We have added Pharmion and GPC Biotech AG (GPC) to our evaluated company list and created pipeline valuation models for each. We have also added revenue models for satraplatin in prostate cancer, breast cancer and non-small cell lung cancer (NSCLC).

GPC is headquartered in Germany and has wholly owned U.S. subsidiary sites in Waltham, Massachusetts and Princeton, New Jersey. GPC’s American Depository Shares (ADSs) trade on the Nasdaq, however, only a small number of ADSs trade each day. Pharmion is headquartered in Boulder, CO. and recently licensed satraplatin from GPC in Europe, Turkey, the Middle East, Australia and New Zealand, while GPC retained rights to the North American market and all other territories.

Pharmion provided an upfront payment and future clinical development will be conducted jointly by the two companies. Pharmion will pay GPC milestones related to EMEA approvals for all of satraplatin’s indications. GPC will also receive royalties on sales of satraplatin in Pharmion's territories at rates of 26 to 30 percent on annual sales up to $500 million, and 34 percent on annual sales over $500 million. Pharmion and GPC Biotech will lead regulatory and commercial activities in their respective territories.

While satraplatin is GPC’s only advanced program, Pharmion has two approved drugs, Thalomid and Vidaza, which provided over $200 million in 2005 sales for Pharmion. However, these face significant future competition in multiple myeloma and myelodysplastic syndrome (MDS), making satraplatin an important drug for both Pharmion and GPC. We feel satraplatin has an above average likelihood of FDA approval (LOA) and, while it faces significant challenges, has the potential to be an important asset for both companies as they advance additional programs.

Despite satraplatin’s promise in prostate cancer, the companies face considerable hurdles to unlocking value from the drug due to patent expiry issues. Currently, satraplatin’s compound and medical use U.S. patents expire in 2008 and 2010, respectively, and in 2009 in most other countries. We expect the companies to seek an extension in the U.S. under the Hatch-Waxman act for the medical use patent, potentially extending its life by five years (there is similar legislation in EU and Japan for patent extensions). Because of the lengthy development process satraplatin went through, we are currently modeling for a five year extension.

Since the area of prostate cancer in which satraplatin is being studied is relatively small, the drug is going to need to be successful in additional indications in order for the companies to recognize significant value from the drug. We are very concerned about this, as even in the best case scenario, satraplatin’s value in other indications will be greatly hampered by the short life in the market while on-patent.

Satraplatin

Satraplatin is an orally administered platinum based chemotherapy agent. It was originally developed at Johnson Matthey, Inc. and then by Bristol-Myers, where its positive effect on hormone refractory prostate cancer (HRPC) was discovered. Because the HRPC market is small compared to other oncology settings, and the drug was given orally (which previously did not have favorable reimbursement characteristics), BMS stopped its involvement in the development of the drug. Johnson Matthey then licensed the drug to Spectrum Pharmaceuticals, who in turn sold the drug to GPC to avoid bankruptcy. Spectrum is entitled to future milestone payments and worldwide royalties which we have modeled at 10%.

Currently there are three platinum chemotherapy agents on the market: cisplatin, carboplatin and Eloxatin. Cisplatin and carboplatin are both off-patent, leaving Eloxatin as the only non-generic platinum compound currently marketed. Eloxatin is primarily used in colorectal cancer, where it generated $1.9 billion in 2005 sales for Sanofi-Aventis. Cisplatin and carboplatin are commonly used in numerous other cancer settings, typically in combination with other chemotherapy agents.

Satraplatin is currently in the midst of a phase III study (“SPARC”) for second-line HRPC. The drug had originally shown a statistically significant result in progression free survival (PFS) for front-line HRPC, but to ease the regulatory hurdle GPC initiated the phase III study in second-line patients where there are little or no other treatments. By aiming for approval in second-line HRPC, GPC avoided being compared to Taxotere in first-line and was also able to have the primary end-point be PFS, rather than overall survival. Satraplatin will also avoid potential future competition from immunotherapies currently in development such as Provenge (Dendreon) and GVAX (Cell Genesys).

To date no other platinum compounds are used in prostate cancer. One advantage satraplatin has over other platinum chemotherapies is that the other agents typically have significant renal toxicity associated with them and HRPC patients are usually renally impaired. The results are being studied by an independent data monitoring board (DMB), which has analyzed safety in the trial three times to date and reported no significant toxicity problems.

Our current likelihood of approval (LOA) for satraplatin in prostate cancer is 3% above average and we predict satraplatin will achieve 60% peak penetration in second-line HRPC (Eloxatin has similar share in colorectal cancer). Assuming the medical use patent extension is granted, we are projecting peak U.S. revenue for satraplatin in prostate cancer of $263.4 million in 2012, with peak worldwide revenues of $448.1 million the same year.

While the second-line HRPC market is relatively small, it will be a valuable revenue source for GPC and Pharmion while satraplatin undergoes further studies in larger indications such as breast cancer and NSCLC. The generic platinum agents are already widely used in combination with other chemotherapies in these indications, so an important aspect of future trials will be demonstrating satraplatin’s non-inferior efficacy, along with its improved safety profile and ease of use as an oral agent. Currently we are not modeling significant penetration into these indications until more advanced data shows a clear benefit over other platinum chemotherapies.

Satraplatin is also being studied in combination with radiation therapy, a setting where other chemotherapy agents have not traditionally been used because of the different safety measures associated with the combination of radiation therapy and IV chemotherapy. With over one million people receiving radiation as a cancer treatment, this is potentially a very exciting area for future satraplatin use.

Satraplatin Catalysts

Satraplatin has been granted Fast Track status. GPC initiated a rolling NDA in December of 2005 and expects to complete the submission in the second half of 2006. The DMB will have its first look at satraplatin’s efficacy as a second-line HRPC treatment within the current quarter. While the trial is not powered to show statistically significant efficacy at the interim analysis, full top-line results are then due in the second half of 2006. Should these results be positive, GPC and Pharmion plan on filing for EU approval in early 2007. GPC also plans on initiating additional trials in other oncology settings and in combination with radiation therapy.

Thalomid

Thalomid (Thalidomide) was first developed by a German company, Chemie Grunenthal, and was approved for use in Germany in 1957 as a sedative to treat insomnia and nausea associated with pregnancy. Thalomid eventually gained approval in more than 20 other European countries, Canada, and Africa. While being reviewed by the FDA in the US for marketing approval, Thalomid was withdrawn worldwide in 1961 when it was discovered to cause serious and often fatal teratogenic effects. Fetuses exposed to Thalomid were typically born with phycomelia which manifested as hands and feet attached to shortened or non-existent limbs.

Despite its worldwide ban, a few years later reports surfaced of improved symptoms in patients with leprosy who were taking Thalomid as a sedative. These observations led to the discovery of Thalomid’s anti-inflammatory effects. Further clinical evaluation of the drug in this setting led to the 1998 FDA approval of Thalomid for the treatment of erythema nodosum leprosum (ENL), an inflammatory condition associated with leprosy. With the reintroduction of Thalomid back onto the market, the FDA imposed restrictions on Thalomid’s use to prevent more birth defects. Doctors, pharmacists, and patients must be registered with Celgene’s S.T.E.P.S. (System for Thalomid Education and Prescribing Safety) program in order to prescribe or use Thalomid.

While Thalomid has not yet been approved for multiple myeloma (MM), there has been considerable off-label usage in this indication. Thalomid has been evaluated in combination with numerous agents typically used in MM including Alkeran (Melphalan), Dexamethasone and Velcade (Bortezomib). A plethora of studies were presented at the American Society of Hematology (ASH) meeting in December 2004 and collectively, these presentations verified Thalomid’s efficacy in MM. While toxicity is a concern with Thalomid, it is generally manageable.

Pharmion is responsible for selling Thalomid in Europe, where it receives 76.5% of revenues. While Thalomid has been widely used off-label as a front-line treatment for multiple myeloma in the U.S., the prior negative experience with Thalomid in Europe has never been fully remedied, and as a result Thalomid use in Europe has been limited to second and third-line multiple myeloma. In Europe it is only used on a compassionate basis, which requires government approval and costs significantly less than in the U.S. ($7,500 vs. $30,000).

Pharmion’s main push for Thalomid will be to gain approval for front-line multiple myeloma in the EU, thereby allowing for much greater adoption beyond the compassionate use label and, most likely, a significant price increase. Pharmion expects to submit an MAA by the first quarter of 2007. Thalomid has yet to meaningfully penetrate the front-line setting in Europe, as it has in the U.S., and while we expect an EMEA approval to increase its penetration in front-line MM, we feel the degree will always be more limited than in the U.S. We also expect Thalomid will lose most of the share it has in the second and third-line settings to Revlimid. While we currently model a decline in future Thalomid European second and third-line market share, we expect the revenue losses to be offset by price increases and first-line expansion in 2008.

Vidaza

In May 2004, the FDA approved Vidaza as the first pharmaceutical treatment for MDS. Vidaza is a pyrimidine analog that demethylates DNA. In MDS as well as in other cancers, the hypermethylation of DNA results in the inhibition of “suppressor genes”, genes involved in the regulation of cell differentiation and proliferation. The inhibition of these suppressor genes results in the halted maturation and unregulated proliferation of these cells. Vidaza has been shown to reverse this DNA hypermethylation.

FDA approval of Vidaza was based on results from a pivotal, randomized, open labeled, controlled phase III study in 172 evaluable patients from all 5 FAB subtypes. Patients were randomized to receive either supportive care or Vidaza plus supportive care. An overall response rate of 15.7% was observed in the Vidaza-treated group compared to no response in the control group. Response was seen in all 5 subtypes of MDS. A median time to death or leukemic transformation of 21 months in the Vidaza treated group compared to the 13 months in supportive care was also observed. Thus, Vidaza showed superiority to supportive care and delayed death or the onset of leukemia in all subtypes of MDS patients.

Vidaza was approved in May 2004 for all MDS subtypes, although it is primarily used in high- risk patients. Therefore, the potential market is smaller for Vidaza than for drugs such as Revlimid and Telintra which will be used in the larger, low-risk group of patients. We expect Vidaza revenues to decline as newer therapies such as Dacogen and Revlimid come to market. For a more detailed look at MDS, please see our MDS indication report.

Early Stage Development Programs

Both Pharmion and GPC have other early stage development programs, which are important to each company’s future, as satraplatin will only be on-patent until 2015 in the U.S. in the best case scenario. In January 2006, Pharmion Corporation and MethylGene announced a license and collaboration agreement for the research, development and commercialization of MethylGene's histone deacetylase (HDAC) inhibitors in North America, Europe, Middle East and certain other markets. This collaboration includes MGCD0103, which is currently in early clinical studies for MDS, other hematologic cancers and solid tumors.

In early 2005, GPC initiated human clinical testing with its monoclonal antibody 1D09C3. 1D09C3 is the company’s first internal research program to advance into human trials. 1D09C3 has shown anticancer activity in several pre-clinical animal models of various lymphomas and leukemias.

COMPANY MODELS We have added company models for both Pharmion and GPC Biotech AG.

Pharmion
With future declines in Vidaza revenue and regulatory uncertainty for Thalomid in Europe, Pharmion has committed its future to the development of satraplatin and MGCD0103. As a result, Pharmion has taken on a significant increase in its cost structure, projecting a 90% increase in R&D expenditures in 2006 over 2005. Unfortunately for Pharmion, potential significant revenues from these new products are years down the road. We are very concerned that the money spent by Pharmion on satraplatin will not materialize into significant future returns -- even in the best case scenario, the patent life of the drug will last until 2015 and we currently expect approvals beyond prostate cancer in 2010 at the earliest.

Because satraplatin’s future is limited, an added importance is placed on MGCD0103, which is too early in development to place much value to. As such, we currently value Pharmion’s 5 and 10-year pipeline at $9.06/share and $12.87/share and expect Pharmion will need to raise $150-$250 million in additional capital after 2006, as the company will not be profitable again until the 2009-2010 timeframe.

GPC Biotech AG
While Pharmion may have a more robust product portfolio, we believe a better play on satraplatin is GPC, although its stock is thinly traded in the U.S. and has reached what we consider to be a fair valuation. We project the company to reach profitability in 2010 and currently value its 5 and 10 year pipeline at $19.19/share and $7.08/share. We predict GPC will need to raise an additional $125-$175 million to fund the marketing and continued development of satraplatin. With satraplatin’s limited future, GPC will need to advance 1D09C3 along in clinical development to maintain market value. Nevertheless, satraplatin's approval will be an exciting milestone for the company.