Hana Bioscience: Poised To Deliver Shareholder Value - Analyst Blog

Written by Grant Zeng, CFA

Hana Biosciences Inc. ( HNAB ) A decent pipeline with late stage candidates...
   
South San Francisco, CA based Hana Biosciences, Inc. (Hana) is a late development stage biopharmaceutical company which is focused on two cancer care areas: cancer therapeutics and cancer supportive care. 

The company's lead cancer therapeutic candidate is Marqibo (vincristine sulfate liposome injection), a novel, targeted Optisome encapsulated formulation product candidate of the FDA-approved anticancer drug vincristine, for the treatment of relapsed/refractory adult acute lymphoblastic leukemia (ALL).

Hana presented results from the registration-enabling Phase II clinical trial (rALLY) of Marqibo for ALL in June 2010 at the ASCO meeting. The data were compelling. Marqibo was administered as third-, fourth-, fifth-, and sixth-line single-agent therapy for ALL patients. The trial achieved 35% overall response rate with a predictable and manageable toxicity profile. The complete response (CR) and CR with incomplete blood count recovery (CRi) were 20%. The median CR/CRi duration was 5.3 months, and median survival in responders was 7.4 months.

Based on the above encouraging Phase II results, Hana completed the pre-NDA meeting with the FDA in April 2010 and plans to start the rolling NDA filing process soon. The rolling NDA filing will be completed by the first half of 2011. Hana has received orphan drug and fast track designations for Marqibo for the treatment of adult ALL from the FDA. Marqibo has also received orphan drug designation from the European Medicines Evaluation Agency in adult ALL. We estimate Marqibo will get the FDA approval in the second half of 2011. Submission of Marqibo for EU approval is planned to happen in 2011.

Marqibo remains both a near term and long term value for Hana. The drug candidate represents a large opportunity. Marqibo is intended to replace standard vincristine chemotherapy. Vincristine is widely and globally used to treat lymphomas, leukemias, myeloma, solid tumors, and childhood cancers. Vincristine is a major component of highly effective combination chemotherapy regimens such as R-CHOP, R-CVP, CVAD, VAD, and VP. It's estimated that more than 2.4 million doses of Vincristine were sold in the US and Europe per year. However, although Vincristine is used in a broad range of chemotherapies, it is limited by its pharmacokinetics and toxicity profile. Individual doses (1.4 mg/m2) are limited to 2.0 mg regardless of patient size. Frequent, early onset peripheral neuropathy limits cumulative dosing in lymphoma and leukemia induction to approximately 6-8 total mg and rarely more than 12 mg.

Marqibo is a high concentration vincristine loaded into sphingomyelin and cholesterol liposome nanoparticles (Optisomes). Marqibo facilitates individual vincristine doses of 2.8 to 5.5 mg and cumulative induction dosing up to 70 mg. Marqibo's formulation optimizes vincristine pharmacokinetics by prolonging circulating half-life as an encapsulated drug, by targeting delivery to tumors, bone marrow, lymph nodes, liver, and spleen, by enhancing disease penetration and up to 10x drug concentration in target tissues.

We estimate peak sales of Marqibo for the ALL indication only could be well above $100 million per year. In addition to ALL indication, Hana is also expanding Marqibo label into other indications including front line aggressive NHL, front line elderly Ph (-) ALL, front line non-elderly Ph (-) ALL, pediatric cancers and multiple myeloma. If all of, or even part of these label expansions are successful, Marqibo could represent a $5 billion market opportunity. 

Another important drug candidate is Menadione for cancer supportive care. Menadione is a novel topical lotion being developed for the prevention and/or treatment of the skin toxicities associated with the use of epidermal growth factor receptor inhibitors (EGFRI) in the treatment of certain cancers. Rash is a common, painful and treatment-limiting skin toxicity side effect of all approved EGFR inhibitors such as Tarceva, Iressa, Erbitux, Vectibix, and Tykerb with incidence rates as high as 90 percent. EGFR inhibitor-associated rash can lead to reduced compliance and cause dose reductions, delays or discontinuation of EGFR inhibitor therapy in a significant portion of affected patients. Currently, there are no FDA-approved products or therapies to treat these skin toxicities.

Hana has completed a Phase I study of Menadione topical lotion in healthy volunteers, which demonstrated delivery of Menadione into the skin without appreciable systemic absorption. In addition, Menadione topical lotion was generally well-tolerated. The company has recently completed enrollment of a proof-of-concept study of Menadione topical lotion in cancer patients receiving EGFR inhibitors for anti-cancer therapy. This study assessed both treatment potential in patients with new onset rash and prophylactic potential in those about to begin an EGFR inhibitor. Data from this study will be available in late 2010.

In addition to current focus on Marqibo and Menadione, Hana is also developing Alocrest (vinorelbine liposome injection, Phase I) for the treatment of solid tumors; and Brakiva (topotecan liposome injection, Phase I) for the treatment of solid tumors including small cell lung cancer and ovarian cancer. The company is exploring options for further development of these two drug candidates beyond the Phase I trial.

In early June 2010, Hana entered into an Investment Agreement with Warburg Pincus and Deerfield Management for the sale of up to $100 million in preferred stock. Warburg Pincus, the lead investor in the financing, is a new investor in Hana, and Deerfield is the company's largest existing shareholder prior to this financing.

The Warburg Pincus deal further validates Hana's technology and clinical efforts

Hana intends to use the net proceeds from the financing to advance its clinical development and commercialization programs, including regulatory activities related to Marqibo's New Drug Application preparation and submission, and for general corporate purposes. Hana expects that the financing will provide the funds needed to develop Marqibo to approval and commercialization for relapsed/refractory adult ALL patients; to study Marqibo in front-line adult ALL and lymphoma patients; and to unlock the full potential of Menadione topical lotion.

On June 7, 2010, the investors purchased 400,000 shares of Series A-1 Preferred Stock, at a per share sale price of $100. In conjunction with the signing, the investors have the right to purchase up to $60 million of additional Preferred Stock under certain circumstances. The original conversion price for the Preferred Stock to be converted to common stock will be: $0.184 for the first $60 million purchased by the investors and $0.276 for the additional $40 million of Preferred Stock that the investors may have the right to purchase. After the 4-to-1 reverse stock split, the conversion price has increased to $0.74 and $1.10 respectively. The Preferred Stock would accrete at the rate of 9% per annum.

We see the Warburg Pincus deal very as a very positive step for Hana. The deal not only provides vital, necessary funds for the company's operations, it also further validates the company's technology and the potential of its pipeline of drug candidates.

Some investors may fear the dilution of existing shareholder base by the deal, but we have different opinion. We think there is nothing to worry about the deal, especially by Warburg Pincus. Warburg Pincus is a sophisticated institutional investor in the pharma/biotech space. We believe the investment in Hana by Warburg is a long term investment as with its investments in other biotech companies. This can be evidenced by the biotech portfolio held by the investor.  Warburg has been a long term investor in Inspire Pharmaceuticals, Allos Therapeutics, ZymoGenetics, Eurand, WuXi Pharma, and ev3 which was recently bought by Covidien at $2.6 billion.

At the current trading price of about $0.55 per share, we don't see any short term dilutive effect as the conversion price has increased to $0.74 and $1.10 after the reverse stock split for Hana. Anything under $0.74 at this time should be a gift. Even if the share price increases to $1, we don't believe that Warburg is willing to sell for about 15 or 20 cents profit. That makes no sense at all for an investor like Warburg.

 The bottom line……
 
We think Hana in entering a transition period from a pure development stage company into a commercialization concern. With an appropriate growth strategy in place, the company is well positioned to deliver shareholder value in the next few quarters.

Although it's always difficult to value a development stage biotech company like Hana, we think Hana's shares are undervalued based on the company's fundamentals. Currently, the company shares are trading at about $0.55 per share which values the Company at about $11.5 million. This is certainly a huge discount compared to its peers. One example is Cell Therapeutics (CTIC). This company is similar to Hana in terms of business, pipeline and development stage. Cell Therapeutics also has one candidate Pixantrone under the FDA review for the treatment of NHL and other early to middle stage candidates. However, Cell Therapeutics' market cap is about $314 million. Another similar company is Allos Therapeutics (ALTH). Allos' Pralatrexate received the FDA accelerated approval in late September 2009 for second line peripheral T-Cell lymphoma. Currently, Allos is valued at about $457 million. One more similar example is Bioenvision which was sold to Genzyme in 2007 for $345 million. Bioenvision had only one product Clofarabine approved for the third line treatment of pediatric ALL patients when it was bought by Genzyme.

We understand that the Street discounts Hana because of the uncertainty of Marqibo's marketing authorization. However, we think Marqibo has a high probability to get the FDA nod in the second half of 2011. We believe Hana should be valued at least $100 million at current stage which translate into a share price of about $5 per share. Investors should pay attention to the following near-term catalysts:

• Presentation of Marqibo integrated efficacy data and PK 4Q10
• Generate Menadione Topical Lotion Phase II plan 4Q10
• Initiation of Marqibo NDA rolling submission to FDA 4Q10
• Seek EU EMA formal Scientific Advice for Marqibo 1H11
• Complete Marqibo NDA rolling submission to FDA 1H11
• ODAC meeting in support of Marqibo NDA 2H11
• FDA accelerated approval of Marqibo 2H11

 
HANA BIOSCIENCE (HNAB): Free Stock Analysis Report
 
Zacks Investment Research