe that indacaterol has a unique profile but remain circumspect as to its regulatory approval. Foremost is FDAs concern with safety and the Cmax-associated toxicities. Novartis has short-term safety studies but FDA may require longer studies. Unreported head-to-head studies vs. Spiriva (PFE) and possibly Advair (GSK) apparently are positive. QAB149 is the keystone to the Novartis QD inhaled franchise of QMF149 (+momentasone) and QVA149 (+NVA237, a QD LAMA). The acquisition of Nektars respiratory franchise should accelerate novel device development. QAB149 is likely to face both regulatory and commercial challenges. Post the December 2008 FDA advisory committee meeting on the safety of LABAs in asthma, it is unlikely that FDA would approve a new beta-agonist monotherapy for asthma based on the potential for increased asthma-related deaths, especially in pediatrics. However, combination therapies are likely for asthma as both Advair and Symbicort were considered to have acceptable safety profiles. COPD was not discussed at this meeting.
Novartis COPD/Asthma Portfolio Filing Timeline Name Ingredients Filing Timeline COPD Asthma 2008 2009 2009 >2011 2010 >2011 >2011 >2011
QAB149 Indacaterol, once-daily LABA MMF258 Foradil/mometasone FDC QMF149 Indacaterol/mometasone FDC QAT370 Novel LAMA NVA237 Once-daily LAMA QVA149 Indacaterol/NVA237 FDC Source: company data
GlaxoSmithKlines Advair U.S. market exclusivity expires in 2011. There is no current regulatory pathway for combination inhaled generics. However, non-AB-rated generics are probable, and Novartis generic unit Sandoz is working on a combination generic. GlaxoSmithKline and partner Theravance are in Phase IIb development with their once-daily uLABA, 444, in asthma and COPD. 698 (mometasone) is in Phase II dose optimizing studies. The companies reported the asthma and COPD results in Q4:08. Both studies met their primary endpoints and demonstrated robust dose-dependent efficacy but it appears that the asthma study failed to meet an internal FEV1 hurdle. The Phase III combination studies are likely to begin in 2009 post the completion of the 698 study. The companies would then be on track to file their combination therapies in 2012. QAB149 is therefore likely to
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compete against both twice-daily generics and a once-daily platform from GSK/Theravance. We estimate QAB149 sales of $25MM in 2009, $250MM in 2012, and $400MM in 2015.
Novartis-Schering-Plough Asthma/COPD Franchise Revenue Build-Up Stage of Dev. QMF149 Phase II QAB 149 Filed MFF258 Phase III NVA 237 Phase II QVA149 Phase II 2007 2008E 2009E 25 2010E 100 50 2011E 100 150 100 2012E 200 250 150 50 50 2013E 300 300 200 100 100 2014E 400 350 250 200 200 2015E 500 400 300 300 300 Comments - QD fixed dose combination indacaterol/mometasone; NDA filing 2010 COPD, Asthma >2011 - Once-daily LABA for COPD; NDA H2:08; BID generics likely to clip sales - BID Formoterol/mometasone for COPD/asthma; filing 2009; NVS to book U.S. sales; profit split - QD LAMA, glycopyrronium,for COPD; NDA >2011; licensed from Vectura - QD fixed dose combination indacaterol/glycopyrronium bromide; NDA filing >2011
Source: Cowen and Company; Company data
Indacaterol Phase II COPD Data Support Once-Daily Efficacy And Safety A Phase II safety and tolerability study at therapeutic and supratherapeutic doses in persistent asthmatics was presented at the European Respiratory Society meeting in September 2007. It demonstrated that the effects of indacaterol on potassium, glucose, heart rate and QTc interval, even at doses far in excess of the therapeutic range, would be considered within safe limits for a single dose. At all doses, FEV1 increased from predose by >400 mL at 2 hours and >200 mL at 24 hours post-dose. In an exploratory, double-blind, randomized crossover study also presented at ERS, 30 patients with mild-to-severe COPD received single doses of indacaterol (300ug) and placebo, double-blind. Formoterol 12g bid via Aerolizer was given open label as active control. Primary measures were peak and trough (24 hours) FEV1 and peak inspiratory capacity (IC). Once-daily indacaterol increased FEV1 and IC (p<0.0001 vs. placebo) at all time points (5 minutes to 24 hours). Peak FEV1 was 1.55L for indacaterol vs. 1.30L for placebo, trough FEV1 was 1.33 vs. 1.21L, and peak IC was 2.42 vs. 2.04L (all p<0.0001). Twice-daily formoterol increased FEV1 and IC (p<0.01 vs. placebo) at all time points. Indacaterol had a 22% greater effect (as placebosubtracted maximal % increase) than formoterol on peak FEV1 (p=0.1230), and a 59% greater effect on peak IC (p=0.0336). No patients reported serious adverse events or discontinued owing to adverse events. Both indacaterol and formoterol improved FEV1 and IC in patients with COPD; however, indacaterol had a greater effect on peak IC. Novartis is developing a fixed combination uLABA/LAMA, called QVA149. A 250 patient, 14-day, Phase II trial in COPD using the Concept1 device was recently initiated for QVA149 with a potential 2011 launch. QVA149s LAMA component, NVA237, demonstrated effective bronchodilation over 24-hours with efficacy similar to Pfizers Spiriva and potentially an improved therapeutic index in Phase II studies. NVA237 is currently in a 28 day treatment study in patients with moderate to severe COPD evaluating the 100 and 200g QD doses. Two small Phase II studies are active but currently not recruiting, a 73-patient study is evaluating the single dry powder dose inhaler versus Spiriva. There are several once-daily LABAs in development including Forests Acclidinium (Phase III), GlaxoSmithKlines GSK233705 and GSK704838 (Phase II and Phase I respectively), and Boerhinger-Ingelheims BE 2180 BR and Ba 679 BR Respimat (both Phase II).
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Indacaterol Phase II Data In Asthma Support Fast Onset And 24-Hour Duration A randomized, double-blind, dose-ranging study (50, 100, 200, 400 g or placebo) in 42 patients with intermittent or mild-to-moderate persistent asthma was presented at the American Thoracic Society in May 2005. Indacaterol showed effective 24-hour bronchodilation within five minutes. Efficacy was dose-dependent while safety and tolerability appeared similar to placebo. A 26-week Phase III monotherapy study in moderate-to-severe asthmatics on background ICS therapy was completed in Q3:08. This study is likely to contribute to the safety database for the fixed-dose combination, QMF149. A 24-patient double-blind Phase II study with QMF using a multiple-dose dry powder inhaler (MDDPI) was initiated in November 2007.
Almiralls LAS100977 LABA Reports Phase 2 Results

Almirall is developing a novel once-daily LABA LAS100977 which demonstrated good safety and tolerability profile in patients with stable asthma and is planning studies in COPD. In February 2009, Almirall announced positive results from a Phase 2 study of LAS100977 that included 20 stable asthmatic patients. Patients were randomized to receive 1x/day treatment with one of three doses of LAS100977 or placebo for 7 days. LAS100977 demonstrated 24-hour bronchodilation and sustained efficacy during multiple dose administrations with no significant increase in cardiovascular adverse events. The drug showed a sustained statistically significant effect with all three doses tested from Day 1 to Day 7, with onset of action five minutes after the first administration. Trough and peak FEV1 were significantly superior to placebo for all doses. Almirall is currently developing a 1x/day combination of LAS100977 with a corticosteroid in the Genuair inhaler. The company is looking for a partner to advance this compound further in development.
COPD: Devastating Disease Linked To Smoking, Pollution

Chronic obstructive pulmonary disease (COPD) is a non-reversible, chronic, progressive disease characterized by airway obstruction, shortness of breath, cough, and chronic persistent inflammation of lung tissue. In moderate-to-severe COPD, airflow limitation is usually associated with trapping of air in the lungs and hyperinflation as assessed by an increase in total gas volume and decrease in inspiratory capacity. Mucus hypersecretion and a lack of airway hyper-reactivity are common. Chronic bronchitis, an inflammation of the mucous membranes of the bronchi, and emphysema, an anatomic alteration of the lungs characterized by enlargement of air spaces distal to terminal bronchioles, can prompt COPD. COPD is the fourth leading cause of death in the U.S. and is expected to become the third leading cause by 2020. COPD patients usually show signs and symptoms in the fifth and sixth decade of life, usually post a long smoking history. Cigarette smoking is a major risk factor, but 20% of COPD victims are lifelong non-smokers. It is estimated that 10% of all patients with COPD also have asthma, but that only 40% of diagnosed COPD patients also have asthma. COPD affects an estimated 600MM people globally, but the disease has an asymptomatic phase and thus many patients are undiagnosed. One in five smokers could develop COPD, and it leads to 3MM deaths annually. Treatment of COPD patients is assessed based on degree of improvement in forced expiratory volume (FEV1), forced vital capacity (FVC), and peak expiratory flow rate (PEFR), and total lung capacity (TLC), as well as exercise limitation.
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According to GOLD (Global Initiative for chronic Obstructive Lung Disease) guidelines, the objectives of COPD management are to: 1) relieve symptoms, 2) improve health status, 3) prevent and treat exacerbations/complications, 4) minimize side effects from treatment, 5) reduce mortality, 6) improve exercise tolerance, and 7) prevent disease progression. Prevention and treatment of exacerbations are key. On average, patients experience 1-2 exacerbations per year, which may be classified as mild, moderate or severe (requiring hospitalization). 2240% of patients die within one year of an exacerbation-related admission, and 66% die within three years.
New COPD Therapies Offer Improvements Over Existing Treatments But Unlikely To Alter Outcome
Boehringer-Ingelheims Combivent (Atrovent plus albuterol) and Atrovent (ipratropium) are the standard of care for treating COPD. These agents work by antagonizing the cholinergic receptor, which reduces secretions in the nasal passages and lung. They offer only symptomatic relief and must be administered four times per day, resulting in suboptimal patient compliance. BoehringerIngelheim/Pfizers Spiriva (tiotropium) works by the same mechanism as Atrovent and Combivent, but is administered once daily. Spiriva is approved in most major markets. ANTICHOLINERGIC (LAMA) COMPETITIVE LANDSCAPE Product Atrovent Combivent Spiriva Aclidinium NVA 237 Darotropium BEA2180BR Ba679Br GSK573719 GSK1160724 GSK704838 Trospium QAT370 QAX028 Company Boehringer-Ingelheim Boehringer-Ingelheim Boehringer-Ingelheim/Pfizer Forest Novartis GlaxoSmithKline Boehringer-Ingelheim Boehringer-Ingelheim GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline Indevus/Alkermes Novartis Novartis Status Marketed Marketed Marketed Phase III Phase II Phase II Phase II Phase II Phase II Phase II Phase II Phase IIa Phase II Phase II
Inhaled steroids also are used for the treatment of COPD but, similar to anticholinergics, offer only symptom relief with no change in the natural history of the disease. Post TORCH, it appears that, as monotherapy, steroids may actually be harmful. Combination steroid/LABA therapy like Advair offers efficacy in reducing exacerbations similar to Spiriva but may have a slight mortality benefit albeit with an increased risk of infections. Beta-agonists induce bronchodilation by relaxing smooth muscle cells, but can cause tachycardia, and about one-sixth of patients do not respond to beta agonists due to a genetic polymorphism. Prior to Advairs approval for COPD for the 250/50ug dose, its utility in COPD already was recognized: 15-20% of Advair prescriptions were written for COPD, roughly comparable to the 20% of Flovent prescriptions but slightly below the 30% of Serevent prescriptions written for the same indication. A long-term epidemiologic
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study performed in Canada, Northern Europe, and New Zealand showed that patients were 29% less likely to die of COPD when using aggressive steroid therapy. This is paradoxical due to the fact that only 10% of COPD patients also have asthma, and while steroids are beneficial in these patients, they are of less utility outside of this group. Combination ICS/LABA Competitive Landscape Product Advair Symbicort Formoterol / fluticasone Formoterol / mometasone (MMF258) Baclometasone/formoterol Indacaterol /mometasone (QMF149) Formoterol / ciclesonide 444 / '698 Company GlaxoSmithKline AstraZeneca SkyePharma Novartis/Schering-Plough Chiesi Pharmaceuticals Novartis/Schering-Plough Forest/Nycomed GSK/Theravance Status Marketed Marketed Phase III Phase III Phase III Phase II Phase II Phase II
The phosphodiesterase (PDE) type 4 inhibitors are another modality targeting COPD but have not proven successful. PDE-4 is the key enzyme involved in the activation of secondary messengers that control release of inflammatory mediators. These agents are in various stages of development and treat three principal components of airway disease: inflammation, neuromodulation/bronchoconstriction, and airway structural modification. However, the outlook for the PDE-4 inhibitors is uncertain given modest effectiveness, a narrow therapeutic window and side effects that may be class based. The side effect concerns have prompted many PDE-4 inhibitors to fail in development, but always due to differing toxicities. Nonetheless, a number of these agents continue in development, as depicted below. PDE-4 COMPETITIVE LANDSCAPE Product Ariflo Daxas 256066 ONO-6126 Tetomilast Tofimilast Oglemilast
Company GlaxoSmithKline Nycomed GlaxoSmithKline Ono Otsuka Otsuka Forest Labs
Status Discontinued PIII PII PII PII PII PII
Leukotriene antagonists, such as Mercks Singulair, which have been very successful in the treatment of asthma, are unlikely to have much benefit in COPD. On the other hand, 5-lipoxygenase inhibitors such as Critical Therapeutics' Zileuton may show some benefit in COPD. Despite advances in drug therapy, smoking cessation and oxygen are the only therapies shown to improve survival in COPD patients. Pulmonologists await drugs able to affect the diseases natural history, and thus view palliative agents with limited enthusiasm.
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Boehringer-Ingelheim/Pfizers Market Despite UPLIFTs Miss
Spiriva
Dominates
COPD
Spiriva, an anticholinergic agent similar to Atrovent (ipratropium) and Combivent (Ipratropium plus albuterol), claimed 63.2% prescription share of the anticholinergic market in December 2008, with NRxs up 7% Y/Y. Spiriva is approved in over 45 countries and is available in most major WW markets. Spirivas advantage over Atrovent and Combivent is once-daily dosing, while Atrovent and Combivent are dosed 4+ times per day. Based on its clinical trials, Spiriva is effective and safe. However, in May 2008, FDA announced that it was investigating a possible increased incidence of stroke in patients taking Spiriva using the Handihaler device. This was based on preliminary findings generated by Boerhinger (Pfizers partner) that suggest an estimated risk of stroke of two patients for each 1,000 patients using Spiriva per year. The UPLIFT study in 6,000 patients with COPD, comparing Spiriva to placebo, was presented at ESR in October 2008. UPLIFT failed to meet its primary endpoint of significantly reducing the accelerated rate of decline in lung function as measured by FEV1. However UPLIFT did demonstrate Spirivas safety over the studys four-year duration and likely put to rest the concern about stroke. The UPLIFT results were critical to blunt the results of Advairs (GlaxoSmithKline) TORCH study and the ensuing approvals of the Advair lower dose for more chronic use. The combination of inhaled steroids and beta-agonists for the treatment of COPD prior to Advairs TORCH data was thought to offer only symptomatic relief with no change in the natural history of the disease. However, TORCH demonstrated that Advair is likely to prevent acute exacerbations and potentially improve mortality. In addition, the INSPIRE study which was presented at ESR in September 2007 demonstrated that, while the two treatments (Spiriva and Advair) have a similar impact (1.28 for Advair and 1.32 for Spiriva) on the overall exacerbation rate, there was a difference in the nature of the exacerbations. Advair demonstrated a sustained improvement in quality of life over two years compared to Spiriva. INSPIRE also demonstrated a statistically significant difference in the relative risk of dying from any cause, with a 52% risk reduction with Advair compared to Spiriva (p = 0.012). However, in terms of adverse effects, Advair proved slightly worse than Spiriva, with 66% of patients on Advair suffering a side-effect during the treatment, compared to 62% in the Spriva group. Despite these data, given limited treatment options, physicians are likely to try both agents in most patients. Forests acclidinium suffered a setback with disappointing Phase III data that likely will require additional clinical trials, delaying a potential 2009 launch. While acclidinium does not appear to have proven clinical advantages over Spiriva, its more convenient device is thought to be a competitive threat. In November 2007, Pfizer received E.U. approval for the Respimat device and submitted it for approval to FDA. However, in September 2008, FDA issued a complete response letter for the Respimat submission, seeking additional data. In clinical studies comparing inhaler devices, patients preferred Respimat. The dosedelivery system of Spiriva Respimat is unlike dry powder inhalers, where the dose delivered is not dependent on patients inspiratory flow. However, Respimat is still a single-dose device which is less convenient than Advairs multi-dose inhalers. Pfizer is developing a multidose combination device but this will be used for 2ndgeneration combination products.
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Spiriva Background Spiriva is an N-quaternary congener of atropine and is structurally similar to Atrovent. Structural differences compared to Atrovent make it more lipophilic and result in faster systemic metabolism compared to Atrovent, two pharmacokinetic differences that are advantages. Spiriva interacts with three muscarinic receptors: M1, M2 and M3. M1 and M3 receptors carry cholinergic signals, and these signals lead to bronchoconstriction. Blocking these receptors blocks bronchoconstriction, an advantage to the COPD patient. M2 has the opposite role: blocking M2 receptors leads to bronchoconstriction. Spiriva blocks M1, M2 and M3 receptors, but the duration of blockade of M1 and M3 receptors is much longer than M2 receptors. This longer blockade of M1 and M3 receptors imparts Spirivas therapeutic benefit and also allows for its once-daily dosing. Spiriva is labeled for the long-term, once-daily, maintenance treatment of bronchospasm associated with COPD, including chronic bronchitis and emphysema. Spirivas advantage over Atrovent and Combivent is once-daily dosing, while Atrovent and Combivent are dosed 4+ times per day. Based on its clinical trials, Spiriva clearly is effective and safe. Very few side effects are associated with its usage. Once-daily dosing is a plus, but one viewed as only a moderate positive among pulmonologists. One issue with Spiriva is the delivery device: it is more complex than the Advair Diskus, but not too complex for the average COPD patient to handle. Spiriva: Similar Efficacy, Greater Convenience Versus Atrovent Spiriva has a half-life of 5-6 days, and thus is administered once daily. Spirivas effect begins in about one hour after dosing and the duration is about three hours, but it nonetheless has a favorable impact on trough FEV the next morning. Current data show that Spiriva leads to brochodilation and an improvement in quality of life. Dry mouth is the dose-limiting toxicity at its 18mcg dose. Spiriva does not cross the blood-brain barrier and thus does not cause side effects involving the central nervous system. The bioavailability of Spiriva is about 19.5%, implying that about 80% of the inhaled dose is not absorbed. About one-quarter of the drug is metabolized by the cytochrome P450 pathway (CYP 2D6 and 3A4) so some drugdrug interactions should be anticipated. The remaining three-quarters is unmetabolized and excreted by the kidney. Six Phase III trials were conducted, four of which were one year in duration, with the other two conducted for six months. To be included in the studies, patients must have had FEV1 values less than 65% of normal. Patients with a recent history of myocardial infarction or on medications for an arrhythmia were excluded. The primary endpoints of the studies were trough FEV1. Exacerbations of COPD were assessed as a secondary endpoint. Data showed that Spiriva produced an improvement in symptoms as measured by FEV1 similar to Atrovent and Serevent, and Spiriva was superior to placebo (p=0.0001 for Spiriva versus placebo in all studies). The efficacy of Spiriva was maintained at one year and was consistent across all subgroups; there was no evidence of tachyphylaxis. Spiriva reduced total exacerbations of COPD compared to Atrovent and placebo. Dyspnea, an unpleasant sensation of difficulty in breathing, is a symptom of COPD. Pfizer/Boehringer-Ingelheim sought a dyspnea claim for Spiriva, but the FDA rejected the claim due to the invalidity of a primary endpoint in studies submitted to the agency. The companies had submitted two six-month studies to support the
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dyspnea claim that used the Baseline Dyspnea Index (BDI)/Transitional Dyspnea Index TDI). BDI/TDI scores ranged from -3 (major deterioration) to +3 (major improvement). The data showed that Spiriva improved BDI/TDI by about one unit more (minor improvement) than placebo, and similarly to Serevent. FDA questioned the validity on the BDI/TDI endpoint noting that it was added as a co-efficacy variable only after BI noticed encouraging scores in four Phase III studies. Also, the FDA believes that BDI/TDI might not be a sufficiently robust endpoint to support a dyspnea claim. Difficulties in translating scores from different countries raise questions. Pfizer is no longer seeking this claim. Spirivas Safety Profile Excellent Overall, Spiriva offers an excellent safety profile. In the long-term database (1,308 Spiriva-treated patients), the most common adverse events were dry mouth, constipation (one patient was hospitalized with fecal impactment), urinary tract infection, and diabetes. There were four cases of urinary obstruction requiring catherization in patients treated with Spiriva. A higher incidence of myocardial infarction was observed with Spiriva in two one-year studies (0.5% versus 0.8% for Spiriva and 0.3% versus 0.0% for placebo). A pooled analysis of the placebo controlled studies showed that Spiriva was associated with a higher rate of atrial fibrillation and tachycardia, but no difference in myocardial infarction. Twelve-lead ECGs were performed with doses of Spiriva up to 36mcg once daily and showed no prolongation of the Q-T interval with Spiriva. There was a 0.6% increase in the proportion of patients with tachycardia (12 patients in total; 10 of these had ECG change only once). The change in heart rate associated with Spiriva could pose a theoretical risk, but there are few clinical data to support this fear. Additionally, there is no reason to believe an anticholinergic agent will worsen arrhythmia, making the increase in atrial fibrillation with Spiriva puzzling. There was concern that in patients with unstable angina, Spiriva could prompt an event, but Pfizer/ Boehringer-Ingelheim had no data in this population. However, the long safety track record of the short-acting agents (Atrovent and Combivent) and several years of experience with Spiriva suggest it should be relatively safe when used widely for the treatment of COPD.
POOLED ANALYSIS OF CARDIOVASCULAR EVENTS IN SPIRIVA PLACEBO CONTROLLED TRIALS (%) Adverse Event Arrhythmia Atrial Fibrillation Cardiac Arrest Tachycardia Mycardial Infarction Cardiovascular Death
Source: Spiriva Prescribing Information
Spiriva (n=952) 0.59% 1.03% 0.15% 1.19% 0.74% 1.03%
Placebo (n=751) 0.20% 0.64% 0.41% 0.41% 1.04% 1.03%
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ADVERSE EXPERIENCE INCIDENTS (% OF PATIENTS) In 1-year COPD Clinical Trials Placebo-controlled Trials Tiotropium Placebo (n=550) (n=371) Ipratropium-controlled Trials Tiotropium Ipratropium (n=356) (n=179)
Body System (event) Body As A Whole Accidents Chest pain (non-specific) Edema, dependent Gastrointestinal System Disorders Abdominal pain Constipation Dry mouth Dyspepsia Vomiting Musculoskeletal System Myalgia Resistance Mechanism Disorders Infection Monilliasis Respiratory system (upper) Epistaxis Pharyngitis Rhinitis Sinusitis Upper respiratory tract infection Skin And Apendage Disorders Rash Urinary System Urinary tract infection
13 7 5
11 5 4
5 5 3
8 2 5
5 4 16 6 4
3 2 3 5 2
6 1 12 1 1
6 1 6 1 2
4 4
3 2
1 3
3 2
4 9 6 11 41
2 7 5 9 37
1 7 3 3 43
1 3 2 2 35
4 7
2 5
2 4
2 2
Source: Spiriva HandiHaler [package insert]. Ridgefield, Conn; Boehringer Ingelheim; 2004 Cited in Formulary, April 2004
PFEs UPLIFT Missed Efficacy Endpoint But Confirms Spirivas Safety UPLIFT is a four-year multicenter (470 sites), multinational (37 countries), randomized, double-blind, placebo-controlled, parallel-group prospective trial. The study was published in the NEJM and presented at ESR 2008. UPLIFT included 5993 COPD patients, who were randomized 1:1 to receive either Spiriva or placebo (control) once daily. In both arms, patients were allowed to use all other prescribed respiratory medications, except for inhaled anticholinergics. UPLIFT missed the primary endpoint as it did not significantly reduce the accelerated rate of decline in lung function, as measured by FEV1. UPLIFT showed that Spiriva produced a significant delay in time to first exacerbation by a median of 4.1 months (p<0.001) versus control, a significant reduction in the number of exacerbations per patient year (14 percent; p<0.001). In addition, it significantly reduced the risk of exacerbations leading to hospitalizations (Hazard Ratio 0.86; p<0.002) versus the control group. UPLIFT results showed no increased risk in mortality (all-cause). Specifically, a statistically significant 16% decrease in the risk of death (p=0.016)
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was observed in the Spiriva group, while patients received treatment. Within the four year trial period, the effect on survival was sustained, even when deaths occurring after early discontinuation of study medication were included in the analysis (p=0.034). Risk of mortality, assessed for the 30 days following the conclusion of the study, revealed an 11% reduction that did not meet statistical significance (p=0.086). A specific analysis was conducted for cardiovascular death. There was no evidence for an increased risk of cardiovascular death during treatment (risk ratio 0.73, 95% CI 0.56, 0.95). Myocardial infarction developed in 67 patients in the Spiriva group and 85 in the placebo group (relative risk, 0.73; 95% CI 0.53, 1.00), and stroke developed in 82 in the Spiriva group and 80 in the placebo group (relative risk, 0.95; 95% CI 0.70, 1.29).
Forest/Almiralls Aclidinium NDA Delayed

Forest and Almirall reported top-line results from the ACCLAIM I and ACCLAIM II Phase III trials of aclidinium in early September 2008. Both trials successfully achieved the primary endpoint of statistically significant improvement in pulmonary function relative to placebo in patients with moderate-to-severe COPD. However, the magnitude of aclidinium's bronchodilatory effect was somewhat disappointing, and appears to be below that of PFE's Spiriva, which could be a competitive hurdle. Aclidinium also achieved mixed results on the secondary endpoints of delay in moderate-to-severe exacerbation of COPD symptoms and a quality-of-life scale. Forest and partner Almirall also announced in March 2009 that the FDA is requesting further clinical studies of aclidinium for the treatment of COPD before an NDA can be filed. Forest had targeted a late-2009/early-2010 NDA filing for aclidinium. We already had factored a regulatory delay into our projections, as the two Phase III trials of aclidinium (ACCLAIM I and II) showed statistically-significant, but disappointing efficacy at the 200mcg once-daily dosing regimen tested. The trough FEV1 levels that were achieved in the two Phase III trials ACCLAIM 1&2 (60-70mL) were well below what was observed in the dose-ranging Phase II trial and what has been observed historically with Spiriva (>100mL). Because Aclidinium showed a remarkably clean side-effect profile, our clinical consultants concluded that Aclidinium should be studied at a higher and/or more frequent dose. Almirall has conducted human trials at up to 900mcg/day, versus the 200mcg/day dose used in the PIII trials, and indicated that no dose-related side effects have been observed, although a dose-response on efficacy also has not been clear. Forest and Aclidinium now are exploring both higher once-daily doses and a twice-daily dosing regimen. The FDA will require safety data for these higher exposure levels, so we have long assumed a lengthy regulatory delay (12-15 months). We now estimate an aclidinium monotherapy commercial launch in 2012 (F2013) and sales of $50MM in F2013 and $150MM in F2015.
Aclidinium/Formoterol Combo In Phase II Development

The holy grail for the muscarinic antagonist market is a single-dose, once-daily, long-acting muscarinic antagonist (LAMA)/long-acting beta agonist (LABA) combination product. However, the disappointing Phase III results for aclidimium also have had an effect on the development of the aclidinium/formoterol combination product. Originally intended to be a once-daily fixed-dose combination, this development program has been expanded to evaluate BID dosing.
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The launch of this combination is expected to occur 2-3 years after the approval of aclidinium monotherapy which places it in the 2014-2015 range. This timeline would put this combination product at risk of competing with Novartiss once-daily LABA/LAMA combination product (indacaterol/NVA237).
ALKS Initiates Phase IIa Study After Re-Formulation Work Completed

Alkermes announced in February 2009 the start of a double-blind, cross-over, placebo-controlled Phase IIa trial of ALKS 27 in 24 patients with chronic obstructive pulmonary disease (COPD). The study will assess the safety, efficacy, and pharmacokinetic profile of 3 doses of ALKS-27, which employs Alkermess AIR dry powder pulmonary drug delivery technology. Efficacy will be assessed using the FEV1 measure of lung function. Alkermes also plans a trial to evaluate ALKS-27 in combination with the long-acting beta agonist (LABA) formoterol. Trospium chloride is commercialized as an oral formulation as Sanctura (developed by Indevus, marketed by Allergan) for the treatment of overactive bladder in women. Alkermes and Indevus developed an inhaled formulation of trospium for COPD via a 2006 collaboration. The initial formulation failed to meet the companies specifications and was pulled from the clinic for reformulation work before Alkermes terminated the collaboration with Indevus in February 2008. Indevus management still disputes this termination decision. But Alkermes has moved forward with the ALKS 27 reformulation and has re-initiated a Phase IIa study of the new formulation. Alkermes management plans to seek a development/commercial partner on the back of Phase II data. Our clinical consultants have little visibility on ALKS 27, but are cautiously optimistic despite the high efficacy bar set by Pfizer/Boehringers Spiriva, the leading muscarinic antagonist for COPD. We estimate a late-2012 (H2:2013) market launch for ALKS-27 and launch-year sales of $30MM, rising to $80MM in F2014. This launch timing assumption could prove aggressive. ALKS 27 Phase IIa Data Showed Good Proof-Of-Concept In September 2007, Alkermes and former partner Indevus released positive Phase IIa results for ALKS 27. The single-dose, placebo-controlled, crossover Phase IIa trial tested ALKS 27 in 24 patients with moderate-to-severe COPD. The results of the trial were encouraging proof-of-concept data; ALKS 27 demonstrated a statistically significant effect on lung function (FEV1; p<0.0001) and a rapid onset of action (as early as 15 minutes). However, the trial was relatively small and was just a singledose study, so larger trials will be necessary in order to better understand the potential efficacy and side-effect profile of ALKS 27. Alkermes and Indevus completed a 20-patient Phase I trial of ALKS 27 in healthy, non-smoking adults: ALKS 27 was administered via once-daily inhalation (similar to Spiriva and LAS34273). Patients were given single escalating administrations of ALKS 27. The doses ranged from 50mcg to 800mcg. No dose-limiting side effects were observed. The trial demonstrated ALKS 27 was safe and well-tolerated.
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GlaxoSmithKlines Ariflo Dropped

Ariflo (cilomilast), an oral PDE-4 inhibitor, has been terminated in the treatment of COPD. In December 2002, GlaxoSmithKline filed an NDA with the FDA for the treatment of COPD. In September 2003, the FDAs Pulmonary-Allergy Drugs Advisory Committee recommended against approval for the treatment of COPD, citing a need for longer-term studies and insufficient efficacy to warrant approval. The FDA panel suggested that a meaningful improvement in the St. Georges Respiratory questionnaire (SGRQ) would be 4.0. Questions raised regarding the incidence of mesenteric vasculitis in rats were not viewed as a significant concern and, overall, the FDA was comfortable with the side-effect profile. The advisory committee questioned whether Ariflo was an advance over theophylline. The FDA issued an approvable letter in October 2003 but requested additional safety and efficacy data for Ariflo. These additional studies were completed, although GlaxoSmithKline has not presented these studies publically.
Nycomeds Daxas Short Of Breath

Daxas (roflumilast) is an oral PDE-4 inhibitor for asthma and COPD in Phase III trials. Unlike competing PDE-4 inhibitors, Daxas is highly selective for the PDE-4 enzyme and very potent (the likely dose is only 250 micrograms once daily) with a low incidence of dose-related side effects (nausea is a well recognized problem with PDE-4 inhibitors). NDA filings for the asthma and COPD indications were delayed due to slow enrollment in the pivotal trials. Altanas aspirations for Daxas suffered a major setback when Pfizer returned to the company all rights to Daxas in July 2005. Even as the process of transferring studies conducted by Pfizer to Altana was underway, Altana decided to withdraw the European marketing authorization application for Daxas in November 2005. Altana indicated its desire to file for Daxas on completion of additional clinical studies. In July 2005, Altana reported top-line results of the Phase III RATIO/M2-112 trial, a placebo-controlled trial in 1,513 patients with severe or very severe COPD. Daxas met the co-primary endpoint of improved lung function measured by FEV-1 but missed the co-primary endpoint of frequency of moderate and severe exacerbations. In September 2006, Nycomed acquired Altana and at that time was committed to Daxass development. However, there is no visibility of progress since that time. The patent for Daxas expires in 2014 (Europe) and 2015 (U.S.).
Leukotriene Antagonists Success Has Not Clipped Steroids

Leukotriene receptor antagonists block important mediators of bronchoconstriction and asthmatic inflammation. Released from mast cells and eosinophils, leukotrienes are potent constrictors of bronchial smooth muscle and have other inflammatory properties. By inhibiting leukotrienes at the receptor sites, leukotriene antagonists mitigate inflammation and bronchoconstriction. In head-to-head studies, leukotriene antagonists were shown to be as effective as steroids. Mercks Singulair has outdistanced AstraZenecas Accolate, due to its advantages in safety. Singulairs allergic rhinitis and prevention of allergic rhinitis indications bolster its outlook. Critical Therapeuticss Zyflo (zileuton), a leukotriene antagonist that inhibits lipooxygenase, has struggled with its inconvenient 4 times a day dosing, a narrow label, liver toxicity, and constrained commercialization. A new formulation could improve its penetration in the asthmatic market.
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Leukotriene Antagonist Data Solid

Leukotriene receptor antagonists demonstrate a 10-15% improvement in lung function in patients with baseline of 66% of predicted lung function (patients on placebo experience a 4-5% improvement). Merck states that Singulair is dosed at the top of the dose response curve, such that all leukotriene receptors are saturated, and thus higher levels of effectiveness than seen with Singulair would be impossible to obtain. The following table compares data of competitive products. As the baseline increases, a lesser degree of improvement would be expected. Patients appear to derive benefit from leukotriene antagonists exceeding that which would be predicted by the objective improvement in lung function. For this reason, qualityof-life studies are critical. Quality-of-life studies of Accolate and Singulair show substantial benefit. Also, Accolate and Singulair oral tablet dosage forms enhance compliance and remove the stigma associated with steroid inhalers, especially for children. Singulairs efficacy in children 2-5 years of age and in steroid withdrawal is especially noteworthy. Asthma attacks are the leading cause of hospitalization of children. An adult study in steroid withdrawal showed that, when Singulair is added to an asthma treatment regimen, there is no exacerbation of asthma symptoms even as the steroid dose is lowered. When Accolate is added to an existing steroid regimen, studies show a two to three fold improvement for Accolate. In the normal population, 0.5-0.7% of people has elevated liver enzymes. For reasons that are unclear, asthma patients have a higher incidence of elevated liver enzymes (between 1.0-1.5%); this may stem from the disease or the drug therapy. By comparison, Zyflo is associated with a 4.6-4.7% incidence of elevation. Zyflo patients must receive routine liver enzyme monitoring. Just below 2% of patients on placebo, Singulair or Accolate experience elevated liver enzymes. Although Accolates label mentions rare elevations in liver enzymes at four times the recommended dose, no similar language is found in Singulairs label. Churg-Strauss syndrome is a very rare, life-threatening syndrome characterized by heart failure and rash, but is reversible if caught in time. Originally, the syndrome was believed to either stem from usage of leukotriene antagonists (perhaps a class effect, albeit very rare) or from the concomitant weaning of patients from moderate to high doses of steroids that the leukotriene antagonist allows. The latter now is accepted as the likely mechanism. Indeed, in all cases documented thus far, patients were weaned from oral steroids and, thus, suffered from severe disease.
Mercks Singulair Facing Headwinds

Singulair is the #2 asthma controller globally and available on 99% of U.S. formularies. In asthma, Singulairs benefits include oral administration, reduced daytime symptoms, nighttime awakenings, reduced asthma attacks, and improved quality of life with a safe side-effect profile. Singulair is also marketed for the treatment of the symptoms of seasonal allergic rhinitis (SAR; also known as hay fever), perennial allergic rhinitis (or indoor allergies) in adults and children 6 months of age or older, and for exercise-induced bronchoconstriction. Our physician experts view Singulair as only modestly effective in SAR. However, 75% of patients change therapies regularly, providing an opportunity for Singulair as allergy patients are switched from one therapy to another. Singulairs U.S. prescription trends have been in decline keyed to three events: 1) concerns about an association with suicide; 2) the launch of Zyrtec OTC; and 3) short allergy seasons. Merck dropped development plans for an IV formulation and a Phase III trial in RSV bronchiolitis failed to meet its endpoints. Merck does not know when FDA will provide feedback on the Singulair suicide early warning but believes it could be in
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the next couple months. Merck remains confident in Singulairs patent and believes with the trial scheduled against Teva for February 23rd will result in a resolution before Tevas 30-month stay expires. Merck stated that the case is about validity and not infringement. Merck has no plans to take Singulair over-the-counter. We forecast Singulair sales of $4.4B in 2009, $4.5B in 2010, and $1B in 2013. Inhaled Singulair/Corticosteroid Combination Moves To Phase II Merck revealed an inhaled Singulair/corticosteroid combination, MK-0476C, that is in Phase II development. The combination likely will be required to demonstrate superiority over each of its components. In addition, development of inhaled therapeutics is greenfield for Merck. However, this combination may fill an unmet need, especially in the pediatric population given increased concern about LABAs. Merck anticipates filing MK-0476C not before 2012. Potential For Suicide Association Depressing Singulairs Trends In March 2008, FDA issued an early communication about an ongoing safety evaluation with Singulair and its association with psychiatric events including: behavior/mood changes, suicidality (suicidal thinking and behavior) and suicide. FDA did not conclude that there is a causal relationship between Singulair and the reported psychiatric events. In addition, FDA did not advise health care professionals to discontinue prescribing Singulair. Prior to this communication, the Singulair label was updated to include: tremor (March 2007), depression (April 2007), suicidality (suicidal thinking and behavior) (October 2007), and anxiousness (February 2008). FDA anticipated that the final analysis would be ready by October 2008 but this is more likely to occur in Q1:09. Our physician consultants believe that Singulair is a safe, oral agent and these FDA concerns go beyond the known facts. In addition, they do not believe that the psychiatric events are mechanistically related to Singulairs action; a causal relationship is therefore unlikely to be demonstrated.
MRKs MK-0633 Could Have Broad Potential In Asthma

MK-0633, an oral once-daily 5-Lipoxygenase (5-LO) inhibitor has the potential to decrease the production of all leukotrienes. Zileuton CR (Critical Therapeutics), a twice-daily regimen has been a commercial disappoint despite its improvement over the original qid formulation. MK-0633 is currently being evaluated in a Phase IIb study for the treatment of asthma with data expected in 2009. Merck has not disclosed whether liver toxicity is a potential issue. Data from a Phase IIa study for the treatment of COPD also should be available in 2009. Merck anticipates filing MK0633 for asthma in 2011. We forecast MK-0633 sales of $100MM in 2012 and $400MM in 2015.
AstraZenecas Accolate A Non-Competitor In Leukotriene Market

Accolate (zafirlukast) is a leukotriene antagonist indicated for the treatment of asthma in adults and children 5 years and older. Accolates market share has suffered from its twice-daily dosing format, drug interactions and problems stemming from liver dysfunction. Both Accolate and Singulair are metabolized via the cytochrome P450 2C9 and 3A4 isoenzymes, but Accolate is associated with a greater incidence of drug interactions than Singulair. These drug interactions include aspirin, erythromycin, theophyline, and warfarin. We estimate Accolate sales of $70MM in 2009, $65MM in 2010, and $50MM in 2013.
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Zyflo Rollout Has Been Slow, Zileuton CR Expected To Help

Critical Therapeutics relaunched Zyflo, the oral immediate-release oral version of zileuton, in October 2005. When Zyflo was owned by Abbott and was not actively promoted, the product averaged approximately 18,500 prescriptions per year during 2002 and 2003. The relaunch of Zyflo has been slow for two key reasons: (1) Critical Therapeutics is repositioning Zyflo for moderate-to-severe asthma, a relatively narrow patient population, and (2) Zyflos four times daily dosing profile has proven to be a more significant hurdle than initially anticipated. In September, 2007, Critical Therapeutics announced the U.S. launch of Zyflo CR. Zyflo CR received final FDA approval in May 2007. Zyflo CR was formulated using SkyePharmas Geomatrix tablet technology. Dosed via two tablets (600mg) taken twice daily (a total of four tablets), Zyflo CR should improve dosing convenience relative to the four-timesdaily dosing of Zyflo. Patient compliance with the four-times-daily dosing regimen has been an impediment to Zyflo adoption. Zyflo CR is priced at $270 per one-month supply (WAC), which is at parity to Zyflo, and compares to $97 per month for Mercks Singulair. Zyflo is primarily reserved third- or fourth-line treatment following patient failure on inhaled steroids, beta agonists, and often Singulair, but ahead of injectable Xolair (Novartis, Genentech), so the Zyflo market is less price-sensitive. Critical Therapeutics is also developing an IV formulation of zilueton to be used in emergency rooms, although the future of this formulation is uncertain. A phase 2 study data announced in June 2008 failed to show statistically significant improvement in lung function, although patients at both dose levels of zilueton showed a numerical improvement in FEV1. The study enrolled 36 patients with stable asthma, and safety and efficacy were assessed in a three-period crossover design. The company commented that they would like to conduct a study in acute asthma population, but due to the merger with privately-held Cornerstone Biopharma Holdings, Inc. in May 2008, the combined company will implement strategic review and decide on the future of the pipeline.
ZYFLO/CR MONTHLY PRESCRIPTION TRENDS
Zyflo/CR Monthly Prescriptions
6,000 5,000 4,000 Rx's 3,000 2,000 1,000 0 Apr - 08 Feb-04 Apr-04 Feb-07 Apr-07 Apr-03 Apr-05 June - 08 April-06 Aug-05 Oct-05 June-06 Aug-06 June-07 Aug-02 Oct-02 Jun-03 Aug-03 Aug-04 Aug-07 Jun-04 Jun-05 Oct-03 Oct-04 Oct-06 Oct-07 Dec-04 Feb-05 Dec-05 Dec-02 Dec-03 Dec-06 Dec-07 Feb-08 Feb-03 Feb-06
CRTX Launches Zyflo CR
CRTX Re-launches Zyflo
TRx
NRx
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NAEPP Guidelines Now Include Zileuton - The National Asthma Education and Prevention Program (NAEPP) published new Guidelines for the Diagnosis and Management of Asthma in August 2007. These guidelines now include zileuton as add-on therapy: the first time zileuton has been recommended in the guidelines. The NAEPP guidelines recommend a step approach to asthma treatment, and specifically recommend zileuton as add-on therapy in patients poorly controlled on inhaled corticosteroids and a long-acting beta-agonist, ahead Novartis/Genentechs Xolair. In July 2007, CRTX initiated a 400-patient, Phase IV study investigating Zyflo CR as add-on therapy (Zyflo CR plus inhaled corticosteroids). The primary endpoint of the study is pulmonary function at three and six months. The study was terminated due to slower than anticipated enrollment. R-Isomer Is In Phase I Critical Therapeutics initiated a Phase I trial of R(+)-zileuton (the r-isomer of zileuton) on October 1, 2007. Critical Therapeutics has preclinical data that suggests that R(+)-zileuton may act as a more potent leukotriene synthesis inhibitor compared to the racemate. In April 2008 the company reported the results of a 12patients, open-label, single dose (100mg or 300mg) Phase 1 study of R(+)-zileuton in healthy subjects. Although the agent was well tolerated with no serious adverse reported, and the pharmacokinetic data were inline with expectations based on the racemic zileuton from prior studies, the planned pharmacodynamic assessment of inhibition of leukotriene B4 (LTB4) was not successful. Due to the merger with Cornerstone Biopharma Holdings, Inc. announced in May 2008 and expected to close in 4Q, the future development of this programs is uncertain.
Follow-on Zyflo/CR Studies Ongoing

In October 2007, Critical Therapeutics announced that the NIH initiated a 520patient study (LEUKO study) investigating the potential of Zyflo (600mg QID) in patients with acute exacerbations of chronic obstruction pulmonary disorder (COPD). The 14-day placebo-controlled trial is being conducted by the COPD Clinical Research Network. The primary endpoint for this trial is the length of hospital stay for patients admitted with acute exacerbations of COPD. Secondary endpoints include lung function improvement, treatment failure at 30 days, health-related quality of life and urinary leukotriene levels. The estimated completion date for the study is December 2008. Our physician consultants are cautiously optimistic regarding Zyflos potential in COPD. Zyflo has shown success in a small previous COPD trial. Positive results in COPD would represent upside to our current sales projections for Zyflo/CR.
Genentecs Xolair Continues To Make Solid Gains

Xolair (anti-IgE antibody) was approved in June 2003 for the treatment of moderate to severe allergic asthma in adolescent and adult patients. Genentech believes that up to 500K patients in the U.S. suffer from moderate to severe allergic asthma that is symptomatic despite current therapy. At a price of $10K/patient per year, this translates into a potential $5B U.S. market opportunity. Xolair sales have grown steadily since launch. However, our consultants believe that Xolairs price and injectable nature have constrained the drugs use to the most refractory of asthma patients (approximately 10% of patients), although usage could broaden with data in new indications. Novartis, Genentechs ex-U.S. partner, received European approval of Xolair in October 2005. Genentech stands to receive a minority of ex-U.S. profits.
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Our physician consultants are also excited about the potential of an anti-IgE therapy for food allergies and chronic urticaria, indications with a dearth of treatment options. Unfortunately, Genentech had to terminate clinical trials in peanut allergy patients due to trial design issues. In July 2007, Xolairs label was updated with a black-box warning related to an associated risk of anaphylaxis. Three cases of anaphylaxis were reported among the 3,507 patients exposed to Xolair in clinical trials; post-marketing studies suggested an incidence rate of approximately 0.2%. Approximately 89% of these patients had pulmonary involvement, 14% had hypotension or syncope, and 15% required hospitalization.
U.S. RESPIRATORY MARKET
Total Prescriptions (000's) 1987* 2,938 34,684 2008 113,061 89,312 2009E 118,000 90,000 2013P 124,000 94,000 1987* 4% 52% % Market Share 2008 2009E 40% 40% 32% 31% 6% 16% 5% 1% 0% 0% 100% 7% 15% 5% 1% 1% 1% 100% CGR 2013P '87-08 '08-13 37% +19% +2% 28% +5% +1% 14% 14% 5% 1% 1% 0% 100% +15% NA NA -9% NA NA +7% +23% +1% +3% -5% +21% +27% +3%
Steroids (Bronchial Inhalers) Beta Agonists-short acting
Anti-Cholinergics 831 16,361 20,000 47,000 1% Leukotrien Antagonists 45,302 45,000 47,000 COPD Therapies 13,902 14,000 16,000 Xanthines & Combos 28,505 3,798 3,000 3,000 43% Beta Agonists-long acting 1,162 2,000 3,000 Anti-Inflamatory 298 2,000 1,000 Total 66,959 283,195 294,000 335,000 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates
Sharp Decline Forecast For Branded Antihistamines

Our analysis of the market for antihistamines suggests that, while U.S. total prescriptions should remain relatively stable through 2013 (+1%), sales will decline. Sales of oral antihistamines are forecast to total $1.B in 2013, down 13% during 2007-13. Nasal steroids should grow by about 7% during this time and total $2.9B in 2013.
U.S. ALLERGY MARKET
Total Prescriptions (000's) % Market Share 1987* 2008 2009E 2013P 1987* 2008 2009E Steroids (Nasal) 2,880 58,973 65,000 90,000 12% 39% 39% Antihistamines 20,826 92,906 100,000 135,000 88% 61% 61% Total 23,705 151,879 165,000 225,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates CGR 2013P '87-08 '08-13 40% +15% +9% 60% +7% +8% 100% +9% +8%
SGPs Modest Clarinex Decline Anticipated Through 2015

Clarinexs (seasonal allergic rhinitis, perennial allergic rhinitis, and chronic idiopathic urticaria) market share in the U.S. declined to 4.6% of new antihistamines in December 2008. Schering lost 31.4 percentage points of new prescription share in the total (tablet, liquid, decongestant combination) antihistamine market since December 2001. Pfizers Zyrtec has lost 17.8pp in the same time period. Barr/Tevas at-risk launch of generic Allegra added pressure on the Clarinex franchise, given that a formidable competitor is available at very low cost. Sanofi-Aventis Xyzal has also
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further pressured sales. We forecast Clarinex sales of $745MM in 2009, $685MM (8%) in 2010, and $405MM in 2015.
ANTIHISTAMINE MARKET SHARE ANALYSIS
Product Claritin Claritin D Claritin Total Clarinex Clarinex D Clarinex Reditabs Clarinex Total Total Schering-Plough Share Allegra Allegra D Allegra Total Total Sanofi-Aventis Share Zyrtec Zyrtec D Zyrtec Total Total Pfizer Share Source: IMS America Dec-01 23.0% 13.0% 36.0% 0.0% 0.0% 0.0% 0.0% 36.0% 14.6% 6.9% 21.5% 21.5% 16.5% 2.0% 18.5% 18.5% Dec-08
0.0% 0.0%
Jan-09
0.0% 3.3% 1.1% 0.1% 4.6%
0.1% 0.0%
0.1%
Share Change -23.0 -13.0 -35.9 2.9 0.7 0.1 3.8 -32.2 -13.4 0.7 -12.7 -12.7 -16.3 -1.9 -18.3 -18.3
2.9% 0.7% 0.1% 3.8% 3.8% 1.2% 7.6% 8.8% 8.8% 0.2% 0.1% 0.2% 0.2%
4.6% 1.2% 7.9% 9.1% 9.1% 0.2% 0.1% 0.3% 0.3%
The Clarinex composition-of-matter patent expired in October 2007 but it has market exclusivity until December 2009. There are several orange book-listed patents that provide IP protection through 2014 but it is unclear whether these are sufficient to protect the franchise. In June 2006, Belcher Pharmaceuticals wholly owned subsidiary, GeoPharma filed a Paragraph IV with its ANDA for Clarinex. In September 2006, Schering-Plough filed a lawsuit against Belcher. Belcher believes that it was one of the first companies to file but there are multiple defendants named in the suit. Since June 2007, the FDA has received ANDAs relating to various dosage forms of Clarinex from ten different generic pharmaceutical companies including Teva, Sun, Sandoz, Mylan, and Anchen.
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ALLERGY MARKET
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2-May-08 16-May-08 30-May-08 14-Nov-08 28-Nov-08 22-Aug-08 19-Sep-08 13-Jun-08 27-Jun-08 12-Dec-08 26-Dec-08 21-Mar-08 23-Jan-09 17-Oct-08 31-Oct-08 8-Aug-08 18-Apr-08 11-Jul-08 25-Jul-08 5-Sep-08 6-Feb-09 3-Oct-08 9-Jan-09 20-Feb-09 4-Apr-08 7-Mar-08 6-Mar-09 Xyzal
Market Share
Allegra
Clarinex
Zyrtec
Source: IMS
Claritins Domination In The OTC Market Tested By Zyrtec Generics. Schering markets all five formulations of Claritin for the treatment of allergic rhinitis and chronic idiopathic urticaria (hives of unknown origin for at least six weeks) for over-the-counter (OTC) use. Claritin OTC sales are forecast to be $390MM in 2009, $400MM in 2010, and $450MM in 2015. Claritin D OTC sales are forecast to be $25MM in 2009, and $25MM in 2015.
Pfizers Zyrtec Under Pressure From Generics

Zyrtec prescriptions accounted for over 25% of the antihistamine market in December 2007 but fell to 20.4% in January post the launch of generics. We project no Zyrtec franchise sales post Tevas December 2007 generic launch. Pfizer sold the Zyrtec/Zytrec D OTC rights to JNJ with sale of its consumer business.
Sanofi-Aventis Xyzal Rollout Underway

Xyzal (levocetirizine dihydrochloride, an enantiomer of Zyrtec) is a once-daily antihistamine that was launched in Europe in 2001 and marketed in 49 countries. The Xyzal NDA was approved in May 2007 for the relief of symptoms associated with seasonal and perennial allergic rhinitis and treatment of uncomplicated skin manifestations of chronic idiopathic urticaria in adults and children six years of age and older. In October 2007, UCB and Sanofi-Aventis jointly launched Xyzal.
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Schering-Plough/Mercks Claritin/Singulair NDA Gets NotApprovable From FDA

In April Schering-Plough/Merck received a not-approvable letter from FDA for the loratadine/montelukast combination NDA seeking for treatment of allergic rhinitis symptoms in patients who want relief from nasal congestion. This was not a surprise as our physician consultants view both Claritin and Singulair as inferior to nasal steroids and therefore are unlikely to prescribe the combination pill.
GSKs Veramyst Rolling Out With Subtle Label Differentiation Versus Nasonex
Veramyst (fluticasone furoate), administered as a once-daily formulation, is rolling out post its June 2007 approval for the treatment of seasonal and year-round allergy symptoms in adults and children as young as two years. This is a broader label, in that it includes both nasal and ocular symptoms, compared to Nasonex (ScheringPlough) which is indicated only for the treatment of the nasal symptoms of seasonal allergic and perennial allergic rhinitis. Approval was based on three Phase III studies, two in SAR and one in perennial allergic rhinitis, which highlighted that Veramyst had demonstrated a benefit for ocular symptoms. In February 2007, data from the three Phase III Veramyst studies were presented at the American Academy of Allergy & Immunology (AAAAI). Veramyst, 110mcg once-daily, was investigated in two studies in patients with SAR, and in a third study in patients with perennial allergic rhinitis. In the first SAR study of 302 patients allergic to mountain cedar pollen, Veramyst was associated with a sustained relief in both nasal and eye symptoms for a period of 24 hours. These endpoints achieved statistical significance. In the second SAR study in 299 patients allergic to ragweed, Veramyst demonstrated a statistical improvement in the sustained (24 hours) relief of both nasal and ocular symptoms. The nasal symptoms improved within 8 hours of the 1st dose (p=0.028). In the perennial allergic rhinitis (PAR) study, once-daily Veramyst given for four weeks improved the nasal symptoms for a sustained period of 24 hours. The improvement in ocular symptoms associated with SAR and the broader label represent a differentiating feature versus Flonase and Nasonex. However, our physician consultants do not believe this to be differentiating and, indeed, some raise concern with respect to potential adverse events as a result of steroid in the eye. While recent trends suggest an uptick in Veramysts weekly NRxs, Sepracor Omnaris (inhaled ciclesonide) launch may clip Veramyst growth. We forecast Veramyst sales of 125MM in 2009, 150MM in 2010, and 275MM in 2015.
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NASAL STEROID TOTAL PRESCRIPTION MARKET SHARE COMPARISON

60.0%
50.0%
Total Prescription Market Share
40.0%
30.0%
20.0%
10.0%
0.0% Oct-06 Oct-08 Jan-06 Jan-08 Apr-06 Apr-07 Apr-08 Oct-07 Jan-07 Jan-09 Jul-06 Jul-07 Jul-08
VERAMYST
FLONASE
NASACORT
NASONEX
RHINOCORT
FLUTICASONE
Source: IMS
Generic Flonase Awaits Additional Competition; Par, Roxane Lone Players

Since 2006, Par has captured a 55% share of the generic Flonase market (fluticasone propionate nasal spray). Boehringer Ingelheims Roxane pharmaceutical division is the true generic Par markets the authorized version. Timing of other generics remains unknown a Citizens Petition remains on file asking the FDA to clarify earlier draft guidance for proving bioequivalence of generic nasal sprays. Because the fluticasone nasal spray is not systemically absorbed, GlaxoSmithKline has argued that bioequivalence measurement should require more definitive analytical testing and/or in-vitro studies. A subsequent petition from GlaxoSmithKline has asked that the generic filers should also match the same particle size and dissolution spray parameters contained in GlaxoSmithKlines October 2004 sNDA approval for Flonase. Although Roxane was able to overcome these issues, it is unclear whether other competitors will be able to match the appropriate specifications. There has been little additional disclosure about other potential approvals, although it appears that Watson, Hi-Tech, Teva/Ivax, and possibly Dey are pending approval.
Grass Allergy Being Target By Schering-Plough

Schering-Plough acquired the U.S. license to develop a tablet-based immunotherapy for grass allergy from Alk Abello; the oral immunotherapy is currently in Phase III for grass allergy. Alk Abello markets the tablet as Grazax in select European countries. It is the only approved oral immunotherapy. Oral immunotherapy is a greenfield technology with many unknowns including questions on effectiveness, duration of therapy, timing of initiation of therapy, and relative effectiveness versus injection immunotherapy.
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Grazax sublingual tablets contain a standardized extract of grass pollen allergen from Timothy grass (Phleum pratenase). It is not fully understood how Grazax works. However, the grass pollen extract is thought to stimulate the bodys immune system to produce antibodies against grass pollen. These antibodies can then bind to any grass pollen that one encounters during the grass pollen season and prevent it from causing allergic symptoms. The allergy must be diagnosed with a positive skin prick test and/or specific IgE test to grass pollen. The therapy will only work in people with this specific allergy. To have the greatest effect, the tablets should be started four months before the grass pollen season starts. However, some effect will still be seen if they are started at least two to three months before the season begins. The tablets are taken once a day and should be continued all year round. The most common allergic responses are itching in the mouth and ears, throat irritation, sneezing and swelling in the mouth. Sublingual immunotherapy is not recommended in patients with active autoimmune or malignant conditions. There is no hard evidence that these conditions can be made worse by immunotherapy. Interim data from year four of a 5 year study, presented in November 2008, demonstrated continued effectiveness despite patients being off therapy. In the study, GT-08, patients were randomized to AIT or placebo for three years and are then taken off therapy for two years. In addition to a sustained response in year 4, patients required less rescue medication. We estimate sales of $25MM in 2011, $50MM in 2012, and $125MM in 2015. Schering is developing oral immunotherapies for dust mite and ragweed allergies, both of these indications are in Phase II studies.
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PAH Is A Progressive, Potentially Fatal Disease

Pulmonary Arterial Hypertension is a progressive and debilitating condition that severely compromises the function of the pulmonary (lung) and cardiovascular (heart) systems. Severe heart failure from PAH has significant morbidity and can result in death. PAH is defined as an elevation of the blood pressure in the pulmonary arterial system (the arteries that transport oxygen-poor blood to the lungs from the right side of the heart), and typically results from constriction, thickening and occlusion of the precapillary pulmonary arteries. While normal pulmonary-artery pressure is approximately 14mmHg at rest, it can rise to more than 25mmHg in PAH patients. Symptoms include shortness of breath at rest or with minimal exertion, fatigue, chest pain, dizzy spells, and fainting. Right-sided heart catheterization (RHC) is generally used to establish a diagnosis by measuring cardiopulmonary pressures, including pulmonary artery pressure (PAP), right atrial pressure (RAP), and cardiac index (CI). A diagnosis of PAH is established by demonstrating a mean PAP greater than 25 mmHg at rest or greater than 30 mmHg during exercise, in the absence of left-sided heart failure. Further subclassification of PAH by severity defines mild (25-40 mmHg), moderate (41-55 mmHg) and severe (>55mmHg) cases. RHC is also used to determine response to vasodilators and to predict patients suitable for treatment with calcium channel blockers. The six-minute walk test (6MWT, the meters walked over six minutes at suboptimal exertion) is generally used as a non-invasive measure for monitoring disease progression and response to therapy.
NYHA Class Is A Measure Of PAH Severity

Clinically, PAH can be classified based on symptom severity, with similar grading scales proposed by the New York Heart Association (NYHA) and the World Health Organization (WHO). Because Class I patients are generally not symptomatic, they are infrequently diagnosed. Class II, III and IV patients are symptomatic, and are almost universally appropriate candidates for therapy. Although most PAH drugs are only approved for patients with Class III or IV symptoms, clinicians usually treat Class II patients as well. NYHA Class is generally used as a broad measure for patient prognosis, determining appropriate therapy, and monitoring response to therapy.
NYHA Classification of Pulmonary Hypertension
Class I II II IV Description No limitation of usual physical activity. Ordinary activity does not cause symptoms Mild limitation of physical activity. Symptoms with ordinary activity. Marked limitation of physical activity. Symptoms with less-than-ordinary physical activity. Unable to perform any physical activity without symptoms.
Source: New York Heart Association
PAH Can Be Primary Or Secondary

PAH is broadly divided into two classes. The first, Primary Pulmonary Hypertension (PPH), refers to pulmonary hypertension occurring without an identifiable cause. Secondary or related pulmonary arterial hypertension (PAH) occurs in association with some other identifiable medical condition. Common diagnoses associated with
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PAH include: collagen vascular diseases such as scleroderma or systemic lupus erythematosus (SLE); congenital heart diseases that cause shunting of blood from the systemic circulation to the lungs such as ventricular and atrial septal defects; breathing disorders including sleep apnea and bronchitis; chronic pulmonary thromboembolism; sickle cell anemia; HIV infection; liver disease; and side effects of diet drugs such as fenfluramine and dexfenfluramine. The exact etiology of pulmonary hypertension is not well understood, although a genetic linkage has been identified. PPH occurs most commonly in young adult females, and has no obvious related disorder. Recently, the familial form of PPH has been linked to the bone morphogenic protein receptor-2 (BMPR2) gene, which is mutated in approximately half of familial PPH cases and in up to 26% of sporadic cases. The BMPR2 protein receptor binds to TGF-beta and bone morphogenic protein.
A Rare Disease, But Growing In Recognition

PPH is estimated to occur at a frequency of 1-2 cases per million people, with an estimated worldwide population of 8,000-10,000 patients. Secondary pulmonary arterial hypertension (PAH) is more prevalent, with an estimated worldwide incidence of greater than 100,000. Most cases are thought to occur in the developed world, and our consultants have suggested that there are probably 25,000 or so treatable patients in the U.S. today. Historically PAH has been a difficult disease to diagnose, with a varying range of symptoms and few options for treatment. This meant that many patients with the condition were never correctly diagnosed, and those that were diagnosed were done so only by specialist centers dedicated to the disease. Our consultants indicate, however, that the number of patients diagnosed with the disease, and the number of patients being referred to specialist centers already having been treated by a community physician, increased over the past five to ten years, for several reasons. First, the availability of several therapies increased the profile and notoriety of the disease among physicians, making them more attuned to its symptoms. Second, the diagnosis of the condition through echocardiogram increased. Previously, PAH was diagnosed only through right heart catheterization (a difficult and somewhat dangerous procedure that few non-specialists do routinely). As echocardiograms became more widely used, more physicians made the diagnosis, and fewer patients fell through the cracks. Nonetheless, although the availability of Flolan, Remodulin, and Tracleer initially increased awareness of pulmonary hypertension, with those therapies now having been on the market for a number of years, our consultants have suggested that the days of rapid market growth are receding into the past. Our consultants have noted that the rate of new patient diagnoses in their clinics, and more broadly in their home states, has stayed relatively constant for the past few years. Despite these trends, many patients with confirmed disease still do not receive therapy until they are seen in a specialist center. Our consultants estimate that only about half of the patients that come to their centers with a previous diagnosis of PAH are already on therapy.
Few In Number, But Large In Size

Despite the relatively small patient size of the market, it is actually quite large in dollar terms. Infused prostanoids can demand $100K+/patient/year for treatment. With 110K patients worldwide, and perhaps 50K+ patients in the U.S. itself, the
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worldwide and U.S. markets for PAH therapies are sizable, at an estimated $4B+ and $2B+, respectively.
Approach To Therapy: Non-Specific Agents

Calcium channel blockers are used to relieve constriction in the pulmonary arteries, although infrequently (approximately 5-10% of patients). Additional treatment options that have not been specifically approved for use in PAH include digoxin and diuretics. For patients who progress through a full array of treatment options, some receive a lung transplant to extend life. Because macro- and micro-thrombi are thought to contribute to the pulmonary hypertension disease process, patients are frequently placed on anticoagulants such as warfarin to prevent further blood clots in the lungs.
Approach To Therapy: Disease-Specific Agents

There are currently six drugs indicated for the treatment of PAH in the U.S., and they can be broadly divided by their route of administration. Oral therapies are Revatio sildenafil from Pfizer, Tracleer from Actelion, Letairis from Gilead, and Thelin from Encysive/Pfizer (approved ex-U.S. only). These therapies tend to be used in newly presenting, less severe patients. There are two infused prostacyclins on the U.S. market, Remodulin from United Therapeutics and Flolan from GlaxoSmithKline. These therapies are considered the most potent, and are used in the most severe patients. There is currently one inhaled option, Actelions Ventavis iloprost, and that is used in patients who are too severe for just oral therapy, but are not yet so severe that an infused prostanoid is required.
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Medications Approved For Pulmonary Hypertension

Drug (Company) Flolan (GlaxoSmithKline) Remodulin (United Therapeutics) Thelin (Pfizer) approved in Europe Letairis (Gilead) Tracleer (Actelion) Revatio (Pfizer) Ventavis (Schering AG, Actelion)
Administration Infusion Infusion Oral QD Oral QD Oral BID Oral TID Inhaled
Actelions Tracleer Has Been A Mainstay Of Oral Therapy

Actelions Tracleer (bosentan) is an oral endothelin-1 antagonist. Endothelin-1 is a potent vasoconstrictive peptide that also plays a role in vascular remodeling. Tracleer binds to both the ETA and ETB endothelin receptors, resulting in vasodilation of the pulmonary arterial system. Tracleer may also ameliorate vascular remodeling. With a half-life of roughly five hours, Tracleer is administered twice per day. In late 2001, the FDA approved Tracleer for the treatment of Class III and IV PAH. Tracleer is indicated to improve exercise ability and decrease the rate of clinical worsening in PAH patients with significant limitation of physical activity. The U.S. launch was followed in mid-2002 by marketing approval in the EU. More recently, in August 2008 the EMEA approved Tracleer for use in patients with mildly symptomatic (WHO Class II) PAH. Tracleer is sold globally at an ex-factory price of approximately $50K-$60K/year. Tracleer was approved on the basis of data presented in its 213-patient BREATHE-1 study, which demonstrated an improvement in the primary endpoint of six-minute walking distance at both doses (125mg bid and 250mg bid) tested. After 16 weeks, treatment with 125mg bid Tracleer led to a 35m placebo-adjusted treatment improvement, and treatment with 250mg bid led to a 54m improvement. Combining both arms, this translates to a mean difference of 44m. (This mean might be generous to Tracleer since doses above 125mg are not recommended per Tracleers label because of a high risk of liver injury.) A smaller study (the 351 study) with 33 patients tested 125mg Tracleer bid at 12 weeks and demonstrated a 76m placeboadjusted treatment improvement in the six-minute walk test. Tracleer is generally well tolerated. In its clinical trials the adverse drug reactions that occurred in 3% of the bosentan-treated included headache, nasopharyngitis, flushing, edema, and hypertension. The most significant adverse event on Tracleers prescribing label relates to a black box warning for elevated liver enzyme levels. As a result, there is a requirement for liver enzyme monitoring prior to initiation of Tracleer therapy and on a monthly basis thereafter. Tracleers prescribing label mentions that elevations in ALT (alanine transaminase) or AST (aspartate transferase) by more than 3 x ULN (upper limit of normal) were observed in 11% of bosentan-treated patients (N = 658) compared with 2% of
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placebo-treated patients (N = 280) in the pivotal studies (which included cCHF studies). A threefold increase was seen in 12% of 95 PAH patients on 125 mg bid and 14% of 70 PAH patients on 250 mg bid. An eightfold increase was seen in 2% of PAH patients on 125 mg bid and 7% of PAH patients on 250 mg bid. Bilirubin increases to 3 x ULN were associated with aminotransferase increases in 2 of 658 (0.3%) of patients treated with bosentan. The elevations of AST and/or ALT associated with bosentan are dose dependent, occur both early and late in treatment, usually progress slowly, are typically asymptomatic, and to date have been reversible after treatment interruption or cessation. Tracleers launch has been a success, and throughout its history has steadily outpaced analysts estimates. However, with several other endothelin antagonists now entering the market, Tracleers days of fastest growth are likely behind it. After achieving approximately 1.2B CHF in 2007 worldwide sales (+31% Y/Y), growth in 2008 appears to be more modest (1.3B CHF, +10% Y/Y). While volume sales of Tracleer appear to be contracting, the drug has benefited from a relatively flexible pricing environment (Tracleer sales were boosted by 18% aggregate price hikes between January 2008 and January 2009).
Consultants Expect Tracleer To Be Supplanted By Newer Endothelin Antagonists

Our consultants are pessimistic about the future of Tracleer because of the impending competition. In particular, our consultants think its profile is less attractive than Gileads Letairis. The consultants biggest complaint is that Tracleer therapy dose not seem to be very durable and they have noted that 50% of patients are off Tracleer within a year of initiating therapy. While Tracleers published data suggest its effects are more long lived, our consultants think that their experience does not match the published results. Although there is less long-term data for Letairis or Pfizers Thelin, our consultants are optimistic that both are more durable. The second major complaint is that Tracleer has the most liver toxicity of the three endothelin antagonists. The physicians think that the low single-digit level of liver toxicity for Letairis and Thelin is superior to Tracleer. Nonetheless, our consultants think that the fact that Tracleer is first to market, and that many patients are stable on Tracleer therapy today, will allow it to maintain share. Most important, few physicians will switch a patient off Tracleer for one of the newer agents, so its share is expected to decrease gradually over the next several years, as the PAH patient pool turns over.
Gileads Letairis Approved For PAH

Letairis (ambrisentan) is an oral endothelin receptor antagonist for the treatment of PAH. The drug was developed by Myogen, and is now marketed by Gilead in the U.S. and GSK in Europe, following Gileads $2.5B October 2006 acquisition of Myogen. In December 2005, Myogen announced positive top-line data from Letairiss randomized, double-blind, placebo-controlled Phase III ARIES-2 trial in pulmonary hypertension. The trial enrolled 192 pulmonary hypertension patients primarily in Europe and randomized them to either 2.5mg qd or 5.0mg qd Letairis or placebo. The primary efficacy endpoint was exercise capacity, as measured by change in the six-minute walk distance from baseline to week 12. The data were strong. Treatment with Letairis resulted in a dose-dependent improvement in placebo-corrected mean
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6 mwd of 59 meters for the 5 mg dose (p=0.002) and 32 meters for 2.5 mg dose (p=0.0219). A mean decrease in 6 mwd of 10.1 meters below baseline was observed in the placebo arm. These results compare favorably to both Thelin and Tracleer, each of which demonstrated roughly 30 meter placebo-corrected improvements in 6 mwd at 18 weeks in Thelins pivotal trial. In addition, Letairis showed a statistically significant improvement in clinical worsening vs. placebo (5 mg p=0.0076 and 2.5 mg p=0.0048), which Thelin failed to demonstrate in its Phase III trial. Letairis's safety was good, with no occurrences of elevated liver enzymes (vs. one patient in the placebo arm) and no warfarin interactions. In April 2006, Myogen reported top-line data from a second pivotal Phase III study (ARIES-1). The study evaluated 5mg qd or 10mg qd Letairis vs placebo in 202 patients in the U.S., and demonstrated a statistically significant mean increase in 6mwd at 12 weeks for both doses. The 5mg qd dose improved placebo-corrected 6mwd by 30.6 meters (p=0.0084) while the 10mg dose improved placebo-corrected 6mwd by 51.4 meters (p=0.0001). In contrast, placebo patients showed a mean decrease in 6mwd of 7.8 meters at 12 weeks vs baseline. Interestingly, time to clinical worsening was not statistically different between Letairis and placebo groups which Myogen believed was related to the low incidence of clinical worsening events overall in the study. There were no LFT elevations above 3X the upper limit of normal for any Letairis patients at any time during the 12-week treatment compared to two patients in the placebo group (only one confirmed). Again no warfarin interactions were observed for patients on Letairis, and the most frequent adverse event was peripheral edema.
Letairis Data Position It As Best-In-Class ERA

On the back of solid Phase III data, Letairis received FDA approval in June 2007. Partner GSK filed a European MAA for Letairis in Q1:07, where the drug was approved in Q2:08, and is marketed as Volibris. Letairis is priced at $4,800 per month, or $57,600/year, at parity with Actelions Tracleer. Letairis is labeled to improve both exercise capacity and to delay clinical worsening in Class II and III pulmonary hypertension patients. Like Actelions Tracleer, Letairis label includes a black box warning about the potential for liver toxicity, and the liver enzyme levels of patients must be monitored monthly. Gilead now owns all rights to Letairis in the U.S. and will receive a royalty on ex-U.S. sales from GSK that increases from 20% to mid-30% dependent on sales. Gilead recorded $113MM in 2008 U.S. Letairis sales, and we project 2009-13 worldwide Letairis/Volibris sales of $230MM, $300MM, $400MM, $500MM and $600MM, respectively.
Letairis Is The Standard Of Care First Line ERA in Pulmonary Hypertension

Since its commercial launch in June 2007, our consultants have prescribed Letairis to the majority of their pulmonary hypertension patients that are starting an endothelin receptor antagonist for the first time. They use Letairis because (1) of its lower incidence of liver function abnormalities (according to their respective labels, 2.8% of Letairis patients compared to 11% of Tracleer patients will have elevated liver enzyme levels); and (2) its once per day dosing schedule (Tracleer is twice per day). While consultants have been impressed with Letairiss liver toxicity profile (noting very few of their patients experiencing any elevation in LFTs), they pointed out that the incidence of peripheral edema in patients on Letairis has been more frequent then they might have expected. However, physicians have found this problem is
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relatively easily circumvented by dose-escalating patients, beginning with the lower (2.5mg) dose. Nonetheless Letairiss edema does seem to have ensured that Tracleer will remain a solid contributor to PAH care. Physicians expect to continue prescribing some Tracleer from time to time in a minority of patients in the future, and note that Tracleers longer track record would appeal to some.
Few Patients Switched Off Tracleer

While our consultants have started the majority of patients new to ERAs on Letairis, none have switched many patients off Tracleer. Physicians note that it is their practice to add therapies to patients who arent doing well, rather than try to switch patients from one agent to another. They typically do not switch patients within a class because in their experience there is some proportion of patients that get into trouble during the switch that is to say they become less well managed. Consultants think that Letairis and Tracleer are of approximate equal efficacy, and therefore see little reason to assume the risk of switching patients from one to the other. The one exception to this would be in those patients who fail Tracleer because of liver toxicity, as physicians believe that Letairis would be appropriate (and unlikely to cause liver enzyme elevations). Roughly 7-10% of patients who start Tracleer might need to be pulled off because of liver enzyme elevations.
Letairis To Gradually Gain Majority Share

With Letairis expected to capture 50-75%+ of new patient starts, but few switches, it would seem poised for a slow but steady sales ramp. With 10-15K patients on an endothelin receptor antagonist in the United States today, and 23K new patients starting an ERA each year, consultants expect Letairis to capture at least a 50-75% share of the ERA market in 3-4 years. We believe that these comments are consistent with our long-term Letairis estimates, which assume that Letairis captures 45% and 48% of the U.S. market in 2012 and 2013, respectively, yielding U.S. sales of $400MM and $450MM.
Thelin Is On The Market In Europe, But U.S. Approval Will Require Another Phase III
Pfizer acquired worldwide rights to Thelin via its June 2008 acquisition of Encysive. Thelin was approved by the EMEA in August of 2006, and was at an approximate $4050MM run-rate at the time of Pfizers acquisition of Encysive in June of 2006. Thelins path to the U.S. market has been long and tortuous. It was filed in the U.S. for PAH in May 2005. However, in June 2007, Thelin received its third approvable letter. Encysive management disclosed that the FDA had concluded that Thelin did not demonstrate the evidence of effectiveness needed for approval. In the FDAs analysis of Thelins pivotal STRIDE-2 trial, the p-value for the comparison of Thelin vs. placebo came out >0.05. In Encysives analysis, STRIDE-2 succeeded in demonstrating that Thelin was superior to placebo, with p=0.03. Encysive pursued a formal dispute resolution procedure with the FDA, given the companys belief that the FDA failed to analyze the STRIDE-2 data according to the pre-specified SPA criteria. However, in September 2007, the FDA responded to Encysive reiterating that Thelin had failed to show the effectiveness needed for approval, and again encouraging the company to conduct an additional clinical trial. At least one more pivotal trial is necessary to get Thelin on the U.S. market. According to clinicaltrials.gov, Pfizer is conducting three ongoing 180-patient Phase
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III studies of Thelin evaluating the combination of Thelin/Revatio vs. Thelin alone. The first two of the studies will likely read out data in the 2010-2011 timeframe. The third study is an open-label long-term safety study, also evaluating Thelin +/Revatio.
Revatio Broadly Accepted In Treatment Of PAH

Revatio (sildenafil) was approved in June 2005 for treatment of pulmonary arterial hypertension (WHO Group I) to improve exercise ability. Our consultants were pleasantly surprised by the strength of the data that Revatio produced in its Phase III study. Based on their prior anecdotal off-label experience with Viagra, they had thought it less potent, likely to be a niche player used largely as an add-on to other therapies. The Phase III data convinced them of its potency, however, and now our consultants use it broadly as monotherapy and in combination with other agents. In fact, they use it as monotherapy in first line in some patients. They say it is very safe, its efficacy is solid, and most importantly that its effects seem to be quite durable. When deciding between Revatio and Tracleer monotherapy, our consultants lean toward Revatio because they think it has a better chance of managing their patients disease longer. While half of the patients who start Tracleer will fail within a year, it is our consultants impression that a majority will remain on Revatio. Revatio is used off-label in many patients in combination with other classes of drugs. Our consultants believe that Revatio combines well with other agents, and therefore it has become a mainstay of the polypharmacy approach. Revatio does have shortcomings that prevent even more widespread use. First, and perhaps most important, it is not universally reimbursed. Revatio is not on any of the Medicare Part D formularies, and Medicaid will not pay for it. Second, Revatios dosing is still not well defined. The labeled dose is 20mg TID, and our consultants feel that the FDA discourages use of higher doses. However, our consultants note that a higher dose is being studied in Revatios long term trials, and that the higher doses actually produced better hemodynamic results in the pivotal trial. As a result, some physicians are at a loss as to how Revatio should be dosed correctly. While investors had worried that the availability of Revatio would lead to an immediate and steep decline in the sales of endothelin receptor antagonists, thus far this has not been the case. In fact, Tracleer and Letairiss sales growth have continued to be strong, despite Revatios availability. This is perhaps best explained by our consultants, who indicated that in their experience Revatio is significantly less active when dosed as a monotherapy. Thus the majority of our consultants patients who are treated with Revatio, almost always receive an ERA simultaneously.
Tadalafil Approval For Pulmonary Hypertension Expected In Q2:09

Because PDE5 inhibitors such as Pfizers Revatio (Viagra) have recently demonstrated a benefit in improving symptoms of PAH, Lillys Cialis would also seem to have promise in the condition. In August 2005, Lilly-ICOS initiated a pivotal Phase III trial in the U.S. and Europe, the results of which have been used to file an sNDA with the FDA. The filing has a May 24, 2009, PDUFA date. Data from tadalfils Phase III study were presented by Galie et al. at the CHEST meeting in October of 2008. The study randomized 406 patients with a baseline six minute walk distance of between 150m and 450m to 16 weeks of placebo, 2.5mg
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tadalafil QD, 10mg tadalafil QD, 20mg tadalafil QD, and 40mg tadalafil QD. Background Tracleer therapy was allowed. The primary endpoint of the trial was improvement in six minute walk distance. Tadalafil lead to mean placebo-corrected six minute walk distance improvements of 14m (p=0.402), 20m (p=0.047), 27m (p=0.028) and 33m (p=0.0004) for the 2.5mg, 10mg, 20mg, and 40mg arms, respectively. There were no statistically significant differences in change from baseline to week 16 in either WHO functional class or Borg dyspnea score. An improvement in time to clinical worsening was observed for the 40mg tadalafil arm (p=0.041 by permutation test on the log-rank score of time to clinical worsening, stratified by randomization factors). Tadalafil was well tolerated, with its most prevalent side effect being headache, experienced by 42% of people on 40mg tadalafil compared to 15% of placebo patients. We believe these data are strong, and should support FDA approval during Q2:09. Perhaps Cialis biggest advantage in PAH is that its extended half-life should allow once-daily dosing compared to approximately 3x daily dosing with Revatio. We expect tadalafils once-a-day dosing to enable it to capture a sizable share of the PDE-5 inhibitor market once launched in 2009, and with pricing likely to be in line with the drugs cost in erectile dysfunction (approximately $7-8K/patient/year), we expect it to achieve 2013 sales of $120MM. In November 2008 UTHR announced that it had in-licensed tadalafil for pulmonary hypertension. The terms of the deal were quite favorable, with UTHR paying $150MM up front (and receiving a $150MM equity investment from LLY), and owing a 5% royalty on sales.
Hard To Avoid A Prostanoid

Our consultants agree that while infused prostanoids are generally not preferred front-line therapy for stable patients, 15-20% of patients present with severe, Class IV PAH symptoms or are otherwise not suitable for oral therapy and are candidates for immediate initiation of infused Remodulin or Flolan. While 60% or more of frontline patients could be candidates for Letairis, Tracleer or Revatio at the time of presentation, our consultants estimate that 20-50% of patients may not be optimally controlled after two years, either due to side effects, such as elevated liver enzymes, or due to progressive or unresponsive disease. Additionally, patients with portopulmonary hypertension (PAH resulting from liver disease), who may compose up to 15% of diagnosed PAH patients, are not ideal candidates for an endothelin receptor antagonist, because of its potential hepatotoxicity, and these patients would require a prostanoid. Finally, our consultants note that some insurance plans require high co-pays for the endothelin receptor antagonists but generally manageable co-pays for Flolan or Remodulin. Thus, a small percentage of patients prefer infused prostanoids on the basis of their personal financial constraints.
GlaxoSmithKlines Flolan Good

GlaxoSmithKlines Flolan was the first prostanoid approved in the U.S. for the treatment of NYHA Class III or IV pulmonary hypertension in 1995. Our consultants generally consider Flolan to be the gold standard of prostanoid therapy, due to its potent activity and demonstrated survival benefit for patients with severe pulmonary hypertension. In an open-label study by Barst et. al. published in NEJM in Feb 1996, 81 patients with Class III or IV pulmonary hypertension were randomized to receive either
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Flolan via central venous catheter plus conventional therapy or conventional therapy alone. The primary endpoint in this trial was exercise capacity as measured by the 6MWT. After 12 weeks follow-up, patients randomized to receive Flolan had a mean increase in the 6MWT of 32M versus a mean decrease of 29M in the conventional therapy group (p<0.002). Additionally, 60% of patients in the Flolan group improved in NYHA functional class and 48% were unchanged, versus only 3% improved and 87% unchanged in the conventional therapy group. A survival benefit for Flolan was noted, with 20% mortality in the conventional therapy group, versus 0% in the Flolan group (p=0.003). Importantly, there were four episodes of sepsis and one nonfatal thrombotic embolism in the Flolan group, events presumed to be due to the chronic placement of a central venous catheter to administer the drug. Furthermore, among 41 patients on the Flolan group, there were 26 episodes of malfunction of the drug-delivery system, resulting in temporary interruption of the infusion and frequently resulting in recurrence of symptoms. A study by Badesch, et. al., published in The Annals of Internal Medicine in March 2000, evaluated 111 patients with PAH secondary to scleroderma. After 12 weeks, patients randomized to receive Flolan improved their 6MWT by a mean of 46M, while patients in the placebo group worsened by a mean of 48M (p<0.001). NYHA functional class improved in 38% of patients receiving Flolan versus 0% of patients receiving conventional therapy alone. Syncopal (fainting) events were reduced with Flolan (7% versus 20%), although Flolan-treated patients had a higher incidence of anorexia (66% vs. 47%), nausea (41% vs. 16%), diarrhea (50% vs. 5%), and jaw pain (75% vs. 0%). No impact on survival was noted in this study.
But Theres Room For Improvement

Despite its impressive benefits in terms of symptoms and improved survival, the use of Flolan has numerous drawbacks. Flolan is unstable at room temperature, and is generally kept cold during infusion via the use of ice packs that the patients must maintain, carry, and frequently replace. Flolan must be reconstituted under sterile conditions immediately prior to use, adding inconvenience for patients. Furthermore, the short half-life of Flolan (<6 minutes) means that abrupt or inadvertent discontinuation of the infusion can result in potentially life-threatening worsening of disease symptoms unless the patient is quickly able to re-establish flow. Because Flolan must be administered by a chronic, indwelling catheter, additional complications can develop, including catheter-associated thrombosis or infection and sepsis, as well as complications related to catheter insertion such as pneumothorax or hemothorax (air or blood around the lung). The rate of sepsis for patients receiving Flolan is approximately 0.32 episodes/patient per year. Flolan frequently causes symptoms common to other prostanoids, such as jaw pain, headache, musculoskeletal pain, rash, nausea, vomiting, and diarrhea.
Tevas Generic Epoprostenol Unlikely To Have A Significant Impact On Flolan Or Remodulin Franchises
On April 23 2008, the FDA approved a generic version of Flolan from Teva. However, our consultants believe that generic Flolan will likely have only minimal impact on their use of branded prostanoids (Flolan, Remodulin). According to our consultants, the only scenario by which generic Flolan might make meaningful in-roads into the iv prostanoid market is if third party payor guidelines are changed, strictly requiring physicians to use generic Flolan in place of other iv prostacyclins. Our physician consultants pointed out several examples of drugs used in their practice (including warfarin and amiodarone) where there have been quite notable
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differences in efficacy and tolerability between generic and branded versions. Thus, they expect that any significant efforts on the part of payors to force physicians hands in picking the best therapy for their patients would likely be met with an outcry on the part of prescribers and PAH experts. Quarterly sales data show that Flolan sales have steadily increased during the course of 2008 (Q1-4 sales of 34, 38, 41 and 47M GBP, respectively) implying the franchise has not been adversely impacted by the availability of generic Flolan.
Building The Remodulin Franchise

Remodulin (treprostinil) is an analogue of prostacyclin, or a prostanoid. Prostacyclin is a naturally occurring hormone that acts as a potent vasodilator of the pulmonary and systemic circulations. Remodulin is approved as an orphan drug in the United States and Europe for the treatment of pulmonary hypertension, and is administered as a continuous subcutaneous or intravenous infusion. Remodulin is priced at $100200K per patient/year, and posted $148MM in 2006 sales (+41% Y/Y), $199MM in 2007 (+35% Y/Y), and $269MM (+35%Y/Y) in 2008. We estimate 2009 infused Remodulin revenue of $305MM, +13% Y/Y. Behind infused Remodulin, United Therapeutics is developing additional formulations with considerably improved convenience profiles. An inhaled formulation of Remodulin, Viveta, produced positive data in its pivotal trial, and has an April 30, 2009, PDUFA date. We expect Viveta to be the major driver of United Therapeutics top-line growth into the next decade, and project it will achieve $325MM in 2013 revenue. In addition, United Therapeutics is developing an oral version of Remodulin. Although oral Remodulins first Phase III was unsuccessful, the data provide reasons for optimism that it will eventually make it to market.
S.C. Remodulin Infusion-Site Pain Limits Its Potential

Remodulin was first approved by the FDA in 2002 as a continuous subcutaneous infusion. Remodulin is administered via a compact delivery system that uses a pager-sized delivery device manufactured by Medtronic MiniMed to slowly infuse the agent into the abdominal subcutaneous tissue. Benefits of s.c. Remodulin versus i.v. Flolan (GSK/MYOGs) include: (1) avoidance of a central venous catheter with a lesser rate of systemic infection; (2) longer half-life, which provides a safety net should the infusion be disrupted; (3) no requirement for continuous refrigeration; and (4) no need for lengthy sterile reconstitution. Despite s.c. Remodulins theoretical advantages, our consultants note that infusionsite pain occurs in almost all patients, and roughly 30% of patients cannot tolerate the discomfort. Infusion site pain does not occur with Flolan or with i.v. Remodulin. Additionally, some of our consultants believe that s.c. Remodulin may not be as potent as i.v. prostanoid therapy, although this may be a result of hesitancy to increase the dose of s.c. Remodulin in the context of infusion-site discomfort. These concerns have limited s.c. Remodulins opportunity. Consultants note their use of s.c. Remodulin is declining with the introduction of new oral and inhaled treatment options. Nonetheless, United Therapeutics has previously noted that the subcutaneous formulation still accounts for approximately 50% of Remodulin franchise sales.
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But An Intravenous Formulation Broadens Remodulins Appeal

On November 24, 2004, the FDA approved the sNDA for i.v. Remodulin, without the need for additional clinical trials. This submission was based primarily on a study showing bioequivalence between the s.c. and i.v. routes of administration, supported by safety data from a 47-patient investigator-initiated trial. Remodulins labeled indication includes bracketed language that i.v. Remodulin is for patients not able to tolerate an s.c. infusion. The Remodulin label has been expanded to include transition from i.v. Flolan.
I.V. Remodulin Has Helped Take Majority Share From Flolan

Like Flolan, i.v. Remodulin is delivered through an indwelling central venous catheter. However, i.v. Remodulin shares many of s.c. Remodulin advantages such as longer half-life and easier reconstitution. Our consultants continue to view Flolan as the gold standard of therapy, particularly for acutely and severely ill PAH patients. However, they also view Remodulins convenience profile as attractive, and some are transitioning patients from i.v. Flolan to i.v. Remodulin. A rapid-switch study evaluating conversion from i.v. Flolan to Remodulin in the outpatient setting was presented at the American Thoracic Society meeting in May 2006 and provides some additional incentive to switch. Successful completion of the subpart H study evaluating transition from Flolan to s.c. Remodulin has allowed United Therapeutics to broaden the Remodulin label to specifically include an indication for diminishing the rate of clinical deterioration in patients requiring transition from Flolan. In an 8-week, randomized, double-blind, placebo-controlled, multicenter study, patients on Flolan were switched to placebo or Remodulin. 93% (13 of 14) of Remodulin patients versus 13% (1 of 8) of placebo patients transitioned from Flolan successfully (p=0.0002). As of Q4:08, the Remodulin franchise was on an approximate $290MM/year run rate, while Flolan achieved 2008 sales of 160M GBP (approx $240M). Therefore, Remodulin has supplanted Flolan as the preferred infused prostanoid. We believe Remodulin will continue to claim steady market share from Flolan as clinician experience grows, despite the availability of a low-priced generic. We estimate Remodulin revenue (s.c. plus i.v.) of $305MM, $286MM, $256MM, $245MM and $245MM in 2009-13, respectively.
Actelions Ventavis First Inhaled Prostacyclin On U.S. Market

Ventavis is an inhaled prostacyclin analogue that is commercialized by Schering AG in Europe and Actelion in the United States. Ventavis received FDA approval late in 2004, and was launched early in 2005. Ventavis can be administered with minimal toxicity by inhalation, and is stable at room temperature. However, it has a half-life of 20-25 minutes, which means it must be delivered six to nine times per day and is therefore somewhat cumbersome for patients as they need to repeatedly prepare the nebulizer for administration. Actelion gained U.S. rights to Ventavis through its 2007 acquisition of CoTherix.
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Inhaled Remodulins Phase III TRIUMPH Trial Lives Up To Its Name

United Therapeutics is developing a formulation of Remodulin called Viveta that can be delivered four times (one minute per inhalation) daily via a portable nebulizer. In late 2007 United Therapeutics reported positive data from a 12-week, randomized, double-blind, placebo-controlled, multicenter Phase III study (TRIUMPH) in patients with NYHA Class III and IV PAH. The TRIUMPH (TReprostinil Sodium Inhalation Used in the Management of Pulmonary Arterial Hypertension) study was a randomized, double-blind, placebocontrolled trial of inhaled Remodulin in patients with severe pulmonary hypertension. The trial closed enrollment in July 2007, with 235 patients. Patients were enrolled who had NYHA Class III or Class IV pulmonary hypertension. They could be on a stable dose of 125 mg bid bosentan or any stable dose of sildenafil for at least three months prior to the study start. Patients were to have an unencouraged six minute walk test of between 200 and 450 meters at screening. Exclusion criteria included pregnancy, having changed or discontinued any PAH medication in three months prior to enrollment, and having received any investigational drug within 30 days of the start of the study. Patients were randomized 1:1 to either placebo or inhaled Remodulin given four times per day via the Optineb nebulizer. Dropouts were accounted for using a last observation carry-forward method (LOCF), and any patients who died during the trial period were assigned a six-minute walk distance of 0 meters. Full data from the study were presented at the American Thoracic Society annual meeting in May 2008. The trial succeeded in meeting its primary efficacy endpoint demonstrating an improvement in placebo-adjusted median 6MW distance of approximately 20 meters (p<0.0006, Hodges-Lehmann estimate and non-parametric analysis of covariance in accordance with the trial's pre-specified statistical analysis plan). Mean baseline walk distance in the trial was approximately 350 meters. The trough exposure (defined as a minimum of four hours after inhalation of Viveta, for treatment change in 6MW distance at week 12 relative to baseline) was also significantly improved, with an increase in median 6MW distance of 14 meters (p<0.01). Additionally, the 6MW distance at week 6 relative to baseline was significantly improved, with an increase in median 6MW distance of approximately 19 meters (p<0.0005). The trial failed to meet its secondary endpoints, including change in Borg Dyspnea Scale rating (shortness of breath test), NYHA functional class, time to clinical worsening (as defined by death, transplant, atrial septostomy, hospitalization due to PAH, or initiation of another approved PAH therapy), and the 6MW distance at treatment day 1. Two measures of quality of life, the global score and the physical score, were statistically significantly improved with Viveta treatment. Interestingly, the effect in the primary endpoint seemed to be driven by patients on background Tracleer. Patients on background Tracleer had a median improvement in 6MWD of 25m, while those on sildenafil had a median improvement of only 9m. The presenter at ATS was careful to point out that there were many more patients on Tracleer than sildenafil in the study (70% of patients vs 30%), and therefore one could not draw a hard conclusion about the relative efficacy of Viveta in the two groups. Viveta was well tolerated in TRIUMPH. The two most prevalent side effects were cough (54% of Viveta patients vs 29% of placebo patients), and headache (41% vs
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23%). Of the 212 patients who completed the 12-week study period, approximately 200 patients entered the open-label continuation study. Our consultants expect that Vivetas lack of side effects should help spur adoption, and believe that the drug is shaping up to be the prostacyclin option that is most tolerable to patients.
Consultants Expect Viveta To Be Approved, But Believe A Panel May Be Necessary

We believe the data from TRIUMPH should support FDA approval in 2009. The strength of the primary endpoints p-value (p<0.0006) is particularly important. A single trial can form the basis of an FDA filing if the trial demonstrates a more robust effect. This has been interpreted by investors (and physicians) to mean that the trials primary endpoint had to achieve p<0.01, rather than the standard p<0.05, in order to support an FDA filing. TRIUMPH comfortably surpassed this bar. Although our consultants expect Viveta to be approved in 2009, they have also suggested that the drugs approval is likely to be somewhat contentious and that an FDA panel may be required. They believe that the FDA is increasingly looking for data to supplement six minute walk distance results, as some recent studies have suggested that improvements in six minute walk distance do not correlate with mortality. One of our physician consultants has participated in workshops and conference calls with the FDA on the subject of PAH trial design and endpoints, and in those sessions the FDA has said that it will accept six minute walk distance as the primary endpoint of approval trials, as long as it is supported by effects on other endpoints. Unfortunately, many of the secondary endpoints in Vivetas TRIUMPH trial were in fact missed. Our consultants think that the FDA may deal with this by sending Viveta to a panel, and our consultants expect the panel discussion to be contentious. However, ultimately, they expect a panel of PAH experts would recommend Vivetas approval, as they believe that the balance of the data suggest Viveta is safe and effective, and physicians want as many options as possible. Therefore, while on the balance the physicians expect Viveta to be approved, it is apparently not a foregone conclusion.
Convenience A Major Improvement Over Ventavis

The only other currently marketed inhaled prostacyclin is Actelions Ventavis. Physician consultants think that inhaled Remodulins delivery is much more convenient than Ventavis, and that this advantage in and of itself will allow inhaled Remodulin to displace Ventavis and expand the market for inhaled prostanoids. Nonetheless, they hope that even inhaled Remodulins convenience will improve in time. Most of the physicians we have spoken with have a handful (10-20) of patients on Ventavis. However, all of the physicians think that Ventavis is cumbersome. While it is supposed to be inhaled 69 times per day, because of the time associated with each inhalation, most physicians can get their patients to take at most 45 inhalations per day. They say that Ventavis nebulizers (either the I-neb or Prodose devices) need to be assembled for each dose, the drug needs to be pipetted from its ampule into the system, and following the inhalation, the devices need to be cleaned. In total, our consultants say that the entire process takes 15-18 minutes. Physicians report that inhaled Remodulins delivery is much less cumbersome. First, inhaled Remodulin is taken only 4 times per day, a sizable improvement over Ventaviss 6-9. However, the physicians report that each inhalation is much more
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convenient, too. Patients taking inhaled Remodulin inhale between 3 and 9 puffs per inhalation (depending on the dose being delivered), and that the puffing itself is as quick as it sounds. They also say that the cleaning and maintenance of the Optineb system are quite easy. They say that the entire process of inhaling Remodulin takes 5-10 minutes, including the assembly and cleaning of the device. Although Vivetas short inhalations are an improvement over Ventavis, our consultants are hopeful that Viveta will become easier to use over time. In August 2007, United Therapeutics entered into a development and commercialization agreement with Aradigm to manufacture, develop and commercialize its AERx Essence device, a pulmonary drug delivery system, for use as a next-generation metered-dose inhaler with inhaled treprostinil. Our consultants expect the AERx device to be available within about 12 months of the launch of Viveta, and that the additional convenience offered by AERx will help move Viveta forward into less severe patients, the market currently dominated by the oral therapies.
We Expect Viveta To Be A $300MM+ Product

United Therapeutics submitted an NDA for Viveta in June of 2008, and plans to file for approval in Europe by the end of 2008. Viveta has been granted a standard 10month review by the FDA, with a PDUFA date around April 30, 2009. Our model assumes a 2009 U.S. launch, and a 2010 approval in Europe, and projects that Viveta will achieve worldwide sales of $325MM in 2013. Actelions Ventavis achieved roughly $75MM in 2007 sales. Moreover, the market for Ventavis continues to expand, albeit modestly, growing at 3% Y/Y during the first nine months of 2008. Our consultants are optimistic that Viveta is a better product than Ventavis most prominently because it is more convenient. Our consultants expect Viveta to not only take the majority share of the inhaled prostacyclin market, but also to grow the market significantly. While few of our consultants have switched patients from Actelions Tracleer to Gileads Letairis, they do expect to quickly switch patients from Ventavis onto Viveta. They think that inhaled Remodulins superior convenience, and the increase in patient compliance that that should yield, is enough to justify a patient switch. That being said, they do think Vivetas price will be important. If priced on parity with Ventavis, or at a small premium, the physicians expect Viveta to gain the vast majority share. If there is a large price difference, some patients (especially those with tier 4 co-pays) may be more apt to stay with Ventavis. In addition to taking share from Ventavis among current inhaled prostacyclin users, our consultants expect Viveta will expand the market. They note that approximately one out of every two patients who starts Ventavis drops off therapy within six months because of its cumbersome administration. They expect Viveta will help maintain more of these patients on inhaled therapy longer. Our consultants consider prostanoids the best class of pulmonary hypertension medication, and would like to put more of their patients on one earlier in their disease, but up until now nothing has been convenient enough for them to even consider using a prostanoid before an oral therapy. Therefore, Viveta could begin to be used by some patients who have up until now been candidates only for oral therapy. Although likely to be only a minor player in this market until an even more convenient delivery device is available, should it eventually be available in a metered dose inhaler, it is possible that inhaled Remodulin could become a more significant player in this market. These comments
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give us confidence in our 2009-2013 worldwide inhaled Remodulin estimates of $10MM, $99MM, $194MM, $270MM and $325MM.
Oral Remodulins FREEDOM-C Study Fails To Meet Primary Endpoint

United Therapeutics has an oral sustained release formulation of Remodulin that is in development for the treatment of pulmonary hypertension and limb ischemia. United Therapeutics is conducting a Phase III program (the FREEDOM trials) to secure its licensure. The first of these trials produced top-line data in November 2008. FREEDOM-C was a 300-patient combination study with other oral agents including Revatio and/or Tracleer in PAH patients failing oral regimens. In its primary endpoint of 6MWD at week 16, oral remodulin produced a median change of 11m, p=0.072, just missing statistical significance. It would appear that dosing issues were responsible for tripping up the trial. As initially designed, patients in FREEDOM-C were started on 1mg oral Remodulin BID, and patients were to be up-titrated by 1mg BID every week. Not only was 1mg the starting dose, and expected dose increment, but the drug was available only in a 1mg pill size, meaning lower doses, or smaller dosing increments, were not possible. This dosing paradigm was problematic. Prostacyclins like treprostinil have relatively harsh side effects such as nausea, vomiting, and flushing, that are dose related. To minimize the side effects, patients are typically started at low doses, and as the patients acclimate, the dose is gradually increased to get the patient into the therapeutic range gradually, over weeks. Unfortunately, oral remodulin was somewhat more bioavailable than UTHR had originally thought, meaning that patients were being started on, and up-dosed by, too large of a dose. Many patients experienced harsh prostacyclin-like side effects. United Therapeutics realized its mistake, and worked to introduce smaller oral remodulin pill sizes that would permit both a lower starting dose and smaller dose increments. A 0.5mg pill was introduced in July of 2007 when the trial had enrolled about 90 patients. An even smaller 0.25mg pill was introduced at about the time the trial completed enrollment in the spring of 2008 Unfortunately, the changes came too late to save the trial. United Therapeutics disclosed that 39 oral Remodulin patients in the study discontinued and 33 patients were unable to titrate their dose above a level of 1mg BID. In total 58 oral Remodulin patients either dropped out or could not achieve a dose of greater than 1mg, representing 33% of all patients randomized to oral remodulin. This fatally flawed the trial, as oral remodulin had a dramatically lower effect in these patients. For those 58 patients who discontinued due to an adverse event or where able to achieve a peak dose of 1mg or less, the median change in six minute walk distance was only 3.8m. On the other hand, in the 34 patients in the study who were able to achieve a dose of 3.5mg to 16mg, the median change in six minute walk distance was 34m.
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FREEDOM-M Being Modified To Incorporate FREEDOM-Cs Lessons

Behind FREEDOM-C, United Therapeuticss program consists of two other Phase III trials of oral Remodulin, FREEDOM-M and a second combination study. FREEDOM-M is a monotherapy study that started in Q3:06, while the second combination therapy study is not yet underway. The designs of both are being modified to incorporate the lessons learned from the FREEDOM-C trial. The FREEDOM-M trial is an international, multicenter, randomized, double-blind placebo controlled trial of oral remodulin in patients who are not receiving any other therapy for their pulmonary hypertension. As originally designed, the trial was to be a 150-patient study, giving it 90% power at p=0.05 assuming a 50m improvement in six minute walk distance and a 75m standard deviation. Patients are randomized 2:1 (remodulin:placebo), and the primary endpoint of the trial is the improvement in six minute walk distance at week 12. The prespecified statistical analysis is the Hodges-Lehmann non-parametric median-based analysis. The issue with FREEDOM-C was that 30% of patients had access only to the 1mg size oral remodulin pill, and they had many side effects, a high drop out rate, and therefore the drug produced poor efficacy in this population. In November 2008, United Therapeutics disclosed that FREEDOM-M suffered from the same problem about one-third of patients in FREEDOM M also had access to only the 1mg dose during the study. As FREEDOM-C was much more highly powered than FREEDOM-M, it is hard to see how FREEDOM-M could succeed as originally designed. To rectify the problem, United Therapeutics is modifying the design of FREEDOM M. United Therapeutics now hopes to add 140 patients to the study and to modify the primary endpoint to include just those patients who had access to the 0.25mg pill. . In FREEDOM-C, no patients with access to the 0.25mg pill dropped out, and those patients had a mean change in six minute walk distance of 28m. Unfortunately, in FREEDOM-C such patients made up only 15% of the trial, and therefore could not carry it (we estimate there will be about 190 patients in the study, or 2/3 of all patients enrolled, with access to the 0.25 mg pill). UTHR expects it would take about 14 months to completely enroll the additional patients, which would push data out to mid-2010. United Therapeutics submitted a protocol amendment in February 2009, and the FDA will have 30 days to respond to it. Based on its work with former FDA officials, United Therapeutics believes there is precedent for a protocol change of the nature that it is proposing. The key point is that the change is being done with no knowledge of unblinded data from the FREEDOM-M trial itself. However, if the FDA insists on an intent to treat (ITT) primary endpoint, United Therapeutics will unblind the FREEDOM-M trial in March as originally planned, and will begin a new trial shortly afterwards. This alternative strategy would push out data from the second monotherapy study into H2:2010 as the trial would need to enroll about 200 patients in total. In addition to the patients starting the trial on the 0.25mg pill, consultants have voiced greater optimism for success in FREEDOM-M as they believe it will be somewhat easier to show a difference over placebo (the comparator in FREEDOM-M) than it will be to show an improvement on top of active background therapy, as was required of oral Remodulin in FREEDOM-C. However consultants do note that the
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FREEDOM-M trial is slightly shorter in duration (12 weeks) vs. FREEDOM-Cs 16 weeks. In general our consultants think that the longer trial is a bit better in this circumstance, where patients need to be slowly titrated up in dose in order to avoid side effects. The key to a successful trial is enough patients achieving a high enough dose for a sufficient duration; thus, the extra four weeks would have been helpful.
Physicians Expect Oral Will Eventually Make It To Market

Despite the fact that FREEDOM-C missed its primary endpoint, our consultants are optimistic that oral Remodulin is a viable drug, and they believe that it will eventually make it to market. They believe that oral remodulin can be well tolerated if doses are increased at a slow and acceptable rate. Moreover, they believe that if doses are increased sufficiently, and plasma concentrations of treprostinil are above 10-15ng/mL for long enough, patients will improve. Therefore, in their minds, it is only a matter of when and not if oral remodulin will make it to market.
Safe And Effective Oral Prostanoid $500MM+ Opportunity

We estimate the current market for endothelin receptor antagonists is $1.3B+. Moreover, sales of Revatio, and Cialis are not figured into this calculation, and they also contribute to the overall market for oral pulmonary hypertension drugs, although their exact sales into PAH have not been disclosed. Nonetheless, it is reasonable to assume that the overall oral PAH market will exceed $1.5B in 2008. We expect a safe and effective oral prostanoid to take significant share of this market. Our consultants continue to view prostanoids as the most effective class of drugs to treat pulmonary hypertension. They say that they would put all of their patients on a prostanoid, save for the fact that all of the currently available ones are very inconvenient. Should a safe and effective oral option be available, our consultants would use it widely, and it would make rapid in roads into the oral marketplace. Should the FREEDOM trials succeed, we expect that oral prostacyclins would be used at least as a third-line oral agent (behind PDE5 inhibitors and ERAs), depending on the drugs tolerability profile. In this scenario, it would not be much of a stretch to conclude that oral Remodulin could take 20% share of the oral market, suggesting $300MM in sales. Over time, these results could move oral remodulin forward in the treatment paradigm, which could markedly increase its potential. As United Therapeutics currently has no oral pulmonary hypertension drugs, share of this market will be accretive to its revenue and earnings. In addition to taking share of the market for oral PAH therapies, we would expect an oral prostanoid to capture some sales from the inhaled and infused prostanoids. Our model projects that, in 2013, the total infused and inhaled prostanoid market will be about $570MM. We expect the infused prostanoids to remain the gold standard treatment for the sickest patients. There are likely to be some patients who find an inhaled prostanoid useful (particularly if by 2013 United Therapeutics is successful in developing a metered dose inhaler version). Nonetheless, it is reasonable to think that an oral prostanoid would take one-third to one-half share of the infused and inhaled prostanoid market, too. This suggests another $200-300MM in sales in this market, bringing the total potential for an oral prostanoid to $500-600MM. Unfortunately, we project that by 2013 United Therapeutics will already have captured the majority share of the infused and inhaled prostanoid market, and therefore the share taken by oral remodulin in these segments is unlikely to be accretive to United Therapeutics P&L.
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Remodulin Worldwide Revenue Model ($000)

Q1:08A
Avg # s.c. Remodulin patients, US # s.c. Remodulin patients, ROW # s.c. Remodulin patients, W/W Revenue/patient (000s) S.C. Remodulin revenue (000s)
Y/Y growth Avg # i.v. Remodulin patients, US # i.v. Remodulin patients, ROW # i.v. Remodulin patients, W/W Revenue/patient (000s)
Q2:08A
925 190 1115 29 $32,056
44%
Q3:08A
1000 230 1230 29 $35,363
30%
Q4:08A
1007 245 1252 29 $35,993
32%
2008A
948 204 1151 115 $132,412
37%
Q1:09E
1022 265 1287 29 $36,994
28%
Q2:09E
1047 285 1332 29 $38,305
19%
Q3:09E
1121 280 1401 29 $40,270
14%
Q4:09E
1044 275 1319 29 $37,925
5%
2009E
1058 276 1335 115 $153,494
16%
2010E
950 225 1175 120 $141,000
2011E
840 160 1000 120 $120,000
-15%
2012E
898 60 958 120 $115,000
-4%
2013E
900 58 958 120 $115,000
0%
859 150 1009 29 $29,000

45%
-8%
711 195 906 160 $145,000
577 150 727 40 $30,073

79%
651 180 831 40 $33,244

24%
703 210 913 40 $36,538

24%
715 214 929 40 $37,144

26%
662 188 850 160 $136,998

33%
740 215 955 39 $38,006

26%
775 230 1005 39 $39,195

18%
765 215 980 39 $37,730

3%
745 205 950 39 $36,575

-2%
756 216 973 155 $151,506

11%
675 175 850 160 $136,000

-6%
648 165 813 160 $130,000

-4%
648 165 813 160 $130,000

0%
I.V. Remodulin revenue (000s)

Y/Y growth
-4%
2306 82 52% 1208 $99,056 48% 1098 $90,000 561 82 20% 110 $9,000 $99,000
890%
Avg # inhaled prostacyclins patients, US Revenue/patient (000s) % patients on Ventavis # patients on Ventavis Ventavis revenue % of patients on Remodulin # patients on Remodulin U.S. Inhaled Remodulin revenue # inhaled prostacyclin patients, ROW Revenue/patient (000s) % of patients on Remodulin # patients on Remodulin ROW Inhaled Remodulin revenue Inhaled Remodulin revenue (000s)
Y/Y growth
1700 19
1760 19
1840 19
1900 19
0% 0 $0 275 19 0% 0 $0 $0
0% 0 $0 295 19 0% 0 $0 $0
0% 0 $0 305 19 0% 0 $0 $0
0% 0 $0 325 19 0% 0 $0 $0
1800 78 100% 1800 $140,454 0% 0 $0 300 78 0% 0 $0 $0
2000 80
2000 80
2000 80
1000 80
0% 0 $0 350 80 0% 0 $0 $0
0% 0 $0 400 80 0% 0 $0 $0
1% 25 $2,000 450 80 0% 0 $0 $2,000
10% 101 $8,000 500 80 0% 0 $0 $8,000
1750 80 100% 1750 $139,283 19% 330 $10,000 425 80 0% 0 $0 $10,000
3094 84 45% 1392 $117,568 63% 1942 $164,000 768 83 47% 360 $30,000 $194,000
96%
3675 87 45% 1654 $143,830 67% 2472 $215,000 1002 85 65% 648 $55,000 $270,000
39%
4106 90 45% 1848 $165,523 68% 2791 $250,000 1161 87 75% 866 $75,000 $325,000
20%
# total Remodulin patients, W/W
1736
1946
2143
2181
2001
2242
2337
2381
2269
2307
2081
1850
1771
1771
Total Remodulin revenue (000s) Y/Y growth
$59,073
$65,300
$71,900
$73,137
$269,410 35%
$75,000
$77,500
$80,000
$82,500
$305,000 13%
$385,000 26%
$450,000 17%
$515,000 14%
$570,000 11%
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Current Therapeutic Landscape For Pulmonary Hypertension

Drug Flolan Stage Market Mode of action Prostacyclin (Epoprostenol) Dosage Continuous IV infusion via central venous catheter. Initate dosage at 2ng/kg/min Oral (loading dose of 62.5mg bid for 4 weeks increased to maintenance dose of 125mg bid) Continuous SQ or IV infusion; inhaled recently completed positive Phase III Oral (60mcg initiation dose, 4 times daily) Company GlaxoSmithKline Regulatory status Approved for PAH in both US (Sep 1995) and EU; Teva launched generic in April 2008 Approved in US (WHO Class III or IV) (Nov 02) and EU (Mar 02)
Tracleer
Market
Endothelin receptor antagonist (ET-A and ET-B)
Actelion
Remodulin
Market
Prostacyclin analogue (Treprostinil) Prostacyclin analogue
United Therapeutics Approved in US NYHA Class II-IV (May 2002), United Therapeutics Primarily developed and marketed in Japan (approved 1999), unlikely to be commercially launched in US Norvasc (Pfizer) Not approved in PAH, Cardizem (Biovail), used for 5-10% of PH Procardia (Pfizer) patients who respond Pfizer Coumadin (BMS) Schering AG/Actelion Gilead Pfizer Approved in U.S. mid2005 Not approved in PAH Marketed in EU, U.S. Approved June 2007
Beraprost
Market
Calcium Channel Blockers Revatio Warfarin Ventavis Letairis Thelin
Market
Norvasc (amlodipine) Cardizem (diltiazem), ProcardiaAdalat (Nifedipine) PDE inhibitor Anticoagulant therapy Prostacyclin analogue (Iloprost) Endothelin receptor antagonist (ET-A) Endothelin receptor antagonist (ET-A)
Market Market Market Market Market
Oral: Norvasc - 2.5mg 10mg, Cardizem HCL 120mg - 420mg, Procardia XL/Adalat - 30mg - 90mg Oral 20mg three times per day Oral (1mg-10mg)/IV Inhaled Oral Oral
Tadalafil
Phase III PDE inhibitor
Oral; once daily
Approved in Europe; US approval will require another study United Therapeutics Approved for erectile dysfunction as Cialis
Source: Company data and Cowen and Company

U.S. Peak Sales ($MM) Drug Accolate Advair Singulair Aerospan Nasonex Letairis Revatio Tadalafil Manufacturer AstraZeneca GSK Merck Forest Labs Schering-Plough Gilead/Myogen Pfizer United Therapeutics Patent Expiration 2010 2011 (Device) 8/12 2/13 7/14 2018 2011 2014 $70 9,000 3,000 -----
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RESPIRATORY R&D PIPELINE Company Pfizer, Inc. Roche Sanofi-Aventis ScheringPlough AstraZeneca Symbicort pMDI . . Product Spiriva Respimat Xolair Allegra Asmanex PC I II III NDA Nov-07 Mar-08 . . MKT Comments Respimat device for COPD Pediatric asthma Once-daily tablet; filed in Japan Asthma; dry powder; mometasone; in Japan Inhaled steroid/long acting beta 2 agonist; asthma, COPD; filed in Europe Novartis ScheringPlough AstraZeneca Forest Laboratories Xolair Nasonex Unit Dose Budesonide Aclidinium (LAS34273) . . F2010 F2012 . . Mar-08 . Liquid formulation; allergic asthma; file din EU Sinusitis and polyposis Inhaled steroid; asthma; with MAP Pharmaceuticals and Elan COPD; once-daily, long-acting muscarinic antagonist; via Almirall; ACCLAIM trial completed Q3:08; positive efficacy but below Spiriva; combination products in PII development GlaxoSmithKline Bosatria (mepolizumab) . Anti-IL 5 monoclonal antibody; syndrome and eosinophilic esophagitis Inspire Pharmaceuticals Denufosol tetrasodium . H1:2011 H2:2011 P2Y2 receptor agonist; inhalation solution for treatment of cystic fibrosis; enhances mucociliary clearance and hydration in the lungs of mild CF patients; 2nd through 09; data expected in late-2010 Merck Merck Novartis Novartis Novartis Pfizer, Inc. Mitsubishi Singulair Singulair Indacaterol MFF258 Tobramycin Revatio APTA-2217 . . . . . . . . 2009 2009 RSV bronchiolitis IV for acute use in hospitals QAB149; long-acting beta-2 agonist; COPD, asthma mometasone 2nd generation TOBI; dry powder inhaler for cystic fibrosis hypertension Pediatric pulmonary arterial Roflumilast; PDE4 inhibitor; COPD, asthma; BID FDC with pivotal trial (TIGER-2) enrolling severe asthma; hypereosinophilic
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Respiratory
RESPIRATORY R&D PIPELINE Company Tanabe Mitsubishi Tanabe MCC-847 . . Product PC I II III NDA MKT Comments asthma, COPD; with Altana Leukotriene D4 antagonist; with AstraZeneca ScheringPlough AIT (Allergy Immunotherapy Tablet) . . Grass pollen allergies; PII for dust mite and ragweed allergies; North American rights only; from ALKO Abello ScheringPlough SkyePharma Alkermes Mometasone/Formot erol Flutiform Trospium Chloride) ALKS 27 (AIR . . . . . 2011 2012 2009 Asthma, COPD; with Novartis Asthma; multiple partners COPD; muscarinic receptor with Indevus 4/08; in AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca AstraZeneca Forest AZD 1236 AZD 1981 AZD 3199 AZD 9668 MEDI-528 MEDI-563 Oglemilast . . . . . . . antagonist; ALKS terminated deal reformulation currently Matrix metalloproteinase inhibition; COPD CHTh2 receptor agonist; asthma/COPD iLABA; asthma, COPD Neutrophil Elastase Inhibitor; COPD Anti-IL9 Mab; treatment of asthma; from MedImmune Anti-IL-5R antibody; asthma; from MedImmune Laboratories GlaxoSmithKline GlaxoSmithKline PDE4 inhibitor for COPD and Glenmark Pharmaceuticals 1004723 159797 . . Histamine H1/H3 dual antagonist; allergic rhinitis (intranasal) Long-acting beta2 agonist; asthma & COPD in combination with a glucocorticoid agonist GlaxoSmithKline GlaxoSmithKline 159802 2190915 (AM-103) . . Long-acting beta2 agonist; asthma and COPD 5 lipoxygenase activating protein (FLAP) inhibitor; respiratory disease GlaxoSmithKline GlaxoSmithKline 256066 573719 . . PDE IV inhibitor; asthma (inhaled); allergic rhinitis (intranasal); COPD antagonist; COPD Muscarinic acetylcholine asthma; co-development with asthma (PIII); allergic rhinitis (PII);
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Respiratory
RESPIRATORY R&D PIPELINE Company GlaxoSmithKline Product 642444 PC I II . III NDA MKT Comments Long-acting beta2 agonist in combination with a steroid; asthma and COPD GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline 679586 681323 685698 . . . Monoclonal antibody; severe asthma P38 alpha kinase inhibitor; COPD Glucocorticoid agonist; asthma & COPD in combination with a long rhinitis) GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline 835726 856553 870086 961081 Darotropium (233705) . . . . . acting beta2 agonist (also allergic Histamine H1/H3 dual antagonist; allergic rhinitis (oral) P38 kinase inhibitor (oral); COPD Novel glucocorticoid agonist; asthma Muscarinic antagonist beta2 agonist; COPD Muscarinic acetylcholine
antagonist; COPD mono and in combination with 642444
Merck Merck Mitsubishi Tanabe Nektar Therapeutics Nektar Therapeutics Novartis Novartis Novartis Novartis Novartis
MK-0476C MK-0633 TA-2005 Ciprofloxacin (inhaled ) NKTR-061; Amikacin (inhaled) NIC002 NVA237 QAT370 QAX576 QMF149
. . . . . . . . . .
2012 2011
Singulair/corticosteroid combination Respiratory disease Long-acting beta 2 agonist; asthma, COPD Respiratory infection; with Bayer
2010 >2012 2011 >2011 >2012
2011
Pneumonia; partnered with Bayer; Aerogen technology Smoking cessation Long-acting muscarinic antagonist; COPD COPD; on hold Asthma Once-daily fixed dose combination of QAB149 and mometasone; asthma and COPD
Novartis
QVA149
2011
Once-daily fixed dose combination of QAB149 and NVA237; COPD
Pfizer, Inc. Roche
PF-610355 R667
. . >2011
Asthma Emphysema; selective retinoid agonist; in animal studies restored
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Respiratory
RESPIRATORY R&D PIPELINE Company Product PC I II III NDA MKT Comments lung function/regenerate lung tissue ScheringPlough ScheringPlough ScheringPlough Plough Sepracor Sepracor Wyeth Novartis AstraZeneca AstraZeneca AstraZeneca AstraZeneca Bayer Schering Pharma Dainippon Sumitomo Dainippon Sumitomo GlaxosmithKline GlaxoSmithKline GlaxoSmithKline GlaxoSmithKline SMP-028 2245840 610677 656933 705498 . . . . . Bronchial asthma SIRT1 activator; COPD p38 kinase inhibitor (inhaled); COPD Interleukin 8 antagonist; cystic fibrosis Transient receptor potential vanilloid (TRPV1) antagonist Merck Nektar Therapeutics Nektar MK-5932 NKTR-024; Amphotericin B (inhaled) NKTR-063 (inhaled vancomycin) ACZ885 QAX028 PF-3526299 . . . . 2011 . . 2010 2011 Respiratory disease Targeting prophylactic use in immunosuppressed patients; Aerogen technology Aerogen technology Hospital-acquired pneumonias; PI COPD COPD Asthma (intranasal); non-allergic rhinitis DSP-3025 . Levalbuterol + Ipratropium Omnaris HFA MDI IMA-638 QAE397 AZD 5985 AZD 8075 AZD 8848 CAT-354 BAY 71-9678 . . . . . . . . . . ScheringMometasone/Indacat erol Mometasone/Oxymet azoline Pleconaril . . 200919 Allergic rhinitis Intranasal spray for common cold targeting high-risk asthma patients; U.S. rights Phase III in 09 COPD; nebule solution via Arrow; Allergic rhinitis; ciclesonide Asthma Inhaled ICS; PIII asthma; PII COPD CRTh2 antagonist; asthma/COPD CRTh2 antagonist; asthma/COPD Asthma Anti-IL-13 antibody; asthma Elastase inhibitor; pulmonary hypertension in COPD Bronchial asthma, allergic rhinitis . Asthma/COPD; with Novartis CXCR2 . COPD
Therapeutics Novartis Novartis Pfizer, Inc.
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Respiratory
RESPIRATORY R&D PIPELINE Company Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Pfizer, Inc. Roche Roche Roche Roche Sanofi-Aventis Sanofi-Aventis Wyeth Alkermes Product PF-3635659 PF-3715455 PF-3893787 PF-4191834 PF-489791 Anti-IL 13 R1671 R4930 R7103 AVE-0675 SAR-389644 IMA-026 Undisclosed Small Molecules (Multiple compounds) Aradigm Nektar Therapeutics Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sanofi-Aventis Sepracor Sepracor Sepracor ARD-1700 PEG Diphenhydramine (NKTR-125) SAR-102608 SAR-137272 SAR-21609 SAR-398171 Ciclesonide + Arformoterol Ciclesonide Nebule LABAs Total Drugs In Development 11 29 44 15 7 106 . . . . . . . . . (2) PC I . . . . . . . . . . . . II III NDA MKT Comments COPD COPD Asthma Asthma COPD; pulmonary hypertension Anti-IL 13; asthma Monoclonal antibody; asthma OX40L; asthma Small molecule; COPD Immunomodulator/TLR-9; asthma Prostaglandin D2 antagonist; asthma; allergic rhinitis Asthma Pulmonary delivery; proprietary program AERx technology; partnered with Cydex, Inc.; asthma/COPD Oral; avoids blood-brain barrier; allergic rhinitis h-PGDS inhibitor; allergic asthma, allergic rhinitis A3 antagonist; asthma; COPD TRL9 agonist; asthma, respiratory tract viral infection CR Th2 antagonist; asthma COPD; ICS/LABA combination nebule solution Asthma; ciclesonide nebule solution Asthma/COPD
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Sleep Disorders
Sleep Disorders
Ambien Generics Change The Complexion Of The Market
Approximately 65% of Americans surveyed in the National Sleep Foundations Sleep In America Poll 2008 indicated that they experience at least one symptom of insomnia a few 8% 2008-13 CGR nights per week. However, 36% of respondents clinically diagnosed as having a sleep disorder reported using either a prescription or OTC sleep aid a few nights per week, leaving further opportunity for market growth. Overall, dollar sales of prescription hypnotics have been clipped since the launch of generics to Ambien (most widely prescribed sleep aid) in April 2007. Nonbenzodiazepine hypnotics (e.g., Ambien/CR, Lunesta, Sonata) continue to account for the majority of the prescriptions written for the treatment of insomnia. All of the non-benzodiazepine hypnotics are classified as Schedule IV drugs by the DEA and have multiple tolerability and safety advantages over older benzodiazepine hypnotics and tricyclic antidepressants.
Insomnia Market Category Market Share By $ Sales
2008
$2.0B
2013P
$3.2B
SNY 25%
PARTICIPANTS
Generics 12%
Other 2%
TDCHF 5%
SNY 52%
Other 41%
Generics 18% SEPR 29%
TDCHF 6%
SEPR 10%
MAJOR TRENDS &

ISSUES
In 2008, Sanofi-Aventis Ambien franchise (Ambien and Ambien CR) saw its dominance of the U.S. insomnia market continue to slip since the launch of Ambien generics in April 2007, but still garnered an estimated 52% dollar share. We project that Sanofi-Aventiss 25% sales share will lead the market in 2013, via sales of Ciltyri, while Sepracors share of sales will decline from 29% in 2008 to 10% in 2013. Sanofi-Aventis Ambien franchise remains the U.S. branded market leader, but has been clipped significantly by the launch of generics to Ambien. SanofiAventis continues to aggressively market Ambien CR. Generics of Ambien CR are expected to be launched in April 2009, further pressuring the Ambien franchise. Sepracors Lunesta enjoyed a strong rollout in 2006, but the launch of Ambien CR and Ambien generics has caused Lunestas prescription growth trajectory to plateau. We project a decline in Lunesta prescriptions in 2009-2013, due to Ambien CR generics. Several novel drugs targeting new mechanisms are making their way through clinical trials, including: Sanofi-Aventis Ciltyri (completed Phase III), Somaxons
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Silenor (NDA), Vandas Tasimelteon (Phase III), and Schering-Plough/Organons Esmirtazapine (Phase III). Our scatter plot shows that Sanofi-Aventis, Sepracor and Takeda should dominate the insomnia market in 2013 and that this is an emerging category for Takeda.
Insomnia
170% % Of Company 2008-13 Sales Growth From Category TDCHF
120%
70%
20%
-30% SNY -80%
-130%
-180% $0.0
SEPR $0.4 $0.8 $1.2 $1.6 $2.0
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Sleep Disorders
U.S. INSOMNIA MARKET BUILD-UP ($MM)

U.S. INSOMNIA MARKET BUILDUP ($MM) 2007 Total population (MM) % Experiencing Symptoms Number of Treatable Patients (MM) % Patients Treated Total # Patients Treated (MM) Total Rx's (MM) Rx Growth Rate Ambien IR (SNY) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Ambien-CR (SNY) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total Ambien Sales Lunesta (SEPR) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Generic Ambien/CR Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Rozerem (Takeda) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Silenor (SOMX) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Sonata (KG) Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Other Rx Share Rx's (MM) Average Daily Cost Sales ($MM) Total U.S. Sales % Growth 1% 0.9 $2.95 $79 34% 22.7 $0.23 $157 1% 0.4 $2.95 $34 30% 20.7 $0.25 $155 0% 0.2 $2.95 $15 32% 20.7 $0.25 $155 303.4 58% 176.0 17% 29.0 66.3 +5% 13% 8.7 $3.77 $988 15% 9.6 $3.23 $934 $1,922 10% 6.9 $2.90 $601 24% 15.9 $0.11 $53 2% 1.5 $2.79 $123 2008 307.3 58% 178.3 17% 30.3 67.8 +2% 2% 1.3 $3.80 $149 14% 9.5 $3.25 $928 $1,077 9% 6.3 $3.15 $600 42% 28.3 $0.10 $85 2% 1.3 $2.80 $106 2009E 311.3 58% 180.6 18% 32.5 65.6 -3% 1% 0.4 $3.80 $50 9% 5.9 $3.25 $575 $625 8% 5.2 $3.30 $510 48% 31.3 $0.25 $235 3% 1.9 $2.80 $160 2010E 315.4 58% 182.9 18% 32.9 65.9 +1% 0% 0.2 $3.80 $25 3% 2.1 $3.25 $200 $225 7% 4.3 $3.45 $450 55% 36.2 $0.23 $250 3% 2.0 $2.80 $170 0% 0.3 $3.00 $25 0% 0.1 $2.95 $10 31% 20.7 $0.25 $155 2011E 319.5 58% 185.3 19% 35.2 66.6 +1% 0% 0.0 $3.80 $5 1% 0.8 $3.25 $75 $80 6% 3.7 $3.60 $400 67% 44.4 $0.15 $200 3% 2.1 $2.80 $180 1% 0.8 $3.00 $75 0% 0.1 $2.95 $10 22% 14.6 $0.40 $175 2012E 323.6 58% 187.7 19% 35.7 68.8 +3% 0% 0.0 $3.80 $5 1% 0.5 $3.25 $50 $55 5% 3.2 $3.75 $365 66% 45.5 $0.11 $150 3% 2.3 $2.80 $190 2% 1.1 $3.00 $100 0% 0.1 $2.95 $10 23% 16.0 $0.52 $250 2013E 327.8 58% 190.2 19% 36.1 72.3 +5% 0% 0.0 $3.80 $5 1% 0.4 $3.25 $40 $45 4% 2.9 $3.80 $335 69% 50.0 $0.08 $120 3% 2.4 $2.80 $200 +14% 2% 1.4 $3.00 $125 0% 0.1 $2.95 $10 -47% -11% Eszopiclone; launched April 2005 Single-isomer of Sanofi-Aventis' Imovane 7-day free trial program clips pricing 1mg, 2mg, and 3mg dosing '08-13 CGR Comments +1% +1% +4% +1% - Assumes 1.3% growth rate
Market declining with lower promotion
- Zolpidem; clipped by generics beginning in April 2007 - Exchange rate influences avg. daily cost Y/Y -49% - SNY increased price to push conversion to CR Launched 9/05 Franchise extension Controlled-release formulation Generic competition expected 4/2009
- April 2007 launch for generics of Ambien - April 2009 launch for generics of Ambien CR
Ramelteon Melatonin receptor agonist Approved in 8/05 Ramelteon
- Low dose doxepin - NDA filed 1/08; CR letter in 2/09
- Zaleplon - Clipped by generics in 2008 - Originally developed by Wyeth -22% Trazodone equivalents Tricyclic antidepressants Sonata generics in 2008 New products in 2011-13
21% 15.0 $1.00 $450 +24%
$2,935
-11%
$2,057
-30%
$1,700
-17%
$1,285
-24%
$1,120
-13%
$1,120
+0%
$1,285
+15%
-9%
- Generics of Ambien/CR clip in 2007-2010
Source: IMS data, company reports, Cowen and Company estimates
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Insomnia Affects 60MM+ Adults in the U.S.

DETAILED DISCUSSION
Insomnia is defined as any of the following symptoms: difficulty falling asleep, waking during the night, waking up too early and not being able to get back to sleep, and waking up feeling unrefreshed. For the past several years, the National Sleep Foundation (NSF) has surveyed American adults and has consistently found that insomnia is a widespread problem, with a large portion of adults frequently experiencing symptoms. In the 2008 survey, 65% of respondents reported having experienced one of the four symptoms of insomnia at least a few nights each week and 44% experienced at least one of the four symptoms every night or almost every night during the previous year. This suggests that close to 70MM adults in the U.S. have trouble sleeping almost every night.
Source: National Sleep Foundation, 2008 Sleep In America Poll
According to the NSFs 2008 poll, the most common insomnia symptoms experienced included: (1) at least a few nights each week waking up feeling unrefreshed (49% of respondents); and/or (2) being awake during the night (42%). These are followed by: (3) difficulty falling asleep (26%); and (4) waking too early and not being able to fall back asleep (29%). With a wide range of symptoms, insomnia is a disorder that likely requires treatment with flexible dosing schedules and the ability to treat several sleep pathologies. In 2007, the NSF conducted a sleep survey focused only on women in the U.S. The results were consistent with the results from historical polls. Approximately 37% of the women surveyed have difficulty falling asleep at least a few nights per week, with 34% of the women surveyed indicating that at least a few nights per week they have trouble falling back to sleep if they are disturbed during the middle of the night. However, just 15% of the women surveyed indicated that they use a prescription sleep aid at least a few nights per week.
Causes And Types Of Insomnia Are Varied

The causes and types of insomnia are widely varied and are challenging to characterize. The causes of insomnia include mood disorders (depression), chronic medical conditions (asthma, arthritis, ulcers), stress, anxiety, medication side effects (antidepressant SSRIs/SNRIs, thyroid preparations), environment, and poor sleep habits. Insomnia is characterized by difficulties with sleep duration or onset, but often involves a combination of both.
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Sleep Disorders
Classification Duration
Type/Description Transient insomnia - lasts only a few nights; commonly due to jet lag, temporary stress, acute medical illness, or self-medication. Short-term insomnia lasts up to three weeks, often results from ongoing stress (e.g., temporary illness) and resolves when the situation returns to normal. If not addressed, short-term insomnia may escalate into a chronic condition. Chronic insomnia - lasts more than a month; distressing and possibly disabling; requires directed approach to identification and treatment.
Time of occurrence
Sleep-onset insomnia - commonly associated with anxiety; experienced as a delay of more than 30 minutes in falling asleep. Sleep-maintenance insomnia - wakefulness later in the night as well as difficulty returning to sleep; often associated with depression or medical illness. Early-morning insomnia - waking before desired time; causes include depression or circadian rhythm dysfunction.
Source: NSF
Still Opportunities In The Insomnia Market

Despite the rapid growth of prescription insomnia treatments in recent years, the market remains underpenetrated. According to the NSFs Sleep In America Poll 2008, 65% of adults reported experiencing one or more symptoms of insomnia at least a few times per month, yet about one-third of respondents reported using either a prescription sleep therapy or an over-the-counter sleep aid at least a few times each month. The launch of multiple new branded insomnia agents in 2005-2006 and the aggressive DTC campaigns that accompanied them have likely increased the number of patients seeking a prescription sleep aid. We estimate that 17% of insomnia patients were treated with a prescription sleep aid in 2008, and we expect that number to grow to 19% in 2013, implying an additional 5.8MM Americans on prescription sleep aids. However, we estimate that U.S. sales of prescription insomnia treatments will decline by more than 50% from 2007 through 2014, due to the launch of multiple generics, most notably generics of Ambien and Ambien CR. The European insomnia market is estimated to be $500MM, or roughly 15% the size of the U.S. market. With generics of Ambien already widely available, the European market for prescription sleep aids is more challenging than in the U.S.
THE U.S. SLEEP MARKET REMAINS UNDERPENETRATED

65% 40% % Of Respondents 10% 5% 0%
Insomnia Symptoms Use OTC Sleep Aid Use Rx Sleep Aid Use Alternative Therapy or Supplement
Source: NSF 2008 Sleep In America Poll
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Sleep Disorders
Arrival Of Ambien Generics Has Trimmed The Market

Following the launch of Sepracors Lunesta in April 2005, overall prescription growth in the insomnia market accelerated modestly relative to historical growth. However, the entry of Sanofi-Aventis Ambien CR and to a lesser extent Takedas Rozerem in September 2005 caused a sharp acceleration in prescription growth through the balance of 2005 and into early 2006. Prescription growth moderated in mid-2006 due to high-profile safety concerns raised in H1:06 (e.g. sleep-driving, sleep eating, etc.). While the launch of multiple Ambien generics in April 2007 has increased overall prescription growth, prescription growth again slowed in 2008. Our consultants indicate that managed care companies are increasingly aggressive in their efforts to deter prescribing of newer, more expensive prescription insomnia drugs and are pushing aggressively for the use of generic Ambien ahead of the more costly agents. Additional proprietary competitors on the horizon include SanofiAventis Ciltyri (completed Phase III), and Somaxons Silenor (NDA).
MONTHLY INSOMNIA MARKET GROWTH: SEPTEMBER 2006 - JANUARY 2009
18.00% 16.00% 14.00% 12.00%

Y/Y Growth (%)
10.00% 8.00% 6.00% 4.00% 2.00% 0.00% - 2.00%
May-07
May-08
Nov-06
Nov-07
Nov-08
Apr-07
Mar-07
Sep-06
Aug-07
Sep-07
Mar-08
Apr-08
Aug-08
Sep-08
Feb-07
Feb-08
Jan-07
Jun-07
Jan-08
Jun-08
Dec-06
Dec-07
TRx
Side Effects And Safety Issues Plague The Benzodiazepines

Historically, sedative hypnotic drugs known as benzodiazepines were the primary treatments for insomnia. The benzodiazepines non-selectively target the GABA-A receptor. The most frequently-prescribed benzodiazepine is Pfizers Halcion (triazolam) and its multiple generics. Halcion is indicated for the short-term treatment of insomnia (7-10 days) and its clinical efficacy is well established.
1194
Dec-08
Jan-09
Jul-07
Jul-08
Oct-08
Oct-06
Oct-07
Sleep Disorders
However, Halcion and other benzodiazepines have been plagued by several negative side effects, including amnesia (memory loss), tolerance/withdrawal, dependence/abuse potential, next-day residual sedation, and mental/behavioral changes. Halcion became a target of intense criticism in the early 1990s due to psychiatric side effects. We estimate worldwide Halcion sales of $35MM in 2009 and $25MM in 2013.
INSOMNIA MARKET MONTHLY PRESCRIPTION SHARE
70.0%
60.0%
50.0%
TRx Share (%)
40.0%
30.0%
20.0%
10.0%
0.0%
Se p-0 Oc 5 t-0 No 5 v-0 De 5 c-0 Jan 5 -0 Fe 6 b-0 Ma 6 r-0 Ap 6 r-0 Ma 6 y-0 Jun 6 -06 Jul Au 06 g-0 Se 6 p-0 Oc 6 t-0 No 6 v-0 De 6 c-0 Jan 6 -0 Fe 7 b-0 Ma 7 r-0 Ap 7 r-0 Ma 7 y-0 Jun 7 -07 Jul Au 07 g-0 Se 7 p-0 Oc 7 t-0 No 7 v-0 De 7 c-0 Jan 7 -0 Fe 8 b-0 Ma 8 r-0 Ap 8 r-0 Ma 8 y-0 Jun 8 -08 Jul Au 08 g-0 Se 8 p-0 Oc 8 t-0 No 8 v-0 De 8 c-0 Jan 8 -09
AMBIEN
AMBIEN CR
LUNESTA
ROZEREM
TEMAZEPAM
TRAZODONE HCL
AMBIEN GENERICS
Sanofi-Aventiss Ambien Clipped By Generics

Ambien (zolpidem), a non-benzodiazepine hypnotic of the imidazopyridine class, was launched in the U.S. in 1993 and rapidly became the gold standard for the shortterm (7-10 days) treatment of insomnia. Ambien has a selective hypnotic action lasting for 6-7 hours and induces normal sleep patterns. It has also been shown to decrease sleep latency and prolong total sleep time for up to 35 days consecutively in clinical trials. Ambiens efficacy is similar to that of benzodiazepines in both acute and chronic studies, but Ambien is less likely to disturb the architecture of sleep and to cause cognitive and psychomotor side effects. No significant adverse effects (such as daytime losses of memory and attention) are associated with Ambien, when it is administered at the recommended dose. Use of Ambien can be discontinued without withdrawal symptoms. However, while Ambiens relatively short half-life has safety advantages; it also has efficacy disadvantages, particularly in the area of sleep maintenance. Agents such as Lunesta and Ambien CR target the treatment of patients with sleep maintenance problems, or difficulties staying
1195
Sleep Disorders
asleep. An estimated 60-70% of insomnia patients are believed to suffer from sleep maintenance problems. Multiple generic versions of Ambien were launched in the U.S. insomnia market in April 2007. As of January 2009, Ambien held a 1.4% total prescription share of the U.S., down from 2.5% in January 2008, while Ambien generics held a 56% total prescription share as of January 2009 (vs. 52% in January 2008). We estimate U.S. Ambien sales of $50MM (-66%) in 2009 and $5MM in 2013.
Sanofi-Aventiss Ambien CR Now Carries The Franchise

Ambien CR is a modified release formulation of Ambien. Ambien CR (12.5mg dose) was launched in the U.S. in September 2005 and rapidly achieved solid market share gains, but did not supplant immediate-release Ambien as rapidly as Sanofi-Aventis had hoped. Sanofi-Aventis priced Ambien CR at a discount to Ambien in order to encourage patient conversion ahead of the launch of Ambien generics. As of January 2009, Ambien CR held a 12.7% total prescription share of the U.S. insomnia market, down from 15.6% in January 2008. Ambien CR has both sleep onset and sleep maintenance indications, enabling it to compete head-to-head with Sepracors Lunesta. The Ambien CR Phase III data were presented at the American Psychiatric Association (APA) meetings in May 2005. Data presented at the APA compared the PK/PD profiles of Ambien CR and Ambien: Ambien CR was demonstrated to have an elimination half-life of 2.7-2.9 hours (similar to Ambien in this set of experiments), but well short of Lunesta. Our consultants do not believe Ambien CR is as effective as Lunesta for sleep maintenance, and the clinical data for Ambien CR are not as strong as those for Lunesta. However, the Ambien CR rollout was bolstered by brand name recognition, an aggressive DTC campaign, an easier Ambien-to-Ambien CR conversion compared to the Ambien-to-Lunesta switch, and a 3,500-rep U.S. sales effort. These advantages spurred Ambien CR uptake in the primary care market, where 60-70% of insomnia treatment prescriptions are written.
PK/PD COMPARISON: AMBIEN VS. AMBIEN CR Ambien AUC (ng-hr/mL) Cmax (ng/ mL) Tmax (h) T1/2 (h)
NS - not significant
Ambien CR 656 152 2.48 2.79
p-value NS NS p<0.05 NS
547 140 2.03 2.73
Source: APA 2005 abstract
Ambien CR Patent Has Been Challenged Ambien CR holds Hatch-Waxman exclusivity through September 2008, which is extended until March 2009 via a pediatric extension. The Ambien composition-ofmatter patent expired in October 2006. One Orange Book listed formulation patent protects Ambien CR (U.S. patent # 6,514,531), which expires in December 2019. Multiple ANDAs with paragraph IV certifications have been filed against Ambien CR, including filings by Anchen, Abrika (now part of Actavis), Watson, and Synthon. Sanofi-Aventis has filed lawsuits against Watson and Synthon, but not Anchen (first to file; January 2006) and Abrika. At this point, Sanofi-Aventis legal strategy is unclear, but we assume that generics of Ambien CR may be launched when the Waxman-Hatch exclusivity expires in March 2009. We now estimate Ambien CR U.S.
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Sleep Disorders
sales at $575MM (-38%) in 2009, declining to $200MM in 2010, $75MM in 2011, and $40MM in 2013.
Sepracors Lunesta Has Reached Its Peak

Lunesta (eszopiclone) was launched in April 2005 and enjoyed early market success. Lunestas longer-term usage data, sleep maintenance indication, lack of restrictions on duration of use, and strong clinical data set bolstered the rollout. However, competition in the insomnia market has intensified. As of January 2009, Lunesta held a 9.5% total prescription share of the U.S. insomnia market, down from 11.4% in January 2008. With Ambien generics now available, Lunesta has become the second most widely prescribed branded insomnia medication in the U.S., behind Ambien CR. While Lunestas breadth of clinical data is viewed as best-in-class by our consultants, they indicate that marketing muscle and brand recognition have proven to be more effective for Ambien CR. Sepracor management received a written request from the FDA to conduct pediatric studies with Lunesta. Management initiated the pediatric program in 2007. The last Orange Book listed Lunesta patent expires in August 2012. Assuming success in the pediatric trials, Lunestas exclusivity would be extended to February 2013, and a Waxman-Hatch exclusivity extension could move the exclusivity expiration to 20142015. In September 2007, GSK signed on to market Lunesta internationally (ex-U.S., Canada, Mexico, and Japan) under the trade name Lunivia. Lunivia received a positive European CHMP approval recommendation in October 2008 and again in February 2009, but without new chemical entity (NCE) pricing status. Sepracor is appealing the NCE status, which will delay Lunivias E.U. launch into at least Q2:2009. In July 2007, Sepracor partnered with Eisai for the development and commercialization of Lunesta for the Japanese market. Sepracor expects an approval application for Lunesta will be submitted to the Japanese regulatory authorities in the 2010-2011 timeframe.
SUMMARY OF EFFICACY RESULTS FROM SIX-MONTH TRIAL OF LUNESTA Placebo (n=200) Mean 96.1 85.4 63.1 70.7 69.0 48.2 3.5 2.8 2.6 5.6 5.2 4.7 303.6 322.3 339.3 Lunesta (3mg; n=600) Mean 90.6 48.2 47.0 83.2 48.2 44.2 3.2 2.2 1.9 5.3 4.3 3.9 302.4 372.5 378.3
Endpoint Sleep Latency (min)
Timepoint Baseline Week 1 6 Months Baseline Week 1 6 Months Baseline Week 1 6 Months Baseline Week 1 6 Months Baseline Week 1 6 Months
P-value 0.6137 <0.0001 <0.0001 0.3038 <0.0001 0.0032 0.2098 0.0013 <0.0001 0.1172 0.0001 0.0001 0.1986 <0.0001 <0.0001
WASO (min)
Awakenings Per Night (#)
Night Awakened Per Week (#)
TST (min)
Source: Sleep, Vol. 26, No. 7, 2003
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Depression Data Differentiate Lunesta At the May 2005 APA meeting, Sepracor presented full results from a Phase IV study comparing Lunesta plus Prozac to Prozac alone in treating depression-associated insomnia and overall depression symptoms. The results from this trial were published in the medical journal Biological Psychiatry in April 2006. A second depression study (640 patients; Lunesta plus Wyeths Effexor vs. Effexor alone) was initiated in June 2007. Data are expected in Q2:2009. Assuming success in the second depression trial, Sepracor could pursue a formal depression-related insomnia indication. Lunesta would be the only sleep medication with such an indication. Success in the second trial is far from assured given the general challenges of achieving statistically significant changes in depression scores in relatively small trials. First Depression Trial Was A Surprise Success The 8-week, double-blind, 545-patient study enrolled patients with insomnia and coexisting Major Depressive Disorder (MDD). This trial compared Prozac (fluoxetine) plus Lunesta (3mg) to Prozac plus placebo. Patients enrolled in the trial were randomized to receive nightly Prozac and either Lunesta or placebo over an 8-week period, followed by 2-weeks of Prozac alone. All patients enrolled in the trial were diagnosed with MDD and complained of insomnia. Sleep efficacy was evaluated by measures of sleep onset, wake time after sleep onset (WASO), and total sleep time (TST). Antidepressant efficacy was assessed using HAM-D17 (Hamilton Depression Rating scale) and Clinical Global Impression Improvement (CGI-I) and Severity (CGIS) scales. Averaged over the entire double-blind period, patients treated with Lunesta and Prozac achieved a statistically significant improvement in time to sleep onset and in sleep maintenance measures (WASO and TST) compared to those patients receiving Prozac alone. The study also demonstrated a statistically significant improvement in depression scale scores in patients receiving Lunesta in combination at week 4, with progressive improvement at week 8. After removing insomnia-specific questions from the HAM-D17, improvements in the Lunesta plus Prozac treated patients remained statistically significant at week 8, a surprising result. At week 8, significantly more Lunesta-treated patients were responders (>50% reduction in HAM-D17 score) and remitters (HAM-D17 score reduced to score of 7 or below) compared to patients that received Prozac alone. CGI-I and CGI-S scores also showed statistically significant improvements in the Lunesta plus Prozac treated patients relative to those treated with Prozac alone. Lunesta/Lexapro Combo Shows Positive Effects In Anxiety In December 2006, Sepracor announced positive top-line results from a 595-patient Phase IV study of Lunesta plus Forests Lexapro in patients with generalized anxiety disorder (GAD) and insomnia. Patients enrolled in the study were treated with Forests Lexapro (escitalopram; 10mg) and were randomized to also receive either Lunesta (3mg) or placebo. The full results were presented at the American College of Neuropsychopharmacology (ACNP) meeting. Patients enrolled in the Phase IV GAD trial met the DSM-IV criteria for both insomnia and GAD. Patients were treated for 8weeks with both escitalopram and Lunesta (or placebo), followed by a 2-week period during which all patients discontinued Lunesta, but continued to receive escitalopram. Over the 8-week, double-blind treatment period, a statistically significant (p<0.05) benefit versus baseline and relative to placebo was observed for the Lunesta patients on all insomnia measures tested, including sleep onset, total sleep time, wake time after sleep onset, and number of awakenings - as expected.
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More importantly, a statistically significant (p<0.05) improvement in GAD (via HAMA scores) and depression (via HAM-D17 scores) symptoms was also seen over the 8weeks for the Lunesta patients relative to baseline and relative to the placebo group. Lunesta Label Compares Favorably To Ambien/Ambien CR Our comparison of the approved Lunesta label with that of Ambien and Ambien CR is summarized in the table below. Important points include: 1) the Ambien CR halflife is 1.62-4.05 hours (mean of 2.8 hours), well below the 6 hour half-life of Lunesta, which may compromise Ambien CRs efficacy in sleep maintenance; 2) the two pivotal trials referenced in the Ambien CR label are three week trials, with clinical endpoints measured after just two weeks of treatment. The six clinical trials referenced in the Lunesta label are two weeks to six months in duration, which is an advantage in treatment of chronic insomnia; and 3) the Ambien CR label contains no contra-indication for use with SSRI antidepressants, although the label indicates that caution should be exercised in using Ambien CR with antidepressants (similar to Lunesta). In addition, the Lunesta label contains indications of potentially beneficial next-day effects. Indeed, both the Lunesta and placebo-treated groups appear to have increased next-day performance as measured by the Digit Symbol Substitution Test (DSST); this increase was attributed to patient learning and not the drug. Ambiens label cites three studies in which Ambien-treated patients showed statistically significant reductions in DSST scores compared to placebo. Our consultants believe that the Lunesta label raised the bar for all sleep drugs in development.
COMPARISON SUMMARY OF LUNESTA AND AMBIEN/ CR LABELS Label Section Description, class AMBIEN - Non-bezodiazepine hypnotic of the imidazopyridine class - 1.6 hours - 2.5 - 2.6 hours - AUC decreased by 15%; Cmax decreased by 25%; Tmax prolonged by 0.8 hours to 2.2 hours - Small, but statistically significant reduction in performance vs. placebo was seen via DSST test AMBIEN CR - Non-bezodiazepine hypnotic of the imidazopyridine class - 1.5 hours - 1.62 - 4.05 hours - AUC decreased by 23%; Cmax decreased by 30%; Tmax prolonged by 2 hours to 4 hours - No significant decrease in performance was observed eight hours after a nighttime dose. No evidence of next-day residual effects were detected with Ambien CR using self-ratings of sedation. - Treatment of insomnia, characterized by difficulties with sleep onset and/ or sleep maintenance (as measured by WASO). LUNESTA - Non-bezodiazepine hypnotic that is a pyrrolopyrazine of the cyclopyrrolone class - 1 hour - 6 hours - AUC not changed, Cmax reduced by 21%; Tmax prolonged to 2 hours - No reduction in performance vs. placebo was seen via DSST test; both placebo and Lunesta showed an increased DSST score (presumably due to learning) - Treatment of insomnia, decreased sleep latency and improved sleep maintenance
Time to Peak Concentration (Tmax) Elimination Half-Life Food Effects
Next Day Residual Effects
Indications and Usage
- Short-term treatment of insomnia, decrease sleep latency and increase in duration of sleep, limited to 7 to 10 days of use, patient re-evaluation if to be taken more than 2-3 weeks, not to be prescribed in quantities exceeding 1-month - The failure of insomnia to remit after 7 to 10 days of treatment may indicate the presence of a primary psychiatric and/ or medical illness should be evaluated - 4% of patients discontinued treatment due to adverse events (all doses) - Drowsiness (2% vs. 0% placebo), dizziness (1% vs. 0%), diarrhea (1% vs. 0%) - Schedule IV classification - No clear evidence of withdrawal syndrome - No tolerance data in the label, but contains a class tolerance warning
Warnings
- The failure of insomnia to remit after 7 to 10 days of treatment may indicate the presence of a primary psychiatric and/ or medical illness should be evaluated - 3.5% of patients discontinued treatment due to adverse events (all doses) - Headache (19% vs. 15% placebo), Somnolence (15% vs. 2%), Dizziness (12% vs. 5%) - Schedule IV classification - No clear evidence of withdrawal syndrome - No tolerance data in the label, but contains a class tolerance warning
- The failure of insomnia to remit after 7 to 10 days of treatment may indicate the presence of a primary psychiatric and/ or medical illness should be evaluated - 9% of patients discontinued treatment due to adverse events (all doses) - Somnolence (9% vs. 4%), Dizziness (6% vs. 4%), Unpleasant taste (~25% vs. 3%) - Schedule IV classification - No clear evidence of withdrawal syndrome - Contains class tolerance warning; includes the following data - No development of tolerance was observed over 6-months; tolerance to efficacy was assessed by 4-week objective and 6-week subjective measurements of time to sleep onset and sleep maintenance in a placebocontrolled 44-day study, and by subjective assessments of time to sleep onset and WASO in a placebo-controlled study for 6-months
Adverse Events, Discontinuation of Treatment Most Common Adverse Events
Controlled Substance Abuse and Dependence Tolerance
Source: Lunesta and Ambien/ CR
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GSK Has European Rights To Lunesta (Lunivia) From Sepracor In September 2007, GlaxoSmithKline (GSK) signed on to market Lunesta internationally (ex-U.S., Canada, Mexico, and Japan) under the trade name Lunivia. Sepracor submitted a Marketing Authorization Application (MAA) for Lunesta in the E.U. in July 2007. Lunivia received a CHMP approval recommendation in October 2008 and again in February 2009, but without NCE pricing status. Sepracor has appealed to garner NCE pricing status, which will delay the E.U. launch of Lunivia at least into Q2:2009. Sepracor received from GSK a $20MM license fee, up to an additional $135MM in milestone fees, escalating double digit royalties (which we estimate to average 20%), and manufacturing fees. The European insomnia market is estimated to be $500MM, or roughly 15% the size of the U.S. market. With generics of Ambien already widely available, the European market for prescription sleep aids is more challenging than in the U.S., so we have low expectations. Sepracor licensed the Japanese development and commercialization rights to Eisai in July 2007. Sepracor projects a Lunesta launch in Japan in 2012. We project international Lunesta sales of $15MM in 2009, $100MM in 2010, and $250MM in 2013, on which Sepracor yields estimated royalty and manufacturing fee revenues of $6-7MM in 2009, $25-30MM in 2010, and $65-70MM in 2013.
Lunesta ANDA And Paragraph IV Filings As Expected

Sepracor disclosed in February 2009 that notices of ANDA filings and Paragraph IV certifications against Lunesta have been received from Teva and Cobalt Labs. These filings were expected in early-2009, as the eszopicline ANDA filing window opened following the completion of year four of Lunestas five-year Waxman-Hatch exclusivity on December 15, 2008. Lunestas five-year-Waxman-Hatch exclusivity expires on December 15, 2009. Sepracor anticipates receiving notifications of additional ANDA filings in Q1:2009, and plans to file patent litigation suits against all filers within 45 days of receiving such notifications. Lunesta Covered By Four Orange Book-Listed Patents Lunesta (eszopiclone) is covered by four Orange Book-listed patents (6,319,926; 6,444,673; 6,864,257; and 7,381,724) expiring in January and August 2012, plus the Waxman-Hatch NCE exclusivity through December 15, 2009. The eszopiclone patents include composition, method-of-use, and formulation claims. Eszopiclone is the dextrorotary isomer of zopiclone, an older insomnia compound. But the unexpected properties of Lunesta include nearly twice the activity and lower nextday effects than zopiclone. Our legal consultants believe that unexpected results can support an isomer patent, as they did in Teva/Barrs unsuccessful challenge of Forest Labs Lexapro. Assuming Sepracor files patent infringement suits within 45 days of receipt of the ANDA notification, Lunesta will be covered by the Waxman-Hatch stay on ANDA approvals for 30-months. However, because Lunestas Waxman-Hatch NCE exclusivity still is active, the 30-month stay begins at the expiration of the Waxman-Hatch exclusivity period on December 15, 2009. Therefore, the FDA can approve ANDAs for generic Lunesta only at the earlier of the expiration of the 30-month stay on June 15, 2012 or a court ruling that Separacors patents are invalid, unenforceable, or not infringed, which is unlikely to occur before June 15, 2012.
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SEPRACOR'S LUNESTA PATENT PORTFOLIO

ORANGE BOOK LISTED LUNESTA (ESZOPICLONE) PATENTS Number 6,319,926 6,444,673 6,864,257 7,381,724 Claims Method for improving sleep quality or time by administering [the structure that is eszopiclone] Composition of the dextrorotary isomer of zopliclone Method of use claims (beyond treating insomnia) Formulation of eszopiclone Expiration Date - January 16, 2012 - May be extended into 2014 - January 16, 2012 - May be extended into 2014 - August 30, 2012 - January 16, 2012 - May be extended into 2014
Source: FDA Orange Book, U.S. PTO website
And Potential Patent Term Restoration And An Improved Formulation Sepracor has applied for patent-term restoration for Lunesta, which could add 2+ years to Lunesta's patent life. Lunesta was held up at the FDA for several months by a DEA scheduling delay, as well as labeling discussions. Sepracor also is conducting pediatric trials of low-dose Lunesta in hopes of securing a pediatric use indication and another six-months of exclusivity. And Sepracor also has developed an alternative Lunesta formulation (SEP-227018), which currently is in Phase II development. We believe 018 provides cleaner side-effect and tolerability profiles than eszopiclone, which could garner FDA and formulary approval, SEP-227018 could be filed in 2011 and reach the market in 2012, two years ahead of our expectation for generic competition to Lunesta. No Changes To Our Lunesta Sales Estimates We are making no changes to our estimate for a gradual sales decline for Lunesta over the next five years, due to increasing therapeutic substitution of generic formulations of Ambien and Ambien CR for Lunesta and managements pairing of Lunestas sales and marketing support. We estimate Lunesta sales of $510MM (-15%) in 2009, declining to $450MM (-12%) in 2010, $400MM (-11%) in 2011, and $335MM in 2013. While our 2013 Lunesta sales estimate of $335MM is down nearly 56% from 2008 Lunesta sales, our estimates do not assume generic competition to Lunesta until H2:2014.
Kings Sonata Clipped By Generics

Sonata (zaleplon) is a short acting, non-benzodiazepine hypnotic of the pyrazolopyrimidine class. Sonata has a rapid onset of action and a reasonable safety profile. However, Sonatas market share has been compromised by its short half-life (duration of action of roughly 4-5 hours) and increasing competition from newer agents. As of January 2009, Sonata held a 0.1% total prescription share of the U.S. insomnia market, down from 1.3% in January 2008. Because of its short half-life, clinical data supporting Sonatas effectiveness focus on decreasing time to sleep latency: Sonata has not demonstrated consistent differences from placebo in duration of sleep or number of awakenings. Sonatas composition-of-matter patent expired in June 2008, and multiple generics were launched in June (including generics from Genpharm, Teva and Roxane), eroding Sonatas market share. We estimate U.S. Sonata sales of $15MM (-65%) in 2009 and $10MM in 2013.
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Takedas Rozerem A Niche Player

Rozerem (ramelteon) is a selective melatonin-1 and melatonin-2 receptor agonist and therefore has a different mechanism of action than most of the other key insomnia drugs (including Ambien/CR, Sonata, Indiplon, and Lunesta) that target the GABA pathway. Rozerem affects the body's recognition of light/dark cycles to induce sleep. Rozerem was launched in the U.S. market in September 2005. As of January 2009, Rozerem held a 1.6% total prescription share of the U.S. insomnia market, down from 2.4% in January 2008. Takeda is supporting Rozerem with a 1,000-rep sales force and a surprisingly aggressive DTC advertising campaign. Our consultants believe that Rozerems efficacy is modest. However, our consultants have noted that clinical data from a study of Rozerem in elderly patients look good and they believe Rozerem's benign side-effect profile and non-DEA scheduled status will spur modest use. We estimate Rozerem U.S. sales of $160MM (+51%) in 2009, $170MM in 2010, and $200MM in 2013, assuming just a 3% U.S. prescription share in 2013.
INSOMNIA DRUG PRICE COMPARISIONS ($ PER DOSE)
Ambien Generics (multiple) 5mg 10mg $0.07 $0.07 Ambien CR (SNY) 6.2mg 12.5mg $4.27 $4.27 Lunesta (SEPR) 1mg 2mg 3mg $4.63 $4.63 $4.63 Rozerem (Takeda) 8mg $3.52 Sonata (KG) 5mg 10mg $3.67 $3.77
Source: https://pricerx.medispan.com reported wholesale acquisition cost (WAC), March 2009
Sanofi-Aventis Imovane/Amoban Available Outside U.S.

Launched in 1987 and sold only outside the U.S., Sanofi-Aventis Imovane (zopiclone) is marketed as a treatment for insomnia in approximately 80 countries. Imovane has never been patented or registered in the U.S. Imovane is a cyclopyrolone, shortacting hypnotic, marginally selective for the BZ1 (omega 1) subunit of the GABA-A receptor. Imovane is rapidly absorbed and its active half-life ranges from 3.5 to 6.5 hours. The pharmacokinetics of zopiclone in humans are stereoselective, meaning they differ significantly for the drugs two isomers (enantiomers). After oral administration of the racemic mixture, Cmax, AUC and half-life values are higher for the dextrorotatory (S+) enantiomer (i.e., Lunesta), owing to the slower total clearance and smaller volume of distribution compared with the levorotatory enantiomer. The pharmacokinetic profile of zopiclone has been shown to be altered by aging and is influenced by renal and hepatic functions. Drug interactions have been observed with erythromycin, trimipramine and carbamazepine. Because of its variable pharmacokinetics, Imovane results in next-day hypnotic side effects in a significant portion of patients.
Neurocrines Indiplon De-Emphasized

Indiplon (NBI-34060) is a non-benzodiazepine GABA-A agonist in development for the treatment of insomnia. Although Indiplon has completed 17 Phase III trials, the FDA has declined its approval twice, most recently on its December 2007 PDUFA. Following the second non-approval, Neurocrine de-emphasized the program and discontinued development until it receives further guidance from the FDA.
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Indiplon Looked Good On Paper Although Indiplons mechanism of action is similar to that of Sepracors Lunesta, Sanofi-Aventiss Ambien, and Wyeth/Elans Sonata, it has some differentiating features. First, Indiplon is more potent, binding to the GABA-A receptor with binding characteristics 10 and 50 times greater than those of Ambien and Sonata, respectively, potentially enabling it to have a better side-effect profile. Second, Indiplon is rapidly absorbed and has a relatively short half-life, which has allowed Neurocrine to formulate the drug into immediate- and modified-release formulations. The immediate-release (capsule) formulation is designed to be used by people who have trouble falling asleep or those who wake up unexpectedly in the middle of the night and are unable to get back to sleep. Neurocrine is also developing longer-acting formulations that will rapidly induce sleep and maintain sleep through the night. Theoretically, Indiplon could address many of the major forms of insomnia: difficulty falling asleep; difficulty staying asleep; and middle-ofthe-night awakenings, with difficulty getting back to sleep. Indiplon Was Filed On The Heels Of A Large Phase III Program With more than 6,000 patients in its Phase I, II, and III trials, Indiplons FDA filing has one of the largest datasets of any sedative-hypnotic. Neurocrine submitted NDAs to the FDA for Indiplon capsules and tablets in October 2004 and November 2004, respectively. However, the FDA refused to file the capsule NDA because of formatting issues, and Neurocrine withdrew the tablet application. Following revision, Neurocrine re-submitted its NDAs in April and May 2005. But The FDA Declined To Approve In 2006 In May 2006, Neurocrine announced that the FDA had determined that Indiplon's long-acting formulation, Indiplon MR, is not approvable, and its short-acting formulation, Indiplon IR, is approvable. The approvable letter for Indiplon 5 mg and 10 mg capsules requested that the company reanalyze data from certain preclinical and clinical studies to support approval of Indiplon capsules for sleep initiation and middle-of-the night dosing. The FDA also requested reexamination of the safety analysis for the elderly population, and suggested that additional clinical trials were a possibility. The not approvable letter for Indiplon 15 mg tablets requested that the company reanalyze certain safety and efficacy data. The letter also questioned the sufficiency of the company's objective sleep maintenance clinical data with the 15 mg tablet in view of the fact that the majority of the company's Indiplon tablet studies were conducted with doses higher than 15 mg (The Phase III trials for Indiplon MR were conducted using 20mg and 30mg doses). And Then Again In 2007 In September 2006, Neurocrine had an end-of-review meeting with the FDA for the Indiplon IR application. Neurocrine then completed a small clinical trial to supply the FDA with requested supplemental pharmacokinetic data on food interactions with Indiplon capsules. Neurocrine was also asked to conduct additional analyses of its database to address questions raised in Indiplon capsules initial review. Neurocrine completed these analyses and resubmitted the NDA for Indiplon capsules (5 mg and 10 mg) on June 15, 2007. On its PDUFA date of December 12, 2007, Neurocrine received a second approvable letter from the FDA. The FDA specified three requirements for the approval of
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Indiplon: (1) An objective/subjective clinical trial to confirm the safety and efficacy of the 5mg dose in the elderly. (2) A safety study assessing the rates of adverse events occurring with Indiplon when compared to a marketed product, and (3) A preclinical study to evaluate Indiplon administration during the third trimester of pregnancy. These requests were particularly surprising, because none had been made in Indiplon's first approvable letter. Neurocrine met with the FDA in mid-2008 to discuss the studies, and get additional details on the FDA's concerns. Should they be conducted, we expect both trials will take at least 12-18 months to plan and complete, suggesting at least a two year delay to Indiplon's approval. Following this most recent non-approval, Neurocrine has de-emphasized the program and has indicated it is unlikely to proceed without a partner and awaits further guidance from the FDA.
Indiplons Phase III Program
Insomnia Type Primary Primary Transient Rebound Age Group Adult Elderly Adult Adult Adult Elderly Setting/Primary Endpoint Outpatient/LSO Outpatient/LSO Sleep Lab Sleep Lab/LPS Outpatient Outpatient long term safety study Outpatient/sTST Outpatient/sTST # Patients Enrolled 700 360 593 192 536 120 Data Released Q1:04 Q1:04 Q4:02 Q2:03 Q3:03 Q2:04
Formulation capsules capsules capsules capsules capsules capsules
Objective Long Term Efficacy, Safety Two Week Efficacy, Safety Efficacy, Safety Efficacy, Safety Long Term Safety Long Term Safety
Doses 2 2 Single 2 2 2
tablets tablets
Primary Primarysleep maintenance Primary Primary Primary
Adult Adult
Two Week Efficacy, Safety Long Term Efficacy, Safety
30mg 2
220 740
Q3:03 Q1:04
tablets tablets tablets tablets tablets Total
Elderly Elderly Elderly Adult Elderly
35-Day Efficacy, Safety Two Week Efficacy, Safety Two Week Efficacy, Safety Long Term Safety Long Term Safety
2 1 15mg
Inpatient/Outpatient WASO measured by PSG Outpatient/sTST Outpatient/sTST Outpatient Outpatient
340 223 229 144 120 4287 Q2:04 Q1:04 Q3:04 H1:04 H1:04
Source: Company data; Studies in Italics are extension studies; LPS = Latency To Persistent Sleep; LSO = Latency to sleep onset, as measured by patient self-reported outcomes
Somaxon Files NDA For Silenor

Silenor (doxepin) is in development for the treatment of insomnia in both adult and elderly patients. Silenor is low-dose doxepin (1mg, 3mg, and 6mg strengths), a tricyclic antidepressant that has been marketed for over 35 years at higher doses (75-300mg daily) for the treatment of depression and anxiety. The safety profile of low-dose doxepin is well established. Doxepin inhibits the reuptake of serotonin and noradrenaline, and also acts as a weak dopamine reuptake inhibitor. Doxepin is a highly specific antagonist of the H1 and H2 receptors in the brain, but also has activity against the 5HT2 alpha-1 and muscarinic receptors. Doxepin is not a DEA scheduled drug, which may prove to be a marketing advantage over existing GABA-A targeted drugs, which are classified as DEA Schedule IV drugs. Somaxon has completed four Phase III trials for Silenor, all of which hit their primary endpoints and demonstrated that Silenor was safe and well tolerated. A summary of the Phase III results can be found in the table below. Our consultants believe the Phase III data
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generated for Silenor look promising. In July 2006, Somaxon management disclosed that the FDA requested certain preclinical studies be completed, including a carcinogenicity study. In May 2007, Somaxon management announced that following discussions with the FDA, Somaxon would be required to include the results from a 26-week carcinogenicity study in its initial NDA filing, delaying the Silenor NDA filing from Q3:07 to Q1:08. On January 31, 2008, Somaxon announced filing of the NDA, and the drug was granted a PDUFA date of December 1, 2008. On February 26, 2009, the FDA issued a complete response letter for the Silenor NDA, requesting clarification of the efficacy data and additional data on cardiovascular safety (QT prolongation). Somaxon also is completing a two-year carcinogenicity study (ongoing), and plans to submit the results in 2009. We estimate Silenor U.S. sales of $25MM in 2010 and $125MM in 2013.
SUMMARY OF SILENOR PHASE III DATA

SUMMARY OF SILENOR PHASE III TRIAL RESULTS Target Population Adults (n=229); sleep maintenance Length 35 days Doses Tested 3mg, 6mg Primary Endpoints WASO (p<0.0001) Secondary Endpoints TST (p<0.0001), SE, LPS (p=0.011 for 3mg and p=0.0018 for 6mg) Comments - Statistically sign. for both dose; stat. sign. LPS result seen after initial dosing, but did not persist due to improvement in the placebo group; conducted in a sleep lab setting - Efficacy measurements made in the sleep lab and on an outpatient basis
Elderly (n=240); sleep maintenance
3 months
1mg, 3mg
WASO (at week one: p=0.0053 for 1mg and p<0.0001 for 3mg; at week 12: p=0.033 for 1mg and p<0.0001 for 3mg) LPS (p<0.0001)
sTST; SE; TST; LSO (all stat. sign. at week one and week 12); for LPS (improvement over baseline, but not stat. sign.) LSO (p<0.0001); WASO (p<0.0001); TST (p<0.0001); SE sWASO (p<0.0001); SQ (p<0.0001); LSO (numerically better vs. baseline, but not stat. sign.)
Adults (n=565); transient insomnia Elderly (n=255); sleep maintenance
One night
6mg
- Conducted in a sleep lab setting
4 weeks
6mg
sTST (p<0.0001 at one week; significance maintained at all time points)
- Patients enrolled had at least a 3-month history of insomnia
Sanofi-Aventis Planning To File Ciltyri (Eplivanserin) In 2009

Ciltyri (eplivanserin) is the most advanced compound from a new class of insomnia drugs know as selective 5HT2A antagonists. 5HT2A antagonists target the 5HT2A receptor (a type of serotonin receptor), rather than the GABA-A receptor which is the target for most current prescription insomnia medications. By working via a distinct mechanism, researchers believe 5HT2A antagonists may avoid some of the side effects associated with drugs targeting the GABA-A receptor, and 5HT2A antagonists are unlikely to be scheduled by the DEA. In addition, targeting the 5HT2A receptor may have a more potent effect on sleep quality by targeting slow wave sleep, although our consultants have expressed doubts that increasing slow wave sleep will prove to be more effective than existing GABA-A targeted drugs for the treatment of insomnia. Sanofi-Aventis expects to file an NDA for Ciltyri in 2009. We have no sales estimates for Ciltyri pending improved visibility on its profile.
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SUMMARY OF EPLIVANSERIN PHASE I RESULTS
Phase II Data Were Solid Sanofi-Aventis released positive top-line results from a Phase IIb trial of eplivanserin in August 2005. The 350-patient, multi-dose trial was designed with a 1-week run-in period during which patients were not treated with any medications. All patients enrolled were diagnosed with primary insomnia. After the run-in period, patients were randomized to receive placebo (n=119), 1mg/day of eplivanserin (n=117), or 5mg/day of eplivanserin (n=114) for four weeks. Patients were asked to fill out questionnaires to determine TST, WASO, and number of awakenings. Eplivanserin did not demonstrate a statistically significant effect on TST, but did achieve significant effects on WASO and number of awakenings at the 5mg/day dose. Eplivanserin did not demonstrate a beneficial effect on sleep induction, which appears to be a characteristic of all 5HT2A antagonists, implying they may be reserved for patients with sleep maintenance issues only. The most common side effects were dry mouth and headache. Phase III Trials Nearing Completion Sanofi-Aventis Phase III program of eplivanserin for insomnia consists of three trials- GEMS, EPLILONG, and EPOCH. GEMS and EPLILONG were initiated in November 2005. The first trial (GEMS; n=948) is a 12-week placebo-controlled trial of eplivanserin (5mg/day) in patients with sleep maintenance problems. The GEMS trial was completed in Q1:08. Sanofi announced in April 2008 that the study was successful; eplivanserin significantly reduced WASO (primary endpoint) and number of night-time awakenings at 6 and 12 weeks. The second Phase III trial EPILONG enrolled 1,154 patients. EPILONG has a design similar to the GEMS trial, but contains a 40-week open-label treatment extension phase. The EPILONG trial was completed in Q4:07, and preliminary results described in February 2008. Treatment with eplivanserin 5mg led to statistically significant reductions in WASO and in the number of awakenings at 6- and 12- weeks from baseline relative to placebo (results shown in figure below). Eplivanserin demonstrated a good tolerance profile versus placebo with no residual effect on waking as measured by psychometric tests. No rebound phenomenon or withdrawal symptoms were seen with eplivanserin. In February 2006, Sanofi-Aventis initiated a 6-week, 608-patient PSG study (EPOCH) of eplivanserin. The dose being tested in this trial is 5mg per day. Results from the EPOCH study showed a statistically significant reduction in WASO at 3 weeks (NS at
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6-weeks) and a statistically significant reduction in NAW at both 3- and 6-weeks; relative to placebo. Similar to EPLILONG, eplivanserin was well tolerated in the EPOCH study. No evidence of next-day residual side effects, no rebound phenomenon nor withdrawal effects after 2-weeks post treatment discontinuation was seen in EPOCH.
Eplivanserin EPLILONG and EPOCH Phase III Results
Source: Sanofi-Aventis
Phase III Data For Vandas Tasimelteon (VEC-162) Are Encouraging

Tasimelteon (VEC-162) is a balanced melatonin (MT-1 and MT-2) receptor agonist under development for the treatment of insomnia. The mechanism of action is similar to Takedas Rozerem, although tasimelteon appears to stimulate the melatonin receptors in a more balanced fashion. Our consultants indicate this may explain why tasimelteon appears to be more efficacious than Rozerem. Phase II data on tasimelteon were presented at the APSS meetings in June 2006. The 37-patient trial tested tasimelteon in healthy patients using a transient insomnia model. Four doses of tasimelteon were tested: 10, 20, 50, and 100mg. The co-primary endpoint was the shifting of patients' circadian rhythm as measured by plasma melatonin and an improvement in time to persistent sleep as measured by PSG, both vs. placebo. Secondary endpoints included WASO, safety and tolerability. The 50 and 100mg doses hit statistical significance via the circadian rhythm primary endpoint and all doses tested improved time to persistent sleep. All doses tested reduced WASO, with the 100mg dose reducing WASO by 68.5 minutes vs. placebo. Vanda released top-line results from the first Phase III trial of tasimelteon in November 2006 and more detailed results were presented at the Associated Professional Sleep Societies SLEEP 2007 meeting in June. The 412-patient trial was a sleep lab study using a model of transient insomnia in adults. The trial tested three doses of tasimelteon: 20, 50, and 100mg. All doses tested hit statistical significance (vs. placebo) via LPS, LNA (Latency to non-awake), WASO, and TST. Vanda expects to run additional Phase III trials of tasimelteon in patients with chronic insomnia. In February 2008, the company announced they had completed enrollment of the first
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of these studies, which was significantly ahead of expectations. The study enrolled 324 patients randomized into one of three treatment groups of 20 mg, 50 mg and placebo. The primary and secondary endpoints evaluated sleep onset and sleep maintenance parameters over five weeks of observations via sleep recordings in a sleep lab. Top-line results from this Phase III study were reported in June 2008. Mean LPS (primary endpoint) at baseline (before drug treatment) was 78.8 minutes in the 20mg group, 76.4 minutes in the 50mg group, and 78.2 minutes in the placebo group. On Nights 1 and 8 of treatment, mean LPS improved by 45.0 minutes in the 20mg group (p<.001), by 46.4 minutes in the 50mg group (p<.001), and by 28.3 minutes in the placebo group. On Nights 22 and 29 of treatment, mean LPS improved by 49.4 minutes in the 20mg group (p<.001), by 45.1 minutes in the 50mg group (p=.016), and by 33.9 minutes in the placebo group.
SUMMARY OF VEC-162 PHASE III RESULTS IN TRANSIENT INSOMNIA
Latency to Persistent Sleep* Wake After Sleep Onset* Total Sleep Time*
Source: Company reports * all results are largest statistically significant change vs. placebo achieved at any of the doses tested; transient insomnia model
26.3 min. 33.7 min. 47.9 min.
Sanofi-Aventis Volinanserin Moves Into Phase III

Volinanserin (formerly M100,907) is a 5HT-2a receptor antagonist, similar to Ciltyri. In February 2007, Sanofi-Aventis unveiled its Phase III program for Volinanserin. Clinical data on Volinanserin is scarce: no detailed Phase II data on the product has been released. However, judging by the size and scope of the Phase III program for Volinanserin, we presume that the clinical data thus far have been encouraging. In Q2:07, Sanofi-Aventis initiated three Phase III trials for Volinanserin. The NOCTURNE trial is a six-week PSG study and will enroll 580 patients. The primary endpoint for the NOCTURNE trial is change in WASO at six-weeks vs. baseline. Data from this study were announced in April 2008 and showed that volinanserin significantly reduces WASO and the number of night-time awakenings (measured by polysomnography) at 3 and 6 weeks of treatment, versus placebo. The results also demonstrate the good safety profile of volinanserin versus placebo. The SAMS trial is a 12-month placebo-controlled trial and will enroll 1,800 patients. The primary endpoints for the SAMS trial are: (1) change in patient reported WASO at six-months vs. baseline, and (2) change in HbA1C levels at six and 12 months vs. baseline. The HbA1C endpoint will be examined in a subgroup of patients with Type 2 diabetes. The SAMS 12 trial is a 12-week placebo-controlled trial and will enroll 840 patients. The primary endpoints for the SAMS 12 trial are the same as the SAMS trial, except the measures will be taken at 12 weeks and compared to baseline. Sanofi-Aventis targets regulatory filings in 2010 for Volinanserin. We do not have sales estimates for Volinanserin at this time, pending improved visibility on the profile of the product.
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SUMMARY OF VOLINANSERIN PHASE II RESULTS
Schering-Ploughs Esmirtazapine Is In Phase III

Esmirtazapine (formerly Org 50081) is a 5HT-2 antagonist in Phase III trials for insomnia. Schering-Plough acquired esmirtazapine via its acquisition of Organon. The single isomer of mirtazapine (Remeron; antidepressant), esmirtazapine is also in Phase III trials for the treatment of menopausal symptoms. The Phase II SAPPHIRE study in sleep demonstrated a significant reduction in the WASO (wake after sleep onset) and LPS (latency to persistent sleep) scores for both the 3.0 and 4.5mg doses. There was no daytime hangover and rebound effects on sleep post cessation. Schering believes that esmirtazapine is unlikely to be scheduled for sleep disorders. In June 2007, Schering-Plough initiated a 390-patient, six-week Phase III trial of esmirtazapine in patients with chronic insomnia. The primary endpoint of the trial is WASO. A 520-patient, two-week Phase III trial was also initiated in June 2007. The primary endpoint of this trial is TST. Schering plans on filing esmirtazapine in 2011/12. We forecast esmirtazapine sales of $150MM in 2015.
GSK Partners With Actelion On Almorexant For Sleep

In July, Glaxo and Actelion announced that they had entered into an exclusive worldwide collaboration (excluding Japan) for Actelion's almorexant, an orexin receptor antagonist in Phase III development with first-in-class potential as a treatment for primary insomnia. Orexin, which is known to help regulate the sleepwake cycle, could help to reduce some of the side-effects associated with current sleep treatments. At the end of 2007, Actelion initiated Phase III development for almorexant, with the pivotal studies required for registration in the U.S. scheduled to commence in Q4:08, however this had yet to begin in December. The RESTORA (REstore normal physiological Sleep with The Orexin Receptor antagonist Almorexant) programme is evaluating the safety and efficacy of almorexant in adult and elderly patients diagnosed with primary insomnia.
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Under the terms of the agreement, GlaxoSmithKline will receive exclusive worldwide rights to co-develop and co-commercialize almorexant. Actelion will continue to lead the ongoing development program and potential registration for almorexant in the first indication, primary insomnia, with GlaxoSmithKline contributing 40% of the costs. Almorexant will also be studied in other orexin-related disorders and all costs related to these programs will be shared equally. Actelion received an upfront payment of CHF 150MM (approximately 66MM) and will be eligible for additional potential milestone payments of up to CHF 415MM in regards to the successful development and approval of almorexant in primary insomnia. In addition, Actelion will be eligible to receive additional milestone payments, pending successful development of two other major indications for almorexant yet to be evaluated through clinical investigation.
Phase II Results For Neurogens Adipiplon Mixed

Adipiplon is a selective GABA receptor agonist. In preclinical studies, Adipiplon has demonstrated increased activity at the alpha-3 subunit of the GABA receptor, which has been shown to be the subunit responsible for sleep-inducing effects. In December 2005, Neurogen announced the completion of two Phase I studies. Adipiplon was shown to be safe and well tolerated up to a 60mg dose. Subjective measures were used to confirm sedation at all the doses tested. Neurogen announced positive top-line results from a 360-patient Phase II study in May 2006. The primary endpoint for the trial was LPS and the trial was conducted in a sleep lab using a model of transient insomnia. Four different doses of Adipiplon were tested: 1mg, 3mg, 10mg, and 20mg. All doses tested achieved a statistically significant improvement in LPS. The 1mg dose achieved a 42% improvement in LPS, the 3mg dose achieved a 65% improvement, the 10mg dose achieved a 75% improvement, and the 20mg dose achieved a 79% improvement. Adipiplon was well tolerated. Neurogen is actively looking to partner Adipiplon. In June 2007, Neurogen announced positive top-line results from the #202 and #203 Phase II studies. The placebo-controlled, parallel group #203 study enrolled 258 adults suffering from chronic insomnia. The trial tested five different dose and formulation profiles of Adipiplon, including immediate- and sustained-release formulations. The #203 trial reached statistical significance via the primary efficacy measure (LPS) at all the doses/formulations tested. However, a statistically significant effect was not seen via WASO. In June 2007, Neurogen also released positive top-line results from the #202 sleep lab trial. The placebo-controlled, crossover design 36-patient trial tested eight different dose and formulation profiles of Adipiplon. The #202 trial achieved statistical significance via its primary endpoint, WASO. In both trials, next day side effects were seen with the higher doses of Adipiplon tested. In July 2008, Neurogen announced that it had commenced a Phase II/III study in chronic insomnia but that based on reports from initial dosing of a higher than expected rate of unwanted next day effects, the company suspended dosing in the study. Neurogen believes that the bilayer tablet formulation of adipiplon being used in the study may not be performing as expected. The company expects to evaluate the bilayer tablet before proceeding further. In the previous studies Neurogen had simultaneously used various doses of immediate release and controlled release forms of adipiplon. The Phase II/III was the first trial in which it used the two forms laminated together into one bilayer tablet.
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Phase II Results For Eli Lilly/Hypnions HY10275 Encouraging

In January 2007, Hypnion (private) released positive top-line Phase II results for HY10275, a novel highly selective dual-acting agent that targets both the H1 and 5HT2a receptors. The placebo-controlled, multi-dose Phase II trial tested HY10275 in 52-patients with moderate-to-severe transient insomnia. The primary endpoint was WASO: patients treated with 3mg HY10275 experienced a 62 minute reduction (p<0.001) in WASO vs. placebo and patients treated with 1mg of HY10275 experienced a 35 minute reduction (p<0.002) in WASO vs. placebo. HY10275 also achieved a statistically significant effect via a number of secondary measures, including LPS. HY10275 appeared to be well-tolerated and no adverse events were reported in the trial; there were no reports of next day residual effects. Hypnion management indicated that HY10275 may not be scheduled by the DEA, assuming successful commercialization. In March 2007, Eli Lilly agreed to purchase Hypnion for an undisclosed sum; the deal closed in April 2007.
Pfizers PD-200,390 Is In Phase II

PD-200,390 is an alpha-2 delta ligand, similar to pregabalin (Pfizers Lyrica) and gabapentin (Pfizers Neurontin). PD-200,390 binds to the alpha-2 delta subunit of voltage-sensitive calcium channels, and therefore does not act via the GABA pathway. Activation of these calcium channels leads to the release of the stimulatory neurotransmitter glutamate. PD-200,390 inhibits glutamate release by blocking the opening of the calcium channels. PD-200,390 is believed to treat insomnia by increasing slow wave sleep. Pfizer presented Phase II data for PD200,390 at its analyst day in January 2007. Patients treated with PD-200,390 achieved TST levels comparable with zolpidem and appeared to have significantly fewer awakenings. Lyrica is a DEA Schedule V drug, but gabapentin is not scheduled. It is unclear if, assuming successful development, PD-200,390 will be a DEA scheduled drug. Phase III trials of PD-200,390 could begin in 2009. Assuming clinical success, we target a 2012 launch for PD-200,390 and project launch year sales of $100MM.
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PD-200,390 PHASE II DATA
Arenas APD125 Demonstrates Safe Profile

In June 2005, Arena released top-line results from its APD125 Phase I program. ADP125, a selective inverse agonist of the 5HT2A receptor, was shown to be safe and well tolerated. In addition, APD125 appeared to improve sleep quality in healthy subjects. The randomized, double-blind, dose-ranging Phase I studies evaluated APD125 in volunteers with normal sleep/wake cycles. Following a single night time dose (10, 20, or 40 mg), slow-wave sleep increased in a dose-dependant fashion by 10 to 31 min, with a 60% increase (p=0.0002) seen at the 40 mg dose. In September 2008, Arena reported results from a Phase II trial of APD125 in subjects with chronic insomnia. This crossover-design trial tested two doses of APD125 (10, 40 mg). Each patient received both doses of APD125 and placebo in random order, for one week, separated by 7-9 days of washout. Polysomnographic data collected on days 1 and 2 of treatment (WASO, WTDS) were averaged, as were data from days 6 and 7. Data from both drug groups were compared to those from placebo. DATA FROM APD125S PHASE II TRIAL IN INSOMNIA
In addition to the WTDS and WASO data, significant improvements in number of awakenings and arousals were observed, and trends in subjective improvement were recorded. While the data suggest that APD125 may have a role for sleep maintenance, we have reservations as to its commercial prospects. First, we are concerned by the lack of clear dose-response. Second, WASO is the endpoint upon which the FDA evaluates drugs for the maintenance insomnia indication, and with only a four minute improvement at the higher of the two doses on the day 6-7 comparison, we believe APD125 may have difficulty demonstrating definitive efficacy in later-stage trials and passing regulatory muster.
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...But Fails In Phase IIb Sleep Maintenance Study Arena initiated a randomized, double-blind, placebo controlled Phase IIb trial in April 2008 comparing 20mg and 40mg doses of APD125 in patients with primary insomnia. The study concluded in October 2008 and Arena reported the results of the trial in December 2008. Despite demonstrating a clean safety profile with no reported adverse side effects, APD125 failed to meet its sNAASO primary endpoint as well as sWASO, sSLO, and sTST secondary endpoints over a 2-week treatment period followed by a 2-week post-treatment follow-up. Management does not plan on continuing further development of ADP125.
Cephalons Provigil Used To Treat Excessive Sleepiness

Provigil (modafinil) was launched in February 1999 and is used to treat excessive daytime sleepiness associated with narcolepsy, shift work, and obstructive sleep apnea/hypopnea. Provigil is a DEA Schedule IV substance. Approximately 40-45K patients in the U.S. are currently being treated for narcolepsy. In early 2004, Cephalon expanded Provigils label to include the excessive sleepiness due to shift work and obstructive sleep apnea/hypopnea indications. It is estimated that over 20 million individuals in the United States suffer from sleep apnea (15MM) or are occupational shift workers (5MM). Besides expanding the target market for Provigil, the additional indications have given Cephalon the ability to extend its efforts to general practitioners. Deal With Takeda Extends Provigils Reach In June 2006, Cephalon and Takeda announced a three-year co-promotion deal in which Takeda markets Provigil (and possibly Nuvigil) via its 500-person primary care U.S. sales force in exchange for a royalty on incremental sales. Takedas U.S. sales team also sells Rozerem. Takeda was chosen by Cephalon for its knowledge of the sleep market and aggressive interest in Provigil. In January 2007, Takeda increased its promotional efforts to primary care physicians via the addition of 250 reps selling Provigil in their primary detail position. Although co-promotion efforts on Takeda's behalf do not appear to have had a meaningful impact on prescribing trends, Provigil prescriptions continue to grow at a steady pace (mid- to low-teens growth Y/Y). Coupled with price hikes, we expect Provigil sales to increase by 20%+ Y/Y and eclipse the $1B mark in 2009. Cephalon continues to promote Provigil via its 400+ person sales force, calling on sleep specialists, neurologists, and psychologists). Provigils Exclusivity Maintained Through Settlements Upon approval for narcolepsy, Cephalon was granted seven-year orphan drug exclusivity lasting until June 2006. Provigil is also protected by one unexpired Orange Book listed patent (U.S. patent #5,618,845 expiring 10/4/14). Patent 845 covers particle sizes of Provigil below 200 microns. In developing Provigil, Cephalon discovered that small particle sizes of the drug have better bioavailability, and Cephalon believes this invention allows for lower doses of drug to be administered and for side effects to be reduced. In 2003 four generic companies (Teva Pharmaceuticals, Mylan Laboratories, Ranbaxy Pharmaceuticals, and Barr Laboratories) filed to challenge Cephalons 845 patent. These four companies share first to file ANDA status and 180-day marketing exclusivity. As a result, subsequent generic challengers (several have entered the
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fray) are effectively blocked from launching a Provigil generic until 1) after an ANDA is formally approved or 2) the 845 patent is declared invalid by an Appellate Court. Cephalons 845 patent was challenged on invalidity and non-infringement and to us appeared unlikely to withstand generic challenge. Cephalon filed suits against these challengers, and the companies were headed toward a jury trial in 2006. However, between December 2005 and February 2006, Cephalon announced a series of settlements regarding its litigation against Teva, Ranbaxy, Mylan, and Barr. Provisions of these settlements include: (1) The generic companies will be permitted to launch their versions of Provigil in early 2012, two years ahead of the expiration of Cephalons 845 patent. Generic companies retain the rights to an earlier launch if another challenger successfully enters the market. In return, the companies will pay Cephalon an undisclosed royalty on modafinil sales. (2) Cephalon will receive intellectual property from these companies, including patent applications relating to the manufacture, development, and formulation of Provigil. Generic companies have also entered into a Provigil API supply agreement with Cephalon and in one case (Teva) are entitled to royalties on future sales of the product. These settlements appear up to legal scrutiny as per a February 2005 ruling by the 11th Circuit Appeals Court that indicates a patent should be presumed valid until proven otherwise. Therefore a settlement agreement that enables a generic launch any time before the patent expiration is pro-competitive and should be acceptable to antitrust regulators. This decision ran contrary to the FTCs viewpoint that such settlements were anti-competitive. However, in June 2006, the Supreme Court elected not to hear an appeal of the FTCs case, indicating that settlements between branded and generic companies are permissible. FTC Challenge Unlikely To Impact Cephalon FTC consultants had indicated that the FTC would not take the court verdicts lying down and would likely challenge multiple settlements (including Cephalonss) in other jurisdictions. Consistent with this view, in February 2008 the Federal Trade Commission (FTC) filed a complaint in the District of Columbia against Cephalon in connection with the companys settlement agreements over Provigil. Our anti-trust experts feel that the odds of a permanent injunction against Cephalon are low. They believe the FTCs goal in pursuing Cephalon is to set long-term anti-trust policy as opposed to drive a quick reversal of the Provigil settlements. Consultants believe the FTCs best legal argument is evidence to suggest Cephalons particle size patent (due to expire in 2014) was invalid and unlikely to protect Provigil exclusivity. They expect the case to turn into a mini patent trial in which the FTC will attempt to prove that (unlike the Schering-Upsher case) there was great certainty Provigil would go generic, and hence any payments to generic competitors should be deemed in violation of anti-trust laws. Consultants believe Cephalon has a greater than 50% chance of ultimately prevailing owing to the courts strong bias favoring settlements over litigation and the absence of a legal requirement that settlements must serve the public interest.
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Especially With The Transfer Of The Suit To Pennsylvania In April 2008, U.S. District Court Judge Bates agreed to Cephalons request to transfer the FTCs law suit against Cephalon to the U.S. District Court of Eastern Pennsylvania. In doing so, Judge Bates has decided that the FTCs case should be consolidated with an ongoing civil suit against Cephalon filed by Apotex. Specifically, Judge Bates ruled the most compelling point in Cephalon's favor is the risk of inconsistent judgments that would arise if this case is not transferred. Although there are some differences between the private parties' claims against Cephalon and the government's case -- namely that the private litigants must demonstrate antitrust injury and prove damages -- at the core the two matters involve identical issues of fact and law." The Apotex case has been pending with little action in the District Court of Eastern Pennsylvania for almost 2 years. We view this decision as positive for Cephalon as it will most likely delay timelines for the FTCs case to an extent that will make any verdict irrelevant to Cephalon shareholders. Our anti-trust experts believe that the court case and appeals process is now likely to last beyond Cephalons April 2012 settlement. Provigils Demand Relatively Stable Provigil was approved in 1998 for the treatment of daytime sleepiness associated with narcolepsy. Subsequent label expansions broadened Provigils label to the treatment of daytime sleepiness associated with obstructive sleep apnea and shift work sleep disorder. These additional indications include millions of individuals in the United States and have allowed Cephalon to extend its message to general practitioners. However, after growing at a steady pace for nearly a decade, Provigil prescribing trends hit a wall in mid-2007. Reasons to explain the slowdown in Provigil prescription trends are not definitive, but may relate to a lack of new data in novel indications, more conservative marketing tactics in the wake of increased federal scrutiny (Cephalon agreed to pay a $425MM fine in late 2007 for off-label promotional practices), and a more prominent warning against rash/pediatric use.
Provigil Weekly Sales Trends ($)
Source: Cephalon
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Provigil Sales Growth Has Been Driven By Price Hikes Cephalon has noted that primary care physicians are the fastest-growing subset of Provigils market and as such the company has shifted its 400+ person sales force away from psychiatrists (mature/declining market) and toward primary care physicians (growing opportunity). We expect, as Cephalon directs attention towards Nuvigils launch in H2:09 and broadening its label, that price hikes (such as the 14% increase taken in March 2008 and 12% increase in August 2008) will play a dominant role in driving future Provigil growth.
Cephalons Nuvigil To Be Launched In H2:2009

Based on positive results from four Phase III studies, Cephalons NDA for Nuvigil (covering the same daytime sleepiness indications as Provigil) was approved in June 2007. Trials on Nuvigil (the R-isomer of modafinil, the active ingredient in Provigil) indicated a longer half-life, making it a true once-a-day drug (effective half-life 10-12 hours versus 6-7 for Provigil), lower dosing, and the potential for fewer drug-drug interactions than Provigil. Although these studies did not include an active Provigil control, they sought to examine a number of potential benefits of the R-isomer over the racemic mixture, including a longer duration of action, superior metabolic profile, and the potential to demonstrate improved cognitive function. The Phase III studies demonstrated that Nuvigil promotes wakefulness late into the day without impairing sleep. Nuvigil also demonstrated benefit in a battery of cognitive function tests, an attribute that could differentiate it from Provigil. Safety and patient tolerance were comparable to that seen for Provigil. Cephalons ability to maintain exclusivity on Provigil via litigation settlements has alleviated the need to conduct an aggressive switch campaign toward Nuvigil. Hence Nuvigil is not yet commercially available. Cephalon has guided to deploying a slow and controlled Provigil to Nuvigil switch starting in H2:2009. Management will embark upon pre-launch efforts in H1:09 and anticipates that 730 sales reps will be able to reach approximately 90,000 Nuvigil prescribers. A U.S. composition-of-matter patent protecting a polymorph form of Nuvigil, which expires in 2023, should help CEPH maintain its wakefulness franchise beyond the expiration of exclusivity for Provigil. Given the long runway for patent exclusivity around Nuvigil, Cephalon is conducting multiple Phase II and Phase III trials to explore Nuvigils potential benefit in depression in patients with OSA, managing jet lag and traumatic brain injury, depression in patients with bipolar disorder, negative symptoms of schizophrenia, and cancer-related fatigue. These indications may be able to broaden Nuvigils label prior to the loss of exclusivity on Provigil in 2012. We estimate Provigil/Nuvigil franchise sales of $1130MM (+13%) in 2009, peak sales of $1300MM in 2011, and $800MM in 2013 after generic Provigil hits the market in April 2012.
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Timelines For Nuvigil Label Expansion

Indication OSA with comorbid Major Depressive Disorder Excessive sleepiness w/ Jet Lag Disorder Excessive sleepiness w/ Traumatic Brain Injury Adjuvant therapy in Major Depression w/Bispolar 1 disorder Adjuvant therapy in Schizophrenia Cancer Related Fatigue
Source: Cephalon, Cowen and Company
Phase IV III (SPA) III IIb IIb II
Primary Endpoint Maintenance of Wakefulness Test, Climical Global Impression Of Change Multiple Sleep Latency Test, Patient Global Impression Of Severity Multiple Sleep Latency Test, Climical Global Impression Of Change Inventory Of Depressive Symptomatology Negative scale score from the Positive and Negative Symptom Scale for Schizophrenia Brief Fatigure Inventory assessed daily
Start Date Q2:08 Q3:08 Q4:08 Q4:07 Q3:08 Q4:08
Data Q2:09 Q2:09 Q2:10 Q1:09 Q1:10 Q2:10
FDA Claim Mid:09 2010 2011 2012 2012 2012
Vandas VSF-173 Is In Phase II

VSF-173 is a compound of an unknown mechanism of action. Vanda licensed VSF173 from Novartis and in October 2007, Vanda announced positive top line Phase II results. The 55-patient placebo-controlled trial tested three doses of VSF-173: 50 mg, 100 mg and 200 mg. VSF-173 was dosed twice daily; the first dose was taken at bedtime and the second dose was taken four hours later. The primary endpoint was the effect of VSF-173 on the first four series of MWT tests given two hours apart starting one hour after the first dose. The results showed VSF-173 demonstrated numerical improvements over placebo, but did not reach statistical significance. In a subset of 37 subjects with no observed impairment in pre-dose daytime wakefulness, the mean MWT scores for the 50 mg, 100 mg and 200 mg groups showed improvements of 2.1, 3.4 and 2.1 minutes, respectively, compared to placebo; but only the 100 mg dose group was statistically significant. Statistically significant dose-dependent effects were seen via number of awakenings, decreased sleep efficiency and total sleep time for the first third of the sleep period, and increased wake time after sleep onset for the first 3 hours of the sleep period. Given these somewhat mixed results, Vanda plans to continue to evaluate data from this study to determine the course and timing of next steps.
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INSOMNIA R&D PIPELINE

Company Neurocrine Neurocrine Sanofi-Aventis Sanofi-Aventis Schering-Plough Sepracor Somaxon Vanda Acetlion/GSK Eli Lilly Eli Lilly/Hypnion GSK Neurogen Pfizer Vanda Merck CeNeS Sanofi-Aventis Product Indiplon capsules (IR) Indiplon tablets (MR) Ciltyri Volinanserin Esmirtazapine Lunesta Silenor Tasimelteon Almorexant Pruvanserin HY10275 GW649868 NG2-73 PD-200,390 VSF-173 MK-0454 CNS 7056X AVE8488 Total Drugs In Development 2 1 6 6 2 1 2009 PC I II III NDA MKT Comments Second Approvable letter in December 2007; program de-emphasized Not Approvable letter 5HT2a antagonist; currently in Phase III; targeting sleep maintenance. Expect to file NDA in 2008 5HT2a antagonist; formerly M100,907 Insomnia; acquired via Organon (Org-50081) Depression-related insomnia indication; one successful study completed; second trial planned Low dose doxepin Melatonin receptor agonist Orexin receptor antagonist 5HT2a antagonist H1/5-HT2a modulator Orexin antagonist GABA receptor partial agonist Sleep disorders; gabapentenoid; alpha 2 delta ligand Excessive sleepiness; unknown mechanism; licensed from Novartis Undisclosed Short-acting sedative; targets GABA receptors; acquired from GSK 5HT2a antagonist 18
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Urinary Incontinence and Overactive Bladder

DEFINITION/ DEFINITION/ BACKDROP BACKDROP
Expanding Market Ripe for New Therapies

Urinary incontinence (UI) is the loss of bladder control resulting from numerous causes, including pelvic muscle instability, pregnancy, surgery, urinary tract infections, and 6% CGR 2008-13 certain foods and medications. UI affects an estimated 2033% of American adults and 55% of the countrys elderly. These conditions disproportionably affect women, whose prevalence is about twice that of men. Urinary incontinence includes urge incontinence (characterized by a frequent desire to urinate), stress incontinence (characterized by weak bladder muscles), and mixed incontinence. Overactive bladder syndrome (OAB) encompasses both increased urinary frequency and urge to urinate. Pharmacologic therapies, pelvic muscle rehabilitation, and surgery are most frequently used to treat urinary incontinence and overactive bladder. Currently available pharmaceutical treatments target symptoms of urge incontinence, but side effects impacting quality of life are an issue. Stress and mixed incontinence account for over half of incontinence sufferers. This and the projected growth in the elderly population provide a ready market for new therapies.
Urinary Incontinence Category Market Share By $ Sales
2008 $2.3B
LLY Other WPI 1% 10% 1% JNJ 2% NVS 9%
Other 19%
2013P $3.1B
PARTICIPANTS
LLY 2% WPI 2%
PFE 42%
PFE 53%
NVS 7%
GSK/Astellas 24%
GSK/Astellas 28%
MAJOR TRENDS &

ISSUES
Pfizers Detrol/Detrol LA (tolterodine) and Toviaz franchise should continue to lead the overactive bladder/urge incontinence market through 2013, driven by a solid clinical profile. Astellas/GlaxoSmithKline's Vesicare should remain in the numbertwo position driven by a good profile and aggressive marketing. Novartis Enablex is expected to maintain the #3 position through 2013. Newer therapies include Allergans Sanctura XR, Watson Pharmaceuticals' Oxytrol (transdermal patch and gel formulations), and Pfizers Toviaz. The UI and OAB patient populations are large, but difficult to penetrate given lack of effective therapies and limited physician/patient contact. The launch of Ditropan XL generics has affected the growth of the market for UI treatments in the U.S.
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Branded products for urge incontinence and overactive bladder, led by Pfizers Detrol LA, appear comparable in terms of effectiveness and side effects. Despite an improved side-effect profile and twice-weekly patch delivery, adoption of Watsons Oxytrol has been a disappointment due to application-site irritation. Watsons Oxybutynin topical gel could provide a modest boost to the Oxytrol franchise. Astellas/GlaxoSmithKline's Vesicare continues to grow while Novartis Enablex prescription growth has decelerated. Head-to-head comparison studies will be required to claim superiority. Allergans Sanctura may be differentiated based on a lower CNS side-effect profile, but twice-daily dosing and limited marketing support have been hurdles. A once-daily version, Sanctura XR, was launched in the U.S. in January 2008, and has the potential to significantly expand the franchise. Our scatter plot shows that, through 2013, Pfizer should dominate the incontinence market. This category is a key growth driver for Astellas/GlaxoSmithKline.
50%
30%
Astellas/GSK 10% WPI AGN JNJ LLY -10% NVS PFE
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Incontinence Therapy Utilization Expected To Increase

In patients with UI and/or OAB, the primary goal of treatment is to improve quality of life. Drug therapy is the primary treatment for urge, stress, and mixed UI and OAB. Older incontinence drugs, such as immediate-release oxybutynin, are plagued by common anticholinergic side effects including moderate-to-severe dry mouth, constipation, and confusion. These side effects occur more frequently in elderly patients. Many patients do not seek treatment. It is estimated that half of the 21MM+ U.S. adults suffering from overactive bladder either are too embarrassed to discuss their symptoms with health care providers or are not aware that pharmacological treatment is available. Therefore, most patients opt for over-the-counter remedies, such as pads and diapers. We estimate 50% of U.S. incontinence patients sought treatment in 2007, with 41% of those patients seeking treatment receiving a prescription therapy. Aggressive direct-to-consumer advertising campaigns and physician detailing by Pfizer, Novartis, GlaxoSmithKline/Astellas, and Allergan should continue to raise awareness. Thus, we anticipate modest growth in the number of patients seeking treatment over the next five years. Compliance rates remain low given continued modest efficacy and annoying side effects. We estimate that just 16% of incontinence patients were compliant with their treatment in 2007; we expect patient compliance to improve modestly to 20% in 2012. Currently, the majority of pharmaceutical sales for the treatment of urinary incontinence are in the U.S. The Medicare Drug Benefit (Part D) provided a tailwind for incontinence drug utilization. It is estimated that 65%+ of patients receiving incontinence therapy are Medicare beneficiaries. However, the launch of Ditropan XL generics in November 2006 has posed a significant challenge to the branded products. International sales are anticipated to accelerate over the next few years as physician awareness increases and new treatments emerge.
DETAILED DISCUSSION
Anticholinergic Tolerability Linked To Specificity

Muscarinic receptor antagonists, also known as anticholinergics, are the most commonly used agents for treating UI and OAB. These agents suppress involuntary contractions of the bladder detrusor muscles by preventing acetylcholine from binding to the M2 and M3 muscarinic receptors. As a class, these agents have been commonly associated with side effects such as dry mouth, constipation, and blurred vision. These effects are attributed to the relatively poor tissue-specificity of these agents. For this reason, there has been interest in developing pharmacological agents that target the desired bladder receptors more specifically. These developments should improve adherence, as tolerability is greatly affected by the formulation used to deliver the active pharmacological agent, as well as the specificity of the targeted receptors. Potential therapeutics for UI and OAB are commonly measured for efficacy using several common endpoints, all focusing ultimately on improving patient quality of life. Clinical trials generally measure control of urgency, reduction in UI, and reduction in frequency as efficacy measures. However, given that compliance is largely influenced by side effects, improvements in efficacy must be balanced by gains in safety and tolerability.
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ESTIMATED WORLDWIDE MARKET FOR URINARY INCONTINENCE DRUGS BY CLASS ($MM)

2008 2013P Market % Total Market % Total $1,257 54% $419 13% 1,066 46% 2,701 87% $ 08-13 CGR -20% 20% NRx 87-08 CGR Comments NA - PFE's Detrol LA, JNJ's Ditropan XL NM - NVS' Enablex, WPI's Oxytrol/Gelnique, Astellas/GSK's Vesicare, Allergan's Sanctura/XR, Pfizer's Toviaz 15% - Driven by switch to drug therapy
Drug Class Anticholinergic Agents Newer Therapies
Total Market
$2,323
100%
$3,120
100%
6%
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Patient Population Type Overflow Causes Associated with the overdistension of the bladder due to an underactive/acontractile detrusor or bladder outlet/urethral obstruction Stress Occurs when the bladder is unable to handle increased compression during certain activities (e.g., coughing, exercise, lifting); very common and usually curable Urge Caused by a sudden, involuntary bladder contraction Patient Population Men with benign prostatic hyperplasia and/or prostate cancer People with certain neurological conditions (diabetic neuropathy, spinal cord injury, etc.) Female adults Radiation therapy patients Surgical patients (e.g., prostate surgery) Trauma patients 50%+ of the elderly and people living in long-term care facilities Diabetics Stroke victims 20%+ of acute care hospital patients People with neurological disorders (dementia, multiple sclerosis, Parkinsons, etc.) Mixed All UI Types Overactive Bladder People with symptoms of urinary frequency A combination of both stress and urge UI; the Older women most common type of UI 5MM+ 16MM+ 21MM+ 33% 100% 5MM 33% 5MM 33% Number 1MM % Total 5%
Source: Agency for Health Care Policy and Research; Merck Manual; National Association for Continence; National Institutes of Health.
DRUGS THAT ARE USED TO TREAT URINARY INCONTINENCE

UI Type/Drug Class Overflow UI Cholinergic Agonists Stress UI Alpha Adrenergic Agonists Estrogen Therapy Serotonin/Norepinephrine Reuptake Inhibitors (SNRI) Urge UI Anticholinergics Inhibits detrusor contraction; may improve bladder capacity, and delay/reduce amplitude of involuntary contractions PFEs Detrol LA, JNJs Ditropan XL, WPIs Oxytrol, NVS Enablex, Astellas/GSKs Vesicare, Allergans Sanctura Non Steroidal AntiInflammatory Drugs Tricyclic Antidepressants Various UI Types Other Drug Classes Certain beta agonists, calcium channel blockers, muscle relaxants, and potassium channel activators have been used off-label with mixed results or are in development for a UI indication May decrease bladder contractility Has anticholinergic and direct relaxant effects on the detrusor Various Novartis Tofranil* Increases smooth muscle tone at the bladder outlet and, hence, increases bladder outlet resistance May restore urethral mucosal coaptation and increase vascularity, tone, and alpha-adrenergic responsiveness Increases muscle contractility and tone via stimulation of alpha-1 adrenergic and 5 HT-2 receptors Ephedrine*, pseudoephedrine*, phenylpropanolamine* Estrogens* WYEs Effexor* Increases tonicity and contractility of bladder Only useful for short-term acute urinary retention MRKs Urecholine*, Shires Duvoid* rarely used Class Action/Comments Examples of Marketed Drugs
Source: National Institutes of Health. *Drugs are FDA approved but lack a UI indication.
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Urinary Incontinence Therapies

45.0% 40.0% 35.0% 30.0% NRx Market Share 25.0% 20.0% 15.0% 10.0% 5.0% 0.0%
Mar-07
Mar-08
Oct-07
May-07
May-08
Aug-08
Oct-08
Aug-07
Jan-08
Sep-07
Sep-08
Jan-07
Dec-06
Dec-07
Nov-07
Detrol/LA
Ditropan/Generics
Ditropan XL/Generics
Enablex
Sanctura/XR
Detrol LA Dominates UI Market But Steadily Losing Share

As of January 2009, Pfizers Detrol (tolterodine) franchise held a 36.5% total prescription share of the U.S. UI market, down from 45.8% in August 2006. Of the franchise, Detrol LA had a 33.8% total prescription share of the market, down from 42.2% in August 2006. Detrol LA accounts for 90%+ of the total prescriptions written for the franchise. Detrol LAs market share has been slowly reduced since the launch of multiple competitive products (such as Novartiss Enablex, GlaxoSmithKlines Vesicare and Allergans Sanctura XR) over the past few years and the introduction of generic Ditropan XL towards the end of 2006. Nevertheless, Detrol LA continues to dominate the urinary incontinence market due to: (1) a reduced incidence of side effects (particularly dry mouth) versus oxybutynin, (2) Pfizers strong marketing support, (3) a once-daily dosing profile, and (4) a differentiated mechanism of action vs. oxybutynin (nonselective muscarinic receptor antagonist vs. a M3 selective mechanism). In a comparison of labels, Detrol LA demonstrates tolerability superior to Ditropan XL (oxybutynin ER), with dry mouth incidence reported at 23.5% for Detrol LA versus 60.8% for Ditropan XL. When comparing efficacy, the drugs appear similar in their reduction (17-22%) of urinary frequency. We estimate worldwide Detrol franchise sales of $1,240MM (+2%) in 2009 and $1,280MM (+3%) in 2010. We expect declines beginning in 2011 as Fesoterodine gains traction ahead of Detrol LAs 3/12 patent expiration. In March 2008, Impax announced that it had been sued by Pfizer following its Paragraph IV certification against the Detrol LA patents in the Southern District of New York.
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Nov-08
Vesicare
Dec-08
Apr-08
Apr-07
Jun-07
Feb-07
Feb-08
Jun-08
Jan-09
Jul-07
Jul-08
INTER-TRIAL COMPARISON OF KEY BRANDED OVER-ACTIVE BLADDER/ INCONTINENCE AGENTS Detrol LA Company Indication Pfizer OAB with symptoms of urge urinary incontinence, urge and frequency Non-selective antagonist Oral 1x daily 2mg and 4mg Approved Ditropan XL JNJ/generics OAB with symptoms of urge urinary incontinence, urge and frequency M3, M1>>M2 Oral 1x daily 5, 10, 15, and 30mg Approved Enablex Novartis OAB with symptoms of urge urinary incontinence, urge and frequency M3>>M2 Oral 1x daily 7.5mg and 15mg Approved Oxytrol Watson OAB with symptoms of urge urinary incontinence, urge and frequency M3, M1>>M2 Transdermal patch 2x weekly 3.9mg Approved Sanctura/XR Allergan/Indevus OAB with symptoms of urge urinary incontinence, urge and frequency Non-selective antagonist Oral 2x daily 20mg Approved; once-daily XR formulaton pending at FDA Vesicare Astellas/ GSK OAB with symptoms of urge urinary incontinence, urge and frequency M3>>M2 Oral 1x daily 5mg and 10mg Approved
Muscarinic Receptor Selectivity Route of Administration Frequency Dose Status
Clinical Data Comparison2: Urge Incontinence Episodes1 Urinary Frequency1 Urinary Void Volume1 Dry Mouth (% patients) Constipation (% patients)
-69% -26% 24% 22% 8%
-71% -30% NA 30% 6%
-58% -17% +10% 20% 15%
-51% -15% +6% 7% 3%
-46% -10% +5% 6% 5%
-62% -20% +21% 11% 5%
Source: Product label; OPERA trial data (for Detrol LA & Ditropan XL) 1 - percent change vs. baseline 2 - data based on recommended dose
Astellas/GlaxoSmithKline's Vesicare Shows Strong Growth

Vesicare (solifenacin) preferentially antagonizes the M3 receptor but has activity at the M2 receptor as well. Vesicare was launched in the U.S. in January 2005 and has performed well, garnering a 15.3% total prescription share of the urinary incontinence market in January 2009, up from 8.5% in August 2006. Vesicare is the fastest growing OAB worldwide. To date, Vesicares safety and efficacy have been examined in almost 3000 patients in four, 12-week trials. Vesicare is the only OAB medication that has demonstrated an increase in Warning Time at approved doses. An increase in Warning Time is a marker of efficacy, as it provides patients more time to reach the bathroom if urgency occurs and may lead to a lower risk of urinary incontinence episodes. Studies also have shown that at 10 mg, Vesicare is effective in decreasing the frequency of nocturia, although this is not an FDA approved endpoint. Compared to placebo, the recommended dose of 5 mg results in significantly improved UI and OAB symptoms. Vesicare also seems well tolerated, with rates of dry mouth and constipation of just 10.7% and 5.2%, respectively, at the 5 mg dose. With a favorable side-effect profile, solid efficacy data, and the marketing support of Astellas/GlaxoSmithKline, we believe Vesicare likely will continue to have the strongest growth among newer anticholinergics, but is unlikely to challenge Detrol LAs market leading position. This is despite data from the STAR trial demonstrating that 5 mg Vesicare was more effective at controlling UI and OAB symptoms than tolterodine ER (Detrol) 4 mg, with comparable sideeffect profiles. Vesicare has been available in Europe since August 2004 and was launched in Japan in June 2006. We estimate Vesicare income to GlaxoSmithKline of 90MM (+27%) in 2009, 120MM (+33%) in 2010, and 220MM in 2012.
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Novartis Enablex A Modest Player

Enablex (darifenacin) is an antimuscarinic with selectivity for the M3 receptor. Enablex has been available in Europe since 2004 and in the U.S. since February 2005. The safety and efficacy of this drug have been studied in over 1,400 patients with symptoms of urinary frequency, urgency, and/or urge urinary incontinence (UUI) across four, 12-week, randomized, double-blind, placebo-controlled studies. These studies have shown that, compared to placebo, once daily darifenacin 7.5 or 15mg for 12 weeks results in statistically significant reductions in UI episodes/week (relative to baseline) of up to 76%. As with other antimuscarinics, the most common side effects for Enablex 7.5mg, 15mg and placebo were dry mouth (20.2%, 35.3%, 8.2%) and constipation (14.8%, 21.3%, 6.2%). Dry mouth and constipation, however, led to discontinuation of treatment in only 1.3% and 2.4% of patients treated with darifenacin after a two-year extension study that enrolled 716 patients from one of two 12 week, Phase III, fixed-dose, randomized, double blind, placebo controlled, pivotal studies. In July 2008, Enablex achieved 9.0% share of the U.S. incontinence market compared to 7.1% in August 2006; however, market share is largely unchanged over the past 12 months. Patent exclusivity on Enablex expires in December 2009 but Novartis was granted an extension to 2015. To date, there have been no Paragraph IV certifications filed against Enablex. We estimate Enablex sales of $210MM (+4%) in 2009, $220MM (+5%) in 2010, and $245MM in 2012, before declining to $150MM in 2015.
SUMMARY OF ENABLEX PHASE III TRIAL DATA Enablex1 # Of Patients Treated Incontinence Episodes per Week Median Baseline Median Change from Baseline Median Difference to Placebo Micturitions per Day Median Baseline Median Change from Baseline Median Difference to Placebo Volume of Urine Passed per Void (mL) Median Baseline Median Change from Baseline Median Difference to Placebo
Source: Enablex label
1 - data from both 7.5mg and 15mg doses * p<0.05 vs. placebo
Placebo 127 14.0 -6.0 10.4 -1.0 177.2 6.6 -
268 16.0 -8.2 -1.4* 9.9 -1.9 -0.8* 173.7 18.8 13.3*
Watsons Oxytrol Remains A Niche Player

Oxytrol is a twice-weekly transdermal patch formulation of oxybutynin. Watson launched Oxytrol in May 2003, but discontinued primary care promotion in June 2004 by terminating its contract sales agreement with Ventiv Healthcare. Oxytrol is now promoted by Watsons 160-rep specialty urology sales force. A goal of the transdermal delivery system was to minimize the common anticholinergic side effects of dry mouth and constipation. Oxybutynin is known to undergo metabolism and generate N-desethyloxybutynin, a metabolite believed to be directly involved in the development of these side effects. Transdermal delivery allows oxybutynin to bypass metabolism in the liver and gut and leads to lower blood levels of Ndesethyloxybutynin. Phase III studies have supported this concept as Oxytrol
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appeared superior on side effects, with low incidence of dry mouth and constipation (3-10%), which was not statistically different than placebo. A drawback to the transdermal approach appears to be the development of application-site pruritis (irritation), which was reported by 14-17% of patients in the two Phase III studies. Our urology consultants indicate this has hampered patient acceptance of Oxytrol. Oxytrols label is comparable to oral incontinence treatments Ditropan XL and Detrol LA on efficacy. The label shows a 61-62% reduction in incontinence episodes in two 12-week studies (versus 50% for the placebo patch), a 15-19% reduction in daily urinary frequency, and a 15-16% increase in urinary void volume. Our urology consultants believe that Oxytrol is a viable alternative for the 20-25% of the OAB treatment population that discontinues treatment each year due to anticholinergic side effects. Oxytrol may also be attractive for patients who are less likely to remain adherent to daily oral dosing. Oxytrol was launched in Europe in June 2004, via marketing partner UCB Pharma. Oxytrol was approved in Canada in June 2004, and launched by Canadian marketing partner Paladin Technologies. In January 2009, Oxytrol held 1.7% total prescription share of the incontinence treatment market, down from 2.6% in August 2006. We estimate Oxytrol/Gelnique (oxybutynin patch/gel) sales of $45MM (+50%) in 2009, $55MM (+22%) in 2010, and $75MM in 2012. Projected out-year sales growth is driven by Gelnique.
Watsons Gelnique Approved

Gelnique (oxybutynin gel) is an ethanolic gel formulation of oxybutynin that is designed as a once-daily product. The gel provides advantages similar to the patch over orally administered treatments in terms of convenience and fewer anticholinergic effects, but claims better skin tolerability. In January 2009, Watson received approval for the gel. The NDA was based on a Phase III multi-center, double blind, placebo-controlled study that evaluated the efficacy and safety of Oxybutynin Topical Gel (OTG) in 789 patients with overactive bladder. The primary objective of the study was to evaluate daily treatment of a 1g dose (approximately 1 mL) of OTG for 12 weeks versus to placebo for the relief of OAB symptoms. Changes from baseline to endpoint were calculated from a three-day patient urinary diary and included a reduction in incontinence episodes and urinary frequency, and an increase in void volume. Additionally, 216 patients participated in a 14-week, open label, safety-extension study for a total of 26 weeks. During the double-blind portion of the trial, highly statistically significant improvements relative to placebo were seen on all of these endpoints. Secondary endpoints included a patient assessment of incontinence-specific, quality-of-life measures using multiple validated instruments including the Incontinence Impact Questionnaire (IIQ) and the King's Health Questionnaire, which indicated a significant positive effect of OTG treatment on quality-of-life total and subscale scores at endpoint in comparison with placebo. Overall, OTG appeared to be well tolerated in the study. No serious adverse events related to the treatment were reported. Dry mouth (6.9%) and application site pruritis (2.1%) were the only treatment-related side effects reported at levels greater than 2%. Treatment-related adverse events that resulted in study discontinuation during the double-blind period were low (1.8%) and similar for both the treatment and placebo groups. OTG is protected by two patents, which cover methods of treatment and certain articles of manufacture for treating overactive bladder, with the latest patent expiring in 2020. Gelnique Phase III data will be published in a prominent urology journal in the spring.
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A similar gel product is also being developed by Antares Pharma, Anturol, which is involved in a pivotal Phase III safety and efficacy trial. The trial includes 600 patients to evaluate efficacy of Anturol when administered topically once- daily for 12 weeks in patients predominantly with urge incontinence episodes. Preliminary data suggest gel delivery of oxybutynin results in 1/3 less skin irritation than the transdermal patch. In Q2:08, Antares received a Notice of Allowance for a patent application entitled Permeation Enhancing Compositions for Anticholinergic Agents, related to Anturol.
Allergans Sanctura XR Off To A Good Start

In September 2007, Allergan gained rights to once-daily overactive bladder treatment Sanctura XR with the purchase of privately held Esprit Pharma. Allergan launched the product in January 2008 with a 200-rep GU sales force. This included the former Esprit sales organization of 160 reps. Sanctura and Sanctura XR (trospium) belong to the anticholinergic class of compounds and are nonselective muscarinic receptor antagonists. As of January 2009, the Sanctura franchise held 3.4% total prescription share of the urinary incontinence market, up from 2.5% in July 2007. Sanctura XR accounted for almost half of the franchise; since its launch in January, Sanctura XR has steadily gained share and accounted for 2.2% of the market in January 2009. The twice-daily formulation of Sanctura, launched in August 2004, has been a modest performer given its inconvenient dosing profile in a once-daily market. Esprit Pharmaceuticals licensed Sanctura/XR from the original developer Indevus in July 2005. Indevus had touted Sanctura XRs improved dosing profile and the decreased incidence of dry mouth and constipation associated with the drug. Indevus had also highlighted Sanctura XRs unique chemical makeup (quaternary ammonium), which allows the drug to avoid cytochrome P450 metabolism; potentially decreasing associated drug-drug interactions. This might be especially attractive given the higher prevalence of UI and OAB in the elderly. International marketing rights for Sanctura XR were licensed to Madaus GmbH in November 2006. Madaus has the exclusive right to sell Sanctura XR in all international markets, except in Canada, Japan, Korea, and China where Indevus and Madaus will share in the economics. Sanctura XR Phase III Data Solid The approval of Sanctura XR was supported by positive results from two pivotal Phase III trials, released in June 2006 and July 2006. Both trials were randomized, double-blind, placebo-controlled and included over 500 subjects each. The first Phase III study included 523-patients and demonstrated a statistically significant benefit over placebo at all primary endpoints, as early as one week post the initiation of treatment. The primary endpoints of the trial were incontinence episodes per week, urinary frequency per day, and urinary void volume. While the efficacy results were somewhat less robust than the data seen with competing agents, the rates of dry mouth (6%) and constipation (5%) compare favorably to competing agents. The second Phase III study of once-daily Sanctura resulted in the most positive data to date in support of the drugs efficacy and side-effect profile. Treatment with once-daily Sanctura resulted in statistically significant improvements in all primary endpoints examined, including changes in daily urinary frequency and daily UUI episodes. Secondary endpoints, including urgency severity, volume voided/day and
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number of urgency voids/day, were also all significantly improved in patients receiving Sanctura compared with the placebo group over the 12-week study period. Importantly, the data revealed that these beneficial effects of Sanctura were already present by the 1-week mark and were subsequently maintained for the duration of the study. Using mean percent change, Sanctura patients experienced a 60% reduction in incontinence episodes per week relative to baseline; placebo patients experienced a 47% reduction in incontinence episodes per week relative to baseline. Sanctura patients experienced a greater increase in volume voided/day with an increase of 29.77 mL by week 12, compared to an increase of 18.89 mL in placebo patients. The strongest data from this study for Sanctura were the adverse events data which included those common to the antimuscarinic class of drugs, dry mouth and constipation. Dry mouth was reported by 8.7% of Sanctura patients (versus 3.0% of placebo patients), and constipation was reported by 9.4% of Sanctura patients (versus 1.3% of placebo patients). This incidence of dry mouth was the lowest reported rate in the oral antimuscarinic drug class to date. We forecast Sanctura/XR sales of $75MM (+9%) in 2009, $80MM (+7%) in 2010 and $95MM in 2012.
Toviaz Rollout Finally Underway

Pfizer licensed worldwide rights to Toviaz (fesoterodine) from Schwarz Pharma in April 2006. Pfizer paid Schwarz Pharma $100MM up front and agreed to pay Schwarz an additional $110MM in potential milestone payments and royalties on net sales. The licensing deal also settled ongoing litigation between the two companies over Toviaz. Toviaz is a M2 selective antagonist. Schwarz Pharma filed for U.S. and E.U. regulatory approval of Toviaz in H1:06. In January 2007, the FDA issued an approvable letter for Toviaz. Pfizer indicates that the FDA was not satisfied with the results of its inspection of the Toviaz manufacturing facility and is working with Schwartz to scale-up manufacturing and identify manufacturing site alternatives. The U.S. launch is not likely until 2009. Toviaz was approved in the E.U. in April 2007. We estimate Toviaz sales of $100MM in 2009, $400MM in 2012, and $700MM in 2015. Phase III results for fesoterodine were presented at the European Association of Urology meetings in April 2006. The 12-week, 1,135-patient trial demonstrated that fesoterodine was effective and well tolerated at both doses tested (4mg and 8mg). Fesoterodine was dosed once-daily and was compared to placebo and tolterodine ER (Detrol LA). The primary outcome measures were the change in average number of micturitions per 24 hours, change in average number of urge incontinence episodes per 24 hours and treatment response via a self-assessed Treatment Benefit Scale. Dry mouth was the most common side effect, reported in 7%, 22%, 34%, and 17% of patients treated with fesoterodine 4mg, fesoterodine 8mg, tolterodine ER 4mg, and placebo, respectively. Efficacy seen with fesoterodine was statistically better than the efficacy results seen in patients treated with placebo and comparable with those in patients receiving tolterodine ER.
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Source: EAU abstract
Allergans Botox Is In Phase II/III For OAB

Botox (botulinum toxin type A) is a purified, injectable neurotoxin approved for the treatment of strabismus (ocular muscle spasm causing cross eye), blepharospasm (eyelid spasm and closure), cervical dystonias (movement disorders associated with muscle spasms or paralysis in the upper neck and back), severe primary axillary hyperhidrosis (excessive sweating), and the temporary treatment of glabellar lines (frown lines; marketed as Botox Cosmetic). Botox is in development for the treatment of overactive bladder. The motivation behind this effort lies in the increasing evidence showing common resistance to anticholinergic drugs used as first-line treatment for UI and OAB. Moreover, common side effects (constipation, dry mouth) often limit the use of those treatments. The ongoing clinical trials are designed to evaluate the efficacy and safety of botulinum toxin A injected into the detrusor muscle to control symptoms and improve quality of life for patients resistant or intolerant to anticholinergic drugs. There are two ongoing Botox trials in OAB; a 270-patient Phase II trial in idiopathic OAB (involuntary bladder contractions) and a 405-patient Phase III trial in neurogenic OAB (a result of a neurological disorder such as MS or Parkinsons disease). Another driving factor behind Allergans decision to formally pursue the indication was the successful off-label use of Botox by urologists for the treatment of over-active bladder. Allergan management anticipates approval of the neurogenic OAB and idiopathic OAB indications in 2011+. One interesting aspect of the trial is that when Botox is injected into a smooth muscle or gland it tends to last longer than if it is injected into the wrinkles. As a result, patients are seeing longer-term efficacy with single injections. While this appears to be positive news for Botox, the FDA typically
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requires that patients in OAB trials go through multiple injection cycles. For the 2011 timeline to work out for the neurogenic OAB indication, it would be challenging for Allergan to get multiple injection cycles within that timeframe???. Therefore, Allergan had discussions with FDA about how to tackle the unexpected longer-lasting effect of Botox for this indication.
U.S. URINARY INCONTINENCE MARKET
Total Prescriptions (000's) % Market Share 2008 2009E 2013P 1987* 2008 2009E Detrol, Detrol LA (PFE) 10,713 12,500 13,200 39% 39% Ditropan, Ditropan XL (JNJ) 200 300 500 1% 1% Oxybutinin, others (generics) 1,456 9,259 10,000 9,300 100% 33% 31% 9,500 15,000 27% 29% Emerging Therapies (GSK, NVS) 7,599 Total 1,456 27,772 32,300 38,000 100% 100% 100% * 1987 figures are estimates based upon 1992 IMS survey universe expansion restatements. Source: IMS America; Cowen and Company estimates 1987* CGR 2013P '87-08 '08-13 35% NA +4% 1% NA +20% 24% +9% +0% 39% NA +15% 100% +15% +6%
KEY PATENT EXPIRATIONS FOR URINARY INCONTINENCE MARKET

Drug Sanctura Detrol LA Oxytrol Vesicare Enablex Manufacturer Allergan Pfizer Watson Astellas/GlaxoSmithKline Novartis Patent Expiration 2009 (exclusivity) 2012 2015 2015 2016 2025 U.S. Sales in Year Patent Expires ($MM) $5 250 ---------
Sanctura XR Allergan Source: FDA Orange Book; Cowen and Company
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UROLOGY R&D PIPELINE Company Daiichi Sankyo GlaxoSmithKline Product KAD 3213 Avodart PC I II III . NDA . Dec-08 MKT Comments Silodoson; treatment of dysuria; selective 1A blocker; oral; with Kissei 5-alpha reductase inhibitor; reduction of risk for prostate cancer; fixed-dose combination with tamsulosin filed in EU in December 2008 Astellas YM-617 (tamsulosin) . . . Alpha-1 receptor antagonist; filed in EU for functional symptoms with Japan for lower urinary tract benign prostatic hyperplasia; filed in syndrome in male patients; pediatric neurogenic bldder; PII orallydisintegrating tablet, Japan Eli Lilly Cialis . . . Once-daily formulation filed in U.S. and EU; PAH (Q3:08 filing); benign prostatic hyperplasia (Phase II) Mitsubishi Tanabe Sanofi-Aventis Vivus Astellas Bayer Schering Pharma Abbott Laboratories Astellas ASP-1585 . Non-absorbed, ploymer-based phosphate binder; hyperphosphatemia Astellas Solifenacin/tamsulosin . Lower urinary track syndrome hyperplasia Mitsubishi Tanabe Mitsubishi Tanabe Pfizer, Inc. Pfizer, Inc. Sanofi-Aventis TA-5538 PD-299685 UK-369003 SSR-240600 . . . . TA-1790 . . Avanafil; PDE-V inhibitor for erectile dysfunction; licensed to Vivus NK-1 (substance P); overactive bladder Alpha 2 delta agonist Lower urinary tract symptoms NK1 antagonist; overactive bladder; associated with benign prostatic ABT-724 . Xatral Avanafil YM-178 Levitra . . . . . . 2010 2011 MP-146 . kidney disease BPH - Japan; pediatrics Erectile dysfunction; PDE5 inhibitor; funding via royalty deal Beta 3 receptor antagonist; overactive bladder New indications; fast-dissolving tablet formulation Erectile dysfunction
Uremic toxin absorbent; chronic
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UROLOGY R&D PIPELINE Company ScheringPlough Watson Pharmaceuticals Rapaflo . Product PDE5 inhibitor PC I II . III NDA MKT Comments urge urinary incontinence Erectile dysfunction; safe and well tolerated; considering options post Bayer collaboration Treatment of nocturia in men 50 years and older with BPH; severe pelvic pain syndrome Watson Pharmaceuticals Abbott Laboratories Astellas Dainippon Sumitomo Eli Lilly Eli Lilly Mitsubishi Tanabe Takeda ABT-670 ASP3652 SMP-986 TGF b antibody Undisclosed TT-138 TAK-363 Total Drugs In Development 0 7 11 5 4 27 . . . . . . . Erectile dysfunction Overactive bladder Overactive bladder Chronic kidney disease BPH 3 receptor agonist; incontinence Urinary incontinence; overactive bladder Uracyst . Interstitial cystitis; with Stellar abacterial chronic prostatitis/chronic
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Notes
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Addendum
STOCKS MENTIONED IN IMPORTANT DISCLOSURES
Ticker ABT AMGN AZN BMY DNA GSK JNJ LLY MRK NVS PFE SGP WYE Company Name Abbott Amgen AstraZeneca PLC (ADR) Bristol-Myers Squibb Genentech GlaxoSmithKline plc (ADR) Johnson & Johnson Eli Lilly Merck Novartis (ADR) Pfizer Schering-Plough Wyeth
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Cowen Therapeutic Outlook March 2009

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Cowen Therapeutic Outlook March 2009

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Therapeutic Categories Outlook

Cowen Pharmaceutical Research Team (617) 946-3700

Cowen Biotech Research Team (646) 562-1000

Cowen Med Tech Research Team (646) 562-1000

Please see addendum of this report for important disclosures.

Which Companies Will Lead Industry Through 2013?

GLOBAL PHARMACEUTICAL INDUSTRY VALUATION PERSPECTIVE

Therapeutic Categories Outlook

Pharmaceutical Sales Could Expand 3% Annually During 2008-13

Pharmaceutical Companies: Drug Sales As A Percentage Of The Total Market

SNY 4.8% NVS 4.1%

Therapeutic Categories: Drug Sales As A Percentage Of The Total Market

Multiple Sclerosis 2.4% Epilepsy 3.0% Gastrointestinal/Ulcer 3.4%

Respiratory 6.7% Respiratory 6.8%

Diabetes 8.3% CNS 10.3% Antibiotics/Antivirals 14.2% Arthritis/Inflammation 9.0%

Therapeutic Categories Outlook

Therapeutic Categories Outlook

THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

Therapeutic Categories Outlook

THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

Therapeutic Categories Outlook

THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

Therapeutic Categories Outlook

THERAPEUTIC CATEGORY SALES OF KEY COMPANIES ($MM)

Therapeutic Categories Outlook

Major Trends & Issues In Therapeutic Categories Through 2013

Therapeutic Categories Outlook

60% JNJ WYE

NVS 20% RHHBY 0% MRK

Therapeutic Categories Outlook

30% WYE 10% SNY -10% RHHBY LLY

Therapeutic Categories Outlook

Therapeutic Categories Outlook

Antiplatelets and Antithrombotics

Congestive Heart Failure (CHF)

Therapeutic Categories Outlook

% Of Company 2008-13 Sales Growth From Category

Therapeutic Categories Outlook

Central Nervous System

Therapeutic Categories Outlook

% Of Company 2008-13 Sales Growth From Category

40% SHPGY 0% PFE -40% NVS GSK

Therapeutic Categories Outlook

% Of Company 2008-13 Sales Growth From Category

20% NVS 0% BIIB Dermik

Therapeutic Categories Outlook

Therapeutic Categories Outlook

% Of Company 2008-13 Sales Growth From Category

Therapeutic Categories Outlook

30% % Of Company 2008-13 Sales Growth From Category PFE 10%

Therapeutic Categories Outlook

120% % Of Company 2008-13 Sales Growth From Category

20% ABT GSK WYE -30% JNJ

Therapeutic Categories Outlook

40% AZN 20% WYE PFE GSK

Therapeutic Categories Outlook

Therapeutic Categories Outlook

% Of Company 2008-13 Sales Growth From Category

Therapeutic Categories Outlook

Therapeutic Categories Outlook

% Of Company 2008-13 Sales Growth From Category

BMY NVS DNA AMGN

50% WYE 30% MRK GSK LLY