Rounds Report: Eleven Train Heads Further North While Achaogen Gained Mixed ADCOM Results

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Includes: AKAO, AZN, IBB, SESN, XBI
by: BioSci Capital Partners
Summary

Eleven Biotherapeutics continued to rally strongly going into its clinical binary. There is a favorable chance that Vicinium will post strong clinical outcomes.

On the long-term horizon, the company can get acquired by AstraZeneca (pending on the data for the combo of Vicinium and Imfinzi).

Achaogen received the unanimous ADCOM (15-0) votes in favor of plazomicin as a potential treatment for cUTI. Nevertheless, there were only (4-11) votes for its application in BSI.

You must value the business in order for you to value the stock. - Charlie Munger

Trading Analytics

Welcome to this edition of Integrated BioSci Rounds Report for May 02, 2018. As usual, we’ll elucidate notable trading analytics for the day, recent insider transactions, and interesting market developments. Without further ado, let’s take an overall assessment of the bioscience space. As follows, the iShares of NASDAQ Biotechnology Index (NASDAQ:IBB) traded down $1.37 (-1.32%) at $102.68. Moreover, the SPDR S&P Biotech (NYSE:XBI) exchanged hands $0.46 lower at $87.45 (for 0.52% losses). It’s likely that investors were trading with the negative sentiment for the day. Regardless of the daily inclination, there are substantial prospects in the bioscience sector: one that delivers hope for patients while rewarding supporters with substantial wealth in the long haul.

Figure 1: Notable BioSci movers. (Source: Morningstar)

Moving to specific equities, Eleven Biotherapeutics (NASDAQ:EBIO) won the highlight spot for the day again. The stock appreciated by $0.31 at $3.2 for +10% profits (on top of +179% gains for the previous month). Of note, the company is focusing on the innovation and commercialization of the novel molecules, Targeted Protein Therapeutics (“TPTs”). As a fusion drug - TPT has an antibody linked to a (cytotoxic) protein payload. Designed for the localized cancer destruction, the antibody zones in on specific cancer cells while the cytotoxic protein destroys rogue tumors. TPT can be launched as either a promising single drug or in combinations with other immuno-oncology agents such as checkpoint inhibitors. We stated in the prior Rounds Report,

Back on Sept. 2017, Eleven commenced a trial at the US National Cancer Institute (“NCI”) - to assess the Vicinium combinations with AstraZeneca (NYSE:AZN)’s immune checkpoint inhibitor, Imfinzi for high-grade non-muscle invasive bladder cancer (“NMIBC”). If the data will turn out robust as we prognosticated, the company can become a target of acquisition by AstraZeneca. In addition, the VISTA trial studying Vicinium (a protein coupled with antibody to attack EpCAM positive tumors) designed as a potential treatment of NMIBC will report the topline results in several months. There is a favorable chance that this clinical binary to post positive outcomes (and to catapult the shares over 80%). However, there is also the risk that the shares can tumble by similar the magnitude.

All that being said, the elephant in the room is whether you can still acquire shares of Eleven at this point. While nothing is a guarantee, it is dollars to donuts that the shares will continue to appreciate going into upcoming clinical binary in mid-year (around June would be our best estimate). In addition, the second knockout will come on the longer term horizon when the combo drug with Imfinzi to post data. If the outcomes are positive, Eleven can get acquired by AstraZeneca.

Bioscience Catalysts

On May 02, Achaogen (NASDAQ:AKAO) lead drug plazomicin - a potential medicine to treat complicated urinary tract infection (“cUTI”) and bloodstream infection (“BSI”) - went to the advisory committee (“ADCOM”). Accordingly, the expert panel voted with the unanimous decision (15-0) in favor of the approval of plazomicin for cUTI. Conversely, there were only 4 out of 11 votes for its approval re BSI. Commenting on the recent development, CEO Blake Wise noted,

We are encouraged by the committee's unanimous vote in favor of plazomicin for cUTI. The discussion underscored the real-world challenges that healthcare providers face every day given limited or inadequate treatment options for certain pathogens. Regarding bloodstream infections, the Limited-Population Antibacterial Drug pathway, or LPAD, is a novel approach that enables the FDA to consider the benefits and risks for the sickest patients who have few or no available treatment options, and to approve antibiotics like plazomicin that we believe, have the potential to address these limited patient populations.

Due to the mixed results, the shares traded 28% lower during the after-hours session. Perhaps, investors overreacted and misinterpreted the favorable event. It’s important for investors to be cognizant that the FDA is not bound to follow the ADCOM recommendation. With the lower regulatory hurdles (and the push for better antibiotics to tackle drug resistance), there is an excellent chance that the agency will approve plazomicin for both conditions on June 25, the PDUFA date. While the shares can be quite volatile going forward, it can trade at a much higher valuation at the final approval decision.

Final Remarks

Subsequent to yesterday’s robust session, the bioscience market exhibited apprehensive trading behaviors again. Despite the downtrend, notable stocks experienced the trading reversal. The most interesting is Eleven Biotherapeutics. The Eleven train is gaining more momentum going into its clinical binary in mid-year. The longer horizon looks, even more, promising with the potential to be acquired by AstraZeneca. Last but not least, do not count Achaogen out: the stock can experience a robust reversal come June 25th. And, it’s best to hold on to your shares for further upsides.

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