Pipeline in a Drug & A Real Pipeline
Xenon Pharmaceuticals (Nasdaq: XENE) is in the early innings of evolving from a pipeline in a drug company (XEN1101) to having an actual pipeline of differentiated assets. On last week’s Q2 call, the company’s CEO Ian Mortimer provided an encouraging update on its early-stage R&D efforts, guiding that they could have two new drugs in human studies next year. The first will likely be a next-generation Kv7 potassium channel opener which is already in IND-enabling studies. The company hesitated to discuss the improved or different attributes a next-generation Kv7 drug could have versus XEN1101, lest they highlight any shortcomings of their lead asset. Regardless, a next-generation Kv7 drug could be used to pursue new indications (bipolar disorder was mentioned a few times on the call) or simply for life cycle management, assuming an FDA approval for XEN1101.
The more exciting of the two drugs expected to enter human studies next year will derive from the company’s Nav1.7 program. We have previously discussed Xenon’s long history in Nav1.7 drug development, but the recent success of Vertex Pharmaceuticals’ (Nasdaq: VRTX) Nav1.8 pain program has sparked renewed interest in sodium channels and pain. Xenon has made good progress on its Nav1.7 program such that it appears they could be in humans next year. It was highlighted a few times on the call that proof of concept pain studies (bunionectomy likely) can be run quickly. Kv7 may have the lead in Xenon’s early stage pipeline, but it is foreseeable investors could see meaningful data from Nav1.7 first.
Although we are encouraged to see Xenon’s pipeline progress, there’s no denying the real driver of value is XEN1101 (now called azetukalner). XEN1101 is a pipeline in a drug, with Phase 3 programs running or soon to be running in three indications: focal onset seizures (FOS), primary generalized tonic-clonic seizures (PGTCS), and major depressive disorder (MDD). The company sharpened its top-line data guidance for its first Phase 3 FOS study to 2H2025. Although the company is running a second Phase 3 study in FOS, they plan to file an NDA after completing the first study, making a 2026 NDA submission likely and a 2026 PDUFA a possibility.
The company’s Phase 3 PGTCS study is ongoing, but on the Q2 call, CEO Mortimer emphasized that these studies are slower to enroll than FOS. Meanwhile, the company should start the first of three planned MDD trials in the coming months, and given the speed at which these studies can enroll, it wouldn’t be surprising to see an MDD readout before PGTCS.
Xenon lacks a meaningful catalyst for the foreseeable future, but 2025/2026 is shaping up to be very catalyst-rich, with a combination of late-stage and early-stage data readouts and maybe some regulatory intrigue.
Expectations Managed
A few weeks ago we wrote about how Delcath Systems (Nasdaq: DCTH) was managing investor expectations heading into its second quarter of HEPZATO sales. In last week’s Q2 release, the company reported good Q2 numbers, with $6.6mm in U.S. sales and $1.2mm in EU sales. The company was a little behind on site activation guidance but ahead on its treatment per site numbers. CEO Gerard Michel reiterated that the company should achieve $10mm in quarterly sales by Q4, adding that the company should be cashflow breakeven by as early as 1Q2025. Overall, the company met or exceeded investor expectations on most fronts.
Given CEO Michel’s frankness, we always like to try to unearth a few qualitative nuggets from these calls, but not much caught our ear. If we were going to emphasize one thing that some may have missed, it would be how the company handles its EU business. CEO Michel mentioned several times that the EU business would be run on a breakeven basis but that CHEMOSAT was an important “strategic asset.” He stated, “The value of Europe in the short to medium term is as trial sites, a source of publications, both in metastatic uveal melanoma and other tumor types. These activities can support both EU and U.S. adoption.” For those tenured Delcath followers, this strategy certainly isn’t new. However, what is new is the small yet meaningful revenue deriving from the EU, allowing them to support more investigator-led studies, such as CHOPIN and the recently announced Swedish ipi/nivo CHEMOSAT combination study. European data could prove invaluable, especially as U.S. sites become more comfortable with HEPZATO and push into more experimental areas.
One final comment on Delcath. In the Q2 earnings call, during the prepared remarks, CEO Michel referenced a recent publication in the Frontiers of Oncology where a patient was successfully treated with CHEMOSAT (3 cycles and scheduled for a 4th at the time of publication) after receiving a plethora of prior treatments, including chemotherapy, immunotherapy, and tebentafusp (KIMMTRAK). This case is more of an example of “salvage” treatment, whereas other centers, like Moffitt Cancer Center, prefer to use HEPZATO before systemic therapy. Regardless, this recently published case shows that most mUM patients will receive more than one treatment. For Delcath to be successful, it needs to make HEPZATO/CHEMOSAT the liver-directed therapy of choice. If they can accomplish that, the patients will be there.
Don’t Forget About….
Protara Therapeutics (Nasdaq: TARA) remains the forgotten player in the non-muscle invasive bladder cancer (NMIBC) arms race. The company should have a healthy cadence of fresh NMIBC data starting later this year with a risk-benefit analysis in 10 six-month evaluable NMIBC patients. These data will include patients who qualified for re-induction of TARA-002 which could help push the CR rate higher than the earlier three-month data. The company should also have data from a small 3-patient cohort using a higher 80KE dose of TARA-002. Protara is behind its NMIBC peers in development, but that feels more than fully reflected in its $60mm market cap (with $89mm in cash as of Q2 earnings). We remind investors of a quote from a well-respected sell-side analyst when recently discussing the NMIBC market, “The critical point to re-emphasize is that these patients generally are not rapidly progressive to metastatic disease, which means they will likely cycle through multiple lines of therapy – creating significant TAMs in 2L (post-BCG) and 3L and even 4L NMIBC….we expect blockbuster product opportunities well into the 4L setting – so plenty of room for all these emerging NMIBC players.”
NMIBC is the high profile indication Protara is pursuing, but investors shouldn’t forget about lymphatic malformations (LM), the other program the company is actively studying with TARA-002. Last month, Palvella Therapeutics, whose lead program is also in LM, raised $79mm with several notable biotech funds and plans to RTO into Pieris Pharmaceuticals (Nasdaq: PIRS). Palvella is focused on microcystic malformations, an even smaller population than the macrocystic malformations that Protara is studying. Palvella is enrolling a Phase 3 study, whereas Protara is in Phase 2. Regardless, another publicly traded company focused on LM can only help raise awareness about Protara’s program. Protara is expected to share data from the first safety cohort of their ongoing Phase 2 study sometime later this year.
Other Q2 Musings
In their quarterly release, Veru Inc. (Nasdaq: VERU) announced the completion of enrolment (>150 patients) for their Phase 2b obesity/muscle loss study with enobosarm in combination with semaglutide. The company also announced a slight push in the timing of top-line data from 4Q2024 to January 2025. We estimate by the time of the top-line data release, the company will have around six-months of cash runway. Heading into a critical data release with a tenuous cash balance raises the stakes for the company and investors. Unless, of course, Veru addresses the balance sheet sometime sooner..
Nektar Therapeutics (Nasdaq: NKTR) should have two big data readouts within 12 months. On their Q2 call, the company reiterated the top-line data guidance of 1H2025 for the REZPEG Phase 2 study in atopic dermatitis. The company slightly pushed the timing of the REZPEG Phase 2 study in alopecia from 1H2025 to mid2025. Unlike Veru, Nektar has a plump balance sheet, so the push on alopecia data timing should be inconsequential. Regarding their ongoing litigation with Eli Lilly (NYSE: LLY), on the call, their CEO, Howard Robin, said that after their initial mediation period, the court ordered the companies to continue with mediation, and he expects that process to recommence shortly.