Multiple sclerosis therapy lures some investors

By BRETT BRUNE
Copyright 2006 Houston Chronicle

David McWilliams is convinced PharmaFrontiers will be able to create a cost-competitive individualized therapy for people with multiple sclerosis.

But McWilliams knows he won't be able to reach this ambitious goal if the personalized medicine firm's 33 employees continue to labor in obscurity.

Having recently raised $23 million from new investors, mostly to pay for the trials of its MS product, PharmaFrontiers hopes to change that, to reach a place in the sun: the Nasdaq national market that is home to many of the best-known tech stocks.

Today, members of its new board will take steps to make that leap. They are expected to change the company name to Opexa Therapeutics and try to raise the value of the stock with a 1-for-10 reverse stock split.

Can this company, based in The Woodlands, get there from here?

PharmaFrontiers' shares closed Wednesday at 77 cents, up 2 cents in the OTC Bulletin Board — the domain of the less traded.

The thinking is that with fewer shares, each one will be worth much more.

After the company reduces its total shares from 66 million to 6.6 million, its stock must settle at $5 or more per share for the company to qualify for the Nasdaq national market.

It will need the continued support of investors to finance the rounds of testing ahead for its approach to treating MS.

Stock analysts have not voiced any opinion on PharmaFrontiers' — or Opexa's — chances. Just six months ago, its shares, which were worth more than $51 million as of the close of trading Wednesday, had a total value of $15 million.

'Fire with fire'

Dr. Robert Fox, medical director of the Mellen Center for Multiple Sclerosis at the Cleveland Clinic Foundation, said the approach by PharmaFrontiers — trying to vaccinate against specific cells it believes are "bad actors," or key mechanisms of the autoimmune disease — is "novel."

"It's fighting fire with fire," said Fox, who noted he has no ties to any company exploring vaccines for MS. "You can teach the immune system to destroy part of itself."

But, he said, while it's clear that the vaccine can "reduce the number of the cells thought to be the bad actors, the key aspect is whether those cells really are bad actors in this disease."

Dr. Clyde Markowitz, director of the MS Center in the University of Pennsylvania Health System, called PharmaFrontiers' T-cell vaccination strategy "very interesting, because basically you're tailoring the immune effect to the individual patient, hoping the patient's own immune system will develop regulatory immune cells that will shut down the response to the inflammatory cells."

Markowitz, who has no financial ties to PharmaFrontiers, said T-cell therapy works in mice used in MS therapy experiments. "The question is: Will it work in humans?"

Paul Frison, who became an outside director when PharmaFrontiers bought Opexa Pharmaceuticals in 2004, said the infusion of capital gives PharmaFrontiers a real chance to be a "more viable organization" with a "much more marketable stock." He is not a member of the new board meeting today.

Product was acquired

PharmaFrontiers picked up the MS product when it acquired the old Opexa.

"We got some new investors who were really sold on the potential," Frison, who is also CEO of the Houston Technology Center, said. He was referring to the Special Situations Fund of New York, SF Capital in San Francisco and Magnetar from Chicago. "We'll see what happens now."

Another investor is the Albert and Margaret Alkek Foundation, a big donor to Baylor College of Medicine. The Alkek Foundation invested $2.5 million of the more than $5 million PharmaFrontiers collected recently from Houstonians, said Scott Seaman, who leads the foundation and now sits on PharmaFrontiers board.

"The T-cell technology originated at Baylor College of Medicine, with which the Alkek family has a pretty strong connection," Seaman said. "We also view it as a potential platform" for the treatment of other autoimmune diseases, such as rheumatoid arthritis. "We think personalized therapies are a transformational way of approaching medical treatment."

The Alkek investment was also a defensive move, to some degree. "We have tremendous research capabilities coming out of the Texas Medical Center," Seaman said. "Much of the money funding the commercialization of those discoveries comes from outside the city, and, resultingly, these companies get moved to other parts of the country."

PharmaFrontiers also is working on stem cell therapy for people with type I diabetes.

Seaman said the potential of reward for PharmaFrontiers "is consistent with a high-risk investment." He estimated current clinical trials for Tovaxin, the company's MS vaccine, could within two years point to the potential for the therapeutic approach, and that the therapy might be commercialized within five years.

Cost per patient

While Tovaxin still has a long way to go through the drug-review process, McWilliams estimates the price to each patient would likely be "in the current range of therapies," between $16,000 and $23,000 a year. Insurance firms typically cover today's therapies.

As PharmaFrontiers initiated the most recent human trials of Tovaxin last week, McWilliams met in San Francisco with more potential investors and investment bankers, seeking financing.

That money could be used for additional trials of Tovaxin.

One of those contacted in San Francisco was Joe Balagot at Merriman Curhan Ford, who was involved in IPOs at two other Houston biotechs, Lexicon Genetics and Tanox.

"It's an interesting company" with "interesting data from early clinical studies that supports moving the product forward," Balagot said. If Tovaxin works, "the market is huge."

Dr. Jennifer Northrop of the Lone Star Chapter of the National MS Society said PharmaFrontiers is addressing an essential challenge: how to "target and tease out" causes of MS in individuals.

"We're finding more and more that MS is not a single disease," Northrop said, noting that about 400,000 people in the U.S. have some form of MS. "So the question is: Can we find different therapies we can tailor to individuals?

"It's not going to be one-drug-fits-all anymore."

McWilliams acknowledges PharmaFrontiers' stock saw some dark days earlier this year.

"We dipped way down" to 44 cents a share because "people weren't confident we could raise the money to continue our clinical program. Once we eliminated that financial risk by raising that $23 million, ... the stock price rebounded.

"Now," he said, "the data we get out of the FDA clinical trials will determine where that value will go."

brett.brune@chron.com

http://www.chron.com/disp/story.mpl/health/3970664.html