Shares of tiny biotech firm Curis (CRIS) have been a disappointment lately, losing more than 80% of their value over the past three years. So far in 2019, the stock has risen by more than 110% as it appears buyers are stepping in and optimism is certainly returning to this small cap name.
I'm looking forward to digging into this one, as management's recent presentation at Cowen & Company Healthcare Conference highlighted multiple data readouts we can look forward to in later this year.
When looking at charts, clarity often comes from taking a look at distinct time frames in order to determine important technical levels to get a feel for what's going on. In the first chart (daily advanced), we can see selling pressure accelerate in the second half of 2018. However, 2019 has been a polar opposite as strength and accumulation have returned to the stock. In the second chart (15-minute), we can see a second breakout taking place with a quick 45% plus move taking place in the space of a couple days (bodes well for near to medium term in my opinion).
At the recent Cowen Presentation, President and CEO James Dentzer started by reviewing the evolution of Curis from 2014 to 2017. I was only aware of the company due its role in developing Erivedge (commercialized by Roche). However, since then they've focused on building a pipeline of first-in-class products (¨doing what no one else can do or has done¨ and ¨hitting unhittable targets¨). All of these programs are high risk/high reward with blockbuster potential, but I find it refreshing that management doesn't try to play down the risk involved.
Figure 3: Pipeline (Source: corporate presentation)
In order to focus on maximizing value for current assets and conserving cash, the company has consolidated certain internal resources (contracted discovery research engine) and reduced net cash burn by 28% (to $8 million per quarter).
The company's future will be decided by whether they've chosen the right targets, designing the right drugs and studying them in the right patients.
Lead program is their anti-MYC drug fimepinostat being studied in MYC-altered DLBCL (100,000 patients diagnosed per year, roughly a third are MYC altered). Current standard of care is Rituxan + chemotherapy- stem cell transplant and/or CAR-T have been approved as well but aren't competitors in the space the company is going for (patients with poorest prognosis double-hit and double-expressor lymphoma). Fimepinostat has two components, HDAC and PI3K, where the former inhibits transcription of MYC and latter is decreasing protein that gets past HDAC. Therefore, management's hypothesis is that a potent, dose-dependent impact on MYC occurs. MYC has been a target for more than 30 years or so, but according to management no one has had the kind of data they do.
Figure 4: Fimepinostat prior clinical results give reason for cautious optimism (Source: corporate presentation)
Prior data showed 23% ORR and duration of response of 13.6 months (duration much better than chemo, ORR is comparable). However, if you look at individual types highlighted the company is getting responses and in some cases complete responses that last over a year in these patients with the poorest prognosis. If you look at the subset of patients who were treated for at least six weeks (caveat for "data mining," though in this case makes some sense due to mechanism of action taking that much time to have an impact) the delayed benefit is apparent. Thus management's current combination strategy makes sense, as they are seeking another drug to help patients get to that six-week mark where fimepinostat can have the greatest effect (in other words keep patients stable long enough for MYC drug to work). The company ultimately chose venetoclax as the ideal combination agent (has already been tested in DLBCL, know it's safe, know the ideal dosing regimen, know it works with 18% ORR as monotherapy). Importantly, venetoclax works more quickly and preclinical data shows substantial synergy (¨1+1 equals 2 and may equal 3¨).
Figure 5: Dose escalation design for combination trial (Source: corporate presentation)
The real unknown and risk here is if the drugs are safe and well tolerated together (absence of preclinical issues does not necessarily read through to trial data). Dose Level 1 in the current study used the full dose of venetoclax and half dose of fimepinostat (then full doses for both at Dose Level 2, then Dose Level 3 doubling venetoclax dose if needed for expanding safety window). Trial is using 3+3 design (low number of patients) and again a goal is make sure there's no drug-drug interaction (management and KOLs are excited about potential implications if positive).
As for first-in-class IRAK4 inhibitor CA-4948 (compares to ibrutinib stating that it turns off the hot water while CA-4948 turns off the cold), combining them would be an intriguing idea but first need to see monotherapy efficacy. In regards to other IRAK4 molecules in the clinic (from Pfizer (NYSE:PFE), Roche (OTCQX:RHHBY), AstraZeneca (NYSE:AZN), etc), they'd all been going after inflammation but then publications came out showing validity in oncology indications. The good news is competition is not in the clinic yet but the bad news is that they are gearing up to do so (Curis has a slight time advantage). Preclinical data looked great and note that MYD88 alterations are prevalent in 29% of ABC-DLBCL. Data in whole blood from healthy volunteers showed target engagement in dose-dependent fashion.
Figure 6: Initial data for CA-4948 bodes well for what we could see at higher doses (Source: corporate presentation)
Data in first two patients treated at lowest dose (50 mg per day, for context management wasn´t expecting any efficacy until 400mg) showed drop in IL-6 production when drug spikes, and when half life kicks in (drug level decreases) production recovers (seeing exactly what they wanted to see). It will be interesting to see data for higher doses (now enrolling dose level 4 and on track to get to dose level 5 and have data by mid-year or July¨ish¨). It sounds like they might even be a bit ahead of schedule.
As for CA-170 the company's combined VISTA PD-L1 inhibitor, last year's data in PD-1 patients divided into three groups (PD1 approved tumor type and naive to treatment, not approved tumor type and naive, and all tumor types/receive checkpoint therapy prior). Efficacy curve was underwhelming (again I appreciate management's honesty) and thus meant it won´t go head to head with treatments like Keytruda and Opdivo. As for targeting VISTA, this thesis remains unproven and the company needs to show it can hit it in patients and test in the right indications. The company chose mesothelioma as more than 90% of patients express VISTA (don't need to use paired diagnostic) and nothing works in this indication (not checkpoint inhibitors) and chemo sets the hurdle quite low. The indication has a quick regulatory path if the drug works. The ongoing trial has high dose and low dose cohorts as data in patients previously tested showed some responded better at higher dose and some at lower dose (a number of hypothesis at work here, sounds to me like best to be skeptical until we see the data). As this is the only anti-VISTA program in the clinic, it would be a big deal if data hits, but again the CEO stated this is a high risk program.
Select Recent Developments
On May 24 the company announced the retirement of Chief Medical Officer Dr. David Tuck, who left to return to academic clinical research. On the other hand, Robert Martell, M.D., Ph.D., was appointed Head of Research and Development (served prior as CMO of Tesaro where he aided with development of PARP inhibitor Zejula and also as CMO of MethylGene where he worked on BLA registration filing team for EGFR inhibitor Erbitux). His extensive clinical development experience should come in handy for this small company.
At the end of May the company announced a 1 for 5 reverse stock split, effectively reducing the number of shares of issued and outstanding common stock from approximately 337.5 million to 67.5 million. Troubled biotech firms are at times forced to undergo such action, and generally speaking it's considered a negative (like putting lipstick on a pig) because the share price may change but the story is still the same (more often than not a company with bad fundamentals trying to "dress itself up").
Also in May the company announced that the FDA granted fast track designation for the development of fimepinostat in patients with relapsed or refractory, or R/R, diffuse large B-cell lymphoma, or DLBCL, after two or more lines of systemic therapy. This was based on data from prior trials showed complete or partial responses in one of every four patients with relapsed/refractory DLBCL with MYC alterations (median duration of response for responding patients of over one year).
On Sept. 24 the company took another step in the right direction with the appointment of James Dentzer as President and Chief Executive Officer (replacing Ali Fattaey, Ph.D.). Dentzer served prior at such well-known biotech firms as Dicerna Pharmaceuticals, Amicus Therapeutic and Biogen.
Lastly, in January the company dosed its first mesothelioma patient in the phase 1 study of CA-170. It was a good sign that this first step took place ahead of schedule and it's worth reiterating that not only is CA-170 the only anti-VISTA therapeutic in a clinical study, but the trial is the only one targeting a patient population characterized by high levels of VISTA expression. If data were positive (a big if), there would be far reaching implications as VISTA is expressed in various tumor types including ovarian, endometrial, triple negative breast, gastric and non-small cell lung cancer. Keep in mind that VISTA is a known resistance mechanism for treatment with anti-PD1 antibodies in melanoma and anti-CTLA4 antibodies in prostate cancer.
For the third quarter of 2018, the company reported cash and equivalents of $30.8 million with 33.1 million shares outstanding. Net loss was cut in half to $7.2 million, while revenue rose to $2.8 million as a result of royalties on net sales of ERIVEDGE. Research and development expenses fell to $5 million, while G&A rose slightly to $4.1 million. Management reiterated that cash burn had been reduced from $11 million to $8 million per quarter.
As for future catalysts of note, the first one will be initial data (mid-year) from the dose escalation study evaluating CA-4948 in patients with R/R DLBCL and WM, including patients with MYD88-altered disease. In the second half of the year, we can expect data from the combination study of fimepinostat and venetoclax regimen in patients with R/R DLBCL as well as initial results from the trial of CA-170 in mesothelioma patients.
As for institutional investors of note, EcoR1 Capital owns nearly 3 million shares (9% stake). Keep in mind this is still a tiny position for them relatively speaking. Trends in insider selling do not inspire confidence.
I consider it a red flag that the management team has little depth, even if James Dentzer and Robert Martell bring substantial experience to the table. I was interested to see Dr. Lori Kunkel on the Board of Directors given her vast experience in the targeted oncology arena (Chief Medical Officer at Loxo Oncology, Pharmacyclics, ACT, Syndax, and Proteolix which was acquired by Onyx).
To conclude, precision medicine/targeted oncology has been a great theme for biotech investors to hitch a ride on over the past few years (think winners like LOXO, RXDX, BPMC, MRTX, etc). However, these names seemed considerably more derisked via initial efficacy data as opposed to Curis, where upcoming readouts appear high risk, high reward. With around $30 million in the bank and lowered cash burn, management states they have enough operational runway to get through all three data readouts (I imagine they'll raise more funds prior). Still, with three shots on goal that all have intriguing hypothesis, there's a decent chance that at least one achieves a measure of success.
For readers who are interested in the story and have done their due diligence, consider accumulating dips in the near to medium term. In my opinion Curis is a speculative buy, meaning if you own a position make sure to limit your exposure to a conservative weighting in your biotech portfolio. Readers who prefer more downside cushion and derisking will likely want to steer clear and opt for more conservative setups.
The main risks here are dilution in the near term and especially disappointing data (if they flunk all three trials expect to lose all or most of your position). Competition for certain assets also is a concern, including IRAK4 inhibitor CA-4948 with big pharmaceutical firms ushering their own assets into the clinic in hot pursuit. Prior data for VISTA PD-L1 inhibitor CA-170 has been underwhelming and thus this appears to be the company's final effort to find the right niche for the drug to have an impact.
The only downside cushion at this point is the cash position of around $30 million, but keep in mind that biotech companies can often see their market capitalizations fall far below cash value in the event of failed trials. There's an element of derisking for fimepinostat given initial clinical data (promising in certain subsets), but safety/tolerability profile in combination with venetoclax is still a question mark. Initial clinical data for IRAK4 inhibitor CA-4948 has shown desired target engagement and intriguing hints of activity, so I´ll be interested to see what higher doses can do.
For our purposes in ROTY, I prefer to keep this one on my watch list for potential entry after we get more data that provides the element of derisking that I look for.
Potential Questions for Discussion (including aspects of bear thesis):
How do you see the company's competitive positioning in the CAR-T space?
Are there any red flags that stick out to you regarding this under-followed name?
Author's Note: I greatly appreciate you taking the time out of your day to read my material and hope you found it to be helpful in some form or fashion. If you´re willing, I look forward to interacting with you in the Comments Section. Whether bull, bear or simply a skeptic, we all typically have something worth saying and feedback (plus community-driven due diligence) is one of the reasons I enjoy writing. Have a good one!
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