Wall Street cheers as Axovant snags biotech star David Hung; failed Alzheimer’s drug not impressed

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The News:

Axovant Sciences Ltd. (Hamilton Bermuda) announced that former Medivation Inc. (San Francisco) chief executive and founder David Hung has been selected as its next CEO effective April 7, 2017 sending the company’s shares up 43% as of Thursday morning (April 13, 2017). Axovant noted that current CEO Vivek Ramaswamy will remain on its board of directors and serve as chief executive of its parent company Roivant Sciences Inc. (NYC).

@Axovant announced that former Medivation CEO/founder David Hung will be next CEO Click To Tweet

Ramaswamy remarked, ”We were not searching for a new CEO at Axovant, but following the acquisition of Medivation I approached [Hung] about taking a role with us after the MINDSET study,” referring to late-stage trials of Alzheimer’s drug intepirdine.

Hung shepherded the wildly successful sale of Medivation last year to Pfizer for $14.3 billion–a staggering 20,932% return to his earliest investors and increasing their $440 million investment by 32 times. He grossed $354 million on the sale.

Meanwhile, Axovant also named former Medivation chief operating officer, Marion McCourt, as its president and COO, according to FirstWord Pharma. Axovant also expanded its board of directors to include former Medivation directors Kathryn Falberg and Anthony Vernon as independent directors.

The news comes after Axovant recently completed enrolment in the Phase 3 MINDSET study of intepirdine in the treatment of patients with mild-to-moderate Alzheimer’s disease. The drugmaker, which acquired rights to the therapy from GlaxoSmithKline PLC in 2014 for $5 million plus royalties, anticipates top-line results from the trial in September.

Steve’s Take:

Where to start. First, let’s revisit some intriguing history as this move reunites two of the younger, brasher personalities in the biotech space.

Axovant is the brainchild of Vivek Ramaswamy, a 31-year-old former hedge-fund manager, according to Forbes. Axovant, of which he has until now been chief executive, is one of five companies created by a platform company, Roivant Sciences, which he also runs.

Axovant’s first asset, intepirdine, was purchased from GlaxoSmithKline for $5 million, plus a royalty. In 2015 Ramaswamy listed Axovant on the New York Stock Exchange, raising $315 million. The stock initially doubled, but quickly dropped and recently traded below its $15 initial price. Investors justifiably have reasonable doubts: namely, no Alzheimer’s drug has worked in the past 10 years.

The two men met when Hung was chief executive of Medivation and Ramaswamy was a young analyst at QVT, a hedge fund that was one of Medivation’s biggest shareholders. Ramaswamy wasn’t responsible for the fund’s position in Medivation, but he and Hung bonded over a love of tennis, playing together whenever they were in the same place. Last summer, as Medivation was about to be sold, they ran into each other at the US Open men’s tennis final and started to talk about the future.

Ramaswamy was surprised to learn that Hung wanted to work in the same area Axovant was focusing: Alzheimer’s. Medivation had originally been an Alzheimer’s company, beginning by licensing an antihistamine called Dimebon from Russia’s National Institutes of Health. The drug had shown promise as an Alzheimer’s treatment and was licensed to Pfizer Inc., but studies conducted by Medivation failed to confirm any benefit.

Bruised but still in the fray, Hung, an oncologist by training, helped develop the prostate cancer drug Xtandi, which became a multi-billion-dollar product. But the prior loss stung, according to Forbes.

“We were all crushed when the Dimebon trial failed and we wanted to take another bite at the apple,” Hung says.

Meanwhile, Ramaswamy has been wearing several corporate hats. As chief executive of Roivant, he had spun off another public biotech company, Myovant Sciences, run by Hung’s former chief medical officer Lynn Seely. Another of Hung’s Medivation co-founders, Patrick Machado, is already on Roivant’s board. Ramaswamy says there was no pressure from his board to reduce his workload. But he didn’t want to lose Hung to another opportunity and was interested in focusing more of his time on new initiatives at Roivant, which is Axovant’s majority shareholder.

Ramaswamy says it occurred to him he was recruiting a potential CEO, according to Forbes.

“To make the decision to come on at this time is a major re-enforcer of what we see and at the same time he is coming here to make sure the company is a success beyond the outcome of the study” Ramaswamy recalled.

Now the question is whether Hung’s appointment will increase investor expectations for late-stage results of intepirdine, which are due by late September, Forbes points out.

“I have had a chance to go through the data and look at it carefully,” says Hung. “There is always risk in Alzheimer’s, it’s a complex disease, but very few important things are achieved without risk, patients face risk every day.”

No Alzheimer’s drug has ever been effective, let alone safe, and Dimebon is often given as the prime example. But investors have other reasons to doubt intepirdine. Trials conducted by Glaxo failed, as did efforts on similar medicines by Lundbeck and Pfizer.

Bottom Line:

So what does Hung see in Axovant’s Alzheimer’s candidate to draw him back to the hot seat? Hung believes in the basic idea behind intepirdine: a 5-HT6-receptor antagonist that boosts the amount of a brain chemical called acetylcholine that is involved in helping patients think.

Existing Alzheimer’s drugs like Aricept and Exelon prevent the brain from disposing of acetylcholine. These drugs improve symptoms, though they don’t stop patients’ inevitable decline. Intepirdine is supposed to make the brain produce more acetylcholine, helping a little more. The older drugs, he argues, are like filling a hole in a cup; adding intepirdine is like turning on a faucet to re-fill it.

Hung argues that clinical trials so far show promise. The largest, however, didn’t hit its main, prespecified goal in a 684-patient study. But Hung points out that on the goals being tested in Axovant’s Phase 3 trial, the results were “highly statistically significant and very robust.”

Situations like this one featuring an unproven drug above all require NOT losing perspective, despite the appearance on the scene of a star like David Hung. Like Officer Joe Friday on the venerable police drama “Dragnet” used to say, “We just want the facts, mam. Just the facts.”

Alright then, its fact-finding time.

Fact #1. Axovant’s fundamentals remain the same. It’s attempting to rescue a previously failed drug for an impossible-to-treat disease, and investors shouldn’t allow excitement over a new hire to obscure that.

Fact #2. We all know that Alzheimer’s drugs are already exceptionally risky. Max Nisen at Bloomberg reminds us that companies have put billions of research dollars into medicines that failed in critical studies. Eli Lilly & Co. and Merck & Co. are the most recent examples.

Fact #3. Axovant’s lead drug has extra warning flags. It was bought for a mere $5 million from GlaxoSmithKline’s scrapheap after it failed a Phase 2 trial. The drug represents a different approach than Merck and Lilly’s medicines and takes on the easier task of treating the symptoms rather than the cause of the disease. Both Lundbeck and Pfizer have given up on similar drugs after clinical trial failures.

Fact #4. Axovant maintains that its drug may be better and that it has designed its clinical trial to avoid mistakes other firms have made. This may be true and commendable but drugs that failed previously tend to fail again, especially in Alzheimer’s.

Nisen hits the nail squarely on the head saying Axovant is prone to hype. It has a charismatic founder in Vivek Ramaswamy and big upside if its drug is approved. That led it to one of the biggest biotech IPOs of all time at the peak of the 2015 bull market, with Axovant’s shares spiking to nearly $30 at one point. That storybook tale ended rather badly.

Closing Fact: Ax­o­vant is en­gaged in the ul­ti­mate high-wire act in drug R&D, Endpoints correctly suggests. It’s walk­ing the tightrope in a piv­otal-stage Alzheimer’s trial which looms over bil­lions of dol­lars in wreck­age from the past 14 years of fail­ure. And they’ll know by the end of this year if their shot with inteperdine worked or not.

If it works, the pay­off will likely be in the bil­lions. They don’t call ex­per­i­men­tal Alzheimer’s drugs a golden ticket–a long shot at a for­tune–for noth­ing. The com­pany’s stock would soar. Hung al­ready knows every big player in the field which would look to buy the com­pany. And maybe that’s one good rea­son not to wait until after the read­out to take the job, as Ra­maswamy had of­fered to do.

Steve's Take: Despite new CEO, @Axovant is a crap shoot Click To Tweet

Hung is rolling the dice once again on Alzheimer’s, after see­ing Dime­bon crash and burn at Medi­va­tion. His pockets are filled to overflowing and getting even fuller. But at this particular juncture, for the star-struck investor, nota bene: Axovant is a crap shoot. Any way you slice it, it’s a company with a failed drug in a clinical space littered with nothing but heartache and tax losses. Nothing has changed.

Steve Walker has no position in any stocks mentioned. MedContent Inc. has no position in any stocks mentioned. MondayMorning.com has a disclosure policy.

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