Summary
Anthera stock price has become very attractive following a >90% drop over the past year.
Potential upside from two near-term binary events.
Financial risk, but enough cash through 2017.
Overall a high-risk, high-reward scenario.
Investment Thesis
Anthera Pharmaceuticals (NASDAQ:ANTH) is developing a Ph3 recombinant enzyme replacement therapy (sollpura) for exocrine pancreatic insufficiency and a Ph2 anti-BAFF peptibody (blisibimod) for IgA nephropathy (IgAN). In our view, the stock is currently offered at an attractive price relative to the value of these assets following a year-long sell-off in response to negative outcomes in clinical trials and poorly timed financings. The previous Ph3 clinical trial for sollpura missed its margin by only 1%, which seems likely to be addressed in the design of the current trial. We further believe the market is inappropriately interpreting a Ph3 failure of blisibimod in systemic lupus erythematosus as a predictor of failure in IgAN. We see these indications as pathologically distinct, with different metrics for success. Given the relevance of proteinuria in clinical outcomes in IgAN and that blisibimod has consistently improved proteinuria, we see this current trial as having a good chance of success. Since these assets are currently being given zero value, we see limited downside as the trials read out in the next two or three quarters, but expect exceptional upside if they are successful. Even though there is a clear financial risk, we believe there is enough cash to reach these inflection points, and therefore, sufficient time to create better conditions prior to an additional financing.
Background and context
Anthera Pharmaceuticals is a clinical-stage biopharma company developing innovative therapies to improve existing treatments and enable treatment for unmet medical needs. It currently has two product candidates - sollpura and blisibimod - both in-licensed from large pharma companies over the past 10 years. Sollpura: Initially developed by Eli Lilly (NYSE:LLY) and formerly called liprotamase, sollpura is a non porcine-derived pancreatic enzyme replacement therapy (PERT). It is being developed for indications that present with malabsorption secondary to exocrine pancreatic insufficiency (EPI), including in patients with cystic fibrosis. Blisibimod: In-licensed from Amgen (NASDAQ:AMGN), blisibimod is an anti- B-cell activating factor (BAFF) that is being developed for B-cell mediated autoimmune diseases, including IgA nephropathy.
Evaluation of near-term binary events
Blisibimod Ph2 results of BRIGHT-SC study in IgAN, expected 3Q17
Background and scientific rationale: Blisibimod is a BAFF antagonist that has activity against both membrane bound and soluble BAFF. BAFF is a survival factor involved in the differentiation and proliferation of B-cells. In preclinical models, mice that overexpress BAFF develop autoantibodies, proteinuria and an SLE-like phenotype. Genome-wide analysis of clinical samples has demonstrated an association of BAFF expression and autoimmune diseases, including multiple sclerosis and SLE. Additionally, serum BAFF is elevated in IgA nephropathy and has been associated with disease pathology. Molecular targeting of BAFF has been shown to reduce serum IgA levels by ~25%. Furthermore, belimumab, a monoclonal antibody against soluble BAFF, is already approved as a treatment for SLE. As you will see in the analysis below, while blisibimod was ultimately unsuccessful in SLE, we still think there is a good chance it will prove effective in IgA nephropathy.
Clinical trials with blisibimod in systemic lupus erythematosus (SLE)
Blisibimod has been evaluated in mild/stable SLE patients in both Ph1a single ascending dose (SAD) and Ph1b multiple ascending dose (MAD) clinical trials. The primary endpoint for these trials was safety and tolerability. However, additional endpoints were also explored, including immunologic profiling. These studies established no major difference in AEs between blisibimod and placebo groups and demonstrated blisibimod did not elicit the production of activity-limiting, anti-blisibimod antibodies. Data from the immunologic profiling showed that blisibimod reduced total circulating B-cells by ~30% and naïve B-cells by 24-76%.
Following the safety trials, blisibimod was then evaluated in a Ph2b placebo-controlled clinical trial. In this trial, 547 patients with moderate-to-severe SLE were enrolled, and the primary endpoint was the SLE responder index-5 (SRI-5) at 24 weeks. This is a composite endpoint of multiple disease activity indexes and physician assessments. While SRI-5 response rates were not significantly different between placebo and blisibimod, there were significant differences in patients with severe disease. Blisibimod also significantly reduced proteinuria and the levels of anti-dsDNA antibodies (see Fig. 3 from Furie, et al. below).
Overall, this was sufficient to warrant a pivotal Ph3 trial that commenced thereafter. As you can see from the stock chart below, blisibimod failed to reach the primary endpoint of this study, with only 47% of patients meeting the SRI-6 endpoint at 52 weeks, compared to 42% of patients in the placebo arm. For reference, belimumab achieved an 11-14% improvement over placebo in a similar SLE study.
Important clinical distinctions between IgAN and SLE
The failure to meet the efficacy endpoints in SLE raised obvious concerns about the future of blisibimod. However, we believe there are meaningful differences in clinical pathology that might predict a better outcome for patients with IgAN. According to multiple reports, there are inherent difficulties in quantifying disease activity across the broad spectrum of patients with SLE. SLE patients are on a variety of background medications and often go through cycles of remission and flares, making interpretation of responders difficult. Furthermore, SLE presents systemically, and while there is clear involvement of B-cells and autoantibodies, there are likely other factors at play. In IgAN, there appears to be a more clear association with autoantibodies, as IgA molecules that lack certain O-glycosylations accumulate in the glomerulus and attract additional IgG autoantibodies against glycan-deficient IgA. Finally, in IgAN there is a clear connection between proteinuria and renal function (see below figure from Reich, et al.).
The available data from BRIGHT-SC suggests a clinically important maintenance of proteinuria that could translate into better patient outcomes and fewer cases of end-stage renal disease (ESRD). The data also show sustained and significant decreases in circulating immunoglobulins, including IgA and IgG, over 100 weeks.
BRIGHT-SC IgA Nephropathy Data (as of December 2016)
Competition: IgA Nephropathy - Atacicept is a dual BAFF/APRIL inhibitor being developed by EMD Sorono. It is currently in a placebo-controlled Ph2 study that is expected to complete in November 2018. Fostamatinib is an oral, spleen tyrosine kinase (SYK) inhibitor being developed by Rigel Pharmaceuticals (NASDAQ:RIGL). This compound is also in Ph2 development, with full results from the current study expected in 2018. Fostamatinib has demonstrated a high rate of TEAEs, including over ¾ experiencing thrombocytopenia. We believe blisibimod will be competitive with these compounds, as it will likely be first to market and appears to be a more tolerable option. Standard of care for IgA nephropathy largely relies on blood pressure control with an angiotensin converting enzyme (ACE) inhibitor or angiotensin receptor blocker (ARB), and the use of steroids in patients with severe disease. Rituxamab, a B-cell depleting therapy, has been studied in a small open-label randomized trial, but no difference in proteinuria or change in renal function from baseline was found.
Market Opportunity: IgAN is the most prevalent primary glomerular disease worldwide and has an annual incidence in the U.S. of ~1 per 100K people. Because IgAN often leads to renal failure and eventual dialysis, the cost savings for effective treatment could be >$200K/patient/year. This, coupled with its rare disease status, would justify a price point in the $200K/patient/year range. With an estimated 3000 patients affected in the U.S., and assuming half would be eligible, this comes to a total addressable market of $300 million. Even with heavy discounting, this represents an attractive opportunity for an asset currently deemed without value.
Ph3 results from sollpura RESULT and SIMPLICITY trials, expected end of 2017/early 2018
Background and scientific rationale: Patients with dysfunctional pancreases can develop exocrine pancreatic insufficiency (EPI). In this condition, the pancreas is unable to deliver sufficient quantities of digestive enzymes to the lumen of the intestine, and therefore, the patients suffer from malabsorption. To correct for this defect, these patients are prescribed recombinant versions of the enzymes to be consumed in pills.
Currently, these enzymes are primarily obtained from porcine pancreas. Often, to be effective, the patient must consume a substantial pill burden. Despite these enzymes being effective when properly dosed, for various personal and religious reasons, some patients would prefer a non-porcine derived product. Sollpura was developed to provide patients with a non-porcine derived and more convenient product. Sollpura contains three biotech-derived enzymes (lipase, amylase, protease) in a non enteric-coated formulation that allows for more convenient administration. Lacking the enteric coating allows sollpura to be provided in dry powder sachets that can be easily added to a small glass of water. The company also claims its product reduces the risk of viral transmission from porcine products, but we were unable to find data supporting viral transmission from porcine-derived products. It also seems allergic reactions to porcine products is not a major problem. Regardless, we believe a dry powder formulation would provide the convenience of sachets and may be a preferred option for patients, particularly pediatric patients who have difficulty swallowing pills.
Clinical data and ongoing clinical trials with sollpura
Sollpura is currently being evaluated in two simultaneous Ph3 trials. The RESULT trial is the modified-repeat trial of the SOLUTION trial that failed in 2016. This trial has been modified to allow for flexible dosing, which should reduce response variability and improve activity in patients with particularly low duodenal pH. The data from the SOLUTION study clearly showed a larger standard error in the sollpura group at week 7, which likely contributed to the non-inferiority miss (see below).
Mechanistically, it makes sense that higher doses should overcome the issues in patients with low pH. It is also worth pointing out that while the SOLUTION study missed the coefficient of fat absorption (CFA) endpoint, it did hit the coefficient of nitrogen absorption (CNA) endpoint. Furthermore, in the 20-week extension of the SOLUTION study, patients on sollpura demonstrated comparable weight and BMI relative to pancreaze. The SIMPLICITY study is a smaller Ph3 trial evaluating sollpura administered as dry powder sachets for oral solution. The study has two parts that will enroll patients below and above the age of 7 and will also read out in late 2017 or early 2018. The SIMPLICITY study has also been modified to allow for more flexible dosing.
Competition: Commercial competition in EPI is steep and dominated by a few therapies. Contrastingly, developmental candidates are limited, and as far as we could find, only include AzurRx (NASDAQ:AZRX). AzurRx is developing a similar, non porcine-derived product, but it does not come in the same convenient formulation. Furthermore, its compound is in Ph2 development, putting it at least a year behind Anthera’s sollpura.
With sollpura’s more convenient administration that lacks any porcine products, we believe it can be competitive with the dominant commercial products. Many pediatricians see pill burden as a significant reason that CF patients are not compliant with current pancreatic enzyme formulations, and would therefore welcome a therapy requiring fewer pills.
Market Opportunity: Commercial sales of PERTs exceed US$1 billion every year. The current leader in the space, Creon, alone generated $730 million in revenue in 2016. Since sollpura is only being evaluated in CF-driven EPI, the total addressable market is closer to $500 million (CF patients account for ~50% of total sales). We estimate that most pediatric patients will prefer sollpura over alternatives, as it comes in easier-to-use formulations. This will enable sollpura to best capture the pediatric market. Since this is a lifelong treatment, one might expect patients to stick with sollpura throughout, allowing Anthera to be competitive with the more established commercial players.
Key Risks
Financial: As of Q1 2017, the company's current cash position is only $21 million. This, coupled with a burn rate of ~$11 million/quarter, only gives it runway for the next two quarters. However, on June 19th 2017, Anthera entered into a purchase agreement with Lincoln Park Capital Fund. In this agreement, Anthera has the right to sell $10 million in shares of the company's common stock over the next 30 months. While this may provide some runway extension, it is still likely a secondary offering would follow any positive news.
Developmental: As with the development of any new drug candidate, there are significant risks associated with the development of these two assets. Blisibimod risk is particularly high, given its earlier stage of development and the difficult disease it intends to treat. As outlined above, both assets have competition that threaten their total potential value.
Summary
Following a series of unfortunate events, Anthera Pharmaceuticals stock has been crushed over the past year, going from over $26/share down to just below $1.50/share. With a negative enterprise value and sufficient cash through 2017, we see this as a nice entry point prior to near-term catalysts for both of its assets. In our view, the ongoing trials have a good chance of success, despite previous setbacks due to issues in trial design and target indication. Overall, we see Anthera as a medium/high-risk, very high-reward opportunity.