EU Patent Dispute Outcome Limits DMD Opportunity for AVI Biopharma

Prosensa has announced the outcome of the Opposition Division of the European Patent Office ruling on dystrophin exon 51 skipping molecule. The EPO Opposition Division, presiding in oral proceedings Wednesday in Munich, ruled that the patent was allowable in an amended form.

The allowed patent describes, amongst others, the skipping of exon 51 in the Duchenne muscular dystrophy gene using a 14- to 40-mer antisense oligonucleotide as a potential therapy to treat DMD.

The amendment is the result of an opposition proceeding brought by the U.S. based company AVI BioPharma Inc. (NASDAQ: AVII). With this ruling, the EPO confirmed the strong IP position that Prosensa has built in the field of exon skipping in DMD.

Wedbush Securities said the EPO decision, pending any appeal, may effectively prevent AVI BioPharma from marketing its lead exon 51 skipping molecule, eteplirsen, for Duchenne muscular dystrophy in the European Union without a license.

Duchenne muscular dystrophy is one of the most common fatal genetic disorders to affect children around the world. About one in every 3,500 boys worldwide is affected with DMD, while girls are rarely affected.

DMD is a devastating and incurable muscle-wasting disease associated with specific inborn errors in the gene that codes for dystrophin, a protein that plays a key structural role in muscle fiber function.

Eteplirsen, formerly known as AVI-4658, is AVI BioPharma's lead therapeutic candidate for DMD and uses its core PMO chemistry applied as a splice switching oligomer (SSO). The drug is intended to skip exon 51 of the dystrophin gene. By skipping exon 51, eteplirsen may restore the gene's ability to make a shorter, but still functional, form of dystrophin.

Exon 51 skipping represents the largest opportunity to treat DMD patients with about 15 percent of the population treatable via this mechanism, said Gregory Wade, an analyst at Wedbush Securities.

The EPO also maintained, in amended form, Prosensa's claims regarding exon 46 skipping molecules. AVI BioPharma and Prosensa may dispute EPO's ruling; however, resolution of process may take several years, said Wade.

In their opposition, AVI BioPharma was able to invalidate and/or cancel Prosensa's claims regarding exon skipping oligonuclotides for exons 2, 8, 29, 43, 44, 45, 50, 52 and 53. Claims covering exons 46 and 51 were maintained.

Wade noted that while AVI BioPharma was unable to invalidate claims on exon 46, the majority of these patients may be effectively treated with exon 44 skipping candidates. He recalled that in the U.S., Prosensa's overly broad claims corresponding to the opposed European claims were rejected by the United States Patent and Trademark Office.

Earlier this week AVI BioPharma announced two collaborations for potential follow-on compounds related to exon 45 and 50 skipping to treat DMD. These exons represent about 6 percent and 12 percent of treatable deletions for DMD, respectively.

Wade estimates that they represent a peak annual U.S. sales opportunity of $130 million and $70 million, respectively. He does not currently include this in his model viewing it as potential upside following positive eteplirsen data in the second quarter of 2012.

If eteplirsen is approved to treat DMD in the U.S. follow-on compounds to skip other exons could potentially reach the market within 18 months. Wade said the next catalyst for the stock would be top-line data from the Phase 2 trial of eteplirsen (AVI-4658) in the DMD setting in the second quarter of 2012.

The brokerage reiterated its outperform rating on shares of AVI Biopharma, while lowering its price target to $2.50 from $4.

We are lowering our price target on shares of AVI Biopharma to reflect the EPO's decision to uphold Prosensa's rights to exon 51 skipping candidates. We believe that the primary value driver for AVI Biopharma's stock is its PMO-technology-derived eteplirsen for Duchenne muscular dystrophy, said Wade.

AVI Biopharma stock closed Friday's regular trading down 4.71 percent at $0.810 on the NASDAQ.