IVERIC bio: Promising Data In GA, Valuation Still Cheap With Multiple Catalysts In 2020 – Seeking Alpha

Posted: December 31, 2019 at 6:44 pm

Shares of IVERIC bio (ISEE) have risen by 450% since its name change in April, where the company shed the name of its failed predecessor Ophthotech and refocused efforts on the ocular gene therapy space.

The turnaround has been a long time coming, starting in August 2017 after prior lead asset Fovista failed its phase 3 trial in combination with approved VEGF inhibitors in patients with wet AMD. The focus then shifted to the company's C5 inhibitor Zimura, which was in trials for multiple ocular disease indications. The company entered into various gene therapy pacts, including a global license deal with the University of Florida Research Foundation and the University of Pennsylvania to develop a novel adeno-associated virus gene therapy for the treatment of rhodopsin-mediated autosomal dominant retinitis pigmentosa (NASDAQ:RP). In October 2018, the company acquired privately-held Inception 4, a developer of retinal diseases therapies based on inhibiting a protein called high temperature requirement A serine peptidase 1 protein (HtrA1). In exchange, Ophthotech issued 5.2 million shares of common stock in addition to being on the hook for additional milestone payments. Separately, the company inked an exclusive option agreement with the University of Pennsylvania and University of Florida Research Foundation for novel AAV gene therapy products for the treatment of Best vitelliform macular dystrophy (Best disease), a rare inherited disorder characterized by the progressive degeneration of the retina.

Flash forward to the present, and a strong showing since December's secondary offering provides us the green flag we need to dig deeper. The company priced 6.25 million common shares at $4 per share along with pre-funded warrants to purchase 3.75 million shares at $3.999 per pre-funded warrant for gross proceeds of around $40 million (to my eyes looks like a sweetheart deal to key institutional holders). As the stock currently trades at $7.75, these investors in the secondary offering have done quite well for themselves so far.

Let's take a closer look to determine if this gene therapy pioneer in the ocular disease space is de-risked enough to make it as a "ROTY idea."


Figure 1: ISEE daily advanced chart (Source: Finviz)

When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the above chart (daily advanced), we can see the stock jump in late October after a positive data readout for the phase 2b study of Zimura in patients with dry age-related macular degeneration (AMD) with geographic atrophy (GA). From there the stock hardly dipped after news of a secondary offering in early December and has experienced much appreciation in the weeks that followed (definitely a green flag). Despite the run-up, at first glance consolidation below the $8 level appears to be offering readers an opportunity to at least initiate a pilot position.

For readers interested in a brief but very insightful overview of the company's operations, management's presentation at Evercore ISI 2nd Annual HealthCONx Conference was a worthwhile listen for me.

CEO and President Glenn Sblendorio starts by stating that during the last three years they've been building a portfolio in inherited retinal diseases with therapeutics (Zimura) as well as a deep gene therapy portfolio. He reminds us that recently they reported positive topline data for Zimura in the first of two pivotal studies (hit its primary endpoint, good safety). Aside from GA secondary to dry AMD, they also are going after Stargardt Disease with Zimura (similar to wet AMD but in younger patients, finished enrollment and expecting data later in 2020). Interestingly enough, this is the largest study in Stargardt patients that has ever been done.

Figure 2: Pipeline (Source: corporate presentation)

As for the preclinical portfolio, the company's HtrA1 inhibitor will be developed for GA secondary to Dry AMD (Genentech recently started a phase 2 study on that same target).

As for the gene therapy portfolio, there are six programs along with some research work. Lead program is in RHO-adRP and should make its way into the clinic next year (11k patients in US and EU5). Best1 related retinal diseases is behind that asset, while the next three programs are in conjunction with the University of Massachusetts medical school using minigene vector (takes large functional protein that is too large to fit into existing AAV vectors, and making it into a smaller protein but keeping the functionality).

Going back to GA secondary to dry AMD, Sblendorio acknowledges the competitor running its own trial (Apellis Pharmaceuticals' APL-2 which binds to a pocket of C3, see Apellis' corporate presentation) and notes that the condition itself is still not well understood. As for pathogenesis, it's pointed out that the complement system is quite complex (over 40 different variables, three different pathways) and management believes both classic and alternative pathways are activated early in the disease of GA.

Figure 3: GA impact on functional vision in daily life (Source: corporate presentation)

As for a development plan, they are taking all comers as opposed to segmenting (could come later on). With Zimura the company is seeking to preserve upstream complement activation while hitting the downstream, as contrasted to Apellis' C3 inhibitor (local suppression). Management states hitting closer to C5 with Zimura could have safety advantages. As for other C5 inhibitors that have been tested in GA and issues experienced in the past, Alexion's C5 inhibitor was administered systemically and had difficulty getting through blood brain barrier (Zimura on the other hand is administered via intravitreal injection). As for Novartis' (NYSE:NVS) monoclonal antibody trial in 99 patients, low dose was inconclusive and higher dose was in seven patients but study was terminated,

As for recent data for Zimura in the phase 2b study, 286 patients were enrolled to three drug arms (1mg, 2mg, 4mg) and the two higher doses hit statistical significance with the primary endpoint (mean rate of change in GA over 12 months measured by fundus autofluorescence at baseline, month 6, and month 12). Dose response (not statistically significant) was observed and safety profile was "very good." Meetings with FDA after the data have resulted in management's plan to run one more trial (to get underway Q1 2020).

Figure 4: Primary efficacy endpoint achieved with 2 mg dose of Zimura versus sham (Source: corporate presentation)

As for Stargardt data next year, here the objective also is to show slowing of disease progression but using a longer time frame (18 month) as Stargardt progresses more slowly than GA.

As for the early stage gene therapy platform, management used a logical selection criteria by choosing programs that are validated and have compelling science. Additionally, these programs are addressing indications with high unmet medical need and are commercially viable. Stargardt and Usher have high prevalence, with the former having 62,000+ patients in the US+EU5 and for the latter 50,000+ patients in US + EU5.

On June 17 IVERIC bio announced that it entered an agreement with Catalent (CTLT) for production and manufacturing of GMP-grade adeno-associated virus (AAV) vector for its gene therapy product candidates, IC-100 for the treatment of rhodopsin-mediated autosomal dominant retinitis pigmentosa and IC-200 for the treatment of BEST1 related retinal diseases. The first of these is expected to enter the clinic in 2020 with IC-200 to follow 1H 2021.

Figure 5: IC-100 proof of concept in canine model shows preservation of retinal function (Source: corporate presentation)

On July 23 the company announced it had exercised an option to enter into an exclusive global license agreement with the University of Massachusetts Medical School for rights to develop and commercialize mutation independent novel AAV gene therapy product candidates for the treatment of Leber Congenital Amaurosis type 10 (LCA10) due to mutations to the CEP290 gene, the most common type of LCA. Apparently, the collaboration resulted in additional research data that supports the plans of moving forward. Separately, IVERIC bio also announced expansion of its gene therapy portfolio by entering into a sponsored research agreement with UMass Medical School and an exclusive option agreement for rights to develop and commercialize novel AAV gene therapy product candidates utilizing a mutation independent minigene therapy approach for the treatment of vision loss in USH2A-related inherited retinal diseases (IRDs).

Figure 6: MiniCEP290 LCA10 early proof-of-concept (Source: corporate presentation)

On Oct. 28 the company announced initial topline data confirming that C5 inhibitor Zimura met its prespecified primary endpoint in reducing the rate of geographic atrophy growth in patients with dry age-related macular degeneration in a randomized, controlled phase 2b clinical trial. Reduction in the mean rate of GA growth over 12 months was 27.38% (p-value = 0.0072) for the Zimura 2 mg group as contrasted to sham control and 27.81% (p-value = 0.0051) for the Zimura 4 mg group as compared to sham control. The drug candidate appeared well tolerated after 12 months of administration with no Zimura-related inflammation or Zimura-related discontinuations (no ocular serious adverse events and no cases of endophthalmitis either). Incidence of choroidal neovascularization (CNV) in the untreated fellow eye was 10 patients (3.5%), three patients (2.7%) in the sham control group, six patients (9.0%) in the Zimura 2 mg group, and eight patients (9.6%) in the Zimura 4 mg group. Most frequently reported ocular adverse events were related to the injection procedure. Keep in mind the significance of this data considering that these patients have no treatment options currently.

Improvement in pre-specified endpoints (mean change in best corrected visual acuity and mean change in low luminance best corrected visual acuity from baseline to month 12) were not as promising (even inferior to placebo in some cases). However, as management pointed out in their presentation above, BCVA improvement is more important in conditions such as wet AMD as opposed to GA where the goal is simply to avoid blindness. Keep in mind that patients in the trial continue to be treated through month 18, so further data collection and readout in 2020 also will prove an important catalyst.

On Oct. 29 the company announced appointment of Abraham Scaria, PhD, to the position of Chief Scientific Officer (served previously at Genzyme, Sanofi and most recently at Casebia Therapeutics, leading multiple ocular gene therapy programs). Dr. Scarias 25-plus years of experience in the gene therapy arena will certainly prove helpful as the company's early-stage programs make their way into the clinic. This was followed up with another appointment in late November in the form of Guangping Gao, PhD, as Chief Strategist, Gene Therapy (has 30 years of research experience in gene-based treatments and is current President of the American Society of Gene and Cell Therapy (ASGCT). Dr. Gao's contributions to the field should not be understated (published 267 research papers, six book chapters and holds 135 patents with 239 additional patent applications pending).

For the third quarter of 2019, the company reported cash and equivalents of $94.9 million compared to net loss of $14.4 million. Research and development expenses rose slightly to $10.4 million, while G&A came in at $4.7 million. At the time, management estimated operational runway into 1H 2021 (not including $40 million of gross proceeds from secondary offering).

As for future catalysts, next year we can expect additional follow up on phase 2b data for the GA program and initiation of enrollment in the second pivotal study in Q1 2020. Data for Zimura in Stargardt disease also is expected at some point in 2020.

Keep in mind that competitor Apellis Pharmaceuticals (APLS) continues to enroll two phase 3 studies (DERBY and OAKS) for GA patients and progress here will be important to monitor as well.

Figure 7: Competitor Apellis' APL-2 FILLY phase 2 data slowed GA growth as well, graph provides point of comparison of mid-stage results (Source: corporate presentation)

On the conference call, management estimated that total expected cost of the second pivotal Zimura trial in GA could range between $30 million to $40 million plus additional external CMC cost for process development validation ranging from $10 million to $20 million (hinted that a partnership is a potential option on the table as well). Regarding market size, AMD is considered the most common cause of visual loss in developed countries with projection of 196 million in 2020 and 288 million in 2040 worldwide. Prevalence of GA in 2020 is estimated to be 1.5 million patients in the US with incidence of around 159,000/year. There are no currently FDA or EMEA approved treatment options available for these patients.

As for institutional investors of note, in December Venrock Healthcare Partners acquired a 5.60% stake in the company. While there has been a history of insider sales, President and CEO Glenn Sblendorio has made a few purchases as well (in May, November and December).

As for management lineup, President and CEO Glenn Sblendorio served prior as president and chief financial officer at The Medicines Company (NASDAQ:MDCO) from 2006 to 2016 and before that as executive vice president/chief financial officer of Eyetech Pharmaceuticals (was sold to OSI Pharmaceuticals for over $900 million in cash and stock deal). Chief Financial Officer David Carroll also came over from the Medicines Company. Chief Clinical Operations Officer also served prior at Eytech Pharmaceuticals as Vice President and Senior Vice President of Clinical Research and Development (played a key role in the development and approval of Macugen for the treatment of wet age-related macular degeneration).

To conclude, there are several elements in an investment here that we look for in ROTY (multiple ways to win via Zimura readouts and progression of gene therapy pipeline, good cash position post secondary, experienced management team, a derisking data set in GA, etc). Looking at prior news flow, I wish I had discovered this one earlier in the year when gene therapy programs were in licensed or even entry post Zimura GA data in October. However, even at the present market capitalization of $340 million (EV of around $200 million if cash is backed out), valuation seems to be on the cheap side relative to prospects in GA with additional indications and gene therapy pipeline giving investors long-term optionality. On a note of caution, burden of proof is on the company in detailed data readout for Zimura as well as with longer follow up to show maintained treatment effect and confirm prior data in the second pivotal trial.

For readers who are interested in the story and have done their due diligence, ISEE is a Speculative Buy and I expect continued upside in 2020 as this is both a revaluation and catalyst idea.

Risks include disappointing data readouts in 2020 for GA and Stargardt, setbacks in the clinic, regulatory setbacks for gene therapy pipeline and competition in certain spaces they are going after. When I think of LCA10 indication (and Usher for that matter), ProQR Theraeputics' (PRQR) sepofarsen and QR-421a come to mind. Allergan and Editas Medicine (EDIT) also are going after LCA10 with a CRISPR-based genome editing medicine (AGN-151587). A former winner mentioned in ROTY and public articles, Nightstar Therapeutics which was acquired by Biogen, also has a highly intriguing Stargardt disease program as well as earlier-stage asset NSR-BEST1 for Best disease. Going back to lead indication of GA for Zimura, keep in mind that multiple attempts with C5 in the past have failed, so burden of proof is on the company to truly show that "this time is different." Keep in mind that competitor APL-2 showed treatment effect maintained through 18 months - if phase 3 data for APL-2 disappoints, it could have an outsized impact on share price as well.

A comparison in valuation to Apellis Pharmaceuticals would be premature and essentially apples to oranges, considering the larger company has a pivotal readout due in PNH where there is rationale for optimism for the prospects of APL-2 as an add-on therapy to Soliris. AIHA and C3G are other indications being explored as well.

Currently Apellis sports a market cap around 6x that of IVERIC bio. One would think that as a revaluation idea alone (in the absence of data catalysts) and given clear signs of accumulation in the smaller company's stock, a revaluation of the latter to $500 million-plus market capitalization would be appropriate.

As for downside cushion and elements of de-risking, as mentioned prior cash position accounts for about a third of market capitalization and GA data for Zimura provides some cushion as well. It would appear that investors purchasing shares presently are getting the gene therapy pipeline essentially for free.

For our purposes in ROTY, again I wish I'd been savvy enough to catch this one earlier when enterprise value was ridiculously cheap (I often try to enter positions early on before a run up has taken place). That said, IVERIC bio still represents an attractive revaluation opportunity and I'm very interested to follow up on an update later in 2020 as lead gene therapy asset IC-100 makes its way into the clinic (would like to see management deliver on timeline projections and let us know when to expect the initial data set). Also, I feel that I have little edge as far as determining how pivotal data for competitor Apellis Pharmaceuticals' GA program will affect shares of IVERIC bio (am optimistic on positive outcome, but a comparison of side effect profiles will be key to determining who has an advantage in addressing this attractive market opportunity).

Author's Note: I greatly appreciate you taking the time to read my work and hope you found it useful. Consider clicking "Follow" next to my name to receive future updates and look forward to your thoughts in the Comments section below.

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IVERIC bio: Promising Data In GA, Valuation Still Cheap With Multiple Catalysts In 2020 - Seeking Alpha

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