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No Pain, Potential for Lots of Gain

Anti-NGF drugs are a risky bet but could be a bonanza opportunity for Pfizer, Lilly, and Regeneron.

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The history of pain drugs that target nerve growth factor has been a roller-coaster ride for drug developers and investors. In 2010, expectations were that anti-NGF drugs would emerge as the first new class of painkillers in decades, with analysts predicting $11 billion in annual sales for the multiple drugs in development. However, significant setbacks, notably the U.S. Food and Drug Administration placing clinical holds on the drugs due to safety concerns in 2010 and 2012 and the recent decision by Johnson & Johnson (JNJ) to terminate the development of its NGF program, have resulted in investors largely writing off the value of the drug class. We view this pessimism as overdone and think that, while risky, the phase 3 programs from  Eli Lilly (LLY) and  Pfizer (PFE) (tanezumab) and  Regeneron (REGN) (fasinumab) represent significant blockbuster opportunities that are not adequately reflected in company valuations.

Pain is a huge and complex healthcare problem and is the most common reason patients seek medical attention. In the United States alone, tens of millions of patients suffer from conditions that cause chronic pain, and that number is increasing with the aging population as a result of demographic trends. Distinguishing among different types of pain is complex but necessary for proper treatment. Pain can be classified by its duration as acute (short-term) or chronic (long-term) pain, with chronic pain further classified by the source of pain production. Nociceptive pain is transmitted from the site of injury or tissue damage, such as from inflamed joints in osteoarthritis patients. Neuropathic pain, such as a migraine, is initiated or caused by a primary lesion or dysfunction in the nervous system. Visceral pain, such as pancreatitis, involves the internal organs; mixed pain, which includes common afflictions like lower back and cancer pain, is of mixed origin.

The global pain market is over $60 billion even though the majority of drug classes are generic and widely available over the counter. The majority of pain patients are currently served by well-known treatments like acetaminophen (Tylenol), nonsteroidal anti-inflammatory drugs such as aspirin and ibuprofen (Advil), opiates such as oxycodone (OxyContin), or a variety of other drug classes such as COX-2 inhibitors (Celebrex). Other classes of drugs, like antidepressants (Cymbalta) and anticonvulsants (Lyrica), can be prescribed for pain management as well, generally for patients who do not respond to other analgesic treatments.

When prescribing pain medications, physicians commonly use the World Health Organization’s analgesic ladder. It recommends a stepped approach based on pain severity, with the use of nonopioid analgesics, weak opioids, and strong opioids for mild, moderate, and severe pain, respectively.

Anti-NGF drugs are likely to target patients with moderate to severe pain, where opioid use is most common. To provide some context, total U.S. sales for the opioid analgesic segment were approximately $9.1 billion in 2015 with more than 70% of these sales coming from oral opioid drugs (hydrocodone, hydromorphone, morphine, oxycodone, and oxymorphone, including combination products).

Anti-NGF Drugs Have Attractive Potential,
Even if Share of Overall Market Is Small

Because the pain market is so large, anti-NGF treatments could have enormous sales potential even if they capture a small percentage of the overall market. Current anti-NGF drug-development programs are targeting very large indications, namely osteoarthritis, lower back, and cancer pain. Assuming pricing of $7,500 annually, targeting only the most severe patients who are currently on opioid treatments and a small market share (5%-20%) still results in potential megablockbuster sales.

Beyond the large market potential, there is also clearly a need for new drugs to address chronic pain more broadly. While most key pain medicines have been in use for a long time and generally provide some measure of pain relief, currently available painkillers leave much to be desired overall. Indeed, it is estimated that only one in four of those with pain achieves adequate relief for reasons of both efficacy and safety.

Nonsteroidal anti-inflammatory drugs are the most commonly used treatment for pain and are commonly available over the counter. These drugs work by inhibiting cyclooxygenase (COX-1 or COX-2) enzymes. Although the drugs are largely safe to use for acute pain, long-term NSAID users are likely to experience severe gastrointestinal and cardiovascular side effects, including stomach ulcers, internal bleeding, renal failure, hypertension, and stroke. Over 86,000 hospitalizations per year are attributed to complications resulting from NSAID use in patients with osteoarthritis and rheumatoid arthritis.

In recent years, new prescription treatments that are more selective to COX-2 have been promoted as safer alternatives to tradition NSAIDs; however, these treatments carry increased risk for cardiovascular events. NSAIDs also have a “ceiling effect”--their efficacy does not improve after a certain dose.

Although opioids are considered to be the most effective treatment for severe pain, they carry significant risks, including a high potential for addiction and abuse. Common side effects include drowsiness, constipation, and nausea, and side effects can be even more severe when combined with certain antidepressants and antihistamines. Furthermore, opioids create physical dependence, which can lead to symptoms like anxiety, muscle pain, and irritability.

This year, the FDA mandated black-box warnings on the labels of immediate-release opioid painkillers. The Centers for Disease Control also proposed new guidelines for doctors prescribing opioids. This may have a significant impact on the pain market, since 90% of opioid prescriptions are for immediate-release formulations. Furthermore, generics, which make up 90% of the opioid market, still do not have abuse-deterrent formulas.

New Mechanism Addresses Chronic Pain Without Addiction Risks
Anti-nerve growth factor monoclonal antibodies have a novel mechanism of action compared with existing pain treatments, which we believe can lead to better efficacy than NSAIDs and reduced risk compared with opioids. NGF has been shown to mediate pain in several studies, and elevated levels of NGF have been associated with conditions like osteoarthritis and cancer pain. Anti-NGF treatments block the interaction between NGF and its tyrosine kinase-A (TrkA) and p75 neurotrophin receptors. These antibodies do not cross the blood-brain barrier and are highly selective to NGF over other neurotrophins.

Clinically meaningful pain relief is often described as a reduction in pain intensity of approximately 30% from the baseline level; in numerous studies in osteoarthritis, anti-NGF drugs have achieved reductions ranging from 40% to 56%. With such consistently strong efficacy, we think these drugs can be viewed as having a clinically meaningful impact on pain. The major concern for these drugs remains a number of safety issues that will ultimately be the key to their success from a regulatory and market perspective.

FDA Clinical Holds Add Regulatory Risk but Also Thinned Out Competition
In 2010, the FDA suspended clinical trials for the anti-NGF drugs because 492 suspected cases of joint osteonecrosis--the breaking down of bone tissue--were observed in trials conducted by Pfizer, Regeneron, and J&J (Janssen). The cases were seen in patients using anti-NGF drugs alone or in combination with NSAIDs, which led to the hypothesis that the increased analgesic effect of the anti-NGF drugs or combination of the two separate classes of drugs allowed patients to increase the loads they put on their joints, since the usual pain signal that would that would limit joint stress was attenuated. Given that tanezumab was the most advanced program at the time and had been used in the most patients, a review of 282 joints was done to readjudicate the FDA findings. The review found only 2 cases of osteonecrosis, 71 with rapidly progressing osteoarthritis, 142 with normal progression, and 67 cases with not enough information to distinguish or other joint condition. It also found a significant dose response relationship between the cases of rapidly progressing osteoarthritis and increasing dose of tanezumab, which was greater when tanezumab was given in combination with NSAIDs.

To address these concerns, an FDA advisory panel was convened to weigh the evidence and debate the benefits and risks of proceeding with clinical development of this class of drugs. The panel voted in favor of the companies restarting work in arthritis and other painful conditions based on the data and the need for new and better tolerated analgesic drugs that do not share side effects observed with NSAIDs or opioids. On the basis of these findings and the apparent low incidence of osteonecrosis, the FDA recommended reinitiating clinical studies in March 2012 with significantly more rigorous safety protocols to monitor potential osteonecrosis and rapid progression risks.

More recently, Regeneron reported the encouraging results of its fasinumab phase 2/3 trial, which was designed to address the concerns about joint damage by extensive imaging of knee, hip, and shoulder joints at screening and throughout the trial to gauge whether there was any imbalance between the drug and placebo on fractures, bone destruction, and disease progression. Approximately 2% of screened patients were excluded from the study because of incidence of subchondral insufficiency fractures or osteonecrosis on baseline imaging exams, implying that these cases may have been pre-existing and not necessarily caused by anti-NGF drugs. Overall, the study showed few detectable differences between the placebo group and four different dose arms, and there were no cases of osteonecrosis, although there were more cases of subchondral insufficiency fractures (six for fasinumab and one for placebo).

Similarly, Lilly highlighted at its recent research and development day in late May that it was not seeing any safety signals from the blind data emerging from its enrolling phase 3 studies.

In December 2012, the FDA put a second clinical hold on the drug class following adverse changes seen in the parasympathetic nervous system of mature animals in preclinical tanezumab studies. There was a worry that anti-NGF compounds could also be associated with neuronal cell death in the periphery and a loss of parasympathetic function and cardiovascular function. Lilly and Pfizer were able to demonstrate with follow-up preclinical studies that there was no neuronal cell death, although there was a diminution of neuronal cell size. The companies also demonstrated in primate studies that there was no change in cardiovascular or parasympathetic function. Once this issue was resolved to the satisfaction of the FDA, anti-NGF clinical programs were restarted in mid-2015. However, limited public disclosure was provided on the details of this issue.

While the full results from Regeneron’s phase 2/3 trials have yet to be disclosed, the study monitored for effects on sympathetic nerves and sympathetic nervous system function and, according to the company, there was no evidence of this side effect.

The anti-NGF drugs have demonstrated other side effects that affected less than 10% of patients and were generally mild and transient. These included swelling, joint pain, abnormal tingling, and loss of sensitivity.

And Now There Are Two
While clinical and regulatory challenges were a clear setback for anti-NGF drug developers, they also dramatically narrowed the field, as only two late-stage competitors remain in what was once a relatively crowded space. Candidates such as AstraZeneca’s (AZN) Medi-578 and AbbVie’s (ABBV) ABT-110 were dropped from development during the clinical hold as the companies reprioritized their portfolios. Pfizer’s decision to spread the risk of developing tanezumab by partnering the drug with Eli Lilly also increased concerns about the drug class. Then there was the news that J&J was returning the rights to its fulranumab candidate to originator company Amgen (AMGN), even though the drug was already in multiple phase 3 trials. The decision was attributed to shifting commercial priorities rather than a safety or efficacy issue, but it added to the anxiety among anti-NGF developers. We also speculate that J&J’s priorities were influenced by the high risk of the development program, the apparent relatively lower efficacy of fulranumab, and potential concerns that the FDA didn’t open up long-duration studies for its drug.

Overall, the big winner from the 2010 and 2012 clinical holds appears to be Regeneron. Its drug was earlier in development and had not yet started its phase 3 program. Therefore, the clinical hold, which forced Pfizer and Lilly to reinitiate new phase 3 trials last year, allowed Regeneron to materially catch up, and the company now appears to be lagging only slightly with its ambitious phase 3 program. Similarly, Sanofi (SNY), which has the rights to codevelop and market Regeneron’s discoveries, decided to pass on the compound during the clinical hold period. While this leaves Regeneron bearing the full cost of the phase 3 program, it will either not have to share the profits or will probably be able to partner the drug with more attractive terms following further clinical validations. Indeed, the company was able to partner the Asia (excluding China) rights to Mitsubishi Tanabe Pharma in late 2015 on attractive terms.

Osteoarthritis Is Key Market
Osteoarthritis is the leading indication for anti-NGF drug development as it represents a large and chronic pain market and has the most consistently promising clinical data for the drugs. All three late-stage drugs have demonstrated that they reduce the pain and increase the function and well-being of individuals with symptomatic OA. Tanezumab has undertaken the majority of clinical trials in OA and had an initial first-mover advantage; however, because of the clinical hold on the drug class and the subsequent requirement of more rigorous phase 3 trial protocols, its lead has dwindled significantly, and it is now about one year ahead of Regeneron’s fasinumab.

The initial studies with tanezumab demonstrated a reduction in pain that is better than typically reported for other analgesic drugs in OA. The magnitude of this response provides evidence that inhibition of NGF-mediated processes is a potent means of suppressing pain and validates this mechanism in OA pain. However, the appearance of untoward side effects, including the high incidence of reversible abnormalities of peripheral sensation, limited phase 3 studies to lower doses. With these doses of tanezumab, efficacy generally appears to be lower as is the incidence of adverse events. Trials compared tanezumab with two different NSAIDs, celecoxib and naproxen, and tanezumab with opioid oxycodone. In these studies, tanezumab was superior to the active comparators, which appeared to have an effect similar to or only marginally better than placebo. Additionally, two studies compared the efficacy of tanezumab combined with NSAID against NSAID therapy alone. In these trials, tanezumab demonstrated additional efficacy to NSAID alone, the magnitude of which was similar to that observed for tanezumab compared with placebo in the phase 3 trials.

The optimal dose for tanezumab clinical use has not been decided; both 2.5 mg and 5 mg every eight weeks are being tested in current phase 3 programs. This appears consistent with available data that the lower doses are associated with fewer adverse events leading to study withdrawal than the 10 mg dose with no major difference in efficacy. We believe doses below 10 mg will still hold up on efficacy and have less risk of side effects. However, higher doses of tanezumab are being investigated in other indications, such as back pain and possibly neuropathic pain, and early studies have suggested significant pain relief compared with placebo in these conditions.

For fasinumab, Regeneron has not disclosed the two doses that it is pursuing in its ongoing 10,000-patient phase 3 safety study. Nevertheless, we assume the company is probably looking at the lower 1 mg and 3 mg doses, given the similar efficacy and highly statistically significant results seen in its recent phase 2/3 trial and the fears of increased side effects at higher doses. In addition to this safety study, the company will need to complete additional phase 3 efficacy studies to file for approval. While the company is being secretive regarding its clinical programs, we assume that the safety study will be the most critical element of its clinical package and the key rate-limiting step to regulatory approval.

The anti-NGF drugs have had mixed results to date in clinical trials for chronic lower back pain. The higher doses (10 mg and 20 mg) of tanezumab demonstrated positive results but failed to achieve statistical significance at the lower 5 mg dose. Both fasinumab and J&J’s now-discontinued fulranumab failed their phase 2 trials. Nevertheless, fasinumab is continuing development in this indication. Tanezumab is currently enrolling phase 3 trials in lower back pain at the 5 mg and 10 mg doses. However, given the concerns about side effects at higher doses and the lack of efficacy at the 5 mg dose in the previous phase 2 trial for the drug, we consider this a significantly riskier indication than OA, where there is ample evidence of efficacy at the lower doses in numerous trials. Similarly, fasinumab is enrolling a phase 2/3 trial that will be testing three undisclosed doses versus placebo.

Pfizer/Lilly Still in the Lead, but Regeneron Has Narrowed the Gap
While Pfizer and Lilly’s tanezumab initially had a significant lead on other anti-NGF drugs in the pipeline, the FDA clinical hold provided an opportunity for Regeneron to materially close the gap. Tanezumab still appears to be slightly ahead of fasinumab and has a broader clinical program, which includes osteoarthritis, lower back pain and cancer pain, while Regeneron is currently enrolling trials in OA and lower back pain.

Lilly and Pfizer expect that the enrollment of their current phase 3 programs will be completed around the end of this year, setting up trial readouts for late 2017 to mid-2018. Should results be positive, the drug will probably be on the market by the end of 2019. Regeneron’s key OA trial is slated to be completed by mid-2019, which implies that the company is at least a year behind and could make it to the market by late 2020 in a best-case scenario.

Large Opportunity Allows for Blockbusters Even With Low Odds of Success
Given the highly genericized pain market that is dominated by convenient oral drugs, it is likely to be a challenge to effectively launch a high-priced injectable pain medication, particularly given a payer environment that has sought to limit access to pricy medications like PCSK9 inhibitors. Current branded pain medications cost about $2,500 annually, which should limit the potential for pricing significantly above the $10,000 annual price point.

Nevertheless, chronic pain is responsible for meaningful direct costs as well as significant indirect expenditures, such as sick pay, lost productivity, and disability, that are substantial drains on the economy. Furthermore, the cost of opioid drug abuse is becoming an increasingly important direct and indirect cost as treatment and money spent by the criminal justice system relating to drug-related crimes increases. Indeed, studies have estimated excess health expenditures of $15,000-$20,000 annually for each insured person who abused drugs.

Given this dynamic, we base our estimates on an annual price of $7,500 for anti-NGF drugs, given their likely strong efficacy and the urgent need for nonopiate chronic pain medication.

Considering the data to date and the risks highlighted by the two FDA clinical holds, we assign relatively low probabilities of approval for the key phase 3 programs in osteoarthritis (55%) and lower back pain (35%).

We expect Ely Lilly and Pfizer’s tanezumab should benefit from first-mover advantage in the anti-NGF space and garner about 70% of the overall market share, resulting in over $3 billion in peak adjusted sales in 2025 spilt between the two companies. While Regeneron’s fasinumab is trailing tanezumab by at least a year, putting it at a competitive disadvantage, we still think it represents a meaningful $1.0 billion peak sales opportunity that is not appreciated in the company’s current valuation.

Despite the risks, the two FDA clinical holds and J&J’s recent decision to discontinue its NGF development program have some positive elements as they have largely cleared out other competition, providing ample opportunities for Lilly, Pfizer, and Regeneron to widen their economic moats, should their drugs prove successful in current clinical trials.

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.