Welcome back class to part 3 of our Clinical Trials 101. When it comes to healthcare and life sciences investing there is one area where investors should take notice and that is research and clinical trials.  An understanding of how the trial process works, important bodies and terminology is useful investing information in this unique sector.

In the first of our series on Clinical Trials 101 we looked at what exactly are clinical trials, the three different trial stages, protocol and key organisations.

In Part 2 we looked at the review and drug approval proof process and how to spot a company which has a good chance of actually getting their drug to market and passing the hallowed Phase III or pivotal trial status.

Now in our Part 3 before of our final part on ASX companies undertaking later stage trials we continue on the theme of getting a drug to market, looking at the stats of chances of success and learn why even the experts don’t always know just how well a biotech will perform.

Holy grail of getting a drug to market

Dimerix (ASX:DMX)  is undertaking a Phase 3 trial for its lead product DMX-200 in the study of rare kidney disease Focal Segmental  Glomerulosclerosis  (FSGS). DMX CEO Dr Nina Webster understands the difficulties in getting a drug to market.

“These are general numbers for the industry but if you have a candidate you want to take to a Phase 1 trial you have a 10% chance it will make it to market so nine out of 10 will fail,” Webster told Stockhead.

“If you get to Phase 2 you have about a 27% chance of success and if you get to Phase 3 you’re at 54% chance of success and if you get to the end of your Phase 3 you’ve got a 90% chance of success.

Webster said by getting to a Phase 3 trial you have significantly de-risked.

“It’s a high risk and high reward sector so if you have two companies both valued at $50 million but one is in Phase 3 and the other in Phase 1 which is the company more likely to get there?” Webster asks.

“It will be the Phase 3 because they’ve already got efficacy and safety data and if a company has an open IND, which typically they will for a global study, they have demonstrated you have sufficient safety to support your drug.

“That is quite different to doing Phase 1 and Phase 2 studies in just Australia under the Clinical Trials Approval (CTA) schemes where requirements for your safety studies are a bit lower.”

High hurdles sees more device companies

Our guest lecturer Bioshares analyst Mark Pachacz said the sheer difficulty of developing new drugs and getting a drug to market has seen a shift to more device companies on the ASX.

“The ASX probably has a lot more device companies nowadays because of how difficult it is to develop new drugs,” he said.

“The hurdles are really, really high and you might argue they are a little bit too high in cases and it is really challenging.

“But when you do it properly like Clinuvel you can build a very lucrative company.”

Clinuvel (ASX:CUV)  describe themselves as “pioneers of photomedicine and the family of melanocortin peptides”.   CUV’s lead therapy, SCENESSE (afamelanotide 16mg), is approved for commercial distribution in Europe, the USA, Israel and Australia as the world’s first systemic photoprotective drug for the prevention of phototoxicity (anaphylactoid reactions and burns) in adult patients with erythropoietic protoporphyria (EPP).

“With device companies the hurdles to get to market are lower and costs are less with less onerous trials but securing market penetration is a lot more challenging,” Pachacz said.

Why experts even find picking biotechs hard

Even for the experts like Pachacz, picking a biotech which is going to achieve the holy grail can be hard.

“Either a company is a screaming buy, a sell or somewhere in the middle,” he said.

“Quite often companies will just sit in that somewhere in the middle.”

“If you look at Neuren everyone is just liking it right now and then you have companies where investors just don’t like them and then you have companies in the middle doing everything right but people are still a bit unsure and the market still hasn’t quite accepted what they are doing.”

Neuren Pharmaceuticals (ASX:NEU) recently announced the US Food and Drug Administration (FDA) has accepted for review a New Drug Application (NDA) of  trofinetide for the treatment of Rett syndrome, that was submitted by its US partner Acadia Pharmaceuticals (Nasdaq: ACAD).

Pachacz said for the companies it’s all about earning the confidence of investors.

“If you look at Telix Pharmaceuticals (ASX: TLX) which is in Phase 3, it’s really been able to get the confidence of investors and no difficulty in raising funds and its share price has been going up and up so it’s is now about a $1.7 billion company and if it needs to raise more money it can do so without as much dilution,” he said.

He said Telix has ventured into a new area of radiopharmaceuticals, which uses targeted radiation rather than chemical inhibition or activation to  treat cancer.

“In this sector even after 23 years I still say I don’t know but other times it just looks really clear,” he said.

“I look at a company like Pharmaxis (ASX:PXS)  at the moment and think it just looks really cheap given the stage that they are at.”

Markets can be brutal so back in 2013 PXS was facing an uncertain future after one of its key drugs Bronchitol failed to reach the targets needed for it to be submitted for regulatory approval.

Shares in Pharmaxis plunged 52.4% when it was announced its year-long Phase 3 study of 485 patients with bronchiectasis, a lung disease, recorded a statistically insignificant fall in exacerbation rates.

In a positive turnaround story PXS was able to regroup and get FDA approval for Bronchitol as a treatment for cystic fibrosis, to help clear mucus from the lungs.

He said PXS have also got a couple of other programs in Phase 1/2 trials, but the market tends to not like them because of their history.

“They have some really intelligent investors on their share registry from Hong Kong and the US and excellent studies underway that could potentially deliver billion dollar assets,” he said.

“It’s one of those that looks really good to me, but companies will sit in that holding pattern where investors are still making up their mind because it is a field that can be difficult to analyse.

“Once they reach a critical point no one wants to miss out, so they start to pay too much for it.”

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.

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