Let The Stock Breathe
Cellectar Biosciences (Nasdaq: CLRB) stock has recently made a roundtrip back to its January pre-CLOVER WaM pivotal data release price. We have written about Cellectar numerous times, but as a quick reminder, the company has a late-stage radiopharmaceutical, CLR 131, in development for the rare cancer indication Waldenstrom’s macroglobulinemia (WM). The recent erosion in the company’s stock price wouldn’t be considered abnormal, given the malaise in micro/small cap biotech, if not for the fact that Cellectar is due to report additional data from their pivotal WM study any day, data they have foreshadowed to be meaningfully better than their already impressive January results. As we highlighted in our January 15th note shortly after the initial CLOVER data release, “Data from the WM pivotal study continue to mature, so investors can expect additional data releases from the company in the coming months. Interestingly, Cellectar’s CEO stated at last week’s Biotech Showcase presentation that he believes the MRR% will go “significantly higher” and that the CR rate “…has the upside to double” as the data mature.”
The initial efficacy data released in January were from 41 of the 55 patients enrolled in the pivotal study. The company has guided that the additional data release, which should come this week, will include data from the fully enrolled patient population. As the quote above suggests, Cellectar management has hinted that the data should show meaningful improvements on several key endpoints, including major response rate (MRR) and complete responses (CR). Therefore, with an impending incrementally positive data release expected any day, it is curious to see the stock trade poorly.
Amongst its loyal following on X, Mustang Bio (Nasdaq: MBIO) is considered the primary culprit for Cellectar’s recent fall. Last week, Mustang released data from a Phase 1/2 study in 10 WM patients treated with their CD20-targeted, autologous CAR T-cell therapy. These are early data, but they are definitely encouraging particularly the CR rate. Nonetheless, given how far behind (and underfunded) Mustang is relative to Cellectar, it seems premature for investors to perceive this as a real threat.
In our opinion, Mustang is merely a scapegoat for some investors when the real culprit weighing on Cellectar’s equity is an internal one – their balance sheet. The company has guided that it only has a cash runway into 4Q24. We have previously discussed the company’s September 2023 tranched financing, which still has 7.1mm warrants at $4.7775 that are callable upon CLR 131 being FDA-approved. When Cellectar originally entered this financing, it was anticipated they would have an NDA submission in 2Q24 and, assuming a 6-month priority review, a PDUFA date in 4Q24. In other words, they expected their balance sheet to see them through the PDUFA and be topped off with exercising the 7.1mm warrants. It was an aggressive timeline, and now, with the NDA submission pushed until late this year (Guggenheim May webcast Cellectar’s COO speaks about mid-25 PDUFA), the company needs to finance this gap.
There is always the possibility that Cellectar finances this gap via business development instead of equity. As we have discussed in our previous pieces on Cellectar, the radiopharmaceutical space has seen vibrant M&A activity. In the last year, Astra Zeneca (NYSE: AZN), Bristol Myers (NYSE: BMS), Eli Lilly (NYSE: LLY), and most recently, Novartis (NYSE: NVS) have all made significant radiopharmaceutical acquisitions. Given Cellectar’s depressed valuation and vulnerable balance sheet, they are unlikely in a position to extract fair value in acquisition talks at this stage. However, a regional (ex-U.S.) collaboration could be a possibility. The company has clearly stated they don’t plan to commercialize CLR 131 themselves outside the U.S. On their recent 1Q24 call, one analyst pressed management on the possibility of an ex-U.S. deal, so clearly, we aren’t the only ones thinking this is a possibility.
Although we just dangled the possibility of business development to investors, in our opinion, the most likely outcome for Cellectar is an equity financing sometime in 3Q24. The company has an enviable cadence of news for the remainder of the year, including additional pivotal WM data, NDA submission, FDA acceptance of the NDA (including granting of priority review), and possibly data from their pediatric glioma and multiple myeloma programs.
Yet, we believe the company’s biggest value-creating milestone is very likely a financing. The company has a financing overhang that is smothering the stock, and until it is addressed, the stock appears stuck. In fact, in this current risk-off biotech atmosphere, it’s possible this week’s pivotal data release will become a “sell the news” event, and new capital will stay on the sidelines until a deal is printed. Fortunately, Cellectar has proven it can attract money from quality funds in the past and, therefore, should have no problem accessing capital to bridge it through to its PDUFA. Once Cellectar is properly financed, with its enviable cadence of news, we think the stock should breathe again.
Will “Provocative” Science Get Funded?
Last week, the biggest news in biotech was that FDA granted expanded approval for Sarepta Therapeutics (Nasdaq: SRPT) gene therapy, Elevidys, for treating Duchenne muscular dystrophy (DMD). We listened to an excellent discussion hosted by Biotech Hangout on X (@BiotechCH) on the Sarepta decision, which included several notable sell-side analysts. We found Josh Schimmer of Cantor’s comments on the potential implications for other DMD drug developers (around the 15-minute mark) particularly interesting. He specifically mentions Satellos Biosciences (US: MSCLF, TSX: MSCL) as a “very interesting” company with “very provocative” science that may find capital more challenging to access with the market “pouring billions of dollars into Sarepta.”
It’s encouraging to have a notable sell-side analyst like Schimmer speaking about Satellos in such a favorable light, especially considering he doesn’t cover it. We share his opinions on the provocativeness of Satellos’s science, having previously written (a little dated now) about the company and its unique approach to targeting muscle stem cells for treating DMD. In our note, we highlighted how Satellos drug’s (now called SAT-3247) “…unique mechanism of action should also allow it to play well with other approved Duchenne drugs. Whether it be the exon-skippers or gene therapy, it would appear SAT-3247 would be complimentary to either approach.”
We think “playing well” with other DMD drugs was one of the selling features that attracted smart-money investors like Perceptive Advisors to invest in the company. For this reason, we don’t foresee last week’s Sarepta’s Elevidys news impacting Satellos’ ability to fund its research. Elevidys may have received the broadest possible label from the FDA, but its efficacy is still questioned. As Brad Loncar said on the Biotech Hangout discussion when discussing the Elevidys approval, “…nobody knows what the magnitude of benefit is…it may be very little, it may be moderate…” Research into new treatments for DMD will not stop because of the Elevidys approval. Provocative science will get funded.
The Mouse Giveth and Taketh Away
In our previous note on Ventyx Biosciences (Nasdaq: VTYX), we posed the question, “Can Obese Mice Make The Stock Sing Again?” The answer was a resounding NO. Ventyx’s stock plummeted, experiencing a nearly 40% drop, following the June 10th release of their diet-induced obesity (DIO) mouse model data for their CNS–penetrating NLRP3 inhibitor VTX3232. The company was emboldened that the preclinical data were positive, providing “proof-of-mechanism” for VTX3232 in obesity. However, investors were underwhelmed by the preclinical weight loss figures, particularly compared to its NLRP3 competitor, NodThera Limited. As we previously noted, Ventyx had benefitted from a risk-on biotech environment earlier in the year, receiving a speculative boost and quickly raising $100mm based on NodThera’s DIO mouse data. Therefore, it seems fitting, given the current risk-off atmosphere in biotech, that the stock would suffer when Ventyx’s data failed to meet investor expectations.
Compounding Ventyx’s woes were the ambiguous Phase 1b/2a weight loss data announced last week from NodThera with their CNS-penetrating NLRP3 inhibitor, NT-0796. In this study of 67 obese patients with cardiovascular risk, NT-0796 met the study’s primary endpoint, demonstrating statistically significant reductions in C-reactive protein (CRP) compared to placebo. However, the weight-loss data reported by the company were more opaque, qualitatively described as “…all subjects lost weight due to calorie restriction in both the active and placebo groups, the most pronounced placebo-adjusted reductions in body weight were among high-risk subgroups of NT-0796 dosed subjects.” Not exactly a ringing endorsement of the NLRP3 mechanism for weight loss.
Ventyx’s valuation has been cut in half following their DIO mouse data and NodThera’s weight loss data. It trades at a substantial discount to its $300mm treasury (03/31). Nonetheless, Ventyx, undeterred by investors’ pessimism, is planning to initiate a Phase 2a obesity study with VTX3232 in 2H24. The company will also start a Phase 2a Parkinson’s study with VTX3232 in 2H24 and maybe a third study with their peripheral NLRP3 inhibitor, VTX2735, in a cardiovascular indication before the year’s end. Finally, Ventyx is due to report top-line Phase 2 data from their legacy asset, VTX958, in Crohn’s disease in July. It’s been a rough few weeks for Ventyx, but they have the cash and the catalysts to weather the storm.