Axovant Offers An Interesting Risk-Reward Proposition – Seeking Alpha

Posted: September 28, 2020 at 2:56 pm

Axovant Gene Therapies (AXGT) is a gene therapy company focused on treating neurodegenerative diseases, including Parkinson's Disease. Despite being in early clinical stages and being relatively underfunded, in my opinion, at today's valuation, it offers a very interesting risk/reward proposition. I explain why in this article.

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AXGT's premier drug under development is AXO-Lenti-PD aimed at treating Parkinson's Disease. The drug is a re-engineered version of an earlier gene therapy developed by Oxford BioMedica (OTCPK:OXBDF) under the name "ProSavin". The re-engineered version is thought to improve gene payload and delivery, but because the same genes are being delivered, the data from ProSavin will also be included in any eventual FDA submission.

As Parkinson.org reminds us, "Parkinsons disease (PD) is an extremely diverse disorder. While no two people experience Parkinsons the same way, there are some commonalities. PD affects about one million people in the United States and ten million worldwide. The main finding in brains of people with PD is loss of dopaminergic neurons in the area of the brain known as the substantia nigra."

AXO-Lenti-PD's mechanism of action is to deliver three genes (TH, CH1 and AADC) involved in converting tyrosine and levodopa into dopamine. By increasing dopamine in the brain, AXGT hopes to reverse the symptoms of Parkinson's in its patients.

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(As an aside, the only direct gene therapy competition in the space that I'm aware of is a collaboration between Neurocrine Biosciences (NBIX) and Voyager (VYGR) whose treatment delivers only one of the three genes (AADC) to its patients.)

AXGT is using the Unified Parkinson's disease rating scale (UPDRS) motor score (subscale III) to assess improvements in Parkinson's symptoms. This is the most commonly accepted measure for the disease and to gage the effectiveness of treatments.

One JAMA meta study attempted to equate changes in UPDRS scores into levels of clinically important differences (CIDs). The results were as follows:

Concordance among multiple approaches of analysis based on subjective and objective data show that reasonable estimates for the CID on the UPDRS motor score are 2.5 points for minimal, 5.2 for moderate, and 10.8 for large CIDs.

The JAMA study is helpful in assessing AXGT's early results.

AXGT treated 15 patients at three dose levels in the initial ProSavin trial. The data showed dose dependence and the overall improvements in UPDRS-III scores would have ranked the two higher dose groups as having "large" clinically important differences according to the JAMA researchers.

Six patients have been treated with AXO-Lenti-PD at two dose levels, with results having been attained for the first two treated at the lower dose and partial results for one patient in the higher dose group.

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The initial results are an improvement over the original ProSavin data and overall the potential for this treatment is tantalizing, given the expected deterioration of patients on today's standard of care (levodopa). Compare the timeline of AXGT's treatment results to an older graph showing the 40 week data for levodopa (note that the second graph is total score, not subsection III as I wasn't able to find exactly comparable data). For a deeper dive, see this NCBI paper titled "Progression of motor and nonmotor features of Parkinson's disease and their response to treatment".

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Changes in Total Scores on the Unified Parkinson's Disease Rating Scale (UPDRS) from Baseline through Evaluation at Week 42.

The changes in subjects treated with levodopa at different doses or with placebo were determined on the basis of the total scores on the UPDRS. (source)

The initial market for AXGT's gene therapy is on the order of 100K patients. Given that it's a one time treatment, charging $75K to $100K wouldn't be unreasonable. That's a market opportunity of $7.5B to $10.0B should everything work out.

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However Oxford BioMedica didn't exactly give the technology away, such that the licensing agreement allows Oxford to materially participate in any future success AXGT may have with this gene therapy. From the most recent 10Q (with my emphasis):

In June 2018, we, through our wholly owned subsidiary, ASG, entered into the Oxford Agreement, pursuant to which we received a worldwide, exclusive, royalty-bearing, sub-licensable license under certain patents and other intellectual property controlled by Oxford to develop and commercialize AXO-Lenti-PD and related gene therapy products for all diseases and conditions. In June 2018, as partial consideration for the license, we made an upfront payment to Oxford of $30.0 million, $5.0 million of which was applied as a credit against the process development work and clinical supply that Oxford is obligated to provide to us over the term of the Oxford Agreement. Under the terms of the Oxford Agreement, we could be obligated to make payments to Oxford totaling up to $55.0 million upon the achievement of specified development milestones and $757.5 million upon the achievement of specified regulatory and sales milestones. In April 2019, certain development milestones were achieved resulting in a $13.0 million net payment due to Oxford. We will also be obligated to pay Oxford a tiered royalty from 7% to 10%, based on yearly aggregate net sales of the underlying gene therapy products, subject to specified reductions upon the occurrence of certain events as set forth in the Oxford Agreement. These royalties are required to be paid, on a product-by-product and country-by-country basis, until the latest to occur of the expiration of the last to expire valid claim of a licensed patent covering such product in such country, the expiration of regulatory exclusivity for such product in such country, or 10 years after the first commercial sale of such product in such country.

Personally I think that these high costs validate the potential of the treatment, but they of course also limit the benefit AXGT will see from it successful deployment.

Before looking at the company's valuation and the risk/reward it presents, let's quickly look at the company's other two product candidates which are aimed at treating rare neurological diseases.

This gene therapy is intended to treat Gangliosidosis, a very rare but fatal pediatric disease for which there is currently no treatment. Initial 6 month data from the Stage 1 low dose cohort is expected some time next quarter.

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This gene therapy is a dual vector program aimed at delivering HEXA and HEXB genes into patients with GM2 gangliosidosis (including Tay-Sachs disease and Sandhoff disease).

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There is initial data from two patients, with the second one showing some promise. From the most recent 10Q:

Patient #2

In June 2019, a six month old child with early symptomatic infantile Tay-Sachs disease received AXO-AAV-GM2 prior to the onset of severe symptoms, delivered into the thalamus bilaterally as well as into the cisterna magna and lumbar intrathecal space, the planned routes of administration for patients in the registrational program. The surgical procedure was well tolerated with no neurological defects noted. There were baseline elevated transaminases noted with a transient increase. This child is clinically stable at six months after dosing with plateaued development. Importantly, no seizure activity and no exaggerated startle responses were observed. By contrast, the patients untreated, two older siblings with Tay-Sachs disease exhibited rapid disease progression, clinical regression and seizure onset at 12 to 18 months of age. In addition, brain MRIs taken three and six months after administration (at 10 and 13 months of age, respectively) demonstrated no damage to the thalamus and normal new myelin deposition. By contrast, commonly reported MRI findings in infantile Tay-Sachs disease at this age include demyelination and cerebral and cerebellar atrophy. The CHOP INTEND score, a 16-item scale of motor function that has been validated in infants with neuromuscular disorders, was 58 out of 64 at baseline, increasing to a total score of 60 at month three following gene transfer and declining to a total score of approximately 52 at month 12 following gene transfer. Total CHOP INTEND scores sustained at levels greater than 40 points indicate a clinically meaningful improvement.

With the stock trading at $4.72, AXGT sports a market cap of $198M and an EV of $143M thanks to the $55M it had as cash on the balance sheet at the end of June.

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For a company with a multi-billion dollar opportunity in front of it, these seem to be low valuations.

The risk however is continued dilution and/or failed or stalled trials which would mean that the company either doesn't succeed or the share count is much higher by the time the company is generating revenues. Indeed, despite having $55M in cash on the balance sheet, the company is operating under a going concern warning.

From the 10Q with my emphasis:

As of June 30, 2020, the Companys cash and cash equivalents totaled $55.5 million and its accumulated deficit was $767.2 million. For the three months ended June 30, 2020 and the fiscal year ended March 31, 2020, the Company incurred net losses of $8.6 million and $72.6 million, respectively. The Company expects to continue to incur significant operating and net losses, as well as negative cash flows from operations, for the foreseeable future as it continues to develop its gene therapy product candidates and prepares for potential future regulatory approvals and commercialization of its products, if approved. The Company has not generated any revenue to date and does not expect to generate product revenue unless and until it successfully completes development and obtains regulatory approval for at least one of its product candidates, and its current cash and cash equivalents balance will not be sufficient to complete all necessary development activities and commercially launch its products. The Company anticipates that its current cash and cash equivalents balance will not be sufficient to sustain operations beyond nine months following the date that these unaudited condensed consolidated financial statements and notes were issued, which raises substantial doubt about the Company's ability to continue as a going concern.

The company also has an ATM in force, from the 10Q:

During the three months ended June 30, 2020, the Company engaged SVB Leerink LLC as its agent to sell the Company's common shares from time to time through an at-the-market equity offering program. SVB Leerink LLC receives compensation for its services in an amount equal to 3% of the gross proceeds of any of the Company's common shares sold. As of June 30, 2020, the Company sold approximately 1.4 million common shares for total proceeds of approximately $4.3 million, net of brokerage fees, under this program, and subsequent to June 30, 2020, the Company has sold approximately 1.1 million common shares for total proceeds of approximately $3.3 million, net of brokerage fees (see Note 12).

AXGT has a promising gene therapy for Parkinson's Disease which will have more safety and efficacy data released next quarter. Should the data continue to substantially improve on current standard of care, I think investors will begin to take into account the huge potential market opportunity and the stock will rise impressively despite the risks mentioned above. With this in mind, I may take a starter position in the near future, but in doing this research I've also become intrigued by the idea of using OXBDF as a way to participate without taking the full risks that AXGT engenders. I will write up my findings if I do decide to go that way.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in AXGT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I actively trade around core positions.

Originally posted here:
Axovant Offers An Interesting Risk-Reward Proposition - Seeking Alpha

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