A.P. Pharma (APPA) Investment Profile

The oncology market is the third largest pharmaceutical market, behind the cardiovascular and central nervous system (CNS) therapy markets, and is currently experiencing strong growth. Analysts predict that the sector will grow to $60 billion by 2010. The frequency and debilitating nature of chemotherapeutic side-effects are a huge problem that requires the discovery and development of supportive care treatments to limit side-effects such as neutropenia (low neutrophil count), anemia (low hemoglobin in rbc’s), oral mucositis (mouth sores) and nausea. Supportive care treatments are considered to constitute the majority of oncology sales over the next decade.

A small cap biotech company that I’ve had an interest in for the past 18 months (yes, this means I’m a stockholder) is A.P. Pharma, stock symbol, APPA, from Redwood City, California. The company is currently conducting a phase-3 double-blinded trial of their product APF-530 (granisetron) for the prevention of acute and delayed chemotherapy-induced nausea and vomiting (CINV). This product belongs to a class of drugs called anti-emetics, specifically involving a class of receptors located in the CNS called 5-HT3 inhibitors.

Let’s take a look at some key statistics of APPA:

The company’s patient enrollment in their phase-3 trial for APF-530 is now fully enrolled (1400 patients) and trial data should be available by Q4 2008. Although management states that an NDA could be filed by the end of this year, I wouldn’t expect filing until Q1 2009 at the earliest.

Classification of CINV:

CINV as previously stated remains one of the most debilitating side-effects of chemotherapy and is classified into two separate phases: acute and delayed. An estimated 70%-80% of patients receiving chemotherapy experience CINV and of these patients, 80% are classified as delayed. Acute CINV is defined as nausea and vomiting that occurs within the first 24 hours after receiving chemotherapy, whereas delayed is defined as nausea and vomiting that occurs after 2-5 days of receiving chemotherapy. In addition to the classification of acute vs delayed CINV there is also the issue of classification of strength or degree to which the chemotherapy causes emesis. Therefore, the terms given to chemotherapy agents are said to be either moderately emetogenic or highly emetogenic.

Competitive profile:

The biggest breakthrough in treating CINV was the development of 5-HT3 inhibitors in the 1990’s. The current market leader is MGI Pharma’s Aloxi which was the first approved drug in 2003 in its class for the prevention of delayed CINV. Sales of Aloxi in 2006 were somewhere in the range of $270 million and the market for anti-emetics is estimated at $1-$1.5 billion. The success of Aloxi is due to the fact that it’s the only drug approved for delayed CINV which makes up the majority of all CINV cases.

The key point to make here is that Aloxi is only approved for patients that are classified as moderately emetogenic and not for patients that are highly emetogenic. There is currently no approved drug on the market to treat CINV in patients following highly emetogenic chemotherapy. Since the emetogenic potential of various chemotherapies increases with combination therapies, there is a clear need for a drug that can treat patients receiving highly emetogenic chemotherapy. Oncologists are able to pursue more aggressive cancer treatments without worrying about an increase in adverse side-effects experienced by their patients. A.P. Pharma’s product appears to have a competitive advantage over the current market leader because of this feature and should be able to capture market share from Aloxi if approved.

I know some readers may ask why I haven’t mentioned another competitor’s product, namely ProStrakan’s granisetron transdermal patch. The name of the product is Sancuso and the company submitted an NDA for this patch in June, 2007. ProStrakan is a public company that trades on the London Stock Exchange so there is little known about the company. For that matter, AP Pharma is hardly known so that’s no excuse for ignoring a potential competitor. There are other reasons why I’m ignoring ProStrakan’s patch as a competitive threat to APF-530. First, and most important is the fact that their patch is only indicated for acute CINV and not for delayed onset in CINV. I’m not interested in investing in new therapies for acute CINV as there are several other existing drugs that I won’t bother mentioning that work fine. Secondly, the concept of transdermal patch utilization as a mode of delivery appears attractive but has a couple important issues that complicate its use. The most important issue is that of variability in dosing. The research that I’ve conducted suggests that bioavailability is not constant and that a three-day ascending pattern is observed. It would be terrible for a patient to not have continuous protection from CINV because inadequate levels of the drug were absorbed. The patch is supposed to be applied to the patient 24 hours before administering chemotherapy. This can also be a problem as many patients decide to change their starting date of chemotherapy to another day. The patch also has problems with how likely it is to stay properly positioned on the patient, which is something a patient shouldn’t have to be concerned with.

There’s another issue worth mentioning related to competitive threats by transdermal patch proponents. The most significant benefit with the more recent 5-HT3 inhibitors in preventing delayed CINV is primarily is due to their longer half-life and high receptor binding for the 5-HT3 receptor. Other drugs for the treatment of CINV typically have half-lives in the range of 10 hours whereas Aloxi and APF-530 maintain therapeutic blood levels for four to five days. Patch proponents therefore argue that if it’s all about half-live, then transdermal patches can provide the same benefit as APF-530. But as I discussed in the previous paragraph, the argument against the patch isn’t about half-life but variability in dosing and inconvenience of its application.

AP Pharma’s other product:

AP Pharma also has one other product worth mentioning, APF-112 for extended post-surgical pain relief. The company expects to initiate a phase-2b trial in Q4 2008. Since the results released in 2004 were difficult to interpret whether there was a differentiating therapeutic effect, the company has designed an improved clinical protocol. Although this product could offer advantages to existing analgesics for post-surgical pain relief, I don’t feel comfortable factoring this product into the company’s current valuation at this time. Therefore, we can only measure the risk-reward ratio based on investing in APF-530.

Closing comments:

I will have to complete my discussion and give you my final thoughts of AP Pharma in my next post as this is becoming too lengthy.

Disclosure:

I hold a position in A.P. Pharma.