AVEO Delays NDA - Catching The Knife

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About: AVEO Pharmaceuticals, Inc. (AVEO), Includes: AZN, BAYRY, BMY
by: Biologics
Summary

AVEO just updated investors on their plan to delay their planned NDA submission for FOTIVDA until they have more mature data. I have decided to attempt to "catch the knife."

FOTIVDA is already approved in EU but is continuing to have issues with their data for a FDA approval. I review the past and current issues with the data.

I am looking to trade AVEO for short term, but I am willing to hold, or even add if the company can turn things around. I lay out my AVEO trade strategy.

On January 31st, AVEO Pharmaceuticals (AVEO) announced that it had recognized the recommendation by the FDA to not submit their FOTIVDA (tivozanib) NDA with the preliminary overall survival "OS" results from the Phase III TIVO-3 trial for the third-line treatment of adult patients with advanced renal cell carcinoma "RCC". The share price quickly plummeted to a new 52-week low and has yet to show signs of a reversal.

The FDA pointed to the preliminary OS results, which did not relieve their apprehensions about the OS number cited in the 2013 CRL. AVEO is planning to "make an NDA filing decision following the availability of more mature OS results." The company is presenting results from their TIVO-3 trial at the ASCO-GU in February, which could provide better insight into the current status of the data.

Although the reasoning behind the sell-off is justified, the company has a chance to publicize detailed results for FOTIVDA in a matter of weeks. I anticipate a recovery in the share price between now and ASCO-GU, and I am looking to try to "Catch The Falling Knife" around the May 2017 low of ~$0.56 per share. Using the charts and some indicators, I believe that will be a relatively safe entry point, and I am looking for ASCO-GU presentation to revive the share price for a short-term trade or possible long-term hold. I intend to present the reasoning for my potential Buy and offer a few circumstances to add to, hold, or sell my position.

Image result for aveo pharmaceuticals logo

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Company Overview

AVEO Pharmaceuticals is a biopharmaceutical company devoted to developing a comprehensive portfolio of therapeutics for oncology and other indications. AVEO's strategy is to leverage their platform and partner with other companies in order to progress the development of its clinical pipeline. The company intends to retain their North America rights for FOTIVDA, which is aimed at the treatment for RCC. In addition, AVEO is also pursuing tivozanib combination treatments with Bristol-Myers Squibb's (BMY) PD-1 inhibitor OPDIVO (nivolumab) in RCC, and AstraZeneca's (AZN) PD-L1 inhibitor IMFINZI (durvalumab) in hepatocellular carcinoma "HCC".

Source: AVEO

Furthermore, AVEO has partnered with other companies in order to fund the development and commercialization of their pipeline candidates, including AV-380, ficlatuzumab, AV-203, and FOTIVDA outside of North America. The company has out-licensed FOTIVDA Europe where it is approved for the first-line treatment of adult patients with RCC and for adult patients who are vascular endothelial growth factor receptor and mTOR pathway inhibitor-naïve resulting from disease progression after one prior treatment with cytokine therapy for RCC. Into the bargain, AVEO has entered into partnerships for the development and commercialization of AV-203 (CAN017) and ficlatuzumab.

Source: AVEO

The company is presently looking for a partner to develop their AV-353 platform for the treatment of pulmonary arterial hypertension "PAH" and oncology indications. Moreover, AVEO is working on a new formulation of FOTIVDA for ocular conditions. Recently, the company has reclaimed their rights to AV-380 for cachexia from Novartis (NVS) and is considering an assortment of opportunities for the program.

Background on FOTIVDA

FOTIVDA is an oral, once-daily, vascular endothelial growth factor receptor "VEGFR", tyrosine kinase inhibitor "TKI". FOTIVDA is designed to be an effective VEGF inhibitor while using a minimal dose to prevent off-target toxicities. FOTIVDA has been considered in numerous tumor types, including renal cell, colorectal, and breast cancers. Back in 2006, AVEO acquired the rights to develop and commercialize FOTIVDA in regions outside of Asia and the Middle East under a license from Kyowa Hakko Kirin Co "KHK".

FOTIVDA in RCC

The company conducted a global phase III clinical trial (TIVO-1), which compared the efficacy and safety of FOTIVDA with Nexavar (sorafenib). Nexavar is a chemotherapy agent owned by Bayer (OTCPK:BAYRY), which is considered the standard-of-care "SoC" and is the first-line treatment of RCC. The trial met its primary endpoint for progression-free survival "PFS" but presented a non-statistically significant inclination supporting the sorafenib arm in overall survival "OS". In June 2013, the FDA issued a complete response letter notifying that it rejected FOTIVDA for the first-line treatment of advanced RCC based solely on the data from TIVO-1 trial, and suggested that AVEO complete a supplementary clinical trial with sufficient size to convince the FDA that there is no adversative effect on the OS.

AVEO completed a TIVO-1 extension study (902 Study) in which patients with advanced RCC were administered FOTIVDA as second-line treatment subsequent to disease progression on the sorafenib arm in the TIVO-1 first-line RCC trial. AVEO presented the final results at the 2015 ASCO. The final results displayed an mPFS of 11 months and a median OS of 21.6 months. Thus, representing the efficacy of FOTIVDA in a VEGFR treatment in the refractory RCC population. Management believes that the extended OS resulting from FOTIVDA succeeding sorafenib established in the Study 902 added to the discordance in the efficacy results in the TIVO-1 trial between the PFS benefit, which significantly favored FOTIVDA, and the OS, which preferred sorafenib. Nevertheless, the FDA disregarded this explanation, finding that the OS results were not clear, and suggested that AVEO perform another phase III trial (TIVO-3).

FOTIVDA in Europe

In December 2015, The company entered into a license agreement with EUSA Pharma Limited, wherein EUSA assumed the rights to develop and commercialize FOTIVDA in most of Europe, Latin America (excluding Mexico), Africa, Australasia, and New Zealand. EUSA submitted an MAA, for FOTIVDA for the treatment of advanced RCC to the EMA in February 2016. The MAA was based principally on its present dataset, which comprises the results from the TIVO-1 clinical trial of FOTIVDA in the first-line treatment of RCC, combined with the TIVO-1 extension trial, and one phase I and two phase II trials in RCC.

On August 28th, 2017, the company announced that the EC had approved FOTIVDA for the first-line treatment of adult patients with advanced RCC in the EU plus Norway and Iceland. Shortly after approval, AVEO announced in November in 2017, that EUSA had launched FOTIVDA in Europe. AVEO is expected to receive milestone payments from EUSA as they continue to launch and secure reimbursement from payers. These potential payments (Figure 1) could be a lifeline for AVEO in the upcoming months as the bank account continues to thin out, and the company has to start repaying Hercules.

Figure 1: EUSA Payment History and Potential Payments (Source: AVEO)

TIVO-3

In May 2016, AVEO started enrollment and treatment of patients in their TIVO-3 study, a phase III trial of FOTIVDA in the third-line treatment of patients with refractory RCC. The TIVO-3 clinical trial was intended to address the OS alarms from the TIVO-1 trial that caused the CRL in 2013. The company's trial design is a randomized, controlled, multi-center, open-label phase III clinical trial of roughly 322 subjects randomized 1:1 to be given either FOTIVDA or sorafenib. Patients enrolled in the trial must have failed two systemic therapies, one of which must have been a VEGFR TKI. Patients may have administered an immuno-oncology "IO" agent, including immune checkpoint (PD-1) inhibitors. The primary goal of the TIVO-3 trial is to show improved PFS. Secondary endpoints include OS, safety, and objective response rate. The trial's sites are located in North America and Europe. The TIVO-3 trial does not comprise of a crossover design. Therefore, patients will not then be offered the prospect to crossover to the other therapy.

Back in November, the company announced top-line results that tivozanib patients had a longer mPFS (1.68 months) than sorafenib patients.

FOTIVDA PFS vs. Tivozanib

Source: AVEO

On top of the median PFS, the company presented the ORR. Tivozanib had an 18% ORR 8% with sorafenib.

FOTIVDA ORR

Source: AVEO

Unfortunately, the OS data was still immature, and the company was not able to demonstrate a noteworthy difference in the OS between FOTIVDA and sorafenib. Regardless of PFS, the FDA needs to see if the patient lives longer on the drug. Although some studies show the PFS is an appropriate primary endpoint, patients attempting the 3rd line are still fighting and looking to live longer. While FOTIVDA might be able to demonstrate a good PFS and ORR, I don't believe the FDA is going to budge unless the OS data is complete and favors FOTIVDA.

TiNivo

What if FOTIVDA cannot get approved in the U.S.? Luckily, for investors, AVEO has another route to approval in combination with OPIDIVO in RCC. In recent clinical trials, VEGFR TKI and immune checkpoint (PD-1) inhibitor combinations have revealed encouraging efficacy in treating advanced RCC. On the other hand, several VEGFR TKI/PD-1 combinations have encountered toxicity levels that have confronted or barred these VEGFR TKIs from safely combining with PD-1 inhibitors for RCC treatment. FOTIVDA has already established a superior tolerability profile relative to certain other VEGFR TKIs, as well as diminished toxicities with PD-1 inhibitors. Due to FOTIVDA's tolerability profile, AVEO believes it has the potential to combine with PD-1 inhibitors more safely than other VEGFR TKIs.

In March 2017, the company started enrollment in the TiNivo trial (FOTIVDA in combination with OPDIVO), for the treatment of advanced RCC. BMY is supplying their nivolumab for the TiNivo trials, while AVEO is the trial sponsor. Back in October, AVEO presented updated data on their TiNivo trial. The updated results publicized an ORR of 56% for patients receiving full treatment doses. One of the highlights was one patient having a complete response.

The RCC and PD-1 path might not lead to a blockbuster event for FOTIVDA, but demonstrating it as safe and effective with other IO drugs might open the door to even more collaborations and combinations.

Investor Distress

Although the stock might be able to recover, this is a serious issue for AVEO. The FDA previously rejected FOTIVDA back in 2013 because of safety concerns. The issue with the phase III study results was that the preliminary overall survival hazard ratio for patients on FOTIVDA was 1.12. The hazard ratio "HR" points to the probability of death for patients receiving a drug matched to that of a control group or comparison. FOTIVDA has an HR greater than 1.0, which indicates that patients receiving FOTIVDA are at greater risk of death than patients who are receiving other treatments.

The overall survival hazard ratio "OS HR" had increased from what the company announced in October. Back in October, AVEO reported a preliminary OS/HR hazard ratio of 1.06. However, AVEO is now reporting a "revised" OS HR of 1.12 due to the addition of "identified the survival status of a group of patients that were previously lost to follow up."

Investor Confusion

Deciphering the relationships between OS, PFS, HR, ORR, and SAEs can be enigmatic, but typically, I tend to find some correlation amongst these data points that will provide me with a definite endgame for the therapy or drug. Regarding FOTIVDA, I feel like I have to keep punting after every data release because the interpretation of the data has to have an asterisk next to it.

Cancer therapies should have a well-defined clinical path of either a small benefit for many patients or a large benefit for few patients. That demarcation can be employed at multiple levels, and I want to know if FOTIVDA is designed to be practice-changing and has a clear clinical benefit. Is FOTIVDA a monotherapy? Is it a combination therapy mercenary? Will it be the last effort, or be part of first-line treatment? Although it is a positive to have multiple options for the FOTIVDA, I don't have any conviction about what FOTIVDA will be in the RCC arena.

The true interpretation of the data appears to be a moving target for the company. I have to wonder if the interpretation of the data is a bit off. Having internal validity and consistency might be an issue?

I believe AVEO's decision to wait on FOTIVDA's NDA is telling me the FDA will require that OS/HR very close to 1.0. Without clear data on the OS, the FDA will most likely continue to reject the drug in the U.S. However, FOTIVDA has gained regulatory approval in the European Union, Norway, and Iceland.

What's Next?

What is next for FOTIVDA? AVEO plans to announce the OS from the Tivo-3 in August 2019, as interim results. Nevertheless, the company anticipates calculating more mature data in Q4 (Figure 2). Hopefully, the Q4 data will alter the HR, and the company can give investors an update on when they plan to submit their NDA.

Unfortunately, the company could be running low on funds and might have to tap the market with another secondary offering. Luckily, back on December 4th, AVEO announced that Hercules had decided to provide a six-month extension on the interest-only period on AVEO's debt facility. This was due to FOTIVDA showing improved PFS in the TIVO-3 study. The company believes this deferment will allow the company to remain funded into Q3 of 2019. However, investors should anticipate an offering at some point in Q2 because the company has to start paying off that $20M facility beginning on August 1st.

Figure 2: FOTIVDA Upcoming Catalysts (Source: AVEO)

Timing the Knife for a Trade

Typically, I use technicals to find an entry into the stock of a company with attractive fundamentals for a long-term investment. In terms of AVEO, the fundamentals might provide me with an attractive technical entry for a short-term trade. The delayed NDA created such an acute fallout that selling might be "overdone" and has opened the door to opportunistic traders and investors. As the stock continues to sell off, I am waiting patiently for the stars to align before I hit the buy.

I am keeping a close eye on the Relative Strength Index "RSI" as the share price is approaching the oversold area on the weekly. Small Cap Biotechs can go into the oversold territory multiple times over the course of a year. However, going into the oversold territory on the weekly chart (Figure 3) often requires a big falling knife event, but can provide an amazing buying opportunity for both short and long-term investors. I am using this strategy to potentially play both trades in hope of some reversal in the upcoming weeks.

AVEO Weekly Chart Trend Trendspider

Figure 3: AVEO Weekly (Source Trendspider)

I am watching for the $0.56 area for my first buy seeing the RSI will be in the oversold area and the share price will near the low setback in April 2017. If it hits this area, I intend to initiate a small position and will have a tight stop-loss around the $0.42 trend line.

My strategy for options will be finding miss-priced call options towards the end of 2019 in hopes the stock will recover and the company can deliver good news for FOTIVDA.

Finding Value in a Long-Term Hold

Obviously, AVEO delaying their FOTIVDA NDA submission is not a positive event for the company. When I find these market reactions in the biotech sector, I try to interpret if the news is pointing towards a CRL, or is just grounds for a miscalculated overreaction that delivers a chance to buy for a long-term hold.

In terms of FOTIVDA, I don't have a strong inclination on whether this is an overreaction or a warning for a potential CRL. However, I will lean on the company's current market cap valuation of about $75M to justify a potential long-term hold. In view of FOTIVDA's commercial launch in Europe and potential commercial opportunity in the U.S. (Figure 4), I am interested to see if FOTIVDA does have a future as a monotherapy. The estimated ~$300M U.S. market for third and fourth line therapies for RCC is not exhilarating. However, FOTIVDA is expected to be the first agent in those expanding spaces.

Being the first and only option could allow FOTIVDA to rapidly establish the leader in those lines and own that ~$300M market till a serious competitor shows up. If everything goes smoothly for FOTIVDA, AVEO could be tapping into that market in about 2 years. Obviously, we can't expect FOTIVDA to rake in a large percentage of that ~$300M right out the gates, but even pulling in small percentage would drastically change the company's fundamentals. Considering the biotech sectors average price to sales ratio is about 8, AVEO would only need $10M in sales to match the current market cap. Yes, that is not taking into account any value from the rest of the pipeline and any payments from EUSA.

Even though a monotherapy would be better financially for FOTIVDA, the IO combination trials with BMY and AZN could expose FOTIVDA to billion dollar therapies and may possibly lead to other endeavors if they pass regulatory pathways. If the FOTIVDA cannot be approved as monotherapy, it could be a safe and tolerable add-on to IO therapies targeting RCC, HCC, colorectal, and breast cancers. Being the sidekick to these blockbuster drugs could save FOTIVDA from being shelved or tossed in the dumpster.

Figure 4: FOTIVDA U.S. Market Opportunity (Source: AVEO)

Downside Risks

Even though I am looking to play this for a short-term trade, the long-term downside risks of potential negative regulatory actions and financials will most likely prevent AVEO from "whipsawing" and bouncing back towards its previous trading levels. The company decided to approach the FDA with incomplete data that did not address their concerns in the previous CRL. In addition, we expect the company to run out of cash prior to the final data needed for an NDA (Figure 5). The company is burning about $15M per quarter between SG&A and R&D expenses. Even with some potential payments from EUSA, I don't anticipate the runway extending far enough to get to data readout. If I want to hold a piece of my position for the long term, the company will have to either announce positive news for their pipeline or enter a financial deal to fund the company beyond Q4 without further dilution or increased debt.

Figure 5: AVEO Financial Highlights - February 2019 (Source: AVEO)

Limiting My Risk

In light of the downside risks above, I have decided to keep my share size small and intend on utilizing call options to limit my initial financial commitment. At the moment, options are quite cheap and could be a great trade before expiration, or possibly worth exercising if the company is able to change the current sentiment.

Conclusions

The recent NDA update has created a falling knife event for the stock and has the bottom feeders coming out to grab some cheap shares. I hate to admit it, but I am joining in the feast to fill up on some potential lottery tickets for year-end. AVEO has to jump over a few more hurdles before it can market FOTIVDA in the U.S., but every hurdle conquered is a chance for the share price to recover. I have started a pilot position and will rely on options to either trade or to add to my position. Unfortunately, the company has created this mess and now has to go on winning streak of positive news in order for me to hold my position. If the company fails to provide positive updates over the course of 2019, I will liquidate my position upon the release of neutral or negative news. If the company can run the table, I will continue to hold the remainder of my initial position in hopes that AVEO can bring FOTIVDA to the U.S. market.

Accurately predicting the stock price in the near term is unknowable. In view of this, I would like to stress caution that AVEO is an extremely speculative stock. There is a risk that investors lose all or a substantial amount of their investment. Although the upside of AVEO is great, it is a long way from being free of risk.

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