A game changer for DARA Bioscience

Hey Freunde,hab was interessantes für euch,gerade vor dem hintergrund,dass Intercept (ICPT)Pharmaceuticals gerade auf 9 MRD explodiert ist und da sehe ich DARA für 18 Mio. und frage mich ernsthaft: Was hat ICPT,was DARA nicht hat ???? Beide companys sind etwa gleich gross un DARA hat sogar ein in US zugelassenes Brustkrebsmedikament,was mich wiederum an Galena Bioscience (GALE) erinnert,die haben sowas in Phase 3 und ich hatte die Aktie damals für 0,39 Dollar gekauft. Heute steht GALE bei 6 Dollar und ist 600 Mio wert und ich frage mich wieder: Was hat GALE (noch nicht),was DARA nicht hat ?

Last November 2012, DARA Biosciences (DARA) announced it has submitted an application to the U.S. FDA requesting Orphan Drug designation on KRN5500 for the treatment of chronic chemotherapy-induced peripheral neuropathy (CCIPN). It's been over a year since that submission, and that may scare some investors into believing all hope is lost. After all, the FDA's own target for responding to Orphan Drug applications is 75 days, and so far in 2013 91% have been under 90 days. But we know for a fact that DARA and the FDA have been going back and forth on the application. We believe this is because of the overall size of the CCIPN market.

We discuss this below, and conclude that the lack of news on the status of the application does not concern us. In fact, now that we have eclipsed thirteen months since that original filing, we think a decision may be imminent; and for DARA Bio, we think this could be an enormous positive and major catalyst for re-valuation of the shares at a significantly higher level.

Orphan Drugs - What They Are / What They Aren't

The U.S. FDA established the Orphan Drug Act (ODA) in January 1983. The ODA has since been enhanced and expanded, with a goal of encouraging pharmaceutical and biotechnology companies to develop drugs for rare diseases. Under the law, companies that develop a drug for a disorder affecting fewer than 200,000 people in the United States may sell it without competition for seven years, as well as gain certain clinical trial tax incentives. Orphan designation also qualifies the drug developer for a waiver of the prescription drug user fee. More on the FDA Orphan Drug Act can be found on the FDA's website.

As a practical matter, the tax breaks and waiver of user fees are of much greater importance to small, pre-revenue biotechnology companies than to large pharmaceutical companies. For the latter group, the main considerations are the guarantee of market exclusivity and the orphan drug label, which can be seen as providing validation from the FDA that the population the drug aims to treat is substantially small enough to where companies can charge materially more for the drug than a mass-market indication.

Orphan Drug designation is not, however, an endorsement by the FDA that the drug will be a blockbuster, or even make it to market. Orphan Drugs can fail in clinical trials just like non-Orphan Drugs. That being said, we have recently authored a report showing that orphan drugs are more likely to be successful in early-stage clinical trials compared to drugs without the orphan designation. Works shows that Orphan Drugs had successful Phase 3 trials and made it through final FDA approval 58% of the time, compared to 49% for non-orphan drugs. That's an interesting statistic, because although Orphan Drug designation is not an endorsement by the agency on effectiveness, Orphan Drugs are about one fifth more likely to succeed than non-orphan drugs. Non-oncology orphan drugs are approved 68% of the time.

A Decision Soon On KRN5500?

DARA Bio has been developing KRN5500 for almost a decade now. It's one of the last surviving pieces of the old DARA Bio from before new management took over in December 2011 and dramatically shifted the company's focus from mass-market opportunities in diabetes, cancer, and autoimmune disease to the current focus on oncology supportive care. KRN5500 an intravenous semisynthetic derivative of the nucleoside-like antineoplastic antibiotic spicamycin, originally isolated from the bacterium Streptomyces alanosinicus. It has the potential to be a breakthrough, non-opioid medicine for the treatment of neuropathic pain in cancer patients, or more specifically, chronic chemotherapy-induced peripheral neuropathy (CCIPN).

KRN5500 was originally developed by Japan's Kirin Brewery in an effort to identify new anti-cancer agents that induce apoptosis and differentiation of myeloid leukemia cells. The work was performed in collaboration with the Massachusetts General Hospital (MGH), the National Cancer Institute (NCI), and Eastern Cooperative Oncology Group (OTC:ECOG) in the U.S. Preclinical data demonstrated that KRN5500 has significant in vitro activity against human chronic lymphocytic leukemia (CLL) cells, thus providing support for advancement into clinical trials for patients with CLL, as well as those with acute myeloid leukemia (AML) and solid tumors.

Four clinical trials have been conducted in cancer patients, including one in Japan and three in the U.S. A total of 91 patients with solid tumors have been treated with single IV KRN5500 doses of up to 21 mg/m2 and weekly doses of up to 42 mg/m2. Unfortunately, no objective antitumor response was observed at the maximum tolerated dose (MTD) in any of these programs. However, potent neuropathic pain reduction was observed in a significant number of patients. MGH published this data in Clinical Cancer Research in November 2003. An additional analysis of these finds was published in the Journal of Pain and Symptom Management in April 2012.

Based on these findings, KRN5500 was reformulated, specifically to remove excipients that caused gastrointestinal side-effects in the original cancer trials, and development was moved forward in CCIPN. CCIPN is a type of pain that results from nerve damage and is characterized by an abnormal hypersensitivity to innocuous, as well as noxious stimuli. This type of pain is extremely difficult to manage, fails to respond to standard analgesic interventions including opioids, and often worsens over time. There are currently no FDA approved treatments for CCIPN. Given the void in the market and peer-reviewed data supporting potential utility of the drug, the U.S. FDA granted Fast Track status for KRN5500 in CCIPN.

We see CCIPN as a nice market opportunity for DARA Bio. The overall neuropathic pain market is enormous, forecasted to grow to $6 billion by 2015. It is one of the more sought-after markets in the pharmaceutical industry, and Orphan Drug status makes the opportunity even more attractive given the seven years of market exclusivity noted above. Specific to this opportunity, neuropathic pain occurs in 30% of cancer patients, including up to 90% of patients with advanced cancer. The incidence and severity of CCIPN vary considerably for each neurotoxic agent, administered alone or in combination, but for vincristine, cisplatin, oxaliplatin, and paclitaxel, estimates are as high as 70% to 90%. As many as 60% of patients receiving docetaxel and 40% of those treated with carboplatin develop CCIPN.

According to the American Cancer Society, there are an estimated 12 million Americans living with active cancer and some 1.6 million new cases each year. Not all types of cancer results in neuropathic pain, and not all active cancer patients are on chemotherapy. But conservatively, if we assume that half of 30% noted above with neuropathic pain are due to chemotherapy and other neurotoxic agents, the market opportunity for KRN5500 is around 1.8 million patients!

Clearly this is larger than the 200,000 maximum allowed under the Orphan Drug Act. Thus, DARA's application carves out some refractory or other subset of this population to fall below the 200,000 maximum. Since the original filing back in November 2012, DARA has been in active communication with the FDA. We believe there have been several rounds of "back-and-forth" correspondence between DARA and the FDA crafting the exact language for the indication. In fact, if we look at DARA's press release for the third quarter 2013, management noted that the company responded to a request for information from the agency on September 10, 2013 and additional information will be submitted in November 2013. We can only assume that this additional information has been submitted, and the FDA will respond back to DARA in 75 days. So although the DARA Bio KRN5500 application is getting a little long-in-the-tooth, as long as dialogue continues, we are optimistic on the outcome.

The Data Supports Moving Forward

On September 8, 2010, DARA Bio presented positive study results from a phase 2a dose escalation study with KRN5500 at the 13th World Congress on Pain. The multicenter, placebo-controlled phase 2a study was designed to evaluate the safety and efficacy of KRN5500 for treatment of neuropathic pain in patients with cancer. The trial compared KRN550 vs. placebo to determine treatment differences in median changes from baseline in pain scores recorded by patients in a daily diary as measured by the numeric rating scale (NRS). Results show:

•KRN5500 significantly reduced neuropathic pain when compared to placebo (24% vs. 0%; p = 0.03) when looking at the median decrease in pain intensity from baseline.
•KRN5500 significant improved the number of patients achieving pain reduction from baseline of > 20% when compared to placebo (83% vs. 29%; p = 0.04).
•KRN5500 significantly reduced NRS from baseline compared to placebo when looking at the best weekly median response (29.5% vs. 0%; p = 0.02).


In addition, regression analysis of the best response for each patient over doses showed a significant linear decrease in pain intensity with increase in dose (slope = -18.2; p = 0.009).

These results indicate that KRN5500 was effective in reducing pain in patients with CCIPN in a dose-dependent manner. Higher doses of KRN5500 result in greater reductions in pain over time. The data was published in the Journal of Pain and Symptom Management in April 2012 (full paper).

In May 2012, DARA announced new data from the phase 2a study that incorporated a new analysis conducted by an external biostatistician with extensive FDA experience. Previous analyses of the study data were based predominantly on patient-reported Numeric Rating Scale (NRS) pain scores collected by healthcare professionals in a clinic setting during weekly visits, whereas this new analysis focused specifically on self-reported daily pain scores from patients' diaries. Responders in this analysis were defined as patients attaining a clinically-meaningful (at least 20%) improvement in mean NRS scores from baseline within any given week.

Of the 12 patients who received KRN5500 in this 19-patient trial, 7 (58%) were classified as responders. Further, 5 of the 7 (71%) showed sustained pain relief over several weeks. Of the 7 patients who received placebo, none were responders. We find these results impressive since patients enrolled in this proof-of-concept trial had unrelenting pain at baseline despite the concomitant use of other approved analgesic agents.

KRN5500 was generally well tolerated with adverse reactions limited to primarily gastrointestinal (GI) symptoms such as nausea, vomiting, and diarrhea. These were more frequent and severe in the KRN5500 arm than in the placebo arm. GI disorders affected 11 (92%) of the 12 patients dosed with KRN5500 vs. only 4 (57%) for the placebo. In fact, a third of the GI disorders relating to KRN5500 were deemed to be severe. However, DARA management has attributed these symptoms to the excipients such as DMAC and monoethanolamine used in the original KRN5500 formulation known to induce nausea and vomiting. Material Safety Data Sheets on both these compounds note this occurrence (1, 2). Accordingly, DARA has since reformulated KRN5500 to remove these excipients and reduce these GI related side effects. DARA makes mention of this briefly in its most recent Form 10Q.

With Orphan Designation Comes A Partner

In April 2010, DARA Bio announced that it has entered into a clinical trial agreement on KRN5500 with the Division of Cancer Prevention (DCP), National Cancer Institute , National Institutes of Health (NIH), for the treatment of CCIPN in patients with cancer. Under the terms of the collaboration, NCI will help fund future stages of development. We also suspect that DARA can tap into the NCI's established national network of investigators (Community Clinical Oncology Program - CCOP) to conduct the future studies.

But the collaboration alone with the NCI, even with financial support, isn't enough to fund a phase 2b program in CCIPN. Even with the NCI's help, we are looking at $6 to $8 million to get this work done. DARA doesn't have that much available to spend. Thus, we expect DARA to partner KRN5500 within a few months of the FDA's decision to grant Orphan status. Management has told us they are in discussions with potential partners on KRN5500, and that a partnership is not necessarily contingent on the FDA's Orphan Drug decision. While we think that this is encouraging, DARA Bio has been having these discussions for the past three years. In our view, gaining Orphan Drug status for KRN5500 is the deciding factor for whether or not KRN5500 is a partnerable drug.

The primary reason we believe Orphan Drug designation is the gate-keeper to a partnership is the looming expiration of the patent protection around the drug. In DARA Bio's filings, the company notes six active patents protecting KRN5500. We found US-5,461,036, filed in July 1992 by Kirin Beer Kabushiki Kasha, "Spicamycin derivatives and their use as anticancer agents," as the oldest patent. Also filed by Kirin in 1995 was US-5,631,238, on the use of Spicamycin derivatives. Both of these patents have since expired. In May 1999, MGH was granted a method of use patent, US-5,905,069 on, "Decreasing or preventing pain using spicamycin or derivatives thereof." Based on the priority date, we assume this patent will expire in 2018, unless DARA Bio can gain approval prior to the expiration, in which case they would be granted an additional five year extension under Hatch-Waxman legislation.

Additional patents owned by the MGH are US-7,196,071, and related applications US-7,375,094 and US-7,632825. The '071 patent was filed in September 2001 as, "Methods of decreasing or preventing pain using spicamycin derivatives." We believe these patients will protect KRN5500 until 2021 or 2022. DARA Bio has filed two new applications that claim new formulations of spicamycin derivatives and protect methods for pain relief. These two patents aim to protect KRN55500 until 2029 and 2032, but as a formulation patent, may not provide a high barrier to generic entry.

If it difficult to assess the exact market exclusivity of KRN5500 given that composition of matter patents have expired. Method of use patents remain active until at least 2018, with upside to 2022. However, DARA Bio has to gain approval for KRN5500 prior to the expiration of the '069 patent or generic companies may be able to challenge the three follow-on '071, '094, and '825 patents with obviousness. Given the 'Fast Track' status, that may be possible, but the lack of clear market exclusivity timelines may be what has held up the signing of a partnership on the drug to date. Pharmaceutical companies may be attracted to the size of the market and the data on KRN5500 generated by DARA Bio in the phase 2a study, but they are not going to spend millions to push the drug forward only to subsequently battle generic competition a few years after launch.

The two formulation patents filed by DARA that aim to protect use until 2029 or 2032 are attractive in length, but have yet to be granted and will almost certainly be challenged post approval. Finally, Hatch-Waxman legislation will provide five years of exclusivity if KRN5500 makes it to the market. That is about on the borderline for most pharmaceutical companies to spend or not spend on a drug. This is why we believe Orphan Drug status is so important for DARA. Pharmaceutical partners would get an extra two years, guaranteed, without legal battles and paragraph IV ANDA challenges. It removes what we see as the biggest overhang to signing a deal for the drug.

Conclusion

We most recently wrote on DARA Bio that the specialty oncology story that attracted us to the shares a year ago remains intact, but patience was required by investors because things are moving slower than expected. The primary reason for the slower roll-out of the company's key products was a substantially under-sized sales force. In 2013, DARA has struggled to sell what physicians and patients don't know exists. DARA Bio's share of mind remains low. Therefore, we are happy to see the company taking the right steps to expand the sales force and step-up promotion of both Soltamox and Gelclair in 2014.

KRN5500 has mostly been an afterthought in our investment thesis that centers on the company's core commercial assets in Soltamox, Gelclair, and Bionect. However, Orphan Drug status for KRN5500 changes things - it creates enormous upside coming from the pipeline, as well as partnerships. A partnership is something that could come with a sizable upfront payment and development milestone that DARA can use to continue the expansion and stepped-up promotion of the commercial assets. We already rate DARA Bio a 'Buy' with a $1.50 target. Getting Orphan Drug designation for KRN5500 turns this potential triple into a home run. It's a beautify turnaround story in 2014, if it all comes together.

Now DARA is clearly not at a loss without Orphan Drug status on KRN5500. We want to make that clear. KRN5500 has always been upside to the specialty oncology commercial story already in place. We believe the changes DARA Bio made to promotion earlier in the year have clearly allowed the company to gain traction. Sales in the third quarter 2013 increased 80% sequentially from the second quarter 2013. Earlier this month, DARA Bio announced that enrollment in the company's CAPTURE registry has been completed, and DARA hopes to use data from this registry to drive sales of Soltamox in 2014. We think there is a path to profitability on the horizon. At today's price, investors are getting KRN5500 for free.

But if the FDA grants Orphan Drug status for KRN5500 and the company can secure a partner for phase 2b, we think DARA Bio shares are positioned for a significant move higher. The current market value is only $15 million. KRN5500 is a potential $250 million drug in CCIPN. The upfront payment alone from a potential interested party could double the shares. Research shows that Orphan Drugs do tend to succeed at higher rates than non-Orphan Drugs, and the FDA has stated a goal to respond to all applications in 75 days. DARA submitted a response to questions from the agency on September 10, 2013. Additional data was provided to the agency in November 2013. We expect a decision in the next month or two, and believe that could be a major catalyst for re-valuation at a higher level.

MFG
Chali