Edge Therapeutics: On The Edge Of Our Seats For The Upcoming Interim Analysis

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About: Edge Therapeutics (EDGE)
by: Juggernaut Capital
Summary

We believe EG-1962, comprising of an already approved drug, will show compelling efficacy in the ongoing Phase 3 trial.

We expect the Phase 3 trial to show sufficient efficacy at the 1Q18 interim readout to enable the trial to stop early.

We value Edge Therapeutics at $19 and are buyers ahead of interim analysis.

On the heels of the success of our previous articles on SBBP and INSM, and as the biotechnology (XBI) sector further separates from 2016 lows, we are performing a deep-dive analysis on Edge Therapeutics (EDGE), a small biotechnology company based in New Jersey.

Portfolio Manager’s Summary

Edge seeks to improve standard of care (SoC) treatment paradigms in the management of acute, life-threatening conditions. The company’s lead compound is EG-1962 which is being developed to treat aneurysmal subarachnoid hemorrhage (aSAH). EG-1962 is a slow-release suspension designed to be directly administered to the brain. The solution is built off SoC (nimodipine) for aSAH.

EG-1962 is currently in a pivotal Ph3 trial with an interim analysis 1Q18. In the Phase 1/2 trial of aSAH patients, EG-1962 demonstrated 32% effect size which would translate to meaningful clinical outcomes in a difficult-to-treat population and validated the direct administration approach of EG-1962.

EG-1962 has several regulatory advantages: Orphan Designation in the US and EU, Fast Track Designation in the US, and Edge will file the EG-1962 NDA via the 505(b)(2) pathway.

Based on several scenario analyses using data from the Phase 1/2 trial we believe it is likely the trial will be stopped at the interim analysis due to compelling efficacy. We model peak sales of EG-1962 in the US in 2024 of $250 million. In the EU we model peak sales in 2025 of $110 million. Based on our model the US market comprises ~75% of our $19 price target.

Edge Therapeutics

Edge is a clinical-stage biotechnology company focused on the discovery, development, and commercialization of novel, hospital-based therapies with the goal of improving standard of care (SoC) treatment paradigms in the management of acute, life-threatening conditions. The company’s lead compound is EG-1962 which is being developed to treat aneurysmal subarachnoid hemorrhage (aSAH).

What is aSAH?

aSAH, a hemorrhagic stroke, is bleeding around the brain due to a ruptured brain aneurysm (ballooning of vasculature due to weakening of the vessel wall). aSAH typically occurs in individuals that are between 40 and 60 years of age and presents as an extreme and sudden headache. aSAH can lead to delayed cerebral ischemia (DCI; defined as development of new focal neurological signs and/or deterioration in level of consciousness) and is associated with brain tissue death and poor patient outcomes.

What is the current treatment paradigm?

Bleeding from aSAH increases pressure in the brain and reduces sufficient levels of oxygen causing damaged tissues which can lead to DCI. Clipping and coiling are methods used to stop the bleeding. To improve patient outcomes and prevent DCI, patients are subsequently treated with oral nimodipine (two pills every four hours for 21 days) which is a vasodilator used to increase blood flow in the brain after an aSAH event to help avoid brain tissue damage. Unfortunately, high plasma concentrations of oral nimodipine can lead to adverse events such as hypotension which limits nimodipine’s clinical utility. Nimodipine has a short half-life (45 minutes); hence the every four hour dosing regimen.

According to nimodipine’s label, improvement in good outcomes (defined below) in patients on nimodipine versus placebo ranged from 10-14% which leaves significant room for improvement. Edge intends to improve upon nimodipine’s good outcomes with EG-1962.

How is EG-1962 relevant in aSAH?

EG-1962 is a product of Edge’s Precisa Delivery Platform which combines therapeutics with biodegradable polymers. The concept involves permitting site-specific, single-administration delivery that results in high, localized concentrations of the drug, with low systemic exposure and the correlating adverse events. EG-1962 is a combination of nimodipine and PLGA [poly(lactic-co-glycolic acid)] in a suspension of hyaluronic acid and is designed to be directly administered to the brain. As indicated by Phase 1/2 results, local brain, single-delivery administration minimizes systemic adverse events such as hypotension while still delivering nimodipine to the injury site and avoiding any potential compliance issues intrinsic to oral nimodipine.

EG-1962 has been granted Orphan Designation in the US and EU, has Fast Track Designation, and will file its NDA via the 505B(2) pathway (a generally de-risked filing pathway).

What data is available indicating EG-1962 is efficacious in aSAH patients?

Edge performed a Phase 1/2 (dubbed NEWTON) study of EG-1962 in aSAH patients (see Figure 1 below). The experimental arms were 100, 200, 400, 600, 800, and 1200 mg of EG-1962 versus control arm SoC (60 mg of nimodipine every four hours for 21 days).

Figure 1: The Phase 1/2 (NEWTON) Summary

Source: Edge Investor Presentation

Understanding the results of the Phase 1/2, the treatment of aSAH, and the ongoing Phase 3 study requires an explanation of key clinical scales involved in the trial.

  1. Patient enrollment: World Federation of Neurological Surgeons (WFNS). WFNS is a rating system that stratifies post-aSAH patients via level of consciousness (see Figure 2).
  2. The outcome: Glasgow Outcome Scale – GOSE. GOSE is a validated regulatory endpoint ascertained via a pre-structured interview between the treater and patient. See Figure 2 below; a GOSE rating of 6-8 is considered a favorable outcome.

Figure 2: Enrollment and Outcome Rating systems

Source: Edge Investor Presentation

Phase 1/2 Results

Efficacy was determined by the proportion of patients with a favorable GOSE after 90 days of treatment. Patients treated with EG-1962 demonstrated an approximate twice greater rate of favorable outcomes versus SoC (see Figure 3). Further evidence of EG-1962’s efficacy is indicated in the super responder analysis (super responder is 8 on the GOSE scale) where there were five times as many super responders in the EG-1962 arms versus SoC (see Figure 4). Patients treated with EG-1962 also demonstrated improvements in exploratory outcomes (see Figure 5). We highlight the improvement in DCI in patients treated with EG-1962 as this is a major differentiator for both patient clinical outcomes and reduction in healthcare costs associated with aSAH patients. The Phase 1/2 study also established the MTD at 800 mg; the volume of EG-1962 solution drug required for the 1200 mg dose made the injection intolerable.

Figure 3: Effect size in the Phase 1/2 study

Source: Edge Investor Presentation

Figure 4: Nearly 5x more super responders in the EG-1962 arm

Source: Edge Investor Presentation

Figure 5: EG-1962-treated patients demonstrated greater safety outcomes

Source: Edge Investor Presentation


Safety

Safety in the Phase 1/2 was encouraging (see Figure 6). As expected, patients on SoC demonstrated higher rates of hypotension (though we expect Phase 3 hypotension rates to revert closer to the ~5% level indicated in the nimodipine package insert; we believe the hypotension rate was higher in the Phase 1/2 than in literature due to a relatively small N). Nevertheless, the localized delivery of EG-1962 appears to bypass the key issue of hypotension with nimodipine which constitutes a meaningful clinical win for Edge. There were five cases of cerebral spinal fluid (CSF)ventriculitis/meningitis which was likely associated with EVD and were not deemed unrelated to EG-1962 treatment. There were also two dose limiting toxicities involving transiently elevated intracranial pressure which lasted over four hours. However, in both cases the patient had a favorable GOSE 90-day outcome. Death rate was similar across both arms (two in the EG-1962 treatment groups and one in the nimodipine group) and were not related to study drug but instead were related to the initial aSAH brain injury, more bleeding, and withdrawal of care.

Figure 6: Phase 1/2 safety results

Source: Edge Investor Presentation


Phase 1/2 Summary

The Good:

The results of the Phase 1/2 study were promising as the mechanism of localized drug delivery was generally validated with meaningful impact on outcomes. The generally positive impact on secondary endpoints and relatively clean safety profile bode well for EG-1962.

The Bad:

We cannot stress this enough: N is small and the study was open label. Small N studies, especially in CNS, can lead to results in larger studies that proportionally regress in comparison. Additionally, open label studies that use clinical outcomes scales assessed by clinicians can bias results. These are non-trivial risks as we think ahead to Phase 3 results in 2018.

The Phase 1/2 study informs the pivotal, ongoing Phase 3 study

Edge initiated the pivotal Phase 3 study in July 2016 (trial design illustrated in Figure 7). Understanding the Phase 3 and its potential to yield positive, statistically significant results for EG-1962 in aSAH patients requires a breakdown of the differences between the Phase 1/2 and Phase 3 studies. Figure 8 below is our detailed analysis highlighting differences between the two trials ranked by descending importance.

Figure 7: Phase 3 trial design

Source: Edge Investor Presentation

Figure 8: Juggernaut Capital’s detailed analysis of the differences between the Phase 1/2 and pivotal Phase 3 studies ranked via descending importance

Source: Juggernaut Capital


The Phase 1/2 Data Extrapolation Scenarios

This section details several scenarios we think are worth analyzing to understand the upcoming Phase 3 results in 2018. The Phase 3 is setup for a futility analysis in 4Q17, an interim analysis in 1Q18, with full trial completion expected 2H18 if the interim does not yield >20% effect size between EG-1962 and nimodipine. Management has messaged that a 10-15% effect size would be clinically meaningful. Edge designed the Phase 3 based on the 32% effect size seen in the Phase 1/2.

1. Scenario A: is the data as originally presented in the Phase 1/2 publication which we re-created and which forms the basis of these analyses.

2. Scenario B: is our first extrapolation with balanced patient grades in both arms. Scenario B balances the SoC patients to match those in the EG-1962 arm to demonstrate that the impact on effect size is negligible. Thus, if balance of patients in the Phase 1/2 SoC arm were the same as the EG-1962 arm the data would remain compelling at 30% effect size.

3. Scenario C: is an extreme example of both arms having 80% Grade 4 patients. Nevertheless, the effect size still exceeds 21% and, therefore, would constitute a significant victory for EG-1962. We do not view this is a feasible scenario but as a useful illustration of the effect of EG-1962 assuming favorable outcome rates are equivalent between the two studies.

4. Scenario D: is Juggernaut Capital’s prediction of the interim results. Here we assume the midpoint of management’s guidance of Grade 4 patient enrollment for both arms. In this scenario we reduced efficacy (due to the likelihood of Phase 2 to Phase 3 efficacy regression) and placed favorable outcome rates for Grade 3 patients between Grades 2 and 4 given the larger patient population is likely to drive potential efficacy for both arms. This scenario yields a 21% effect size.

5. Scenario E: builds on the same patient balance in Scenario D but returns to what would constitute an interim success by starting at the conclusion. Assuming a 30% response rate from the nimodipine arm (2% higher than management projections given the rebalancing analysis in scenario B), we, therefore, only need a 50% response rate in the EG-1962 arm. We reduced efficacy in the EG-1962 arm to reach 50% which comprises a ~17% efficacy regression versus what was evident in the Phase 1/2.

Scenario analysis conclusion: By analyzing the patient balance, outcomes rates, and strength of efficacy, our models predict success at the interim analysis.

Note: we did run other scenarios where there were significant patient imbalances or efficacy that fell far short of expectations. Even in the most negative scenarios we still achieve an affect size of 16-17%. While this would not yield an interim victory, it would likely trigger an abbreviated Phase 3 enrollment, and, therefore, constitute a clinical success. While these most extreme scenarios are possible we consider them unlikely.

Phase 3: Futility Analysis (Non-event) Followed by an Interim Analysis (Major Event)

In 4Q17 the Phase 3 program will undergo a futility analysis of approximately 150 patients. We do not expect any significant developments during the futility analysis; only that the trial will continue. A more complicated event is the 1Q18 interim analysis once 210 patients will have enrolled in the Phase 3 study.

The interim analysis is designed to stop the Phase 3 study if EG-1962 shows at least a 20% improvement over nimodipine.

Therein lies the rub: will EG-1962 perform well enough at the interim analysis to stop Phase 3 and begin NDA filing preparations? What are the potential outcome scenarios of the interim readout regarding Edge shares? We detail potential scenarios:

  1. The trial is stopped due to ≥20% delta and Edge begins NDA filing preparation. The stock will increase appreciably in this scenario.
  2. The DSMB (data safety monitoring board) recommends continuation of the trial but less than the full enrollment of 374 patients. The stock may decline, but not plummet, due to efficacy signals likely indicating a ~15% – 20% delta.
  3. The DSMB recommends Phase 3 progresses to completion and full enrollment. The stock may decline significantly as continuation to full trial completion directionally indicates a 10% – 15% delta. Note: while this scenario is least desired, we note that a 10% – 15% delta would be clinically significant and would not necessarily indicate EG-1962 would be a commercial failure. Additionally, in this scenario it is still possible, with full enrollment, for EG-1962 to show ≥20% delta and benefits on additional secondary endpoints.

Given the aforementioned calculated scenarios, we believe it possible Phase 3 could stop at the interim enrollment and demonstrate ≥20% delta. In this scenario shares could surpass $20. However, even in the worst case scenario #3 above, Edge will still have a marketable product that may yet be a commercial success. However, investors will be disappointed and Edge shares will respond accordingly (we could see shares cut in half due to the disappointment).

Edge Valuation

Based on our research, we believe there are approximately 35K aSAH patients in the US (65K in EU). While Edge believes 50% of these patients receive an EVD, we model 40% as a midpoint based on ranges provided in literature. In the US we model a price of approximately $30K ($14K in EU). We assume peak penetration of 50% by year 2024 (2025 in EU) yielding ~$250M in revenue in the US ($110M in EU). With a discount rate of 18%, ~31M shares outstanding, profitability of approximately 65%, and a PE multiple of 15x, we reach a price target of ~$19.

As with any model there are points of flexibility:

  1. Sell-siders model a price of $25K in the US. We believe EG-1962 will price above expectations due to strong efficacy. Of note, some recently approved drugs have priced above expectations (ACAD’s Nuplazid, for example).
  2. It is possible EVD procedures increase in frequency once EG-1962 is approved and awareness grows; a 5% increase in each market constitutes ~$1 target price increase.
  3. Peak penetration of 50% in the US is conservative for a drug in this indication; each 10% peak penetration increase corresponds to ~$2 price target increase.

It is worth noting Edge is also exploring alternate delivery methods for EG-1962 via intracisternal (currently in Ph1) and lumbar (currently pre-clinical). Both have the ability to meaningfully expand the market for EG-1962 but we assign value only to the EVD administration.

Cash Runway

At the end of 3Q17, Edge had approximately $97M in cash and approximately $15M in debt. Management expects current cash levels to last through 2018. Based on our estimates Edge may conduct a dilutive raise on the heels of positive interim data in 1Q18. If the data is not strong enough to warrant stopping at the interim analysis, Edge may be compelled to conduct a debt raise or seek a private placement to avoid further shareholder dilution.

IP

Edge has four issued U.S. patents which include composition of matter, 12 issued foreign patents and more than 50 U.S. and foreign pending patent applications (per the 10K filing). We expect patent coverage to expire in 2029 for EG-1962 via EVD administration and later for alternative administration options.

Risks

Risks with Edge are obvious: clinical failure (in particular low effect size or safety signals), regulatory challenges, management ineptitude, financial headwinds. These risks are normal with pre-commercial biotechnology companies.

Conclusion

We are buyers of Edge ahead of its 1Q18 interim readout due to the likelihood of achieving ≥20% effect size between the EG-1962 and nimodipine arms. In the less likely scenario the effect size is not sufficient to stop the Phase 3 at the interim analysis, we believe the effect size will be in the high-teens range and enable Edge to enroll less than the full enrollment of 374 patients and, subsequently, provide clinically meaningful outcomes.

Thank you for reading and sharing thoughts and/or feedback.

Disclosure: I am/we are long EDGE. 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: Juggernaut Capital is not a registered investment advisor and does not provide investment advice. Our views are for educational purposes only.