Exelixis – Decreasing exposure on valuation
Exelixis (EXEL) continues to look very strong after hitting a 15-year high on Friday, which is never a bad point in time to realize some gains. While I still view Cabometyx as the most effective agent ever approved in renal cancer (even better than Opdivo), a valuation of $5.1B seems to fully capture the current label.
Exelixis definitely has potential to grow with multiple data readouts for cabo (P3 in liver cancer, combination data with checkpoint inhibitors in GU cancers) and Roche-partnered Cotellic (expected to be in three pivotal trials next year) in 2017. On the regulatory front, the company plans to submit data from the CABOSUN study in 1st line RCC with the potential to get approval by late 2017, earlier than the expected Opdivo/Yervoy filing (assuming positive results).
The company also faces risks. To begin with, the commercial launch looks strong but still hard to predict market dynamics in 2017. Competition from PD1-based combination regimens may make 1st line more competitive, even if Cabometyx receives approval. Another risk lies in the fact that the PFS data from CABOSUN were made based on investigator assessments and therefore need to be confirmed by a blinded central reviewer, which may impact the data the FDA receives.
On a personal level, I cannot ignore my bad track record with other oncology launches (especially Genmab and Pharmacyclics) where I sold too early but the strongest argument for selling one of my two Exelixis position is its disproportional share (~30%) of the total portfolio.
Spark – ASH data set isn’t perfect but still impressive
Spark (ONCE) and its partner Pfizer (PFE) presented updated data for their hemophilia B program SPK-9001. Data continue to show durable, strong production of FIX and a sharp decrease in bleeding episodes but this time with some hiccups: Of the nine treated patients, two experienced an immune reaction against the viral vector (one case had already been reported by the company). Although the immune flares were successfully contained with steroids, one patient had a dramatic reduction of FIX levels from ~48% to 12%, which is considered the minimally required levels to achieve a significant clinical benefit. The other patient was treated with steroids more quickly and had a minor drop from 68% to 65%. Importantly, neither of the patients experienced any bleeding events.
The two cases understandably raise concerns but do not impact SPK-9001’s value proposition. Even if the patient who had a sharp decrease in FIX levels is considered a treatment failure (which isn’t the case because there is still clinically-relevant FIX production) a success rate of 89% (8 of 9 patients) is still remarkable. The biggest risk for SPK-9001 remains a life-threatening safety event (uncontrolled immune reaction or carcinogenicity) rather than an imperfect efficacy scorecard.
Alnylam (ALNY) presented data for fitusiran, a siRNA targeting antithrombin for Hemophilia A and B. The drug also led to a robust, dose dependent reduction in bleeding incidence. Of the ten patients who received a higher dose of fitusiran, seven were bleeding-free at the time of analysis.
Fitusiram has a very different clinical profile compared to gene therapies such as SPK-9001. It affects thrombin levels directly so it is effective in both hemophilia A and B which have to be addressed by two different gene therapies. It needs to be administered monthly versus a one-time administration with gene therapy, which is less convenient but also advantageous given the lack of long term safety information for gene therapies. Lastly, although siRNA drugs have a checkered history regarding immune reactions, fitusiran may present a different safety profile without the risk of anti-viral reactions or anti-FIX antibodies (inhibitors).
In summary, while gene therapy represents a more logical straightforward approach for a genetic disease like hemophilia, fitusiran may be able to garner a significant market share especially in younger patients or patients with high inhibitor levels.
Increasing exposure to gene therapy
As followers of this blog know, I am a big fan of gene therapy given its disruptive potential and recent technological advances. Acknowledging the high inherent risk in such a nascent field, I intend to increase my exposure to gene therapy by creating a basket of stocks in order to have a diversified exposure across technologies and indications.
After starting with the clinical leaders: Spark, Avexis (AVXS), Abeona (ABEO) and REGENXBIO (RGNX), it is time to move to the earlier-stage, less validated players. Of these, my favorites are Audentes (BOLD), Dimension Therapeutics (DMTX), and Adverum (ADVM). The market is understandably less excited about these names, evidenced by the relatively low valuations (compared to the $1.5B market caps for Spark and Avexis), but all three have strong platforms and are covering a broad array of indications. Importantly, all three have sufficient cash to generate at least preliminary clinical data.
Audentes is still a preclinical company but expects to have three programs in the clinic in the coming months. The company has a diversified and differentiated pipeline covering a rare muscle condition (X-Linked Myotubular Myopathy), an ultra-rare metabolic condition (Crigler-Najjar Type 1) and Pompe disease which is currently treated with enzyme-replacement therapies.
Dimension has a platform of liver-targeted gene therapies (licensed from REGENXBIO) with a Hemophilia B program in P1 and a preclinical Hemophilia A program partnered with Bayer. The company expects to report initial results IN Hemophilia B next month and to advance another program (Ornithine transcarbamylase deficiency) to the clinic imminently. The company has a $105M market cap which is almost entirely covered in cash (~93.8M as of last quarter).
Adverum was created after Avalanche merged with Annapurna Therapeutics. The combined company kept Avalanche’s ophthalmic pipeline (including a partnership with Regeneron) and added Annapurna’s pipeline which includes programs for the lung disease Alpha1-antitrypsin (A1AT) deficiency and hereditary angioedema. Although the company does not expect to have anything in the clinic until Q4:17, it has a significant $231M cash position, almost double its $119M valuation.
As discussed above, I am selling one of my Exelixis positions and initiating positions in Audentes, Dimension and Adverum. Gene therapy companies now comprise ~15% of the portfolio, and I expect their weight to increase to ~20% in 2017.
Portfolio holdings – Dec 4th, 2016