Talent hits a target no one else can hit. Genius hits a target no one else can see."― Arthur Schopenhauer
Today, we take an in-depth look at a small biotech concern whose stock sells for less than the cash on the company's balance sheet. In normal times, this would be most unusual. Unfortunately, sentiment has been dismal on this and other high beta parts of the market for months now, and it is one of approximately 300 small biotech concerns in the same predicament. A full analysis follows below.
Graphite Bio, Inc. (NASDAQ:GRPH) is a South San Francisco-based early clinical-stage "next-generation" gene editing concern attempting to develop therapies using homology directed repair (HDR) that have potential to cure a wide range of disorders with an initial focus on sickle cell disease [SCD]. The company has one asset in the clinic and another three programs that are undergoing IND-enabling (preclinical) studies. Graphite was founded in 2017, commenced operations in 2020, and went public in June 2021, raising net proceeds of $251.3 million at $17 per share. The stock trades just above two bucks a share, translating to a market cap of approximately $130 million.
The company's next-generation platform is designed to improve upon CRISPR Therapeutics AG's gene editing technology through the employment of HDR. In fact, one of Graphite's scientific founders, Dr. Matthew Porteus, was a scientific founder of CRISPR. Whereas CRISPR technology targets and cuts genes and relies on the cell to repair the break - which could result in chromothripsis, a haphazard rejoining of the chromosome resulting in potentially damaging incorrect orientation - Graphite's approach not only splices said genes, but also drives cells to use their own DNA repair mechanism more efficiently by taking a template of DNA and copying it into the targeted gene after it's been cut. Management believes this methodology will deliver precision gene editing by correcting mutations, replacing disease-causing genes with normal ones, or inserting genes into predetermined safe locations. In theory, it has the capability to cure many genetic diseases while reducing the chance for adverse events.
GPH101. The company's first target is SCD, chosen because it has only one mutation that requires correction. Graphite's lead product (and only clinical) candidate is GPH101, a gene-edited autologous (from the same individual) hematopoietic (blood-forming) stem cell candidate designed to fix the single mutation in the human beta-globin gene that characterizes SCD and restore normal adult hemoglobin expression; thus, curing the malady.
For those unaware, SCD is a genetic disorder where sickle-shaped red blood cells are produced instead of round ones. Owing to their shape, rigidity, and stickiness the crescent cells cause blockages within the circulatory system, leading to significantly impaired blood flow (known as vaso-occlusive crisis [VOC] and episodes of extreme pain. Furthermore, these deformed cells die and break apart in ~30 days versus ~120 days for healthy red blood cells, causing a deficiency; thus, starving the body of oxygen (anemia). In addition to the episodic pain and VOC, SCD is characterized by acute chest syndrome [ACS] - which is essentially VOC of the pulmonary vasculature - progressive organ failure, and a lifespan truncated (on average) by 30 years for Americans. The only effective treatment is allogenic hematopoietic stem cell transplantation (HSCT), which requires matched donors and immunosuppression through full chemotherapeutic myeloablative bone marrow conditioning - also standard for most gene editing and gene therapy approaches - with patients susceptible to graph versus host disease. SCD afflicts ~100,000 in the U.S. and millions worldwide, especially on the African continent.
In ex vivo studies, GPH101 demonstrated up to ~70% gene correction efficiency in hematopoietic stem and progenitor cells. In targeted gene insertion applications, its achieved efficiencies were 30-50%, which are above the expected curative threshold for SCD. Owing to this promise, Graphite entered its first subject into a ~15 patient Phase 1/2 trial in November 2021, the secondary efficacy endpoints of which include levels of HbA (normal red blood cells), HbS (sickle cells); measurement of GPH101 gene correction in cells; and episodes of VOC and ACS post-infusion. Although the first patient entered the trial five months ago, he or she must first undergo apheresis (HSC removal), followed by cryopreservation and CRISPR gene editing, as well as gene correction by HDR ex vivo. After this procedure is completed, the patient is then infused with the GPH101 drug product. Owing to these processes and delays due to the pandemic, the first patient is now not expected to be dosed until 2H22 with proof-of-concept data anticipated in mid-2023, approximately six months behind management's initial schedule. Since this delay was announced on March 21, 2022, shares of GRPH have fallen 51%.
It goes without saying that if this approach is successful, the need to find a matched donor will be eliminated, marking a paradigm shift in the treatment of SCD.
GPH102. Owing to the singular mutation in the beta-globin gene characterizing SCD, Graphite is simply trying to correct that mutation. For other blood disorders such as beta-thalassemia [BT], which feature over 300 mutations of the beta-globin gene, the company is developing therapies to completely replace the gene. BT is an inherited blood disorder that results in reduced levels of functional hemoglobin, the iron producing protein in red blood cells, which afflicts ~68,000 newborns per annum worldwide. Severe patients need blood transfusions every 2-4 weeks. Approximately 70% of deaths from this disease are cardiac complications due to iron overload from chronic blood transfusions. For this malady, Graphite is developing GPH102, a therapy that piggybacks on GPH101's progress by restoring normal genotypes in a complementary hematology patient population. The asset is currently undergoing IND-enabling studies, with an IND expected to be filed in mid-2024.
GPH201. This gene replacement approach is also being adapted to treat X-linked severe combined immunodeficiency (X-SCID), an extremely rare disorder where the body produces very few T and natural killer cells, stemming from a mutated IL2RG gene. Although it only afflicts less than 100 births a year in major markets, it is deadly by year two if not treated with allogenic HSCT. To treat X-SCID, Graphite has developed gene replacement therapy GPH201, which is currently undergoing IND-enabling studies.
GPH301. In addition to gene correction and gene replacement approaches, Graphite is advancing targeted gene insertion techniques to treat genetic disorders such as Gaucher's disease, a malady in which the enzyme glucocerebrosidase is deficient, leading to bruising, fatigue, anemia, low blood platelet count and the enlargement of the liver and spleen from an accumulation of unprocessed glucocerebroside. The insertion of a functional copy of the gene for glucocerebrosidase at the CCR5 gene site is designed to drive its expression in a patient's macrophages, breaking down glucocerebroside into glucose and ceramide in the lysosome; thus reversing its accumulation. It is hoped that a curative GPH301 would replace biweekly enzyme replacement therapy as the most effective treatment option for the ~6,000 patients in the U.S. Its speed into the clinic is somewhat a function of the development of non-genotoxic conditioning regimens in conjunction with this program and as such, no timeline has been proffered.
Although cutting edge, Graphite's platform participates in an increasingly crowded space, with Beam Therapeutics (BEAM) (preclinical), bluebird bio (BLUE) (Phase 3), CRISPR Therapeutics in partnership with Vertex Pharmaceuticals (VRTX) (Phase 3), Editas Medicine (EDIT) (proof of concept), Intellia Therapeutics (NTLA) (early clinical stage), and Sangamo Therapeutics (SGMO) (Phase 1/2) all advancing gene editing or gene therapy candidates through preclinical or clinical development just for the SCD indication.
For the advancement of its product candidates into and through the clinic, the company held unrestricted cash and equivalents of just over $350 million as of the end of the first quarter, providing it a cash runway into the fourth quarter of 2024.
Since going public in June 2021, Graphite has picked up six Street sponsors, four of whom are constructive on its technology. Two buy, two outperform, and two hold ratings comprise the continuum of opinions with price objectives ranging between $8 and $18 a share. Morgan Stanley downgraded shares of GRPH from outperform to hold and lowered its price target to $8 from $19 after the trial delay announcement in March 2022.
Chief Business Officer Phil Gutry recently used the price weakness to add his position, acquiring 5,000 shares at $4.01 on April 11, 2022, bringing his total ownership interest to nearly 300,000 shares. He joins beneficial owner Samsara BioCapital, who purchased nearly 425,000 shares on April 11th and 12th, bringing its total position to 8.5 million shares, or 15% of the company.
For the investor, the recent trend of biotechs going public before conducting a single human trial has been an abject failure. Graphite's 85% decline from its June 2021 IPO pricing is Exhibit A. And now with no human to be infused with GPH101 until 2H22 and no data due until (likely) mid-2023, there isn't much for investors to do except twiddle their thumbs. That said, Graphite trades at a borderline spellbinding over 60% discount to cash ($6.00 a share) and has potentially curative technology that could be superior to anything else in the clinic. Graphite's options are not very liquid, making a covered call strategy very hard to implement.
This is much too early stage of a company for consideration for a large stake. So despite the stock trades substantially under its cash balance, it is hard to see a way to play this name given the putrid current sentiment on the biotech sector, other than a small 'watch item' position for patient investors.
Every artist was first an amateur."― Ralph Waldo Emerson
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in GRPH 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.
Additional disclosure: Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum.