Kyprolis is an inhibitor of 20S proteasome, which is an enzyme responsible for degrading polyubiquitinated proteins. Treatment of Kyprolis causes impaired protein degradation, which in turn results in cell cycle arrest and apoptosis, preferentially in cancer cells. On July 20, 2012, FDA approved the new drug application (NDA) of Kyprolis to treat relapsed and refractory multiple myeloma in patients who have failed at least 2 lines of therapies. Kyprolis is a succeeding drug to Velcade, which is the first protease inhibitor drug. Velcade is now generating over $600 million revenue for Millennium/Takeda in the U.S. and holds about half of the MM patient share. Compared to the severe neuropathy side effect of Velcade, Kyprolis has a more favorable toxicity profile with almost no high-grade neurodegeneration.
Multiple Myeloma Facts
Multiple Myeloma is caused by malignant proliferation of plasma cells in the bone marrow. The abnormal growth of plasma cells in the bone marrow could interfere with the production of normal blood cells and lead to anemia (short of red blood cell count) or leucopenia (short of white blood cell count). In addition, it may cause deficiency in bone and kidney and destructive bone lesion and renal malfunction.
MM is the second most common type of blood cancers in the United States, only after non-Hodgkin lymphoma. It mostly affects people with ages over 65 (American Cancer Society). There are estimated 21,700 new incidences of MM and 10,710 deaths from MM in 2012 in the United States. The global market of MM was valued at $2.3 billion in 2009 and is forecasted to grow at a compound annual growth rate (CAGR) of 10.4% for the next seven years, to reach $5.2 billion by 2017 (GlobalData).
Current Treatments for Multiple Myeloma
Multiple Myeloma patients usually receive a combination of treatments, including stem cell transplants, corticosteroids, alkylating agents and other chemotherapy agents (Table 2). However, the majority of MM patients eventually experience disease relapse and stop responding to conventional treatments. Thanks to the research and development in the last decade, patients with relapsed and refractory MM have been enormously benefited from Celgene's immunomodulatory agents Revlimid (Lenalidomide) and proteasome inhibitor Velcade (Bortezomib) from Millennium. Both of the drugs have become standard first-line treatments now. Various combinations of these drugs along with other chemo-agents greatly improved the overall survival (OS) and progression-free survival (PFS) of MM patients. Velcade and Revlimid are the most dominant MM drugs on the market (each has ~40-50% patient share). Both of them cost about $8,000 per 28-day treatment cycle. Despite the improved treatments using Velcade and Revlimid, a growing number of MM patients are becoming refractory to these therapies. Promising upcoming therapies for these patients include proteasome inhibitor Kyprolis from Onyx Pharmaceuticals and immunomodulatory agent CC-4047 (pomalidomide) from Celgene (PDUFA date of Feb.10, 2013).
Competition to Kyprolis
Major competitors for Kyprolis include existing MM drugs, Velcade and Revlimid, as well as emerging therapy Celgene’s pomalidomide, which is forecasted to launch next year. Among these drugs, Velcade, in the same category as proteasome inhibitor, will directly compete with Kyprolis to be used as either mono-therapy or in combination with immunomodularoty agents and other chemotherapeutic drugs. On the other hand, Celgene’s pomalidomide is a immunomodulatory agent and will compete directly with Revlimid.
Compared to Velcade, the biggest advantage of Kyprolis is its less toxicity to the nervous system. More than 20% of patients taking Velcade develop serious peripheral neuropathy, while there is almost no neurodegeneration observed in patients taking Kyprolis, since it does not inhibit serine proteases that are critical to neuron cell survival. As a single agent therapy, Kyprolis has demonstrated its effectiveness in heavily pretreated refractory MM patients, including those resistant to Velcade treatment. In Velcade-naïve patients, Kyprolis achieves even better overall response and survival rate. Considering its favorable toxicity profile and overall response rate, Kyprolis has a great chance to outperform Velcade and become the leading therapy for MM. But as a leading standard frontline MM drug, Velcade has established its awareness in patients and physicians and possesses a steady patient share, so it may take some time for Kyprolis to outperform Velcade in MM market.
Multiple myeloma market is expected to reach saturation in several years as multiple drugs aligning for FDA approval or in late-stage clinical trials. Several emerging therapies for MM are expected to enter the market by 2018, including Keryx Biopharmaceuticals/AEterna Zentaris' perifosine, Merck & Co's Zolinza (vorinostat), Novartis' panobinostat, Cephalon's Treanda (bendamustine HCl) and Mundipharma's Ribomustin (bendamustine). By then, the MM market will be saturated and the competition for market share will be high. However, by that time, Kyprolis should have well-established patient share and stand out from the competition with new entrants.
Manufacture and Marketing
Onyx relies on a third-party manufacturer to produce Kyprolis. At this point, Onyx has no plan to build its own manufacturing facilities. However, in the long run, if the manufacturing capacity and/or quality do not meet the market requirements, Onyx will consider building in-house manufacturing facilities. To promote Kyprolis, Onyx has hired a dedicated marketing team with 100 people, including sales representatives, oncology nurses and reimbursement specialists. From its large scale phase 2 trials and three ongoing phase 3 trials, Kyprolis has gained public awareness among physicians and patients, so we think that, with its favorable response rate and toxicity profile, Kyprolis will rapidly diffuse among physicians and patients and reach a penetration of 50% in as early as 2015.
Revenue Forecast and Stock Valuation
Kyprolis is currently only approved to treat relapsed and refractory MM patients that have gone through at least 2 regimens before. We assume that 50% of MM patients have failed two prior therapies and are suitable to take Kyprolis. In addition, considering the possible new indications (e.g. as a frontline drug for MM) that could be approved in the next few years, we believe that the percentage of patients that could choose Kyprolis for treatment will reach 70% eventually. We assume that the peak penetration rate of Kyprolis is 70%. This gives a peak patient share of 50%, which is comparable to Velcade and Revlimid. (Patient share is calculated as the percentage of MM patients that are suitable to use Kyprolis times the market penetration rate.) The current price of Kyprolis is $9,950 per treatment cycle (28 days). Using projected annual sales of $120,000 per patient, we estimate that the peak sales revenue of Kyprolis could reach $3 billion in 2018.
The current R&D and SG&A costs are relatively high because of ongoing clinical trials and business expansion, but the sales of Kyprolis will be able to produce a positive operating income for Onyx as early as 2014. Assuming a perpetual growth rate of 3% and a 15% discount rate (biotechnology industry average), we estimate that the fair value of Onyx’s share is $85.