Wednesday, November 29, 2017

Non-RNAi Oligonucleotide Therapeutics Stocks

In the final instalment of the stock market-focused mini-series, I will turn my attention to the non-RNAi Oligonucleotide Therapeutics sector.  With last year’s approval of EXONDYS51 (Sarepta) and SPINRAZA (Ionis/Biogen), two highly impactful exon-skipping drugs, Oligonucleotide Therapeutics has finally gained widespread acceptance as a mainstream drug modality and arguably de-risked biotech investment vehicle.

Ionis Pharmaceuticals
This is a stock where tremendous value is waiting to be unlocked.  All it takes is a change in corporate strategy.  At present, Ionis needs ~4 groundbreaking medicines for every one developed by more traditional biotech companies such as Alnylam for it to reap similar market cap appreciation.  This is because it has readily given away ownership over its drugs regardless of needs, be they financial or related to a lack of disease expertise.

A striking recent example of this is the creation of Akcea as a subsidiary tasked with the commercialization of cardiometabolic drugs discovered by Ionis.  In addition to instantly giving up 1/3 of its ownership through an IPO of Akcea at very low prices, Akcea also partnered much of its assets with Novartis, thus further diluting Ionis’ ownership.

So what should have easily been a value of $3-4B to Ionis on the eve of the approval of the first important cardiometabolic antisense drug (triglyceride lowering Volanesorsen for FCS), Ionis’ stake in Akcea now probably accounts for barely $1B of Ionis’ ~$6.5B market cap.

To add insult to injury, Ionis this summer purchased close to $100M worth of real estate related to their R&D and manufacturing operations. $100M of valuable drug development monies!  This apparently they consider a better prospective return on investment than keeping full ownership of the cardiometabolic franchise or spending a few millions to just buy the marketing muscle they keep whining about lacking.

Not all may be lost though.  There are signs that Ionis, and perhaps even the CEO (Stan Crooke) himself who had been propagating the marketing-is-evil myth to justify Ionis’ business strategy, has started to realize that they need to change their ways to keep up with the market capitalizations of peers, including organizations driven by strong platform technologies (etc Alnylam, Regeneron).  With Brett Monia assuming the role of COO and Crooke’s right hand Lynne Parshall stepping aside, we are in the midst of a change of guards in this company.  But don’t hold your breath given that Dr. Monia, as a founding member (in his mid-20s!) of Ionis, still ought to be considered a part of status quo until proven otherwise.

Inotersen as an inadvertent opportunity

Just as Ionis was looking to be locked into its royalty play model with Volanesorsen (à Akcea) and GSK-partnered Inotersen for TTR amyloidosis as the next approvals on the 2018 horizon, GSK handed back full rights to Inotersen to Ionis.  Suddenly, Ionis is in full control of a drug competing for a market currently supporting ~$10B in market capitalizations between Ionis and Alnylam.  With peak sales expectations (even without the wild-type TTR cardiomyopathy opportunity) topping $5B, this number should only grow as the commercialization phase begins.   

If Ionis is smart, they will retain most marketing rights to Inotersen as any misstep by Alnylam around its first-generation TTR drug Patisiran could provide Ionis with an unanticipated upside (as an investor, I always look for the upside compared to market expectations).  Also, learning the TTR marketing ropes now will prepare them for the battle of the respective next-gen drugs between Alnylam and Ionis as this is where the TTR game will be won in the mid-term.

Chances are that Ionis will find commercialization less daunting and even rewarding, including to the R&D staff getting closer to the patient experience.  They should also then realize that through the exposure to the patients and medical community, they will gain a better understanding of the demands on follow-on products.  Drug discovery and commercialization in the orphan era is certainly a virtuous circle and Ionis may be the last one to find out.   

Better late than never.

In the interim, look to clinical results, especially from partnered CNS franchise drugs (Huntington’s, ALS) as tradable catalysts.  With a position in IONS that is approaching the size of my largest holding (ARWR) following the recent mini-sell-off in biotech, I also speculate that as the commercialization of Inotersen approaches and the market understands the impact of the SPINRAZA loading dose issue on sales numbers, IONS should be a solid outperformer in the biotech market. 

Strong buy.

Wave Life Sciences
I consider the CNS where currently the most value is bottled up in antisense therapeutics whereas in the liver, RNAi in general holds the edge in terms of safety and convenience (long-term I believe the battle will be won based on off-targeting, one gene at a time).

Since Ionis has given up substantial rights to its CNS drugs through its broad partnership with Biogen and the next hot CNS candidate is partnered with Roche (for Huntington’s), consider Wave Life Sciences not primarily as a stereopure ASO investment, but an ASO CNS play with the company likely retaining significant commercialization rights.

Of most interest to investors should be its two early clinical-stage drug candidates specifically targeting the mutant alleles in Huntington’s disease.  Initially, I had been skeptical about the actual need for targeting mutant huntingtin specifically given that we are unlikely to see the 90%+ type knockdowns that *could* spark safety concerns if the degree of knockdown also applied to wild-type huntingtin. The observation by Ionis, however, that ASO knockdown in the various areas of the brain is uneven and that the deep brain structures thought to be most involved in Huntington’s pathology may be some of the least sensitive to ASO knockdown made me realize the potential value of the allele-specific approach.  This is because in order to drive substantial knockdowns in the deep nuclei, the corresponding drug doses might lower wild-type huntingtin to very low levels say in the cortical neurons.

Still, since the huntingtin knockdown concern remains theoretical and is largely based on animal models where huntingtin has been knocked out since around birth (please correct me if wrong), I still consider the allele-specific approach as a needlessly complicating measure.

With a healthy market cap of $1B, I feel that WVE is a very interesting ASO investment for the long-term, but that price-wise better buying opportunities could be ahead for this clinically nascent company.  Also, I am skeptical about Wave’s unforced fast-follower strategy and would like to see first-in-class candidates entering clinical development.

And yes, if stereopure chemistry can get around some of the safety issues of phosphorothioate oligos that will likely remain relevant (due to dose levels) for systemic applications outside the liver, additional competitive value is to be realized there.

Disclosure: no position as of November 29, 2017.

Sarepta Therapeutics
One of the fast-follower indications pursued by Wave is exon skipping for DMD- the domain of Sarepta Therapeutics.  Soon, Wave may not find themselves chasing a modestly potent EXONDYS51 and related PMO-chemistries for other exons, but what could emerge as a much more exciting exon skipping chemistry for the muscle: peptide-conjugated PMOs (PPMOs) which has recently cleared the preclinical safety hurdle to enter clinical development.

PPMOs easily outperform simple PMO chemistry in terms of potency, but arginine-rich precursors have suffered from unacceptable preclinical toxicity.  Sarepta now claims that it has found PPMOs with increased potency (see slide 16 of this presentation), but a much better safety margin.

If first clinical biomarker data support substantial exon skipping, then I believe Sarepta’s control over the DMD market will be cemented. Currently it somewhat hinges on confirmatory clinical evidence of therapeutic benefit for their mildly active PMO exon skippers entailing considerable clinical and competitive risk.  Add to this a number of other modalities in the quiver to treat DMD which Sarepta has acquired rights to more recently, Sarepta looks like a Vertex-/Alexion-type single orphan disease-focus play in the making.  Think $30-40B market cap (now: $3.6B).

Disclosures: long SRPT.

Regulus Therapeutics
After the miR-122 desaster in HCV and new management in place, it looks like a fresh start for Regulus Therapeutics.  The new mantra is quality over quantity as Regulus and partners alike have axed a number of microRNA Therapeutics programs.

As a result, it is clinical data from two development candidates that will most likely determine the shareholders’ fate in the years to come (note: I still think there could be tremendous opportunity in microRNA Therapeutics from addressing complex neurological diseases like Alzheimer's, but his seems of less interest to Regulus currently).  

One is RG-012 targeting miR-21 for the treatment of Alport Syndrome, an orphan disease impacting kidney health.  The advancement of this program into patients was recently slightly delayed by a few months after insights from a natural history study of the disease made the company re-focus on only X-linked cases of the disease for purposes of better stratification.

Instead of considering the change in study design as increasing the quality and therefore odds of success for the study, the market penalized this 3-6 month delay by selling off the stock from $1.4 to sub $1.  I call this a buying opportunity.

Regulus Therapeutics stands out from the oligonucleotide therapeutics crowd in that also its second candidate, RGLS4326 for autosomal dominant polycystic kidney disease (ADPKD) now in the clinic, is also targeting cells in the kidney.  I don’t think that this was by design, but the result of the liver programs falling by the wayside for various reasons.

While the kidney is certainly an interesting organ for oligonucleotides due to its high exposure to this class of molecules, it is a complex organ and not all that much is known about cell type-specific pharmacodynamics outside the proximal tubule epithelial cells.  Add to this the uncertainty about the relevant therapeutic cell types that need to be targeted for a disease like Alport’s, and you end up with considerable target risk around these programs so that in the end we largely have to rely on the mouse models here being relevant to human disease.  

I am long RGLS given (1) that Alport Syndrome makes for a nice orphan market opportunity with some important groundwork laid by Regulus itself,  and (2) the fact that sentiment around Regulus can only get better and if targeting miR-21 does not have a measurable on fibrosis in the kidney, maybe it’s time to give up on microRNAs for therapeutics altogether.


Howie Rosenberg said...

Hi Dick. I get your point on Ionis giving away value but what do you think it is going to cost Novartis to run the outcome studies on APO(a)-L-Rx and APOCII-L-Rx? My understanding is that these P3 trials will be very expensive. Plus Ionis/Akcea will be eligible to receive $100's of Millions in License fees & Milestones. Doesn't this offset some of lost revenue which might take several years to start flowing? BTW, did you see the estimates from Akcea in their Stifel slides of 8.5 to 11 million patients for APO(a) and 8.5 to 14 Million patients for APOC-III?

Dirk Haussecker said...

With a different, more commercially focused business model, the cost of capital to run such trials would be very affordable. What's $400M to a $13B market cap company like Alnylam? Not much...

By Dirk Haussecker. All rights reserved.

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