Lymphoseek is not RIGS: Diagnostics 101

I get e-mail from fellow Neoprobe longs and Blog readers, asking about the differences between Neoprobe's two radiodiagnostics. There is some confusion out there…

(Forward Looking Disclosure: I’m not in the medical industry. However, I’ve spent hours studying Neoprobe and its drugs, poring through countless data, clinical studies and physicians peer reviews, doing my best to interpret Doctorese into English. So, I’m gonna share my opinion of RIGS and Lymphoseek like I know what I’m talking about…)

First; even though RIGS and Lymphoseek are both radiolabeled tracers, they're not the same. In fact they’re very different.

Biggest difference: RIGS is designed to find cancerous tissue. Lymphoseek is designed to determine if cancer has spread.

RIGS actually locates cancerous tumor, helping to insure the removal of all the cancerous tissue by the surgeon. The patient is given an injection of the RIGS compound the day prior to surgery, which contains a low-level gamma I-125 radiolabel. The compound then circulates through the bloodstream. During this circulation RIGS locates and binds to all tumor tissue, including pre-cancerous tissue not readily discernible by traditional methods.

Surgeons currently use sight and feel to locate cancerous or suspect tissue for removal. However, tissue in early stages of metastases can display little or no outward evidence of its condition. RIGS binds to all cancerous tissue, including pre-cancerous and early cancerous tissue that otherwise may appear normal and may not have been surgically removed. During surgery, a Gamma detection probe is used to scan the patient. Any tissue containing the RIGS compound will alert and direct the surgeon to the exact location.

Remember... the most important question patients ask after surgery: “Did you get it all?”. RIGS helps insure they DO get it all.

On the other hand, Lymphoseek doesn’t actually find cancerous tissue. It finds lymph nodes located in the path of spreading cancer. This helps determine if cancer has spread from a malignant tumor, allowing the physician to determine the extent of disease progression, and subsequently design the most effective treatment.

Lymphoseek determines the spread of cancer by locating the Sentinel Lymph Node. Lymphoseek is injected near the cancerous tumor. It then migrates through the lymphatic system where it binds to the nearest (Sentinel) lymph node. The surgeon then tracks Lymphoseek's radioactive signature with the aid of a Gamma Guided probe to locate that Sentinel Node. The node is then surgically removed and biopsied to determine if cancer is present. The status of the Sentinel Node (cancerous or cancer-free) has proven to be highly predictive of the spread of cancer.

The human body has hundreds of lymph nodes which are an integral part of the body’s immune system. The lymph nodes are grouped into a number of “lymphatic basins”.

Should a cancer tumor become malignant and subsequently spread, that spread of cancer cells would most likely occur through the lymphatic drainage system within that basin. The first lymph node the cancer would reach within that lymphatic basin is designated as the Sentinel Lymph Node.

Locating and analyzing that Sentinel Node for the presence of cancer is called Sentinel Lymph Node Biopsy (SLNB). This method is emerging as the standard of care for patients of certain types of cancer, because of its high degree of accuracy.

In years past, the traditional approach was to remove ALL of the lymph nodes in the affected nodal basin. However, this approach removes between 10 and 30 lymph nodes from the patient, diminishing their immune system and causing unnecessary pain and long-term disfigurement.

The use of SLNB has proven to be equally effective at determining whether the cancer has spread, while being much less intrusive and physically challenging for the patient.

Currently, SLNB surgery uses a Colloid-based radiotracer that’s being used off-label. It was designed and approved in the 1950’s for use in internal surgery, but was never approved by the FDA for use in SLNB. There are numerous shortcomings associated with this current tracer, which Lymphoseek was designed to overcome.

The ideal Lymphatic radiotracer would have a number of desirable characteristics. These include fast injection site clearance, consistent lymph node binding with a low pass-through factor, and a short radioactive half-life. Lymphoseek demonstrates all of these, using a consistently-sized molecule specifically designed with binding characteristics targeted for lymphatic tissue. It’s the first radiotracer designed specifically for use as a Sentinel Lymph Node tracer.

In pre-clinical and FDA clinical trials to date, Lymphoseek has demonstrated superior site clearance, clearing the injection site between four and eight times faster than the older Sulpher colloid products. Lymphoseek begins clearing as quickly as 15 minutes after injection, saving time in the operating room. In a direct comparison in clinical trials, five hours after injection 95% of the Sulpher Colloid based product still remained at the injection site, whereas 75% of Lymphoseek had cleared the site and migrated into the lymphatics.

Statistically, the nodal binding characteristics of Lymphoseek and the current Sulphur colloid products are not substantially different. Lymphoseek was incrementally more accurate, with a mean number of identified nodes at 1.3 nodes per patient, and the Sulphur colloid product yielding 1.6 nodes per patient. In Phase I FDA clinical testing, Lymphoseek was 100% accurate in identifying the Sentinel Node. In Phase II clinical testing Lymphoseek was 99.5% accurate. In Phase III clinical testing (Breast & Melanoma) audited results confirmed 97% accuracy.

Radioactive half-life is also a consideration, balancing the length of the surgical window against the health issues associated with introducing radioactive elements into the patient. Lymphoseek demonstrated an advantage over the Sulphur colloid in this regard. Clinical tests revealed that Lymphoseek’s radioactive half-life was 3.23 +/- .47 hours. By contrast, Sulpher colloid’s radioactive half-life was 15.4 +/- 5.10 hours, necessitated by its relatively slow injection site clearance and the need for an extended surgical window.

Lymphoseek trials have revealed several other advantages. Due to its PH-balanced compound, Lymphoseek is a painless injection and the patient does not experience the burning sensation typical of the Sulpher-based products. Additionally, surgeons are reporting that the more rapid site clearance of Lymphoseek is resulting in faster surgery, saving time and money for the physician, staff and support facilities.

The current Sulpher colloid was initially priced at $150 per patient dose (per Dr. Anne Wallace, UCSD – 2003). In late 2009 the major supply reactor for Tc99m in North America (Chalk River facility) closed down, resulting in a price increase to $275 for Sulpher colloid (as of Q1-2010). In all of its current sales projections Lymphoseek pricing is based on $150 per dose, although there is an argument that Lymphoseek should be similarly priced to Sulpher colloid at the time of commercialization. In fact Lymphoseek could even command a premium due to its superior performance and the fact that it will be a First in Class tracer and the only one approved by the FDA for use in SLNB.

Lastly, once approved by the FDA, Lymphoseek is expected to receive a reimbursement code, allowing the drug to be reimbursed by Medicare, Medicaid and the larger insurance providers. The current Sulpher colloid product, not being FDA-approved, does not qualify for reimbursement. Being reimbursable should give Lymphoseek an additional financial advantage over the older tracers.

Now you know the difference between RIGS and Lymphoseek. You’re better off than I was when I got here. It took me a week of reading to sort it out. You get it in 5 minutes. I wish I were you.

DDbuyer

Oh… this is the technical description of Lymphoseek, for those of you who wish to start deciphering on your own:

Lymphoseek is a new radiopharmaceutical that accumulates in lymphatic tissues by binding to a receptor that resides on the surface of macrophage cells. The receptor, a mannose-binding protein, recognizes and binds macromolecules with carbohydrate side-chains that terminate with a mannose glycoside. Lymphoseek, previously 99mTc-diethylenetriamine pentaacetic acid (DTPA)-mannosyl-dextran, is composed of a dextran backbone to which multiple units of mannose and DTPA are synthetically attached. The dextran, having a molecular weight of 10,000 g/mol, satisfies the receptor’s requirement for a macromolecule. The mannose units are substrates for receptor recognition and binding. The DTPA units serve as attachment sites for labeling the macromolecule with 99mTc.

Best of Breed (for you Cramerica fans)

Jim Cramer. Love him or hate him, he sure has his following.

Personally, I think Jim Cramer’s biggest strength is his unrelenting penchant for self-promotion. Regardless of whether the market is up or down... by God he’s gonna find a way to make you money!

Now… I think I’ve seem something, somewhere about someone who analyzed all of Cramer’s recommendations over the years and (supposedly) determined that if you had diligently followed Cramer’s recommendations, you wouldn’t have had to worry about the Stock Market crash of 2008… because you would’ve been broke long before then.

I don’t know if it’s true. Consider it another unverified tidbit among billions of other useless and irrelevant tidbits floating around the web.

However, I do give Cramer credit for pushing one rule that I believe. If you’re going to own a stock, own the Best of Breed.

What’s that mean? It's simple. Own the stock that’s the market leader in that business. Own the one with the largest market share or the fastest growth. Own the best.

Neoprobe (NEOP) is a tiny company in a tiny market segment. But guess what…? It’s also the Best of Breed in that tiny market of Gamma Guided RadioTracing Medical Devices (think Geiger Counter…).

Depending on which numbers you use (retail vs. wholesale), NEOP provides between 50% and 70% of the Gamma guided equipment sold every year, worldwide. They are the market leader. They are the Best of Breed.

To be sure, it's a small market. Analysts estimate the market to be $30,000,000 per year (retail). NEOP sells about $10,000,000 per year (wholesale prices) which is about $20,000,000 per year at retail prices. That market is poised to increase if several multi-year studies determine that SLNB should become officially designated as Standard of Care... but that's a whole 'nuther discussion for another Blog...

$10,000,000 in wholesale revenue doesn't seem like much, especially when compared to the two drugs in their pipeline… a potential of $370 million per year for Lymphoseek and $3.0 Billion for RIGS, they're two drugs in FDA Phase III clinical trials.

But being Best in Breed is important for several reasons.

First,being the market leader gives NEOP a stable revenue stream and the profits to cover its corporate overhead. That’s important. Most small biotechs have no income. While developing that first drug or product most other biotechs cover their overhead by constantly selling stock, diluting the stockholders along the way.

NEOP doesn’t have to do that. Sure, they raise cash through stock deals for R&D expenses... but developing drugs isn’t cheap. Neoprobe doesn't make enough to cover overhead AND develop their drug pipeline, so they do raise cash for specific drug programs. The difference is that NEOP can funnel ALL of that capital directly into drug development. It’s not wasted on salaries, rent and corporate expenses.

Here’s another benefit of being Best of Breed..... Brand recognition!

Lymphoseek and RIGScan CR are going to be two First-In-Class drugs. They will be introduced to hospitals that have never used them before. Sure… they will be great, lifesaving drugs… but they will still be new.

However, the name “Neoprobe” WON'T be new. More than 50% of the surgical hospitals in the U.S. already use Neoprobe products. They already KNOW the Neoprobe name.

A new drug developed BY Neoprobe for use WITH Neoprobe equipment that the hospitals already use is very likely to accelerate market penetration of both of our new drugs.

Oh yeah… consider our distribution partners, too. Johnson & Johnson (NYSE:JNJ) distributes Neoprobe's Gamma Guided equipment.

Cardinal Health (NYSE:CAH), the largest radiopharmaceutical distributor in the U.S., will be our distributor for Lymphoseek (and perhaps RIGS).

Both are also Best of Breed.

The club is pretty exclusive if you think about it. We are in good company. G’day…

DDbuyer

Lymphoseek - the little drug that could

Developing drugs take years. If you look at the stats, the average drug takes ten years and costs anywhere from $100 million to $2 Billion to create, tweak, analyze, test, review and get approved by the FDA.

Smaller drugs can cost less... but they take just as long. There are very few shortcuts to getting approval of something that will be injected into a human being.

Most potential drugs die long before they see the light of day. Only a small percentage reach Phase III of the FDA clinical trials. Once they reach Phase III, over 90% are ultimately approved because the problems, deficiencies and safety issues surfaced long ago.

So... if you make it to Phase III your odds go up dramatically... and drug development is a game of odds. Because most drugs die before approval, the payoff from those that get approved is often disproportionate to the investment.
People bitch about the cost of drugs. But to be fair you have to consider the cost of the thousands of drugs that were never approved when you price new drugs that DID get approved. In other words, the cost of all the failed drugs needs to be factored into the overall equation if we want drug companies to continue creating newer and better drugs. Nobody does this for free (or a loss).

Lymphoseek started its development in 2000. Now it's at the end of Phase III clinical tests. Lymphoseek completed Phase III in 2009 and will be submitted to the FDA for approval this summer (2010).

NEOP stockholders finally see the light at the end of the tunnel... and it turned out not to be the dreaded train. It's the beautiful, shining white light of an income stream.

Now... to be fair, the jury is still out when it comes to exactly how much income Lymphoseek will generate. Management and several outside consultants have analyzed the market, using the number of breast, skin and head & neck cancer cases in the U.S and worldwide. It looks like the total potential annual revenues could approach $370,000,000 per year for breast, melanoma and Head & Neck cancer.

That's not a blockbuster. Blockbuster drugs have sales in excess of $1 Billion per year, like Neoprobe's other drug RIGScan CR ($3 billion potential).

But NEOP is a little company. In fact it's downright tiny. That means they don't need a blockbuster drug to make a lot of money. The company uses what they call a 'virtual business model'. This model outsources manufacturing, distribution, sales, etc. and minimizes corporate overhead. This allows all of the profits from drug sales to flow directly to the bottom line. The $10,000,000 annual revenues from Neoprobe's Gamma products already covers corporate overhead, so drug sale profits will flow straight to the bottom line.

The gross profit margins for Lymphoseek are estimated to be a little more than 70%. That means that for every $1,000,000 in drugs sales, less than $300,000 will be spent on hard costs... manufacturing, distribution, sales, etc.

The remaining $700,000+ goes to the bottom line.

There are about 81,000,000 shares of NEOP outstanding right now.

Every $700,000 that hits the bottom line is 1 cent per share in earnings.

$10,000,000 in Lymphoseek sales will put $7,000,000 to the bottom line. That's roughly 8.6 cents per share.

Remember, the analysts estimate that Lymphoseek has a potential market of $370,000,000 per year. If NEOP only reached 10% of that potential (37,000,000 per year) then the shareholders would earn 32 cents per share.

People use different metrics to value stocks. Personally I prefer the P/E, simply because I'm a businessman. I don't value companies on gross sales... I focus on how much profit hits the bottom line.

Using a P/E of 25, which is a typical P/E for drug companies, this 14 cents per share equates to about $7.99 per share for NEOP.

That's at a 25 P/E. Many people use higher P/E's. 30 and sometimes 40. (That would equate to $9.60 and $12.80 per share).

Lymposeek has other cancer markets too, and these are currently being studied in Phase I FDA trials (lung, prostate, colon, etc.). The annual estimates for those additional markets would roughly double Lymphoseek's annual potential revenues. That's rather impressive for such a tiny company.

That's also not giving NEOP any value for it's other drug... RIGScan CR.

What's RIGS? Oh... we'll talk about that later.

Hint - it's much bigger than Lymphoseek. The market potential for RIGS is $3 Billion a year. (Yep. Billion with a 'B'). Better yet, RIGS has already been all the way through Phase III trials at a cost of $100+ million... and it passed every trial.)

More to come. Or you can click below if you want to read more on your own (Go ahead. It's only reading and, unlike porn, this reading can help your portfolio recover from the 2008 stock market disaster...).

Get started here at the Introduction to Neoprobe site.

Then you might want to check out the Advanced Due Diligence site with tons of links and info.

DDbuyer