Orchard Therapeutics: Updating The Investment Thesis

Summary

• Today, we take a look at an intriguing biotech concern from across the pond called Orchard Therapeutics.
• The company has multiple 'shots on goal' and several definable milestones on the horizon.
• A full investment analysis follows in the paragraphs below.
• I do much more than just articles at The Biotech Forum: Members get access to model portfolios, regular updates, a chat room, and more. Get started today »

Most doctors are prisoners of their education and shackled by their profession.”

- Richard Diaz

A month ago we offered up the analysis below on this 'watch item' biotech stock from across the pond exclusively to Biotech Forum members. The stock is up over 40% since then but the concern is still intriguing. Today, we update our original thesis to account for all company-specific news and analyst ratings on this name since our original research was posted.

Company Overview:

Orchard Therapeutics (NASDAQ:ORTX) is a London, United Kingdom-based biopharmaceutical company that IPO’d in 2018. The company’s mission is to help patients with rare conditions by leveraging its understanding of gene therapy. The company’s approach is to take a patient’s own blood stem cells and insert into them a working copy of the missing or malfunctioning gene. The company’s approach circumvents the need for a bone marrow transplant by taking advantage of blood stem cells' intrinsic capacity to self-renew in a patient’s bone marrow and produce new blood cells of all types. The ultimate goal is to permanently correct genetic disorders through the use of a single treatment. The company’s pipeline is broken down into three overarching programs: neurometabolic disorders, primary immune deficiencies, and blood disorders. The company’s lead product candidates are OTL-200, OTL-101 and OTL-103. The company’s only commercial product is Strimvelis, which has been approved by the EMA but not by the FDA. Orchard Therapeutics has a market capitalization of just over $1 billion and trades for around $11 a share.

Pipeline:

Source: Company Presentation

OTL-200:

OTL-200 is an ex vivo autologous gene therapy in development to treat Metachromatic leukodystrophy. The drug uses a modified virus to insert an operational copy of the ARSA gene into a patient’s cells. OTL-200 has received rare pediatric disease designation from the FDA. MLD is a rare and deadly inherited disease. The disease is characterized by the accumulation of fats called sulfatides, which causes a breakdown in the protective fatty layer surrounding nerves in the central and peripheral nerve systems. It is estimated that 1 in 40,000 to 1 in 160,000 people have the disease worldwide. OTL-200 was developed in partnership with the San Raffaele-Telethon Institute for Gene Therapy.

Source: Company Presentation

On December 2^nd, 2019, under accelerated assessment status, The EMA accepted the review for a marketing application of OTL-200 for MLD. Under accelerated assessment, the review period is 150 days, compared to the normal 210 days. The action date should occur very shortly.

Source: Company Presentation

Looking ahead, the company expects to obtain approval and launch the drug in Europe in the second half of 2020. The company is currently preparing for a commercial launch. Furthermore, the company expects a U.S. regulatory filing, a BLA, in late 2020 to early 2021.

Source: Company Presentation

OTL-101:

OTL-101 is an ex vivo autologous gene therapy in development to treat adenosine deaminase severe combined immunodeficiency. The drug uses a modified virus to insert an operational copy of the ADA gene into a patient’s cells. OTL-101 has received both Breakthrough Therapy designation and Rare Pediatric Disease designation from the FDA. ADA-SCID is a rare, inherited, pediatric disorder that is commonly fatal when undiagnosed or left untreated. The disorder is the result of a deficiency in adenosine deaminase. The disease culminates in a complete lack of/minimal immune system development. It is estimated that the disease’s annual incidence is between 1 in 200,000 and 1 in 1 million live births.

Looking ahead, Orchard Therapeutics will initiate a rolling BLA filing in the U.S. for OTL-101 in ADA-SCID in the first half of 2020 with an anticipated completion of the filing within 12 months.

Source: Company Presentation

OTL-103:

0TL-103 is an ex vivo autologous gene therapy in development to treat Wiskott Aldrich syndrome. The drug uses a modified virus to insert a working copy of the WAS gene into a patient’s cells. WAS is a rare, X-linked, recessive, inherited immune disorder, which is characterized by reoccurring severe infections, autoimmunity, eczema and severe bleeding episodes. The company has received Rare Pediatric Disease designation and Regenerative Medicine Advanced Therapy designation from the FDA. OTL-103 is being developed in partnership with the San Raffaele-Telethon Institute for Gene Therapy.

Looking ahead, the company is preparing to file a BLA in the U.S. and an MAA in the EU for OTL-103 in WAS in 2021.

Source: Company Presentation

Analyst Commentary & Balance Sheet:

As of December 31^st, 2019, the company had cash and cash equivalents of over $300 million including marketable securities. Research and development expenses for the fourth quarter were $30.8 million, compared to $17.4 million in Q4 of 2018. Selling, general and administrative expenses were $18.5 million in the quarter, compared to $11.9 million in the same quarter of 2018. Overall, the company had a net loss of $45.4 million in the quarter, compared to a net loss of $25 million in the same period of 2018. The company believes that its current balance sheet will allow it to fund all anticipated operations and capital expenditures into the second half of 2021.

Despite a sizable market cap, Orchard gets little in the way of attention from analysts. That is probably because it is headquartered overseas. The current median analyst price target on Wall Street is just over $25.00 a share.

Oppenheimer reissued its Buy rating and $28 price target on April 1st. In mid-March, Cowen & Co. did the same with an identical price target in Mid-March. This follows a similar call at Cowen in December with strongly bullish commentary:

Orchard Therapeutics has a differentiated and promising lentiviral, ex vivo pipeline with gene therapies for ADA-SCID, WAS and MLD likely to get approved in 2021-’22. With a deep early stage pipeline focused on validated targets, we anticipate strong stock appreciation as drugs are approved and early stage programs yield positive clinical results and advance into pivotal studies in 2020/21."

On September 17^th, 2019, Guggenheim initiated coverage with a buy rating and a $31 a share price target. The analyst at Guggenheim views the company's ex vivo, lentiviral gene therapy platform as differentiated and de-risked. Furthermore, three drug approvals within the next 24 months bode well for share appreciation. Finally, in early September of last year, Barclays (BCS) initiated coverage with an overweight rating and a $21 price target. The analyst at Barclays sees a company that strategically targets genetic diseases that have validated approaches with hematopoietic stem cell transplant, a fairly de-risked pipeline and multiple catalysts over the next 24 months.

Verdict:

Orchard has multiple shots on goal and several definable milestones in the coming quarters. Given some of the recent turmoil in the credit markets, anything that will need to raise capital in the foreseeable future is taken out and shot when markets have deep down days.

Given that, I still have Orchard as a solid 'watch item' holding and added several hundred shares in my personal account in late March. The shares appear to have an attractive risk/reward profile on a longer term basis, but I would accumulate on dips given the shares run up in April. Once volatility ebbs and we have more confidence in the economy and markets, this is a name we will revisit and maybe upgrade to a larger recommended holding.

The securest place is a prison cell, but there is no liberty”

- Ben Franklin

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum

Analyst’s Disclosure: I am/we are long ORTX. 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.