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Griffin Securities' Keith Markey Gives Performance Reviews on Four Favorite Biotech Names
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Keith Markey As science director for Griffin Securities, Keith Markey knows his way around the advanced technologies of the most promising research in biotech. In this interview with The Life Sciences Report, Markey explains the science behind new developments in the antibiotic, diabetic and dermatological fields, highlighting ground-floor investment opportunities that investors will not want to miss.

The Life Sciences Report: In your last interview with The Life Sciences Report in March, you revealed your best ideas in biotech research. Where do you stand on those names now?

Keith Markey: I am quite pleased with the performance of the four companies that I mentioned: MannKind Corp. (MNKD:NASDAQ), Oragenics Inc. (OGEN:OTCBB), Synthetic Biologics Inc. (SYN:NYSE.MKT) and RXi Pharmaceuticals Corp. (RXII:OTCQX).

Mannkind Corp. recently reported the outcomes of two phase 3 clinical trials investigating the safety and efficacy of its inhalable insulin, Afrezza. The company's novel delivery technology enables the drug to mimic the normal physiological release of insulin by the pancreas upon consumption of a meal. The Affinity 1 trial enrolled 518 type 1 diabetic patients, who received a basal insulin and either Afrezza or a short-acting insulin analog, NovoLog (Novo Nordisk [NVO:NYSE]). The Afrezza patients were then subdivided to allow comparison of an inhaler that had been used in virtually all of Mannkind's trials with a new, smaller inhaler that the company will commercialize. The Affinity 2 trial enrolled 353 type 2 diabetics whose disease was inadequately controlled by oral medications. The results of both studies were quite good.

The type 1 trial was set up to prove noninferiority relative to the short-acting insulin analog, and to demonstrate that the two different inhalers operate equivalently. The results showed noninferiority of the insulin analog and comparable performance by the two inhaler devices. Mannkind needed these positive results to get approval for Afrezza from the U.S. Food and Drug Administration (FDA).

The type 2 trial was designed to demonstrate that when Afrezza is added to a regimen of oral medications for diabetics, it improves glycemic control in patients who are no longer fully responsive to the oral medications. Not surprisingly, insulin works. I say it that way because insulin is a hormone. It is not a novel drug—but the Mannkind delivery mechanism is novel.

TLSR: Is Afrezza easy to use?

KM: It's fantastically easy. Here is the backstory. Some years ago, Pfizer Inc. (PFE:NYSE) attempted to commercialize an inhalable insulin, but it didn't work for a couple of reasons. First, Pfizer used starch as an excipient, and that tended to clog up the lungs, not necessarily in terms of performance, but in terms of absorption of the insulin. The other problem was that its delivery device was large and cumbersome, a foot long and an inch wide.

Mannkind has approached the problem differently. It found a particle that stabilizes the insulin in a monomeric form. This excipient is readily removed from the lungs—it happens almost instantaneously upon touching the wet surfaces of the alveoli. The delivery device is about the same size as an ordinary police whistle. To make it function, all you have to do is inhale once.

TLSR: How is Mannkind's stock holding up?

KM: We saw it run up over the past 6–9 months from a low of about $1.85 to well over $8, touching $9, shortly before the clinical trial news came out. Since then, the stock has backed off, partly due to concern about peripheral items related to the clinical trials. For one thing, Mannkind had designed the type 1 diabetes trial in a way that it thought might prove the superiority of Afrezza over a short-acting insulin analog, based upon the pharmacokinetic profile of the two drugs. That did not happen. Be that as it may, the trial showed a significant marketing advantage: Afrezza treatment resulted in a significantly lower level of hypoglycemic events than the short-acting insulin analog, and it lowered fasting blood glucose levels.

TLSR: What is the Mannkind's market cap?

KM: Its market cap is $1.7 billion ($1.7B), which makes it a mid-cap stock. And the volume of trading has averaged 8.8 million (8.8M) shares per day over the last three months.

TLSR: Does it have other products on the market?

KM: Mannkind has been almost exclusively focused on developing Afrezza for more than a decade. It does have a small number of oncology drugs in very early stages of development.

TLSR: How is its cash situation?

KM: The company has adequate financing, but until it goes commercial, it is going to be burning cash. The company has some warrants that will probably be exercised, which will give it additional capital. It recently made a $160M debt-financing agreement with Deerfield, which gave the company a second $40M tranche in September. And shortly before a long-term convertible debt repayment is due in December, Mannkind will get another $40M. Upon FDA approval, it will get the fourth tranche of $40M. In the meantime, the company is working to get a partnering agreement in place. It is quite possible that such an agreement will come with upfront cash.

TLSR: Is there competition for Afrezza?

KM: The diabetes market is extremely competitive, but one thing distinguishes Afrezza from everything else available—it is an inhalable drug, which makes it convenient to use.

TLSR: Oragenics is involved with antibiotics and probiotics. What are the newest developments there?

KM: Oragenics is working behind the scenes with Intrexon Corp. (XON:NYSE), a leader in synthetic biology, to optimize the production of a natural antibiotic that bacteria use to fight each other. This particular type of antibiotic is called lantibiotic. It has a very unique molecular structure, with very novel amino acids. The collaboration has set up a production cell line and purification scheme that will be adequate for producing sufficient quantities of the lantibiotic to conduct clinical trials. That is important because lantibiotics have historically been extremely difficult, if not totally impossible, to produce in large quantities. The problem is that when you try to grow bacteria that produce a lantibiotic in culture, the lantibiotic kills the cells at concentrations so low that purifying the compound is very difficult to achieve.

TLSR: How are the market cap and stock price holding up for Oragenics?

KM: Oragenics has been doing reasonably well compared to some biotechnology companies. In the last six months, it has traded between $2.80–3.50. The company has not seen a lot of news flow recently, but it is making progress. Just recently, Oragenics reported that Intrexon has created variants of the natural lantibiotic, and that structure-activity studies will commence shortly.

TLSR: Synthetic Biologics is on the forefront of developing products to fight infection. How is its share price faring in light of its scientific prospects?

KM: Synthetic Biologics had a couple of stock price spikes during the past six months, before it settled in the $1.40–1.60 range. We are optimistic about the company for a couple of reasons. Its lead drug is a hormone called estriol (Trimesta), which is being developed for treating multiple sclerosis (MS). It is in a phase 2 trial for relapsing-remitting MS. The goal of the investigator-sponsored study is to demonstrate that Trimesta reduces the number of attacks that an MS patient encounters while on another MS drug, Copaxone (glatimer acetate injection), which is produced by Teva Pharmaceutical Industries Ltd. (TEVA:NASDAQ).

The rationale for using an estriol-based drug stems from clinical evidence that women with MS who become pregnant experience a decline in MS activity. That is, the number of lesions as measured by magnetic resonance imaging (MRI) declines as the pregnancy progresses. During the timeframe of a typical pregnancy, the level of estriol goes from virtually nothing to a very high level at the end of the third trimester. Trimesta emulates the rise that normally is seen at the start of the third trimester. We should know the results of the phase 2 trial in early 2014. At that point, assuming good results, we look forward to Synthetic Biologics entering into a licensing agreement with a large pharmaceutical company.

TLSR: What other catalysts are moving Synthetic Biologics' share price?

KM: Synthetic Biologics has acquired a novel prophylactic agent for preventing Clostridium difficile infections, and is moving close to a clinical trial with the compound. We believe that the company will meet with the FDA in the near future to plan a trial for H1/14, followed by the start of a phase 2 trial in H2/14.

In addition, Synthetic Biologics has two programs that are being collaboratively developed under an exclusive agreement with Intrexon Corp. One of the programs targets the bacteria that cause pertussis. The other target is a rather nasty hospital-acquired infectious agent called Acinetobacter baumannii (A. baumannii). The company is making progress in both areas. A large animal study considered a pivotal trial for the pertussis therapy, which is a monoclonal antibody, will begin toward the end of this year, and an investigational new drug (IND) enabling study of the monoclonal antibody against A. baumannii should begin within the next six months.

TLSR: How is Synthetic's stock faring?

KM: Remarkably, the stock has been testing its nadir during the past six months. Investors who buy Synthetic stock now should be rewarded when the Trimesta data is released.

TLSR: What is the current story on RXi Pharmaceuticals?

KM: RXi Pharmaceuticals has a presence in the small interfering RNA (siRNA) space for tissue scarring. Those RNA molecules, as you probably know, are regulatory agents found in all cells. They exist to modulate the expression of particular genes by inhibiting the translation of mRNA during protein synthesis.

RXi is looking at two different areas with very similar, if not identical, molecules targeting connective tissue growth factor (CTGF), with the goal of reducing fibrosis or scar tissue formation. CTGF works in conjunction with transforming growth factor-beta to create physiological responses associated with healing in various cells. Unfortunately, in some circumstances, this well regulated messenger system goes awry, and patients end up with dermal hypertrophic scars or keloids. In the eye, this scar formation can cause the retina to tear after surgery has been performed to reattach it, for example. The goal is to develop an anti-scarring drug for multiple applications.

More recently, RXi expanded its product portfolio by acquiring siRNA intellectual property (IP) around vascular endothelial growth factor (VEGF), which could be used in combination with the CTGF siRNA therapy for ophthalmic purposes. The company has also begun working with an academic scientist on a project that addresses retinoblastoma.

TLSR: How are its fundamentals stacking up since the last time we talked?

KM: RXi is doing very well. It has enough cash to carry it forward for at least another 12 months. Data from phase 2 clinical trials for its dermatology product should take the company comfortably to the next inflection point. We could see a nice rise in the stock over the next 12 months as the data arrives in stages.

TLSR: Thanks for your time, Keith.

KM: Thank you, and have a very nice day.

Keith Markey has been an equities analyst for more than 25 years, specializing in the biotechnology, pharmaceutical, medical device and research tools sectors. He is currently the science director for Griffin Securities Inc., an investment bank where he follows emerging healthcare companies with novel technologies. He also works with privately owned companies, helping them restructure operations, license products under development or near commercialization and raise funds from venture capital and high net-worth investors. Markey serves on the board of directors of DS Healthcare Group Inc., which specializes in products that address hair loss. Previously, he held various managerial positions in the research department of Value Line Inc., publisher of the Value Line Investment Survey and Value Line Select. Markey began his career as a biochemist, working in endocrinology and neuroscience at New York University Medical School and Weill Cornell Medical College. His research contributed to the understanding of regulatory biochemistry of the nervous system and stem cell plasticity. Markey received his doctorate in neurochemistry from the University of Connecticut and a master's degree in business administration and finance from the Leonard N. Stern School of Business at New York University.

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DISCLOSURE:
1) Peter Byrne conducted this interview for The Life Sciences Report and provides services to The Life Sciences Report as an independent contractor. He or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Life Sciences Report: Synthetic Biologics Inc., RXi Pharmaceuticals Corp. Streetwise Reports does not accept stock in exchange for its services or as sponsorship payment.
3) Keith Markey: I or my family own shares of the following companies mentioned in this interview: Mannkind Corp. I personally am or my family is paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Mannkind Corp., Oragenics Inc., Synthetic Biologics Inc., RXi Pharmaceuticals Corp. Griffin Securities received investment banking fees from Intrexon Corp. within the past 12 months. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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