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CEOCFO Monthly Analyst |
RNA
Technology…to re-program the
human cell
Biotechnology & Drugs, Sector:
Healthcare, AMEX: HE Hemispherx Biopharma, Inc. 1617 JFK Boulevard, Suite 660
William A. Carter, MD Interview conducted by: Walter Bank
Co-Publisher Introduction and career history of Dr Carter. I've had about 15 years experience as Senior Scientific Officer and CEO of Hemispherx Biopharma. This is a Biopharmaceutical company, which is engaged in new drug development for chronic diseases, especially those of the immune system and those that are chronic viral disorders. Prior to that I was a Professor and Chairman at various medical universities in the United States, including John Hopkins, Duke University and the State University in Buffalo. Essentially I underwent a transition in my career going from a professorial profession to a person who is trying to translate technology into new medical products. During my academic career I did the first clinical studies on Interferon, which became the first broad based anti-viral compound to be certified by regulatory agencies worldwide. It is presently the treatment of choice for over 20 major diseases. Ceocfointerviews: What I would like you to do now is to explain your company, talk about it, the lead technology, and then touch on the lead drug and product that comes out of that. Dr. Carter: During my academic career, we received many millions of dollars from National Institute of Health Grants, which allowed us to study the human immune system. This was specifically those components of the human immune system that seemed to be critical for fighting off virus infections. During this academic phase, we discovered some components of the immune system, which in our belief, could be tweaked to enhance in a manner that could produce a very beneficial anti-viral effect. As I mentioned in my introductory, my pioneering work with Interferon already led to one medication presently sold under different trade names. That was a very exciting break through and very significant commercial success because Interferon today sells over billions of dollars in the US. I found certain limitations in the Interferon affect, which basically had to do with some side effects that were quite bothersome, especially with people who suffered from hepatitis and also the duration of benefits were limited. Many patients would respond, but many times, after six to nine months the viral disease would recur. We began to see if there could be a different way to achieve the Interferon type effect, which was safer and more durable. This came and this led to a development to Nucleic Acid Technology. It's specifically called RNA technology. This is a way of actually triggering the body to produce its own Interferon instead of giving it as a drug. About 15 years ago, my colleges and I began to undertake animal testing and of course have to file for patents on this subject matter. To date we have over 350 patents issued worldwide on this RNA technology. RNA technology itself is a lengthy word. What it really refers to is molecules that actually have the ability to program the cell to do something that the human cell would otherwise not be doing. The human cell is not on my computer. In the computer you have a hard drive, which has this analogy, like DNA in a cell, and then you have software programs in the computer. RNA drives software programs in the human cell, which is the technology that we have been developing. So essentially, we have been developing a series of software’s, which allows us to tweak the human immune system. This led to a series of drugs, including a drug named Ampligen, which is one of our flagship drugs being developed for chronic virus infections. Another drug called Polyadenur, which is being developed for hepatitis and then we developed a series of compounds that could be taken in a pill like form and we call them Oragensä. In fact, we ended up with 50 different drugs, which were basically behaving as software for diseased human cells, especially for the diseased human cells of the immune system. Then we had to identify diseased targets that we could test this scientific principal. The diseases we identified were Hepatitis B, HIV, and Chronic Fatigue Syndrome, which is associated with a Herpes Virus. For each of these disease categories we initiated a series of clinical tests. As you know, when you do clinical testing there are phases, such as Phase 1, Phase 2, and Phase 3, and if your phase 3 is successful then you are allowed to go forward and apply for what is called a "New Drug Application". We are basically in the process of conducting clinical tests across a broad base of disorders, including the disorders I just mentioned. One of the reasons we have chosen these disorders is not only because these disorders have a profound medical impact on the person suffering from it, but. they have a huge societal impact. These diseases drain the resources of society and therefore, create a massive drag on the medical economy. We felt if we could address these diseases we would not only address the patients involved, but also their families and society at large. With one of these disorders, Chronic Fatigue Syndrome, we have actually advanced to phase 3 level. We are conducting definitive and conclusive tests in this phase. In the US for example we are utilizing more than two-dozen medical centers across the country and special clinics that have been established where we provide our drug in that setting. Patients either receive that drug or a dummy drug called a placebo. That allows us to have the best scientific insight. Particularly, these studies last for about one to two years. We expect some time, in the coming months, to analyze the data from our phase 3 studies. We've done an earlier phase 3 study a few years ago and the results were quite encouraging to us and were published in a review journal. Ampligen is the drug I am referring to. This is for Chronic Fatigue Syndrome. Ceocfointerviews: Is that the drug, which is in Phase III? Dr. Carter: Exactly. Interestingly during the conduct of all these studies, many doctors and many patients came to us and said "we need the drug sooner, we cannot wait until you get full regulatory approval". Speaking with, and negotiating with regulatory agencies worldwide, we were able to devise jointly with the different governmental authorities, a program whereby on selected basis we could sell our drug to those who were very ill, even though this drug was not fully approved. This is called a cost recovery program. Right now there are people worldwide, including the United States and Canada, Great Britain, Africa, Belgium and Australia with new programs to begin in a few weeks or so, including France, and Italy. When patients with Chronic Fatigue Syndrome are extraordinarily ill and based on the support and encouragement of their physicians, these doctors will petition the regulatory agencies to contact us so that we may release that drug to those patients. This is done under certain defined conditions. Ceocfointerviews: How big is the market? Dr. Carter: The market for this disease worldwide is actually very large. It is estimated close to a million and a half people, remember that there is no approved drug for Chronic Fatigue Syndrome, unlike Hepatitis and HIV disease where we do have some approved drugs. This disease is one of the last major disease categories in which there is no specifically approved drug. The size of the market is not fully known because up until recently there was no single laboratory test, which was helpful in diagnosing the disease. This year, in collaboration with resources in Europe and in the United States, we published a major paper, which identified a new diagnostic test, which can identify up to 90% of the people with a severe form of this disease. All around the United States in around two dozen or so laboratories this diagnostic test is available to help physician and patient to see if they do have the severe form of this disease. Obviously we are working to further perfect the diagnostic test, which right now is considered a research test, but is rather quite encouraging. That's the direction of our program to try and make a contribution in a major disease category of the immune system, associated with chronic viral infections for which there is little to any presently available therapy. Ceocfointerviews: Are there any other companies that are studying the nucleic acid theory? Dr. Carter: There are other companiesthat are engaged in nucleic acid research but not in the area of Chronic Fatigue Syndrome. As far as I know they have not applied their work in Hepatitis. Some of the other companies have applied their nucleic acid technology in the area of HIV disease and with some success, especially with the treatment of the eye disease called retinitis. This occurs in people with HIV disease as their disease progresses. Some of the other Bio Tech companies have been able to take nucleic acid and put it directly in the eye and dramatically slow down the progress of the AIDS related eye infection. It is actually a very exciting technological area because what it does is; it goes directly to the root of the molecular problem in the cell. Anytime you can re-program a cell, you can potentially have it do things that it normally wouldn't do. This is like taking your personal computer, putting in a new program to do things that it otherwise wouldn't do without that information. Nucleic acids are the body's informational molecules. What we and some other companies are doing is trying to use these informational molecules to strengthen certain intrinsic capacities that our bodies have but for whatever reason are dormant. Sometimes we think actually that the viral infection itself deadens the immune system in a certain way. What we are trying to do is to try and restore that intrinsic capacity to fight disease. Ceocfointerviews: Can you explain your strategy for commercialization such as alliances, or partnering? Dr. Carter: That's a good question because it's always a challenge on how to introduce a new drug. We do have a number of strategic relationships in place that we think will assist us. In the United States we have a relationship with the largest provider of home health care in the US, this company is Gentiva, formally named Olsten Health Care. It's a company with over 300,000 pharmacists, nurses, doctors and health care practitioners. They specialize in a chronic disease category. How do you bring cost effective care to people who are being cared for years. We formed an alliance with them several years ago and it's been an excellent relationship. Basically, Gentiva has pharmacies all over the country and we provide them with a drug from our central location. They also have an excellent billing system with data collection. They also have nurses who can take the drug directly into the clinic or in some cases, directly into the home. This is very cost effective care. That's a strategic relationship that we have. We have recently signed a contract with a company called Biovail, which many consider to be the best emerging pharmaceutical company in Canada. With respect to Europe, we have certain letters of intent with Aventis Corporation, or actually the predecessor corporation, which was Rhone Poulenc, which was the largest pharmaceutical company in France, which recently merged with the largest company in Germany named Herckst. In addition to this we are exploring the area, which call e-commerce for medication. The reason for this is the following: new studies indicate that in chronic diseases, such as the diseases that we treat, that the patient makes the initial decision on treatment about 80% of the time. That is, if the patient has a lot of time to read the scientific literature. There is an article from The Economist about a year and a half ago that says that the patient is the dominant initial determiner in the decision-making and in introducing which drug the patient will go on. Now obviously ultimately the patient, the doctor and the health care provider all have to be in concert with respect to the treatment decision. The decision not only has to be medially correct, but it has to be economically correct for the insurance carrier and it has to meet the satisfaction of the consumer. The consumer will be taking these drugs for a long time. This is very different for example, for a patient who has had an acute heart attack and goes into the emergency room and puts himself or herself in the hands of the doctor. They don't necessarily have time to read, they need immediate attention. However, when you go into the chronic disease it's a whole different scenario. So what we are doing right now is exploring different ways to interact with doctors and patient groups, obviously in a very ethical and educational manner, so that they will be able to study the peer reviewed literature when the drug is fully marketed and contribute to the decision as to whether or not they will participate in this care. It's our view that in the chronic diseases, that the time of the sales representative calling on doctors is really passing. That is really going to be a very antiquated method of educating the end user of the drug. There are going to be novel methodologies of the drug and we think diseases that we are treating, especially Chronic Fatigue Syndrome is an ideal candidate disease in which drug education can be conducted at a very high ethical level and at the same time, a very effective level through e-commerce. Remember, Chronic Fatigue Syndrome used to be called the "Yuppie Flu” because it was a disease of college students and very professional driven people, such as doctors, lawyers, accountants, bankers, etc. Obviously we know that these are the people who are terribly computer literate and have computers in their homes. In fact, Chronic Fatigue Syndrome is a disease, which unfortunately severely debilitates the patient and often the patients are forced to remain at home. They are physically unable to leave their home until they are given some adequate treatment. These are people who are potentially eager and intellectually able to contribute to the decision concerning their care. It's a very exciting frontier on how drugs are promoted and how education occurs after marketing approval has been obtained. Ceocfointerviews: Being in Phase III, do you currently produce your own drug and is it currently produced in-house? Dr. Carter: Yes we do. Actually, we are a very unusual company in which we own a significant portion of the manufacturing facility. We do all the quality control and release of our own drug. We have strategic relationships that give us periodic access to world class manufacturing facilities, some of which we don't own, but we have relationships in place that allow us to operate within these facilities. This is known as the "man in the plant approach". When people ask if we have any other analogies to this, I think of one the best analogies of Boeing aircraft. Boeing builds aircraft's to what is called a systems management approach. The venders that are associated with Boeing are required to produce certain parts to certain specifications and when all of these parts are together and the timing is right, Boeing staff steps in and assembles the aircraft. This is systems management and Boeing has done a great job. What we are doing is applying a systems management approach to the production of a very intricate, very sophisticated drug technology. I think that we are the leader in the biotech sector in doing this. We are maintain control, just like Boeing maintains control over the building of aircraft, we are maintain control of the construction and release of our drug without owning all of the high priced real estate that is necessary to have in place to comply with federal drug laws. They are very strict. The other thing I think that we are an industry leader in is in disease management. We are not looking at the disease as the way to treat a patient, we are looking at a disease as a way to manage the impact on society, manage the impact on health care providers, and doing it in this way we are actually managing diseases as opposed to managing the treatment of an individual person. I think we have several innovative approaches as to how we move at these major untapped disease categories, largely, chronic fatigue syndrome. I think you and your readers know the global pharmaceutical market is undergoing a major consolidation with some of the ones I have mentioned earlier in our discussion and that's because the overhead is too large. You have huge detailed forces, you have these economic cost containment and the historical profitability of some of these companies are no longer there. But, the approach that we are using with disease management, we are leveraging ourselves with a systems management approach by going in with a drug that has the intrinsic capacity to rearrange the software of the human cell. These are truly exciting and cutting edge technologies. This is not only in technologies in drug development, but technologies on how you manage resources and new thoughts on how you efficiently introduce a drug into a community. Ceocfointerviews: That's real exciting and very interesting and I think that one of the interesting aspects is that your company, and when you start to commercialize your product, this will encompany you to do it in a cost effective way. Dr. Carter: Exactly. Ceocfointerviews: What I want you to touch upon is how this concept that you are working on right now with marketing as well as producing this drug, how it will affect you when you begin to commercialize. Obviously, you are going to need more drugs in the future. How will this help keep your costs down? Dr. Carter: The reason why the pharma sector was such an attractive investment vehicle over twenty or thirty years ago was that it was #1 a profession proof industry because everyone needs medication whether or not the economy is growing and #2 it was historically a very profitable industry. The first factor still remains, people still need medication whether or not the economy grows. It's still a recession proof industry but the challenges come in the area of profitability because there has been so much success in the pharmaceutical sector in so many diseases, Hypertension, Cancer, Infectious Disease, etc., yet there are many players on the same field. In this situation you get extreme competition for pricing. You then have to look back at what is your overhead. If you have thousands of detailed men out there or if you have large R&D staff or a small drug pipeline this creates a situation that is not inductive to earnings. This in turn has led to corporate merges. What we are trying to do is try to approach it from a different point of view. We are trying to say "hey you can still do the same thing but you can do it in a more effective manner." You can do it by leveraging your resources by strategic alliances to systems management and when the moment comes that you launch a product, explore some innovative ways of doing it. Engage your insurance carrier and your patient advisory groups at the beginning and are there not ways you can educate people that do not involve brochures and detail men knocking on doors? The obvious answer, is e-commerce, but is these disease categories that you are looking at suitable for e-commerce? The answer seems to be yes they are. When you look at the demographics of the type of patients that we are looking at, patients with chronic fatigue syndrome, obviously the vast majority is college educated and computer literate. When you look into the disease such as AIDS, we know there is a lot of education that goes on and advocacy of the community that goes on there with great force for the introduction of drugs. We are saying that the approach that Hemispherx is undertaking is maybe the next paradigm at how this sector grows. We are saying there is a new way to do it. Starting on how the drug is developed and ending up with how the drug is introduced in the market place and we think we have some very exciting ideas on how to do that. You may say, "What
does all this mean economically?" Well
you and I know that if you are efficient at every stage in the process, from raw materials
through clinical development, through product and production that efficiency in what you
are doing will lead to superior margins. That
is what we are really talking about here. Creating
a platform in which we can do something that is beneficial to patients, beneficial to
insurance carriers and beneficial to our employees and shareholders. Ceocfointerviews: Will this be applied to both of your drugs? Dr. Carter: Exactly. This is a working motive appraised, if you will, which goes through this organization. How do we know if any of this coming true? Well look at it this way, we are operating with 50 - 75 employees at any one time with operations and offices in Belgium, France, two locations in the United States, 25 medical centers in the US, programs in Great Britain, Australia, Africa and Canada. Now, do you think all of these people are running around on planes? No they are not doing this, they are sitting at their computer terminals, interacting with other people and it's called leverage, it's called systems management, it's called taking extremely bright, educated people, motivating them by stock options so they are willing to work seven days a week and they also have to believe in the dream. They have to believe that this is a technology that does more than just give them food on the table and the potential to accrue wealth. This is something that is important to society if and when it works. When you organize a team like that, you have the potential to do something that is pretty profound. Ceocfointerviews: When will you be able to take your drug to the market? Dr. Carter: We don't project specific dates, but it's public domain information that we have certain pending applications with the European Union, which is fifteen countries, and it's also public domain information that we have almost fully enrolled our Phase III trial which will be a confirmatory trial and will be a platform for FDA filings in the United States. It's also public domain information that we have been in this area for about 10-12 years and that is the approximate time to get a drug from new discovery phase one to phase three. I think that it is a very favorable constellation of the stars here. We don't predict a date or month, we simply say, let the informed or interested party look at the information and form their own decision based upon our ability to meet a series of benchmarks. The other thing I can tell you, and again it is public information, the company is actively buying its own stock in the market place. The company is not selling stock and the insiders are not selling stock, in fact, they have sold less than 100,000 shares in five years. You can see management in the company and the board of directors have substantial confidence in the company and its future. Ceocfointerviews: What are you plans for acquisitions? Dr. Carter: We are always looking around for potential acquisitions because we feel that we have insight on how to find diamonds in the rough that would be technologies to help us in our core defined areas. These can be privately held companies that are looking for cash capital and looking for professional talent to help them. In the last year or two we have made some very strategic investments. It turns out in two companies in the San Francisco Bay area, which is an attractive area for new technology. We have invested in a gene therapy company named Chronix Biomedical. We are very excited about that company. We have invested in another privately held company called California Institute for Molecular Medicine. This is developing very interesting Hepatitis C diagnostic technology and also has some very interesting therapeutic opportunities. We are not by the way going in as passive investors in any situation. Our purpose is to develop drugs for chronic diseases. Whenever we make an investment it's always when we have rights to any drug technologies that come out of it. We like to look at ourselves as a very active partner. We try to help our partners through the regulatory process. Obviously we will try to help our shareholders appreciate value. We may from time to time provide them with exit strategies but first and foremost, our desire is to try and expand our technology. Right now we are currently looking at other acquisitions. We are always looking at potential and logical acquisitions. We feel that we have experience on how to develop those technologies and potentially bring them to the market place. Ceocfointerviews: Do you think that your current R&D will produce any new drugs in house? Dr. Carter: Of course! The drugs we have produced such as Ampligen were produced through drug discovery that we have supported. If we are not so proud as to feel that if it is not invented here it is not useful to us. We feel that if a drug technology has intrinsic value, especially when it's complimentary to what we are doing, we are willing to congratulate the inventor and try to strike a deal on mutually favorable terms. We will continue to do that. We are looking for technology all of the time that addresses the issues on how do you find Hepatitis C sooner, how do you find Chronic Fatigue Syndrome sooner, and what are some innovative and definitive treatments. Innovative and definitive treatments, we mean something that is going to economically help society, insurance carriers and medically benefit patients. We are not looking at the “me too” approaches. Informational drugs and molecules such as the drug software we are talking about, this is not "me too" technology, this is cutting edge, 21st century technology, this is the same technology that is being used to clone animals, etc. This is powerful technology. We believe this is the new technology for this century. Antibiotic technology drove us through the 1950's and 60's and the protein technologies were what drove us through the 1980's to 2000. These were fascinating and economically important technologies, but the new drug technologies are, for the most part, going to be nucleic acid basis. The buzz words such as gene therapy, human genome, human gene therapy, etc. all of these depend on nucleic acid. That is where we are and that is where we hope to get some exciting drugs over the final goal line. Ceocfointerviews: Do you have the cash and/or the credit for all of this? Dr. Carter: Yes we do. We have a very attractive situation where we have approximately 45- 50 million dollars of options that are either held by the public or by insiders in the company with options to buy stock. There is a steady stream of exercises of these options, which is getting the company income for operations, and also we are able to be under the regulatory environment to sell drugs, which I mentioned to you under certain terms and conditions. We have an income stream from the cost recovery sales on the one hand and this is complimented by the options to buy the underlying common shares and this produces further income for the company. We have actually been able, over the last several years to raise over $100 million dollars in cash without having to obtain an investment banker. We believe very much in scientific publication because that is where all of this eventually turns on authentic scientific technology. We would have been able to raise capital and relatively non-delusive matters and by approaches that would certainly make us the envy of many if not all of the thirteen hundred companies that represent the so-called bio-pharmaceutical sector in North America. About 400 of these companies are publicly traded. Ceocfointerviews: What does your current burn rate look like? Dr. Carter: I would encourage your readers to look directly at our regulatory filings, which can be found on Edgar and also found on the company website where the full regulatory filings are. I think there was a recent filing in the range of approximately $300,000 a month and that's very low for this company at this stage of development. This is because we have income from sales; we are highly leveraged in our systems management approach. We're just a lean and mean organization. Companies that are trying to do 50% of what we do typically may have negative cash flow rates of two - three million dollars a month. We are operating as a very lean and highly effective organization. Again it is a unique paradigm. It's coming in with systems management; it's taking a small team of people on leveraging ourselves on strategic relationships. The fact that we can accomplish this is evidence that it is working. Ceocfointerviews: With our readers being in the investment community, is there any thought that you would like to leave them with Dr. Carter: I think that the thought is the following, that the bio-pharma sector is going to fundamentally change human history within this century and certainly within the next ten or twenty years. Many, but not all of these bio-pharmaceutical companies are going to become household names in the next five to ten years and what a reader should do is look at the companies as where they are in clinical development, how they are using their resources, what is the relationship between the money they use and the scientific and regulatory progress that they make. Are the diseases that they are looking at, are they diseases that really need to do innovation for? Are they diseases that we can improve on, that are already good? Examples would be hypertensive drugs, infectious disease, bacteria, etc. If you notice, none of these areas are areas that Hemispherx are working. We are trying to cut a new path into some diseases that have grossly under met needs. We are trying to do it in a highly effective way. We are trying to introduce a new paradigm as products can be efficiently commercialized. Those are really things that investors should look at in a sector. Those are things that I look at. Scientific technology is fascinating, but Nobel prizes don't yield valuable stock. You have to look at the path between drug development and potential marketing, how efficiently is it done and is this product really needed, and is this product going to be purchased? So those are the critical issues. I think that this is a terribly important sector and one that certainly many investors should consider having a percentage of stock holdings in. |
