Last Updated on January 28, 2019 by Sultan Beardsley
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MS noticed some insightful parallels between when Conatus Pharmaceuticals (Nasdaq: CNAT) released ENCORE-PH top-line data and when Galectin Therapeutics (Nasdaq: GALT) reported their phase 2b NASH-CX trial results. Based on the context of the respective readouts and subsequent sequence of events we projected a logical trajectory of CNAT’s clinical development of emricasan, and its share price.
GALT like CNAT did not hit their primary endpoint of lowering hepatic venous pressure gradient (HVPG) in their total patient population. And like CNAT they sold off over 50% settling under $2. Yet, both CNAT and GALT identified a subgroups that exhibited clinically significant reductions in HVPG compared to placebos. For GALT that group was patients without varcies at baseline in the 2 mg/kg dosage group (i.e. mild portal hypertension: 6 mmHg≤HVPG≤10 mmHg).
This discovery was included in Galectins top-line results on December 5th, 2017. Coincidentally, Conatus reported their top-line results for ENCORE-PH on December 5th, 2018. The clinically significant response CNAT identified was in a severe portal hypertension subgroup (HVPG≥ 16 mmHg). More evidence of a therapeutic benefit was observed as a consistent pattern of decreasing mean HVPG 1.4-2 mmHg in the HVPG≥13 mmHg subgroup. All dosages in the aforementioned subgroup achieved significance with the exception of the 5 mg dose in patients with HVPG≥15 mmHg . Regardless, both companies were punished severely by the market; despite inclusion of these key findings in their respective top-line readouts.
For GALT, bears and short sellers alike still reference the company’s “failure” of not meeting its primary endpoint. Today though GALT trades in the $4-5 range. Actually, less than a month after it sold off GALT recovered above $3. Why did it recover so quickly? And can we expect the same from CNAT?
A Viable Target Patient Population And Richard Uline Rescued GALT
Despite missing the primary endpoint GALT found a patient population to target in phase 3 accompanied by attainable endpoints supported by the FDA. So, in the end it did not matter Galectin missed the primary endpoint. What mattered was GRMD02’s viability as a treatment for NASH-cirrhosis.
Fourteen days after posting disappointing phase 2b results GALT announced receivement of a $10 million unsecured credit line from stakeholder and board member Richard Uline. Aside from bolstering Galectins financial position, Mr. Uline made a compelling statement in the associated press release.
“I have been a shareholder and supporter of Galectin TherapeuticsQuote from Richard Uline in the 2017 press release
for many years, and I am very encouraged by the Company’s positive efficacy results in its NASH-CX trial for patients with cirrhosis due to NASH. My desire to provide this credit line was to assist the Company with favorable financing while it continues to progress the drug towards the goal of bringing therapy and hope to a large number of patients who have no currently approved treatment options”
The combination of these two factors (a viable target population for commercialization of GRMD-02 and the credit line) stimulated recovery of Galectins share price above levels prior to the phase 2b data release.
In early 2018 there was a lot of speculation about the outcome of a meeting between GALT and the FDA regarding next steps in clinical development of GRMD-02. And, whether or not they would be granted breakthrough therapy designation (BTD). During the interim GALT fluctuated between $3 and $6.
Low and behold the fda greenlighted GALT to advance to phase 3 and agreed to progression of varices or change in HVPG as acceptable endpoints. As it turned out missing their phase 2b primary endpoint did not restrict GALT from forwarding development of GRMD-02 to phase 3. Icing on the cake was the option for an interim analysis after 18-months. News of this in addition to removal of Chief Executive Officer Dr. Peter Traber with Dr. Shlevin, appointment of Mr. Uline as board chairman, and engagement of Back Bay Life Science Advisors to pursue “strategic alternatives”, catapulted GALT’s valuation 180% in two months peaking at $9.50. So, what can we project is in store for CNAT?
CNAT Short-Term Price Action Is Uncertain-Phase 3 Clinical Trial Likely In Store For 2020
After Conatus and their partner Novartis (NYSE: NVS) collectively assess data from the ENCORE series, they will have ample insight for designing an optimal phase 3 trial. Conatus confirmed they are engaged in ongoing regulatory discussions with the FDA. Revelations from ENCORE-NF and LF will empower a deeper understanding of emricasan’s efficacy and selection of appropriate endpoints. As we learned from Galectins experience missing a primary endpoint in phase 2b is not a requisite the FDA’s blessing to conduct a phase 3 clinical trial. ENCORE-PH was very informative about how emricasan works across a discrete range of severe portal hypertension and its impact on several biomarkers.
ENCORE-NF and LF incorporated different endpoints, treatment durations, and patient demographics. Once completed in late 2019 Conatus and Novartis will have a detailed therapeutic profile of emricasan. We believe this will facilitate advancement to a phase 3 clinical trial; and at which point the share price should be substantially higher. In the meantime investors may have to wait for ENCORE-NF top-line results due in early 2019. If the primary endpoint is met, as we suspect, a 20-50% jump in valuation is reasonable to expect..
Until then, the only potential catalyst for conatus would be a formal statement from either CNAT or NVS reaffirming Novartis’ commitment to the development of emricasan as a treatment for NASH. Or, investors could wake-up to the reality that ENCORE-PH was a successful study. Ultimately, there can be no assurances CNAT will undergo a speedy recover like Galectin did. Nonetheless, long-term we are bullish about emricasan’s potential for reaching phase 3 and becoming commercialized. Times like these when bearish sentiments prevail is an opportunity to build a position.
I am/we are long CNAT
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