Superantibodies offer the fast track to multi-billion-dollar markets
smallcapmedia.com February 2005
InNexus Biotechnology Inc. (TSX V: IXS, NASD OTC BB: IXSBF) is a small but dynamic Canadian SuperAntibody developer that has made great strides since SmallCapMedia first began covering this story in early 2003.
In our opinion, InNexus is by far one of the more promising biotechnology innovators to yet gain widespread attention within the investment community. It has all the right dynamics to make a name for itself in a multi-billion dollar marketplace and on an expedited timeline -- a rare situation among the ranks of hundreds of biotech hopefuls.
InNexus's mix of innovative SuperAntibody Technology and product development is enhanced by a shrewd, pragmatic business strategy. The Company's partnerships and licensing agreements for its ground-breaking SuperAntibody technology validates past achievements; it also ensures funding for the development of its own newer products. That course also means faster development timelines, lower costs and the prospect of accelerated product approval by regulatory agencies.
In order to appreciate InNexus's strategy, philosophy and its business model, we need to understand its revolutionary new weapon in the battle against cancer, coronary heart disease and a host of other serious diseases: monoclonal super-antibodies.
The body's immune system recognizes foreign entities -- things that should not be present, such as disease-causing bacteria, viruses and other infectious agents or pathogens. The immune system can also recognize foreign cells (such as those in transplanted organs) and tumors. Antibodies are proteins that seek out pathogens and foreign cells and help destroy them. They have two very useful characteristics. First, they are exquisitely specific in that each antibody binds to only a small portion of a pathogen or foreign cell and not non-related organisms or cells. Then, once a disease triggers an antibody response, the antibodies continue to attack and resist that disease to ensure it can't recur -- think of the antibodies to the childhood diseases chickenpox and measles.
Antibodies can therefore be used therapeutically to protect against disease. They can also help to diagnose a wide variety of illnesses, detect the presence of drugs or even viral and bacterial products and other unusual or abnormal substances in the blood.
Because of all those applications and because of the diversity of uses for these disease-fighting substances, their production in pure quantities has long been the focus of scientific investigation. The conventional method was to inject a laboratory animal with an antigen and then, after antibodies had been formed, collect those antibodies from the blood serum (antibody-containing blood serum is called "antiserum"). There are two problems with this method: it yields antiserum that contains undesired substances and it provides only a very small amount of usable antibody.
Significantly, monoclonal antibody technology allows InNexus to produce large amounts of pure antibodies.
They are potentially more effective than conventional drugs in fighting disease, since drugs attack not only the foreign substance but the body's own cells as well, sometimes producing undesirable side effects such as nausea and allergic reactions. Monoclonal antibodies attack the target molecule and only the target molecule, with little or no side effects.
That's one more aspect that makes them likely to get faster approval from national regulatory agencies such as the U.S. Food and Drug Administration (FDA). Most treatments for serious diseases -- such as the traditional chemotherapy applied to cancer -- are not specific. While the tumor and diseased cells are destroyed, there's collateral damage of the surrounding tissue. That toxicity complicates the approval and application of the treatment. And there are other issues as well, such as the recall in late 2004 of COX-2 inhibitor arthritis pain drugs such as Vioxx and Celebrex. The cardiovascular problems associated with those drugs weren't tested for specifically.
Monoclonal antibodies, on the other hand, are highly specific, meaning they can be precisely targeted to only the diseases or problematic cells. They will not affect healthy cells or tissue at all, and that low or nonexistent toxicity means lower risk and, hopefully, faster regulatory approval.
This is an issue of paramount importance in that the use of toxic agents in many innovative antibody treatments is a major impediment with regards to receiving regulatory approval for commercialization. InNexus's SuperAntibody technology promises to solve this problem by negating the need for toxic agents. This breakthrough could therefore accelerate the approval of many other antibody treatments for a burgeoning antibody marketplace that is already worth an estimated U.S. $7 billion.
InNexus differs from its competitors in the monoclonal antibody field in a couple of key ways that have important scientific and business implications. InNexus employs a biological principle to enable an antibody to be therapeutically active, not toxic agents as its competitors. This reduces the complexity of drug development and shortens timeframes for approval. In addition, this biological principle can be applied in a "cookie-cutter" fashion to any monoclonal antibody at any stage of development including antibodies that are already in clinical development. Such development is so expensive that a company developing antibody products cannot afford to risk the drug not being approved. As such, InNexus's technology is an insurance policy.
Scientifically, the Company has pushed its work with antibodies further, developing TransMabs, which are super-antibodies that penetrate the exterior membranes of target cells, stopping apoptosis or cell suicide once they act on particular peptides inside the cell. This expands the use of SuperAntibody technology into the $1 trillion global market for "small molecule drugs", the pill forms of drugs. Because antibodies could not penetrate into cells they could not be used against targets within cells. Now they can. For instance, TransMabs may be used to speed up the recovery of stroke and heart attack victims, and target the treatment of HIV.
From a business perspective, InNexus is committed to leveraging its licensing agreements for its existing SuperAntibody and TransMab technologies to generate multiple revenue streams. Of equal importance, InNexus is working on a product of its own devising to apply those methods. Known as S(T15), it targets a pathologic form of low density lipo-protein (ox-LDL). Ox-LDL is critical to the formation of arterial plaque, the inflammatory disease at the center of coronary heart disease. It's the plaque that forms clots and blockages in major arteries, leading to heart attacks and strokes.
InNexus's S(T15) prevents the plaque's formation, prevents its accumulation, and prevents it from breaking free from the arterial wall and forming a potentially life-threatening or fatal blockage. There is also no indication that S(T15) poses any meaningful threat of toxicity, as opposed to most other companies' compounds. And S(T15) is by no means a niche market product. "Most people over the age of 45 have plaque. It's like a ticking time bomb in your chest," says InNexus Chairman and President, Dr. Charles Morgan.
Currently, statin drugs are the primary means of battling coronary heart disease. They reduce low-density lipids and LDL cholesterol. They're currently a U.S. $10 billion-a-year business. S(T15) could accomplish what statins achieve and much more. In fact, S(T15) has been demonstrated in animals to reduce plaque by up to 25%, whereas statins have demonstrated only a small reduction in plaque in human arteries.
Conservative financial forecasts for this pre-clinical product give it a value of U.S. $60 million, significantly higher than the Company's current market capitalization. Though highly speculative, this is also a conservative figure given its indicated efficacy, the size of the potential market and the range of possible applications.
However, if this product makes it as far as Phase III clinical trials (the final large-scale stage of testing for efficacy and safety), then S(T15) would have a projected valuation of at least U.S. $850 million. With a view to modest early-stage market penetration involving hundreds of thousands of patients, this translates into prospective inaugural sales of up to U.S. $1 billion. Moreover, a resounding success rate in the early going could lead to the treatment of millions of heart disease victims.
Meanwhile, InNexus understands the value of strength through diversification. That is why the Company is obviously not just focusing all of its efforts on its own biotechnology platforms. The inside track to lucrative revenue streams involves licensing, co-development or joint venture partnership opportunities to enhance other companies' monoclonal antibody products.
There are four signed co-development and licensing partnerships and many more in the pipeline for InNexus's SuperAntibody technologies. Such collaborative synergies essentially offer monoclonal antibody biotech firms a cost-effective means to supercharge their antibodies, making them more effective. The success of any such collaboration could add tens of millions of dollars to InNexus's market capitalization.
One such collaboration for InNexus's Transmab technology is with a company in the San Francisco Bay area called Epitomics. Dr. Guo-Liang Yu, CEO and President of Epitomics, is enthusiastic about the added empowerment that Super antibody technology can offer his company's monoclonal antibodies. "We are excited to build a partnership with InNexus". The co-development presents the great potential for a breakthrough in intracellular antibody therapeutic area," he says.
Such a breakthrough promises to catapult InNexus into the investment industry limelight. This is especially the case in that monoclonal antibodies are now driving success in the biotechnology industry. Investment professionals and analysts estimate it represents the largest segment of the biotechnology industry, with around 260 companies, private and public, working on at least 700 therapeutic antibody products.
Further evidence of investors' enthusiasm for monoclonal antibody companies is reflected in the very high valuations attached to companies at various stages of clinical development. Indeed, companies nearing or with pending market approvals have market capitalizations comparable to large pharmaceutical companies. The primary reason for these high valuations is the belief that monoclonal antibodies will lead all other segments of the biotechnology industry for product introduction; 18 products have already been approved and an additional 18 have their approval pending. Furthermore, sales for antibody products have set records for market introduction and penetration.
Another key reason why SmallCapMedia views InNexus as one of its favorite picks for 2005 and beyond is the Company’s adherence to a conservative and prudent financial philosophy. Indeed, we have found this to be something of an anomaly in the biotechnology business. The Company has cash in the bank and is following a “pay-as-you-go” path that ensures more than adequate working capital — much of it generated through the partnerships and licensing initiatives as well as the occasional private placement.
Dr. Morgan describes that as a low risk, low “burn rate” (monthly expenditure) philosophy. In fact, the Company has to date spent less that CDN. $3.5 million on R&D -- a mere fraction of the burn rates of most emerging biotech companies. Indeed, by "piggybacking" other companie’Æ antibody technologies via joint venture partnerships and licensing agreements, InNexus is able to validate its processes and products at each new stage of development. Furthermore, Dr. Morgan’s experience of having started and built several successful medical companies provides him with the experience and insights to know better than most about what to expect and how to manage this strategically shrewd business model.
InNexus’s competitive advantage is also a result of its leadership.
Dr. Morgan is a leading authority and pioneer in monoclonal antibody development. He has over 100 scientific publications to his credit and is named on more than 60 patents and patent applications. He has led research efforts at Baylor College of Medicine in Houston, Texas, Scripp's Clinic and Research Foundation in La Jolla, California, and the Biological Response Modifier's Program of the National Cancer Institute and National Institutes of Health.
Dr. Morgan was also a co-founder of NASDAQ-listed NeoRx Corporation in Seattle, WA, helping to raise capital from equity and pharmaceutical sources as well as collaborating in efforts resulting in the filing of three Product License Applications (PLA) with the FDA for monoclonal antibody products. Furthermore, Dr. Morgan founded and served as the President and CEO of Receptagen Corp., a public company that was listed on the Toronto Stock Exchange (TSE) in Canada. Receptagen was widely regarded as a leader in the field of apoptosis research.
In summary, InNexus’s mix of research and discovery, technology licensing, business acumen and strategy of multiple stage/multiple revenue streams make this Company a clear stand-out among emerging biotech companies. This is particularly the case in a multi-billion dollar antibody treatment field that still has a largely untapped potential for dramatic growth within the next few years. Indeed, it is considered by most experts to be the most exciting and promising area of the biotechnology industry today. Accordingly, InNexus's development of its proprietary biotechnology platforms, such as S(T15), for the treatment of coronary heart disease, cancer, HIV and other pervasive diseases gives this Company leveraged exposure and ready access to a number of these multi-billion dollar markets.
On a technical note, InNexus has a relatively tight share structure with approximately 21.9 million shares outstanding (about 33.8 million fully diluted). Such a situation, matched with positive news flow, typically acts as a catalyst to higher share price valuations. And in its present trading range, SmallCapMedia believes that InNexus is significantly undercapitalized. This is especially the case when compared to other antibody innovators at similar developmental stages. However, the Company recently acquired a listing on the U.S. NASD OTC market which will surely provide the Company with a heightened profile among U.S. investors, while also presenting the prospect of greater distribution and liquidity for its shares.
All told, the various compelling dynamics fueling InNexus's ascendancy in 2005 and beyond should make this Company a rising star in the biotechnology industry and investment community, alike. SmallCapMedia will be sure to apprise our readers of InNexus Biotechnology's progress every step of the way.