Alexion Pharmaceuticals Partners With Caelum Biosciences To Tackle Light Chain Amyloidosis

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Summary

  • Alexion enters into an agreement with Caelum Biosciences with the option to acquire the company for $150-200 million.
  • CAEL-101 addresses an unmet need for patients with Light Chain Amyloidosis, which has a one-year mortality rate of 47%.
  • This drug has the potential to generate several billion dollars in recurring revenue if early proof of concept data is replicated in larger trials.

Introduction to Alexion Pharmaceuticals

Alexion Pharmaceuticals (NASDAQ:ALXN) has been one of the greatest growth stories in the ultra-rare disease space over the past decade, with their blockbuster C5 inhibitor, Soliris, growing sales to nearly $4 billion in 2018. Although the company still managed to grow top-line revenue by more than 19% in 2018 (without any price increases), market share in their lead indications of PNH and aHUS is becoming somewhat saturated, and they are looking for new growth avenues.

The new management team put in place in early 2017, led by CEO Ludwig Hanston, are executing on a multi-pronged strategy to continue to grow the business. Beyond exploring new indications for Soliris, the company intended to re-build its pipeline with both early and late stage assets. Thus far, the company has acquired Wilson Therapeutics for $855 million, Syntimmune for $1.2 billion, and has entered into preclinical research agreements with Complement Pharma and Dicerna Pharmaceuticals (DRNA).

In an effort to continue executing on this goal, on January 31st, Alexion Pharmaceuticals entered into a partnership with Caelum Biosciences (a Fortress Biotech (FBIO) company) to co-develop their lead asset for the treatment of Light-Chain Amyloidosis. This is Alexion's first endeavor in treating amyloidosis, and I believe the partnership could be one of their most lucrative to date.

Partnership Economics

Per the terms of the deal, Alexion will first acquire a 19.9% stake of preferred B shares for $30 million. These shares carry a liquidation preference to common shares but are otherwise identical. The company must also issue shares to Alexion to maintain their 19.9% stake should they decide to dilute at any point. The second phase of funding will come in the form of milestone payments outlined below:

(Milestones compiled from 8-K filing)

The next stage of the partnership is the exercising of the option to acquire Caelum. After the phase IIb trial is complete (which Caelum is responsible for funding), Alexion will have the right to acquire the company. If the phase II data is sufficient to continue to a phase III trial, Alexion will pay $150 million for the remaining equity interest in the company. However, the data is sufficient for an accelerated approval using only the phase IIb data, Alexion is required to pay $200 million.

The final stage of the partnership includes regulatory and commercial milestones, which are outlined below:

(Milestones compiled from 8-K filing)

All in all, these are extremely favorable deal terms for Alexion, as the partnership requires very little up-front financial support. A phase Ia/b trial testing CAEL-101 supports the advanced clinical development of this agent, and Alexion doesn't have to lay out the big bucks until a phase II trial is complete.

Light-Chain Amyloidosis

(Protein Folding)

Above is an oversimplification of the process of protein folding, but it serves its purpose in simplifying the explanation of this disease. Proteins are critical to nearly every function in our body. After proteins are produced, they are considered to be in their primary structure (left image), where they are newly transcribed and do not have any function. Through a series of folding, proteins take on a functional, 3-dimensional structure, and can perform their intended role in bodily functions.

When abnormal proteins are produced, they are unable to fold into their functional tertiary structure. These abnormal proteins are called amyloid, which cluster together to form large deposits. These amyloid clusters are deposited throughout the body, in the liver, heart, intestines, and even nerves, resulting in the condition known as amyloidosis.

(Antibody Structure, BxCell)

Antibodies are among the most important proteins our body produces, and they play an important role in the pathogenesis of Light Chain Amyloidosis. Antibodies consist of two main protein classifications, light, and heavy chain proteins. For patients with this disease, light chains are produced with abnormalities, leading to the formation of amyloid clusters.

Complications of these deposits can manifest in renal failure and organ damage, but the most common cause of mortality is cardiac amyloidosis, which is responsible for 76% of deaths. The one-year mortality rate of light chain amyloidosis is 47%, highlighting the pressing need for a viable therapy.

CAEL-101

CAEL-101 is Caelum Bioscience's lead product, which is looking to treat refractory cases of light chain amyloidosis. This agent is a chimeric fibril-reactive antibody that binds to the amyloid-related epitope on abnormal light chain proteins. This inhibits fibrillogenesis, the process by which amyloid clusters are able to aggregate on organ tissue. An immune response is also triggered to degrade the amyloid. This approach is thought to halt disease progression and improve survival rates.

In a phase Ib trial, 19 patients considered to be at high risk of mortality received 4 weekly infusions of CAEL-101. At the 28 day endpoint, 63% of patients showed an overall organ response rate, with a 67% cardiac response rate, and a 50% renal response rate. All patients demonstrated either stable disease state or an organ response, with no patients progressing over the course of the study.

(Organ Response, Phase I trial data)

Perhaps even more impressive, patients in an extension study with a median follow-up of 18.6 months had an overall survival rate of 93%, a huge improvement over the one-year survival rate of just 47%. Organ response continued to show improvement during the follow-up as well, implying that the 4-week endpoint of the phase I trial was limiting efficacy statistics.

The treatment options that already exist for this disease are far from ideal. Chemotherapy is the most common option, but patients still suffer from poor outcomes and horrible side effects. In a 106 patient study testing the efficacy of chemotherapy, mortality rates ranged from 48% to 76% based on various subgroup analysis. It's clear that this isn't a viable option to control disease progression in the long run.

Market Opportunity & Final Thoughts

There are an estimated 22,000 patients with light chain amyloidosis across the US and EU, and about 3,000 - 4,000 new cases are diagnosed each year. Given the lack of viable treatment options that control long-term disease progression, CAEL-101 is in a position to dominate this market. With Alexion's tendency to exorbitantly price their rare disease drugs, this could easily be a multi-billion dollar revenue opportunity if the phase IIb/III trial demonstrates similar efficacy and safety as the phase II trial did.

At a conservative $250,000 annual price, the incident cases of the disease are a $750 million - $1 billion revenue opportunity alone. This isn't a one and done drug either, patients would be required to stay on the therapy for their entire life, so these sales would accumulate and add to a growing base each year.

These are the types of acquisitions/deals I love to see as an Alexion shareholder. Instead of big, flashy acquisitions that make headlines in the Wall Street Journal, these small dollar-value acquisitions in niche therapeutic areas add value without serious balance sheet implications. Alexion has $1.2 billion in cash as of their last quarterly report, with $342 billion in cash flow. This deal will barely impact Alexion's strong financial position and has immense upside should the trial be successful.

This article was written by

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WCM Equity Research is a coterie of university students with an academic background in finance, economics, mathematics, and biology. We have had experience at bulge bracket banks, managed individual credit and equity portfolios, and have built upon a  track record of discoursing shoptalk with biopharma or industry-specific management. We research and write methodically on the topics of macroeconomics, geopolitical events, biotechnology and pharmaceuticals, and novel investment vehicles and asset classes.

Disclosure: I am/we are long ALXN. 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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