The Irrationality of Biotech Investing : Prima Biomed

I almost didn’t post this article, mainly because I am bored of being called a “bear” in terms of my sentiments on this forum. To be clear, when it comes to Prima Biomed I am not bear-ish about the company – I think it has some prospects.

On the one hand, Prima has a few good people. I don’t dislike the LAG-3 program, it’s a good target and IMP321 seems to have an adequate safety profile in the limited studies that have been conducted. In my opinion, Prima’s website somewhat oversells the clinical development of IMP321 to date with the implication is that these are Prima’s studies, but they are not – they were very small safety studies run by Immutep S.A. Some of the data has been published, most hasn’t. It’s VERY early days for this program.

On the other hand, Prima has had a fair number of leadership challenges. Its “triple listing” status is a bit bizarre and frankly is a cost overhead that is a little hard to justify in my opinion. Prima’s offices in Sydney are basically a “virtual” office and the management team and development team are not co-located (they are spread out across the US, Australia, France and Germany). In fact this is about as far from being an Australian biotech company as you can get, though the board is less distributed and is reasonably Sydney-centric. Now I am not saying this a problem but it adds challenges to a company that already has plenty of issues to address.

Ever since February, Prima has been very clear that its go-forward plan for CVac was to stop internal development. We didn’t see a bump in the stock price on the basis of that news, in fact it steadily declined over the past few months and went from 4c in February to 2c just before the CVac announcement. So I think it is fair to say that there was no reward from shareholders on the news that CVac was going to stop as a program and that the company was going to focus elsewhere. We have also had no news on LAG-3 since that time so the rational human can only attribute the recent stratospheric surge in stock price to CVac.

WOW.

WOW.

I have been asked several times over the past few days why I put the probability of partnering of CVac at such a low probability (<10%). To be clear, this is the key question that shareholders have to ask because otherwise there is no basis for the increase in valuation given that Prima Biomed will not be continuing the program. Even as recently as yesterday I saw dialogue share trading forums talking about the bright future of this drug. To be clear, PRIMA IS NOT CONTINUING TO DEVELOP THE PROGRAM. Don’t worry that you may not understand anything about life sciences, or pharmaceutical companies. Just take a step back and ask yourself this question: do drug companies that have spent millions of dollars developing a successful drug, especially one that was the “soul” of the company, abandon it without a reason?

The answer is no.

There are three reasons why Prima has rightfully abandoned CVac:

1) To scale-up for larger clinical trials, Prima needs to spend serious $$$s on manufacturing development

Most of Prima’s manufacturing relationships are in the public domain and are known, mainly because there are not that many places in the world that can do this kind of work. They are all small-scale facilities that are designed to produce tiny numbers of doses for clinical research purposes. Moreover, the whole premise of CVac is that it is an “autologous” therapy. This means that a person’s own cells are harvested using apheresis, are manipulated in a lab under cGMP (“good manufacturing practices”) and then re-injected into the patient. It’s incredibly inefficient and expensive to produce these doses for clinical trials because each production run is for a single patient.

Not only can Prima not afford it, but to go to the next stage of development would require some serious investment – mainly because they would have to nail down their manufacturing protocols for commercial release in Phase III (i.e. the way that the product is manufactured in Phase III has to be the same as for the commercial release product). That means spending the cash now. Additionally, for a Phase III study, the company will have to put some major thought into expanding qualified apheresis sites (they also need to be validated) and think about how to distribute manufacturing because it needs to be somewhat proximal if they are to continue to use small scale sites.

If Prima were truly going to scale up for centralised commercial production, they would need to invest. When Novartis acquired Dendreon’s Provenge manufacturing site for a paltry $43m they picked up a bargain. There aren’t many sites like that around. Prima would need to spend at least that amount of money to scale up. And that’s just the buildings and the plant, not the people, the processes and the certification as a qualified manufacturing facility (i.e. a couple of years of operating costs).

2) The patients aren’t available.

One of the biggest problems drug companies have developing new drugs these days, is that it’s hard to recruit patients that meet a “clean” entry criteria. In fact, this also impacts point #3 below. Ideally, for a given stage of disease, you want patients that haven’t been “adulterated” by other clinical trials or anything that is not “standard of care” so that your efficacy signal is clean (this efficacy signal is also clouded by patients that “cross-over” to other therapies). In a previous post on Prima I mentioned Trovax, another ovarian cancer vaccine that showed quite good clinical efficacy, but is unable to proceed because there are just too many good drugs out there in development, and in use.

Of course, what is bad for drug companies is, in a way, sort of good for patients. What I mean by this, is that marginal therapies – like CVac – don’t gain commercial prominence and that only the “cream” rises to the top. If you are a woman with ovarian cancer, you don’t want to be on CVac, you want to be on Merck’s PD-1 antibody “Keytruda” or AstraZeneca’s PARP inhibitor. The success bar for drug companies is just higher then ever due to expectations of clinical performance and pharmacoeconomics. CVac just doesn’t meet this bar.

3) CVac clinical development hasn’t told us anything “better” than before

Having now had a chance to go back and review all the (available) clinical information about CVac is not evident that this drug is effective, or at least any more effective than we already “understood”. There are lots of problems with the data as it has been released. To be clear, the Can-3 top-line overall result was not statistically significant for either progression free survival (PFS) or overall survival (OS). Frankly, the patient cohorts were very small and the hazard ratio is not statistically significant either.

The OS claims also include patients that have crossed over to other treatments (because of progression of their disease) and although Prima was supposed to capture time to next treatment, they have not published those results (which would be rather interesting). In short, despite a glossy press release, they haven’t actually demonstrated – convincingly – that CVac works, at least any better than we understood already.

… to conclude…

In short, the more I look at it, the more I am convinced that this is a turd being packaged as a bonbon. If so, it’s got zero chance of moving forward in a partnership because the clinical data simply wont pass due diligence. But one should “never say never” so I put the probability at <10%. The whole “package” will also be incredibly tough to transfer to a new partner and not only will the cost of forward clinical development be exorbitant, but the product will very expensive to make even when scale-up is complete. Product COGS does matter against the backdrop of ever-increasing pricing pressure on drugs, and it is one of the biggest challenges of autologous cell therapies. Full stop.

None of this changes the fact that the stock price rocketed and people made money out of it. I didn’t, unfortunately. I like money and in some ways I feel stupid talking about something that is obviously “successful” by one financial metric – stock price. But I have continued to resist the urge to put my hard-earned $$$s into investments that I don’t understand. In fact, I don’t consider Prima (in the context of CVac, not LAG-3) to be an investment because it fundamentally has no basis for this phenomenal increase in market cap.

Putting money into herd mentality stock behavior and human psychology is not investing, it’s just speculation at best and gambling at worst …

 

One thought on “The Irrationality of Biotech Investing : Prima Biomed

  1. Pingback: NVG, ANP, PYC, ACL, OBJ : A Week in Contrast | The Long Tail

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