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A lot of nonsense, but no BS.

General

PTC Therapeutics is a small, privately-owned biopharma company that discovers and develops
“small-molecule drugs that target post-transcriptional control processes.” The company was founded in
1998 by three RNA biologists: Stuart W. Peltz, Allan Jacobson, and Tariq Rana. Two of these founders
remain closely associated with the company: Current President, CEO, and board member Dr. Peltz has
held these positions since the company’s inception. Prior to founding PTC, Dr. Peltz held a
professorship at the University of Medicine and Dentistry of New Jersey. Dr. Jacobson is chair of the
company’s Scientific Advisory Board and a member of the board of directors, positions also held since
the company’s founding. Dr. Jacobson has been the Chairman of the Department of Molecular Genetics
and Microbiology at the University of Massachusetts Medical School since 1994. The company has 90-
100 employees and is conducting a number of preclinical and clinical trials of their novel small
molecules. Descriptions taken from their website state that: “PTC's current pipeline of clinical and
preclinical product candidates addresses multiple indications, including genetic disorders, oncology,
and infectious diseases. PTC has two product candidates at the clinical stage of development and several
preclinical and discovery stage programs. PTC's most advanced product candidate is ataluren
(PTC124®), which is currently in a Phase 3 clinical trial for nonsense mutation cystic fibrosis and a
Phase 2a trial for nonsense mutation hemophilia A&B. PTC299, PTC's anti-angiogenesis drug, is
currently in clinical studies in patients with neurofibromatosis type 2, kaposi’s sarcoma, metastatic
breast cancer and advanced solid tumors.”
PTC Therapeutics has important partnerships with large pharma companies, including: Pfizer (up
to 10 un-described targets for the “gene expression modulation” program described below, a deal worth
$1.2 billion), Genzyme (ataluren), Gilead (gene expression modulation, in a deal worth $345 million
with CV Therapeutics, bought by Gilead in 2009), Roche (four CNS targets and an option on four
additional programs in a 2009 deal worth $12 million and up to $239 million for each target in milestone
payments), Merck (HCV, from a $212 million deal with Schering-Plough), and Celgene (oncology)
(deal numbers from FierceBiotech). The company also partners with the following foundations: Parent
Project Muscular Dystrophy, Muscular Dystrophy Association (MDA), Cystic Fibrosis Foundation
(CFF) and the SMA Foundation. PTC Therapeutics has received grants from these foundations and from
the FDA’s Office of Orphan Products Development, the National Center for Research Resources, and
the National Heart, Lung, and Blood Institute.
A successful financing round for $50 million in December 2009 which included existing
investors plus new investors, along with additional funding from various partners, indicates continued
optimism for the company’s prospects.

Ataluren (PTC124)

Genetic diseases often arise from mutations in the gene’s coding sequence causing a loss of
function. Important coding sequence mutations, those that change the amino acid sequence of the
resulting protein, have several types: missense mutations, frameshift mutations, and nonsense mutations.
Premature stop codons, also known as premature truncation codons or PTCs, may arise from nonsense
and also from frameshift mutations. One estimate is that up to 30% of human genetic disorders may
result from a mutation that creates a PTC (Mendell and Dietz, 2001). (Note: The PTC from “premature
termination codon,” though related, is not identical to that which stands for “post-transcriptional
control” and gives rise to PTC Therapeutic’s company name). There are a few important effects that
arise from the presence of a PTC on an mRNA molecule. The most direct effect could be a loss of
function from a protein that is missing part of its sequence and structure. Imagine making a car and
stopping before putting the wheels on, the car may start but won’t go far. PTCs can cause diseases
ranging from cancer, due to a loss of a tumor-suppressor gene function; to muscular dystrophies, cystic
fibrosis, lysosomal-storage disorders, and others. Ataluren is PTC’s most promising molecule currently
under development, designed to target and alleviate disease-causing PTCs. Ataluren allows the
progressing ribosome (the machinery that reads the mRNA to create protein) to bypass the PTC and
complete synthesis of the protein. Importantly, ataluren is able to selectively target the PTC to reduce
protein truncation while not influencing the normal stop signal found at the end of every gene. This is a
key aspect, since creating unnaturally elongated proteins through bypass of the natural stop codon would
likely have a deleterious impact on cellular function. Imagine taking a car and welding two additional
wheels somewhere on the car at random, this may impair the car’s ability to function as well. The
selectivity of ataluren’s action is possible since the machinery involved in responding to PTCs differs
from that which responds to the normal stop codon.
Most recently (March 2010), the company reported largely negative results from a Phase 2b trial
of ataluren treatment for nonsense-mutation Duchenne and Becker muscular dystrophy (nmDBMD).
Despite the negative results, I feel that there were some glimmers of hope in the data based on the low-
dose results discussed below. According to the company, a thorough reexamination of the patient
subpopulations should conclude sometime in late 2010. The next big milestone for ataluren will be a
pivotal Phase 3 trial currently underway for nonsense-mediated cystic fibrosis (nmCF), which began in
late 2009 and with data expected early in 2012. Additional indications being tested are nonsense-
mediated hemophilias A (nmHA) and B (nmHB), a Phase 2a trial for both conditions was initiated in
late 2009 with results expected in late 2010, and a planned Phase 2 trial to treat methylmalonic
acidemia. Development of ataluren is supported largely through a partnership with Genzyme. In
2008, Genzyme paid $100 million to start, plus up to $337 million in development and sales milestones
to PTC for the right to market ataluren outside the U.S. and Canada.
Ataluren indications, markets, and competition

Nonsense mediated cystic fibrosis (nmCF)

nmCF is the first indication where PTC hopes to gain FDA approval for ataluren. As mentioned,
the compound is currently being tested in their pivotal Phase 3 extension study (see pipeline table
below).

Chart 1: Current programs at PTC Therapeutics


Taken from the company’s website

Prior Phase 2 trials in adults and children gave positive results using nasal transepithelial
potential difference (TEPD) as an endpoint, this trial is using FEV1 (forced expiry volume in one
second, a measure of lung strength) as the endpoint. For CF, around 10% of the 30,000 U.S. (70,000
global) patients will have the disease because of a nonsense stop codon, and therefore should be
candidates for treatment with ataluren (http://www.cff.org/AboutCF,
http://clinicaltrials.gov/ct2/show/NCT01140451). 3,000 to 7,000 patients is not a huge patient
population, but depending on pricing and competition could represent a substantial market. Competition
would most likely come by way of gene-therapy treatments. According to an article at
http://www.pharmaprojects.com, a decade ago there were 12 projects for CF gene therapy, four of which
made it to Phase 2. After a number of well-publicized setbacks and a general lack of positive results for
gene therapy, today there are possibly two gene therapy trials for CF: One from Copernicus
Therapeutics which passed a Phase 1a trial in 2007 and is apparently being evaluated and modified in
order to proceed to Phase II (http://www.cff.org/treatments/Pipeline/#GENE_THERAPY); also, a safety
and gene expression trial that began at the end of 2008 at Royal Brompton Hospital in London with
sponsorship from Imperial College London (http://clinicaltrials.gov/ct2/show/NCT00789867). Being
initial stage trials, there are many hurdles to pass. In addition to gene therapy being an unproven
technology in general, gene therapy for CF faces delivery issues as the gene for CFTR is large. Both
aforementioned gene therapy trials use nanoparticle or lipid-associated DNA rather than a more efficient
virus, as the CFTR gene would be close to or above the maximum gene size for viral delivery.
Additionally, CF impacts a wide range of tissues; complete treatment would require efficient delivery of
the gene to every tissue, a difficult feat.
Another source of competition might arise from advances in exon-skipping therapies such as
those discussed for nmDBMD below. Exon-skipping might make more sense than PTC readthrough in
the case of frame-shifting mutations; ataluren is not able to suppress multiple stop codons (which are
made more likely by frame shifting) and creating a CFTR protein with random amino acids at its tail
might have unintended, likely negative, consequences or at least produce a non-functional protein.
However, as exon-skipping removes a section of the genetic code, and hence the resulting protein, it
may in itself create a non-functional protein. It is likely each gene would have to be examined on an
exon-by-exon basis for retention of function. To my knowledge, there are no trials examining exon-
skipping for treating cystic fibrosis.
Treatments that act directly on the CFTR protein, such as small-molecule chaparones or
potentiators (Vertex’s VX-770) will, if anything, be used in conjunction with ataluren, as they don’t
function in rescuing the same defect. In a combination therapy scenario, ataluren would fix a nonsense
stop codon, but the correction might then create an effective missense codon in its place (i.e. nonsense
codon + ataluren = pseudo-missense codon). The missense codon may then result in a poorly folded
and/or trafficked protein that might then be amenable to chaperoning or potentiation by the other drugs.
As a treatment for a subset of CF mutations, ataluren looks very promising. If the Phase 3 results
can come up positive, there will likely be little in the way of true competition. One concerning issue, at
least in my mind, is the company’s interest in cough frequency as a readout, indicating that they feel it
might be the stronger readout of efficacy. In turn, this makes me wonder about their feelings about the
robustness of FEV1 as the major endpoint. Another interesting point from the Phase 2 study was an
apparent loss of efficacy in the treatment cycle that used a higher dose of ataluren. Unfortunately this
was also the 2nd cycle in a sequential treatment regimen, with the lower dose followed by the higher
dose, so the reduction in response could have simply been due to tachyphylaxis (i.e. loss of response to
the treatment) (Kerem et al., 2008). On the other hand, it might reflect inhibition or off-target effects at
higher doses, which would leave open the possibility of fine-tuning the dosing of ataluren to attain better
results.

Nonsense mediated Duchenne/Becker muscular dystrophy (nmDBMD)

Duchenne/Becker muscular dystrophy results from mutation of the dystrophin gene. The
Duchenne variant presents earlier and progresses more rapidly, whereas Becker usually presents later, in
the teens or adulthood. As the gene is found on the X-chromosome, the disease primarily affects males.
The incidence of DBMD is approximately 1 for every 3,500 to 5,000 male births in the U.S., giving a
rough number of around 500 males born with the condition each year. Given that a nonsense mutation is
the cause in approximately 10-15% of males presenting the disease
(http://clinicaltrials.gov/ct2/show/NCT00592553); this suggests ~50-75 potential new patients per year
in the U.S. Again, as is the case with CF, this is not a huge market. However, for an orphan drug that is
the only treatment for a fatal disease, pricing would likely be favorable for the company. It should be
kept in mind that according to PTC’s website, for more than 2,400 genetic disorders a nonsense
mutation is the cause in 5-15% of the cases. Should ataluren be able to function in all or even a number
of these cases, it would be a revolutionary, powerful, and lucrative treatment. One example of an area
where ataluren might play a role is in the use of cheaper genotyping to identify cases where a nonsense
codon has silenced a tumor suppressor gene to cause or contribute to cancer, any compound with
potential to rescue these genes would generate a great deal of excitement as a possible new treatment for
cancer. Demonstrating efficacy in the more straight-forward targets of nmCF or nmDBMD will of
course be a positive prelude to additional studies.
Results for the most recent Phase 2b trial in nmDBMD were reported in March of 2010.
Although the drug appears safe and well-tolerated; based on the study design, the response was not
statistically significant in terms of efficacy. 60 patients received high-dose ataluren (20 mg/kg in the
morning, 20 mg/kg at midday, and 40 mg/kg in the evening), 57 received a low dose (10 mg/kg in the
morning, 10 mg/kg at midday, and 20 mg/kg in the evening), and 57 received placebo, each for 48
weeks. The endpoint readout was the 6-minute walk test (6MWT), a standard test of ambulation. Despite
the lack of significance in this trial, there were some interesting effects in the lower dosage population.
Namely, the 6MWT for the lower-dosage population versus placebo was significant using an 85%
confidence interval with RANCOVA and a 95% interval with ANOVA (unfortunately, the 95% level
using RANCOVA was pre-specified in the study design). Interestingly, there was no observable
difference in the 6MWT between the high-dosage and placebo groups, see Chart 1 below. This may
indicate a U-shaped dose response curve for ataluren, known as hormesis (Calabrese and Baldwin,
2001). There might be speculative explanations for this type of response that are too much to delve into
here. However, if there were an alternative mechanism for ataluren’s action, other than the company’s
stated one of PTC readthrough, such as inhibition of nonsense mediated decay (NMD), it would have
implications for the relevance of ataluren for other diseases arising from PTCs. Nevertheless, the next
steps for ataluren in nmDBMD will be additional parsing and evaluation of the data, with results
expected to be presented sometime later in 2010. Further investigation of the compound around the
lower dosage range is likely warranted. A Phase 2b extension study at the higher dosage was terminated
in March 2010. The company was also conducting a Phase 2a trial in non-ambulatory Duchenne
muscular dystrophy (DMD) patients. This trial was suspended in March 2010, likely due to the trial’s
specification of the high-dosage levels of ataluren.
Chart 2: nmDBMD Phase 2b results
From a company summary of material presented at the 2010 American Academy of Neurology Meeting on April 16, 2010

Competition for ataluren in nmDBMD could arise from the same corners as in nmCF, gene
therapy and exon-skipping. Here, exon-skipping seems to be more of a predominant, near-term threat.
These trials are attempting to correct frameshift mutations created by the loss of nearby exons. As
discussed in the section for nmCF, ataluren will likely not be relevant for the correction of frameshift-
creating mutations. Hence, at this moment, these therapies are on distinct paths in terms of patient
population. While it can be speculated that exon-skipping might be useful to remove nonsense codon
containing exons, these tests would likely follow only after success (or possibly failure) with the current
exon skipping trials. From a recent review of exon-skipping as a therapy for DBMD: “In theory, single
and double exon skipping would be applicable to 79% of deletions, 91% of small mutations, and 73% of
duplications, amounting to 83% of all DMD mutations. Exon 51 skipping, which is being tested in
clinical trials, would be applicable to the largest group (13%) of all DMD patients.” (Aartsma-Rus et al.,
2009). Exon-skipping treatments are by necessity gene- and exon-specific. Ongoing Phase 1 studies are
being conducted by AVI BioPharma and Prosensa/GSK, both targeting exon 51. A midpoint analysis of
the AVI trial has shown elevated levels of dystrophin in muscle biopsies of patients. A previous clinical
trial in pediatric patients using ataluren also demonstrated increased dystrophin production in muscle;
improvements in the movement metrics used in trials of efficacy will likely be harder to achieve. Gene
therapy treatments for DBMD are subject to the same constraints discussed in the section for nmCF, yet
those constraints are made even stricter by the enormous size of dystrophin, the largest known human
gene and with a coding sequence more than twice the size of that of CFTR. One recent study utilized a
dramatically truncated utrophin gene to rescue DMD-model mice using viral vectors (Odom et al.,
2008). Utrophin is a paralogue of dystrophin which is slightly smaller yet may play a similar role in
vivo. BioMarin has developed a small molecule to increase utrophin levels in DMD patients. Results the
Phase 1 study that began in early 2010 are expected in the 3rd quarter (http://phx.corporate-
ir.net/phoenix.zhtml?c=106657&p=irol-newsArticle&ID=1373499&highlight=).
One key aspect of rescuing mutated genes, through any of the methods discussed here, is the
potential for induction of an immune response to a protein that has not been previously expressed in the
patient or a response to the viral vector used for gene delivery (Li et al., 2009; Mingozzi et al., 2007).
Controlling these immune responses has arisen as an important concern for gene therapy treatments.
Recent results from a safety trial in DMD from Asklepios BioPharmaceutical showed immune responses
to a “mini-dystrophin” used in their viral gene therapy trial, although there appeared to be no adverse
effect on the boy’s health (http://quest.mda.org/news/caution-immune-response-seen-dmd-gene-
therapy). So far, there has been no mention of atypically reactive immune responses in the ataluren or
the exon-skipping trials.
The outlook for ataluren in nmDBMD appears similar to that for nmCF, as the most promising,
but obviously still unproven, treatment for a specific subset of patients. The most recent clinical trial
results I optimistically feel to be actually promising. It may be that the compound works best at lower
levels and becomes inhibitory or off-target at higher levels; the complete mechanism of ataluren’s
function is far from known. Papers published by a group at the NIH suggest that the initial cellular
screen that discovered ataluren produced nothing but a luciferase-binding artifact. The details of that
debate are too much to go into, inconclusive, and I think not as relevant given additional data showing
increases in protein production and rescue of function in both patients and model organisms (Auld et al.;
Auld et al., 2009; Peltz et al., 2009; Welch et al., 2007)
DBMD patients might also benefit from treatments aimed at improving muscle function outside
of direct rescue of dystrophin. PTC Therapeutics is also targeting utrophin, myostatin (an inhibitor of
muscle growth), and IGF-1 (a regulator of muscle development). These genes are likely all part of the
GEMS program, discussed in more detail in the PTC299 section below. The goal of these three
programs for treating DBMD will be to find small molecules that will increase the levels of utrophin or
IGF-1, or that will decrease myostatin, all with the aim of improving muscle function
(http://www.ptcbio.com/3.3_project_catalyst.aspx). Based on Table 1, these programs are still in the
lead development stage.

Additional indications

Additional indications for ataluren include nonsense mediated hemophilias A and B (nmHA/B)
and methylmalonic acidemia, both of these conditions are currently recruiting for Phase 2 trials, with
results hopefully in mid-2011. Being X-linked diseases, the hemophilias would represent a market size
similar to that for nmDBMD, however in the case of hemophilia there are replacement clotting factors
available, reducing the urgency for treatments. Methylmalonic acidemia is autosomal recessive and a
rare disease, and therefore has a smaller market potential.

PTC299

PTC299 is another promising molecule currently in development. It’s also a small-molecule


intended to act at the post-transcriptional, mRNA level. PTC299 is an example of a class of molecules
that PTC Therapeutics calls “GEMS” for Gene Expression Modulation by Small-Molecules. GEMS are
designed to target mRNA flanking regions that lie just before and after the coding sequence and that are
vitally important for gene expression: the 5’ and 3’ UTRs (UnTranslated Regions). The idea behind
PTC299 lies in the postulate that mRNAs from different genes possess unique UTR sequences and, by
extension, each gene’s UTRs should have a unique structure and regulatory mechanism. In theory, a
small molecule could be developed that only targets the UTRs of a specific gene and thereby modulates
that gene’s translation, either negatively or positively. PTC299’s target is the mRNA for vascular
endothelial growth factor (VEGF), a secreted ligand for receptors involved in angiogenesis. The anti-
VEGF market is very lucrative and very competitive. VEGF and a current target for a number of
treatments in oncology and eye-disease, including the blockbuster antibody/antibody-derived-molecules
Avastin and Leucentis. These two together garnered roughly 7 billion dollars in global sales in 2009 and
their growth looks to continue based on additional indications. A competing biologic molecule is in the
works from Regeneron (VEGF-Trap). Small-molecule tyrosine-kinase inhibitors that target the VEGF
receptors (VEGFRs) are another competitor in this space. Among the most prominent are Sutent from
Pfizer, for the treatment of kidney and gastrointestinal tumors, Nexavar from Bayer/Onyx (liver and
kidney cancers), and Votrient from GSK (kidney cancer). Each targets the VEGFRs as well as additional
subsets of tyrosine kinases. Other kinase inhibitors are in development from AstraZeneca, Bayer, and
Pfizer. siRNA treatments targeting VEGF have not met with success, there are likely preclinical studies
in this space continuing. Indeed, this is a crowded space. However, as with the case for ataluren in
nmCF and nmDBMD, PTC299 is attempting to attack VEGF by a distinct mechanism, by inhibiting the
creation of VEGF protein from its mRNA. Currently, PTC Therapeutics is examining PTC299 alone in
Phase 2 studies for Kaposi’s sarcoma and neurofibromatosis type 2 (NF2). The trial for Kaposi’s
sarcoma is still recruiting after the projected completion date and may be having trouble recruiting
sufficient patients. Data from the NF2 trial might be expected late in 2011. Phase 1 trials are also
underway and recruiting or planned for patients with solid tumors, breast cancer, and pediatric CNS
tumors. Apparently the company plans to attempt to demonstrate the effectiveness of PTC299 in the less
crowded spaces, where they can gain orphan status and hopefully approval in relatively underserved
markets, before moving to bigger and more lucrative markets, where they would likely face comparative
studies. A possible approach might be as a combination therapy with a currently approved treatment,
and some of the animal and human studies have been done in combination with taxanes. In recent
publications examining PTC299 responses in the clinical trials, the company has stated that PTC299
targets production of multiple cytokines in cancer cells and may have effects on the cell cycle, bringing
into question the ability of the GEMS approach to target a single gene. One possibility is that PTC299
actually targets a transcription factor upstream of VEGF and other genes. Regardless, validation of
PTC299 in any condition is an important proof for this method of VEGF inhibition as well as for the
GEMS program. As a large number of the company’s programs and partnerships rely on GEMS, it will
be extremely positive if they can affirm it as a valid technology. Similarly to the case with ataluren, the
possible indications where the general GEMS approach might have applicability covers an enormous
number of conditions and as such would represent similarly large market opportunities. According to a
company presentation in March, they will look for partners for PTC299 beginning this year.

Company Overview

PTC Therapeutics is a very exciting company with a number of important turning points in the
near future. The company has no shortage of large partners and investors willing to fund its discovery
and development costs at the current time. The results of the pivotal trial in cystic fibrosis and of the
data reanalysis for nmDBMD will certainly be important for the future direction for the company’s
compounds. The company had planned an IPO in 2007 but canceled due to having sufficient cash. To
putting a value on the company, I consider the late stage nmCF and nmDBMD projects for ataluren in a
favorable light. There are no homeruns in the data; still, I feel there are observable positive effects due to
the compound. The effects might not be as strong as desired and finding a correct dose may be difficult.
Nonetheless, as a true treatment for a subset of diseases where there are currently only palliative
treatments, ataluren would be a breakthrough for those patients. Assigning a 50% success probability to
eventual success for ataluren in nmCF, and also 50% for nmDBMD where I think they will find success
on a reevaluation of the Phase 2 data and adjustment of the dosing going forward. Assuming a very
rough estimate of 5,000 relevant nmCF and nmDBMD patient in the U.S. and pricing of $50,000 per
year (ataluren isn’t a biologic, but still needs to fund large development costs for a drug treating a small
population), gives an annual revenue of $250 million. Times a 50% success rate, gives $125 million.
Discounting over 10 years at 10% would value this program at ~$800 million. Given the large number
of other programs under development and the large number of partnerships, I would put a slightly higher
value on the company, maybe up to $1 billion. Small companies with weaker pipelines and fewer
partnerships like Synta or Amicus Therapeutics are valued much under that range. More developed
companies, with an approved product, such as Regeneron, Cubist, or Onyx are valued at not much more
than $1 billion, so my valuation may in fact be generous.

Aartsma-Rus, A., Fokkema, I., Verschuuren, J., Ginjaar, I., van Deutekom,
J., van Ommen, G.J., and den Dunnen, J.T. (2009). Theoretic applicability
of antisense-mediated exon skipping for Duchenne muscular dystrophy
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Auld, D.S., Lovell, S., Thorne, N., Lea, W.A., Maloney, D.J., Shen, M.,
Rai, G., Battaile, K.P., Thomas, C.J., Simeonov, A., et al. Molecular basis
for the high-affinity binding and stabilization of firefly luciferase by
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Auld, D.S., Thorne, N., Maguire, W.F., and Inglese, J. (2009). Mechanism
of PTC124 activity in cell-based luciferase assays of nonsense codon
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Kerem, E., Hirawat, S., Armoni, S., Yaakov, Y., Shoseyov, D., Cohen, M.,
Nissim-Rafinia, M., Blau, H., Rivlin, J., Aviram, M., et al. (2008).
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Rasko, J.E., Ragni, M.V., Manno, C.S., Sommer, J., Jiang, H., et al.
(2007). CD8(+) T-cell responses to adeno-associated virus capsid in
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Odom, G.L., Gregorevic, P., Allen, J.M., Finn, E., and Chamberlain, J.S.
(2008). Microutrophin delivery through rAAV6 increases lifespan and
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Peltz, S.W., Welch, E.M., Jacobson, A., Trotta, C.R., Naryshkin, N.,
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