Acceleron Pharma: Potential Catalysts Ahead

Summary

• Reblozyl franchise will be key revenue driver for the company in 2020.
• The company has a robust mid and late-stage research pipeline.
• Investors should be aware of risks such as R&D failure risks, regulatory risks, and market uncertainty risks.

Today, we will study why Acceleron Pharma (XLRN) can be an attractive pick in 2020.

Company overview

Acceleron Pharma is a biotechnology company focused on developing and commercializing medicines which selectively target multiple ligands (proteins) in the TGF-beta superfamily. These proteins play a major role in the pathogenesis of several major diseases. The company's lead asset, Reblozyl (luspatercept-aamt) has been already approved by the FDA for treatment of anemia in adult patients with beta-thalassemia who require regular red blood cell transfusions. Developed in partnership with Celgene (CELG), now a part of Bristol-Myers Squibb (BMY), Reblozyl is a first-in-class erythroid (red blood cell) maturation agent being developed to treat patients who have serious blood disorders associated with ineffective erythropoiesis.

Besides this indication, the company is also studying Reblozyl in non-transfusion dependent beta-thalassemia indication, MDS (Myelodysplastic Syndromes), and Myelofibrosis. Acceleron is also studying Sotatercept in PAH (pulmonary arterial hypertension) and ACE-1334 in pulmonary disease indications. Finally, the company is studying ACE-083 in Charcot-Marie-Tooth Disease indication.

Founded in 2003, Acceleron has headquarters at Cambridge, Massachusetts. The company went public in 2013.

Reblozyl is a key revenue driver for Acceleron in 2020

In November 2019, FDA approved Acceleron Pharma and Bristol-Myers Squibb's Reblozyl (luspatercept-aamt) for the treatment of anemia in adult patients with beta-thalassemia who require regular RBC (red blood cell) transfusions. The approval was based on results of the Phase 3 trial, BELIEVE. Long-term results from this trial have demonstrated strong clinical benefit of at least a 33% reduction in RBC transfusion burden over any 24-week period in more than 45% of patients and median duration of almost 18 months in the Reblozyl arm. The most common adverse events of bone pain, arthralgia and dizziness also decreased in intensity over time. The approved indication targets a small population of about 1,000 or 1,500 patients in the U.S. The company launched the drug at the end of 2019 and is already seeing good traction in sales to new and repeat prescribing accounts.

This is a major breakthrough, considering that beta-thalassemia is a potentially fatal rare inherited blood disorder characterized by reduced hemoglobin. This, in turn, reduces the oxygen availability to different body organs causing anemia and abnormal blood clotting. Although RBC transfusion is SOC (standard of care) for the most severe beta-thalassemia patients, it can lead to iron overload and cause injury to organs. Hence, there has been a high demand for a treatment option which can reduce blood transfusions in these patients.

Regulatory approval in MDS indication will push up Reblozyl's revenue trajectory in 2020

However, a much bigger growth driver for the drug can be the expected FDA approval for MDS by the PDUFA date of 4th April 2020. If approved, Reblozyl will then be targeting a much larger addressable market of more than 20,000 patients with lower risk MDS who have ring sideroblasts and require red blood cell transfusions. The company is also expecting EMA (European Medicines Agency) decision for MAA (Marketing Application Authorization) of Reblozyl in MDS indication in the second half of 2020.

The application for Reblozyl in MDS indication is based on results from the Phase 3 MEDALIST trial. Here, more than 64% of patients achieved clinical benefit throughout the course of the study. As of the clinical cutoff of July 1, 2019, 47.7% of 153 Reblozyl-treated patients and 15.8% of 76 placebo-treated patients achieved at least one episode of RBC-TI (RBC-transfusion independence) lasting at least 8 weeks at any point in the study. 69.9% of the 73 patients who responded to Reblozyl experienced multiple episodes of at least 8 weeks of RBC-TI at any point, interceded by occasional transfusions. The median duration of treatment with Reblozyl was close to two years. Besides, the occurrence of the most common adverse events such as fatigue, asthenia, and headache reduced over time.

In 2019, Acceleron Pharma reported total revenue of $74 million, all derived from the company's partnership with Bristol-Myers Squibb. These revenues were associated with expenses incurred by the company in support of Reblozyl, as well as one-time gross milestone payments totaling $60 million earned upon the FDA acceptance of the BLA and EMEA validation of the MAA of Reblozyl in June and the FDA approval of Reblozyl in November 2019. Acceleron will continue to earn milestone and royalty payments from Bristol-Myers Squibb as Reblozyl continues to witness an increase in uptake across indications in 2020. Analysts expect the drug's annual peak sales to reach the $2.0 billion mark.

There are multiple potential milestones for Reblozyl in 2020

Bristol-Myers Squibb has already completed enrollment of patients in Phase 2 trial, BEYOND, evaluating Reblozyl for the treatment of anemia in non-transfusion dependent beta-thalassemia patients. Topline results from this trial are anticipated by the end of 2020. Patients are also currently being enrolled in Phase 3 COMMANDS trial, evaluating Reblozyl in treatment-naive patients with anemia associated with lower risk MDS. Topline results are expected in late 2021 or early 2022.

Acceleron Pharma has also announced favorable interim results from Phase 2 trial evaluating Reblozyl in patients with anemia associated with myelofibrosis. Here, a significant number of transfusion-dependent, as well as transfusion independent patients, demonstrated clinical benefit when treated with a combination of Reblozyl and SOC of myelofibrosis, JAK inhibitor ruxolitinib.

Based on these results, Bristol-Myers Squibb and Acceleron plan to commence pivotal Phase 3 INDEPENDENCE study in patients with myelofibrosis-associated anemia who are being treated with JAK inhibitor therapy and who require RBC transfusions in 2020.

Reblozyl has demonstrated consistent positive results across three distinct blood disorders in the clinical setting. These results validate the drug's novel mechanism of late-stage erythroid maturation as a possible platform treatment for thousands of patients suffering from anemia caused by a variety of hematologic diseases. Hence, in principle, Reblozyl's potential can expand even beyond these three hematological conditions.

Acceleron Pharma also boasts of an interesting mid-stage clinical pipeline

In January 2020, Acceleron Pharma reported positive results from Phase 2 Pulsar trial, evaluating investigational therapy, Sotatercept, in PAH (pulmonary arterial hypertension) patients. PAH is a rare disorder in which patients have high blood pressure in the arteries of the lungs. The study was powered to detect a placebo adjusted 18% reduction in PVR (Pulmonary Vascular Resistance), the trials' primary endpoint as well as a placebo adjusted 24-meter improvement in the key secondary endpoint of 6-minute walk distance.

The investigational drug demonstrated statistically significant improvement in primary and secondary endpoints and clinically meaningful improvement of at least a 30-meter absolute change in 6-minute walk distance compared to baseline. Sotatercept also demonstrated improvement in NT-proBNP, an important biomarker of cardiovascular health and change in WHO functional class in the trial.

Finally, the investigational drug candidate demonstrated acceptable safety and tolerability profile. The company will generate additional efficacy and safety data from the 18-month extension period of the trial.

Sotatercept is deploying a different mechanism of action than existing PAH therapies. While the latter work by dilating pulmonary arteries to reduce blood pressure, Sotatercept works by restoring BMPR-II signaling, which is a key driver of PAH.

Acceleron Pharma is also preparing to share top-line results from part two of the Phase 2 trial of ACE-083 in patients with the Charcot-Marie-Tooth Disease in March 2020.

Investors should consider these risks

Acceleron Pharma is excessively dependent on the clinical, regulatory, and commercial prospects of Reblozyl. The company's revenues depend on Reblozyl's performance and the ongoing partnership with Bristol-Myers Squibb. The company is exposed to significant business concentration risk.

Acceleron Pharma is also exposed to significant R&D failure risk. In September 2019, the company announced discouraging results from the Phase 2 trial, evaluating ACE-083 in facioscapulohumeral muscular dystrophy. This forced the company to discontinue this research initiative.

Reblozyl label in transfusion-dependent beta-thalassemia indication comes with label warnings for blood clots, hypertension and embryo-fetal toxicity. Approximately 1% of the BELIEVE trial patients reported serious side effects, including cerebrovascular accidents and deep vein thrombosis. A fatal adverse reaction occurred in one patient treated with Reblozyl who died due to an unconfirmed case of AML (acute myeloid leukemia). In case the incidence of adverse events is higher in the real world as compared to the clinical setting, it may impact prescriber and payer confidence and patient uptake of the drug.

What price is right for the stock?

According to finviz, the 12-month consensus target price of Acceleron is $109.82. On February 27, Piper Sandler analyst Danielle Brill maintained an Overweight rating and $135 price target and called out the company as a top pick. Barclays analyst Carter Gould also initiated coverage of Acceleron with an Overweight rating and $107 price target.

On February 18, H.C. Wainwright analyst Edward White raised his price target for the company to $129 from $90 and reiterated a Buy rating. On February 2, Morgan Stanley analyst Jeffrey Hung upgraded the company from Equal-Weight to Overweight rating and increased the target price from $52 to $122.

We see that the overall analyst sentiment, as well as consensus target price, has improved significantly since March 2019.

Analysts expect double-digit YoY revenue and EPS improvement in 2020.

At end of December 2019, Acceleron had cash worth $453.8 million on its balance sheet. The company also reported collaboration revenue of $74.0 million. Assuming the company's 2020 expenses to be similar to the $210.4 million spent in 2019, there does not seem to be an immediate requirement for financing. The company, however, may opt for equity dilution to take advantage of the robust rise in share prices.

In this backdrop, I believe the target price of $122 is a fair estimate of the true value of the stock. I recommend biotech investors with an average-risk appetite to consider this stock in March 2020.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.