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NSCLC Indication Report - Update

August 31, 2006

We have revisited the non-small cell lung cancer (NSCLC) competitive landscape. As a result, we have updated our clinical evaluations and our revenue models to include several exciting new agents that have entered mid-to-late stage clinical development. These include ProMune, Sutent, Zactima and AMG 706.

FDA-Approved Drugs

Lung cancer is still the leading cause of cancer morbidity and mortality worldwide. For patients with advanced disease (Stage III and IV), chemotherapy remains the mainstay therapy. While chemotherapy is considered to be highly toxic with only modest benefits, it has recognized palliative benefits in addition to providing a slight improvement in overall survival. Recently, the FDA has approved 2 novel drugs that have added to the treatment options for patients with advanced NSCLC: Iressa (Gefitinib) and Tarceva (Erlotinib). Both drugs target the epidermal growth factor receptor (EGFR).

EGFR inhibitors

Both Iressa and Tarceva inhibit the EGFR tyrosine kinase that is necessary for the activity of EGFR (they are known as tyrosine kinase inhibitors or TKIs). Although Tarceva was the second TKI to be approved for NSCLC, its use has superseded that of Iressa. Unlike Iressa, Tarceva has demonstrated a clear survival benefit in 2nd and 3rd line patients in the overall NSCLC patient population. In contrast, Iressa has yet to demonstrate a survival benefit in the overall patient population.

Interestingly, the survival benefit with Tarceva treatment was only seen when Tarceva was given alone and not when Tarceva was given in combination with chemotherapy (the first 2 phase III studies of Tarceva plus chemotherapy, TRIBUTE and TALENT, failed to show a survival benefit in the Tarceva arms). Similarly, Iressa failed to show a survival benefit when combined with chemotherapy (INTACT-1 and INTACT-2 studies). Although it is not known why EGFR TKIs do not work when combined with chemotherapy, it has been hypothesized that chemotherapy may alter the expression of EGFR thus changing the susceptibility of the tumors to EGFR inhibitors.

While Iressa did not demonstrate a survival benefit in the overall patient population, it did show a survival benefit in a subset of patients, namely those who are female, of Asian origin, and never smoked. In Iressa’s phase III study ISEL (Iressa Survival Evaluation in Lung cancer), Iressa was found to exert little survival benefits over placebo in the overall patient population (5.6 versus 5.1 months). However, in patients with EGFR mutations, the overall survival was 8.9 months in the Iressa group compared to 6.1 months in the placebo group. These results were statistically significant.

Similarly, Tarceva has been shown to be more effective in patients who had never smoked (approximately 13% of lung cancers). In the failed TRIBUTE study which evaluated Tarceva in combination with the paclitaxel and carboplatin chemotherapy doublet (CP, a standard 1st line regimen), the addition of Tarceva to CP was only found to have a survival benefit in patients who were never-smokers who had EGFR mutations (13% of patients in this study). These patients achieved an overall survival of 22.5 months compared to 10.1 months in the placebo arm. This survival benefit was seen even though Tarceva was given in combination with chemotherapy.

In a large SLCG (Spanish Lung Cancer Group) study that was initiated to confirm the findings of TRIBUTE, of the 590 patients enrolled, 12.8% were found to have EGFR mutations. Similar to TRIBUTE, this ongoing study found that patients with EGFR mutations had a higher response rate and longer survival to Tarceva (given with chemotherapy) than patients without EGFR mutations. The overall survival in the wild-type EGFR group in this SLCG study was 10 months, while median survival has not yet been reached in the group with EGFR mutations.

Recent studies carried out to determine why these patients were more responsive to EGFR inhibitors found that certain mutations in the EGFR tyrosine kinase domain may increase EGFR susceptibility to inhibition by these TKIs. These mutations were found to increase growth factor signaling and were significantly associated with the adenocarcinoma histology, a history of no smoking and the female gender. Two of the most common of EGFR mutations in lung tumors that together account for up to 90% of EGFR mutations are those involving exon 19 (short-frame deletion) and those involving exon 21 (T to G point mutation). These two mutations increase EGFR susceptibility to inhibition by EGFR TKIs. However, not all EGFR mutations confer increased susceptibility to EGFR TKIs. Some reports have found other EGFR mutations that confer resistance to EGFR TKIs such as a point mutation at T790M (threonine to methionine at position 790). A mutation in the K-ras gene has also been linked to resistance to TKIs. In the SLCG study, 40% of patients with mutant EGFR did not respond to Tarceva. Therefore, more studies are needed to identify which EGFR mutations confer susceptibility and which confer resistance to anti-EGFR therapy.

Tarceva (Erlotinib; OSI Pharmaceuticals)

Based on results from the pivotal BR.21 study in which Tarceva was shown to significantly improve patient survival (4.7 months with placebo vs 6.7 months with monotherapy Tarceva), we maintain our expectation that Tarceva will continue to dominate 2nd line NSCLC. However, we also foresee Tarceva being used off-label in the front-line setting particularly in patients who have been identified with appropriate EGFR mutations or in patients who are ineligible for Avastin or chemotherapy (or both). Data recently presented at the American Society of Clinical Oncology (ASCO) meeting are likely to augment Tarceva’s off-label use in 1st line NSCLC. One phase II study showed that Tarceva can be safely and effectively combined with Avastin (in 2nd line patients) while a second study showed that single-agent Tarceva had activity in 1st line patients with good prognosis. Moreover, we expect the off-label use of Tarceva in 1st line NSCLC to grow with an increased understanding of EGFR mutations and as EGFR mutation assays become more routinely used.

A study that will greatly impact Tarceva’s potential in 1st line NSCLC is the recently initiated ATLAS study. This phase IIIb study is evaluating the addition of Tarceva to Avastin as maintenance therapy following induction with chemotherapy and Avastin in patients with non-squamous NSCLC. Positive study results should advance the use of Tarceva in combination with Avastin in 1st line patients. Top-line data from this study may be available in 2007, though it is more likely to be released in 2008.

Iressa (Gefitinib; AstraZeneca)

As mentioned above, while the ISEL study failed to show a survival benefit of Iressa over best supportive care in the overall patient population, Iressa was shown to be beneficial in a subset of patients. Therefore, while the use of Iressa will be minimal, we expect the small percentage of patients who have responded to Iressa to maintain Iressa therapy. Going forward, we expect Iressa to still be used in Japan and throughout Asia (where somatic mutations of EGFR appear to be 3 times more common than in the US and Europe). We expect minimal use of Iressa in the US.

Drugs In Clinical Development

Anti-EGFR agents

Erbitux (Cetuximab; ImClone Systems) - Phase III

Erbitux is a chimeric (human-mouse) monoclonal antibody that inhibits EGFR. Erbitux has been evaluated as a single agent and in combination with chemotherapy. In a phase II study in 2nd line patients, single-agent Erbitux produced a time-to-tumor progression (TTP) of 2.3 months and an overall survival of 8.1 months. In a separate phase II that evaluated whether Erbitux should be given concurrently with chemotherapy or given after chemotherapy, little differences were seen between the 2 regimens with median survival being 10.0 months in the concurrent arm and 9.0 months in the sequential arm. Since the study did not have a chemotherapy only arm, it is unclear as to whether Erbitux provided any additional benefits over chemotherapy alone. In the phase II LUCAS study, the addition of Erbitux to cisplatin and vinorelbine in 1st line NSCLC patients resulted in an improvement in the response rate, the progression-free survival (PFS) and overall survival, although none of these were statistically significant.

Erbitux is currently being evaluated in numerous phase III studies including a registrational trial called FLEX. FLEX is evaluating Erbitux in combination with standard chemotherapy compared to chemotherapy alone in 1st line NSCLC patients. The primary endpoint of the study is overall survival and top-line data from this study is expected before year end. Based on the modest benefits with Erbitux seen thus far, we are not optimistic for a positive trial outcome. Moreover, the second generation anti-EGFR monoclonal antibody to Erbitux, Vectibix (Panitumumab; please see below), did not show a significant benefit in response rate, TTP or overall survival when added to standard chemotherapy (carboplatin and paclitaxel) in 1st line NSCLC patients.

It remains unclear as to which patients are likely to respond to EGFR inhibition by monoclonal antibodies since unlike EGFR TKIs, EGFR mutations do not appear to predict responses to Erbitux. Therefore, more studies are likely to be needed to identify responsive patients should the FLEX study not meet its endpoint.

Vectibix (Panitumumab; Amgen) – Phase II

Vectibix is a fully human monoclonal antibody directed at the EGFR receptor. In a phase II study in which Vectibix was combined with carboplatin and paclitaxel in previously untreated NSCLC patients, the addition of Vectibix did not yield a superior TTP (the study’s primary endpoint) compared to chemotherapy alone. In addition, the study did not meet its secondary endpoints of response rate and overall survival. Vectibix is now being evaluated in combination with AMG 706 (please see below). However, given the disappointing results seen in the phase II study with CP, we do not foresee Vectibix competing well in NSCLC.

Anti-angiogenesis Agents

Avastin (Bevacizumab; Genentech) – BLA

Avastin is the first targeted therapy to demonstrate a significant improvement in patient survival in 1st line NSCLC. In the pivotal phase III study (E4599), Avastin, in combination with CP, increased the PFS from 4.5 months to 6.4 months and the overall survival from 10.2 months to 12.5 months. It is important to note that the study excluded patients with poor performance status, those with squamous NSCLC, those at risk of bleeding events and patients with brain metastases (due to the concern for intracranial hemorrhages). Based on these results, we expect Avastin to gain FDA approval in October 2006 and to become the standard treatment regimen for 1st line NSCLC in patients who do not have squamous NSCLC or those at risk of bleeding.

In the 2nd line setting, data from the phase II Avastin plus Tarceva combination showed that the Avastin plus chemotherapy arm had activity in these patients as did the Avastin plus Tarceva arm. The study also showed that the Avastin plus Tarceva combination was better tolerated than the Avastin plus chemotherapy regimen. Since 2nd line patients tend to be sicker, we foresee this combination of Avastin plus Tarceva enjoying some off-label use in the 2nd and subsequent line settings, particularly in patients who cannot tolerate chemotherapy. We also project some off-label use of this combination in the front-line setting, again in patients who are ineligible for or intolerant of chemotherapy.

Interestingly, a recent study in the medical journal The Oncologist (Dornbusch et. al., 2006) found that the overwhelming majority of medical oncologists who are aware of the E4599 trial results plan to use Avastin once Avastin becomes available and reimbursed. Indeed, the study found that 82% of these physicians plan to prescribe Avastin in 2nd and 3rd lines and in patients or drug combinations not defined by the E4599 study. Therefore, we not only expect Avastin to enjoy a wide adoption in the 1st line setting, we also expect Avastin to be used off-label in the 2nd and 3rd line settings (although VEGF TKIs, discussed below, will likely provide competition to Avastin when they come onto the market).

Newer tyrosine kinase inhibitors that target angiogenesis

Several TKIs that target VEGF are currently being evaluated in NSCLC. At ASCO 2006, phase II data on Nexavar, Sutent and Zactima showed that these agents have single-agent activity in NSCLC. All 3 agents were evaluated in patients with relapsed or refractory disease. Nexavar produced a PFS of 11.9 weeks and a median overall survival of 29.3 weeks, Sutent yielded a PFS of 11.3 weeks and overall survival of 29.3 weeks, while Zactima resulted in a PFS of 11.0 weeks with inconclusive survival data due to the study’s crossover design (patients went on to receive Iressa following progression on Zactima). Therefore these agents appear to have similar efficacy in NSCLC. Note that these agents appear to be comparable to Tarceva which, in a phase II study in a similar patient population, produced a PFS of 11.7 weeks and a survival of 29.5 weeks. However, these PFS and survival times are similar to that achieved with chemotherapy alone and therefore, these newer agents will need to be tested in a multidrug regimen (combined with chemotherapy or other targeted therapies) in order to demonstrate a superior survival benefit over the current standard of care (note that monotherapy Tarceva is now the standard of care in 2nd and 3rd line NSCLC).

Another commonality among these agents is the risk for hemorrhagic or bleeding events. Avastin is associated with an increase risk of hemorrhage-related deaths, which is also seen in phase II studies of Nexavar and Sutent. While bleeding events were not observed in the Zactima monotherapy study, they were noted in a phase II study of Zactima plus docetaxel. In contrast, Tarceva is not associated with an increased risk in hemorrhagic events. Taken together, it appears that the inhibition of VEGF (but not EGFR) results in an increased risk of hemorrhage and while this needs to be further defined, future trials of these agents will require careful monitoring for these events.

Nexavar (Sorafenib; Onyx) – Phase III

Nexavar is a dual tyrosine kinase inhibitor that targets the VEGF and the RAF kinase pathways. Both pathways are highly associated with tumor development and growth. Nexavar was recently approved for the treatment of renal cell cancer (RCC) and is currently in phase III studies for NSCLC. The phase III study is under a SPA and is evaluating the addition of Nexavar to carboplatin and paclitaxel compared to CP alone in previously untreated NSCLC patients. The study’s design is similar to that of the pivotal phase III Avastin study (E4599) in that patients will be given 6 cycles of chemotherapy with or without Nexavar followed by either Nexavar maintenance or placebo. The study’s primary endpoint is overall survival.

As noted above, single-agent Nexavar has shown similar efficacy to Tarceva and the newer TKIs in development. Therefore, the phase III study evaluating Nexavar in combination with chemotherapy is encouraging. However, we are concerned that this study did not exclude patients with squamous NSCLC and those at risk of bleeding given the risk of bleeding events seen in the monotherapy Nexavar phase II study (3 patients had epistaxis or acute hemorrhage and 1 patient died of pulmonary hemorrhage).

Based on Nexavar’s mechanism of action and its efficacy in RCC, we are cautiously optimistic for a positive outcome with this phase III study. However, we are concerned that the risk for hemorrhage may be high in this study with the study inclusion of patients with high-risk NSCLC histologies. In the E4599 Avastin trial, serious hemorrhage (grade 3 or more) occurred in 4.5% of patients. Therefore, we believe that if Nexavar can demonstrate efficacy and if serious hemorrhagic events were to occur at a rate of 5% or less, Nexavar could expect to compete with Avastin in the 1st line setting and would likely erode Avastin’s market share in this setting. Positive data is also likely to induce off-label use in 2nd and 3rd line settings, including in patients who have failed Avastin.

Zactima (ZD6474; AstraZeneca) – Phase III

Zactima is a novel tyrosine kinase inhibitor that has activity against both VEGF and EGFR signaling pathways. It is currently in phase III studies in combination with docetaxel in 2nd line patients. Phase II data recently presented at ASCO 2006 showed that Zactima has activity in second and third line NSCLC patients. In this phase II study comparing Zactima to Iressa, Zactima appeared to be more efficacious than Iressa, producing stronger response rates (45% vs 34%) and a longer PFS (11 weeks vs 8.1 weeks). Unfortunately, the study had a cross-over design in which patients switched to the opposite TKI after disease progression making overall survival data inconclusive.

Design of the phase III study was based on another phase II study. In this phase II study, two different doses of Zactima (100 and 300 mg) were given in combination with the chemotherapy drug docetaxel in 2nd line patients. The results showed that the addition of Zactima to docetaxel yielded superior results to docetaxel given alone, with the 100 mg dose of Zactima plus docetaxel being the most efficacious combination. This combination resulted in a PFS of 18.7 weeks compared to 12 weeks with docetaxel monotherapy, however, these results were not statistically significant. Overall survival data is still premature for this study. While the PFS data was not statistically significant, the results do show that the Zactima plus docetaxel combination is active in 2nd line NSCLC and may provide an important treatment option for these patients. Moreover, Zactima appears to be very well tolerated and adverse events were relatively mild. Although no hemorrhagic events were seen in the phase II Zactima monotherapy studies, some were observed in this combination study though none of these were fatal. Since the majority of adverse events were grade 1 and 2, we speculate that Zactima will be preferred by patients who are intolerant of the other targeted therapies (such as Avastin and Tarceva) as well as elderly patients or those with poor performance status. Importantly, Zactima is also being tested in 1st line NSCLC (in combination with CP), and this combination may help expand the drug’s use into the front-line setting.

Sutent (Sunitinib; Pfizer) - Phase II

Sutent is a TKI that inhibits the VEGF and platelet-derived growth factor (PDGF) signaling pathways. Similar to Nexavar, the drug was recently approved for the treatment of RCC. Sutent is currently in phase II studies for NSCLC. Data from the Sutent phase II monotherapy study showed that Sutent exhibits comparable activity to Tarceva, Nexavar and Zactima. Sutent is currently being evaluated in several phase II studies in various drug combinations including chemotherapy (CP in 1st line NSCLC) and Tarceva (in 2nd line NSCLC). While we believe that Sutent is likely to show a similar benefit to Nexavar and Zactima in these patients, Sutent’s lag in development is likely to hamper the drug’s market penetration.

Other agents in development

Telcyta (TLK286; Telik) – Phase III

Telcyta is a novel agent that is cleaved into two active fragments by the enzyme glutathione S-transferase P1-1 (GST P1-1). One of the active fragments reacts with cellular components such as RNA, DNA and leads to cell death, while the other fragment is thought to stay bound to GST P1-1, inactivating this detoxifying enzyme. Telcyta is currently being evaluated in a pivotal phase III study (ASSIST-2) in 3rd line NSCLC. ASSIST-2 was initiated under a SPA in 2004 and is comparing monotherapy Telcyta to monotherapy Iressa with the primary endpoint of overall survival. Enrollment for this study completed in May 2005 and top-line data are now expected in the 4th quarter of 2006, though the data were initially expected in the 2nd quarter. In 2005, the company indicated that it will release data from all 3 phase III studies of Telcyta (ASSIST-2 in NSCLC and ASSIST-1 and ASSIST-3 in ovarian cancer) together in order to facilitate its decision on how best to advance the Telcyta program (i.e. whether to file an NDA for one or both indications).

The design of ASSIST-2 was based on a phase II study in 51 patients with 2nd, 3rd, and 4th line NSCLC. This study showed that monotherapy Telcyta treatment resulted in a median survival of 9.0 months. In a similar phase II study of Tarceva monotherapy in 3rd and subsequent line patients, Tarceva resulted in a median survival of 8.5 months. Therefore, Telcyta monotherapy appears to possess a similar efficacy to Tarceva. While there are concerns that Iressa was used as the treatment control in ASSIST-2, at the time the study was initiated, Iressa was the standard of care in these patients. Moreover, since the study is under a SPA, we believe the study control is valid, although we view Iressa as more like a placebo control. We expect Iressa to produce a median survival of approximately 5.6 months (as seen in the ISEL). This survival time may be longer if more patients than expected have EGFR mutations that confer susceptibility to Iressa, although the risk of this is small because the study excluded patients with BAC, a subtype of adenocarcinomas that tends to be more responsive to EGFR TKIs.

While it is likely that Telcyta will produce a longer survival than Iressa, it is unlikely to be 9.0 months since the magnitude of effects seen in phase II studies are rarely seen in larger phase III studies. Therefore, while we expect that Telcyta will produce a longer survival than Iressa, we caution that the survival benefits may not be statistically significant. According to Telik, the number of events required for efficacy data analysis already occurred late in the first quarter of 2006. While the company had planned all along to collate and reveal data from all 3 ASSIST studies together, we are concerned that the data has already matured – yet the company is unwilling to reveal this study prior to the other studies completion.

Should ASSIST-2 not show a significant survival benefit over Iressa, we doubt Telik will file an NDA for NSCLC based on ASSIST-2. Telik is planning to initiate ASSIST-4, a phase III study that will evaluate Telcyta in combination with carboplatin and paclitaxel in 1st line NSCLC. Thus far, while Telcyta has demonstrated activity as a single-agent, it has demonstrated better efficacy when combined with chemotherapy (seen in both NSCLC and ovarian cancer studies). Therefore, we believe that ASSIST-4 is likely to yield positive results and will help expand Telcyta’s use in the 1st line setting. While we believe that the ASSIST-2 study has a 50-50 risk of failing to show a significantly superior survival benefit, we have modeled for a “best case” scenario in which Telcyta meets the study endpoint. However, if the study fails to meet its endpoint, it is unlikely to be approved before 2010 (in this case, approval is likely to come based on ASSIST-4 data).

ProMune (CPG 7909; Coley Pharmaceutical) – Phase III

ProMune is the first in a new class of drugs called Toll-like receptor 9 (TLR9) agonists. It is a CpG oligonucleotide that activates TLR9. TLR9 is a member of the Toll-like receptor family and is expressed on immune cells such as B cells, dendritic cells, and monocytes. A study evaluating the expression of TLR9 in lung cancer found a high level of TLR9 expression in the majority of lung cancer tissue specimens while only sporadically weak expression was seen in normal lung tissue. While the role of TLR9 in lung cancer has yet to be elucidated, activation of TLR9 is thought to stimulate the immune system to fight infection, or, in the case of cancer, fight cancer cells. Therefore, ProMune is designed to enhance the immune response to cancer cells (much as a cancer vaccine would, although ProMune is not a vaccine).

ProMune is currently being evaluated in 2 phase III studies in 1st line patients – one is evaluating ProMune in combination with CP while the other is evaluating ProMune in combination with gemcitabine and cisplatin. Both chemotherapy regimens are commonly used in the 1st line setting and both studies are under a SPA.

The design of these studies was based on a phase II study that showed that ProMune had activity when combined in chemotherapy in patients with NSCLC. In the phase II study, ProMune was combined with a chemotherapy doublet consisting of a taxane and a platinum. The study showed that the addition of ProMune to chemotherapy improved the response rate (37% vs 19%) and prolonged overall survival (11.7 months vs 6.8 months) although the results were not statistically significant. While these results are encouraging, demonstrating that ProMune provides an additive benefit, we are concerned by the relatively short survival in the chemotherapy only arm. Overall survival for first-line patients given chemotherapy typically ranges from 8 to 11 months. Encouragingly, ProMune is well tolerated and does not appear to exacerbate hematologic toxicities common with chemotherapy. Moreover, ProMune does not induce bleeding events and therefore may become a treatment option for patients at risk of these events, such as those with squamous NSCLC.

Overall, while we like the fact that ProMune provides a novel mechanism of action that may be of benefit in NSCLC, we are only cautiously optimistic that the phase III studies can meet their survival endpoints. Should the study results be positive, we project the drug to be used in combination with chemotherapy in patients ineligible for Avastin (those at risk of bleeding events).

AMG 706 (Amgen) – Phase II

AMG 706 is a novel multi-targeted TKI that inhibits the VEGF and PDGF signaling pathways. AMG 706 is being investigated as a monotherapy and in combination with other agents including Vectibix. Amgen indicated earlier this year that it had plans for a phase III study of AMG 706 in 1st line NSCLC patients however, these plans are currently on hold. The company announced in July that it is investigating some safety signals with AMG 706 (cholecystitis, or inflammation of the gall bladder, and enlargement of the gall bladder). Without efficacy data for this drug and given its potential for gallbladder toxicities, we are cautious of the potential for AMG 706.

Drug	Drug Molecule	Mechanism of Action	Trial	Trial Design	Line	Result
Tarceva	TKI	EGFR inhibition	BR.21	Tarceva vs placebo	2nd and 3rd	- Increased PFS (9.9wks vs 7.9wks) - Increased survival (6.7mo vs 4.7mo)
Iressa	TKI	EGFR inhibition	ISEL	Iressa vs best supportive care	3rd	- No significant improvement in survival in overall patient population (5.6mo vs 5.1mo)
Erbitux	mAb	EGFR inhibition	FLEX	Erbitux + chemo vs chemo alone	1st	- Initiated in 2004. Top-line data expected in 2H 2007.
Vectibix	mAb	EGFR inhibition	Phase II study	Vectibix + CP vs CP alone	1st	- No benefit in TTP (4.2mo for V+CP vs 5.3mo) - No benefit in survival (8.5mo vs 8.0mo)
Avastin	mAb	EGFR inhibition	E4599	Avastin + CP vs CP	1st	- Increased PFS (6.4mo vs 4.5mo) - Increased survival (12.5mo vs 10.2mo)
Tarceva + Avastin	TKI and mAb	EGFR and VEFR inhibition	ATLAS	Avastin + CP followed by Avastin + Tarceva vs Avastin + CP followed by Avastin + placebo	1st	- Recently initiated. Top-line results expected in 2008.
Nexavar	TKI	VEGF and RAF inhibition	Phase III study	CP ± Nexavar for 6 cycles, followed by Nexavar or placebo	1st	- Recently initiated. Top-line results expected in 2008.
Zactima	TKI	VEGF and EGFR inhibition	Phase III study	Zactima + docetaxel vs docetaxel	2nd	- Top-line results expected in 2008.
Sutent	TKI	VEGF and PDGF inhibition	Phase II study	Sutent only	2nd and 3rd	- Similar PFS and OS to Tarceva, Nexavar and Zactima.
Telcyta	Small molecule	GST P1-1 inhibition	ASSIST-2	Telcyta vs Iressa	3rd	- Initiated in 2004. Top-line results expected Q4 2006.
Telcyta	Small molecule	GST P1-1 inhibition	ASSIST-4	Telcyta + CP	1st	- Not yet initiated
ProMune	Oligo	TLR9 activation	Phase III - CP	ProMune + CP vs CP	1st	- Recently initiated. Top-line results expected in 2007/2008.
ProMune	Oligo	TLR9 activation	Phase III – GC	ProMune + GC vs GC	1st	- Recently initiated. Top-line results expected in 2007/2008.
AMG 706	TKI	VEGF and PDGF inhibition	Phase II study			- Currently on hold due to toxicity issues.
Abbreviations: TKI = tyrosine kinase inhibitor; mAb = monoclonal antibody; EGFR = epidermal growth factor; VEGF = vascular endothelial growth factor; PDGF = platelet derived growth factor; GST P1-1 = glutathione S-transferase; TLR9 = toll-like receptor 9; CP = carboplatin + paclitaxel; GC = gemcitabine + cisplatin.

MARKET UPDATE

Incidence and Percent Treated

The American Cancer Society predicts there will be approximately 172,500 cases of lung cancer in 2006 and that NSCLC accounts for 85% of all lung cancer cases. Approximately 75% of cases are stage III & IV when they are diagnosed and will be eligible for treatment with chemotherapy or targeted agents, leading to approximately 110,000 patients treated in 2006.

Percent eligible

To account for Avastin’s usage in only non-squamous cell NSCLC, we have chosen to split between the three sub-types of NSCLC: squamous cell carcinomas (25% - 30% of all lung cancers), adenocarcinomas (40% of lung cancers) and large-cell undifferentiated carcinomas (10% - 15% of lung cancers). Since NSCLC represents 85% of all lung cancer cases; squamous cell carcinomas, adenocarcinomas, and large-cell undifferentiated carcinomas comprise 35%, 47%, and 18% of NSCLC cases respectively.

Treatment lines

100% of patients are first line when they are diagnosed. Based on two studies looking at what percentage of patents received 2nd line treatment in NSCLC we have estimated 45% will progress to 2nd line. We also estimate that approximately a third of patients, or 15% of the total population, will then progress to subsequent lines.

DRUG REVENUE MODELS

Tarceva

We now project peak U.S. revenue for Tarceva in NSCLC of $793.7 million, down from $877.4 million.

Avastin

With competition from the new agents we are reducing our Avastin outlook. We now project peak U.S. revenue for Avastin in NSCLC of $2.7 billion, down from $3.2 billion.

Nexavar

Should Nexavar be approved, we expect the drug to erode some of Avastin’s share in the 1st line setting and also from Tarceva in the 2nd line setting. We now project peak U.S. revenues for Nexavar NSCLC of $721.5 million, up from $422.8 million.

Zactima

We have added a new Zactima for NSCLC model and expect the drug to be primarily used in the 2nd and 3rd lines. After 2012, pending positive data in combination with CP, we believe Zactima will enjoy a wider adoption 1st line setting. We are projecting peak U.S. revenue of $567.1 million.

Sutent

We have added a new Sutent for NSCLC model. Because Sutent is likely to come onto the market later than other VEGF TKIs, we expect its uptake to be somewhat limited in all the treatment lines. We are projecting peak U.S. revenue of $258.4 million.

Telcyta

Assuming a positive ASSIST-2 outcome, we expect Telcyta to enjoy wide adoption in the 3rd line setting. We then expect positive ASSIST-4 results to bolster Telcyta’s uptake in the 1st line setting in 2010. We now project peak U.S. revenue for Telcyta NSCLC of $472.2 million, down from $592.0 million.

ProMune

We have added a new ProMune in NSCLC model. We expect the drug to enjoy the widest adoption in the 2nd line setting due to the drug’s tolerability. We are fairly cautious on the drug’s prospects, however, and are limiting our share outlook until more data is available. We are projecting peak U.S. revenue of $287.2 million.

COMPANY UPDATES

Genentech (DNA)

With the reduction in Avastin revenue due to competition from newer angiogenesis TKIs, we are lowering our 5 and 10-year pipeline value for Genentech. We now value its 5 and 10-year pipeline at $86.81/share and $47.30/share, down from $93.91/share and $50.53/share.

OSI Pharmaceuticals (OSIP)

Based on the changes in Tarceva’s projected revenue, we now value OSI’s 5 and 10-year pipeline at $44.40/share and $33.11/share, down from $49.53/share and $37.15/share.

Onyx Pharmaceuticals (ONXX)

We now value Onyx’s 5 and 10-year pipeline value at $48.11/share and $45.90/share, up from $43.50/share and $37.15/share. We caution that NSCLC makes up a large part of Onyx’s valuation and in the event of a failed NSCLC trial we would value its 5 and 10-year pipeline at $17.53/share and $24.89/share.

Telik (TELK)

With the Telcyta revenue change and LOA adjustment, we now value Telik’s 5 and 10-year pipeline at $40.43/share and $23.06/share, down from $47.82/share and $30.57/share. Telik expects ASSIST 1-2-3 data to be available in the fourth quarter. If Telcyta can achieve statistical significance in the NSCLC survival end-point, the stock will react very favorably, as we feel the market is currently giving a small likelihood of success to the NSCLC indication. If ASSIST-2 fails, but ASSIST-1 and/or -3 are positive, we would value TELK’s 5 and 10-year pipeline at $21.85/share and $14.71/share.

Drug	Drug Molecule	Mechanism of Action	Trial	Trial Design	Line	Result
Tarceva	TKI	EGFR inhibition	BR.21	Tarceva vs placebo	2nd and 3rd	- Increased PFS (9.9wks vs 7.9wks) - Increased survival (6.7mo vs 4.7mo)
Iressa	TKI	EGFR inhibition	ISEL	Iressa vs best supportive care	3rd	- No significant improvement in survival in overall patient population (5.6mo vs 5.1mo)
Erbitux	mAb	EGFR inhibition	FLEX	Erbitux + chemo vs chemo alone	1st	- Initiated in 2004. Top-line data expected in 2H 2007.
Vectibix	mAb	EGFR inhibition	Phase II study	Vectibix + CP vs CP alone	1st	- No benefit in TTP (4.2mo for V+CP vs 5.3mo) - No benefit in survival (8.5mo vs 8.0mo)
Avastin	mAb	EGFR inhibition	E4599	Avastin + CP vs CP	1st	- Increased PFS (6.4mo vs 4.5mo) - Increased survival (12.5mo vs 10.2mo)
Tarceva + Avastin	TKI and mAb	EGFR and VEFR inhibition	ATLAS	Avastin + CP followed by Avastin + Tarceva vs Avastin + CP followed by Avastin + placebo	1st	- Recently initiated. Top-line results expected in 2008.
Nexavar	TKI	VEGF and RAF inhibition	Phase III study	CP ± Nexavar for 6 cycles, followed by Nexavar or placebo	1st	- Recently initiated. Top-line results expected in 2008.
Zactima	TKI	VEGF and EGFR inhibition	Phase III study	Zactima + docetaxel vs docetaxel	2nd	- Top-line results expected in 2008.
Sutent	TKI	VEGF and PDGF inhibition	Phase II study	Sutent only	2nd and 3rd	- Similar PFS and OS to Tarceva, Nexavar and Zactima.
Telcyta	Small molecule	GST P1-1 inhibition	ASSIST-2	Telcyta vs Iressa	3rd	- Initiated in 2004. Top-line results expected Q4 2006.
Telcyta	Small molecule	GST P1-1 inhibition	ASSIST-4	Telcyta + CP	1st	- Not yet initiated
ProMune	Oligo	TLR9 activation	Phase III - CP	ProMune + CP vs CP	1st	- Recently initiated. Top-line results expected in 2007/2008.
ProMune	Oligo	TLR9 activation	Phase III – GC	ProMune + GC vs GC	1st	- Recently initiated. Top-line results expected in 2007/2008.
AMG 706	TKI	VEGF and PDGF inhibition	Phase II study			- Currently on hold due to toxicity issues.
Abbreviations: TKI = tyrosine kinase inhibitor; mAb = monoclonal antibody; EGFR = epidermal growth factor; VEGF = vascular endothelial growth factor; PDGF = platelet derived growth factor; GST P1-1 = glutathione S-transferase; TLR9 = toll-like receptor 9; CP = carboplatin + paclitaxel; GC = gemcitabine + cisplatin.