This is a continuation of the guest series by Drew Waight analyzing NeurogesX for investment.

Last time I covered the therapeutic market area of neuropathic pain, which is NeurogesX’s major area of focus. This time I’ll be doing the due diligence on their first product candidate NGX-4010, and it’s safe to say that the entire company rests with the fate of this therapeutic. NGX-4010 is a non-narcotic analgesic formulated in a topical (transdermal) patch containing an 8% concentration of synthetic capsaicin. Capsaicin is released from the patch and absorbed into the skin without significant absorption into the bloodstream.

The chemical capsaicin is popularly known as the compound which gives hot chili peppers their spicy properties and natural concentrations range from 0.1% to 1% w/w. Chemically known as trans-8-methyl-N-vanillyl-6-nonenamide, it is a highly selective agonist for the transient receptor potential vanilloid receptor 1 (TRPV1). TRPV1 is a ligand-gated, nonselective, cation channel preferentially expressed in nociceptive sensory nerves. TRPV1 responds to noxious stimuli, including capsaicin, heat, and extracellular acidification, and integrates simultaneous exposures to these stimuli.

Intellectual Property

Low doses of capsaicin cream have long been used successfully for relief of neuropathic pain. However the first published study to use high doses (5-10%) in combination with regional anesthesia (to numb the normal burning sensation accompanying such high dose) was published in 1998 from UCSF. This study showed that at these levels of capsaicin, 90% of patients (N=10) were relieved from neuropathic pain from 1 to 18 weeks. Interestingly, in 1996, prior to the publication, three of the authors of the study patented the use of high percentage capsaicin with the Regents of the University of California as an assignee on the patent. Subsequently, the first author on the above study, Dr Wendye Robbins, was issued another patent in 1997 (again UC Regents were the assignee) whereby local anesthetic was administered through the use of a transdermal patch containing the high concentration of capsaicin. Dr. Robbins founded NeurogesX in 2000, licensing the patents from the University of California.

That pretty much brings us up to speed on the intellectual property with one final important caveat. The first patent outlining the use of high concentration capsaicin was issued to three authors, and two of the three were not UCSF faculty and so did not assign their patent rights to the University of California. Anesiva, a company focused on the development and commercialization of treatments for pain, including injection or infiltration of a capsaicin derivative for post-surgical pain, osteoarthritis or interdigital neuroma, has licensed from one of the non-assigning inventors the right to use the technology under the method patent.

So NeurogesX has the worldwide exclusive license for a high concentration capsaicin transdermal patch. The use of high-concentration capsaicin itself is not exactly in the public domain but neither does NeurogesX have exclusive worldwide rights. Therefore, it goes without saying any investment in NeurogesX is banking on the utility of the transdermal patch method of capsaicin delivery. As it turns out the only current alternatives to a transdermal patches are a topical creams which of course have the drawback of wildly inaccurate dosing (FDA won’t approve) and injection such as Anesiva is developing for post surgical pain.

Pipeline

Now that we’ve covered the therapeutic market and the intellectual property let’s move on to the pipeline. NGX-4010 has completed two phase 3 clinical trials that have met their primary endpoints, one in PHN and one in HIV-DSP. The results demonstrated that a single 30 or 60 minute application of NGX-4010, depending on the indication, may provide at least 12 weeks of clinically-meaningful pain relief. NeurogesX expects to file a marketing authorization application in Europe for NGX-4010 in 2007 based upon existing clinical trial data, and if the safety and efficacy of NGX-4010 are confirmed by two ongoing pivotal Phase 3 clinical trials, they intend to file a new drug application in the United States in 2008. Furthermore NGX-4010 is currently in phase 2 clinical trials for PDN.

The Neurogesx story is fairly straightforward for a biotech company. First, the therapeutic market is underserved in terms of an easily administered, but long lasting, transdermal patch. Secondly, the intellectual property situation is not ideal but NeurogesX has 30% of the license for high-concentration capsaicin and a monopoly on the patch delivery. Finally we are looking at a late stage development pharmaceutical which needs secondary phase 3 studies before filing the NDA.

That being said, the elephant in the room here is the indication for PDN. By far the biggest opportunity in a therapeutic for neuropathic pain exists for this disorder. Apparently NeurogesX plans to file the broad label authorization for NGX-4010 MAA in Europe in 2007, and use the proceeds from the European market to fund the ongoing trials for PDN domestically. The nuances of this approach are probably known only to the management and the underwriters, but I will try to read between the lines considering the information publicly available on the clinical trials. It seems that patients with PDN were involved in the original Phase I/II tolerability studies of NGX-4010. These patients reported a 32% decrease in pain, but for some reason the PDN clinical program has been halted awaiting the IPO filing. I read this as there being complications with the performance of NGX-4010 in the original phase 2a trial, perhaps the longevity of relief seen with PHN was not paralleled in the PDN case, but anything is possible. At any rate I feel NeurogesX is playing the PDN indication fairly close to the vest, and this must be noted because, as mentioned above, this is clearly the lions share of the peripheral neuropathy market.

Next time I’ll wrap up with the Neurogesx financial situation and put it all together for a final verdict.

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This is a guest series from Drew Waight a graduate student at NYU. Leave him a comment if you like his analysis and maybe he’ll send another one in. I should be back in August when I’ve finally made my escape from the lab and no longer have two jobs. Until then, you can catch my analysis of big biotech (and pharma too) at The Fool.

NeurogesX

Website: http://neurogesx.com
IPO date: 05/02/2007
Market Cap : $101 million
Shares Outstanding : 12.49mln
Float: 10.23mln

Neurogesx (NGSX) is a biopharmaceutical company developing and commercializing novel pain management therapies. More specifically, their main niche involves the area of neuropathic pain. Let’s take a closer look at the details and prevalence of this affliction, focusing specifically on the treatments NGSX has in the pipeline.

Therapeutic Areas

Neuropathic pain is caused by diseases or trauma that produce lesions in the central (e.g., stroke, spinal cord injury, multiple sclerosis [MS]) or peripheral (e.g., surgery, diabetic neuropathy, herpes zoster) nervous system. Peripheral neuropathy (neural damage in the extremities) is the most common which mainly affects the feet and legs. The most recent studies suggest that more than two million adults in the U.S. suffer from neuropathic pain.

Post-herpetic neuralgia (PHN) constitutes about 200k cases per year. In this disorder, factors such as age, illness, stress or medications can reactivate an otherwise dormant chickenpox virus (varicella-zoster), causing shingles (herpes zoster). The virus travels along nerve fibers, causing pain. When the virus reaches the skin, it produces a rash and blisters. These cases of shingles usually heal within a month, however in roughly 20% of cases the patient continues to feel pain long after the rash and blisters heal. This pain is known as postherpetic neuralgia.

Painful HIV-Associated Neuropathy (HIV-DSP) is among the most common of the pain syndromes afflicting HIV-infected individuals. It is thought that nearly one third of people with HIV/AIDS experience some peripheral nerve damage caused either by the virus itself, by certain drugs used in the treatment of HIV/AIDS, or by secondary complications from the disease.

Almost 16 million Americans had diabetes in 2005. Of these “complications” 60-70% of diabetics have mild to severe forms of nervous system damage. While the first sign of diabetic neuropathy is usually numbness, Painful diabetic neuropathy (PDN) often manifests in the form of a burning or other painful sensation most commonly in the feet and lower extremities.

Treatment

Over the counter analgesics such as acetaminophen and non-steroidal anti-inflammatory drugs have not been shown to be highly effective in the treatment of neuropathic pain. The treatments that are available for the above conditions are largely similar and the common underlying mechanism of action is reduction of neuronal hyperexcitability. Topically, Capsaicin creams derived from natural chili pepper plants have long been known to provide temporary relief. Similarly, Lidocaine (topical local anesthetic) patches are also effective for pain management. Both of these treatments last between 4 and 12 hours however, and require multiple applications per day. Both tricyclic antidepressants (TCA) and serotonin reuptake (SSRI) inhibitors are used to treat neuropathic pain, it should be noted that while generally SSRIs are safer for use in the general population, they have less consistent effects than the TCA class. Finally, anticonvulsants such as phenytoin (Dilantin), carbamazepine (Tegretol) and gabapentin (Neurontin) are frequently prescribed for neuropathic pain and have been shown to be effective in double-blind placebo controlled studies. Some caveats to the anticonvulsant class of medications include a relatively notorious list of adverse side-effects and unpredictable response to the treatment.

In summary, the therapeutic focus on neuropathic pain does in fact constitute an area of unmet medical needs. The major diseases which cause the neuropathies above (herpes zoster, HIV and especially diabetes) are ubiquitous illnesses which are not predicted to be decreasing in the future. Furthermore, treatment for these neuropathies (with the exception of topical agents), largely revolve around the secondary analgesic effects of neurological pharmacologics which in some cases may be beneficial if the patient is already depressed. Nevertheless, it seems there is still plenty of room in the market for a more subtle topical treatment option such as Neurogesx has developed.

Next time: Neurogesx flagship product, the trans-capsaicin patch. I’ll also cover their clinical trial status and scientific patents protecting their quasi-novel approach to management of neuropathic pain disorders.

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