Apr 042014

Bios Go From 1st To Worst, Is A Bottom Near? New Recommendation


Five Prime Therapeutics’ (FPRX) Protein Platform Technology Ready For Prime Time – Quoting the famous intro from ESPN legend Chris Berman, “Its Prime Time for Five Prime!”  Five Prime is a classic early-stage platform company with, in our view, a proprietary and powerful technology based on management’s broad experience and unique understanding of proteins.  The company is led by a seasoned management team that has delivered multiple victories in their previous, respective biotech endeavors.  The company’s CEO is Lewis T. “Rusty” Williams, who has an incredible pedigree beginning at Chiron where he was CSO and went on to co-found COR Therapeutics before signing on to run FPRX.  We are very familiar with Rusty’s success as both Chiron and COR were huge winners for MTSL subscribers – both companies developed successful products and were acquired for a significant premium demonstrating Williams’ ability to create substantial value for shareholders.  Aron Knickerbocker is senior VP and runs business development for FPRX.  He was most recently senior business development officer at Genentech, another long-term star for MTSL subscribers.  Rounding out the all-star management team is Julie Hambleton, MD who was group medical director, global clinical development at Genentech.  Interestingly, FPRX plans to incorporate companion diagnostics with their drug development programs, a strategy pioneered with the Herceptin launch when both Hambleton and Knickerbocker were at Genentech. In our view, FPRX has one of the best management teams we have recently seen in any biotech company, let alone a small cap.

The company’s deep and experienced management team has already validated the platform through multiple corporate partnerships, with the recent Bristol-Myers deal being particularly impressive.  One of the keys to success in biotech investing is identifying quality management teams. In our view, FPRX’s management team has all the right ingredients for success with a deep and experienced team with a tremendous track record in bringing protein drugs to the market.  Management execution will be key to FPRX’s future and, we believe, is even more critical in a platform company as they will continue to generate a plethora of partnerships to fully leverage their cutting-edge technology.

FPRX is a new kid on the block having just recently come public.  On September 23, 2013, FPRX went public and issued 4,800,000 shares of common stock at $13 per share.  We are taking advantage of the recent biotech pullback to initiate coverage and recommend FPRX (which recently traded as high as $23.23 after the BMS deal was announced).  In fact, BMS purchased $21 million of FPRX equity (4.9% of the company) at $21.16, a 30% premium when the deal was announced.  We are recommending purchase of FPRX below $22 with a TARGET PRICE of $32.  We are very comfortable being investors alongside BMS, the clear leader and expert in the emerging field of immuno-oncology. In our view, FPRX will be among the next-generation of biotech leaders.

Why Proteins Matter – The process of discovering targets for protein therapeutics has to date been a difficult and slow process.  Despite this scientific drudgery, protein therapeutics have historically been the sweet spot for biotech investors and represent $71 billion in global sales in 2012 for the treatment of cancer and inflammatory diseases.  There are more than 5,700 proteins in the body that represent potential therapeutic targets, but only about 30 are targeted by currently marketed protein drugs in cancer and inflammatory diseases.  Importantly, the majority of these 30 drugs that target proteins are monoclonal antibodies which the company has a significant expertise in from previous experience.  FPRX has spent the last seven years developing a unique and proprietary platform to improve and accelerate the protein therapeutic discovery process.   The platform is based on two components:

  • A proprietary library of more than 5,700 human extracellular proteins that is one of the most comprehensive collections of fully functional extra-cellular proteins available and is an abundant source of medically relevant novel targets for protein drugs; and
  • Proprietary and new technologies for producing and testing thousands of proteins at a time.

The platform was designed to both improve and accelerate the discovery of new protein targets and protein drugs:

Identify novel medically-relevant protein targets and protein drugs that have little or no previously known biological function or are not in the public domain and cannot easily be discovered by other methods;

Determine the best protein target among many alternatives for a particular disease by screening and comparing nearly all possible medically important targets simultaneously; and

Identify new targets more quickly and efficiently than previously possible because it can produce and test thousands of proteins at a time, rather than one or just a few at a time

Five Prime’s Name Origin – Protein collections are usually generated from gene copies called cDNAs.  cDNAs are copies of genes that direct protein production and can be used to reproduce in the laboratory the same protein that is made in the body. However, if one end of the cDNA, called the “5 prime end,” is absent, the protein cannot be made. The 5 prime end is the most difficult part of the expressed gene to copy. FPRX’’s proprietary technology was specifically developed to solve this problem by capturing more cDNAs with the prime ends intact.  In our view, the company’s library of cDNAs is the most comprehensive collection of full-length, fully functional proteins available.  The multiple partnerships that FPRX has already formed also supports this view.

The Pipeline – FP-1039, FPA008 and FPA144 – FPRX’s drug development aims for indications and specific patient populations in which activity of drug candidates can be assessed early in clinical development, potentially in Phase I. The company also plans to incorporate companion diagnostics in all aspects of development, including pre-identifying the specific patient populations that are most likely to respond.  In our view, selecting patients using companion diagnostics should increase the probability of clinical trial success.  Companion diagnostics can help drugs gain rapid market share upon approval as payers appreciate the fact that they can pre-screen non-responders and therefore save the system money.

FP-1039 – FP-1039 is a protein drug candidate called a “ligand trap” which has been designed to selectively block the 12 cancer-promoting FGFs that bind to FGFR1, while not blocking the 10 unrelated FGFs.  The drug candidate is currently in Phase Ib testing for squamous non-small cell lung cancer (NSCLC) in combination with chemo (Clinicaltrials.gov – FP-1039)  and the trial was recently expanded to include an arm with mesothelioma patients.  In a previous Phase I trial in unselected solid tumors, ‘1039 showed excellent safety with no maximal tolerate dose (MTD) identified – even at high doses, while also delivering stable disease in 44% of patients (17 of 39).  Clinical development of ‘1039 will be accompanied by a diagnostic test at all stages and will be designed to identify the selected patient population most likely to benefit.  GSK has rights in the US, EU, and Canada for ‘1039 and FPRX has a co-promotion option in U.S.  The company $50 million upfront and is eligible for milestone payments totaling $435 million and plus royalties starting in the low double-digits and escalating into the high teens.  Data from the Phase Ib trial is expected by year-end.

FPA008 – An anti-CSF1R antibody specifically designed to block the ability of IL-34 and CSF1 to bind to and activate CSF1R. ‘008 reduces the numbers and activity of monocytes and macrophages, and prevents the production and release of inflammatory factors.   IL-34 is a very interesting drug target for autoimmune (AI) because it is upstream from other AI targets – TNF-alpha (Enbrel, Humira, Remicade), IL-6 (Acterma), and

Il-1beta (Kineret).  The advantage of this approach is that the production of multiple deleterious factors is inhibited simultaneously, potentially resulting in better control of inflammation. Another advantage of blocking CSF1R is that a special macrophage that breaks down bone, called an osteoclast, is also inhibited. Therefore, not only could FPA008 potentially be superior in reducing inflammation, but it may also directly suppress bone destruction in the joints of patients with inflammatory diseases.  This is a very important measurement that all new RA drugs are incorporating into their clinical development and is now expected by regulators such as the FDA in order to garner approval. Phase I trials are underway in healthy volunteers and then the trial will enroll rheumatoid arthritis patients (Clinicaltrials.gov – FPA008).

FPRX Discovered IL-34 – A major testament to FPRX’s scientific prowess is how they used their library and proprietary platform to discover interleukin-34 (IL-34), a unique and novel protein target that is a key regulator of monocyte and macrophage activity which are found in the inflamed joints of RA patients. Once they discovered IL-34, FPRX used both its protein library and ligand-receptor matching technology to identify its receptor, CSF1R. This receptor is expressed on the surface of monocytes and macrophages. Before their discovery of IL-34, CSF1R was thought to have only one ligand called CSF1. Both CSF1 and IL-34 bind to and activate CSF1R and promote the survival and activity of monocytes and macrophages. FPA008 blocks the binding of both CSF1 and IL-34 to CSF1R and thereby inhibits the activity and survival of these cells.

The Pipeline


We expect to see preliminary clinical data from the healthy volunteer portion of the Phase I trial by the end of 2014, at which time FPRX will begin dosing in patients with RA.  In our view, given the fact that ‘008’s mechanism of action is upstream from other biological targets it could have broad applicability across the AI spectrum of diseases.  The company will explore developing ‘008 in additional AI indications including idiopathic pulmonary fibrosis, lupus nephritis and other inflammatory disorders, and begin additional trials by the end of 2014.

FPA144 – is a monoclonal antibody directed against a form of FGFR2, or FGFR2b. In some patients with gastric cancer, the FGFR2b protein is expressed at abnormally high levels on the tumor’s surface, in particular when the FGFR2 gene is amplified by cancer cells.  The company plans to initiate a Phase I trial by the end of this year in patients with gastric cancer that express abnormally high levels of FGFR2b, as measured by companion diagnostic tests. This is a potential Orphan Drug indication and could be accelerated to the market if the data warrant.  Preliminary data from this trial will be available by the end of 2015.

The upcoming AACR meeting will profile FPRX pipeline (www.aacr.org). The meeting will be held April 5-9, 2014 in San Diego, CA.

Four posters will be presented:

  • Abstract Number 2845: “Expression of FGFR2b in gastric cancer as measured by immunohistochemistry with a highly specific monoclonal antibody,” Amit M. Deshpande, et al. The poster will be presented Monday, April 7 from 1:00 P.M. to 5:00 P.M. in Hall A-E, Poster Section 37 on Poster Board Number 26.
  • Abstract Number LB-236: “Preclinical efficacy of targeting FGF autocrine signaling in mesothelioma with the FGF ligand trap, FP-1039/GSK3052230,” M. Phillip De Young, et al. The poster will be presented Tuesday, April 8 from 8:00 A.M. to 12:00 P.M. in Hall A-E, Poster Section 42.
  • Abstract Number 5446: “FPA144: A therapeutic antibody for treating patients with gastric cancers bearing FGFR2 gene amplification,” Abigael T. Gemo, et al. The poster will be presented Wednesday, April 9 from 8:00 A.M. to 12:00 P.M. in Hall A-E, Poster Section 30 on Poster Board Number 22.
  • Abstract Number 5449: “FP-1039/GSK3052230, an FGF ligand trap, enhances VEGF antagonist therapy in preclinical models of RCC and HCC,” David Bellovin, et al. The poster will be presented Wednesday, April 9 from 8:00 A.M. to 12:00 P.M. in Hall A-E, Poster Section 30 on Poster Board Number 25.

Cancer Immunotherapy Drug Discovery is FPRX’s Focus – Five Prime is focusing its internal research in the red hot (and albeit crowded) area of cancer immunotherapy, which is also referred to as immuno-oncology. Cancers grow and spread because tumor cells have developed ways to evade elimination by the immune system. For example, cancer cells make proteins which apply the “brakes” to immune cells and prevent the immune cells from killing the tumor cells. One of the most exciting recent discoveries in cancer therapy has been the identification of ways to release these “brakes” and allow the immune cells to once again kill tumor cells. This new approach, called cancer immunotherapy, has the potential of not only reducing tumor growth like traditional therapies, but potentially eliminating the cancer entirely in some patients. New targets for cancer immunotherapy are needed to address those patients that do respond to or cannot tolerate agents currently in development.  In our view, FPRX and their cutting edge protein library puts them in the proverbial “cat bird seat” when it comes to identifying new targets and protein drugs in cancer immunotherapy.

Protein drugs (ligands, ligand traps, and monoclonal antibodies) should predominate in cancer immunotherapy because anti-tumor immunity often involves interactions between extracellular proteins that are not easily modulated with small molecule drugs. (INCY’s IDO is a unique outlier in that it targets an intracellular enzyme with a small molecule).  There are likely many additional proteins that regulate the immune response to tumors that have not yet been described or characterized, and FPRX’s biologics discovery platform has been designed to identify these currently unknown targets.  Of these 5,700 proteins, FPRX estimates as many as 400 proteins are part of the immunome and have potential as checkpoint inhibitors for cancer.  FPRX is currently using their discovery platform to identify novel pathways and their protein partners from these 400 molecules known to be involved in the anti-tumor immune response including TIM-3, LAG-3, PD-1, VISTA, B7-H3 and B7-H4.   FPRX’s unique dual focus on cancer and inflammatory diseases provides them the expertise and capabilities needed to be a leader in the very exciting new field of cancer immunotherapy.

Novel Technologies to Produce and Screen the Library in High-Throughput – FPRX has developed a suite of technologies for producing and screening the proteins in their library that addresses the limitations of traditional drug screening methods. These technologies are composed of a combination of their proprietary technology along with other publicly available technologies, including technologies the company has in-licensed on a non-exclusive basis from third parties. Generally, FPRX protects these proprietary biologics discovery platform technologies as trade secrets or know-how and does not seek to obtain patents to cover the biologics discovery platform.

High-Throughput Protein Production – The difficulty of producing large numbers of new proteins in a functional form presents a limitation in the discovery of new protein drugs. FPRX’s high-throughput protein production system includes proprietary technologies developed over several years that allow them to produce more than 2,000 proteins per week at therapeutically relevant amounts and with a high level of consistency.

Cell-Based Screens to Identify Protein Therapeutic Targets – FPRX designs complex cell-based screens that better model the fundamental biological processes underlying the disease of interest, and adapt them to be compatible with their protein library.

Rapid In Vivo Protein Production System – The company’s rapid in vivo protein production system, or RIPPS ®, enables FPRX to produce and test the proteins in their library directly in vivo in virtually any rodent model of disease and in high-throughput.

Receptor-Ligand Matching – Some proteins are referred to as ligands and exert their actions by binding to a receptor on a cell surface. In order to optimally treat some diseases, one must know the identity of both the receptor and the ligand. FPRX’s comprehensive collection of protein ligands and extracellular domains of cell surface receptors provides them the ability to identify ligand and receptor pairs.

Growing Database of Protein Function – Each of the proteins in the library has been tested in numerous screens on different cell types. This provides FPRX with an extensive database of how each protein performs in different screens and whether it is specific to a given disease process or has a broader set of activities. The cumulative data from all the screens allows the company to identify the most appropriate target.

Impactful Collaborations With Leaders Only Beginning – The recent partnership with immune-oncology powerhouse BMS was in our view a very impressive deal.  FPRX received $20 million upfront and up to $300 million per target for the two checkpoint inhibitors being developed.  The company will also receive royalties starting in the mid-single and escalating to low double-digits.  BMS also invested $21 million in FPRX stock at a 30% premium.  FPRX also has a partnership with UCB for fibrosis and CNS disorders in which they received $6.4 million upfront and could receive milestones of up to $92 million per target.  In our view, this is just the beginning as we expect FPRX to ink numerous partnerships as their powerful protein discovery platform will provide more drug candidates that they could ever possibly develop on their own.

Investment Conclusion – Next-Generation Leader in Protein Therapeutics – Five Prime is a leader in the discovery of innovative protein therapeutics as they have developed a proprietary protein discovery platform based driven by the management team’s vast experience developing proteins throughout the biotech industry’s ~30-year history.  The company has built an impressive library comprised of more than 5,600 human extracellular proteins, which represents virtually all of the body’s medically important targets for protein therapeutics.  Importantly, the company’s protein technology platform, business model, and intellectual property have been validated by their solid list of corporate partners.  In our view, FPRX has all the ingredients to become a biotech winner – a powerful protein discovery platform that is expected to deliver many drug candidates (and diversifies risk like several MTSL favorites), and led that an experienced management team with proven track record of successfully developing protein drugs for major markets.  In our view, FPRX has the potential to become a major player in immune-oncology, quite possibly the hottest and most exciting space for biotech investors today.   FPRX is a BUY under 22 with a TARGET PRICE of 32.


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