A New Name We’re Watching
For those who love negative EV names, one to watch is Nektar Therapeutics (Nasdaq: NKTR). Once a high-flying cancer immunotherapy company with an eye-popping $18b market cap, today Nektar finds itself with a humbling $115mm cap but with a treasury of just over $400mm 2Q22. Negative EV biotech companies aren’t uncommon these days, so there needs to be assets and catalysts besides the cash to get us interested. In Nektar’s case, the intriguing asset is REZPEG, a biologic targeting IL-2 that has promise for treating chronic inflammatory conditions (eczema) and autoimmune diseases (psoriasis and lupus).
REZPEG has a fascinating history. Developed by Nektar through Ph1, it was partnered with Eli Lilly in 2017 for $150mm upfront. Lilly proceeded to test REZPEG in proof of concept studies in atopic dermatitis (eczema), psoriasis, and lupus. Over the proceeding years, the data as reported by Lilly were underwhelming in all indications, leading to the termination of the partnership and Nektar regaining rights to REZPEG in April of this year. Upon regaining the asset and raw data from the studies conducted by Lilly, Nektar found that Lilly had miscalculated key endpoints from the atopic dermatitis and psoriasis studies that underrepresented the benefit of REZPEG. Nektar has recently reported what they believe to be the proper results from these studies (link here NKTR Aug 7), and the data indicate that REZPEG has an efficacy profile that arguably is as good or better than leading approved biologics (the sales of biologics in the U.S. for atopic dermatitis alone were estimated to be $5b in 2022). The company is planning to start a large Ph2b atopic dermatitis study with REZPEG imminently and has guided top-line data should be available in 1H25. In the meantime, another piece of the Nektar story that has us intrigued is a lawsuit that they have filed against Lilly, alleging, among other things, breach of contract and negligent misrepresentation (click on the image below to access the full complaint)
In their claim, Nektar alleges that Lilly has acknowledged their data calculation error(s), and in their 2Q22 conference call, Nektar’s CEO Howard Robin reiterated this stating, “The internal statistical and clinical teams in charge of these two studies at Lilly were made aware that Nektar discovered the data errors and Lilly confirmed the errors in writing — in written communications with Nektar.” It may sound like an “open and shut case” but these lawsuits have a way of dragging out. Nonetheless, the combination of the Lilly lawsuit, the Ph2b atopic dermatitis study, and a cash runway that is guided to last until mid-26 have us intrigued.
Catalysts On Our Radar
Soleno Therapeutics (Nasdaq: SLNO) is due to report top-line data from their Ph3 randomized withdrawal study in patients with Prader-Willi syndrome (PWS) this month. The company previously reported Ph3 results with their drug DCCR in PWS, a rare pediatric metabolic disease, that missed the primary endpoint. However, the company was able to convince FDA that the pandemic had confounded the Ph3 results and that data generated by randomizing patients in the open-label extension of their Ph3 study to either remain or be withdrawn from DCCR, could be sufficient for an NDA submission. At first, this “blessing” from FDA to consider randomized withdrawal data as sufficient for an NDA filing seemed too good to be true, but subsequent to this announcement a number of smart-money funds (Nantahala, Vivo and Abingworth) have stepped up to fund Soleno, lending credibility to the story. Recently Perceptive Advisors, another high-prolfile smart-money fund, filed that they had acquired 24% of Soleno’s shares outstanding, making an aggressive bet on a positive outcome from the randomized withdrawal study. Several portfolio managers we speak with are intrigued by the asymmetric potential for Soleno’s data readout, believing the upside on positive data could be 4-5x while also acknowledging the downside risk of poor data is ugly. For those investors built for high-stakes clinical trial readouts, with “hero or zero” potential, Soleno is one to watch.
A couple of off-the-radar September PDUFAs we’re watching are Appili Therapeutics (TSXV:APLI, OTC: APLIF) on the 23rd and Ocuphire Pharma (Nasdaq: OCUP) on the 28th. Appili is so small and so illiquid (usually) that it barely warrants a mention, but when one of the most respected biotech trading accounts on Twitter (now X) mentioned it a few times back in July it spiked, so it wouldn’t be surprising to see a repeat heading into their PDUFA.
For those interested in Appili for more than just a PDUFA trade, the drug they have in front of FDA, ATI-1501, is a taste-masked oral liquid formulation of the antibiotic metronidazole (more info here ATI-1501). The drug is partnered with Saptalis Pharmaceuticals, a private NJ-based spec pharma, and Appili is entitled to an undisclosed milestone (it will be modest) from an FDA approval and royalties from commercial sales. It’s a 505(b)(2) NDA that only required bioequivalence data so the clinical hurdle here was pretty low. Manufacturing (CMC) often trips up small company’s with FDA, but in this case, Saptalis was responsible for the NDA filing, including handling CMC. Based on a superficial review of the Saptalis website, it appears they have managed to get a number of drugs through FDA (mostly generics) in the past, so it appears the NDA is in capable hands. Nonetheless, betting on a PDUFA outcome is always risky, and today it seems even when small companies (especially underfunded ones) have a PDUFA win, the spike in their stock is very short-lived. For those wanting to throw a bet down on Appili heading into its PDUFA, the safer bet may be to play the probabilities of another @sheffstation tweet and stock spike in the days leading up to the event rather than PDUFA outcome itself.
Those of you who have followed our earlier material will recall that we have written extensively about Ocuphire in the past. The company’s upcoming PDUFA date is for their drug Nyxol for the reversal of mydriasis (RM). Similar to Appili, Ocuphire has partnered Nyxol (in their case with Viatris) and is entitled to a milestone on approval ($10mm) and royalties on sales. The Ph3 RM data Ocuphire generated were strong, so it would be surprising to see them get tripped up with a clinical complete response letter (CRL). Like our comments above on Appili, it’s harder to know if the company is buttoned up on the manufacturing side, so there is always the risk with a smaller company for a CMC CRL. Although Ocuphire was responsible for the NDA, they do have a $10b partner in Viatris with extensive regulatory experience, who they hopefully leveraged while preparing their submission.
The decision to partner Nyxol will have implications on way the stock behaves off a PDUFA decision. The upside of an approval will be capped, given they have sold most of the Nyxol economics to Viatris, but the cash they received, $35mm upfront, from Viatris provides some downside protection in the case of an FDA rebuff. We discussed above the asymmetric return potential for Soleno, well the Ocuphire return potential feels symmetric, where the upside and downside are about the same. Assuming we’re right, investors might be better served watching Ocuphire from the sidelines unless they have strong conviction for an approval.