An Interesting Bio Play in the Blood Disorder Niche

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Thousands of Americans suffer from a rare and painful disease every year. This inherited disease is called Hereditary Angioedema, or HAE for short. Its most effective treatment is about to become more convenient than ever, and the company that makes this possible could reap rich rewards.

There are only five approved drugs for the disease: SC injections Kalbitor from Dyax (NASDAQ: DYAX) and Firazyr from Shire Plc (NASDAQ: SHPG), and IV injections Berinert from CSL LimitedCinryze from ViroPharma (NASDAQ: VPHM) and Ruconest from Biovitrum. Among these all, the Cinryze IV injection is considered the most effective, comprising 60% of the total HAE market by sales.

Subcutaneous versus Intravenous

You may have noticed that I have mentioned two types of injections here: the SC, or subcutaneous, and the IV, or intravenous. Patients can inject themselves with SC treatments just under the skin, but a doctor or a trained nurse must inject IV solutions into a patient's vein. The difference lies in ease and promptness of administering. When you are having an attack, most people would prefer immediate relief as opposed to a visit to a hospital.

Until recently ViroPharma's Cinryze, although the most popular of the HAE drugs, did not have an SC option. So many patients who suffer from the disease were opting for other options, despite wanting Cinryze, just because they did not want to suffer through half an hour of excruciating pain before they reached a hospital for their Cinryze IV injection.

With a new SC injection of Cinryze being developed by Halozyme (NASDAQ: HALO)
, all that is about to change.

Using a proprietary technology that makes it easy to inject drugs subcutaneously, Halozyme is about to change the whole landscape for Cinryze. Halozyme's Cinryze SC injection has successfully passed Phase II trials, and we should see the drug in the market very, very soon. Given the fact that Cinryze is the most popular HAE drug by a large margin, it is logical to assume that its SC version will be very popular, too.

The Cinryze advantage

Cinryze is approved in the US and Europe, and is about to be approved in Japan as well. The drug has proved to be safe and effective in early and severe stages of HAE attacks. During the first quarter of 2013, Cinryze reported sales of $97 million, up by 44% compared to $67 million last year.

The HAE market is growing at a CAGR of 16.5%. At this rate, the market will expand to $385 million by 2019. Even without an SC option, Cinryze will be worth about $250 million in 2019 if it retains its market share.

I see very little chance of the drug failing Phase III trials. First, the technology used by Halozyme, known as ENHANZE, is proving itself to be very foolproof, as seen by the number of technology licensing partnerships between Halozyme and other biotechs. Second, Cinryze is widely used, approved, and tested. The combination has little chance of being any less successful than either of its ingredients.

Now, assume that at least half the people (20% of the market) that use other drugs at present do so because they prefer an SC injection. Once Halozyme can offer the market an SC option for Cinryze, we can conclude that Cinryze's market will grow by another 20%. That is another $80 million in 2019, and that will be entirely due to Halozyme's technology. This gives us a ballpark estimate of the worth of the technology and how much money Halozyme can make off of it.

Given that Halozyme only made $12 million in revenues in the first quarter of 2013, and suffered a net loss of $19 million, the Cinryze SC injection development should be nothing short of an windfall for the company. If all goes well, we are, in effect, looking at a small biotech that will transition from being a loss-making entity to one that makes money from technologies it has developed.

Competitive landscape

Cinryze currently competes with Kalbitor and Firazyr, both of which have an SC injection option. Already approved in the US, these two are awaiting approvals in Europe and Japan, which may affect Cinryze's market share.

Kalbitor from Dyax can be used to manage sudden attacks of HAE, but it is not a permanent treatment measure for patients 16 years or older. In the first quarter ended March 31, 2013, Kalbitor net sales were $8.6 million, up by 8% compared to $8.0 million last year.

The Firazyr SC injection from Shire is used to treat acute attacks of HAE in patients 18 years or older. The medicine has shown success in the treatment of acute HAE attacks. In the first quarter ended in March 31, 2013, Firazyr showed significant growth in sales by 112% to $41.7 million due to higher sales in the US market. Right now, Firazyr SC is the closest competitor to Cinryze, although the latter leads by a margin of $60 million, or about 35%.

Conclusion

Good drugs are rare and costly, and Cinryze's IV injection, although cumbersome as a delivery mode, has been the most successful if you go by sales figures. Halozyme's SC injection will jump right into this playing field with a simpler delivery mode for this very successful drug. Just on the basis of this product alone - to say nothing of its very strong pipeline - I will recommend Halozyme as a stock worth considering.


Dr. Kanak Kanti De has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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