ACRS - Positive Phase 2 COVID-19 Results Could Be Game Changing For This Well-Funded Biotech Trading Below Cash

Summary

• On June 17, 2020 the company announced that the FDA has accepted the company's IND to study its oral investigational MK2 inhibitor compound ATI-450 in hospitalized patients with COVID-19.
• The trial is a Phase 2a, randomized, double-blind, placebo-controlled trial to investigate the safety and efficacy of ATI-450, when used in addition to standard of care therapy.
• ACRS's MK2 inhibitor ATI-450 will be used in these trials because it inhibits multiple key inflammatory cytokines known to trigger Cytokine storms which is believed to influence COVID-19 patient mortality.
• The company reported $79M cash as of March 31, 2020. This amount of cash provides runway through 1Q 2022. The company is looking to divest several legacy products to generate non-dilutive funds.
• Four analysts have a BUY consensus on the stock with an average $4.5/share price target suggesting an almost 300% potential upside. The company enjoys an 82% institutional ownership.

Discussion

Aclaris Therapeutics, Inc. (ACRS), recently shifted its focus from a commercial/clinical biotech to an strictly clinical development biotech focused on immuno-inflammatory diseases, Aclaris leverages its core expertise in drug discovery and development and kinase inhibition to develop novel, small molecule therapies to help people impacted by underserved immuno-inflammatory conditions. The company uses its proprietary KINect^TM technology platform to generate clinical candidates with novel properties to address several unmet needs. The ability to systemically and efficiently attach human kinases with adenosine triphosphate (ATP) site cysteines differentiates Aclaris from competitors.

Aclaris operates Confluence Discovery Technologies, Inc., a full-service drug discovery and early development contract research organization, as an indirect, wholly owned subsidiary. Confluence serves as a research partner for pharma and biotech companies across therapeutic areas and gene families. Confluence’s expertise includes cell and molecular biology, biochemistry, enzymology, biomarker development, immunology and inflammation, in vivo efficacy models, bioanalytical, computational and medicinal chemistry.

On September 5, 2019 the company announced the completion of a strategic review of its business, as a result of which the Company will refocus its resources on its immuno-inflammatory development programs and actively seek commercialization partners for its commercial products business. To that end, Aclaris will continue the development of its drug candidate, ATI-450, an internally developed, investigational potent oral MK2 inhibitor, and other drug candidates addressing several unmet needs and having a combined addressable market of over $20B. The updated pipeline is shown of the following slide extracted from the company's most recent corporate presentation

Dr. Neal Walker, President and Chief Executive Officer commented:

“We believe this change in strategy will benefit Aclaris in the near term by lowering expenses and eliminating the inherent risks and investment related to maintaining a commercial infrastructure. By actively seeking a commercialization partner for our commercial products business and refocusing our resources with a view to optimizing our immuno-inflammatory development portfolio, we believe we can significantly reduce our costs, strengthen the organization, and extend our cash runway. Our resources can now be dedicated to prudently advancing our pipeline of novel drug candidates for immuno-inflammatory diseases.”

The company is actively seeking strategic partners (read an non-dilutive financing) for its following pre-commercial and commercial assets that are not part of the pipeline anymore: 1) Investigational A-101 45% Topical Solution for common warts; 2) Investigational ATI-501 oral and ATI-502 topical Janus Kinase (JAK) 1/3 for the potential treatment of alopecia; and 3) ESKATA® topical solution, the company's FDA-approved product for the treatment of seborrheic keratoses that are raised.

A January 2019 article by Seekingalpha contributor Bret Jensen discussed the rationale for the $50/share price target at the time when the potential revenues that could be generated by the above products were the main reason for the lofty valuation. As an example, the addressable market for alopecia alone is estimated to be $9B.

I have no idea how much they are asking for these assets but I am certain that they will not be cheap and in fact could exceed the current market cap. The company spent hundreds of millions developing them.

If you look at today's pipeline you will notice that the drug candidates are relatively new, yet pre-clinical and clinical candidates have thus far generated excellent pre-clinical and clinical results and all having excellent safety profiles.

The addressable markets for the indications shown on the pipeline approach almost $100B as shown on the following slide:

The company's scientists use the proprietary KINect^TM technology platform (see slide below) to efficiently and quickly design and development of kinase inhibitors that target key enzymes involved in chronic inflammation, autoimmune disease, or the regulation of cancer growth, survival and metastasis.

Aclaris Enters COVID-19 Therapy Race With a Bang

On June 17, 2020, the company released news about its entry into the COVID-19 therapy race: "Aclaris Therapeutics Supports Investigator-Initiated Clinical Trial of ATI-450 for Cytokine Release Syndrome in Hospitalized Patients with COVID-19."

The following are highlights of this press release:

• The FDA has accepted the company's IND to study ATI-450 in hospitalized patients with COVID-19
• Aclaris supports this important Investigator-Initiated Clinical Trial sponsored by the University of Kansas Medical Center
• The company's MK2 inhibitor ATI-450 was chosen for this trial because it inhibits multiple key inflammatory cytokines know to trigger the Cytokine storm which is known to ultimately kill COVID-19 patients by inducing multiple organ failure and ARDS

The trial will test ATI-450, its oral investigational MK2 inhibitor compound, in hospitalized patients with COVID-19. Aclaris is supporting an investigator-initiated trial of ATI-450 for cytokine release syndrome (CRS) in 36 hospitalized patients with COVID-19, and will provide funding and clinical drug supply to the University of Kansas Medical Center (KUMC), the sponsor of the trial.

The trial is a Phase 2a, randomized, double-blind, placebo-controlled trial to investigate the safety and efficacy of ATI-450, when used in addition to standard of care therapy. The primary endpoint is the proportion of subjects who are free from respiratory failure by day 14.

Co-investigators Gregory Gan, M.D., Ph.D. and Deepika Polineni, M.D., M.P.H. commented:

“CRS leads to the release of multiple inflammatory cytokines such as IL1β, IL6 and TNFα, which precedes acute respiratory distress syndrome, and is associated with significant morbidity and mortality in patients with COVID-19. ATI-450, a novel oral compound, has demonstrated that it targets the expression of inflammatory cytokines in a Phase 1 clinical trial in healthy volunteers. Therefore, we believe that ATI-450 may be an innovative approach to managing this disease,”

“By mitigating CRS, important clinical outcomes such as oxygenation in patients with COVID-19 would be improved which could result in the reduced need for ventilation in patients in the intensive care setting.”

The press release stated:

"ATI-450 has been observed to regulate pro-inflammatory cytokines associated with CRS. Pharmacodynamic analysis from the first-in-human study using an ex vivo lipopolysaccharide (LPS) stimulation model demonstrated dose-dependent reduction of TNFα, IL1β, IL6 and IL8. Further analysis using this LPS model showed marked inhibition of additional cytokines linked to CRS, including GM-CSF, IL2, IFNγ and MIP1α. Furthermore, anti-inflammatory activity for ATI-450 was observed in a rat model of airway neutrophilia induced by inhaled LPS. In addition, anti-viral and anti-fibrotic activity has been observed following blockade of the MK2 pathway in preclinical studies."

Dr. David Gordon, Chief Medical Officer of Aclaris commented:

“Many of the investigational drugs that are being evaluated to treat CRS target a single cytokine. We believe inhibiting multiple cytokines has the potential to achieve clinical benefits in patients with CRS, and this study will explore if ATI-450 is an effective approach in these patients. Thanks to KUMC, who are sponsoring this trial, we can evaluate ATI-450 as a potential treatment for COVID-19 at this critical time without impacting our ongoing clinical development programs. If successful, we hope to further explore the role that ATI-450 may have in helping patients with COVID-19 and addressing the healthcare challenges of the pandemic.”

The timing for these clinical trials could not be better because as we all know over many states (and many countries around the world) have recently reported near-record levels of COVID-19 contamination. In fact, several cities and counties have declared Level 1 (Severe) category such a Harris County in Texas because local hospitals are approaching capacity limits.

It is widely known that some critically ill COVID-19 victims experience Cytokine Release Syndrome or CRS as an adverse event that may result in multiple organ failure or acute respiratory distress syndrome (OTC:ARDS). CRS is defined as an inflammatory condition occurring when many lymphocytes and/or myeloid cells are being activated, releasing high levels of inflammatory cytokines. CRS can occur within minutes or hours, but it can also take place days or weeks later.

Several recent publications suggest that in the later stages of COVID-19 related complications overstimulation of the immune system is likely responsible for triggering CRS causing the body to become overwhelmed with pro-inflammatory molecules. CRS is initially manifested by high fever, nausea, headache, tachycardia, hypotension, cardiac dysfunction, rash, and shortness of breath. However, this immune response may become excessive thus inducing accelerated and hard to control pneumonia, multiple organ failure, ARDS, and ultimately death. Ironically, it appears that the body's uncontrolled overreaction to COVID-19 is what delivers the fatal blow rather than the virus itself.

The article "Targeting the A3 adenosine receptor to treat cytokine release syndrome in cancer immunotherapy." explains this process in a clear way:

"The main cytokines involved with CRS include tumor necrosis factor-α (TNF-α), interferon γ (IFN-γ), interleukin 1β (IL-1β), interleukin 2 (IL-2), interleukin 6 (IL-6), interleukin 8 (IL-8), and interleukin 10 (IL-10), all known to be involved in the regulation of the innate and cellular immunity. Following immunotherapy, the inflammatory cytokines are released, enhancing the immune response and activating the proliferation of immune cells to further secrete more inflammatory cytokines. This chain of events leads to a loop between the inflammatory cytokines and the immune cells, which may result in a cytokine storm."

"Overall, it looks like the current treatments for CRS are not satisfactory, and there is a need for a drug that will concomitantly act as a robust anti-inflammatory that will also prevent neurotoxic manifestations"

The following slide summarizes the potential benefits of ATI-450 as a therapy for the selected COVID-19 candidates. The slide that follows depicts the Phase 2 clinical protocol:

I recommend to those interested in investing in ACRS because of the COVID-19 potential to listen to the company's conference call following the June 17, announcement to learn more about the particulars of these clinical trials and the potential it brings to the company.

New Studies Report Rapid Loss of COVID-19 Antibodies

Coming up with effective, practical, and globally deployable therapies (like ATI-450 because it is oral compared to competitors’ that are IV applied, is more important than ever. Besides the new waves of COVID-19 coming back sooner than expected, those that have already survived the disease might be re-infected.

This article mentions the scary fact that a rapid loss of COVID-19 antibodies might be occurring making those who survived the virus prone to reinfection. This makes new COVID-19 therapies, autoimmune testing, and vaccines ever more important to manage and to ultimately control this dreaded virus.

The article explains that new studies suggest that antibodies developed by people who contracted coronavirus last significantly less than those for SARS and MERS.

The article explains this phenomenon as follows:

"A pair of studies published this week is shedding light on the duration of immunity following COVID-19, showing patients lose their IgG antibodies—the virus-specific, slower-forming antibodies associated with long-term immunity—within weeks or months after recovery. With COVID-19, most people who become infected do produce antibodies, and even small amounts can still neutralize the virus in vitro, according to earlier work. These latest studies could not determine if a lack of antibodies leaves people at risk of reinfection."

"One of the studies found that 10 percent of nearly 1,500 COVID-positive patients registered undetectable antibody levels within weeks of first showing symptoms, while the other of 74 patients found they typically lost their antibodies two to three months after recovering from the infection, especially among those who tested positive but were asymptomatic."

"In contrast, infections caused by coronavirus cousins such as SARS and MERS result in antibodies that remain in the body for nearly a year, according to The New York Times."

What Should Investors Expect If Aclaris Reports Successful Phase 2 COVID-19 Clinical Trials?

With the renewed fears about an earlier-than-expected second wave that's starting to cripple again parts of the US and many countries around the world, many COVID-19 plays will be on the radar of opportunistic investors in the next few weeks/months.

This week we saw Vaxart (NASDAQ:VXRT), Inovio (NASDAQ:INO), (Novavax:NVAX), and others reach new highs. Last week there was Edesa (NASDAQ:EDSA), and a few others; a few weeks ago we saw Capricor (NASDAQ:CAPR) and a dozen others. Invariably, each one of these companies have gained from several hundred to several thousand percent in 2020. For instance, NVAX started the year at $4/share and now it's hovering around $80/share. VXRT started the year at 35c and this week it spiked to $14/share (4000% gain!!) and finally settled around $9/share.

I believe ACRS will be another big winner going forward if the company reports successful Phase 2 COVID-19 clinical results. It might not gain 4000% like VXRT but I believe 500% is reasonable and sustainable.

Let's look at CAPR. On April 29, 2020 the company reported:

"five male patients and one female patient (between ages 19 and 75) suffering from COVID-19 received IV infusions of 150 million allogeneic cardio sphere-derived cells (CAP-1002). Of the five patients on ventilator support, four patients no longer required ventilator support within just one to four days following the infusion. The fifth patient remains on mechanical ventilation and the sixth patient is receiving supplemental oxygen and is currently clinically stable."

The news sent CAPR flying from $2 to $11/share. However, upon closer examination, there was no mention about the patient’s risk factors (race, diabetes, cancer, etc.,) other than age and sex. Also, there was no mention about the standard of care being applied to those patients at the time, or any other synergistic therapies that might have skewed the results. Success with six patients is hardly statistically significant. 

So, what are the similarity between ACRS and CAPR? It's essentially the mode of action of Capricor's CAP-1002 and ATI-450. They both use the drug's immunomodulatory properties use to modulate inflammatory cytokines and to regulation of the immune response to prevent cytokine storm and sepsis.

The significant difference is the availability of the drug for massive global consumption.

• Capricor's CAP-1002 is an IV-infused allogeneic cardiac cell-based therapy, and by its own nature its availability for large-scale application might be limited. The availability of allogenic cardiac cells for large-scale use is also questionable.
• ATI-140, on the other hand is an orally bioavailable drug that can be produced/manufactured by the millions and easier transportable globally where needed

Another advantage for ACRS is its much stronger financial position that CAPR's despite having almost the same market cap. Aclaris reported $79M cash as of March 31, 2020 (page 39) compared to Capricor's $13.2M during the same time frame. ACRS is funded to 1Q 2022.Furthermore, ACRS is actively working to divest several legacy assets including an FDA-approved drug and that should bring welcome non-dilutive funding.

One more advantage that I see for ACRS is that it has 82% institutional ownership CAPR on the other hand only has 8% ownership.

One advantage that CAPR holders might claim is that the company says it is developing a COVID-19 vaccine using exosomes but it has not reported progress since March. Investors did not seem to be impressed with what Dr. Gould had to say during a KOL conference (program leader) introducing the program as the stock sold off during and after the March 26, 2020 KOL call. 

My last comparison is between the value proposition of EDSA's and ACRS's COVID-19 therapy programs.

On June 15, 2020 Edesa announced that it has received expedited approval from Health Canada to begin a Phase 2/3 clinical study of its investigational drug, EB05, which the company is developing as a potential treatment for moderate to severe COVID-19 patients. The stock price jumped from $2.8 the day before to $10/share on 55M shares traded the day of the announcement.

Edesa's press release states:

"EB05 is a monoclonal antibody that has demonstrated the ability to suppress the release of proinflammatory cytokines that are often observed in severe COVID-19 patients. Specifically, the drug inhibits toll-like receptor 4 (TLR4) signaling - a key component of the innate immune system and an important mediator of inflammation responsible for acute lung injury that has been shown to be activated during SARS and Influenza infection. Based on previous clinical data and the mechanism of action, the company believes that modulating this well understood signaling pathway could reduce the number of ICU patients and intubation/ventilation procedures, ultimately saving lives."

Sounds familiar? this is virtually the same mode of action being claimed by Capricor's CAP-1002 and ACRS ATI-450...to modulate the immune system to prevent cytokine storm and its associated problems as discussed, several before in this article.

Just as in the case of Capricor's CAP-1002, ACRS's ATI-450 has a significant advantage over Edesa's IV-infused EB05 because it is orally available. Other advantages are significantly higher institutional ownership, better funded, and a drug candidate that goes after more cytokine-storm causing agents and therefore potentially providing a more robust and effective COVID-19 therapy.

The bottom line is that if ACRS can show successful clinical results treating COVID-19 patients with ATI-450 it should also gain significantly and its gains will probably be more sustainable as the company might be able to get government funding to advance ATI-450 for this indication. The fact that institutional ownership is so high should provide share price stability.

Upcoming Milestones

The following are the milestones the company lists for the rest of 2020. The presentation precedes the COVID-19 announcement and therefore is not included in the slide.

Aclaris Value Proposition

The company has an excellent and well-respected leadership team and perhaps this is the main reason for the very high institutional ownership. Additionally, the company's unique drug discovery platform and the drugs already in the pipeline make ACRS a solid investment with significant upside potential.

Financials

The company reported $79M cash as of March 31, 2020 as shown on slide 39 of the latest Corporate Presentation (page 39). This amount of cash provides runway through 1Q 2022.

The company is actively seeking strategic partners (read an non-dilutive financing) for its following pre-commercial and commercial assets that are not part of the pipeline anymore: 1) Investigational A-101 45% Topical Solution for common warts; 2) Investigational ATI-501 oral and ATI-502 topical Janus Kinase (JAK) 1/3 for the potential treatment of alopecia; and 3) ESKATA® topical solution, the company's FDA-approved product for the treatment of seborrheic keratoses that are raised.

A January 2019 article by Seekingalpha contributor Bret Jensen discussed the rationale for the $50/share price target at the time when the potential revenues that could be generated by the above products were the main reason for the lofty valuation. As an example, the addressable market for alopecia alone is estimated to be $9B.

I have no idea how much they are asking for these assets but I am certain that they will not be cheap and in fact could exceed the current market cap. The company spent hundreds of millions developing them.

Institutional Ownership

ACRS institutional ownership is significant at 82% as reported by several financial publications. Several insiders own a combined 10% of the company. This makes ACRS a micro-float biotech with potential significant gains on high volume trading days

Analyst Opinion

Four analysts have a BUY consensus on the stock with an average $4.5/share price target suggesting an almost 300% potential upside with respect to today's $1.68/share closing price.

Conclusions

• On June 17, 2020 the company announced that the FDA has accepted the company's IND to study its oral investigational MK2 inhibitor compound ATI-450 in hospitalized patients with COVID-19.
• The trial is a Phase 2a, randomized, double-blind, placebo-controlled trial to investigate the safety and efficacy of ATI-450, when used in addition to standard of care therapy.
• ACRS's MK2 inhibitor ATI-450 will be used in these trials because it inhibits multiple key inflammatory cytokines known to trigger Cytokine storms which is believed to influence COVID-19 patient mortality.
• The company reported $79M cash as of March 31, 2020 as shown on slide 39 of the latest Corporate Presentation (page 39). This amount of cash provides runway through 1Q 2022.
• The company is actively seeking strategic partners (read an non-dilutive financing) for its following pre-commercial and commercial assets that are not part of the pipeline anymore: 1) Investigational A-101 45% Topical Solution for common warts; 2) Investigational ATI-501 oral and ATI-502 topical Janus Kinase (JAK) 1/3 for the potential treatment of alopecia; and 3) ESKATA® topical solution, the company's FDA-approved product for the treatment of seborrheic keratoses that are raised.
• A January 2019 article by Seekingalpha contributor Bret Jensen discussed the rationale for the $50/share price target at the time when the potential revenues that could be generated by the above products were the main reason for the lofty valuation. As an example, the addressable market for alopecia alone is estimated to be $9B.
• I have no idea how much they are asking for these assets but I am certain that they will not be cheap and in fact could exceed the current market cap. The company spent hundreds of millions developing them.
• If ACRS can show successful clinical results treating COVID-19 patients with ATI-450 its share price should gain significantly and its gains will probably be more sustainable than others as the company might be able to get government funding to advance ATI-450 for this indication. The fact that institutional ownership is so high should provide share price stability.
• Four analysts have a BUY consensus on the stock with an average $4.5/share price target suggesting an almost 300% potential upside. The company enjoys an 82% institutional ownership.
• I recommend that investors interested in purchasing ACRS shares to carefully read all the risks and uncertainties as detailed in the company's filings with the SEC.