Must Watch Biotech Theatre
Over our past few notes, we have written about the importance of companies managing investor expectations. Within our universe, no company exemplifies the rewards of meeting and exceeding investor expectations better than Soleno Therapeutics (Nasdaq: SLNO). It was almost exactly this time last year we highlighted Soleno, stating, “For those investors built for high-stakes clinical trial readouts, with “hero or zero” potential, Soleno is one to watch.” A few weeks later, the company reported excellent Phase 3 data for their lead drug, DCCR, in patients with the rare disease Prader-Willi Syndrome (PWS). The chart below reflects how these data exceeded investor expectations.
Last week, Soleno announced that the FDA had accepted their NDA for priority review with a December 27th PDUFA date. We love that the company squeezed its NDA submission just in time to get a PDUFA this year. Soleno also announced that FDA is planning on holding an Advisory Committee (Adcom) meeting, with a date yet to be determined. As we wrote in January, “…it wouldn’t be surprising to see FDA call an Advisory Committee, which would almost certainly fall into calendar 2024 and be must-watch biotech theatre.” Having an Adcom and a PDUFA before year-end should make Soleno one of the most-watched biotech names for the remainder of the year.
Soleno’s Adcom could be must-watch biotech theatre for two reasons. First is the role advocacy groups will likely play before and during the meeting. Perhaps not since Sarepta Therapeutics (Nasdaq: SRPT) first adcom in 2016 will parent/patient advocacy groups play such a prominent role as what could occur for Soleno’s likely Adcom. Who can forget the emotional pleas from patients, parents, and physicians for the approval of Sarepta’s eteplirsen for Duchenne muscular dystrophy (DMD).
The PWS advocacy groups appear just as well-organized as the DMD groups and are vocal champions of DCCR. Much like Sarepta did in 2016, Soleno will leverage advocacy group support as much as possible during FDA’s review process, including at the likely Adcom. In July of this year, the PWS Advocacy Coalition submitted a 130-page document to FDA supporting Soleno’s request for priority review.
The second aspect that could make Soleno’s Adcom must-watch biotech theatre is the amount of emphasis FDA places on Soleno’s initial pivotal data versus the randomized withdrawal data. As a quick refresher, in mid-2020, Soleno reported that DCCR failed to meet the primary endpoint of a reduction in hyperphagia (feeling of insatiable hunger) versus placebo in 127 patients with PWS. Upon analyzing the data, the company noted a stark drop in efficacy for DCCR once COVID restrictions were enacted in March 2020. In 2022 FDA acknowledged that a randomized withdrawal period for the 77 patients who remained on the open-label extension (OLE) from the pivotal study could be sufficient to support an NDA filing. In September 2023, the company announced that DCCR met the primary endpoint of reducing hyperphagia versus placebo in the randomized withdrawal study.
The data aren’t perfect, so FDA’s briefing docs, released a few days before the Adcom, are likely to poke at the data vulnerabilities, which could make some investors anxious. Nonetheless, DCCR appears to work in controlling hyperphagia (pre-COVID data, OLE data, and randomized withdrawal data), and it appears to be safe. There are no drugs currently approved to control hyperphagia in patients with PWS, so there is a clear medical need. The PWS community wants DCCR approved. In our opinion, and among the fund managers we speak with, the likely outcome of the Adcom is a vote to approve DCCR, and later this year FDA will follow the committee’s recommendation and grant approval. Conversely, a complete response letter would be ugly (CMC is tough to diligence….), but we think it’s a low probability based on the data and medical need.
Soleno already has a $1.8b market cap, a valuation that appears to have already priced in some regulatory success. So, how much upside remains from a positive Adcom and FDA approval? Sell-side targets are in the $60-$90 range, with most in the $70s. Nothing is ever guaranteed with FDA, but at $48 today, Soleno could offer a nice return for investors heading into the end of the year.
Data, Data, and More Data
Last week, Delcath announced the publications of three independent, retrospective studies with HEPZATO/CHEMOSAT (often called CS-PHP, chemosaturation, and melphalan/HDS in scientific papers) in leading oncology journals. Two of the three papers are free to access, and we recommend investors interested in Delcath give them a scan. However, for those who have an aversion to reading medical journals, we would summarize the findings as (1) liver-directed therapy is superior to legacy systemic therapy (ipi/nivo and chemo) for mUM patients, (2) liver-directed therapy should be used as first or second-line treatment for mUM patients (3) HEPZATO should be the liver-directed therapy of choice for mUM patients (4) HEPZATO has promise in other liver dominant tumor types beyond mUM. Tenured Delcath followers will not find any of the above new, but it is certainly comforting to see fresh data that reinforces the potential for HEPZATO in mUM and beyond.
While on the topic of new HEPZATO data, we are aware of at least two combination studies with ipi/nivo planned (Sweden) or ongoing (CHOPIN), and it only seems a matter of time before we see a combination study with Immunocore Holdings (Nasdaq: IMCR) tebentafusp. Last week, in the Annals of Surgical Oncology press release, Dr. Jonathan Zager of Moffitt Cancer Center stated, “My team is committed to further exploring the potential of combining melphalan/HDS with systemic therapies to continue improving patient outcomes.” The authors of the ESMO Gastrointestinal Oncology published last week took it a step further when they stated, “Moreover, CS-PHP as long-term treatment could have the potential to lead to comparable results as tebentafusp in HLA-A∗02:01-positive patients and offers an equivalent treatment option. The great importance of controlling intrahepatic tumor manifestation for OS in our study, as well as the different approaches of the two treatment methods, should prompt us to consider whether a combination treatment of CS-PHP and tebentafusp might be useful.” As we said, it’s just a matter of time.
Almost Cleared For the Almost Pumper
Modular Medical (Nasdaq: MODD), a company we first wrote about in 2021, should hear back from FDA any day on its 510(k) submission for its insulin patch pump, MODD1. Earlier this week, Embecta Corporation (Nasdaq: EMBC) received 510(k) clearance for their patch pump, which they submitted to FDA on January 9th. Modular’s submission was on the 19th of January, so the company should be hearing back from FDA imminently, either with a clearance or more questions. If FDA comes back with additional questions, it would push a potential clearance into 4Q2024.
Modular designed MODD1 as a user-friendly and affordable alternative to the feature-rich and often expensive competitive products offered by the legacy pump manufacturers Tandem Diabetes (Nasdaq: TNDM), Insulet Corp. (Nasdaq: PODD), and Medtronic (NYSE: MDT). If MODD1 is cleared, it will enter a more competitive insulin pump market than we initially wrote about in 2021. Tandem, Insulet, and Medtronic continue to dominate the market, but several new pumps have been cleared over the last few years, including products from Beta Bionics, Sequel, and Embecta, as mentioned above.
In speaking with Modular’s CEO Jeb Besser recently, he remains confident that the attributes of MODD1, affordability, and ease of use remain highly relevant, even in a more competitive pump market. If cleared, CEO Besser believes MODD1 could address a large market of “almost pumpers”, patients with type 1 or type 2 diabetes who resist adopting a pump due to cost and/or complication. That’s a market the company estimates to be over 2.8 million people in the United States. This is the same story CEO Besser was telling back in 2021. It was a good story then, and candidly, it continues to be a good story.
Beyond FDA clearance (which, to us, sounds more like a “when” than an “if” situation), Modular’s more significant challenge will be commercialization. The company has around $4mm on the balance sheet, enough to see it through another set of FDA questions, if needed, but not much further. Financing a proper commercial launch would be heavily dilutive, even if the equity jumps from a 510(k) clearance. It is worth noting that CEO Besser is also a principal of Manchester Management, a hedge fund that is Modular’s largest institutional holder. So, not surprisingly, he has been quite vocal that his preference is to pursue M&A post-clearance and minimize dilution. He seems confident there should be no shortage of potential M&A suitors once MODD1 is commercially cleared. It will be interesting to see how this situation unfolds.