On May 30, 2017, HedgePath Pharmaceuticals, Inc. (HPPI) announced the company has been granted a Type C meeting with the U.S. FDA to discuss the interim results from the company's Phase 2b clinical study of SUBA-Cap (SUBA-Itraconazole) in patients with Basal Cell Carcinoma Nevus Syndrome (BCCNS). A response is expected in July 2017.

Significance of Type C Meeting

I've noted in my previous article on HedgePath (see here) that the potential exists for the company to file for approval of SUBA-Cap after the presentations of the full data from the ongoing Phase 2b trial; and, that his path is not unprecedented considering that both Roche and Novartis won approval from the U.S. FDA for their respective hedgehog pathway inhibitor BCC drugs, Erivedge® (vismodegib) and Odomzo® (sonidegib), after only positive Phase 2b data. It looks like management is seeking clarity from the FDA on the next steps to conclude its clinical testing and reporting prior to filing the SUBA-Cap NDA.

Roche posted global sales of Erivedge of $204 million in 2016, up 21% from 2015 levels. Approximately 66% of these sales were derived from the U.S. market. Novartis, previously in the number two position behind Roche, sold the rights to Odomzo to Sun Pharma in late 2016 for $175 million upfront plus future milestones and royalties. Importantly, neither of these drugs are approved for the treatment of BCCNS. Thus, winning approval in BCCNS on the back of the Phase 2b data would be an enormous positive for HedgePath as it saves the company several years and millions of dollars in clinical development.

- Background Info - 

There are essentially three types of meetings that occur between sponsors or applications and the U.S. FDA: Type A, Type B, and Type C. Type A is a meeting needed to help an otherwise stalled product development program proceed. Examples of a Type A meeting include dispute resolutions, meetings to discuss a clinical hold, or meetings to discuss a special protocol assessment. Type B meetings are meetings that take place before, during, or after clinical development. These include, for example, pre-IND meetings, end-of-Phase 1 meetings, end-of-Phase 2 meetings, and pre-NDA/BLA meetings after Phase 3. Type C meetings encompass any meeting that does not fall into the Type A or Type B category, including when companies seek advice from the agency on next steps in development.

As a result of FDA granting management's meeting request, the company is required to file a complete background package for its Phase 2b trial results to FDA by mid-June 2017. According to the company, the FDA has indicated its goal is to provide a written response to HedgePath with further guidance before the end of July 2017. 

- The Phase 2b Trial -

HedgePath is currently enrolling patients in a Phase 2b open-label trial (NCT02354261) of SUBA-Cap in subjects with basal cell carcinoma nevus syndrome (BCCNS). Target enrollment for the Phase 2b trial is 40 patients with active BCCNS. For each subject, 10 to 15 of the largest lesions are selected by the investigator at baseline to represent a valid sample of overall lesions (target tumors). The longest diameters of these target tumors are then added together to create a "target tumor burden” number.

Because this is an open-label study, management has been able to provide ongoing updates from the trial to the market. The most detailed update came in October 2016 and demonstrated impressive results for SUBA-Cap. Management conducted two separate interim analyses: (A) the change in target tumor burden for each subject (which is based on the change in the sum of the longest diameters of each subject’s target lesions) to measure the change in target tumor burden from baseline; and (B) the change in the longest diameter of all individual target lesions from baseline across all subjects in the study, which the company believes documents clinical impact.

Waterfall plots for (A) and (B) can be viewed here and here, respectively, and are quite impressive. Updated data recently submitted to the U.S. FDA in request of the Type C meeting show equally impressive results. Included in the summary analysis are data for 35 patients enrolled in the trial relating to reduction in target tumor burden, safety, and time on study. Management noted in its meeting request to FDA that all patients on SUBA-Cap therapy had some degree of measurable target tumor burden decrease with a median time on study of 32 weeks and a dropout rate of only 11%. Importantly, this interim analysis shows 97% of patients (34 of 35) avoiding surgery with 37% achieving a 30% or greater reduction in target tumor burden and complete disappearance of 28% of target lesions.

A Case Study in Erivedge

Roche filed for and received approval for Erivedge® (vismodegib) in January 2012 based on results from a Phase 2, international, single-arm, multicenter, open-label, 2-cohort trial conducted in 104 patients with either metastatic basal cell carcinoma (mBCC) (n=33) or recurrent locally advanced BCC (laBCC) (n=71). The primary efficacy outcome was objective response rate (ORR) as assessed by an independent review facility (IRF). Of the 104 patients enrolled, 96 patients (92%) were evaluable for ORR. Efficacy results published in the New England Journal of Medicine show an ORR of 30.3% for mBCC and 42.9% for laBCC (1). Complete response (CR) rates for mBCC and laBCC were 0% and 20.6%, respectively. Partial response (PR) rates were 30.3% and 22.2%, respectively. Median response duration was 7.6 months for both mBCC and laBCC.

Roche conducted a separate Phase 2 trial with Erivedge in patients with BCCNS. The trial enrolled 41 patients with BCCNS, randomizing 2:1 to 150 mg vismodegib or placebo for a planned 18 months. During the study period, investigators tracked more than 2,000 existing and 694 new surgically eligible basal-cell carcinomas. The primary statistical endpoint was the comparative rate of appearance of new basal cell carcinomas (SEB) that were eligible for surgical resection.

A total of 38 of the 41 patients (93%) completed at least three months of follow-up visits and had data for the primary endpoint. Published data in the NEJM show vismodegib significantly reduced the per-patient rate of new surgically eligible basal-cell carcinomas below that of the placebo group (P<0.001). Vismodegib also reduced the size of existing surgically eligible basal-cell carcinomas, expressed as the percent change from baseline in the sum of the longest diameters (mean, −65%, vs. −11% with placebo; median, −71%, vs. −21% with placebo; P=0.003) (2).

Unfortunately, BCCNS is a chronic disease and to achieve long-lasting disease control it is likely patients are going to have to remain on the drug for the rest of their lives. Follow-up analysis from the above trial found that 54% of the vismodegib patients had discontinued therapy at 12 months due to side effects. In fact, the mean duration was only eight months, and no patient was on the drug longer than 15 months. So while the efficacy data are excellent, Erivedge is simply not a viable long-term option for BCCNS patients.

Accordingly, Roche never filed for approval of Erivedge in BCCNS. Similarly, Novartis never filed for approval of Odomzo® (sonidegib) in BCCNS either. Odomzo is approved only for use in adult patients with laBCC that has recurred following surgery or radiation therapy, or those who are not candidates for surgery or radiation therapy.

What's Next For HedgePath?

I'm not going to predict the outcome of the meeting with the FDA, at least not just yet. However, I can say that in my analysis of the data so far, I believe the results are very strong. Target enrollment is 40 patients and as per the company's press release earlier this week, data from 35 patients will be submitted to the FDA next month.

One of the key reasons the company requested the Type-C meeting is to discuss the achievement of its primary endpoint of reducing target tumor burden, but more importantly, the secondary endpoints of delaying time to surgery and time on study. Management believes these endpoints stand out as significant indicators of clinical benefit. HedgePath reported that the average number of tumors removed by prior surgeries across all the enrollees was 195 tumors per patient! Yet, of all these patients, only one tumor required surgery in the Phase 2b trial. Secondly, in contrast to the clinical trial of vismodegib in BCCNS patients, where 54% dropped out due to side-effects, only 11% of patients on SUBA-Cap dropped out and the median time on study is 32 weeks, with some patients reaching 80 or more weeks of dosing with no or limited side-effects.

How Big Is SUBA-Cap?

The U.S. National Institute of Health estimates approximately one million individuals in the U.S. will develop BCC in 2016; however, less than 1% of these will be BCCNS / Gorlin syndrome patients (3). This equates to roughly 10,000 patients in the U.S. Work done by Evans DG, et al. in 1991 estimated the incidence rate in the UK at 1 per 57,000 (4), which would equate to roughly 6,000 in the U.S. assuming similar etiology among the two countries. Evans DG, et al. updated this figure in 2010, revising the estimate to 1 per 30,827 (5), again which would equate to roughly 10,300 patients in the U.S. assuming similar etiology. Management has been using the 10,000 figure in its SEC filings and most recent investor presentation.

That being said, the market is likely significantly larger than just BCCNS patients. For example, there are an estimated 4 million cases of BCC diagnosed in the U.S. A significant number of BCC patients undergoing surgical treatment for facial tumors (excisions) in the U.S. will require reconstructive surgery following excision of their tumors. Some of these surgeries might benefit from pretreatment with SUBA-Cap to reduce the size of the tumor or benefit from post-surgical treatment with SUBA-Cap to reduce the incidence of recurrence. So far, 97% of patients in the Phase 2b trial have avoided surgery while on SUBA-Cap. That's incredible pharmaco-economic incentive to get this drug on the market.

In June 2016, the U.S. FDA granted HedgePath's SUBA-Itraconazole Orphan Drug designation for the treatment of BCCNS (6). I believe this is a significant market opportunity for HedgePath. Roche's Erivedge costs roughly $10,800 per month (7), with the average patients on the drug for 7-8 months. Odomzo costs $10,400 per month (8). As noted above, neither of these drugs are approved for the treatment of BCCNS.

I believe that SUBA-Itraconazole is a share gainer in BCC and BCCNS given the drugs solid efficacy and substantially reduced toxicity / better tolerability than Erivedge and Odomzo. Market research suggests an effective price between $4,000 and $5,000 per month for SUBA-Cap. I believe the drug has pricing power higher than this, but even at only $5,000 per month, the market opportunity for HedgePath is $400 million in BCCNS. In BCC, assuming 25% of the patients might opt for adjunct pharmacotherapy pre- or post-surgery, the market is another $600 million.

Final Thoughts

HedgePath remains an attractive story for small-cap biotech investors. The ongoing Phase 2b trial appears to be succeeding, the market just doesn't know it yet. If management gains the further guidance it needs as a result of the Type C meeting response regarding a well-defined path to the NDA, it's off to the races for the stock.

I see the peak opportunity for SUBA-Cap at $1 billion, which includes the upside from use in locally advanced BCC, or other solid tumors where itraconazole has demonstrated utility such as lung cancer or prostate cancer. The current market value of the company is only $130 million and insiders own 80% of the company.

My valuation work shows the company should be worth $200 million right now, which equates to 55¢ per share, or roughly 60% above today's price. If approved in 2018 or 2019, I see the value of the company at $500 million, or $1.35 per share. That's nearly +300% upside over the next 18 months.