Founded in 1986 BioCryst Pharmaceuticals (BCRX) specializes in the development of novel, oral, small molecules that inhibit enzymes playing a key role in the biological pathway of rare diseases. BCRX’s unique drug discover engine is based on structure-guided drug design which integrates crystallography, medicinal chemistry and computer modeling. Over the years BCRX has successfully commercialized multiple products including Peramivir injection for influenza and Mundesine for Peripheral T-cell lymphoma (PTCL). While Peramivir and Mundasine are valuable in their own respects, it is Berotralstat (now called Orladeyo), BCX9930, Galidesivir, and BCX9250 that are central to our discussion of BCRX’s embarrassment of riches. Ultimately, in our view, BCRX is one of the most misunderstood biotech stocks of 2020 and on the cusp of a significant transformation and growth.
Orladeyo Is Positioned to Disrupt a Multi-Billion Dollar Market
Orladeyo (previously called Berotralstat/BCX7353) is an oral, once daily, small molecule kallikrein inhibitor developed by BCRX and is under regulatory review for marketing in the U.S, Japan (6-month review time with Sakigake designations), and European Union (EU) (Marketing Authorization Application validated on 3/30/20). If approved, Orladeyo will become the first oral preventative treatment for patients suffering from Hereditary Angioedema (HAE). As its name suggests HAE is a rare and potentially life-threatening hereditary disease where patients lack a functional C1 Inhibitor and consequently experience swelling throughout the body (referred to as attacks).
Until 2008 there were no FDA approved treatments available in the U.S. Currently, the HAE market is dominated by Takeda and CSL Behring. Takeda’s leading HAE therapies include Cinryze (plasma derived) used as a preventative, Takhzyro (monoclonal antibody) used as a preventative or rescue therapy, and Firazyr (small-molecule) used strictly as a rescue treatment for breakthrough attacks. CSL’s Haegarda (plasma derived) is similar to Cinryze and is used as a preventative. Based on available financial and clinical data for these market leaders, in addition to the fact that patients desperately want an oral treatment option, we see immense disruptive potential for Orladeyo on the horizon and an opportunity to capture 40%+ of a market projected to worth $4B by 2026.
Before diving into financial and clinical data I want to make clear what HAE patients have to go through on a daily basis to manage their disease. Regardless of the therapy used patient are burdened by either intravenous or subcutaneous administration of their medication. Not only is this highly invasive and time consuming, but also very technical and takes substantial training and practice to perform independently. The amount and frequency of drug infusion/injection depends varies from once a day to several times month. To get an idea of the laborious process patients go through watch this video.
Until 2008 there were no FDA approved treatments available in the U.S. Currently, the HAE market is dominated by Takeda and CSL Behring. Takeda’s leading HAE therapies include Cinryze (plasma derived) used as a preventative, Takhzyro (monoclonal antibody) used as a preventative or rescue therapy, and Firazyr (small-molecule) used strictly as a rescue treatment for breakthrough attacks. CSL’s Haegarda (plasma derived) is similar to Cinryze and is used as a preventative. Based on available financial and clinical data for these market leaders, in addition to the fact that patients desperately want an oral treatment option, we see immense disruptive potential for Orladeyo on the horizon and an opportunity to capture 40%+ of a market projected to worth $4B by 2026.
Before diving into financial and clinical data I want to make clear what HAE patients have to go through on a daily basis to manage their disease. Regardless of the therapy used patient are burdened by either intravenous or subcutaneous administration of their medication. Not only is this highly invasive and time consuming, but also very technical and takes substantial training and practice to perform independently. The amount and frequency of drug infusion/injection depends varies from once a day to several times month. To get an idea of the laborious process patients go through watch this video.
In preparation for commercialization BCRX has done substantial market research which has confirmed what one can discern intuitively. Patients want an oral option and are especially willing to try one if their doctor recommends it (Figure 1). Even ~50% of those surveyed who identified as being very satisfied with their current preventative treatment expressed willingness to try Orladeyo (Figure 2). Patients want to control their disease effectively without sacrificing quality of life nor having a daily reminder of their affliction by hordes of needles, syringes, vials, tourniquets, etc. Even when administered subcutaneously its quite an unpleasant experience that frequently results in injection site adverse reactions. You may be wondering why then the statistics from Figure 1 and 2 were not in the range of 80-100%. It is a fair question. In our view, the observed numbers make sense. There will be those patients that are receptive to trying a new treatment if it means improving their quality of life but want to wait for more data from real-world use. And then there will be other patients who are the pioneers and willing to immediately try something new (i.e. Orladeyo). These are the patients who comprise the 50% of those satisfied yet open to switching.
Top-line data from BCRX’s Apex-2 Phase 3 study of Orladeyo as a preventative therapy for patients with HAE was reported in May 2019. Despite hitting its primary endpoint (110 mg and 150 mg dose levels) of reducing attack rates after 24 weeks of treatment (44% reduction compared to the placebo in the 150 mg group) the share price tanked over 50% from ~$7.40 to $3.50. Over the proceeding 6-months BCRX kept bleeding until setting a 52-week low at $1.38 in November 2019. The reason for the sell-off was that the market deemed the results insufficient to compete with the standard of care preventative therapies (i.e. Cinryze, Haegarda, and Takhzyro). Specifically, analysts noted that Orladeyo needed to achieve at least a 50% reduction in attacks to compete with the market leader (in terms of revenue) Takhzyro which touts an 87% attack rate reduction. However, as I will discuss, this summary judgement of Orladeyo’s efficacy is outdated and needs fresh analysis relative to the market incumbents. In making this comparison we will look at BCRX’s 24-week Apex-2 data vs. the registrational Phase 3 data for Cinryze, Haegarda, and Takhzyro. Then we will take a second pass comparing the 48-week Apex-2 and Apex-S data announced on 6/6/20. For the sake of brevity, only the highest doses are compared which were the most efficacious across all the studies.
Table 1: Data Source
Aepex-2 Phase 3 24-week study (n= 121) | ||||
Orladeyo Group (150 mg, n= 40) | Placebo (n= 40) | |||
Preventative treatment use | 30% (12) | 28% (11) | ||
Prior Androgen Use | 53% (21) | 63% (25 | ||
Baseline monthly attack rate | 3.06 (1.56) | 2.98 (1.35) | ||
≥2 attacks/month | 75% (30) | 65% (27) | Mean | |
Attacks/month after 24 weeks | 1.31 | 2.35 | Percent Reduction | 44% |
Run-in Analysis 70-day run in period. Must have ≥2 HAE attacks in the first | ||||
Table 2: Data Source
Phase 3 Data for Cinryze Crossover 12-week study (n= 22) | |||||
Baseline monthly attack rate for all patients: ≥2 | |||||
Treatment Group (n=12) | Placebo (n=12) | ||||
Number of attacks (mean, SD) | 6.1, 5.4 | 12.7 | Mean | Median | |
Number of attacks (median) | 6 | 13.5 | Attack rate reduction vs. placebo | 51% | 56% |
Max attack number | 17 | 22 | |||
Minimum attack number | 0 | 6 | |||
Run-in Analysis Subjects who had completed treatment of acute attacks and who had demonstrated a high frequency of HAE attacks (> 2 per month) | |||||
Table 3: Data Source
Haegarda Phase 3 COMPACT 16-week Crossover Study (n= 79) | |||||||
60IU twice/week (n= 45) | Placebo (n= 45) | ||||||
Number of attacks | 8.8±6.4 | 9.8±6.6 | |||||
Use of a preventative treatment | 49% (22) | 42% (38) | Mean | Median | |||
Percent attack reduction/mo vs. placebo | 84% | 95% | |||||
Number of attacks /month (mean, SD) | 0.52 | 4.03 | |||||
Run-in Analysis After screening, eligible patients entered a run-in period of up to 8 weeks. All the patients had a clinical diagnosis of hereditary angioedema that had been confirmed by means of central laboratory testing and had had at least two attacks during any consecutive 4-week period or at least one attack during the first 2 weeks of the run-in period. | |||||||
Table 4: Data Source
Takhzyro Phase 3 26-week study (n= 121) | ||||||
Takhzyro (300 mg/2-weeks, n= 27) | Placebo (n= 41) | |||||
Use of long-term preventative medication 3-months prior to screening | 52% (14) | 58.5% (24) | ||||
Prior Androgen Use | N/A | N/A | ||||
≥2 attacks/month at baseline | 74% (20) | 65% (27) | ||||
No. of attacks in 12 mo | 20 (8-36) | 30 (17-59) | Mean | |||
Mean number of attacks (day 0-182) | 0.26 | 1.97 | Percent | 87% | ||
Attack reduction rate/month | -1.71 | -1.49 | ||||
Run-in Analysis Patients 12 years or older with hereditary angioedema type I or II underwent a 4-week run-in period and those | ||||||
As you can see in Tables 1 through 4 the number of attacks at baseline were relatively similar among the studies (75%+ of patients had 2 or more attacks per month) and comparable run-in analyses were used to determine baseline attack rates. Study length and treatment frequency varied from 12-weeks to 26-weeks and from once daily (Oral for Orladeyo) to every two weeks (Takhzyro). Cinryze and Haegarda were both injected or infused 1-3 times a week. If we look at the efficacy as measured by the percent reduction in attack rates compared to the placebo, Orladeyo actually stacks up quite well compared to Cinryze. Patients in the treatment arm of Cinryze’s Phase 3 study had 52% (mean) and 55% (median) less attacks than those in the placebo after 12 weeks. This compares favorably to oral Orladeyo’s 44% reduction at the 150 mg dose after 24-weeks. Admittedly, in Phase 3 Haegarda and Takhzyro looked considerably better with 84%/90% (mean/median) and 87% (mean) attack rate reduction compared to the placebo, respectively. Interestingly, Takeda does not report the median change in attack rate. Granted these data sets are relatively small and real world data for HAE therapies have shown to be better over the long-term. We view this as a positive for Orladeyo as we expect to see a similar trend in clinical use. In Fact, Apex-2 and Apex-S (long-term safety study initiated in 2018) 48-week data announced last month supports the bull case for Orladeyo to capture 40%+ of the HAE market.
As we can clearly see in Figures 3 and 4, from months 6 to 12 of patients taking once daily 150 mg Orladeyo had attack rates at near-zero levels. This means that in clinical practice Orladeyo could confer the same degree of efficacy as the market leaders Takhzyro and Haegarda; Cinryze actually starts to look obsolete. The fact of the matter is that regardless of the preventative therapy a patients is on they will have breakthrough attacks. Whats more is that the market research conducted by BCRX shows that patients do not expect to have zero attacks. Payers understand this and therefore cover a preventative and a rescue therapy for patients. Furthermore, when we look at safety and tolerability Orladeyo truly shines. Cinryze, Haegarda, and Takhzyro all have side effects ranging in severity from patient to patient. The most common being injection site reactions which occurred in over 50% of study patients in Takhzyro’s Phase 3 study. Six-percent of patients in this study also experienced dizziness, a side effect commonly reported in the field by patients.
As an oral therapy Orladeyo avoids injection site reactions all together. The most common side effect occurring in 5%+ of patients in Apex-2 was gastrointestinal (GI) discomfort. This lasted for the first several months and then tappered off. This makes sense as it takes time for the body to become accustom to a new medicine. Additionally, as an oral medication it takes longer for plasma concentration to reach therapeutic levels which could explain why it takes 48-weeks to get the full therapeutic benefit. Looking at the 48-week efficacy data of Orladeyo and its safety profile vs. the competition it becomes clear that the market has not priced BCRX for success. With a market cap of $776M as of 8/3/20 the market has priced BCRX to do several $100M dollars in peak sales, well below what the $500M that management has confidently forcasted. With 176M shares outstanding assuming 7X sales on $500M annual revenue would put the share price around $20. Looking at 1Q20 and FY19 revenue figures from Takeda and CSL Behring $500M seems more than doable.
Full year (FY) revenue for all three products combined totals ~$1.3B with sizable YoY growth for Takhzyro and Haegarda signaling an accelerating market opportunity. Especially considering that many people go undiagnosed. And then there are those who are scared of needles and get by without treatment or minimal oral androgen therapy. These types of patients are likely willing to try Orladeyo further expanding the market potential for BCRX. After looking at the 48-week efficacy and safety data for Orladeyo as well as the clear quality of life benefits of a once daily pill vs. injections/infusions, it seems obvious that not only should BioCryst compete with the big boys, but disrupt the entire market paradigm. Its important to realize that this is not your typical scenario where the small-cap bio with a nascent product is going up against big pharma in a well defended market. Take Adma Biologics (ADMA) for instance. They have two excellent products yet their share price has been stagnant for over a year after commercialization. ADMA competes directly with companies like Takeda and CSL for plasma donors, manufacturing essentials, and most importantly, customers. In a very high cost business such as IVIG the odds are stacked up against the little guy without a significant innovative advantage. That is the critical differentiator for BCRX. Not only would Orladeyo be the first the oral preventative therapy (other than androgens) and thereby out-innovating their competitors, but they can out-compete on margins and pricing. Compared to monoclonal antibodies (Takzhyro), and especially plasma-based products (Cinryze and Haegarda), small molecules are way cheaper to manufacture and scale. Insurance companies have indicated to BCRX that as long as they are in-line with current pricing models they will pay. Whats more is that the value proposition discussed thus far has not factored in BCX9930 or galidesivir.
BCX9930: A Pipeline in a Molecule with a $10B Market Opportunity
BCX9930 is BCRX’s potentially best in class oral Factor D inhibitor under development for disease where the compliment pathway plays a central role. The first target indication for BCX9930 is Paroxysmal nocturnal hemoglobinuria (PNH). Phase 1 data reported in June indicated that BCX9930 has strong potential to be used as an oral monotherapy for PNH. This would be huge given that one of the company’s biggest competitors Alexion Pharmaceuticals (ALXN) just last week announced the discontinuation of its oral Factor D inhibitor ALXN2040 that it spent nearly $1B to acquire due to a lack of clinical benefit. BCX9930’s potential as a best-in-class factor D inhibitor was bolstered today after BCRX announced that it was awarded Fast Track Designation for PNH. Additional data for BCX9930 is due this quarter. Given the clean safety profile and dose-dependent responses observed so far its possible that the company moves straight to a Phase 3 study. The beauty of a drug like BCX9930 is that there are many rare disease in which factor D plays a role in the biological pathway. Hence the characterization of it as a “pipeline in a molecule”.
Galidesivir Holds Promise As a COVID-19 Therapeutic
Many of the current retail shareholders in BCRX (including myself) originally showed by for galidesivir as COVID play. The potential we saw in galidesivir as a therapeutic for COVID-19 has not changed. Management has maintained since April data from Part 1 of the ongoing clinical study in Brazil should be announced this summer. Based on remarks made in July by the study’s lead investigator the study is probably amid cohort 3 of 4. We anticipate data from the study in late August or September. Of note, this study is fully funded by NIAID and if the study continues into a larger Phase 3 study it will continue to be funded by NIAID. BCRX has been working with the government since 2013 to develop galidesivir for an event such what we are experiencing with COVID. Based on galidesivir’s mechanism of action (same as remdesivir), sleek resemblance to ATP, low-toxicity, and prior in-vitro as well as in-vivo data against a range of virus including coronaviruses we are bullish on the prospects for galidesivir as a COVID-19 therapeutic. For more on our view of galidesivir read this article.
Concluding Remarks
You might be wondering if the bull case is so solid then why has the stock price struggled to break out of its range between $4-6 since May? It seems like every week one of BCRX’s peers achieves the type of growth that we have carving. Watching NVAX run from $5 to $150 or MRNA from $15 to $80 in a matter of months without ever having brought a product to market only compounds the pain of returning below the latest offering price ($4.50) after enjoying a trip to $6 just weeks ago. In my view, BCRX will have the run that we have been waiting for. The share price is highly manipulated by institutional investors and market makers. Yet, they are also defending the share price. With over 30M shares short there is definitely one or more big shorts who wants to see us fail. Because of the threat Orladeyo poses to Takeda and CSL it is plausible that one or both are indirectly shorting us. Additionally, because of the threat BCX9930 poses to Alexion and their foothold in the PNH market they could be shorting us. Alexion has done such things in the past such as with its hostile takeover of Achillion Pharmaceuticals (ACHN) last year. Nonetheless, with an excellent management team and several near-term catalysts including (but not limited to) Part 1 data from the the galadesvir covid-19 study in Brazil, approval of Orladeyo in Japan and subsequent $20M milestone payment from Tori Pharmaceuticals, updated data for BCX9930 this quarter, 2Q20 earnings on August 6th, and another order due for Rapivab under the government stockpiling contract, the upside potential for BCRX relative to risk is immense at this point. A further indication of where this company is headed is seen in the hiring spree they’ve been on. And its not just the roles they are filing but who they are filing them with. They have successfully poached HAE industry veterans from Takeda and CSL Behring. We believe BCRX is setup for a transformation from a small to mid cap pharma company in the next 12-18 months with blockbuster potential sales revenue from Orladeyo, BCX9930, and potentially galidesivir.
I am/we are long BCRX
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