Panacos Pharmaceuticals: Attacking HIV
Since AIDS was first recognized in the early 1980s, pharmaceutical companies around the world have worked to come up with drugs that attack the HIV, or human immunodeficiency virus, that causes it.
A small biotech firm out of Waterton, Mass., could be on its way to making history in the fight against AIDS.
Panacos Pharmaceuticals Inc. (Nasdaq: PANC) is developing an HIV drug, bevirimat, that is the first in a new class of oral HIV therapeutics under development called maturation inhibitors. Put simply, maturation inhibitors are drugs that would keep the virus from maturing or spreading.
The therapeutics were discovered in 1999 by Panacos scientists and their academic collaborators at the University of North Carolina at Chapel Hill.
The 45-employee company has completed seven clinical studies of bevirimat in more than 300 subjects, and is currently in second-phase clinical trials. Phase II trials are small-scale drug studies in patients that are designed to characterize a drug's effects on a particular disease and generally compare the new drug to therapy that is already known to be effective.
What is unique about bevirimat is that it could help overcome HIV's growing resistance to existing antiviral drugs.
In June 2006, bevirimat was described by New Scientist magazine as a “revolutionary drug…that leaves ‘HIV defenceless.’”
HIV infects approximately 1.7 million people in North America and Western Europe and approximately 40 million people worldwide. Approximately 650,000 patients are treated annually for HIV in the United States and Western Europe.
Resistance to currently available drugs is one of the biggest challenges in HIV therapy and the leading reason why treatments fail. Up to 80% of HIV-positive people on treatment show resistance to one or more of their drugs, according to Panacos.
Bevirimat aims to overcome this resistance by attacking HIV on a new front. Many existing drugs work by blocking reverse transcriptase, an enzyme that enables HIV to replicate within a cell. Others disable protease, which helps to assemble the virus into particles that infect other cells.
According to Panacos’ CEO Alan Dunton and experiments at the University of Oklahoma Health Sciences Center in Oklahoma City, bevirimat works in a different way. It blocks the maturation of an HIV protein called GAG. If that GAG protein doesn't mature -- meaning it gets cut up into pieces by an enzyme called protease -- then it can't become a mature, reproducing virus. So bevirimat actually binds to GAG at a very specific site to block (HIV's) maturation.
As such, investors have good reason to be paying close attention to this stock, which is trading at about $3.31, not much higher than its 52-week-low of $3.11 and less than half of its high of $7.23. In the past month alone, Panacos has gotten a few steps closer to its goals. And, analysts' mean estimate of the stock price of $6.90 is nearly double the current quote.
Dunton took the helm of Panacos in January -- seven months after the firm’s previous CEO, Samuel Ackerman, died suddenly of a heart attack while conducting an investor presentation. It was hardly an enviable task considering that Ackerman was highly regarded and respected in his role as CEO.
But in March, Panacos won an agreement from the U.S. Food and Drug Administration to launch another midstage human clinical trial this year for bevirimat. In June, the company announced it would continue developing bevirimat after seeing positive response in the midstage study. Meanwhile, Oppenheimer recently initiated coverage of Panacos’ stock with a “Neutral” rating and in late May, Punk, Ziegel & Co. initiated coverage with a “Buy” rating.
Also in June, the company announced that it had closed a $20 million term loan agreement with Hercules Technology Growth Capital (NASDAQ: HTGC). As part of the deal, Hercules received a five-year option to purchase 646,900 Panacos shares at an exercise price of $3.71.
Despite a setback with preliminary data in December, Cowen and Company analysts remain optimistic about the drug’s potential. In a June 21 report, they wrote: “We believe solid efficacy, good tolerability, and a once-daily oral administration position maturation inhibitors for success in a large and dynamic HIV market.”
After uncovering potential problems in December, Panacos is now simultaneously working to improve berivimat’s formulation while continuing second-phase clinical trials with the original oral solution. The firm’s goal is to identify an active dose using the old formulation and later transition clinical development to commercial formulation that could be either an oral solution or tablet.
Cowen and Company, which classifies Panacos’ stock as “Outperform,” believes the company’s shares have “considerable upside potential as investors gain confidence in bevirimat’s approval path.” Cowen analysts estimate a net loss of $0.18 and $0.73 in the second quarter and for 2007, respectively, compared with net losses of $0.30 and $0.75 in the like 2006 periods.
Looking ahead, Cowen analysts believe that Panacos will identify a potential partner for bevirimat this year or next. In 2008, they expect the firm will file an investigational new drug application (IND) for a small molecule HIV entry inhibitor clinical candidate and initiate a third-phase study of bevirimat.
Meanwhile, RBC Capital Market analysts have more conservatively tagged Panacos’ stock as “Sector Perform” with a price target of $5. They worry that Panacos is highly dependent on the clinical development of bevirimat and the stock could plummet if the product is not successful. They estimate a net loss of $0.17 and $0.73 in the second quarter and for 2007, respectively.
In addition to the typical risks of demonstrating safety and efficiency, RBC Capital Market analysts believe the firm’s biggest challenge before advancing in clinical trials is the development of an adequate pill or capsule formulation.
The then-Maryland-based Panacos went public in late 2005 via a merger Watertown's V.I. Technology Inc. It posted a net loss of $38.1 million on revenue of $284,000 for 2006.
If successful, Panacos would have a major HIV treatment on its hands. If not, the company’s expertise in anti-virals could possibly be applied toward other diseases. Either way, Panacos has the potential to become a much bigger company than it is.
