Audentes Therapeutics: This Gene Therapy Story Could Deliver Significant Upside In 2017

| About: Audentes Therapeutics (BOLD)

Summary

Shares are flat for the past year, but upcoming catalysts should change that.

Company has an deep early stage pipeline with several catalysts coming year end.

Cash runway into late 2018, but dilutive secondary possible in late 2017 or early 2018.

Having own cGMP production facility and internal control of drug manufacturing is a significant plus.

Downside due to disappointing data in one candidate should be cushioned by deep pipeline and cash position.

Shares of Audentes Therapeutics (NASDAQ:BOLD) have finished flat over the past year. As a very early stage biotech focused on progressing its innovative gene therapy products through the clinic, I hadn't given the company much thought as I felt there were no material catalysts on the radar that made it a buy.

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However, recently it popped up on my radar again, and I believe now the story is much more compelling for 2017.

On February 1st, the company announced FDA clearance of its IND (investigational new drug application) for drug candidate AT342 with the intent of treating patients with Crigler-Najjar Syndrome. This disease is a rare genetic disorder (hundreds of patients worldwide, prevalence 1-9 / 100 000)whereby patients' bodies are unable to convert and clear bilirubin. These patients consequently develop abnormally high levels of bilirub in the blood and can in some cases result in severe or life threatening symptoms, including neurological damage.

The drug candidate is an AAV8 vector containing a functional copy of the UTG1A1 gene. In a mouse model of the disease a single administration of AT342 clinically relevant decreases in total bilirubin levels in a durable manner that showed higher doses had higher efficacy.

The company now plans to launch a multi-center ascending dose phase 1/2 study, dubbed VALENS, with initial data due by the end of the year. Also, the company will initiate a clinical-assessment and run-in study, dubbed LUSTRO, which will enroll 16 to 18 Crigler-Najjar patients. The latter study will aid the company in finding patients for the VALENS study, as well as serve as a within patient control.

Primary endpoints for the VALENS study include safety and efficacy, with the latter measuring serum changes in bilirubin and tracking number of hours on phototherapy within a 24 hour period. Key secondary endpoints to keep an eye on include percentage of patients successfully weaned off phototherapy and DNA and RNA levels from liver biopsy at 24 weeks.

Phototherapy is the current standard of care for the condition, where the patient is exposed to a blue LED light in an apparatus- the light breaks bilirubin down into substances that are not toxic. However, as it is a lengthy process that requires 10 to 12 hours of treatment per day and diminishes quality of life, one can see why patients would prefer an alternative.

I would be remiss to mention the company's promising stable of gene therapy candidates, which includes AT132 for X-Linked Mytubular Myopothy (XLMTM), AT982 for Pompe Disease, and AT307 for CASQ2-Catecholaminergic Polymorphic Ventricular Tachycardia ( CASQ2-CPVT).

AT132 has shown promising data in preclinical studies, including improved disease symptoms and survival rates. An ongoing phase 1/2 trial is enrolling twelve patients and initial data will be reported around year end as well. XLMTM is a monogenic disease in which patients experience severe muscle weakness, respiratory failure and early death, with half dying by 18 months of age. Management has pointed out that in one study effects from a single administration of AT132 were seen to last four years to date.

In January, the company announced full year guidance and other important developments, including the initiation of large scale cGMP production at its own manufacturing facility. This plant would meet FDA and EMA guidelines and allow the company to manufacture the drugs in its pipeline when commercialized.

As for AT982 in Pompe disease, the company expects to report data from an investigator sponsored phase 1/2 study by year end. Pompe disease is currently treated by enzyme replacement therapy (NASDAQ:ERT), with current treatment Lumizyme generating over650 million in 2015.

I believe AT309 is intriguing but a nonfactor this year, as the company plans to file an IND by the end of 2017 and only in 2018 will we see this candidate in the clinic.

With $119 million of cash as of September 30th and a market capitalization of around $340 million, it appears the company's gene therapy pipeline is being assigned a minimal valuation of only around $200 million when cash is backed out. The company expects its cash position to provide a runway into late 2018, but I expect a non-dilutive funding, partnership, or secondary offering by year end.

Shares of Audentes Therapeutics are a buy in my opinion, worth establishing a position in the near term. Shares could run considerably into data year end, at which point prior to read out investors might want to take partial profits to take risk off the table. I wouldn't be opposed to holding some shares longer term too, as there is considerable upside here if even one of its drug candidates posts positive results.

Risks include the above mentioned possibility of a dilutive financing, as well as any disappointing data in clinical candidates or unforeseen adverse safety events in early trials. As the company has multiple clinical candidates, downside caused by negative results in one would be cushioned to an extent by its deep pipeline and cash position.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BOLD 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.

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