COVID-19 Therapeutic Stocks to Watch (June 2021)
(Tables edited on 7/12/2021)
Summary
Over 40 Smid-Cap companies currently have active trials involving COVID therapeutics (this includes small molecules and biologics)
These stocks have been very volatile in 2021 thus far, and will likely remain that way for most of the year
Many of these COVID therapeutic candidates have clinical readouts/catalysts this month or next
HGEN is a standout stock to watch as the FDA decides on its EUA application
Given the ongoing prevalence of COVID in the world, the disease is likely to be a major healthcare concern for some years to come. A key for the value of this market will be how much of the developed world’s population is vaccinated. Currently, it appears that a significant portion (at least 37%) of the U.S. adult population will remain unvaccinated (~38% of the U.S. adult population has NOT received a single dose and ~49% is NOT fully vaccinated) https://covid.cdc.gov/covid-data-tracker/#vaccinations. Furthermore, current variants, especially the delta variant, and continuing development of new variants, could increase the prevalence and severity of COVID in the coming months/years. Thus, many smid-cap companies continue to focus on developing COVID therapeutics.
Over 50 companies have focused on COVID therapeutics as part of their pipeline (Table 1). Some of these companies have initiated trials of new assets while others have tested the ability of assets already in their pipeline to treat COVID. While there have been a handful of trials discontinued, over 40 companies still have ongoing trials. These COVID therapeutics stocks have been quite volatile thus far in 2021 (Table 1) and will likely stay that way as the pandemic ebbs and flows in the coming year(s). Most of these stocks that were publicly traded at the beginning of 2021 have moved more than 20% this year.
ACRS is the biggest gainer of the group, up over 175% this year. It is a bit surprising that the only smid-cap company to have an emergency use authorized (EUA) covid therapeutic, as of 6/22/21, ABCL, is down about 44% this year as of this date. However, ABCL is an antibody discovery company that went public late last year in what currently appears to be an over-hyped/priced IPO, and derives only a small amount of royalty revenue from BamlanivimabLY-CoV555, the antibody that it discovered and then partnered with Lilly. Lilly then rapidly developed it into an EUA therapeutic (see our Bamlanivimab IQ card). Bamlanivimab alone or together with other antibodies is authorized in 20 countries for the treatment of mild to moderate COVID-19 in high-risk patients (See ABCL corporate presentation slide 13). To try to tackle variants, bamlanivimab has been evaluated in clinical trials with etesevimab and VIR7831 (Id. at slide 14). ABCL has also developed LY-COV1404, which it claims neutralizes all currently circulating variants and can be delivered subcutaneously (See press release).
Table 1. Covid Therapeutic Candidates for Biotech Companies*
*Biotech companies with valuations between $100M and $5B
Table 2 lists the targets and therapeutic type for the covid therapeutic candidates. As can be seen there are many different strategies that are being pursued. The COVID therapeutic candidates include small molecules and biologics (including proteins, antibodies, and cell therapies) with a large number of assets focusing on targeting the immune system response/cytokines. About ⅔ of the assets are biologics, many are cytokines, and over 10% are antibodies against parts of the SARS-CoV-2 virus.
Table 2. Covid therapeutic candidate strategies
Table 3 lists the upcoming readouts for the COVID therapeutics companies. There are quite a few COVID readouts this month or next for these companies. It is noteworthy that ALT has a readout coming with a data readout in the second quarter for their therapeutic asset T-COVID. Altimmune’s COVID-19 vaccine also has a data readout in the second quarter, as previously mentioned in the COVID-19 vaccine forum article. The first two cohorts in the T-COVID trial were completed earlier this year; data from the third cohort is expected in June and represents efficacy and safety data from patients at higher-risk for severe COVID-19 infection because of age or number of risk factors.
Also notable is Mereo BioPharma’s asset Alvelestat (MPH-966) which is reporting Phase 1/2 data in mid 2021 and is involved in additional trials to treat Bronchiolitis Obliterans Syndrome (BOS) and Alpha-1 antitrypsin deficiency (AATD). Positive data from the BOS trial was reported in early June and caused a jump in the stock. However, MREO is still down almost 10% for the year. TYME’s asset TYM-19 also has a data readout in the first half of 2021. TYME’s stock almost doubled at the beginning of February when the company was granted a patent to cover the asset, but YTD the stock is down about 5%. Both Mereo and TYME are likely big-mover stocks to watch because of the upcoming COVID readouts and high options implied volatility data.
Table 3. Therapeutic candidates - Upcoming catalysts.
HGEN
One particularly interesting upcoming COVID therapeutic catalyst is the FDA’s decision on whether to grant HGEN emergency use authorization for lenzilumab. As far as timing of the FDA’s decision, we looked at other COVID therapeutic EUA approvals and based on this, it appears to us that the FDA will likely decide on this authorization between June 28 and July 28, 2021 (30-60 days from HGEN’s submission to the FDA)FN1.
HGEN SUMMARY
There are two key questions when it comes to how the market will react to the FDA’s EUA decision for Lenzilumab: 1) How likely is it that the FDA will grant EUA to Lenzi for the treatment of COVID? And 2) If the FDA grants EUA, how positive will the market view this decision?
Our conclusion re: question 1, is that the FDA will likely grant EUA to HGEN for Lenzi, although we don’t know whether the risk of rejection due to manufacturing and/or quality issues is about 20% (as in a regular PDUFA from our anecdotal experience) or better.
Our conclusion re: question 2 is that we believe the market will see an EUA grant in a positive way (at least 10% upside with a good chance of >20% upside). However, if Lenzi is approved, HGEN is likely to stay highly volatile in the coming months as the pandemic ebbs and flows in different countries, especially the U.S. and Europe.
1) How likely is it that the FDA will grant EUA to Lenzi for the treatment of COVID?
The clinical trial data for Lenzi looks quite impressive, especially when considering the modified intent to treat population (mITT) (See Lenzi clinical trial manuscript with Phase 3 trial results published on May 5, 2021 on medrxiv.org (not peer-reviewed) for support for the following paragraphs)). At least from the safety and efficacy data, it seems likely that the FDA would grant the authorization. The primary endpoint (improved likelihood of survival without ventilation (SWOV)) was met with both the ITT (1.90-fold improvement (p=0.043)) and the mITT (54% improvement (p=0.041)) populations with the 520 patient phase 3 LIVE-AIR trial (See FIG. 2 below from Lenzi manuscript). As we interpret the data, for the mITT population, 15.6% of the patients either died or were put on ventilation in the Lenzi-treated group, vs. 22.1% for placebo. The safety data looked very good as well, with no clear safety signals in Grade 3/4 adverse events.
As far as mITT vs. ITT, for a COVID pandemic EUA trial, we believe that the FDA will be understanding. Usually mITT vs. ITT is a red flag for the FDA and investors. However, with the dynamic COVID pandemic, it is much more understandable that there might be patients who were enrolled but should not be included. In the HGEN Lenzi trial 90% and 94% of the patients that enrolled in the Lenzi vs. placebo arms, respectively, were included in the mITT population. It was explained for example, that most of the patients that were not included in the mITT populations were from Brazil where a surge in COVID, which affected the ability to put the patients on high-flow oxygen without ventilation.
The data was more impressive when Lenzi was combined with Remdesivir and/or steroids and when a certain subgroup was considered: For patients with a C-reactive protein (CRP) level of less than 150 and who were less than 85 years old, the data was even more impressive. In this subgroup, Lenzi improved SWOV 2.23-fold (p=0.003) in the ITT population and an impressive 2.96-fold (P=0.0003) in the mITT population. Plus, for the subgroup of patients who were randomized in the trial no more than two days after hospitalization, SWOV in the Lenzi group improved by 1.88-fold (P=0.015).
As far as secondary outcomes, for the ITT total population none of the secondary endpoints were met. However, when the CRP less than 150 mg/L and age less than 85 subgroup was analyzed, and especially when the mITT population was considered, a number of key secondary outcomes were met. For example, patients receiving ventilation or extracorporeal membrane oxygenation, dying was significantly less and the days to recovery were reduced. Thus, with respect to the secondary outcomes, the risk is that the FDA requires that at least one of these is met for the ITT population. However, we believe it is unlikely that the FDA will require this for a COVID EUA. Plus, with the subgroup analysis and/or mITT population, some key secondary endpoints were met. Furthermore, GM-CSF appears to be a targetable marker for COVID-19 (Thwaites et al. Science Immunology, March 2010), which provides further support that HGEN’s data with Lenzi is real. It should be noted that an NIH sponsored study, ACTIV-5/BET is currently underway with a readout expected this year (75% enrolled as of HGEN May Clinical presentation).
As far as CMC issues, we have not carefully analyzed how likely the FDA is NOT to grant an EUA on CMC issues, but our understanding is that the CMC hurdle is also lower in the EUA setting. In our prior anecdotal analysis, ~20% of approvals for smid-cap biopharma companies are not granted due to CMC issues. Thus, the risk here is at most 20% on CMC issues. We believe that CMC requirements are a bit relaxed during EUA review (see news article explaining that FDA permitting some batches of vaccines to be released despite issue at plant). However, we see that Emergent of Baltimore is one of the contract manufacturers for Lenzi, and issues at Emergent surfaced in the past month with respect to vaccine manufacturing (See news article here). Despite these issues, the FDA has not withdrawn J&J’s COVID vaccine EUA, and like J&J, HGEN has additional contract manufacturers besides Emergent (See slide 30 HGEN May Clinical presentation).
2) If the FDA grants EUA, how positive will the market view this decision?
If the FDA grants HGEN the EUA for Lenzi for COVID, we believe the market will see this in a significantly positive way (at least 10% upside with a good chance of >20% upside). Exactly how positive will likely depend on the exact state of the pandemic in the U.S. when the EUA is granted, and to a much lesser extent whether the FDA grants an EUA with a limited label of only those with a CRP less than 150 mg/L and less than 85 yrs old. Lenzi appears very well suited for a patient workflow since it would be given shortly after hospitalization, unlike antibody cocktails, which need to be infused before hospitalization, which has been a detriment to their adoption. Furthermore, the dosing is complete in one day (3 doses, 8 hours apart), which appears convenient.
The data from Lenzi, as discussed above, is quite convincing, and thus it could become part of standard of care at many U.S. hospitals. However, there are at least 2 risks with respect to question 2 above: a) New COVID hospitalizations in the U.S. continue to trend down (See CDC data) and b) we are uncertain regarding insurance coverage for Lenzi. If Lenzi is approved, HGEN is likely to stay highly volatile in the coming months as the pandemic ebbs and flows in different countries, especially the U.S. and Europe. HGEN predicts that significant COVID hospitalizations will remain in 2022 and beyond. However, hospitalizations in the U.S. continue to decrease significantly (See CDC data). Given the current vaccination hesitancy for a significant percentage of the U.S. population for example, and the appearance of more infectious and probably deadly variants, such as the delta variant, it appears that there will be a market for COVID therapeutics for some years to come.
Finally, although HGEN has only $93M in cash and cash equivalents currently and reported a net loss of almost $66M in the first quarter of 2021, if they receive EUA from the FDA, they will receive another $25 million on their Hercules Loan Facility (See May 2021 corporate slide deck slide 31). In summary, although there is risk with respect to the HGEN EUA filing and FDA review, we believe that based on strong overall data and some flexibility by the FDA given the challenges of the pandemic, that HGEN will get EUA from the FDA and the market will see this as at least a 10% increase in share price/valuation.
For BPIQ.com by Faith Smalley (MS) and Manny Vacchiano (JD, PhD) and rest of Amp team
FN1 - For time to EUA from submission:
See Vir and GSK (60 days)
Submitted on March 26, 2021
and approved on May 26, 2021
Lilly antibody/cocktail 30days/120 days
REGNR antibody cocktail ~6 weeks
10/8/20 - Lilly combo covid Ab and Regeneron combo covid Ab filed for EUA on 10/8/20 (says mono filed too for Lilly)
11/9/20 Lilly's Bavi mono was approved
Breaking News: Eli Lilly, Regeneron Both File for EUAs for COVID-19 Investigational Therapies
11/21/20 REGN Covid Ab cocktail EUA granted
2/9/21 Lilly received EUA for combo bamlan and etesevimab
This article is NOT investment, tax, or legal advice. Please use this as a starting point for your detailed diligence and consult professional advisers before making investment decisions.
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