Wednesday, August 21, 2019

Aimmune: Contextualizing The ICER Statement

Summary
Aimmune published highly robust Phase 3 (RAMSES, ARTEMIS, and PALISADE) data for AR101. Therefore, the drug is positioned to gain FDA approval for treating peanut allergy by January 2020.
Nonetheless, ICER recently issued a report that questioned the utility of desensitization therapies for peanut allergy.
As opinions rather than facts, the ICER statement is a theory that is used to generate discussion. As such, they do not have any material impact on AR101's approval.
This idea was discussed in more depth with members of my private investing community, Integrated BioSci Investing. Get started today »
The stock market is designed to transfer money from the active to the patient. - Warren Buffet
In bioscience investment, it's crucial to filter out opinions from facts. Despite that you hold a fundamentally sound company, you will face streams of negative market opinions. To stay grounded, it's imperative for you to conduct research due diligence to know when the news is simply a "head fake." This phenomenon is best epitomized by the investment thesis on a food allergy innovator dubbed Aimmune Therapeutics (AIMT).
Though Aimmune delivered extremely robust clinical outcomes for the Phase 3 (RAMSES, ARTEMIS, and PALISADE) trials, its desensitization therapy has been the subject of market negativity. The latest discussion originated from the Institute for Clinical and Economic Review. Notwithstanding, the intelligent Aimmune shareholders are undeterred because such news is simply opinion rather than fact. In this research, I'll present a fundamental analysis of Aimmune while dissecting the negative arguments.
Figure 1: Aimmune chart (Source: StockCharts)

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Headquartered in Brisbane California, Aimmune Therapeutics is focused on the innovation and commercialization of medicines to serve the food allergy market. As the crown jewel of the pipeline, AR101 is an oral biologic for peanut allergy. Designed by the characterized oral desensitization immunotherapy (i.e. CODIT) platform, AR-101 is a powerful preventative (i.e. prophylactic) therapy. Asides from AR101, Aimmune is expanding its development to serve the unmet needs in other food allergies such as egg and walnut.
Figure 2: Therapeutic pipeline (Source: Aimmune)

CODIT Platform

To appreciate the ramifications of Aimmune's technology, it's important to understand the proprietary CODIT platform. Leveraging oral immunotherapy("OIT"), CODIT is poised to deliver the solution to various food allergies. Like a basketball player that found his range, if one CODIT drug succeeds others will follow suit. I explicated in the prior article,
From the logistics viewpoint, a patient suffering from food allergies like egg, walnut, or peanut would initially visit a specialist doctor (an allergist) for the first dose. Thereafter, maintenance doses can be conveniently administered at home until another follow-up dose is given at the office. After desensitization is achieved, the patient continues with maintenance therapy and avoids allergen exposure. Concurrently, the patient carries an epinephrine auto-injector pen (i.e. epi-pen) as the extra safety step. Investors should realize that CODIT medicines are designed to substantially lower the chances of having a potentially fatal reaction (i.e. anaphylaxis). Yet in the rare case that anaphylaxis occurs, there's always the epi-pen for "rescued" therapy.
Figure 3: CODIT technology (Source: Aimmune)

Institute For Clinical And Economic Review

On July 10, 2019, the Institute for Clinical and Economic Review (ICER) issued a report regarding AR101, Viaskin, and other oral immunotherapies (OIT). The aforesaid report featured opinions against the utility of desensitization therapy for peanut allergy. It seems as if the financial market is perturbed yet the poised investors are undeterred. From the corporate front, Aimmune management promptly countered with a defense in the subsequent day. Seeing their eagerness to defend AR101's therapeutic merits for shareholders and patients, I'm quite reassured. As he injected a dose of reality into the situation, the President and CEO (Dr. Jayson Dallas) elucidated,
From the onset, we have believed that ICER’s attempt to assess the value of AR101 was premature, based too heavily on theoretical discussions rather than real-world insight, and omitted valuable patient perspective. Critical data from our Phase 3 trial program continues to emerge, specifically new patient-reported quality-of-life data that were excluded from the analysis. We believe this final report raises more questions than it answers and should be viewed as an early starting point for future conversations—not the final word—about the value of AR101.
I found Dr. Dallas' argument to be logical and valid. With invaluable real-world experience as a bioscience executive, Dr. Dallas is quite pragmatic. Moreover, the Chief has the best access to patients' experience that, in and of itself, is crucial to assessing therapeutic merits. As Dr. Dallas pointed out, ICER is simply "theorizing" for discussion rather than truly analyzing the evidence of efficacy and safety of AR101. Specifically, I did not see ICER discussed ARTEMIS, RAMSES, and PALISADE. That being said, let me walk you through their claims and my counterarguments. As follow, the three arguments ICER made against AR101 utility include the followings:
1) The requirement to continue treatment indefinitely without longer-term evidence of safety or effectiveness; 2) Desensitization does not eliminate the need for caution to avoid inadvertent peanut exposure; 3) The expected yet burdensome increase in the risk of allergic reactions and epinephrine use in the one-year clinical trials for AR101 and Viaskin Peanut.
Regarding the first assertion, the medical reality is that chronic conditions are managed on a lifelong basis. As noble as it is to demand a one time cure, I strongly believe that is impractical. The fact is that most medicines are taken chronically. For instance, patients with heartburn need to take Prilosec over the years while those with arthritis necessitate continual pain med.
As clinical evidence is paramount to innovation progress, let evaluate the key outcomes of the Phase 3 PALISADE trial. Remarkably, 50.3% of AR101-treated patients tolerate a single-highest dose of 1,000mg of peanut protein compared to the meager 2.4% for patients on the sugar pill (i.e. placebo). This signifies that approximately half of all patients taking AR101 would not suffer from anaphylaxis and thereby deters from needing the epi-pen. Instead, if patients do not use AR101 and consumed peanut it's dollars to doughnuts that they will succumb to anaphylaxis. As confirmations to PALISADES results, similar findings were observed in other advanced studies, including RAMSES and ARTEMIS.
In defense against ICER's second argument, I strongly believe that there is nothing wrong with the fact that patients simply need to continue avoiding peanut despite desensitization. Though AR101 is like a bullet-proof vest against peanut allergy, people wearing a bullet-proof vest should avoid getting shot. The added protection from the vest (i.e. AR101) simply minimizes the damage. Asking for 100% bulletproof is an oxymoron. As such, having an excellent medicine does not confer patients the right to be reckless. AR101 provides patients insurance against the deadly anaphylaxis. And, that's the best we can ask from any food allergy drug. Moreover, we should be appreciative of the hopes that AR101 offers to patients.
That aside, AR101 demonstrated the uncanny ability to desensitize peanut allergy in the aforesaid Phase 3 studies. For instance, the stellar drug increased oral tolerated allergen dose by multiple folds. Nevertheless, I highly doubt there will ever be any cure for any food allergy. Due to the working of immune memory, no molecule can induce the immune system to "unlearn" allergen memory. As a stone engraving can't be erased, once the immune memory is developed it can be only weakened but not unlearned. Desensitization and tolerance are the most realistic goals. After all, managing a food allergy isn't the same as treating a simple bacterial infection where a cure is demanded.
Since AR101 improved tolerance and desensitization, it ultimately decreases allergic reaction and anaphylaxis which altogether lowers the need for an epi-pen. Now, what if the patient forgets the epi-pen? In that case, AR101 would still decrease their chances of dying from anaphylaxis. Else, you can bet that the patient will perish if they forgot their epi-pen and not taking AR101.
In my view, if ICER talks to patients I'm certain they'll uncover that having a peace of mind is invaluable to the patient's quality of life. A philosopher once said that the anticipation of fear is worse than the fear itself. Therefore, it must be highly bothersome for patients to ruminate that one day they might forget their epi-pen and encounter anaphylaxis. Moreover, there is no guarantee that all the food that they consume are peanut-free. Even a trace amount of peanut allergen can induce anaphylaxis. Again, taking into account the patient's experience and clinical data is paramount for innovation progress. While there is nothing wrong with a discussion by ICER, I strongly believe that the FDA's decision will be guided by data and patients' experience.
For ICER's third claim, I believe that it fails to appreciate the appropriate clinical context. Early on in the course of desensitization treatment, patients are likely to experience increase allergic reaction. After all, the immune system is "getting used" to AR101. This phenomenon is similar to when people starting to exercise but they are not used to lifting weights or sprinting. As they hit the gym, their muscles will experience soreness the next day. A week into their exercise routine, they should be comfortable with the workout regimen without feeling painful. As health benefits accumulate over the years, the longer patients work out the more well-being they'll achieve.
Desensitization works quite similar to the aforesaid phenomenon. Be that as it may, the desensitization process occurs gradually over several months. As proof in the pudding, patients can tolerate a much higher dosage of peanut allergen after one year of AR101 therapy completion. Though there is a higher incidence of allergic reaction and epi-pen usage in the first year, it'll lead to substantially less reaction thereafter. After all, no pain no gain.
Amid the strong data and heightened demand for treating food allergy, denying AR1010 is a disservice to countless patients and a deterrence to innovation. As such, I believe that AR101 will most likely to gain approval in the U.S. and Europe. In all probability, AR101 will be approved in the U.S. by January 2020. Therefore, I ascribed the 65% (more than favorable) chances of success. Notwithstanding, I anticipated a "focused launch" to commence promptly thereafter.

Financials Assessment

Just as you would get an annual physical for your well-being, it's important to check up on the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 1Q2019 earnings report for the period that concluded on March 31. Since I already discussed the financial results in detail in the previous article, I'll briefly mention the most salient points.
As follow, Aimmune registered $54.4M ($0.87 per share) net loss compared to $49.5M ($0.92 per share) decline for the same period a year prior. On a per-share basis, this represents an 8.0% earnings improvement. Additionally, the research and development (R&D) expenses registered at $31.3M and thereby signifies a 6.2% decrease from $33.4M for the same year-over-year (YOY) comparison.
Regarding the balance sheet, there was $296.3M in cash and equivalent, thus underlying a 2.5% decrease from $303.9M last year. Based on the $55.0M quarterly OpEx, there should be adequate capital to fund operations for approximately three more years. Excessive offerings can dilute the share count so let's analyze the dilution rate. As the shares outstanding increased from 53.5M to 62.0M for Aimmune, my rough arithmetics yield the 15.9% dilution. At this pace, Aimmune easily cleared my 30% dilution cutoff for a profitable investment. Hence, this company is most definitely not a serial diluter.
Figure 4: Key financial metrics (Source: Aimmune)

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the main concern for Aimmune is whether AR101 can gain FDA approval by January 2020. Regardless of the prudent launch preparation, AR101 could fail in commercialization because it's difficult for a small company to succeed without a launch partner. Be that as it may, Aimmune is highly strategic in its launch strategy.
With proper preparation and planning, the chances of success are magnified. In light of the heightened demand for long-term prophylaxis for peanut allergy, there is a strong case for robust sales traction. In spite of the negative reports against OIT, I believe they have no materials risk because they are simply opinions.

Final Remarks

In all, I maintain my buy recommendation on Aimmune with the four out of five stars rating. As a master CODIT innovator, Aimmune can synthesize the "silver bullets" for various food allergies. Since there is no available long-term food allergy prophylactic, the demand for CODIT drugs is extremely strong. Already demonstrated stellar Phase 3 data in three high-quality trials, the first CODIT drug (AR101) is poised for approval in 1Q2020 as a treatment for peanut allergy. Amid the blockbuster food allergy market, AR101 is positioned to deliver significant sales. That aside, if the combination trial of AR101 and dupilumab of Regeneron bears fruit Aimmune is most likely to be acquired by Regeneron.
As usual, the choice to buy, sell, or hold is ultimately yours to make. In my view, it's prudent to keep Aimmune. And, it's important not to be swayed by negative opinions. Let the data and purity of science be your guide. Theoretical discussions are talks. At the end of the day, the data and patient experience are paramount to the FDA.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: As a medical doctor/market expert, Dr. Tran is not a registered investment advisor. Despite that we strive to provide the most accurate information, we neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. We reserve the right to make any investment decision for ourselves and our affiliates pertaining to any security without notification except where it is required by law. We are also NOT responsible for the actions of our affiliates. The thesis that we presented may change anytime due to the changing nature of information itself. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as recommendations to buy or sell any form of security. Our articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your own due diligence and take responsibility for your actions. You should also consult with your own financial advisor for specific guidance, as financial circumstances are individualized.

Sunday, August 18, 2019

Achillion: Shifted Gears For Success

Summary
Achillion Pharmaceuticals delivered extremely robust outcomes for the Phase 1 study of ACH-5228 and thereby galvanized the shares to trade multiple folds higher.
The second-generation Factor D inhibitor (ACH-5228) demonstrated over 95% inhibition of the alternative complement pathway.
With stellar data, Achillion advanced ACH-5228 into a Phase 2 study. An investigational new drug application for ACH-5228 is expected by year-end.
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You only have to do very few things right in your life so long as you don't do too many things wrong. - Warren Buffett
Though successful innovation entails mega-profits, the field is fraught with risks. Therefore, a bioscience theme that I like is when a company genuinely admits failure and thus abandons a former area of focus. In my view, it's prudent to shift gears when either the drug did not generate promising data or the market is overcrowded. The aforesaid phenomenon epitomizes the saga of unfolding events centering Achillion Pharmaceuticals (ACHN).
After years of tinkering with molecules for the hepatitis market, Achillion shares took a beating. Make no doubt, Achillion can make excellent medicine. It's just that hepatitis isn't a fertile investment field. With the prowess similar to Achilles, Achillion switched aim to shoot for the mega prospects of the complement-mediated disease market. As it rolled in uncanny data, the stock recently enjoyed a gargantuan rally. The elephant in the room is whether there is further upside. In this research, I'll present a fundamental analysis of Achillion and provide my expectation on this intriguing grower.
Figure 1: Achillion chart (Source: StockCharts)

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Based in Bluebell Pennsylvania, Achillion is focused on the development and commercialization of small molecule complement inhibitors. Poised in the delivery of hopes to patients, Achillion is striving to serve the strong unmet needs in neurology, nephrology, hematology, and ophthalmology.
Achillion initially targets markets without an approved medicine. Moreover, the company seeks to capture niches having a robust demand for better treatment options. Accordingly, the ongoing development includes paroxysmal nocturnal hemoglobinuria (PNH), C3 glomerulopathy (C3G), and immune complex membranoproliferative glomerulonephritis (IC-MPGN).
Figure 2: Therapeutic pipeline (Source: Achillion)
Of note, the first-generation factor D inhibitor ("FDI") dubbed danicopan demonstrated strong preliminary proof-of-concept in patients afflicted by the blood disorder (PNH) and the rare kidney disease (C3G). Riding promising clinical results, Achillion speared danicopan into a Phase 2 investigation for the aforesaid conditions. Asides from danicopan, the firm is brewing two potent and specific orally-administered second-generation FDIs (i.e. ACH-5228 and ACH-5548).
Figure 3: PNH market (Source: Achillion)

Alternative Complement Pathways

Since Achillion's medicine harnesses the power of the complement system, I'll go over the underlying science powering this beast. The name "complement" is derived from the ability of the complement system to boost the natural defense (i.e. immune) system. Mediated by various small proteins, the complement system comprises of three pathways, including classical, lectin, and alternative.
Though there are over 30 associated proteins, the crucial molecules are Factor D, C3, and C5. As depicted below, the complement system is activated in response to certain trigger proteins. In a series of cleavage reactions, the system executes a cascading effect with one protein activating another. Consequently, this stimulates inflammatory molecules that recruit more phagocytes to clear out the inciting pathogen. As the endpoint in the chain, the membrane attack complex ("MAC") punctures a hole in the bug's cell wall to render it obsolete.
Unfortunately, the complement system can go haywire to induce associated diseases such as PNH, C3G, and IC-MPGN. Being the rate-limiting enzyme of the alternative pathway ("AP"), Factor D has a low plasma concentration. As such, it represents an ideal medicinal target for managing the aforesaid diseases.
Figure 4: Complement pathways (Source: Achillion)
By inhibiting Factor D, the CP and LP remain intact to combat infection that, in and of itself, is a crucial function of the complement system. Ultimately, the upstream and downstream AP inhibition ameliorates pertinent diseases while preserving immune integrity. Better yet, the small molecule inhibitors that Achillion designed enabled for oral bioavailability and broad systemic as well as tissue distribution.
Figure 5: Advantages of targeting AP (Source: Achillion)

ACH-5228

Marking a turn of event for Achillion, the firm reported robust results for the Phase 1 study of ACH-5228 outside the U.S. As the data was disclosed on August 08, the financial market showered shareholders with waves of fortunes. In the aforementioned trial, ACH-5228 was administered to patients with dose ranging from 40 mg to 200 mg twice a day for two weeks. Moreover, there is a single-dose cohort that took 240 mg.
Figure 6: ACH-5229 clinical efficacy (Source: Achillion)
Impressively, ACH-5228 demonstrated the near-complete AP inhibition at the 120 mg or higher dosage. In other words, there was over 95% inhibition as measured by AP hemolysis and AP Wieslab assays. Topping the robust efficacy is the fact that ACH-5228 was overall well tolerated. As the stellar results gave Achillion that billion dollars feeling, the company launched ACH-5228 into a Phase 2 study. An investigational new drug ("IND") application with the FDA is expected to occur in 4Q2019. Stoked with strong clinical findings, the President and CEO (Joe Truitt) enthused,
We are pleased the ACH-5228 Phase 1 MAD data exceeded our expectations of our second-generation oral small molecule FDI. With its improved potency and longer durability of effect, we believe that oral ACH-5228 has the potential to be the best-in-class alternative pathway inhibitor. Our plan is to advance ACH-5228 into Phase 2 clinical trials in multiple diseases. Danicopan, our first-generation AP inhibitor, validated factor D as a target and we plan to begin a Phase 3 registrational study in early 2020.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 2Q2019 earnings report for the period that concluded on June 30. Like other young innovators without an approved medicine, Achillion has yet to generate revenue. That being said, it's fruitful to assess other meaningful metrics.
As follows, the research and development (R&D) expense came in at $15.9M compared to $11.0M for the same period a year prior. The higher spending is related to clinical trial costs for danicopan and ACH-5228. The manufacturing and formulation expenses also contributed. Of note, I view the 44.5% year-over-year (YOY) R&D increase positively because the money invested today can transform into blockbuster profits tomorrow. That aside, there was $19.4M ($0.14 per share) net loss versus $17.2 ($0.12 per share) decline for the same comparison.
Figure 7: Key financial metrics (Source: Achillion)
Regarding the balance sheet, there were $241.3M in cash, equivalents, and investments compared to $270.9M for December 2019. Based on the $21.0M quarterly operating expense (OpEx) rate, I calculated that there should be adequate capital to fund operations into 2Q2022 before needing to raise capital. Having an aplenty of cash, the company can still raise capital at an opportunistic time like when the stock is riding high.
I do not mind an offering because a young company needs cash to fund its drugs development. Nonetheless, you need to determine if you are holding a "serial diluter." A firm that employs dilution as a "cash cow" will render your investment essentially worthless. As the shares outstanding increased from 138.4M to 138.7M for Achillion, my rough arithmetics yield the 0.2% dilution. At this rate, Achillion easily cleared my 30% dilution cutoff for a profitable investment. Hence, this company is most definitely not a serial diluter.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the main concern for Achillion is whether ACH-5228 and danicopan can garner positive clinical results. As I believe both molecules will generate positive outcomes, I ascribed the 35% chances of failure. In such an event, the stock will likely tumble over 50% and vice versa. After all, most value of Achillion resides in those drugs.
For a young company, Achillion might grow too aggressively and thereby runs into potential cash flow constraint. That aside, there is the risk that early trial data might not yield similar advance results.

Conclusion

In all, I recommend Achillion Pharmaceuticals buy with the four out of five stars rating. Powering by excellent medicines for complement-mediated diseases, Achillion set out to conquer this fertile landscape. The early data are extremely robust that I anticipate similar results for advanced trials. Based on Soliris salesof Alnylam Pharmaceuticals (ALNY), I estimated that this market is worth approximately $5B. Remarkably, the current market cap for Achillion is only $643M. Hence, the stock should be worth several folds higher if its drugs can deliver a composite $1B future sales.
As usual, the choice to buy, sell, or hold is ultimately yours to make. In my view, it's prudent to build a small position in Achillion to enjoy further upside. Keep in mind that a stock that recently enjoyed a mega rally like Achillion tends to give back some gains. Therefore, it's strategic to build shares in a "step-wise" fashion. Last but not least, it's important to be realistic and expect profits in the long haul rather than overnight.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: As a medical doctor/market expert, Dr. Tran is not a registered investment advisor. Despite that we strive to provide the most accurate information, we neither guarantee the accuracy nor timeliness. Past performance does NOT guarantee future results. We reserve the right to make any investment decision for ourselves and our affiliates pertaining to any security without notification except where it is required by law. We are also NOT responsible for the actions of our affiliates. The thesis that we presented may change anytime due to the changing nature of information itself. Investment in stocks and options can result in a loss of capital. The information presented should NOT be construed as recommendations to buy or sell any form of security. Our articles are best utilized as educational and informational materials to assist investors in your own due diligence process. That said, you are expected to perform your own due diligence and take responsibility for your actions. You should also consult with your own financial advisor for specific guidance, as financial circumstances are individualized.

Wednesday, July 31, 2019

Atara: The Silver Bullet For Multiple Sclerosis

Summary
Atara recently published excellent tolerability data for ATA-188 at the 5th Congress of the European Academy of Neurology (EAN) in Oslo Norway.
In 2H2019, the company will deliver initial efficacy results for the first cohort taking ATA-188.
That aside, the firm will report Phase 3 results for its lead franchise tab-cell this year. The positive outcomes will erase doubt and fear regarding the departure of senior management.
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We always live in an uncertain world. What is certain is that the United States will go forward over time. - Warren Buffett
In my view, a copycat drug usually procures meager sales. By the time a biosimilar comes to the market, a legion of "me too" therapeutics already decimated the profit margin. On the contrary, the largest investment profits typically arise from a molecule with a novel mechanism of action. Essentially, investors reward for innovation rather than duplication. Despite my affinity for tab-cel, I believe that Atara Biotherapeutics (ATRA) has two wildcards with a disruptive mechanism of action that can galvanize the company's prospects.
Specifically, ATA-188 and ATA-190 are designed as silver bullets for the dread condition (multiple sclerosis). They attack multiple sclerosis as if the disease is of viral origin rather than autoimmune. This is in stark contrast to the conventional paradigm that multiple sclerosis is strictly autoimmune. As such, I believe that any positive news on this front will induce a vigorous rally. In this research, I'll present a fundamental analysis of Atara while focusing on the multiple sclerosis franchise.
Figure 1: Atara chart (Source: StockCharts)

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Headquartered in San Francisco California, Atara is focused on the innovation and commercialization of allogeneic T-cell immunotherapies (“A-TCI”) to serve the strong unmet needs in cancer and autoimmune diseases. Since A-TCI functions similar to a CAR-T, it activates the most important cells of the immune system (i.e. T-cells). I noted in the prior research,
Instead of engaging CD4 (helper T-cells), A-TCI primes CD8 (killer) T-cells with intelligence to improve these cells’ adeptness at detecting and destroying cancers and virus. Powering by A-TCI, Atara is growing a robust pipeline of immunotherapies. The partnership with Memorial-Sloan Kettering (MSK) also enabled Atara to deliver the next-generation mesothelin-targeted CAR-T (i.e. MT-CART).
Figure 2: Therapeutic pipeline (Source: Atara)

Hopes For Multiple Sclerosis

On June 29, 2019, Atara announced that the company presented the Phase 1 safety data of ATA-188 for multiple sclerosis ("MS") at the 5th Congress of the European Academy of Neurology (EAN) in Oslo Norway. As an autoimmune disease, MS incites the body's natural defense system to go "haywire" and thereby attacks normal tissues. In this case, the central nervous system ("CNS") that include brain and spinal cord are at the mercy of the immune system.
As the CNS that controls the functioning of other organs are decimated, MS patients suffer from a plethora of manifestations. They include tingling, numbness, pain, spasm, weakness, dizziness and other problems relating to vision, balance, and cognition. Sexual dysfunction and bladder issues are also common.
Accordingly, patients are diagnosed based on physical manifestations with a supporting CNS scan. The mainstay treatments are steroids and immunosuppressants to calm down the immune system. Nonetheless, there is a strong demand for novel treatment due to the adverse effects of the aforesaid standard of care. It's worthwhile to note that current MS therapies do not modify the disease course. Patients will ultimately succumb to this debilitating disease.
Notably, my journey in learning about MS commenced in medical school. My interest is heightened because MS took the life of a charismatic Vietnamese singer, Ngoc Lan. As if a green leaf died for no reason, MS suddenly rocked the Vietnamese community as it robbed her life. In medical school, I learned that the hallmark of an autoimmune disease like MS is when the immune system attacks itself. At the time, it didn't make sense why the body would ravage itself.
Over the years, it dawned on me that there is no mistake in our physiologic design and function. In her infinite wisdom that is tested by Natural Selection, Mother Nature embodies perfection in design. In my view, the disease manifestations of MS are simply byproducts of something else like a "virally jacked" event. After all, Mother Nature is not foolish to design an immune system that will self-destruct the species.
Figure 3: Ngoc Lan (Source: VietCeleb)
As MS is a devastating condition without a disease-modifying treatment, ATA-188 can change this treatment landscape due to its differentiated mechanism of action. Instead of knocking out the immune system with steroids and immunosuppressants, ATA-188 targets Epstein-Barr Virus (EBV) that is believed to incite our immune system. This is a highly refined therapeutic approach due to its excellent safety profile. Moreover, the high specificity confers an improved efficacy.
It can be difficult to wrap your mind around the fact there are viral elements that remain dormant in our DNA. Altogether, these elements are comprised of a significant portion of the "junk DNA." As a misnomer, junk-DNA is not "trash." If you dig deeper into their origin, these genetic blueprints have interesting origin and function.
For instance, when an RNA virus attacks a host its RNA is integrated into the genes as DNA. And, it'll remain dormant inside the DNA prison as endogenous retrovirus for the rest of the host's life. Under stressful physiologic conditions like unhealthy eating or illness, the virus emerged as cold sores, etc.
Figure 4: Junk DNA (Source: ScienceDaily)
When the virus that resides in our ganglion cells become activated, the painful skin condition dubbed shingles develops. With shingles, the patient simply ends up with the usual fever and an extremely painful rash that occurs along a skin area known as a dermatome. As the herpes virus that causes shingles only remains in somatic cells, shingles is not passed to the next generation. Now the special situation occurs as the hijacker takes residence in our germ cells (i.e. eggs/sperms), its genetic elements will be transferred to the host's descendants.
Figure 5: Shingles (Source: Mayo Clinic)
Over millions of years of evolution, the virus surface as non-expressing genetic elements in our DNA. You might ask why do virus not induce a full-blown disease? Well, the "General T cells" of the immune systems go on his night watch to keep virus and foreign invaders at bays. Over the years, the viral genes are also extensively damaged that they might lose a promoter or other molecular switches needed for reactivation.
Between here and there, some rogue viral fragments evolved and thereby breaks free from the prison of our DNA. I view this phenomenon that explicates MS as the character named T-Bag in Prison Break. As T-Bag breaks free, he'll trip the guards to go on a chase of their life.
Figure 6: T-bag (Source: Express)
And due to the extensive changes and adaptation to our DNA, the endogenous virus now appears similar to our genetic elements and tissues. As such, they carry both viral and normal cellular markers. In a twist of fate, our immune system now views the virus as both "self and non-self." Consequently, the prison guards (i.e. immune cells) are confused and bewildered.
In carrying out their duties, the guardian cells attack mutated viral elements as well as normal cells. For MS, the immune system takes its wrath against brain tissues and spinal cord. And, the fact that the MS viral flares comes and goes explain the ebbs and flows of symptoms. Though symptoms are transient, MS wreaks havoc on these patients. For many unfortunate souls like the young singer Lan, the disease ultimately robbed their life.
Though what I presented is out of the box thinking, there is proof in the pudding for this novel school of thought. For instance, EBV footprints are found abundantly in MS patients. Prominent scientists are starting to believe the viral origin of autoimmune conditions. Riding this wave of scientific advancement, I believe that ATA-188 is going to lock EBV back in the DNA prison to restore the physiologic balance. And, I'm highly encouraged that early ATA-188 data supports good tolerability. That'll be a major advantage of ATA-188 over steroids/immunosuppressants.
Looking ahead, Atara intends to present initial efficacy results for the first cohort in 2H2019. Despite the sound underlying science, I still believe that the MS franchise is a "wild-card." As a doctor and scientist, I prefer to have more clinical evidence before staking my conclusion. In capturing the essence of the MS franchise, I elucidated,
With sound underlying fundamentals, there is a good chance for ATA-190 and -188. Asides from steroids and immunosuppressants, there is no other treatment option for MS. Current MS treatment have notorious side effects. As such, the demand for novel treatment is so strong that market bulls want to jump out of the gate like synchronized swimmers about to take a dive. If Atara can garner positive results for its MS portfolio, this stock should be worth at least several billion dollars higher. After all, the MS market is appraised at least $21B in 2016. And, it's growing at a rapid pace.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." That being said, I'll analyze the 1Q2019 earnings report for the period that concluded on March 31. However, this will be a quick assessment because I already covered financial analysis in the prior article.
Accordingly, the research and development (R&D) registered at $48.7M compared to $28.5M for the same period a year prior. The bulk of R&D expenses were attributed to the development of ATA-188 and tab-cel. I view the 70.8% year-over-year (YOY) R&D increase positively because the money invested today can turn into blockbuster profits tomorrow. You have to plant a tree today to enjoy its fruits.
That aside, there were $66.3M ($1.44 per share) net losses versus $41.4M ($1.05 per share) decline for last year. The 31.4% bottom-line depreciation is due to higher R&D and other corporate expenses. Regarding the balance sheet, there were $237.5M in cash, equivalents, and investments. Based on the $67.8M quarterly operating expense (OpEx) rate, I calculated that there are adequate capital to fund operations into year-end prior to the need for additional offerings.
Excessive offerings can dilute the shares count so let's check the dilution rate. As the shares outstanding increased from 39.5M to 46.1M for Atara, my rough arithmetics yield the 16.7% dilution. At this rate, Atara easily cleared my 30% dilution cutoff for a profitable investment. Hence, this company is most definitely not a serial diluter.
Figure 7: Key financial metrics (Source: Atara)

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. Moreover, the risks are growth-cycle dependent. At this point in its life cycle, the main concern for Atara is if tab-cel can post strong data and thus gains conditional approval first and full approval later. Given that tab-cel is the leading franchise, the stock will likely tumble over 70% in case of a negative clinical binary and vice versa. Though there is always a chance of negative data, I believe that tab-cel will deliver good outcomes due to the robust prior results. As such, I ascribed a 35% chance of clinical failure for tab-cell.
The other risks pertain to the clinical reporting of its CAR-T and MS franchises. In case of a trial failure, the stock won't lose as much value because they are not the crown jewel. That aside, there is the concern that Atara might grow aggressively and thereby runs into the potential cash flow constraint. The departure of top-level management could also foretell fundamental depreciation.

Conclusion

In all, I upgraded Atara Biotherapeutics from a hold to a buy with the four out of five stars rating. Atara is powered by tab-cel, highly advanced immunotherapy that harnesses the power of T cells. Though I expect tab-cel to procure excellent results, I believe that Atara is shifting toward CAR-T. The recent partnership expansion with MSK is the first evidence. The entry of the CAR-T Titan (Dr. Pascal Touchon) is another prima facie. As I prefer the former leadership (Drs. Isaac Ciechanover and Dietmar Berger) to remain, corporate politics dominate.
Amid these catalysts, I'm quite interested in the upcoming efficacy data of ATA-188 for the MS franchise. If the results prove positive, this asset will certainly be worth several billion dollars and thereby induces an acquisition. Larger pharmaceutical companies are always on the search for novel medicine. And, ATA-188 and ATA-190 are as advanced as it gets for MS. Last but not least, it can be difficult to stomach the volatility in Atara but having a strong stomach usually lead to outsized returns.
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Monday, July 29, 2019

Avalon: A Colossal Partnership

Summary
Avalon is gearing to hit a "Trifecta" with three highly promising businesses, including exosome diagnostics, regenerative medicine, and cellular immunotherapy.
Due to its ingenious design, Avalon's chimeric antigen receptor- T cell therapy (CAR-T) dubbed AVA-101 is becoming a dominant player in this space.
In harnessing the power of transposon, AVA-101 carries enough genes for two CAR-T targets to improve efficacy. The added "kill switch" confers protection against the dreaded cytokine release syndrome.
As it foresees an incoming tide of fortunes, GE Healthcare joined hands with Avalon to ramp up cell therapy production and thereby streamlines the whole development/commercialization process.
The landmark partnership enables Avalon to conquer the vast cellular therapy market in China while building its footprints worldwide.
Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble. - Warren Buffett 
As Buffett said it best, stellar growth companies do not come often. In my years of daily exploration of the bioscience space, I recently encountered a rare investment prospect you should not miss out. The investment gem is Avalon Globocare (OTC:AVCO), a young innovator of the next-generation chimeric antigen receptor - T cell therapy (i.e. CAR-T). Back in 2017, I was quite excited at the CAR-T prospects of Kite Pharma and Juno Therapeutics. And, I am thrilled as Kite and Juno were correspondingly acquired by Gilead Sciences (GILD) and Novartis (NVS) for $11.9B and $9B.
Since cellular therapy evolves at a rapid pace, I now vote my strongest confidence in Avalon's CAR-T. Nonetheless, I'm not the only one who is optimistic about Avalon's precision medicine and diagnostics. For instance, the company recently inked a mega partnership with GE Healthcare (GE). In this research, I'll present a fundamental analysis of Avalon while focusing on the latest partnership development.
Figure 1: Avalon stock chart (Source: StockCharts)

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Headquartered in Freehold New Jersey, Avalon Globocare is a CellTech company that operates Avactis Biosciences and Genexosome Technologies subsidiaries. Founded in 2016, Avalon is already forging its crown as a leading cell-based technology innovator.
Figure 2: Avalon subsidiary (Source: Avalon)
In the Golden Age of CAR-T, Avalon is focused on the development and commercialization of disruptive medicines and diagnostics to serve the strong unmet needs in cancer and other diseases. Using a trident-like approach of Poseidon, the company captures opportunities in three highly promising niches. They include exosomes diagnostics, regenerative medicine, and cellular immunotherapy. I elucidated in the prior research,
Powering the diagnostic portfolio is precision medicine based on "exosomal biomarkers." Accordingly, Avalon is delivering a diagnostic avalanche against oral cancer, nonalcoholic steatohepatitis ("NASH"), leukemia, colorectal cancer, and macular degeneration. Notably, exosomal biomarkers can quickly pinpoint a diagnosis to give physicians an edge against dreaded diseases. In the battle of life and death, I believe that accuracy and precision are of paramount importance. That aside, Avalon is brewing various potential blockbusters, including AVA-101, -201, and -203 as depicted below.
Figure 3: Diagnostic and therapeutic pipeline (Source: Avalon)

Pipeline Advancement

On June 22, 2019, Avalon announced a highly strategic partnership with GE Healthcare. Under the collaboration, the companies will work together to improve the logistics such as automation and standardization for good manufacturing practice ("GMP"). As a result, this will galvanize Avalon's global cell production capabilities and thereby positioned it to become an undisputed leader in cell-based medicine.
Figure 4: GE solution (Source: Aithority)
As a subsidiary of General Electric, GE Healthcare provides logistic solutions to healthcare providers and innovators. Their service and product facilitate research and development of advanced therapies and vaccines. As such, GE improves the outcomes for healthcare providers, innovators, and most importantly patients.
Figure 5: GE Healthcare (Source: Glassdoor)
With the aforesaid deal, Avalon strategically leverages GE's FlexFactory Cell Therapy platform and FastTrak process development/training services. Moreover, the company has access to GE's standard operating protocol and protocol library for therapeutic development. Furthermore, users can obtain training at GE sites and Avalon's Nanjing Epicon facility. Enthused by the partnership, the GE Global Commercial Enterprise Solution Leader (Angela Chen) remarked,
Cellular medicines as a bio-industry sector have been growing and evolving at a rapid pace during recent years with vast potential to change the way various diseases are managed. GE continues investing in technologies and services aimed at the thriving cellular medicine industry with a firm commitment to making these promising cellular therapeutic modalities accessible through successful industrialization. We are pleased to work with Avalon GloboCare, a global leader in cell-based therapeutics and exosome technology, who share our mission and vision for advancing innovation and delivering automation, standardization, and bio-production solutions for cellular medicines.
In my view, the collaboration is also favorable for GE because it can strengthen its brand through Avalon's extensive clinical network in China through Lu Daopei hospital network. Though Avalon has strong ties to Cornell Medicine, Lu Daopei hospital is just as reputable as Cornell. After all, it was founded by a stellar physician who is held in high regard in China. I believe that medical innovation is now shifting toward the East. And, China is becoming a global leader in serving the world's largest and increasingly wealthy population.
As a ramification, the partnership will galvanize Avalon's capability to answer the strong demand for cell-based therapies worldwide. For instance, the company can now ramp up its supply of clinical-grade cellular products consisting of chimeric antigen receptor (CAR-T), CAR-NK (natural killer cells), and stem cell-derived exosomes. Specifically, it ensures an adequate supply of biological specimens through scale-up manufacturing throughput and efficiency. Moreover, standardization and automation improve the specimen's uniformity.
Figure 6: Avalon's presence in the vast China market (Source: Avalon)
In growing its clinical and commercialization programs for cellular medicines, it's important for Avalon to have standardization, automation, and uniformity. The GE partnership provides all of that and more. Notably, Avalon is conferred with complete control of the whole development lifecycle. Hence, the company has the helm to fine-tune the innovation process from bench-research to treatment delivery. Consequently, the infrastructure and depth capability of GE ensure the successful execution of ongoing clinical investigations. As he captured the colossal deal in the most poignant terms, the President and CEO of Avalon (David Jin, M.D., Ph.D.) istoked
We are pleased to establish this strategic partnership with GE. This is a crucial and exciting time in the evolution of cellular medicines and our combined skills will drive Avalon to move innovation forward and ultimately deliver the best therapeutic solutions for patients. This partnership enables Avalon to more fully leverage and integrate our core technology platforms and accelerate our clinical programs in cellular immunotherapy and stem cell-derived exosome-based regenerative therapeutics. Empowered by GE’s leading automation and standardized cell processing/bio-production capabilities, we look forward to further upgrading our infrastructure, services and products, as well as expanding our leadership role in cellular medicines.
I concur with the illustrious Chief, as I believe in GE's centuries of legacy. In my view, it bodes well for shareholders when a young company can entice a highly reputable firm like GE. If the technology is subpar, I highly doubt that GE would be interested. Asides from its uncanny medicines and diagnostics, it's quite likely that Dr. Jin's reputation secured the deal. A larger firm usually works with a strong management who will deliver good results. The cream of the crop leadership improves the chances of successful innovation that in turn enhances the reputation of the partner. I explicated in the prior article,
As a physician and scientist, Dr. Jin provides Avalon an intellectual advantage in pipeline development. Due to his background and expertise, Dr. Jin has the capability to quickly size up a pipeline prospect for its chances of success. Correctly forecasting which drug has the best chance of success can save the company from billions of dollars that otherwise go into unfruitful and lengthy studies. It's interesting to note that Dr. Jin was the CMO of another company BioTime from 2009 to 2016. That experience enabled him to bring his regenerative medicine and stem cell technology expertise to Avalon. That aside, Dr. Jin served as the physician/scientist at the Howard Hughes Medical Institute and the Ansary Stem Cell Center at Weill Cornell Medical College of Cornell University.

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check up on the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 1Q2019 earnings report for the period that concluded on March 31. Notwithstanding, I'll briefly touch on the most insightful metrics because I previously dissected the financials.
As follow, Avalon registered $284.1K in revenues compared to $307.9K for the same period a year prior. That aside, the research and development (R&D) came in at $152.4K. Additionally, there were $4.4M ($0.06 per share) net loss compared to $1.4M ($0.02 per share) decline for the same period of comparison. On the balance sheet, there were $1.8M in cash versus $2.1M for last year. With $6.0M from a direct offering raised back on April 25, the total cash position increased to $7.8M.
Against the $4.4M quarterly operating expense (OpEx) rate, Avalon will likely execute a public offering this quarter. In my observation, investors usually shy away from a public offering. Nevertheless, I prefer a young bioscience company to raise capital this way rather than incurring substantial bank debts. Short-term bank debts can be recalled anytime that can prompt a company to file a Chapter 11. The key to raising capital is to do it when the shares are trading high.
Though I do not mind a public offering, it's important for you to determine if you are holding a "serial diluter." A firm that employs dilution as a "cash cow" will render your investment essentially worthless. As the shares outstanding increased from 69.7M to 73.7M for Avalon, my rough arithmetics yield the 5.6% dilution. At this rate, Avalon easily cleared my 30% dilution cutoff for a profitable investment. Looking at the financial metrics, it's quite clear that Avalon is working for the best interests of the shareholders and patients.

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strength. At this point in its growth cycle, I believe that the main concern is if Avalon can deliver positive data for various franchises. As the bulk value of the company resides in CAR-T, a negative clinical reporting for AVA-101 can cause the stock to tumble over 60% and vice versa. After accounting for all probability, I expect that AVA-101 to deliver excellent results. Therefore, the chances of a negative clinical binary are approximately 35%. The other risk is that the firm might grow aggressively and thereby runs into a potential cash flow constraint. GE can also terminate the partnership, thus limiting Avalon's reach.

Conclusion

In all, I maintain my strong buy recommendation on Avalon Globocare with the five out of five stars rating. On a one to three years horizon, I anticipated the $12.5 price target to be reached. You can read my valuation in the previous note. Due to the GE collaboration, I increased the "investment profitability score" to 70%. In a nutshell, you have a strongly favorable chance of making money on Avalon, provided that you hold the stock for the long haul. As it captures lightning in a bottle, Avalon is growing a prodigious pipeline of precision medicine that includes diagnostics, immunotherapy, and regenerative meds.
Among the countless CAR-Ts that I studied, Avalon's CAR-T is the most advanced. AVA-101 is ingeniously innovated by a Chief who knows the ins and outs of pharmaceutical developments. Going forward, I believe that it will disrupt the oncology space. But that's not all. The diagnostic for NASH or macular degeneration alone can easily garner blockbuster results. Then, there's regenerative medicine and diagnostics to confer additional profits and diversification. With GE's support, Avalon is cementing its leadership in this Golden Age of CAR-T.
As a reminder, the choice to buy, sell, or hold is ultimately yours to make. Nevertheless, it's prudent to accumulate stakes in Avalon to anticipate future data readouts. With Phase 1 and 2 trials having a high percentage of positive results, you can position yourself to enjoy the upcoming rally. In my view, this is a much better investment than betting on a preclinical-stage company.
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Dr. Tran's analyses are the best in the biotech sphere, well worth the price of subscription.
Very professional, extremely knowledgeable, and very honest… I would highly recommend this service and his stock picks have been very profitable.
Simply put, this is worth every penny. Just earlier today, one of the companies recommended by Dr. Tran got acquired for a nice 50% premium.
As I reserve higher market intelligence and exclusive features for IBI members, I invite you to take my temporary offer of 2 weeks FREE TRIAL.