The award of the 2011 Nobel Prize in Chemistry to Prof. Dan Schechtman, following the 2009 win by Prof. Ada Yonath, put the world of chemistry and Israel's contributions to science that laypeople can barely understand in the limelight. Schechtman and Yonath have not yet turned their discoveries, of quasi-crystals and the mechanism of the ribosome, respectively, into commercial products, but their two Israeli predecessors, Prof. Aaron Ciechanover and Prof. Avram Hershko, the 2004 Nobel Laureates in Chemistry, have succeeded in doing so (or at least trying). They contributed their know-how and reputations to Proteologics Ltd. (TASE: PRTL).
Ubiquitin - the new buzzword
To understand what Proteologics is doing, it is necessary to go back to high school chemistry and the stubborn teacher who tried to explain what a protein is. The company is developing targeted therapeutics for the ubiquitin system, which regulates almost all aspects of eukaryotic cellular function, including cell cycle regulation, DNA repair, signal transduction, immune response, protein quality control and metabolism. The system comprises about 1,000 protiens.
Hershko and Ciechanover discovered the ubiquitin system in 1978, and jointly won the Nobel Prize in Chemistry in 2004 for the discovery. They are both members of Proteologics' science advisory board.
Targeted medications are not regular drugs; as their name implies, they have just one specific target, and are consequently more effective, (improving a patient's quality of life by reducing the side effects of treatment) and are more efficient for health funds by cutting costs. These drugs discover the proteins that play an important role in a disease, neutralizing which leads to improvement, even a cure, for the disease in question.
A ubiquitin is a small regulatory protein that can be attached to proteins and label them for destruction for the proper function of the cell. Ubiquitin tags can also direct proteins to other locations in the cell, where they control other protein and cell mechanisms. Disruption of the ubiquitin system is therefore liable to cause a wide range of diseases, including cancers, diseases of the nervous system such as Alzheimer's or Parkinson's, muscular dystrophy, and viral diseases.
Drug development is complicated, and the difficulties are compounded in the case of the ubiquitin system. It is a hierarchal cascade system with three levels: The E1 enzyme is a single protein, which can bind with the subordinate level, E2 enzymes (of which there are about 40), which in turn influence the more than 600 E3 enzymes.
This hierarchal cascade and the multiple E2-E3 connections complicates the drug development task. E3 enzymes directly transfer the signal to the protein, and this is where Proteologics finds the proteins that are the basis for its therapeutics. Any intervention higher up in the hierarchy is liable to cause harm rather than help.
Business model: spread the risk
Proteologics' business model may prove in future to be much more effective than the models of other R&D companies. The drug development and approval process has three main stages. First is identification of the target and development of a suitable molecule, which is followed by preclinical and human clinical trials.
Proteologics only operates at the first and second stages, while the final stage, which requires more time and financial investment, is handled by the company's big pharma partners - Teva Pharmaceutical Industries Ltd. (Nasdaq: TEVA; TASE: TEVA) and GlaxoSmithKline plc (NYSE; LSE: GSK).
In this way, Proteologics reduces its financial risk, as the clinical trial and most expensive stage is carried out by big pharma companies which bear the financial risk. Proteologics even receives advances for R&D costs, which are partly covered by its partners. The company also has an option for receiving milestone payments, and will receive generous royalties from sales, assuming that the drug is approved for marketing.
Until that day comes, if it ever does, Proteologics can use the milestone payments to pursue additional projects on the basis of the platform it developed for working with E3 enzymes with different tags. This enables the company to survive, in theory, for a long time as it expands its knowledge and its platform to create a large enough product base that will increase its chances of turning at least one of its drug candidates into a commercial product.
Proteologics CEO Joshua Levin says that it has been able to lower its risk profile by choosing two partners that complements each other, in both character and terms of the agreements signed with them. GlaxoSmithKline, a UK giant with a market cap of $117 billion, is developing with Proteologics six programs for the treatment of various cancers (each program is based on a different E3 enzyme). Teva is jointly developing three programs. Proteologics is also developing two programs independently, and will either continue to do so or find a partner.
"GlaxoSmithKline and Teva complement each other," says Levin. "Teva is not an innovative company, which is why it chose to invest a little in us now, and give us a larger share of revenue from drug sales. GlaxoSmithKline, in contrast, chose to invest much more in us at the first and second stages, and took a greater share for itself when the drug reaches market."
In the case of GlaxoSmithKline, which is the more important partner for Levin, each program could generate up to $176 million in royalties, or up to $1 billion altogether, but Levin is realistic about these numbers. "This isn't a real number. There's no chance that all six drugs will be commercialized," he says.
2012 is the critical year
Under Proteologics' timetable, 2012 will be a critical year. Teva, which has undergone quite a few changes, mainly as a result of its acquisition of Cephalon, is scheduled to receive its first molecule from Proteologics within months, and will have to decide whether it wants to pursue development. If it chooses not to do so, Proteologics can continue development (a Phase I clinical trial) independently, or find another partner, without the need to start the development process from scratch.
Levin is not worried that either Teva or GlaxoSmithKline will return molecules to the company, but he is nonetheless doing everything to make sure that does not happen. In the case of GlaxoSmithKline, each program has a three-year timeframe, which means that in early 2013, Proteologics will have to hand over the first molecule to it and wait for a response.
Proteologics is seeking more partners, and the search will probably be affected by the responses it receives from GlaxoSmithKline and Teva. A molecule that is not good enough for either of them will probably not be good enough for another big pharma company. This means harm to Proteologics' reputation and to its ability to link up with other big pharma companies, and lower legitimacy for the entire sector.
Proteologics is not the only company seeking to develop drugs for the ubiquitin system, but is the leader in the field, and the fact that GlaxoSmithKline chose to partner with it long before it proved its capabilities, says quite enough. No other company in the field has a cooperation agreement with companioes of the size of big pharma GlaxoSmithKline and Teva.
Proteologics' two main competitors are therefore big pharma companies Johnson & Johnson (NYSE: JNJ) and Roche AG (SWX: ROG), each of which is independently pursuing drugs for the ubiquitin system, and each of which already has drug candidates undergoing Phase I clinical trials. They are the only companies in the world at such an advanced development stage, which means that they are the flag bearers. Their success will reflect on Proteologics, and vice versa.
Published by Globes [online], Israel business news - www.globes-online.com - on January 9, 2012
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