Small Molecules and Gene Therapy Muscle Out Oligonucleotide Therapeutics

Over the last two days, breathtaking data were reported for the treatment of two severe, inherited muscle-wasting diseases affecting children.  The investigative agents were a small molecule splicing modulator and a gene therapy both of which appear to achieve superior results compared to approved Oligonucleotide Therapeutics agents. 

The developments highlight the risk that while gain-of-function changes (here by splice modulation) may have proved to be low-hanging fruits for Oligonucleotide Therapeutics, they, unlike gene knockdown approaches, face increased challenges from other technology platforms.

Small molecule splicing modulation for Spinal Muscular Atrophy (SMA)

In 2011, Roche started collaborating with PTC Therapeutics on small molecule splice modulators for the treatment of SMA.  The idea is to screen small molecules for their ability to bring about changes in RNA processing that would hopefully be gene-specific enough so as not to cause widespread off-targeting.

I had always considered this to be a monumental, if not insurmountable task.  This is because a given splicing event brings together a set of proteins that each in turn also function at other genes.  So surely a small molecule that may bias splicing from SMN1 to SMN2, as does antisense oligonucleotide SPINRAZA from Ionis and Biogen through highly specific base pairing, would also affect a range of other genes.

If that were not enough of a challenge, a small molecule carries the extra baggage of being more widely available across tissue types such that off-targeting is a risk to not just the CNS as with SPINRAZA, but many other cell types where there may be no benefit from SMN upregulation.

Accordingly, the first compound in the PTC-Roche collaboration to enter clinical development, RG7800, had to be discarded last year due to retinal tox concerns.  Another small molecule competitor, branaplam from Novartis, had similarly been put on hold due to tox concerns although this compound has resumed development late last year.

It was therefore amazing to see updated results from the FIREFISH study of the follow-on compound RG7916 in type I SMA infants.  They show that 90% of children had an improvement in the CHOP-INTEND measure of physical functioning after 6 months on the drug.  The results are particularly impressive considering that treatment had been initiated relatively late compared to the new standard of care with SPINRAZA and the soon-to-be-approved gene therapy by Novartis (àAvexis).   

Not only that, there had been no treatment discontinuations due to safety issues with RG7916.

Given that SPINRAZA has to be given intrathecally while RG7916 can be given orally, and given that both the gene therapy and the orally available RG7916 appear to be somewhat more efficacious than the oligonucleotide, the focus of Biogen and Ionis should now be on testing combinations of SPINRAZA with both modalities.  Ideally, there is added efficacy from using the agents together either because due to higher achievable SMN protein levels and/or due to complementary biodistribution (note: the value of SMN increases outside motor neurons is debated).  If not, the SPINRAZA franchise may have a limited shelf-life.

Fake-it-‘til-you-make-it Sarepta with gene therapy breakthrough

The other piece of great news for families dealing with neuromuscular disease came yesterday at the Sarepta Therapeutics R&D Day. 

To wit, Sarepta had used dubious data and a lot of political lobbying to get the controversial exon skipper eteplirsen approved under accelerated approval.  While delaying the confirmatory study that is supposed to be part-and-parcel of an accelerated approval, Sarepta has been raking in billions in sales and added market capitalization.  This has allowed the company to build a veritable DMD powerhouse with a number of candidates that look much more promising than ordinary PMO-based eteplirsen.  They include peptide-conjugated PMOs and especially gene therapies.

If you are involved in drug development, better get used to the dubious morals of the industry.  If things go well, you behave like the paragon of virtue, if things don’t go so well you fake it until you get another chance at succeeding.  I digress…

Before the initial gene therapy data were to be presented by Jerry Mendell from Children’s Nationwide of SMA fame, I had dreaded the thought of having a hyped-up R&D Day being about divining the meaning of a biopsy slide or two on the barely-above-background expression of the microdystrophin transgene.

However, what was presented was anything but borderline.  Unlike with eteplirsen where we were dealing with debatable 1%-type absolute expression levels, there was robust microdystrophin expression: ~75% of cells expressed the transgene (by IF) with roughly 30% absolute expression of microdystrophin relative dystrophin from a normal person (by Western blot).

Not only this, the microdystrophin was functional at the molecular level as judged by restoring dystrophin-related protein complexes serving to protect the muscle from damage by acting as shock absorbers.  Accordingly, CK levels in the blood, a marker of muscle damage and elevated in children with DMD, were robustly (9x) and uniformly lowered in all 4 boys between the ages of 4 and 7.  Add to this the obligatory before-and-after videos and there is little doubt already at this relatively early stage already (~1-3 months after gene transfer) that AAVrh74.MHCK7.microdystrophin is a powerful agent applicable to essentially all types of DMD.

On the safety side, there were considerable, but transient and manageable increases in liver enzymes.  This was to be expected, however, considering the very high doses of AAVRh74 needed to achieve widespread transgene expression in muscles throughout the body and treating physicians know to look for it.

If the safety holds up and expression continues to be long-lived, AAVrh74.MHCK7.microdystrophin could render many exon-specific oligonucleotide splice modulators obsolete. The duration of action is the most concerning issue to me at this point given the attendant cell turnover and attendant risk of losing episomal gene therapies in patients with muscle damage.    

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.

Fed-Induced Sell-Off Offers Attractive Values in RNA Therapeutics

For whatever reason, Janet Yellen does not like cheerful biotech investors and between her first policy speech as new chairwoman of the Fed in April and comments last week decrying biotech and social media stocks as inflated she caused two major sell-offs in RNA Therapeutics stocks.  As a result, industry bellwethers ISIS Pharmaceuticals and Alnylam are trading at less than half their 52-week highs, though better than ‘second-tier’ RNA Therapeutics companies such as Tekmira and Arrowhead Research which are trading down even more than that.

When the technology has matured to the point that it can bring significant value to patients, pipelines rapidly progress and expand, and with companies flush in cash by historical standards, this sell-off offers in my opinion great risk:rewards.  Here is a run-down of my five favorite plays.

1.       $ISIS. ISIS Pharmaceuticals is my current RNA Therapeutics core holding that I would not want to be out of.  With ligand-targeted technologies offering much lower tissue exposures and therefore much better safety margins, multiple mechanisms of actions and a pipeline that rivals any in the industry, this company is on track to become the most valuable in the industry- if not economy (subject to the vagaries of the healthcare policy directions). 

At a $3B market cap, no foreseeable financing needs, and a healthy newsflow (especially regarding partnerships), the downside should be relatively limited, and I will sleep tight even knowing that Yellen (who seems to confuse the Dow and large cap biotechs with the broad biotech industry) might open her mouth again to talk about something she obviously understands very little about.

Best long-term risk/reward.

2.       $TKMR. Tekmira is the most beaten-up stock of the bunch that gets credit for almost nothing.  This is mainly the result of the Ebola trial results which were a disappointment- little doubt about that.  However, translating these results from the unthankful ‘Haertetest’ to the rest of the pipeline is unwarranted.  This is because a highly most potent knockdown technology for the liver, should be able to carve out some market for itself.  And if the HBV product won’t require transient immune suppression and/or if its use is deemed acceptable in HBV with its expected finite treatment period, there is an enormous opportunity for which the favorable newsflow is only about to heat up with the presentation of the preclinical dataset..

It is the newsflow from new product candidates (esp. HBV)), clinical trial starts (liver cancer, HBV, alcohol dependency), clinical trial results (ALN-TTR02 OLE, TKM-PLK1 interim phase II with little to no expectations by the markets), and business development (mRNA), that makes TKMR an attractive buy at these severely depressed levels ($31 in April, now trading at $9).  And with the Ebola Haertetest on Clinical Hold, TKM-EBOLA does not scare me anymore as an investor.  It even offers a potential near-term catalyst should the Hold be lifted.

Best 6-12 month risk/reward (until release of phase IIa HBV knockdown results).

3.       $RGLS.  I’ve never liked Regulus much as a stock, mainly because of its anemic pipeline that its own management does not even seem to be excited about given that it now calls the potent GalNAc-targeted anti-miR122 product candidate for HCV merely a proof-of-concept for the company.  However, given that the HCV market emerges as one with a long-tail, not all is lost for this pan-genotypic, potentially one or two-shot treatment when used in conjunction with other HCV drugs. 

When HCV-competitor Achillion recently surged on the back of the Merck takeout of HCV play Idenix as it reminded investors of the long-tail nature of the market, Regulus was forgotten.  It may reach investors’ consciousness when they report phase I results possibly early next year.  Solid financials with more than $100M in cash and a reasonable $300M market cap given its prominent position in the microRNA Therapeutics industry.

Speculative buy with regard to single catalyst.

4.       $ARWR. All eyes are on the outcome of the ARC520 phase IIa study in HBV-infected patients which could be announced any day now.  My prediction is a ~80% HBsAg knockdown at the 2mg/kg dose.  My problem is that I have little idea about how the market will respond to that given that the trial is not designed to achieve the ultimate goal for this therapeutic candidate: a functional cure.

Most investors seem to expect an easy double (or more) from current levels, an notion that I do not want to necessarily reject for an 80% knockdown.  It all seems to depend on how the results will be framed by the analysts and how successful the dueling hedge funds are in painting the tape to their advantage. 

With more than 10% of the float short and given ARWR's historical trading pattern, great volatility is a given.

Highly speculative buy, so much so that options may actually be the best way to play it.

5.       $SRPT. No matter the negative market reception to the recent release of the 144-week study results, Sarepta and patients will get their accelerated approval for eteplirsen.  The debate has reached a point that the drug development clock for Duchenne Muscular Dystrophy cannot be set back another 5-10 years by rejecting the current class of candidates of which Sarepta’s looks to be the most promising- despite the highly anecdotal nature of the results.  This is because eteplirsen seems amazingly safe, so the potential harm from giving a potentially non-effective medicine is limited.  This is clearly not the case for Prosensa’s exon skipping drug candidate, and don’t even get me started about PTC Therapeutics …

Solid 12-month risk:reward juiced by the large short position (>30%).