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Sanofi's Lemtrada



January 09, 2013 – Comments (4) | RELATED TICKERS: SNY , GCVRZ

Lemtrada is a drug developed as Campath in the Cambridge University pathology department.  It was commercialized by Genzyme for use in rare lymphomas, in which it is spectacularly successful.  The drug, a biological agent (like Humira, Tysabri, Enbrel, Rituxan and a few others) is a humanized antibody that is infused into the bloodstream and causes the depletion of certain white blood cells, called lymphocytes.  The result is an immunosuppressive effect.

Many diseases, called autoimmune diseases, occur when the body's own immune system attacks another part of the body.  In a disease called multiple sclerosis, the target of such an attack is the central nervous system.  Lemtrada was trialed in relapsing-remitting multiple sclerosis in Europe over the last two years and already has data showing that disability from the illness was reduced, as well as reduction in MS relapses.

Now reduction in relapses isn't a big deal.  A lot of drugs have shown that in trials, including Avonex, Betaseron, Rebif, Extavia (these 4 are the interferons); as well as Tysabri, Copaxone, and even Novantrone.  But until now, disability data has been hard to come by.  Even 15 years of Avonex trial open-label followup have failed to show a reliable diminution in accumulation of disability, which has led some to question why we are using these drugs.

Lemtrada blew away Rebif in relapse prevention and showed lessened disability accumulation in a trial that barely lasted 2 years.  To my mind this is evidence that Lemtrada is superior to any drug we now have for disease modification in MS.  In addition, the drug is easy to take - a few infusions over a week, then, one year later, a few more infusions over a week, then you're done with it.

In addition, the mechanism of the drug suggests that it may have a market in celiac disease, which is one of the most common and most underdiagnosed illnesses in America.  Celiac disease recently showed up all over a colleague's internal medicine board recertification - there is going to be a wave of celiac diagnoses in the next decade and we will need medications to treat it - currently there are none.  Other candidate illnesses that might respond to Lemtrada are severe psoriasis, rheumatoid arthritis, and (maybe!) the holy grail - lupus, an illness for which there has not been a new effective treatment in 50 years.

I don't commonly invest in pharma, because I think large pipelines are hard to evaluate.  That's why you're hearing about Lemtrada today.  When Sanofi acquired Genzyme in Feb 2011, the two companies simply could not agree about the future value of Lemtrada.  They solved this problem by having Genzyme shareholders receive "contingent value rights" for Lemtrada.  These are a form of stock warrant that pay certain dividends if Lemtrada meets certain targets.  I learned about these because in Nov 2011 I issued a challenge for CAPS bloggers to pitch a stock, and a great blogger called shamapant posted this pitch for GCVRZ, the warrants in question.  (At the time I didn't know what Lemtrada was!)

Since then, the FDA has fast-tracked Lemtrada for approval and I am optimistic it gets approved this year, which would make the warrants worth a buck apiece even if Lemtrada never sells a dose.  They're currently trading for about $2.  (Sanofi bought back a third of the warrants at $1.75, so that tells you how their ideas about Lemtrada have been evolving.)

There were a lot of delays and setbacks for Biogen's biologic, Tysabri, due to PML, a bad complication; as a result Tysabri became one of the first drug to have a REMS.  REMS are commonplace now and Lemtrada will surely get a standard-issue one if approved in the US.  Lemtrada is not a perfectly safe drug; but compared to other treatments for MS, it is generally well tolerated, and offers much better hope than any other drug I've seen in the MS market, with opportunities in even larger markets down the road.  Disclosures in comments.

4 Comments – Post Your Own

#1) On January 09, 2013 at 4:03 PM, ikkyu2 (98.12) wrote:

OK, let's do some disclosures:

Long GCVRZ.  No position in SNY.  No plans to alter that state of affairs in the next few months.

I have accepted honoraria from Teva and Biogen Idec, two companies that make drugs to treat RRMS. 

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#2) On January 09, 2013 at 4:06 PM, ikkyu2 (98.12) wrote:

Let's talk a little bit about what these warrants can and can't do, by the way.  They have the possibility of paying up to $14 in dividends, which would be a 600% return from today's approx. $2 price. In 2020 they expire and after that they have no value.  They are not equity and as far as I know they encumber Lemtrada no matter who brings it to market before 2020, but otherwise have no place in Sanofi's capital structure.

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#3) On January 10, 2013 at 9:39 AM, lemoneater (56.77) wrote:

A highlight from your blog.

Other candidate illnesses that might respond to Lemtrada are severe psoriasis, rheumatoid arthritis, and (maybe!) the holy grail - lupus, an illness for which there has not been a new effective treatment in 50 years.

Lupus is aptly named after the Latin word for wolf--it's a savage illness that sneakily attacks one's body.

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#4) On January 16, 2013 at 11:47 AM, ikkyu2 (98.12) wrote:

I'm sort of disappointed in the response - or near non-response - to this blog entry.  I spent hours crafting it.  I got as many recs from a 3 minute entry pointing out that AAPL's P/E was lower than it usually is.

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