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Aspreva takes the road less traveled: Instead of widening drug markets, this B.C. firm narrows them
July 11, 2006
By Kamakshi Tandon Dow Jones, with files from Reuters
Throughout history, companies have sought wider uses for niche products. Listerine was a surgical antiseptic and then a hospital cleaner before emerging as a mouthwash. Coca-Cola was originally positioned as a health beverage. Kellogg's Corn Flakes were aimed at vegetarians, but became breakfast fare for everyone.
On the other hand, taking a product into a narrower market is a road less travelled. Yet Aspreva Pharmaceuticals Corp. is following precisely that strategy.
The Victoria, B.C.-based company licenses existing drugs and develops them for the treatment of rare diseases. The founders hope that by focusing on rare diseases as a group, they can yield cures that wouldn't be commercially viable if developed and tested separately. That strategy may be working. Aspreva forecast yesterday second-quarter revenue above analysts' expectations. The company said it expects second-quarter revenue of US$51-million. For the second quarter, three analysts on average expect the company to report revenue of US$48.5-million.
Nonetheless, the stock (ASPV/NASDAQ) closed at US$24.53 yesterday, down US$1.29, or 5%. Aspreva went public in March, 2005, at US$11 a share and turned a profit in its first quarter. "We look at drugs that can treat multiple diseases," said Richard Glickman, chairman and chief executive of Aspreva. "By looking at them collectively, we can build a business case for the development of the drug."
Co-founders Mr. Glickman, Noel Hall and Michael Hayden started the company after serving together on the board of the Canadian Genetic Disease Network. "We grew frustrated at the lack of medicine development for rare diseases simply because of complexity or a lack of market size," Mr. Glickman said.
Aspreva's business model attempts to overcome this problem by targeting drugs already on the market. A large pharmaceutical company may not attempt to develop all the potential applications of its drugs, Mr. Glickman said — the emphasis is usually on the most profitable or mainstream uses.
There's where Aspreva comes in. With its narrower focus and smaller size, it can create extra development pipelines for drugs owned by larger companies. Raymond James analyst Brian Bapty began coverage of Aspreva in March and explained its business strategy using Aspirin as an example. "If, while Aspirin was still on patent, the utility of this generic non-steroidal anti-inflammatory drug as an anticoagulant and the associated benefit in cardiac patients were known, the value of the drug could have been tremendously enhanced earlier in its sales cycle."
Mr. Glickman feels Aspreva's approach worked well in its first major licensing deal, with Roche Holding AG for the anti-rejection drug CellCept. Aspreva is conducting Phase 3 trials for the use of CellCept in three autoimmune diseases, including one of the most serious forms of lupus. Results for all three are expected around mid-2007. "We're confident," Mr. Glickman said.
Even without FDA approval, sales of CellCept for treatment of autoimmune diseases are about US$500-million a year, which Mr. Glickman attributes to off-label prescriptions written by doctors who feel they don't have other options. "There are 6,000 rare diseases and only 200 approved medicines for these diseases," he said. "It's been 40 years, for example, since a new drug was developed for the treatment of lupus. ... Physicians have little choice but to prescribe something that they superficially believe may be useful."
Replacing academic belief with federally approved evidence is Aspreva's goal. "In the case of CellCept, there have been about 2,000 [journal] articles written looking at it in different types of autoimmune diseases, so there's a large body of evidence that's experimental," Mr. Glickman said. "What we hope Aspreva will provide for the first time is credible regulatory authority around these diseases."
Aspreva's future depends on showing potential partners that it can get regulatory approval to treat other diseases for the drugs it wants to license. The firm is negotiating licensing deals with other pharmaceutical and biotech companies, although it declined to be more specific. "It won't be long before we deliver on our next deal," Mr. Glickman said. "[It] should be an interesting blend — more a portfolio of drug relationships versus a single product relationship. "We're moving towards developing longer-term, larger relationships with partners."
Aspreva watchers are eagerly awaiting further partnership announcements, as the patent on CellCept edges towards its expiration date. In starting coverage of Aspreva in May, BMO Nesbitt analyst Christine Charette said CellCept revenue will start to trail off when the patent runs out in 2009, and possibly disappear by 2014.
"Clearly they have to bring in new or diversified business opportunities that will replace revenue when the patent expires," Mr. Bapty said. "We think they will [and] if they can do it so they're able to utilize the sales force built around the first drug, then they've got tremendous upside." His target is US$38.
Mr. Glickman cited the company's benefits to patients: "proper clinical trials letting them know the safety of a drug for their needs"; for shareholders: "strong revenue growth with a different risk profile than other pharmaceutical or biotech investments"; and company partners: "we're clearly synergistic with big pharma and look at a drug from a different perspective than they do." But he also emphasized the company's attraction for employees. "We've been very successful at recruiting extraordinary talent from big pharmaceutical companies because we offer them a grassroots-level opportunity to do what many of went into the industry to do — have a significant impact on a disease area directly."
Photo: Courtesy of Aspreva / "We grew frustrated at the lack of medicine development for rare diseases," Aspreva chief executive Richard Glickman says.