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CEOCFO CEOCFO Monthly Analyst |
"To print this page go to file and left
click on print" Formulation Science Specialty Company
Healthcare Nastech
Pharmaceutical Company Inc. Steven C. Quay, M.D.,
Ph.D. Interview conducted by: EchoGen, an ultrasound contrast agent
approved for sale in Europe and awaiting FDA approval, was invented by Dr. Quay and is
indicated for the diagnosis of cardiovascular disease using echocardiography. In 1997, he was awarded the Ernst & Young
Entrepreneur of the Year Award for the Northwest. In 1996, Dr. Quay filed
patents for the nasal oxytocin-evoked mammary aspirate specimen (NOEMASTM) test, which
formed the basis for founding Atossa Healthcare, Inc., a company focused on women’s
health care products. Nastech
acquired Atossa in August 2000, and Dr. Quay assumed the positions of Chairman, President,
and CEO. In 1997, Dr. Quay was
awarded the Dean's Research Award upon graduation from the University of Michigan Medical
School, where he also received an M.A. and Ph.D. in Biological Chemistry (in 1974 and
1975, respectively). He did post-graduate
research in the chemistry department at Massachusetts Institute of Technology under Nobel
Laureate H. Gobind Khorana, and received his residency training at the Massachusetts
General Hospital, Harvard Medical School, from 1977 to 1980. From 1980 to 1986 he was a faculty member at the
Stanford University School of Medicine
where, in addition to his research and clinical duties, he served on the medical school
admission's committee and on the Faculty Senate. From
1988 to 1991 he was Associate Professor, School of Pharmacy, The University of Kentucky. Dr. Quay has
authored more than 100 papers in diagnostic imaging, oncology and biochemistry. He is a member of numerous professional societies,
including the American Society of Biochemistry and Molecular Biology, the Society of
Magnetic Resonance in Medicine, the American Society for Echocardiology, and the American
Institute for Ultrasound in Medicine. From
1995 to 1998, he was the industrial representative to the FDA Advisory Panel for
Radiological Products, the committee that oversees radiological machines, such as
ultrasound machines, MRI machines, and mammography equipment. CEOCFOinterviews: Analysts who follow Nastech describe you as a Formulation Science specialty company. What is formulation science and how does it differ from traditional drug delivery? Dr. Quay: Formulation science is what we call
“drug delivery plus”. The
“plus” involves applying a sophisticated understanding of the particular disease
being addressed so that the safety and efficacy benefits of the drug are maximized. Traditional drug delivery has been about finding
alternative routes of administration without regard to the particular disease condition. “Drug delivery
plus” also involves proprietary technologies, that we have developed at Nastech to
enhance the safety and efficacy of nasal drug delivery.
More specifically, we’ve identified drug-like molecules called
enhancers, or excipients, that enable drugs to pass through the nasal mucosa and into the
bloodstream or central nervous system in order to treat a disease or condition. CEOCFOinterviews:
What are the advantages of nasal drug delivery, and why hasn’t this been done before?
Dr.
Quay: The
key advantages of nasal drug delivery are lower dosing, rapid relief (or time to onset of
action), improved safety and efficacy, and
convenience, since no injection is required. For
example, our interim data from our Phase II clinical trials with intranasal apomorphine
for erectile dysfunction indicate 80% efficacy within 15 minutes at much lower doses than
with sublingual apomorphine, and we’ve had minimal side effects. In short, we believe that nasal drug delivery has
the potential to provide improved therapeutic outcomes for millions of patients. Today
there are approximately 10 nasally delivered drugs on the market, including our own
NascobalŪ nasal gel for Vitamin B12 deficiencies. Most
of these nasal drugs treat local nasal conditions, such as allergies or congestion. The big difference between many of these products
and our proprietary formulations is that our products do not cause nasal irritation, so
they are well suited to chronic drug therapy. The
other important difference is that the excipients used in the past were either inert,
which is to say that they had no physiological effect, or were detergents or surfactants,
which irritate the nasal mucosa in a manner that causes a nose bleed that essentially
allows a drug to enter the bloodstream. What’s
different about Nastech first of all is that we have developed a very sophisticated
understanding of the physiology and biology involved in the opening and closing of tight
junctions, which open and close naturally to allow paracellular transport of molecules
between the cells that comprise the nasal mucosa. Secondly,
we’ve identified drug-like molecules that cause tight junctions to open briefly in a
manner that is “with the body”, which is to say that we are mimicking the
natural processes that occur on a regular basis as a normal part of human nasal
physiology. Thus, we can use our proprietary
excipients to safely, effectively, and reversibly open the tight junctions in order to
allow the active drug to pass through the nasal mucosa, and we can deliver the drug to
certain areas of the nose by controlling the droplet size so that we can deliver drugs to
the bloodstream or directly into the CNS, depending on the disease condition. What’s really exciting is that we believe we
can utilize this technology to deliver large molecule drugs, such as proteins and
peptides, that are efficacious but must be delivered by injection because they cannot be
taken orally. Earlier in 2001, for example,
we demonstrated the ability to deliver therapeutic levels of Interferon alpha, a large
molecule approved for certain cancers and hepatitis B and C, into the blood and we showed
that we can deliver apomorphine, a small molecule drug, into the central nervous system. These are important scientific advances, which
were recently highlighted in a keynote address by an independent third party in front of
5,000 scientists at a major scientific conference.
We’re also in the process of aggressively filing patents in this
area, which we think will accrue enormous value to the shareholders over time. Lastly,
we’re targeting billion-dollar opportunities to convert injected drugs into nasal
dosage forms. We identified 10 of these last
year. The first to go into the clinic was
Interferon alpha, followed by somatropin, or recombinant human growth hormone, which is
a large molecule, injection-only drug indicated for the treatment of short stature in
children. As you can imagine, daily
injections are not something children or their caregivers look forward to. We hope to have a nasal spray of somatropin that
would be very convenient and easy to use for this particular product and patient
population. We
expect to initiate clinical studies on a third large molecule this year, and the process
of initiating Phase I clinical trials with other large molecule drugs will continue
through next year. CEOCFOinterviews:
How does nasal drug delivery differ from other alternative delivery methods, such as
pulmonary, which has received so much attention on Wall Street? Dr.
Quay: Nasal
drug delivery has been validated by the introduction of more than 10 FDA approved drugs,
including our very own Nascobal™, a nasal gel for treatment of pernicious anemia. To date, no pulmonary drugs have been approved by
the FDA. In addition, we believe that nasal
drug delivery has distinct advantages over pulmonary delivery. It’s important to keep in mind that the
nasal mucosa has been designed by nature to allow for transport of molecules, whereas the
pulmonary alveolar tissue of the lungs have not. Once
again, we believe our approach goes with nature, not against it. CEOCFOinterviews:
Speaking of patents, you are working with a number of drugs, some of which are patented. How is it that you are able to take someone
else’s patented product and develop it for nasal administration? Can you bring somebody’s patented, injected
product to market in a nasal dosage form without a license? Dr.
Quay: In
the case of a patented drug, we cannot take that drug and commercialize a nasal dosage
form without a license from the patent holder, although we can use the product for
research purposes without a license. Our
partnering and commercialization strategy takes this into account. One
of the criteria that must be met when we are considering whether to initiate a research
program to convert an injected product into a nasal dosage form is that there must be
multiple innovators. That way, we can take
our Phase I data on each of the innovators’ products to each of the innovators and
then seek to do an exclusive deal with one of them, effectively creating an auction-like
process. So while we can’t commercialize
a nasal dosage form of someone else’s patented product without a license from them,
they can’t move forward on a nasal dosage form without a license from us. For example, with Interferon alpha, there are
several different companies that own rights. With
growth hormone therapy, there are five different companies that own rights. Our plan is to demonstrate that our patented nasal formulation science processes can
make a product that is unique, with value added patient benefits, and which is
proprietary. Another
inducement for an innovator to work with Nastech on a nasal dosage form is to extend the
patent life of the drug. Let’s say that
someone’s injected drug is nearing the end of its patent life. Developing a nasal dosage form in collaboration
with Nastech is a very clever way to extend a company’s exclusivity and competitive
advantage in the marketplace for another 20 years. CEOCFOinterviews:
Do you have any nasally
administered products in the market presently? Dr.
Quay: Yes, as I mentioned before we have
Nascobal™, a Vitamin B12 nasal gel marketed by Schwartz Pharma for
treatment of pernicious anemia. We also had a very successful collaboration with
Bristol Myers Squibb for intranasal StadolŪNS™, a product for migraine pain, which
they took to the market back in 1986. Before
the patent expired this past August, StadolŪNS™ did about $100 million dollars a
year in sales, with royalties paid to Nastech. Although
our royalties have stopped because of the patent expiration, it does demonstrate the potential success of nasal
drug delivery. CEOCFOinterviews:
So all of your marketing is done through your partners? Dr. Quay: At
this point, yes. That is our near to medium
term business plan. CEOCFOinterviews:
In the longer term,
would you like to market your products yourself? Dr. Quay: When
you look beyond the next five years, the answer is yes.
The next logical step for a company like Nastech would be to move beyond
taking other people’s products and developing a royalty base business, to taking our
own products to market and garnering the greater margins that accrue from marketing and
sales activities. CEOCFOinterviews:
Regulatory hurdles are different here in the U.S. than those in Europe. Do
you see entering European markets first as far as marketing your products yourself? Dr. Quay: I
think we will have regulatory approvals earlier in Europe than in the US because FDA hurdles tend to be greater. However, if we ultimately decide to market our
products, I think we would enter the U.S. market first, followed by the other significant
markets, specifically, Europe and Japan. CEOCFOinterviews:
Where do you conduct
your R&D and manufacturing? Dr. Quay: We
have two facilities in close proximity to each other on Long Island: a manufacturing
facility with 10,000 square feet of space and a state-of-the-art R&D facility with
28,000 square feet of space. CEOCFOinterviews:
Do you see yourself expanding these facilities or adding new facilities as the company grows? Dr. Quay: For now our manufacturing and R&D facilities are
quite adequate. We can make over 5 million
units in our manufacturing facility with a single shift and we can go to multiple shifts
if necessary, so we have good capacity there. In
the R&D labs we have good space for the work that we are doing. CEOCFOinterviews:
Do you have the funds to continue and expand your R&D as vigorously as you are doing? Dr. Quay: Yes. In October we completed a private placement
managed by Dain Rauscher Wessels that grossed $5.8 million. The stock was placed with very
blue chip institutional investors. We were
very pleased to complete the transaction when we did, given the overall market
uncertainty. At the end of September we had $7.1 million in cash. So the raise brought us to about $12 million,
giving us ample resources to execute our
business plan through 2002. By the end of 2001, we believe we’ll
complete a deal for intranasal apomorphine. And
during the first half of 2002, we hope to complete our first pharmaceutical collaboration
for development and commercialization of a macromolecule.
Such collaborative arrangements will not only add liquidity to the balance
sheet, giving us a very comfortable financial position, they will also validate our
technology and our business strategy. CEOCFOinterviews:
I was reading earlier that after you merged your prior company, Atossa Healthcare, into
Nastech in August 2000 and assumed the position of Chairman, President, and CEO, you put a
new growth strategy into place. What is it
that you are doing differently that you feel will enhance shareholder value over the next
several years? Dr. Quay:
We are doing a lot of things differently. We’ve prioritized our research
programs, expanded our scientific and technology base, brought in the right kind of senior
scientific and management talent, including David Wormuth as SVP of Operations and Dilip
Worah as Chief Scientific Officer, and gotten a lot more aggressive with regard to the
company’s patent estate. During 2000,we
increased our budget for patent work ten-fold and retained a highly regarded patent firm
with a national reputation to do our patent work. Ours is a new concept for approaching
the rapid development of novel formulations involving natural pathways for intranasal
delivery, which provide a very valuable opportunity for the company and its shareholders. CEOCFOinterviews:
You have a five-year plan for the company. Does this include any acquisitions, joint
ventures or partnerships, other than the partnerships that you have today? Dr.
Quay: Our
near-to-medium-term plan is to license our intranasal products to pharmaceutical companies
in exchange for upfront payments, R&D funding, milestones and royalties. Take intranasal apomorphine, for example, which is doing very
well in phase II clinical trials for both male and female sexual dysfunction. Intranasal apomorphine is the next major
partnering opportunity for the company. You
mentioned joint ventures, you mentioned licensing arrangements. Even as we speak, I am working to conclude an
arrangement for our intranasal apomorphine that I believe will be very significant for the
company both in financial terms and in terms of validating the science and the business
strategy. We have great
technology and right business strategy to create a substantial return on investment for
our shareholders. While we have no plans to
make any acquisitions at this time, we might consider certain strategic mergers or
acquisitions down the road if it made sense and would add value. CEOCFOinterviews:
What makes this company unique? What are you
doing that is different from other companies developing nasal drugs? Dr. Quay: There are very few companies that focus on intranasal
drug delivery and none that I know of targeting tight junction proteins or using
sophisticated enhancers such as those developed by Nastech.
One of the things that differentiates us is that other companies make
nasal drug products mostly to treat some local nasal condition, be it allergies,
congestion, or those sort of things. We are
singular in that we are using the nasal route to administer drugs systemically into the
body and into the brain with the goal of treating major diseases affecting all different
parts of the body. We are using a very
sophisticated, physiological approach to this process, and we are aggressively filing
patents. Unlike most nasal sprays that use
detergents or surfactants that disrupt or damage the nasal mucosa in order to get a drug
into the bloodstream, we use proprietary enhancers that do not cause damage to the nasal
mucosal tissue, potentially making the drugs suitable for chronic, long-term use. The nasal mucosa has
some very specific pathways that exist by nature to allow fluids and cells to pass between
cells, through so-called tight junctions, under tight physiological control. What we are doing is discovering and designing pharmaceuticals that cause these pathways to open up briefly,
thereby allowing drugs to pass directly into the bloodstream or the brain, much in the
same way that nature allows cells or fluids to pass through these tight junctions under
the right conditions. So, we believe we are
unique in taking a very physiological, mechanistic approach to getting our drugs
delivered. In the past, the approach was
more a process of trying this or that chemical without a real concept of what was being
tested and why. Now we have a very systematic
and biochemistry based research approach, which we reported on recently at the annual
meeting of the American Association of Pharmaceutical Scientists, that has led to the
discovery of chemicals that work in a very reproducible manner. We think we own most of the intellectual property
in this arena and therefore we are in a unique position to take advantage of it. CEOCFOinterviews:
You have mentioned
several disease areas, among them cancer pain and sexual dysfunction. What about diabetic patients? Can you deliver insulin intranasally? Dr. Quay: One
of the questions we get is if insulin is one of the drugs that we can deliver nasally. It is a relatively small molecule and will fit
within the physical parameters of the drugs that we are testing. Insulin is attractive in some ways but it is
also problematic in others in the sense that it requires exquisite control of resulting
blood levels. Delivering too much insulin is
as bad for the patient as delivering too little. Insulin
has not been our first choice for a product to be delivered via nasal route and frankly,
the economics of insulin are not as attractive as certain other opportunities that we are
looking at. Insulin is something we are
thinking about and looking at but it is not on the top of our priority list. CEOCFOinterviews:
Other than the drugs you are now working with, what other areas would you move into? Dr. Quay: Last
year we identified ten FDA approved injectable drugs that collectively have twenty billion
dollars in annual sales. During 2001, we
initiated clinical trials with two of them, interferon alpha and somatropin, or growth
hormone. We
are planning to initiate clinical trials on a third one before the end of
the calendar year. We’ll be looking to
get the rest of them into the clinic, and also doing other things, for example, conducting
clinical studies to evaluate the delivery of drugs directly into the brain via the nasal
route. Direct delivery to the brain via
intranasal administration will allow us to explore new classes of drugs for brain diseases
such as Alzheimer’s and Parkison’s that physicians have not been able to use
before because the drugs can't get through the blood brain barrier when administered by
traditional routes of administration. There
is, in effect, no blood brain barrier for drugs delivered via the nasal route. In short, the nasal pathway provides a clear and
unique opportunity for treating brain diseases. CEOCFOinterviews:
That sounds like an exciting and innovative approach.
Alzheimer’s is a big issue now-a-days. Dr. Quay: We
were pleased to be co-sponsors of a symposium on November 7th at the Center for
Neurodegenerative Disease Research at the University of Pennsylvania, which focused on the opportunity of using nasal drug
delivery for treating Alzheimer’s and other brain diseases. Top thought leaders on Alzheimer’s disease
were there. At the symposium, we announced a new research partnership with the CNDR to
conduct in vivo and in vitro assessment of our proprietary,
intranasally delivered compounds for Alzheimer’s treatment. CEOCFOinterviews:
Some companies, when they get to the stage where they do their own marketing, outsource
some of the actual components of the business. Do
you envisage keeping everything internal? Dr. Quay: We
are very focused on formulation science, which is one of our core competencies. In
addition, we will participate in the manufacturing of our products. Manufacturing these products is relatively
straightforward and there are some very nice opportunities to manufacture nasal dosage
forms and make money on their manufacturing. Marketing
and sales, if and when we get to that, will be
internally driven. I'm not sure we would
outsource anything other than some of the back office kind of things that are required of
pharmaceutical companies. Those issues would
be explored at the appropriate time. CEOCFOinterviews: What kind of information are you providing on
your Web site? Dr. Quay: We
think the Web site at www.Nastech.com is a good starting point for getting an overview of
the company, its technology, the management team, and the product pipeline, which is
unusually broad and deep for a company our size. Investors
can review recent press releases and SEC filings. Hopefully,
a review of the information on the Web site
will prompt potential investors to call the company to get further information and
possibly make an investment decision. CEOCFOinterviews:
So for now it’s strictly used for informational purposes? Dr. Quay: Yes. CEOCFOinterviews:
Would you like to add anything for my readers? Dr. Quay: After
fifteen months of behind the scenes work, we have now set the stage for a new Nastech
involving novel science and exciting business opportunities. The next major business
opportunity is the intranasal apomorphine
deal, which will be fairly near term, and other opportunities next year as we take more
products into the clinic and begin to partner some of the large molecule drugs that are
already in clinical development. So it is a
most exciting time for the company, its employees, and the shareholders, and given our
valuation relative to many of the other drug delivery companies, it is a great time to
become an investor in Nastech. CEOCFOinterviews:
What do you say to a potential investor? Dr. Quay: We
have a very strong scientific base and patented technology.
We have compelling products that are low risk because the active ingredients
are already marketed as billion dollar opportunities. With our intranasal apomorphine, we
will address a multi billion-dollar business in sexual dysfunction with a licensing
opportunity in the near term that will validate the company’s science, technology,
and strategy for enhancing shareholder value. We
have a strong management team with
pharmaceutical experience and a track record of success.
And we have the financial resources to execute on our business plan. In short, we have all of the ingredients necessary
for future success. CEOCFOinterviews:
You joined Nastech last year. You put a
five-year plan in process and were faced with a lot of challenges to head this company. What motivated you? Dr. Quay: What motivated me in this case was the fact that this company overlapped with a clear personal goal that I had for myself a couple of years ago, which was to be involved with a company over the next ten to fifteen years that had the opportunity to develop a multitude of different drugs for many different diseases that affect millions of patients. I had just come from a very successful company that I had founded that was focused for nine years on one drug. That was one way to spend my life, but to spend the same amount of time at Nastech and be involved in the development of a dozen drugs, it was really the right step for me in my career. I have a background in medicine and I am very committed to developing new pharmaceuticals to help people. Nastech was an outstanding opportunity to use my talents effectively on behalf of patients and shareholders.
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