EP Vantage Interview – Biota surfing the Relenza wave

Whilst many biotech companies primarily involved in developing treatments or vaccines for influenza have seen their share prices rise dramatically since the outbreak of swine flu in April, which has now reached pandemic proportions (Pandemic threat prompts surge of speculative investments, April 28, 2009), only a handful have received, or expect to receive, a tangible financial benefit in the form of increased revenues or royalties.

Biota, the Australian company which discovered Relenza and receives a 7% royalty on sales of the antiviral by commercial partner GlaxoSmithKline, is one of these rare beneficiaries. Peter Cook, Biota’s chief executive officer, told EP Vantage that Relenza royalties could triple in the current financial year and ultimately reach A$200m ($150m) on an annual basis, significantly higher revenues which could enable the company to take a more aggressive approach to enhancing its pipeline, through product or even company acquisitions.

Riding the Relenza wave

In Biota’s financial year just completed on June 30, the company received royalties of A$45m on Relenza sales, more than double the A$20.5m booked in the previous year.

However, Mr Cook is keen to stress that this increase was mainly on the back of a much improved marketing and distribution effort by Glaxo over the past 12 months, as the positive impact of swine flu has yet to materialise given that the pandemic threat only emerged at the end of Biota’s financial year.

Indeed, whereas in the past Biota had serious issues with Glaxo’s commitment to Relenza which ultimately led the two parties into a courtroom battle just over a year ago, Mr Cook is now happy and impressed with Glaxo’s renewed promotional effort for the drug since Andrew Witty was appointed chief executive of the UK pharma giant.

“The organisation at GSK changed considerably around the time of Andrew Witty’s appointment, and our results this year reflect those changes; for better or worse, I’m ascribing a fair bit of that to Andrew Witty,” said Mr Cook.

Last week, Mr Witty laid out detailed plans for Glaxo’s strategy in meeting the potential demands of a flu pandemic. Along with extra efforts to develop and distribute vaccines and face masks, this included a significant increase in manufacturing and delivering Relenza to the market, from 60 million courses of the drug currently to 190 million courses by the end of 2009.

On the back of this increase Mr Cook expects that, “even if you were conservative, that will probably double or triple (Relenza royalties) in the current financial year”.

Peaks and shoulders, no more troughs

Mr Witty believes that governments around the world are becoming more sensitive to the dynamics of supplying flu drugs to the market, particularly the fundamental issue that companies simply cannot meet the huge demand at peak times at the flick of a switch.

As a result, governments are seeking a more sustained and consistent supply of drugs, such that the peaks and troughs of drug supply and demand over the past four years will be replaced by, as Mr Cook puts it, “peaks and shoulders”.

In addition, governments are attempting to address the imbalance of their current stockpiles, which on average are 95% Tamiflu and just 5% Relenza, while also increasing the volume of drugs at hand.

New research suggests that stockpiles should move towards a 50:50 split of Tamiflu and Relenza, while the current WHO guidelines that 25% of a country’s population should be covered by stockpiles of flu antivirals is being reconsidered and many countries are already seeking a much higher coverage; Australia for example now has flu drug stockpiles for more than 50% of their population.

All of which means that, for a company like Biota, significantly increased and consistent revenues presents new opportunities and challenges.

Looking externally

In addition to Relenza, Biota currently has four pipeline projects in their portfolio. However, Mr Cook hopes that increased Relenza royalties will enable the group to reach, “a point where we have two to three Relenza like products in the market at any time, providing stable revenue patterns for ourselves and our investors”.

To do this the company would need to increase their pipeline by two to three projects. Initially the focus will be on adding to the pipeline internally, but Mr Cook expects that as the increased royalties generate guaranteed cash levels, Biota will start to “look at project acquisition, or even conventional M&A with a company with a complimentary portfolio of projects, that may be financially distressed and we could take advantage.”

Licensing opportunities

Of Biota’s four pipeline products, one hepatitis C candidate is partnered with Boehringer Ingelheim, another respiratory syncytial virus (RSV) product is being developed with AstraZeneca.

The other two developmental products remain largely in Biota’s control and the company is actively seeking global partners to takeover further development and commercialisation responsibilities.

One partnering opportunity is BTA798, an inhibitor of human rhinovirus (HRV), which recently successfully completed proof-of-concept phase IIa trials. Given that HRV only infects humans, no animal safety studies are possible, so completing phase IIa was a minimum requirement before any partnership is possible.

Although HRV is the main cause of the common cold in children and adults, this is not the market that Biota intends to target with BTA798. Instead, Mr Cook believes that HRV’s role as an irritant in patients with asthma, pulmonary disease or an organ transplant, represents a large and unmet medical need. However, a big pharma partner is required to design and conduct further clinical trials to try and address the issues within this novel therapeutic territory.

Next generation Relenza

However, by far the biggest potential catalyst for Biota’s shares over the next few months, which have already risen six-fold so far in 2009 to a three-year high of A$1.95, is the imminent release of phase III data for CS-8958 and securing a partner for the product in Europe and the US.

Like Tamiflu and Relenza, CS-8958 is a neuraminidase inhibitor, but in contrast to the marketed products which need to be inhaled twice daily, is a long-acting formulation which may only need to be taken once a week.

Initially developed by Daiichi Sankyo, Biota has co-ownership rights as the product infringes some of Biota’s patents which cover Relenza. Japanese phase III trials were completed in the previous flu season and full results are expected to be announced within the next four weeks, after which Daiichi Sankyo will file the product in Japan.

So far CS-8958 appears to have a similar profile to Relenza and has shown decent efficacy against swine flu in tests carried out by various government agencies, such as the CDC in the US.

With Daiichi Sankyo holding rights in Japan, Biota has been seeking a big pharma partner for the major markets of Europe and the US, for the past 8 to 12 months.

Before the current swine flu pandemic Mr Cook believes potential partners were put off entering a market so completely controlled by Roche and Glaxo. However, the advent of swine flu has undoubtedly increased the value of the flu drug sector which should generate renewed partnering interest for CS-8958.

Aside from Roche and Glaxo as natural partners for CS-8958, Mr Cook also highlighted other potential big pharma partners with the required expertise to succeed in this sector, such as Sanofi-Aventis, Novartis and AstraZeneca.

As such, having struggled in recent years to generate the revenues it had hoped from Relenza, it now appears as if fears of a virulent flu pandemic are playing into Biota’s hands, providing an opportunity that its shareholders will be hoping is not missed.

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