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Breathe a little easier with a new drug delivery system...while making a few bucks on the way!
by Siu-Yee Ng
As I flew into Shanghai recently, the plane passed through thick black clouds. Hmm... I thought, it's going to be a rainy day. But to my surprise it was smog. I saw people on the streets wearing masks because the air was so bad. And flying over Los Angeles on the way back was not any better.
Respiratory diseases are associated with impaired quality of life, reduced life expectancy and significant treatment costs. It's estimated that worldwide pharmaceutical expenditures for the treatment of obstructive airways diseases will be approximately US$9.9 billion in 2000.
In 1999, U.S. expenditures for inhaled respiratory medications of all types were approximately US$3.3 billion. Recent research has indicated growth in medication expenditures per patient, largely driven by an increased number of prescriptions filled each year per patient and a shift to newer, costlier therapies.
AeroGen, Inc. is an emerging drug delivery company currently focusing on treating three respiratory diseases — asthma, COPD and cystic fibrosis — as well as improving treatments for patients using nebulizers and those receiving therapy via ventilators.
Asthma is a chronic disorder in which the muscles lining the bronchial airways of the lungs become constricted, often due to external stimuli such as exercise or allergens. The World Health Organization estimates that 100 to 150 million people worldwide suffer from asthma. According to the Centers for Disease Control, the number of people in the United States diagnosed with asthma has more than doubled from 6.7 million in 1980 to 17.3 million in 1998, including an estimated 4.8 million children.
Worldwide, Chronic Obstructive Pulmonary Disease (COPD) is the only leading cause of death that still has a rising mortality rate. It is estimated that by 2020, COPD will rank fifth among the medical conditions costliest to society. The National Center for Health Statistics estimates that in 1994 there were 16 million people in the United States diagnosed with COPD. COPD is estimated to affect approximately 30 million people in the United States, mostly over the age of 45, of whom approximately 50% remain undiagnosed.
Cystic fibrosis is a genetic disorder associated with pancreas and liver failure. CF primarily affects digestion and nutrition. Other effects include thick mucous secretions formed and retained in the airways of the lungs. Eighty-five percent of CF patients experience deterioration in lung function, increased incidence of lung infection and respiratory failure over time. CF is the most common life-shortening inherited disease in the United States, affecting about 30,000 people, or one in every 3,300 newborns.
Pump it up a notch
Pulmonary drug delivery is widely used to treat respiratory diseases, and is believed to be a viable means for delivering other drugs to the bloodstream via the lungs. The drugs must first be transformed into aerosol form for inhalation by the patient. To deposit drugs in the lungs effectively, this aerosol must be delivered at a low velocity. The size of the aerosol particles generally determines where the drug will be deposited in the lungs. Aerosols containing large particles (greater than three microns in diameter) typically get deposited in the upper airways of the lung, where they may be useful in treating diseases such as asthma, COPD and CF. Aerosols containing small particles (less than three microns in diameter) are more likely to pass through the upper airways into the deep lung, where they may be absorbed into the bloodstream to treat diseases such as diabetes.
The physiology of the lungs makes pulmonary delivery an attractive method of delivering drugs to the bloodstream. The absorptive surface area of the lung is as high as 70 square meters, and is only one to two cells thick. This large surface area is available for the free exchange of oxygen, carbon dioxide and other molecules between the air and the bloodstream. This permits drugs deposited in the lungs through aerosols to be transported rapidly into the bloodstream.
Pulmonary drug delivery is being evaluated for non-invasive delivery of drugs to the bloodstream to treat
non-respiratory diseases. There is increasing interest in pulmonary drug delivery as a result of the inability of
currently available forms of dosage delivery to deliver molecules such as proteins and peptides to the bloodstream effectively. For these large molecules, oral delivery is not feasible due to rapid breakdown of the molecules following ingestion. It is estimated that the protein and peptides market will be worth US$19.2 billion in 2001.
Dosage devices such as intravenous or intramuscular injections and implants, while effective for delivering proteins, have many drawbacks, including pain, inconvenience, expense, risk of infection and poor compliance. Alternatives like transdermal and nasal dosage devices do not allow reproducible delivery of large molecules.
In addition, pulmonary delivery is being evaluated for delivery of drugs such as insulin, which require rapid input into the bloodstream for optimal therapy. AeroGen estimates that the worldwide insulin market will grow from US$3.2 billion in 2000 to US$6.5 billion by 2005.
Breaking traditions
Three basic devices currently used for pulmonary drug delivery are metered dose inhalers (MDIs), dry powder inhalers (DPIs) and nebulizers. These devices were originally developed for local treatment of respiratory diseases, including asthma and COPD, and have inherent limitations in delivering drugs directly to the bloodstream.
MDIs have been in existence for over 40 years and are the most widely used device for pulmonary drug delivery. They consist of a portable canister containing the drug as a suspension or solution, mixed with a volatile propellant, most often a chlorofluorocarbon. MDIs require a patient to inhale the drug in a single breath. In order to administer the drug, the patient must activate the inhaler by pressing down on the canister while simultaneously inhaling slowly and evenly.
Even with repeated training, up to 50% of patients using MDIs have difficulty coordinating activation of the device with their breathing. Once the inhaler is activated, particles are released at an initial velocity of at least 30 miles per hour. Research has shown that MDIs only deliver 10% to 20% of the drug to the lungs. Most of the remainder of the drug is deposited at the back of the throat and swallowed. To overcome these limitations, patients are sometimes prescribed holding chambers, or spacers, to use with their MDIs. These spacers increase the complexity of use and reduce the portability of MDIs.
Traditional DPIs were introduced to overcome the problems inherent in the use of MDIs. DPIs are inhalers that deliver dry powdered aerosols without using a propellant. DPIs are breath activated and thus eliminate the need for the press-and-breathe coordination associated with MDIs. AeroGen believes that traditional DPIs have significant limitations that may prevent their broad use in pulmonary drug delivery. DPIs usually require a single, strong, deep inhalation to create the aerosol and deliver the drug. Children, the elderly and patients with breathing difficulties often cannot achieve the deep inhalation necessary to receive the required dose. Also, these devices do not allow the patient to inhale the desired drug in multiple breaths, and moisture entering into the DPI from the environment or a patient's own breath can result in dose-to-dose variation.
Traditional nebulizers create a continuous aerosol that can be inhaled by patients through a mask or mouthpiece. Nebulizers allow patients to breathe regularly, thereby requiring less patient coordination and cooperation than MDIs and DPIs. Nebulizers typically require an external power source and therefore are bulky and generally noisy. Nebulizer treatments are time-consuming, with each treatment typically taking up to 15 minutes, and inefficient, with less than 20% of the drug reaching the lungs.
The remainder of the drug either is aerosolized during the patient's exhalation and released into the surrounding air or remains in the nebulizer. Because of these limitations, nebulizers are only appropriate for relatively inexpensive, small-molecule drugs that can be formulated and stored as liquids.
Aerosol delivery to mechanically ventilated patients currently uses either an MDI or a nebulizer. Drugs are administered by opening the tubing connecting the patient to the ventilator, which may result in infection. In addition, administration requires significant time and the associated expense of an attendant respiratory therapist, and is inefficient, with only a very small amount of the administered drug reaching the lungs. Ventilator performance may be impaired by the introduction of additional air into the
ventilator tubing when drug is administered. This can adversely affect the ability to monitor the patient's pulmonary function.
Breathing easy
In 1999 the U.S. expenditures for nebulized solutions were approximately US$570 million. AeroGen estimates that U.S. sales of nebulizer devices will exceed US$150 million in 2000, with approximately half of the sales for home use. The majority of sales are captured by compressor nebulizers, typically sold to patients at approximately US$125 per device. Ventilated patients require a breathing device because they are not able to breathe on their own. It's estimated that in the United States there are approximately one million patients admitted to hospitals annually who require ventilation; on average each patient spends five days on a ventilator.
AeroGen estimates that in the United States there currently are 90,000 ventilators installed in hospitals and approximately 8,000 ventilators purchased annually. This growth is based on the high prevalence of chronic lung diseases and an aging population. Aerosol therapy is frequently prescribed for patients receiving mechanical ventilation to deliver drugs and to humidify the air reaching the lungs. The United States hospital and alternate care market for nebulizers and humidifiers currently exceeds US$300 million annually.
New and improved
AeroGen has developed an aerosol generator to facilitate the consistent and accurate formation of an aerosol to deliver drugs to the lungs. Its core technology is being incorporated into each of its delivery platforms. Its AeroDose inhaler is designed to safely and effectively deliver drugs of various molecular sizes while eliminating many of the limitations associated with MDIs, DPIs and current commercial nebulizers. Its AeroNeb nebulizer uses its aerosol generator technology to provide end users with a small, portable nebulizer that quietly and efficiently administers currently approved nebulizer solutions.
The respiratory products under development for marketing by AeroGen are targeted to treat pediatric asthma, COPD, CF and mechanically ventilated patients.
AeroGen's first commercial product, the AeroNeb portable nebulizer, offers many improved features compared to standard nebulizers used by patients and care providers in the home setting. This portable nebulizer weighs less than 12 ounces and can operate on four standard "AA" batteries, a car cigarette lighter or AC current. It's silent and operates in any position, with less wasted medication and faster medication delivery rates than standard compressor nebulizers. It incorporates a liquid feed design and generates negligible heat, minimizing drug degradation.
The AeroNeb nebulizer was designed and approved for use with commercially available nebulizer solutions of respiratory drugs and is expected to be introduced into the U.S. market in the first half of 2001.
AeroGen's first product in development to deliver a drug through the lungs to the bloodstream is an AeroDose inhaler delivering insulin to treat diabetes. First clinical trials have been completed. In May 2000, AeroGen entered into an agreement with Becton, Dickinson and Co., where BD will develop and supply a patient-adjustable container for use in AeroGen's AeroDose insulin product.
The estimated 800,000 Type I (insulin dependent) diabetic patients in the United States require multiple injections of insulin per day. AeroGen's AeroDose insulin product is designed to be the first patient-adjustable inhaler allowing a patient to precisely adjust their insulin dose based on anticipated caloric intake. After extensive focus group testing with patients and physicians, the AeroDose insulin inhaler appears to be an attractive method for delivering inhaled insulin, thanks to its small size and ease of use.
AeroGen is developing an application of its aerosol generator technology to deliver drugs to patients on mechanical ventilation. The AeroNeb InLine nebulizer is small and lightweight, allowing it to be positioned close to the patient's windpipe, thereby optimizing drug delivery and humidification of the inhaled air.
AeroGen expects the first AeroNeb InLine nebulizer to be sold as a standalone product that can be attached to any ventilator. There are plans for a 510(k) submission to the FDA for this version of the AeroNeb InLine nebulizer in the first half of 2001.
Drug partners
AeroGen is collaborating with partner companies who will commercialize its respiratory products. In March 2000, AeroGen signed an agreement with PathoGenesis Corp. to develop a small, hand-held AeroDose inhaler to deliver TOBI, an inhaled tobramycin treatment for CF. Under the agreement, PathoGenesis received exclusive worldwide rights to commercialize AeroGen's AeroDose inhaler for use in combination with TOBI.
PathoGenesis is responsible for the development and manufacture of the portion of the final product that contains the drug. AeroGen is responsible for developing and manufacturing the custom AeroDose inhaler. PathoGenesis will conduct the clinical testing needed for regulatory approval of the final product. In July 2000, PathoGenesis announced that it had begun Phase I testing of the AeroDose TOBI product.
In May 2000, AeroGen entered into an agreement with Becton, Dickinson and Company (BD) under which BD will develop and supply a patient-adjustable container for use in its AeroDose insulin product.
In May 2000, AeroGen acquired all the voting stock of Cerus Limited, now AeroGen (Ireland) Limited. Cerus was a development-stage company developing products under license from AeroGen using its core aerosol generator technology.
AeroGen's aerosol generator technology has proven to be of interest to industries outside the field of pulmonary drug delivery. It has an agreement with a multinational consumer products company covering the use of its technology in the fields of air fresheners and insect repellants. Under the terms of this agreement, AeroGen receives royalties based on net sales of units and refill cartridges.
Cash on hand
Since AeroGen is still in its developmental stage, it has accumulated a deficit of approximately US$32.3 million as of June 30, 2000. Expenses will continue to increase, but revenues from the introduction of its first product next year should offset some of the costs.
AeroGen expects its current cash and investments plus proceeds raised from the IPO to sustain operations for at least the next 24 months.
Competing with the pros
The pulmonary drug delivery market is intensely competitive. Several companies, including Aradigm Corporation, Dura Pharmaceuticals, Inc. and Inhale Therapeutics, are developing competing pulmonary drug delivery devices. These competing dosage devices are designed both to treat respiratory disease and to deliver drugs systemically.
Aradigm (ARDM:NASDAQ) is currently trading at US$17.56 and had a 52-week high of US$46.75. Dura Pharmaceuticals (DURA:NASDAQ) recently reached a new high of US$28.87. Inhale Therapeutic (INHL:NASDAQ) is trading at US$50.06 and had a 52-week high of US$70.75. I expect AeroGen to have a stable aftermarket performance, but be disciplined in your aftermarket entry price. Avoid first day run-ups.
AeroGen, Inc. plans to trade on the NASDAQ under the ticker symbol AEGN. Underwriters involved in this offering are Chase H&Q, CIBC World Markets and SG Cowen.
For more information, please contact AeroGen, Inc., 1310 Orleans Drive, Sunnyvale, CA 94089, phone 408-543-2400, fax 408-543-2450, web www.aerogen.com.
Siu-Yee Ng is the editor of IPO Trader, an IPO alert service that helps readers profit on IPOs and, more importantly, the IPO Aftermarket. Click here to find out how you can put Siu-Yee's expertise and extensive contacts to work for your portfolio.
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