BioCryst’s Influenza Drug Brought Back From The Dead, Buyers Enter

One of the biggest new trends in the biotech sector was the reversal we saw in BioCryst Pharmaceuticals (BCRX), which moved up roughly 42% last week on news that their potential blockbuster of an influenza vaccine, Peramivir, found a path to a future NDA submission and possible US approval after the company received a letter from the FDA. This was a welcome development for BioCryst shareholders, who saw development of peramivir suspended on November 8, 2012 after DMC analysis of the Phase III trial.

The pivotal Phase III trial studied the efficacy of IV peramivir in addition to standard of care treatment in adolescents hospitalized due to influenza. Both safety and efficacy were measured. While there were no real concerns about the biologic’s safety profile; the efficacy as measured by changes in patients’ vital signs, oxygen saturation, and viral load in the peramivir arms didn’t demonstrate statistically significant improvement over placebo arms.

BCRX shares, which were already suffering from the withdrawal of the IND submission for the antiviral BCX5191, were hit hard as one might expect. More specifically, we saw BCRX fall from prior levels north of $4 per share to $2.45 per share, and once again down to $1.46 per share. BCRX remained weak until last week, when sentiment shifted on the notion that peramivir’s development was not necessarily finished.

In the near future, BioCryst will look to hold a pre-NDA meeting with the FDA which will outline what the company needs to do in order to build an acceptable profile for peramivir that may see FDA approval later. At this point it seems likely that there will be another pivotal trial required to approve the biologic, in which BioCryst may want to alter the endpoints so that peramivir has a higher chance of succeeding.

Things were complicated with a “Stop-Work Order” letter received by the Department of Health and Human Services which was also made public early last week, which puts peramivir’s funding in jeopardy. The Biomedical Advanced Research and Development Authority (BARDA), the specific branch that is funding peramivir’s development, is expected to meet with BioCryst at some time in the second quarter of 2013 to discuss the future course of their contract.

While peramivir’s development is in complete disarray, Wall Street seems encouraged that there are major forces that are still supporting its development program despite a Phase III failure last year. Phase III failures often “kill” drug development programs outright, but peramivir has a few other factors working in its favor.

First is the Phase III trial itself, which may have been unfair to peramivir given its structuring. Peramivir is a neuramindase inhibitor that is quite similar to the other two that are FDA approved and currently marketed in the US as Influenza treatments. These include the orally-taken Tamiflu (oseltamivir) and inhaled Relenza (zanamivir), marketed by Roche (RHHBY) and GlaxoSmithKline (GSK) respectively. Even if peramivir was a more potent neuramindase inhibitor, the trial was structured so that peramivir’s arm would have to outperform another arm of patients using neuramindase inhibitors with statistical significance.

In a future Phase III trial, depending on the FDA’s future opinions, we may see peramivir in direct competition with another neuramindase inhibitor in a classic double-blind study with a non-inferiority endpoint.

The second factor, which can be considered the most important, is the motivations that the FDA and Department of Health and Human Services have to introduce more influenza treatments onto the market. Recall that in 2009, peramivir was approved for the treatment of the H1N1 (bird flu) influenza strain under Emergency Use Authorization (EUA) due to the limited (but apparent) efficacy that the drug showed in previous clinical trials.

Although the H1N1 incident was a panic, this implies that the FDA is comfortable with the biologic as an option for doctors dealing with influenza. This is reinforced by the Fast Track designation that was granted in 2006, and the fact that the drug has already been approved in Japan and Korea as well.

As long as peramivir retains a fair chance of FDA approval, there will be a loyal base of shareholders who are hoping that BioCryst will be able to ultimately take a fair portion of the enormous influenza antiviral market.

Tamiflu, the undisputed king of this indication, sold well over 500,000 units per week at the height of the most recent flu season “wave” in the United States which equates to $50-60 million in revenue given that Roche makes just north of $100 per prescription. This evens out to ~3 million units sold per year, or ~$300-400 million in revenues (depending heavily on the severity of flu season in the United States).

It’s hard to determine how well peramivir could do in this market. It is an IV formulation, which is a disadvantage against orally taken Tamiflu, although it would be quite competitive if it were able to establish superiority in a clinical trial setting. Hypothetically, we could see it used in up to 750,000 patients per year depending (again) on the severity of influenza outbreaks.

We don’t know peramivir’s US pricing, although we know that the clinical trials used 600 mg for each of the five doses. Peramivir is roughly ¥5792 per 300 mg bag, implying costs of roughly $600 per patient.

Based on this, I believe that peramivir sales could be as high as $450 million per year, which would make it a bigger commercial success than Tamiflu is under optimistic scenarios. It was partially because of Peramivir’s potential success that BCRX was trading north of $10 per share in 2009, although that past move was more of a speculative bubble surrounding peramivir, the H1N1 epidemic, and other neuraminidase inhibitors.

The takeaway is that there is major uncertainty over peramivir’s development program, but I think there is enough support to prevent it from collapsing. There is a chance that it may be the most efficacious antiviral of its type, and that it will become one of the first weapons doctors and government agencies use against influenza outbreaks.

At a market capitalization of ~87 million, BioCryst looks quite compelling because of its potential to multiply 10-15 times given FDA approval for its flagship biologic, although investors should note that peramivir has a very high chance of falling flat on its face in another Phase III trial as well. Due to the importance of peramivir to BioCryst’s success, consider BCRX an extremely speculative play that (in my opinion) favors the bullish side on a risk-reward basis.