Description

IntraBiotics has an anti-microbial drug Iseganan in Phase III development that will be used to prevent ventilator-associated pneumonia in hospital patients. The opportunity for this market could be $1.0 billion - $2.5 billion annually, and the stock has potential to reach greater than $100 from its current $14.


Company Overview:

IntraBiotics is a biotechnology company focused on developing a novel class of antimicrobial peptides. The Company’s lead product Iseganan is in late-stage pivotal trials for ventilator-associated pneumonia (VAP) under FDA’s fast track designation. The company reached a special protocol assessment with the FDA in September 2003 on the design of the pivotal trials, which dramatically reduces the risks associated with FDA review if efficacy and safety data are positive.

Pneumonia is the most common infection in the intensive care unit of the hospital with greater than 1 million patients per year at risk worldwide. It is well-known that ventilation increases the risk of VAP, and physicians estimate that as many as 35% of patients on ventilators will develop pneumonia during their stay, typically adding an another four days in the ICU at a cost of $40,000 in additional charges.

There are no effective and clinically appealing therapies currently being used to prevent VAP. There have been more than 30 clinical trials performed that show the value of oral decontamination in VAP prevention. However, in practice traditional antibiotics have limited usefulness for VAP prophylaxis due to the increasing of antibiotic resistance.

Clinical studies of oral decontamination with Iseganan have shown it to have excellent activity against common respiratory pathogens and yeasts. The clinical activity of the drug has been shown to be rapidly microbicidal in saliva and to have a low propensity to engender resistance. In a Phase I/II study in mechanically ventilated patients, Iseganan was found to be safe in VAP. In addition, the drug has a substantial safety database from a trial with the drug for 900 cancer patients from several years ago. The company recently began enrollment for its Phase III pivotal trial for use of Iseganan for VAP, and data will be available by year end 2004.

IntraBiotics is being run by a first-class management team with extensive experience in biotechnology. The Chairman of the Board is Dr. Ernest Mario, former CEO of Alza, and the CEO is Henry Fuchs, who during his time at Genentech led the clinical development programs for Pulmozyme and Herceptin.


Financials:

There are approximately 1.0 million patients annually who receive mechanical ventilation in the U.S., E.U. and Japan. Current antimicrobials and other agents used in the ICU such as Primaxin, Zyvox, Vfend or Xigris command prices ranging from $1000 per course to $6000 per course. At a price range of $1000 - $2500 per course of therapy, VAP prevention represents a potential $1.0 billion - $2.5 billion global opportunity. Additionally, given Iseganan’s speed, broad spectrum and lack of resistance, it may have application for other indications such as cystic fibrosis, otitis media and vaginitis.

The drug is currently un-partnered, and the company has more than enough cash to run the trials, which should be complete by the end of this year. The burn rate of IBPI averaged only $2.1 million per quarter during 2003, and they currently have $28 mm on the balance sheet.


Valuation:

The market capitalization of Intrabiotics is approximately $110 million currently.

There are typically two methods for arriving at a valuation for a late-stage biotechnology company such as IntraBiotics. Assuming that the company could capture 25% of the available market, a conservative estimate given that it will be the first and only agent appropriate for use in VAP prevention, that would mean $250 million in revenues. Company valuations typically range from 5 to 8 times peak product revenues, which would imply a $1.25 billion to $2.0 billion market capitalization for the company. The product is perhaps four years away from reaching peak sales. Discounting this market value at 25% per year would yield a present value of $650 million to $1 billion, or $80 to $125 per share.

Another way of evaluating biotechnology companies is through valuations of comparable companies with products in a Phase III trial. The market capitalizations of companies in a similar position to IBPI range from $250 million to several billion dollars. IBPI is attractive because it is trading at over a 50% discount to any comparable company and a much larger discount to the potential risk adjusted valuation if it is successful.

With these two data points, it is easily conceivable that IBPI could be trading at a stock price in excess of $100. The company has traded as high as a split-adjusted $382 back in 2000.

Catalyst

In September 2003 the company began enrollment for its randomized, double blind, placebo-controlled, multinational trials with data available in the 4th quarter of 2004. During the trial 900 patients will be treated for up to 14 days with either 9 mg Iseganan or placebo six times daily along with standard oral care. The primary efficacy endpoint is VAP, and secondary endpoints are assessments of utilization of healthcare resources. Since the model of oral decontamination in VAP prophylaxis has been verified in numerous trials with less efficacious and universal anti-microbial agents, the probability of success in this pivotal trial is significantly higher than in a typical Phase III study.