From this week's Issue of MTSL:

Our top story this week is a recommendation of a short sale of BioSante Pharmaceuticals (BPAX) over $2.25 with a target price of $1.25.  The company has a treatment (LibiGel testosterone gel) in Phase III clinical trials which, if approved, would be the first-to-market therapy for hypoactive sexual desire disorder (HSDD).  The drug is a transdermal gel delivery of testosterone intended to increase female libido. There’s a catch, though – there are reasons why there are no approved therapies for HSDD or other female libido drugs are on the market.  The first reason is safety. A year ago German drug maker Boehringer Ingelheim announced it was scrapping plans to develop its female libido drug because of safety concerns.  Proctor & Gamble ran into similar regulatory concerns last decade over its testosterone patch.  The second reason is the lack of clear and definable clinical endpoints for HSDD. If there’s one key lesson we’ve learned about clinical trials, it’s ask one question and answer it clearly. The LibiGel Phase III trials have multiple endpoints, making it harder to get a statistically significant result. 

On October 4, 2011, BPAX announced the completion of its two pivotal LibiGel Phase III efficacy trials. Trial data are being collected from the 141 investigative sites in the U.S. and Canada that participated in the trials and the company is, for now, blinded to the results. BPAX expects to announce top-line LibiGel efficacy results from both trials before the end of the year. We do not have to wait long to see if we are right about this short sale as results could come within days. 

The LibiGel clinical development program also includes the ongoing LibiGel Phase III cardiovascular event and breast cancer safety study, which completed enrollment of 3,656 subjects in June 2011. On October 11, BPAX announced that an independent DSMB completed its seventh unblinded safety review and recommended that the study continue according to the FDA agreed protocol. The primary analysis of safety data is targeted for the third quarter of 2012. The LibiGel New Drug Application (NDA) submission will include data from the two efficacy trials as well as the safety study, and is targeted for the fourth quarter of 2012.  Given the history of safety problems using testosterone to treat female libido, the FDA required this safety trial.

BPAX has a current market cap of $280 million.  The company has only $50 million in cash and is burning $12 million a quarter which amounts to less than a year of cash.  The stock could easily be cut in half if LibiGel fails in Phase III, with some of the remaining value attributed to the TEVA hypogonadism indication.  BPAX also is developing a portfolio of cancer vaccines and other programs. These programs are not, however, what you would call inspiring. Moreover, as we know in biotech the lead clinical program is the only thing that really matters for the valuation.

BPAX CEO Steven Simes has said the market for LibiGel may be at least $2 billion – the estimate for erectile dysfunction drugs.  We find this comment to be boastful at best as even the most bullish BPAX analysts have peak sales just over $500 million. Identifying the market for this drug is hard enough; successfully converting that potential market into actual sales is another problem altogether. 

The SPA agreement for the pivotal Phase III covers safety and efficacy of LibiGel in the treatment of FSD. The Phase III safety and efficacy trials are double-blind, placebo-controlled trials each of which will enrolled approximately 500 surgically menopausal women for six-months of treatment.

The primary endpoints in the LibiGel clinical trials are:

• An increase in the number of satisfying sexual events.        
• Change in mean sexual desire.     

The secondary endpoint is:

• Decrease in sexual distress associated with low desire.        

We don’t think you’ll need any convincing that these are soft endpoints, and BPAX will have difficulty attaining statistical significance. One of the most important keys to successful Phase III trials is narrowly defined endpoints that basically seek to answer one question.  One variable is enough to trip many clinical trials and adding multiple variables is a way to trouble in the form of poor results.  These trials will use patient surveys to obtain much of the data.  Patient surveys are notorious for providing mixed results because, again, you are asking multiple questions.

Most importantly, we expect a large placebo effect in these trials. Frankly put, thousands of years of history regarding aphrodisiacs prove the importance of patients’ state of mind and expectations when it comes to compounds advertised as improving one’s sex life. We are recommending a short sale of BPAX above $2.25 with a target price of $1.25.