Since our first report just over a month ago that fully debunked the bull case on AveXis (NASDAQ:AVXS), new events have transpired that have further strengthened the bear case on the stock. This follow up report will discuss these new events and why the worst case scenario has just begun for AVXS.
New Event #1: We Believe AVXS Just Delayed the Filing of Their IND for Type 2 & 3 SMA
After the close on Wednesday, December 21st, AVXS issued a press release that more closely resembles a bad game of verbal twister than an actual corporate PR. At Mako Research, we're accustomed to penny stocks trying to sneak out bad news in light pre-holiday trading and generally attempting to spin bad news as good. We're less accustomed to seeing $1.6 billion market cap stocks play these games, but truth be told, we believe AVXS is a penny stock in sheep's clothing, so what's a billion-six among friends?
The press release was titled AveXis to Use Intended Commercial GMP Product in SMA Type 2 Study.
We quote the press release below:
"[T]he company has made the strategic decision to use the intended commercial GMP derived product in all future studies of the company's proprietary gene therapy candidate, AVXS-101, including the planned spinal muscular atrophy (SMA) Type 2 trial."
And then nestled away a little lower in the PR without acknowledging the timeline of their planned study in SMA Type 2 Patients was just delayed from the guidance they gave as recently as November, AVXS had this gem:
"The company now expects to initiate the planned study of AVXS-101 in SMA Type 2 patients in Q2 2017."
Ostensibly, this press release is about cGMP manufacturing of AVXS-101 - that is what the title of the press release mentions and discussion of cGMP for AVXS-101 makes up the majority of the content of the press release. We will discuss cGMP and the challenges AVXS faces in manufacturing its product at commercial scale later in this report, but the main gist of our argument is that cGMP is a relative non-issue, and that by framing the press release this way, AVXS has by our reading implicitly guided the market that their intrathecal route of administration IND filing for SMA Type 2 & 3 will be delayed yet again.
Yes, delayed again. The implied IND delay, which we believe means AVXS cannot start its Phase 1 trial and which hints at a potential ongoing problem with the FDA, is the real story to emerge from this PR, in our eyes, and is the subject of much of our report. The continued delay in starting the trial is a significant setback for AVXS bull
We suspect a lot of AVXS bulls don't even know what an IND filing is, so let us clarify: IND stands for Investigational New Drug. A biotech or pharmaceutical company submits an IND to the FDA to gain permission to begin a Phase 1 trial. The FDA reviews the IND filing to determine safety before giving the green light.
As we will discuss later, the NCH submitted the IND for the initial Phase 1 trial of AVXS-101. This trial used an intravenous route of administration. AVXS is apparently now attempting to move to an intrathecal route of administration. We believe this new route of administration will require a new IND application, and that this is the real reason for yet another trial delay from AVXS, not the manufacturing issue they wrote about in the press release.
Specifically, the proposed AVXS-101 intrathecal trial satisfies one of the most important criteria for why a company needs to file an IND: there is a change in the approved route of administration or dosage level. Changing from intravenous to intrathecal is clearly a change in the route of administration. We believe AVXS can't start the trial without filing the intrathecal IND - this is consistent with literally hundreds of other IND/Phase 1 trials submitted to the FDA over the years. Simultaneously, we find zero evidence that AVXS's current IND will allow intrathecal administration.
No IND filing, no Phase 1 trial, it's that simple. AVXS can talk about cGMP all it wants, but without filing a new IND, it cannot start its trial. And this is what we believe the press release was really about (and why AVXS wanted to sneak it out before Christmas when most of the Street was away from their desks), despite the comically irrelevant title.
Which brings us full circle to the current (at least second, by our count) delay in starting AVXS' intrathecal trial targeting Type 2 & 3 SMA patients.
Let's take a moment to remind readers that as recently as November 1, 2016 AVXS guided investors toward starting their intrathecal trial at the end of 2016. We quote the 11/1/16 conference call below:
Mayur Amrat Somaiya
BMO Capital Markets Equity Research
Okay. I guess, one last question just in regards to Type 2 patients. How should we think about the regulatory program for that - or clinical program for that patient population?
Sean P. Nolan
Chief Executive Officer, President and Director
We're going to be using the intrathecal delivery for the Type 2 patients. We have guided that, that is something that we'll start in the second half of this year, and we're still guiding to that. And once we announce study initiation, we'll definitely be providing more details around the trial design as well as the specifics relative to the inclusion/exclusion criteria.
So just weeks after this conference call, AVXS is already making excuses and delaying the start of the trial. But this is not the first delay from AVXS in starting this trial. Specifically, we refer to an interview from 2014 in which AVXS insiders claimed they were on track to start their intrathecal trial in 1H15:
"We are also on track to start our intrathecal trial in the first half of 2015 and very serious thought is being given to how we can treat Type 2 patients late 2015 or 2016," noted AveXis' Chief Scientific Officer Allan Kaspar, Ph.D.
Here we are on the cusp of 2017 with nothing but more delays from AVXS. And yes, Allan is the brother of Brian Kaspar, lead PI at NCH (which we consider the dirtiest clinical trial site in America), who we discussed in our first report. Don't worry though, we're sure there couldn't possibly be any conflicts of interest here!
The bankers drop the ball again
It's no secret that Mako Research has been appalled at the investment bankers who are supporting this stock as we believe the "research" they have presented is flawed and irresponsible. But we found the most recent conference call to be a new low, as the analysts once again completely failed to ask the relevant questions to AVXS, and instead just pitched softballs underhand to management.
Since we're nice guys, we decided to help them out. Here are the questions that matter:
Has AVXS filed the IND for this study yet?
We believe the answer is no or the company wouldn't be wasting time with pointless conference calls to discuss manufacturing. This is really the only question that matters. Naturally, the analysts on the call completely failed to ask this question.
The other question that should have been asked on the call was, Has AVXS ever filed any IND for any study?
Again, we believe the answer is no.
But don't take our word for it, AVXS says as much in their own prospectus filing:
"We are currently evaluating preclinical data for the potential expansion of AVXS-101 into SMA Types 2, and possibly 3, via the intrathecal route of administration. We intend to initiate a Phase 1 safety and dose-ranging clinical trial of AVXS-101 for SMA Type 2 via intrathecal delivery in the second half of 2016, provided that the FDA allows it to proceed."
The trial has already been delayed at least twice and AVXS has publicly acknowledged that FDA approval is required to move forward with a Phase 1 trial using the intrathecal route of administration. This is what matters, not cGMP. We think there is a good chance that what is really happening here is that AVXS is having difficulty submitting its IND and is encountering resistance from the FDA. As we said at the beginning of this report, the well-known criteria for needing to file an IND is a change in the approved route of administration or dosage. Intravenous to intrathecal clearly seems to us to be a changed in the approved route of administration.
So the prior IND submitted by NCH (intravenous) is almost certainly not sufficient. And we believe the hurdle for a non-profit (in this case, NCH) submitting an IND is much lower than a for-profit entity (AVXS) submitting an IND. We believe this is most likely where the break down is occurring.
From this AVXS document, we see that "On November 6, 2015, the FDA approved our sponsorship of the IND and the transfer of the associated regulatory filing from NCH." AVXS never filed the IND for AVXS-101 in the first place - NCH did, but we believe this only covers the intravenous route of administration, a fact that AVXS's own IPO prospectus supports.
The NCH trial began as an investigator sponsored trial (sponsored by Jerry Mendell as the PI at NCH). Once the trial was through the FDA and up and running, it was transferred from the not-for-profit NCH into the for-profit AVXS. Without the help of not-for-profit NCH filing the IND for AVXS as an investigator sponsored trial, it increasingly appears to us that AVXS is having major issues getting an IND approved on their own as a for-profit sponsor. Otherwise, they very likely would have done it by now - after all, AVXS has repeatedly missed their own deadlines for the trial over the last two years. And here we are talking about cGMP and other things that don't matter.
This link provides a decent primer on the difference between academic investigator and pharmaceutical company investigational IND applications from a practical stand point, which we believe is highly relevant for AVXS. Cliffs Notes: There is a higher hurdle for non-academic centers with the FDA which AVXS is now facing.
Furthermore, we present several obvious concerns the FDA would likely raise about safety and which we feel strongly that AVXS can't answer about their existing Phase 1, any one of which could account for the repeated IND delays:
Can you prove that your drug goes to where you say it goes once injected?
That it does what you say it does?
And that it lasts forever?
We're talking about injecting a virus into the spine of infants. This is not a trivial matter. AveXis better have a good handle on where this virus goes once inside the body and how it will likely interact from a safety perspective with these children. We submit that AveXis likely DOESN'T KNOW and that this is likely one of the key actual reasons why (manufacturing nonsense aside) the company is unable to file its intrathecal IND.
Furthermore, we have seen no proof that the AAV-9 vector does not degrade in the body over time. For AVXS-101 to be the miracle cure it's claimed to be, it has to permanently retain efficacy within the body. Because the human body will develop antibodies to the virus over time, if the AAV-9 vector degrades over time, patients cannot receive a second treatment. This is a one-and-done treatment; any degradation will render booster treatments unviable. We already don't think insurance companies will want to pay millions of dollars for AVXS-101 IF it were ever approved (we doubt it will be), but we KNOW they won't pay millions of dollars multiple times for multiple treatments that won't work more than once (and we don't think it will even work the first time).
Moving beyond the IND, the AVXS PR was a real treasure trove so let's review it in detail:
Excuse #1: AVXS hasn't even had its manufacturing meeting with the FDA yet
In the 12/21 press release, AVXS claimed that by jumping directly to "intended commercial" GMP product it would save development time down the road due to the fact that a "comparability analysis" would not be necessary. Since AVXS hasn't even had their manufacturing meeting with the FDA (that won't take place until the end of 1Q17) how do they know they would need a comparability study? And how do they know that the comparability analysis would need to be in humans instead of animals? We believe they don't know, but one thing is clear: this is a significant delay in the development for the intrathecal version of AVXS-101. From our perspective, this cGMP issue looks like a smoke screen to distract from the main issue at play here: Where is the intrathecal IND?
Excuse #2: AVXS may be having problems with its manufacturing
AVXS claims that the move of the intrathecal clinical trial start date from the end of 2016 to the second quarter of 2017 is due to manufacturing and somehow we should be excited about this. In reality, this is a negative. The company has already said they have enough clinical material to start the trial. This material was originally produced by the NCH. Just like it has never announced the filing of its own IND, AVXS has never produced any of its own clinical material, as far as we can tell. There is a LOT of double and triple speak as they talk about their manufacturing. They talk about a third party doing most of the work but seem to be hiring an internal team, though these job posts are several months old so perhaps they are having difficulty with the hiring as well.
Why all the confusion at AVXS?
We submit a plausible alternative view point (which we view as an entirely separate issue from the IND): AVXS is having problems with their manufacturing approach. As programs mature in their development, manufacturing becomes a much more important issue with the FDA. What the NCH, as a non-profit entity, was able to get by the FDA to start the Phase I at the NCH may be nowhere near sufficient for AVXS, a for-profit entity.
And don't underestimate the complexity of manufacturing AVXS-101. In fact, we can see this in AVXS' own materials filed with the SEC.
How important is manufacturing to AVXS? In the company's most recent prospectus, by our count the word 'manufacturing' appears in the document 130 times. We note that the vast majority of those instances are related to RISK FACTORS. This is clearly a huge issue but the company would have you believe everything is A-OK. It is entirely possible that commercial scale manufacturing of AVXS-101 is not feasible. In their conference call this month, management discussed "data" coming from their own scale up (or is it the work of their 'third party'?) which is the reason for waiting on the start of the intrathecal trial. This is just a really curious choice of words. The commercial product must EXACTLY MATCH the product used in clinical trials or the FDA won't allow it. What 'data' are they referring to? Are you able to make the EXACT same product in sufficient scale or not? If you are, just say so and manufacturing becomes a much lower risk (maybe you can take 100 or so mentions out of your next filing).
The manufacturing of AVXS-101 is incredibly complex, and even the company acknowledges this is a huge issue: Why is no one talking about this potential risk?
Make no mistake. We strongly believe these are simply excuses from AVXS for why the company has not received approval to move ahead with its intrathecal trial and why the trial will be delayed yet again. THIS IS ANOTHER DELAY. And this delay further strains management's already tarnished credibility, and is yet another significant setback for AVXS bulls. The AVXS management team needs to come clean about what is really going on here and stop with the laughable pre-Christmas press releases.
Event #2: SPINRAZA (Nusinsersen) Approval
A Merry Christmas was had by all SMA families, as SPINRAZA (nusinersen) was approved by the FDA for ALL types of SMA the Friday before the holidays. So while one company is trying to spin a trial delay, a competitor is launching its product in all types of SMA (it was approved for 'kids and adults with SMA') for shipping starting next week.
We and others have previously said how important this event would be, and it couldn't come at a worse time for AVXS bulls. Let's pause and just allow this to sink in for a moment: While AVXS cannot even muster up a basic intrathecal IND so that it can begin a PHASE 1 TRIAL, a superior competitive product from a superior company just RECEIVED APPROVAL AND IS ON THE MARKET RIGHT NOW.
The owner of SPINRAZA (Biogen) has been busy with its EAP program and can now sell product to any SMA patient in the US. The major criticism of SPINRAZA by AVXS bulls has been that the drug must be administered three times a year and must be delivered via intrathecal injection. Yes, that is the same type of intrathecal injection that AVXS is attempting for the intrathecal version of its drug (for Type 2 & 3 SMA) in the Phase 1 that has been delayed for more than two years and counting. We can take that argument of the bull case off the table starting now.
What we have found is that the only people who don't like the intrathecal injection of SPINRAZA are people trying to promote AVXS stock. The injection was very well tolerated in the clinical trials. Which brings us back to the durability issue again. AVXS bulls are under the belief that AVXS-101 works for the life of the patient after one dose. Newsflash: we can find zero evidence that the Company has EVER said that. Google 'lifetime benefit' and Avexis (or pick your combination of keywords) and you will not find the company saying that. Because they have NO IDEA how long this drug lasts (if at all). So how is a clinician supposed to monitor AVXS-101 once it's in a patient? Our guess is lumbar puncture (aka spinal tap). So how will they know when the product is breaking down? They don't. No studies have been published and certainly no human clinical experience exists. Should they wait until the kid starts to fade? Not if timing is so critical in protecting the neurons.
So AVXS-101 steps right back to square one: we believe there is no way to improve the product profile over SPINRAZA, which is already on the market. One cannot just dose the kids with AVXS-101 and walk away, hoping the kids don't collapse. Any form of monitoring at all will be invasive (especially with the intrathecal-only approach for Type 2 and 3).
The $1.6 billion market cap for AVXS is a farce. AVXS is a company that can't even start a Phase 1 trial on time. The bull case continues to break down upon closer inspection, and management's latest stunt the week before Christmas only further tarnish their reputation within the investment community. The approval of SPINRAZA - not to mention repeated IND delays from AVXS - put the bull thesis to rest here. Sell or short this stock, it's going much lower.
Disclosure: I am/we are short AVXS.
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.