Written by Daniel Cohen and Scott Matusow
Lately, many early stage developmental biotech companies have been going on some seriously epic runs. Karuna Therapeutics (NASDAQ: KRTX) just reported that its developmental drug “KarXT, designed for the treatment of acute psychosis in schizophrenia patients, demonstrated “statistically significant and clinically meaningful reduction” in total positive and negative syndrome scale (PANSS) score compared with a placebo.”
Subsequently. Even with a very small N 10 patient number, the stock price exploded from around $20 a share all the ways to a pre-market high of $140 in a few days.
Before that, NextCure (NASDAQ: NXTC) reported what at first seemed like positive early data, but after further data release, it was determined that their data was not as good as their Society for Immunotherapy of Cancer (SITC) abstract first appeared. The abstract was based upon seven patients, however when the data was expanded to N=49 there were no further responses observed beyond the initial two. Nevertheless, the stock made a huge move from around $20 a share to as high as $109, before crashing back down to around $35 a share.
Constellation Pharmaceuticals (NASDAQ : CNST) had the most impressive data of the latest biotech big runners, with strong early data from an N=4 Phase 2 clinical trial for myelofibrosis in combination with Incyte’s (NASDAQ: INCY) Jakafi. In this study all four patients showed a strong response to combination therapy.
CNST’s stock price before positive data announcement was around $15 a share, and went on a run to as high as $45.42. Unlike the first 2 companies mentioned here, CNST has held its value rather well, currently trading around $40 a share – out of the 3 mentioned here, we feel that CNST has the best data set.
We believe the following 2 companies have the potential to go on big runs as well, notwithstanding both of these companies are flying very low under the biotech radar screen.
Calithera Biosciences (NASDAQ: CALA) is a company we have extensive knowledge of and have been following since 2014. The company is nearing an important inflection point with the upcoming results of the randomized Cabozantinib + Telaglenastat combination study in 2nd line Renal Cell Carcinoma (RCC) due in the 2nd half of 2020. While many investors are focused on this binary event, there are a few catalysts along the way which can help de-risk this readout by advancing the stock price significantly higher than its current valuation.
Notably, the company revealed that it is seeking a partnership deal in order to advance its 3rd pipeline asset CB-708, an ecto-5′-nucleotidase (CD73) inhibitor into the clinic. Pre-clinically, the small molecule has shown some promise when compared to the more common approach of antibody inhibition of this target. AstraZeneca’s (NYSE: AZN) antibody, MEDI9447, is the most clinically advanced of the bunch. However, it appears that an antibody approach here is a suboptimal means to inhibit this extracellular enzyme.
Below was extracted from the latest poster at SITC, where Calithera ran an assay of CB-708 against MEDI9447. Here we can see that the antibody failed to fully inhibit CD73 in vitro (A and B), and did not generate a separation from the isotype control in the in-vivo growth assay (C).
Of course, there is also a significant advantage of small molecules over antibodies in terms of manufacturing and patient compliance. Small molecules can be administered orally which makes CB-708 a more marketable product, should this candidate achieve approval one day. CD73 is broadly expressed across a number of tumor types including, but not limited to: colon, pancreatic, lung, and head and neck.
Patients with mutations in the RAS and EGFR pathways tend to carry high expression of CD73 per studies performed by Arcus Biopharma (NASDAQ: RCUS). It is known that patients harboring EGFR mutations are unresponsive to standard checkpoint inhibitors (see here), making CD73 an especially attractive IO target in these patients. In all we feel that CB-708 should garner some strong interest from potential partners given the appeal of the target and strength of the pre-clinical model.
On the company’s last earning’s call, CALA CEO Susan Molineaux stated that the company is looking to make a deal similar to the one they have with INCY – a true co development partnership rather than a bio-bucks royalty driven deal. We would expect something along the lines of a 60/40 split (CALA gets 40), and CALA receiving $50 to $70M upfront with the partner taking an equity position in the company via stock purchase.
Another catalyst to watch with this name is the rather under covered investigator sponsored trial of Telaglenastat in combination with Azacitidine (Vidaza) performed by The MD Anderson Cancer Center. We are anticipating an update to the promising abstract posted on the American Society for Hematology (ASH) website. The abstract, which is shown below demonstrates a high complete response rate of 62.5% achieved in a median of just one cycle along with a transplantation rate of 31.25%. These numbers compare favorably to the CALGB 9221 study, which examined azacitidine monotherapy. In this study, azacitidine showed a mere 7% complete response rate, along with 16% partial responses and 37% with hematologic improvements.
Another study which looked at the combination of Azacitidine with Lenalidomide or Vorinostat compared to Azacidtidine alone showed that these combinations did not improve CR or transplantation rates in intermediate to high risk patients. Both Azacitidine and Azacitidine with Lenalidomide demonstrated a CR rate of 24%, with 16% and 11% respectively proceeding to transplantation. As far as we know, this is the best early data for an Azacitidine combination in intermediate to higher risk MDS patients out there. We believe this demonstrates a compelling proof of concept for this underserved market and we look forward to further updates at ASH.
The second company on our radar is probably the highest risk and highest reward proposition of the 2 we are covering here in this write-up.
Curis (NASDAQ: CRIS) has a somewhat checkered history, but has recently made some significant changes to turn the company around. Notably, the company has installed new management, restructured financing, and has refocused efforts on two key programs, Fimepinostat and CA-4948.
Of particular interest to us is CA-4948, an interleukin-1 receptor-associated kinase 4 (IRAK4) inhibitor. IRAK4 has long been considered one of the ‘holy grail’ targets in oncology, with multiple companies attempting to generate therapeutics against it. The first generation of IRAK4 approaches mostly have failed in preclinical toxicology studies. More recently, some progress has been made in generating tolerable inhibitors against this target including Pfizer’s (NYSE: PFE) program, PF-06650833 in Rheumatoid Arthritis. As well, CRIS has posted data at SOHO in September demonstrating an acceptable safety profile for CA-4948. This can be attributed largely in part to the selective targeting of this kinase inhibitor to IRAK4 and FLT3, with relatively few off-target effects. None of the off-target kinases are known to be particularly toxic.
In an abstract published in the Blood Journal, the company has indicated that at least 2 patients at the 200 mg BID dose level as well as 3 patients at lower dose levels have demonstrated antitumor activity (≥20% tumor reduction from baseline). According to recent calls, efficacy is tracking ahead of the mouse model which would be rather promising for the 400 mg BID dose level. This is an approximate equivalent to the 75mg/kg BID dose tested in mice. If this model holds and the company is correct in its assessment, we would expect deep single agent responses at the 400mg BID dose level. Promisingly, on the latest earnings call CRIS indicated that MTD has not been reached even at the 400mg dose level.
One would expect that an IRAK4 being a central mediator of TLR signaling is a complementary approach to BCR pathway inhibitors, such as Ibrutinib in DLBCL. This has been explored in the below assays and could provide a basis for the company to explore co-development or a partnership with Abbvie (NASDAQ: ABBV), the owner of the assets tested in combination.
CRIS has also stated an intention to explore mutations such as SF3B1 and U2AF1 which drive oncogenic IRAK4-L in AML. This could be a compelling niche for the company to explore on its own accord. Given the company’s financial position we anticipate an update on CA-4948 during ASH to be followed by financing, if the data provides support to do so. After which CRIS would be in a better position to negotiate a partnership for combinations as well as expanding clinical experience with CA-4948.
As exemplified by the current runs of a few early stage biotech companies, these stocks can appreciate rather quickly, generating massive return in a short period of time. However, these stocks are also very risky. We see CALA as the more stable of the 2, while we see CRIS as the more risky play, but with a higher short-term reward.
Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are our opinions only. Trading stocks is risky — always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.