How A Kidney Drug Almost Torpedoed Concert Pharma’s IPO
[Updated, 4/27/14, 10:49 am ET] Drug development is a humbling thing. Hard as you might try, the numbers show that 90 percent of the time, you’ll fail. What if the signs of such a failure were to emerge, of all times, when you’re pitching an IPO? That’s just the situation that Concert Pharmaceuticals confronted last summer, and it almost derailed the company’s attempt to go public.
Spoiler alert: Concert wound up pulling off its IPO in February of this year, pricing at the top of its range and pulling in a total of about $75 million. But today the Lexington, MA-based biotech (NASDAQ: CNCE) is unveiling details about the study that could have tanked the deal—a Phase 2 trial of a drug intended to slow kidney damage in patients with diabetes. That molecule, CTP-499, is the most advanced of Concert’s drug candidates, and the company’s first shot at proving in a large trial that one of its wholly-owned programs can deliver.
The results, at first blush, don’t look good. The study didn’t hit its pre-specified main goal, which was to show that patients who took CTP-499 for 24 weeks had better numbers on a measure of kidney damage, the urinary albumin to creatinine ratio (UACR), than patients who were dosed with a placebo. Yet to hear Concert executives talk today, CTP-499 still has a bright future and a reasonable chance of succeeding in a big Phase 3 study. Concert is pointing to the fact that patients taking CTP-499 for 48 weeks had better measures of serum creatinine—a waste product that builds up when damaged kidneys fail to filter it from the blood—compared to the placebo group. And data on two other biomarkers indicate the drug might protect the kidneys from scarring, according to Concert.
Concert CEO Roger Tung (pictured above) argues those secondary data are actually more important. A big effect on serum creatinine would be a statistic that the FDA would value more highly than UACR, Tung says.
“UACR measures tissue damage, but it doesn’t really measure the ability of the kidneys to filter blood, and that is functionally what you want your kidneys to do,” Tung says. “What we saw were unpromising results on a biomarker that’s probably not ultimately relevant, and longer term positive results on a measure of kidney function that we think really tells the story about the drug.”
These are, of course, the kind of sentiments that prompt sideways looks from investors all too familiar with biotech data spin. After all, if the serum creatinine measure is so important, why didn’t Concert make it the primary goal of its study in the first place? Meanwhile, why isn’t the drug affecting UACR levels the way Concert hoped? And can the company successfully run a new trial with different goals, and produce data that move the needle at the FDA enough to get the drug approved?
To begin to answer those questions, it helps to understand a bit about Concert’s history before and after the moment last August it saw the 24-week results from the CTP-499 trial—results that almost rendered the IPO dead on arrival.
Concert is built on the concept of taking existing drugs with proven safety profiles and selectively replacing a few of their hydrogen atoms with deuterium atoms to change how they’re metabolized by the body—making them, say, safer, more potent, or less liable to interact badly with other drugs.
The company was started up in 2006 by Tung, one of the scientists who left Merck in 1989 with Joshua Boger to start up Vertex Pharmaceuticals (NASDAQ: VRTX). The company raised its share of venture dollars, but hasn’t had to go back to its VCs for cash since 2008, as it has translated its deuterium-boosting techniques into partnership deals with the likes of GlaxoSmithKline (NYSE: GSK), Avanir Pharmaceuticals (NASDAQ: AVNR), Jazz Pharmaceuticals (NASDAQ: JAZZ), and, most recently, Celgene (NASDAQ: CELG).
Still, Concert had always intended to develop its own drugs as well, and had been using the partnership dollars to push CTP-499 through clinical trials—that is, until the IPO window swung wide open last year and gave the company another option.
At the time, Concert was awaiting the first readout from its Phase 2 trial of CTP-499. And Tung says Concert looked at it as a low-risk program. After all, CTP-499 is based on a byproduct of pentoxifylline, an old drug used to increase blood flow to the arms and legs that Tung says has been shown in the past to lower patients’ UACR levels. CTP-499 had also shown some protective effects on the kidneys in preclinical studies, making it appear an even safer bet as a lead drug, he says.
By the late spring of 2013, with partnerships in place and its mid-stage trial underway for CTP-499, Concert, like many other biotechs, was charging towards an IPO. The company began discussions with buy-side investors, was working with a team of bankers, and began drafting its IPO prospectus. “All systems were go,” Tung says.
But in August, on the verge of finalizing its documents, Concert got its 24-week results of CTP-499 earlier than expected, and they were alarmingly bad. The drug had showed no positive effects—“none, zero,” Tung says—on UACR. Executives were stunned. Concert realized with that blotch on its record it would have no shot to go public, and pulled the offering. Though it still had a reasonable amount of cash, Tung says, the company was probably going to need to raise more money one way or another within the next six months to a year—a raise it definitely didn’t want to attempt just coming off of a failed trial.
So Concert pivoted. It had just begun an early trial of a second wholly-owned drug in its pipeline, CTP-354, for spasticity associated with multiple sclerosis and spinal cord injury. Even though the program appeared riskier—unlike CTP-499, this drug candidate was based on a substance that hadn’t been tested in humans before—Tung’s idea was that if CTP-354 could show early signs that it could get into the central nervous system without the side effects that have bogged down similar prospective drugs, then Concert might be able to go public after all.
Luckily for Concert, according to Tung, CTP-354 gave Concert what it was looking for. The study, Tung says, showed that CTP-354 was reaching the right receptors in patients’ brains in “very high levels,” without side effects. Because of that, the drug—which “wasn’t on the radar” when Concert began meeting with investors—was now the centerpiece of Concert’s new IPO pitch.
All the while, despite the disastrous early findings, Concert kept the CTP-499 program going into the second 24-week testing period—even though there were some people within the company who wanted to kill it.
“This is not my first time around,” Tung says. “Every drug that I’ve worked on that’s made it to market has been near death one or more times, so as unpleasant, and frankly shocking, as that result was, when I looked at the data I just felt like there was enough there to warrant the investment.”
One thing Tung says he saw was new data from some of the patients in the study who had been on CTP-499 for longer periods of time—36 or 48 weeks—indicating that the drug might be beginning to slow the rate at which creatinine built up in the blood.
What’s more, Tung says that the widely held belief in industry that there is a correlation between UACR and kidney function was debunked recently in certain publications—after Concert already started its CTP-499 trial.
These combined factors gave Concert hope—and the ability to still pitch CTP-499 to investors, even if the drug was no longer its main attraction in the IPO.
“We were able to tell them, look, we have a failed primary endpoint on something that doesn’t measure really what Phase 3 is going to have to measure—it’s a surrogate of a surrogate if you will,” Tung says. “But the thing that is more important, the ability to affect kidney function, appears to be there with this compound.”
[Updated with IPO date, current stock price] So Concert, after months in limbo, finally jumped into the IPO queue in January. It had been able to keep its syndicate of investment banks together despite all the trouble, and filed its S-1, pitching CTP-354, its partnerships, and the maybe-not-dead-after-all CTP-499. Those, combined with a little bit of good timing—this was prior to the big biotech market correction that’s since dragged down a few IPOs—enabled the company to price on the top of its $12 to $14 per share range on Feb. 13, and sell a million more shares than it originally planned. Concert raised about $75 million in its debut, and pocketed another $8.5 million when its underwriters used their right to buy more stock. (Shares closed on Friday at $8.90 apiece.) Crisis averted, as Concert now has enough cash to get it through the next few years, Tung says.
“You’ve got to raise money when you can raise money and we’ve lived through this as a management team, over the past couple of decades, we recognized that this is about taking advantage when you can take advantage,” Tung says.
So what about today’s CTP-499 data makes Concert think it has another opportunity it can take advantage of? Concert is hanging its hat on three main findings.
First there’s the impact on serum creatinine levels. The 65 patients who got CTP-499 for 48 weeks saw their serum creatinine levels increase by an average of 0.13 milligrams per deciliter, compared to a 0.21 mg/dl increase for the 58 patients who got a placebo. That’s a 38 percent difference, though the result was not statistically significant.
What was significant—in a statistical sense and, likely, a strategic one—was the finding that six of the patients on placebo saw their serum creatinine levels spike more than 50 percent over 48 weeks, compared to just one patient on CTP-499.
In addition to the creatinine findings, the study produced some data that hint that CTP-499 doesn’t work the way the company thought it did. Since pentoxifylline has anti-inflammatory properties, Concert expected CTP-499 would as well. (Inflammation is thought to play a role in diabetic kidney disease.) Instead, the Phase 2 data suggest that the drug tamps down fibrosis, a tissue scarring process that, left unchecked, progressively impairs kidney function.
Indeed, Concert saw a statistically significant difference between the two patient groups in two biomarkers of fibrosis—urinary fibronectin (52 percent less in the CTP-499 group) and plasma collagen IV (18 percent less)—after 48 weeks of treatment.
Tung says that these results provided a potential explanation for why patients didn’t see any significant positive effects after 24 weeks of treatment with CTP-499: since fibrosis is a more gradual process than inflammation, detecting the benefits of a treatment that affected it would take longer.
So do all those numbers add up to a molecule with the potential to gain approval from the FDA? Tung says the agency has been very vocal about “lowering the bar” for approval of drugs that can slow potential kidney failure. Recently, for example, the agency came to a written agreement with Research Triangle Park, NC-based NephroGenex (NASDAQ: NGX) on a study design that includes the 50 percent serum creatinine increase measure as one of the primary endpoints. Historically, the bar has been set at 100 percent, so this is a good sign for Concert—both because it has already shown CTP-499 can significantly reduce the number of patients reaching the 50 percent milestone, and because using the 100 percent standard would almost certainly require a longer trial.
Concert might also be able to speed its next trial of CTP-499 by focusing on patients with more damage to their kidneys at the outset. Sicker patients’ kidney function tends to deteriorate more quickly—meaning Concert could get a faster and clearer signal of whether the drug is working.
Those are “mights” and “ifs,” of course, and it will be a while before Concert has new clinical data on CTP-499; the company hasn’t yet sat down with the FDA to discuss a Phase 3 study of the drug. But even if CTP-499 never makes it to market, Concert has at least shown it can take a punch.
“I’ve been in this field for over a quarter of a century. You’re going to get luck—some of it’s going to be good, some of it’s going to be bad,” Tung says. “What we strive to do is give ourselves the opportunity to weather the bad times by having multiple shots on goal, a team with the type of grit and determination to stick through the bad times, and to force success to happen.”