When Steve Brozak performs diligence on biotech stocks, he’s always looking for an angle. Brozak, president and managing director at WBB Securities, wants to see how new technology platforms and novel ideas fit into tomorrow’s healthcare system, which he believes will be unsustainable without therapies that work more efficiently and hold promise as true disease-modifying agents. In this interview with The Life Sciences Report, Brozak brings eight names to investors’ attention. Given time, each holds the potential to be a huge gainer.
The Life Sciences Report: Steve, last year there were 15 new molecular entities approved by the U.S. Food and Drug Administration (FDA) through Aug. 12, 2013. So far this year, up through Aug. 19, 2014, there have been 26 new molecular entities approved. What could be contributing to this stepped-up pace of approvals?
Steve Brozak: The reason is two-pronged. First, the FDA has a direct and specific mandate to increase the throughput of drug approvals. Second, the pharmaceutical industry of yesterday had large, high-powered, blockbuster products, and there was no impetus for companies to make a case for new drugs. Nobody wants to fix something that’s working. But now, with the disappearance of the intellectual property exclusivity of some huge-revenue drugs, companies have no choice. The revenue that was previously safeguarded by the blockbuster model is disappearing more quickly than it has in the history of the industry. As a result, we are seeing new drug application (NDA) submission packages that are much more robust, and that are crafted to allow for easier deliberation within the agency. The FDA hasn’t “lowered” its standards, but rather the pharmaceutical companies have increased their submission-package strength. I think it’s an interesting landscape.
TLSR: Do you think this pace can continue?
SB: Actually, I think we will see an increase in submissions from the pipelines, because we are not seeing a tapering-off effect in the need for new drug approvals. We are facing a sicker demographic because of an aging population, and we are facing a sicker revenue and earnings stream from the pharmaceutical industry.
TLSR: You and I have previously discussed the problems in the healthcare system in the U.S. Could you just briefly hit on some of these again?
SB: There is a perception that if clinicians, drug-discovery teams and the principals around the input of new technology all had an “Aha! moment,” and if that moment were reproducible, then that would be enough to allow for the acceptance and adoption of that new technology—that new drug or new treatment protocol. This is simply not the case. Regrettably, the more important parts of the equation are those who will vouchsafe for that new technology or drug once it’s been approved. It is far more important that an industry-established figure gains the credit for it.
The perfect example is Barry Marshall, who systematically proved that Helicobacter pylori (H. pylori) was the causative agent for ulcers. The man had been laughed off the stage when he initially asserted his discovery. He infected himself to prove it. Even then, it took more than a decade for people to accept his conclusions. Then, in 2005, he and his collaborator Robin Warren won the Nobel Prize in physiology or medicine for that discovery.
Frankly, there is no difference in that attitude today, and that is a problem. We think we have real-time, seamless dissemination of technology via the Internet. The reality is that it is now 10 times worse because clinicians are more likely to spend time reading the materials presented to them by the drug companies or listening to what their patients are telling them after having watched advertisements on 60 Minutes. That’s a terribly telling sign that they are not reading peer-reviewed scientific work.
TLSR: Let’s talk about companies. When you are looking at a company and performing your due diligence, what factors are you looking at?
SB: We look at what the rate-limiting steps might be for a company. We look at what the sine qua non is and the verifiable, statistical evidence. It has to be something that I can quantify and check. A statistical analysis never works exactly the way it was designed. When I do see something like that occur, it scares the hell out of me, because I know something is not right. When something goes wrong, and then someone figures out what went wrong and understands what the difficulties were, that’s how we make progress.
TLSR: In light of what you’ve just said, let me throw out a name that you follow—Athersys Inc. (ATHX:NASDAQ). Back on April 28, the company put out a press release saying that in a 128-patient, Phase 2 trial with MultiStem (multipotent adult progenitor cells), the study failed to show efficacy over eight weeks in patients with chronic advanced ulcerative colitis. This study was being conducted by Athersys’ partner Pfizer Inc. (PFE:NYSE), and it was randomized and double-blind. What did we learn from that failure?