Oct 192015
 

October 15, 2015

Our BUY recommendation of MDCO was based upon the transformation of growth from Angiomax to a new product lineup and R&D pipeline that management has amassed over the past decade or so. In our view, the stock had predominantly reflected the overhang of the Angiomax patent dispute that consensus believed – and rightly so – that MDCO would lose. That is now behind us and the value of the pipeline is just beginning to be reflected in the MDCO valuation. With the success of the Phase I trial of ALN-PCS in August, investors are only now realizing how undervalued the Company is. The next compound that we believe will start to be discounted in the stock is ABP-700.

ABP-700 is an experimental intravenous anesthetic being developed for procedural sedation and general anesthesia in patients undergoing diagnostic or therapeutic procedures. It is a potent positive allosteric modulator of the γ–aminobutyric acid (GABA) receptor, a ligand-gated ion channel, discovered by the laboratory of Douglas Raines, M.D., of Massachusetts General Hospital and licensed to Annovation Biopharma (Cambridge, MA). Preclinical data have been published (http://anesthesiology.pubs.asahq.org/article.aspx?articleid=1936528&resultclick=1) and positive proof-of-concept studies convinced MDCO to buy Annovation in February of this year.

At the 2015 Annual Dutch Society of Anesthesiology Meeting in June, MDCO presented positive Phase I data that demonstrated ABP-700′s ability to induce deep hypnotic sleep with a fast onset of action (in ~30 seconds) and time to full recovery (within ~6 minutes). Moreover, ABP-700 may have a better safety profile versus propofol or etomidate, as the Phase I data showed no significant changes in blood pressure, respiratory rate, or cortisol levels. With a broader profile versus the current standard-of-care, ABP-700 could have a wider therapeutic window and eventually become the anesthetic of choice in surgical procedures.

MDCO expects to present more detailed Phase I data at the American Society of Anesthesiologists Meeting on October 26th in San Diego, CA (http://www.abstractsonline.com/Plan/ViewAbstract.aspx?sKey=1a248f2a-e962-4bfe-820d-a82456a7ee8d&cKey=906da020-107d-4e62-ad28-9ff3dc438f12&mKey=%7b068F2AC3-1187-43D5-B2B7-75DD8592418D%7d). While the initial data has been released, the results were presented in a small European conference. In addition, the trial was conducted in the Netherlands(http://www.trialregister.nl/trialreg/admin/rctview.asp?TC=4545) and therefore the compound and trials do not exist onClinicalTrials.gov — the most common source for accessing clinical trial data. Hence, we believe the oral presentation (Abstract A3012) in America and at the biggest anesthesia meeting in the world will bring added visibility to ABP-700.

Slide 1 – Clear Dose Response

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The first-in-human, double-blind, placebo-controlled study in 60 subjects was designed to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of ABP-700 after single ascending intravenous bolus doses. Study results showed linearly dose proportional pharmacokinetics and pharmacodynamic effects that were rapidly reversible, consistent with pre-clinical animal studies. Adverse events were mild with the exception of one subject with moderate tachycardia. No serious adverse events were reported.

Efficacy

Slide 1 shows the BIS score – which indicates the level of sedation for patients given ABP-700. The key to this slide is the smooth dose-response of ABP-700 – notice the level of deep hypnotic sleep reached with the 1 mg/kg dose. Slide 2 shows the very predictable and impressive time on/off – to onset (~30 seconds) and time to waking up (~1 minute) on drug – regardless of dose.

Slide 2 – Rapid, Predictable On/Off

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Lastly, Slide 3 compares the BIS scores of ABP-700 with propafol – the current standard of care. ABP-700 induces sedation in roughly the same five minutes as propofol but the sedation is significantly deeper – way deeper than even needed but showing the potency of the novel compound. In addition, recovery time with ‘700 appears similar but seems to lead to a more fully wakening than with propofol. No matter how long given ABP-700 the recovery time is the same – a key important benefit in managing the patient.

Slide 3 – Sedation Compared to Propofol

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Safety

The next few slides demonstrate the key safety parameters that make ABP-700 a rather safe drug. Slide 4 suggests very stable blood pressure in patients over the course of administration and after recovery. And Slide 5 shows that breathing is unaffected as well. The one side effect noticed with ABP-700 is muscle twitching that is manageable, common with all of these types of drugs (GABA) and not problematic to the patient. These are very important characteristics – as severe hemodynamic and respiratory safety concerns exist with propofol.

Slide 4 – Stable Blood Pressure

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Slide 5 – Breathing Rates Remain Normal

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What Will Be New At Anasthesia 2015?

While the early data is impressive and suggest ABP-700 has an incredibly attractive profile, additional hemodynamic data from continuous infusions (compared to both propofol and placebo) may be presented at the meeting to further differentiate ABP-700. For example, in not requiring airway support or other pharmacological manipulation of their hemodynamic state, the MDCO compound’s safety could add to physician comfort (and investor optimism). Safety is really what matters the most, as the current standard-of-care comes with various adverse event problems for anesthesiologists. (Most of us sadly remember what happened with Joan Rivers and even Michael Jackson – with propofol).

Straightforward and Short Clinical Plan

There is a straightforward and expedited clinical development with ABP-700, facilitated with the need for only a 28-day safety/efficacy endpoint. This creates a significantly shorter timeline to market than, for example, with cardiovascular and/or cancer trials. Although it is a new chemical entity (NCE), drugs like ABP-700 are commonplace in anesthesia and the trials and endpoints are not new. MDCO still needs to optimize the dose, and Phase III trials should begin in 2016, but this may be one of the faster clinical plans in the pipeline. We do expect the Company to present these data and the upcoming clinical trial designs to researchers at the conference later this month.

The Market Is Big

There are about 180 million procedures in the U.S. and Europe that require anesthesia each year, at least a billion dollar market led by drugs like propofol. Current IV anesthetics come with problems and need the following to be fixed – a) a shorter duration of action; b) precise tailoring or ability to customize per procedure and; c) improved safety profile (hemodynamics, respiratory, etc.). At this early stage, ABP-700 could be the next best-in-class anesthetic.

ABP-700 Adds to Both MDCO’s Depth & Breadth

MDCO is in the midst of its transformation from Angiomax to a broad-based, multi-product high-growth company driven by approximately 10 new novel hospital-based products, several with billion-dollar or blockbuster potential. While anesthesia is not a “hot” area such as the PCSK-9 drugs and immuno-oncology, APB-700 is one of those key drivers but it is currently not on investors’ radar screens. The initial data is highly impressive, the clinical plan is moving along rapidly – and the regulatory path is much shorter than for most new drugs, and the market is very large. MDCO may also be looking to partner this compound after more POC data is delivered on a global basis, too. The key is the visibility of this drug in investors’ eyes – so far there is very little or none. In our view, that will begin to change with the upcoming presentation at next week’s conference. Just like ALN-PCS – while the data is early, there is enough precedence in this study and in this market to begin to discount ABP-700 intoMDCO’s valuation.