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Regenxbio: Revisiting This Gene Therapy 'Picks And Shovels' Play

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About: REGENXBIO Inc. (RGNX), Includes: ADVM, BOLD, CLSD, NVS, RCKT
by: Jonathan Faison
Jonathan Faison
Long only, biotech, event-driven
Summary

Shares have risen by 190% since my initial recommendation and by 52% since my February 2018 update.

I provide a recap of our bullish thesis and recent events.

Clinical hold for lead program RGX-314 was an unexpected turn of events. Pursuit of in-office administration is an intriguing solution to address competition in the crowded wet AMD market.

Partnered programs appear to offer the real upside here, with many shots on goal and economic participation retained via milestone payments plus royalties.

Regenxbio remains a conservative Buy in the gene therapy space. Readers who've done their due diligence should patiently accumulate dips in the near term.

Shares of Regenxbio (RGNX) have risen by 190% since I initially uncovered and recommended a position in this gene therapy pioneer in 2016. The stock has appreciated by just 52% since my February 2018 update piece.

With the recently announced acquisition of collaboration partner Audentes Therapeutics (BOLD) by Astellas Pharma for $2.7 billion (also a prior recommendation), I thought it's time to revisit this gene therapy "picks and shovels" play.

Chart

Figure 1: RGNX daily advanced chart (Source: Finviz)

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 above chart (daily advanced), we can see a downtrend taking place from April into Q3, with share price bottoming in the low 30s in September. Recently, the stock received a boost after news of Audentes Therapeutics being acquired (had licensed NAV technology for various indications including XLMTM, Crigler-Najjar and CPVT). Readers might recall that when collaboration partner AveXis was acquired for $8.7 billion in 2018, its suitor Novartis (NVS) was required to pay them $100 million upfront as an accelerated licensee payment (while remaining on the hook for $80 million in commercial milestones plus royalties on Zolgensma). A move to highs last witnessed in 2018 would equate to a bit less than a double from today's levels.

Overview

In my last update piece, I touched on the following keys to our bullish thesis:

  • An investment here seemed rather derisked, considering the firm's possession of a widely adopted NAV technology platform that holds exclusive rights to over 24 partnered products being developed by third-party licensees and several wholly-owned clinical candidates. I touched on several partnerships that added significant credibility to the story, including with the likes of AveXis (AVXS) and Biogen (BIIB). For the former, a decision to expand its partnership by gobbling up exclusive global rights to all vectors in the NAV Technology Platform for the treatment of SMA significantly boosted the company's cash position.
  • I stated my opinion of shareholder-friendly management, showcased by its savvy decision to acquire partner Dimension Therapeutics in an all-stock transaction and then refusal to outbid Ultragenyx and overpay. From there, additional validation for NAV platform was realized when Ultragenyx exercised its option to acquire an exclusive worldwide license to NAV Vectors, including NAV AAV9, for the treatment of CDKL5 Deficiency Disorder (CDD).
  • We took a deeper look at the prospects of an early-stage study evaluating RGX-314 in wet AMD, noting that while the field is quite crowded, RGX-314 could set itself apart as a one-time subretinal treatment. Current standard of care involves injections every month or every other month with the initial vision gain from therapy declining over time. Regeneron's (REGN) Eylea was projected to eventually do up to $5 billion in peak sales (gave us a sense of the revenue potential here). Data from an early-stage trial of RGX-314 showed that after six months patients in the third cohort showed evidence of durable RGX-314 protein expression levels (measured from aqueous samples by electrochemiluminescence immunoassay). Consider that in the first three cohorts dose-dependent protein expression was observed along with dose-dependent change in number of required injections. Cohort 3 showed highest protein expression and most reduction in need of VEGF injections (maintenance of retinal thickness and visual acuity was also encouraging). 3 patients in cohort 3 were highlighted as they required no injections over the entire 6 month period.
  • RGX-121 for the treatment of pediatric MPS II patients was advancing into an early-stage study and had already received orphan drug plus rare pediatric disease designations. Also, it was a semi-bullish sign that the company inked an agreement with FUJIFILM Diosynth Biotechnologies to beef up its manufacturing capabilities for lead clinical candidates (support late-stage study and commercialization).
  • As for RGX-501 for the treatment of Homozygous Familial Hypercholesterolemia (HoFH), I considered it to be a big question mark and noted that the company's NAV technology was being used to correct the defective LDL receptor and thus reduce circulating LDL cholesterol. In mouse models dramatic reductions from control to AAV8 encoding mouse LDL receptor gene including recovery of phenotype were observed. In the early-stage trial a single intravenous injection of RGX-501 was hoped to lead to reductions in LDL cholesterol and additional benefits (comorbities, later on mortality, etc). Primary objective of study is safety/tolerability and initial design was 3+3 design and low dose was well tolerated but little reduction in LDL cholesterol was observed. Unfortunately, with the next highest dose cohort signals of transaminase elevation were observed (indicative of potential for liver damage), enrollment was stopped and protocol was being amended to treat patients with steroids prophylactically (discussion with DMB or data monitoring board).

Figure 3: Internally developed pipeline (Source: corporate presentation)

Figure 4: Collaboration partner pipeline (Source: corporate presentation)

Let's take a look at recent events and how they've affected our thesis here.

Select Recent Developments

In late July Regenxbio and Swiss biotech firm Neurimmune announced an exclusive license to develop novel AAV gene therapies using NAV vectors to deliver human antibodies against targets implicated in chronic neurodegenerative diseases, including tauopathies. Both companies will be jointly responsible and share development costs equally, with each having co-development and co-commercialization options (or can elect to receive a phase-based worldwide royalty instead of continued development investment).

On July 31st Regenxbio announced a license agreement with Pfizer (PFE), specifically non-exclusive global license to NAV AAV9 vector for commercialization of gene therapies for the treatment of Friedreich's ataxia. In return for these rights, Regenxbio received an upfront payment, and has the potential to receive ongoing fees, development and commercial milestone payments, and royalties on net sales of products incorporating their IP.

On October 30th, it was disclosed that the company exercised its option under the previously announced option and license agreement to Clearside Biomedical's (CLSD) in-office SCS Microinjector for the delivery of adeno-associated virus-based therapeutics, including RGX-314 delivery to the suprachoroidal space to potentially treat wet age-related macular degeneration, diabetic retinopathy, and related conditions where chronic anti-vascular endothelial growth factor (VEGF) treatment is currently the standard of care. Deal terms were modest, involving a small upfront payment, up to $34 million in development milestones, up to $102 million in sales milestones and mid-single digit royalties on net sales of products incorporating SCS Microinjector.

Figure 5: Widespread retinal transduction observed in both subretinal and suprachoroidal delivery of AAV8 in non-human primates (Source: Corporate Presentation)

Keep in mind that Regenxbio is currently suing the FDA, as they disclosed a clinical hold for RGX-314 suggesting the agency opted for this action "without notice or explanation". The clinical hold is related to issues associated with delivery systems currently being used (seems agency is not a fan of subretinal injections, which allows for a more direct approach but can have a complicated adverse event profile (involves potential events such as intraocular inflammation, retinal detachment, ocular hemorrhage, etc). A more convenient intravitreal approach is being utilized by Adverum Biotechnologies (ADVM). While such differences may not be that big of a deal in clinical trials, you can bet that when and if such gene therapies make it to the market, those that offer the ideal mix of high convenience and best safety profile will be the most likely to win this high stakes race.

Figure 6: Subretinal injection versus intravitreal injection (Source: Adverum corporate presentation)

Other Information

For the third quarter of 2019, the company reported cash and equivalents of $417.1 million as compared to net loss of $34.6 million. Research and development costs nearly doubled to $35.7 million, while SG&A increased to $12.4 million

Regarding RGX-314 in treating wet AMD and diabetic retinopathy, we are informed of the clinical hold related to use of third-party commercially available devices used to deliver the gene therapy candidate. Specifically, the company states that all 42 patients have been dosed in the phase 1/2a study and that the partial clinical hold on IND is not related to the gene therapy candidate itself. Management guides for phase 2b study in wet AMD to get underway in Q1 2020, around which time IND will be filed for the study in diabetic retinopathy. We are reminded that data here continues to be encouraging, with no drug-related serious adverse events and subjects in Cohort 5 showing reduction of over 80% from the mean annualized injection rate during the 12 months prior to receiving RGX-314. Additionally, durable effects on vision and retinal thickness had been demonstrated over 1.5 years in the third cohort, with 50% of subjects remaining free of anti-VEGF injections more than 1.5 years after RGX-314 administration.

Figure 7: Cohort 5 injections pretreatment and after being treated with RGX-314 (Source: Corporate Presentation)

Management continues to state that they are evaluating in-office delivery of RGX-314 to the suprachoroidal space and will unveil plans for this route of administration next year.

As for RGX-501 for the treatment of Homozygous Familial Hypercholesterolemia (HoFH), interim data from Cohort 2 is expected at the end of the year (keep in mind this time they are using corticosteroid prophylaxis). Also at the end of the year, we'll get an interim data update on the phase 1/2 study of RGX-121 for the treatment of MPS II.

As these gene therapy companies are increasingly valued on the basis of their manufacturing capabilities as reflected in recent buyouts (including Audentes Therapeutics), it's worth noting that Regenxbio's new cGMP production facility (allows for production of NAV Technology-based vectors at scales up to 2,000 Liters) is expected to be operational in 2021.

As for partnered efforts, Novartis revealed Q3 Zolgensma sales of $160 million resulting in royalty revenue to Regenxbio of $9.2 million. Audentes Therapeutics' AT132 in XLMTM is well on its way to potential regulatory approval with BLA to be filed mid-2020.

Final Thoughts

To conclude, even after the recent bounce this gene therapy "picks and shovels" has continued upside ahead. With 20+ partnered product candidates, one can almost think of it as a mutual fund of sorts as investors gain exposure to various rare disease programs as well as programs targeting more prevalent conditions. On the other hand, the company has much more to prove with wholly-owned programs, as the anti-VEGF market is known for being intensely competitive with multiple "next-generation" approaches being tried out by larger companies aiming to garner a slice of this lucrative pie. Consider Baker Brothers' recent royalty deal, purchasing a 4.5% rate for $225 million (assumes KSI-301 worth over $5 billion using back of the envelope math). Another overlooked catalyst is phase 1 data for Danon Disease program with collaboration partner Rocket Pharmaceuticals (RCKT) in 2020, a lucrative indication of high unmet medical need considering estimated US+ EU prevalence of 15,000 to 30,000 patients.

For readers who are interested in the story and have done their due diligence, Regenxbio remains a Buy and I suggest patiently accumulating dips over the next couple of quarters.

Additional dilution in the near term does not look likely considering the current cash position and operational runway. Disappointing data for wet AMD and other programs not to mention setbacks in the clinic (especially delays or safety/tolerability concerns) would weigh on the stock. Failure to get the recent clinical hold lifted would weigh on the stock and the company's competitive position in the wet AMD market (and related indications). Competition for certain indications should not be ignored, especially by peers with significantly greater resources.

Author's Note: I greatly appreciate you taking the time to read my work and hope you found it useful. Consider clicking "Follow" next to my name to receive future updates and look forward to your thoughts in the Comments section below.

Disclosure: I am/we are long CLSD, RCKT. 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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