Tuesday, May 15, 2012

iCo Therapeutics: A Smart Trade

It is taken for granted  -  that little part of your eye making it possible to read a book, drive a car or distinguish the face of your mother in a crowd.  The under-appreciated macula is found near the center of your retina and provides detailed central vision.  Even if you and I are blissfully ignorant of it, the medical community is paying attention to the macula because it is under siege from the increasing incidence of diabetes.

As many 8% of the population or 25.8 million people in the U.S. suffers from diabetes.  Another 79.0 million are considered “pre-diabetic” and could cause the incidence of this chronic disease to mushroom to an estimated 40.0 million people by 2015.  Diabetics battle numerous side effects of their condition, including greater susceptibility to blindness brought on by diabetic macular edema or DME.  DME is the swelling of the retina in diabetic sufferers due to the leaking of fluid from blood vessels within the macula.  The lifetime risk for diabetics to develop DME is approximately 10%.  That means a very large number of people are at risk.  An estimated 1.6 million people have already developed DME  -  presenting a very large market opportunity for clever scientists with an effective treatment.

Clever Science

iCo Therapeutics (ICO:  TSX; ICOTF: OTC/PK) a Vancouver-based biotechnology company is targeting DME with its ICO-007 compound.  A Phase II clinical trial is under way to evaluate whether ICO-007 could help to treat DME in people with diabetes.  The study is being coordinated at the Wilmer Eye Institute of the Johns Hopkins University School of Medicine.

Laser treatment has been the standard of care for DME for over twenty-five years and has been effective in 25% to 30% of patients.  In recent years, new drugs have been used alone or in conjunction with lasers.  For example, Genentec’s ranibizumab marketed under the name Lucentis works against the vascular endothelial growth factor (VEGF) that is thought to be one of the culprits leading to DME.  This approach has yielded much improved results with as many as half of patients experiencing improved vision.

iCo Therapeutics believes ICO-007 can do much better.  VEGF is only one of several factors that lead to the proliferation of weak blood vessels in the macula.  Consequently, the anti-VEGF treatments are only partially successful in treating DME.  Instead of focusing on one growth factor, ICO-007 interrupts a signaling process of several factors that could be the cause.  Early test results show remarkable results and iCo Therapeutics is anxious to complete the Phase II clinical trial started in 2011.

The company is optimistic about its prospects in entering the DME market even when there are well-established therapies already in use, principally laser treatments and first generation anti-VEGF drugs.  Not only does the company think their ICO-007 can compare favorably in terms of effectiveness and durability, they expect a significant cost advantage that should get support from the payor community.  The annual cost of ICO-007 is estimated to be $10,000, while the Lucentis as an example anti-VEGF treatment costs approximately $24,000 per year.

iCO Therapeutics is a self-styled drug re-profiling company that leaves expensive research work to others and focuses on developing compounds closer to commercialization.  Designed and discovered by ISIS Pharmaceuticals Inc., (NASDAQ: ISIS), ICO-007 was in-licensed by iCo in 2005.  The company’s second drug candidate is ICO-008 or Bertilimumab, a compound also aimed at sight-threatening diseases that was originally developed by MedImmune now a part of AstraZeneca (AZN:  NYSE).  iCo is also working on an oral delivery system for the antifungal Amphotericin B that could be used to treat life-threatening infectious diseases in care settings in developing countries where the usual intravenous infusion is not practical.

Hidden Assets

An early stage company, iCo Therapeutics reported $1.3 million in cash and equivalents on its balance sheet at the end of December 2011.  We estimate the company needs approximately $160,000 per month in cash to support operations.  The appearance of skimpy resources might dissuade some investors, but we note iCo’s management team has been fairly nimble in making the most out of its assets.

Some of iCo Therapeutics assets do not show up on the Company’s balance sheet.  We think the company is flush with human capital.  Both CEO and Director Andrew Rae and Chairman of the Board William Jarosz have significant capital market success, including raising funds, negotiating M&A deals and arranging partnerships.  Another director Noel Hall offers strong professional connections within the biotechnology and pharmaceutical industry.  Hall co-founded Aspreva Pharmaceuticals, which was acquired by Galencia Group in 2002, and has extensive experience gained while at The Wellcome Foundation (GlaxoSmithKline) and Abbott Laboratories. 

All members of the team cannot be mentioned, but two of the company’s scientific leaders have the experience to make a difference in realizing iCo Therapeutic’s commercial goals.  The company’s chief medical officer, Dr. Peter Hnik, has been a practicing physician specializing in eye diseases.  Hnik was associate director of clinical research at QLT, Inc. and was instrumental in designing and directing Visudyne clinical trials in diabetic retinopathy.  The company’s chief science officer is Professor Santa Jeremy Ono, a recognized authority in ophthalmology and immunology and has directed multiple research and development programs.  Ono has a current appointment at Emory University and has previous posts at University College of London, UCL-Institute of Ophthalmology, Johns Hopkins University and Harvard University.

Smart Trade

With deep talent like this on the team, it is not surprising that iCo Therapeutics has negotiated a couple of smart trades.  A licensing deal for ICO-008 was struck in 2010 with Immune Pharmaceuticals Ltd., a biotechnology company based in Israel.  iCo will retain rights to ICO-008 for ocular applications and Immune will further develop the compound for systemic uses such as treating inflammatory bowel disease.  iCo received $500,000 in cash and 600,000 Immune shares, up to $32 million in milestone payments as well as a royalty stream. The upfront cash consideration from Immune more than off-set covered iCo’s original cash outlay of $400,000 for the license to ICO-008 (then called CAT-213) from MedImmune in 2006.

In September 2011, iCo entered into a research collaboration agreement with the Juvenile Diabetes Research Foundation (JDRF), a highly influential leader in the search for the treatment and cure for diabetes.  The JDRF agreed to support the Phase II investigator-sponsored clinical trial of ICO-007 for treatment of DME.  Such support not only stretched iCO’s limited cash resources, but JDRF also brings valuable talent and expertise to the clinical trial process.

Next Step

iCo management wants more deals with similarly attractive economics and is actively searching for regional partnering candidates or strategic investors.  Although a Phase II trial has been designed for ICO-008, development of ICO-007 is the top budget priority for the company.  Any new capital raise will likely be used to take the next step following completion of the ICO-007 Phase II clinical trial next year. 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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