StemCell Therapy

Shares of Regenxbio (RGNX) have risen by 190% since I initially uncovered and recommended a position in this gene therapy pioneer in 2016. The stock has appreciated by just 52% since my February 2018 update piece.

With the recently announced acquisition of collaboration partner Audentes Therapeutics (BOLD) by Astellas Pharma for $2.7 billion (also a prior recommendation), I thought it's time to revisit this gene therapy "picks and shovels" play.

Chart

Figure 1: RGNX daily advanced chart (Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can see a downtrend taking place from April into Q3, with share price bottoming in the low 30s in September. Recently, the stock received a boost after news of Audentes Therapeutics being acquired (had licensed NAV technology for various indications including XLMTM, Crigler-Najjar and CPVT). Readers might recall that when collaboration partner AveXis was acquired for $8.7 billion in 2018, its suitor Novartis (NVS) was required to pay them $100 million upfront as an accelerated licensee payment (while remaining on the hook for $80 million in commercial milestones plus royalties on Zolgensma). A move to highs last witnessed in 2018 would equate to a bit less than a double from today's levels.

In my last update piece, I touched on the following keys to our bullish thesis:

Figure 3: Internally developed pipeline (Source: corporate presentation)

Figure 4: Collaboration partner pipeline (Source: corporate presentation)

Let's take a look at recent events and how they've affected our thesis here.

In late July Regenxbio and Swiss biotech firm Neurimmune announced an exclusive license to develop novel AAV gene therapies using NAV vectors to deliver human antibodies against targets implicated in chronic neurodegenerative diseases, including tauopathies. Both companies will be jointly responsible and share development costs equally, with each having co-development and co-commercialization options (or can elect to receive a phase-based worldwide royalty instead of continued development investment).

On July 31st Regenxbio announced a license agreement with Pfizer (PFE), specifically non-exclusive global license to NAV AAV9 vector for commercialization of gene therapies for the treatment of Friedreich's ataxia. In return for these rights, Regenxbio received an upfront payment, and has the potential to receive ongoing fees, development and commercial milestone payments, and royalties on net sales of products incorporating their IP.

On October 30th, it was disclosed that the company exercised its option under the previously announced option and license agreement to Clearside Biomedical's (CLSD) in-office SCS Microinjector for the delivery of adeno-associated virus-based therapeutics, including RGX-314 delivery to the suprachoroidal space to potentially treat wet age-related macular degeneration, diabetic retinopathy, and related conditions where chronic anti-vascular endothelial growth factor (VEGF) treatment is currently the standard of care. Deal terms were modest, involving a small upfront payment, up to $34 million in development milestones, up to $102 million in sales milestones and mid-single digit royalties on net sales of products incorporating SCS Microinjector.

Figure 5: Widespread retinal transduction observed in both subretinal and suprachoroidal delivery of AAV8 in non-human primates (Source: Corporate Presentation)

Keep in mind that Regenxbio is currently suing the FDA, as they disclosed a clinical hold for RGX-314 suggesting the agency opted for this action "without notice or explanation". The clinical hold is related to issues associated with delivery systems currently being used (seems agency is not a fan of subretinal injections, which allows for a more direct approach but can have a complicated adverse event profile (involves potential events such as intraocular inammation, retinal detachment, ocular hemorrhage, etc). A more convenient intravitreal approach is being utilized by Adverum Biotechnologies (ADVM). While such differences may not be that big of a deal in clinical trials, you can bet that when and if such gene therapies make it to the market, those that offer the ideal mix of high convenience and best safety profile will be the most likely to win this high stakes race.

Figure 6: Subretinal injection versus intravitreal injection (Source: Adverum corporate presentation)

For the third quarter of 2019, the company reported cash and equivalents of $417.1 million as compared to net loss of $34.6 million. Research and development costs nearly doubled to $35.7 million, while SG&A increased to $12.4 million

Regarding RGX-314 in treating wet AMD and diabetic retinopathy, we are informed of the clinical hold related to use of third-party commercially available devices used to deliver the gene therapy candidate. Specifically, the company states that all 42 patients have been dosed in the phase 1/2a study and that the partial clinical hold on IND is not related to the gene therapy candidate itself. Management guides for phase 2b study in wet AMD to get underway in Q1 2020, around which time IND will be filed for the study in diabetic retinopathy. We are reminded that data here continues to be encouraging, with no drug-related serious adverse events and subjects in Cohort 5 showing reduction of over 80% from the mean annualized injection rate during the 12 months prior to receiving RGX-314. Additionally, durable effects on vision and retinal thickness had been demonstrated over 1.5 years in the third cohort, with 50% of subjects remaining free of anti-VEGF injections more than 1.5 years after RGX-314 administration.

Figure 7: Cohort 5 injections pretreatment and after being treated with RGX-314 (Source: Corporate Presentation)

Management continues to state that they are evaluating in-office delivery of RGX-314 to the suprachoroidal space and will unveil plans for this route of administration next year.

As for RGX-501 for the treatment of Homozygous Familial Hypercholesterolemia (HoFH), interim data from Cohort 2 is expected at the end of the year (keep in mind this time they are using corticosteroid prophylaxis). Also at the end of the year, we'll get an interim data update on the phase 1/2 study of RGX-121 for the treatment of MPS II.

As these gene therapy companies are increasingly valued on the basis of their manufacturing capabilities as reflected in recent buyouts (including Audentes Therapeutics), it's worth noting that Regenxbio's new cGMP production facility (allows for production of NAV Technology-based vectors at scales up to 2,000 Liters) is expected to be operational in 2021.

As for partnered efforts, Novartis revealed Q3 Zolgensma sales of $160 million resulting in royalty revenue to Regenxbio of $9.2 million. Audentes Therapeutics' AT132 in XLMTM is well on its way to potential regulatory approval with BLA to be filed mid-2020.

To conclude, even after the recent bounce this gene therapy "picks and shovels" has continued upside ahead. With 20+ partnered product candidates, one can almost think of it as a mutual fund of sorts as investors gain exposure to various rare disease programs as well as programs targeting more prevalent conditions. On the other hand, the company has much more to prove with wholly-owned programs, as the anti-VEGF market is known for being intensely competitive with multiple "next-generation" approaches being tried out by larger companies aiming to garner a slice of this lucrative pie. Consider Baker Brothers' recent royalty deal, purchasing a 4.5% rate for $225 million (assumes KSI-301 worth over $5 billion using back of the envelope math). Another overlooked catalyst is phase 1 data for Danon Disease program with collaboration partner Rocket Pharmaceuticals (RCKT) in 2020, a lucrative indication of high unmet medical need considering estimated US+ EU prevalence of 15,000 to 30,000 patients.

For readers who are interested in the story and have done their due diligence, Regenxbio remains a Buy and I suggest patiently accumulating dips over the next couple of quarters.

Additional dilution in the near term does not look likely considering the current cash position and operational runway. Disappointing data for wet AMD and other programs not to mention setbacks in the clinic (especially delays or safety/tolerability concerns) would weigh on the stock. Failure to get the recent clinical hold lifted would weigh on the stock and the company's competitive position in the wet AMD market (and related indications). Competition for certain indications should not be ignored, especially by peers with significantly greater resources.

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Disclosure: I am/we are long CLSD, RCKT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: Commentary presented is NOT individualized investment advice. Opinions offered here are NOT personalized recommendations. Readers are expected to do their own due diligence or consult an investment professional if needed prior to making trades. Strategies discussed should not be mistaken for recommendations, and past performance may not be indicative of future results. Although I do my best to present factual research, I do not in any way guarantee the accuracy of the information I post. I reserve the right to make investment decisions on behalf of myself and affiliates regarding any security without notification except where it is required by law. Keep in mind that any opinion or position disclosed on this platform is subject to change at any moment as the thesis evolves. Investing in common stock can result in partial or total loss of capital. In other words, readers are expected to form their own trading plan, do their own research and take responsibility for their own actions. If they are not able or willing to do so, better to buy index funds or find a thoroughly vetted fee-only financial advisor to handle your account.

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Regenxbio: Revisiting This Gene Therapy 'Picks And Shovels' Play - Seeking Alpha

This entry was posted on December 4, 2019 at 7:42 pm and is filed under Gene therapy. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed. |