ABBV - 4D Molecular Therapeutics: A Complicated Story

2023-07-07 10:15:03 ET

Summary

• Shares of "directed evolution" genetic medicine concern 4D Molecular Therapeutics, Inc. have more or less hovered near $20 since positive 4D-150 data in November 2022.
• The company’s approach to AAV delivery could change the industry, but results have been spotty, featuring a Fabry disease program on clinical hold and two others abandoned by Roche.
• A full investment analysis follows in the paragraphs below.

Fighting is like champagne. It goes to the heads of cowards as quickly as of heroes. Any fool can be brave on a battlefield when it's be brave or else be killed .”? Margaret Mitchell, Gone with the Wind.

Today, we take an in depth look at a somewhat intriguing development concern that is in Busted IPO territory and has some trial readouts on the horizon. An analysis follows below.

Company Overview:

4D Molecular Therapeutics, Inc. ( FDMT ) is an Emeryville, California based clinical-stage biotherapeutics concern focused on the development of "directed evolution" adeno-associated virus ("AAV") genetic medicines targeting diseases in ophthalmology, cardiology, and pulmonology. The company has five clinical programs pursuing a total of seven indications; however, only two appear to have prospects of further advancement. 4D was formed in 2013 and went public in 2020, raising net proceeds of $204.7 million at $23 per share. The stock trades right around $18.00 a share, translating to an approximate market cap of $760 million.

Therapeutic Vector Evolution Platform

The company is attempting to improve on genetic therapies that have demonstrated significant promise but are hampered by side effects such as inflammation and toxicity, as well as neutralization by pre-existing antibodies that limits efficacy. Management believes these deficiencies are due to the fact that conventional AAV vectors – used for gene delivery – are naturally occurring and non-targeted. 4D’s answer is to leverage its knowledge of biological engineering techniques to develop a library of approximately one billion synthetic capsid sequences from its Therapeutic Vector Evolution Platform. Once sorted based on a match with a specific tissue type, these compounds are then introduced into non-human primates to undergo competitive selection with those exhibiting optimal transduction and biodistribution within a targeted organ or tissue advancing to the clinic.

Pipeline :

This " throw a billion target vector profiles at the wall …" approach has yielded five early-to-mid-stage clinical programs.

4D-150 . One such evolved vector is R100, which permits intravitreal injection of therapies across the entire surface area of the retina, as well as major cell layers of the retina. Current ophthalmological gene therapies (employing conventional AAV vectors) require more invasive subretinal surgical delivery or suprachoroidal injection. 4D’s most advanced candidate employing this vector is 4D-150, a single-dose, dual-transgene genetic treatment designed to inhibit four distinct angiogenic (blood vessel forming) factors (vascular endothelial growth factors ((VEGF))-A, B, C, and placental growth factor ((PIGF)) that are causative in diseases of the retina, including wet age-related macular degeneration {AMD} and diabetic macular edema ((DME)). It is undergoing evaluation in a Phase 1/2 study ((PRISM)) for wet AMD.

The current standard of care for wet AMD patients is Regeneron’s ( REGN ) blockbuster VEGF inhibitor Eylea (aflibercept). The treatment, which generated FY22 U.S. sales of $6.26 billion, requires patients to receive intravitreal injections every four to eight weeks. Single-dose 4D-150 is designed to encode transgenes for aflibercept, as well as mRNA to thwart VEGF-C.

Early returns from the dose-finding Phase 1 stage have been encouraging. In 15 advanced, high-need patients covering three cohorts, no dose-limiting toxicities or significant inflammation was produced. In the highest dose cohort, four of the five patients remained anti-VEGF injection free at 36 weeks with mean reduction in central subfield thickness – a measure highly correlated with vision improvement/decline – of 92 µm. Furthermore, the one high-dose patient requiring supplemental injection had very advanced disease and would not have qualified for Phase 2 best-corrected visual acuity evaluation. When this news was first released in November 2022, shares of FDMT more than doubled to over $20 in the subsequent week and have hovered around $20 ever since. The Phase 2 dose expansion stage, which will randomize 50 patients for one of two doses of 4D-150 or aflibercept, is more than half enrolled with interim data expected in 1H24.

A similar Phase 1/2 study for 4D-150 in DME patients is expected to commence in 3Q23 with initial data anticipated sometime in 2024.

If ultimately successful, 4D-150 would be entering a global market opportunity (covering wet AMD and DME) pegged at ~$12.3 billion. That said, there are several clinical competitors, including Kodiak Sciences’ ( KOD ) anti-VEGF biopolymer conjugate KSI-301, which is undergoing evaluation in several Phase 3 studies, with wet AMD and DME topline data expected in mid-2023. It is expected to double the treatment interval versus aflibercept. Also, AbbVie ( ABBV ) and REGENXBIO's ( RGNX ) gene therapy ABBV-RGX-314 is being assessed in two Phase 3 trials (subretinal administration) and one Phase 2 study (suprachoroidal) for wet AMD, although regulatory submissions (assuming supportive data) are not expected to commence until late-2025.

4D-125 and 4D-110 . 4D’s other ophthalmic therapies are pursuing smaller patient populations, including 4D-125 for the treatment of X-linked retinitis pigmentosa and 4D-110 for the treatment of choroideremia. The former finished enrolling patients (n=15) in 1Q23, with an update expected sometime in 2024. The latter has been somewhat derailed by iris transillumination adverse events seven to nine months following treatment, with a program update not due until sometime in 2024. There currently seems little momentum for these two programs after ex-partner Roche ( RHHBY ) walked away from both in late-2021.

4D-310 . Also bedeviled by a questionable adverse event profile is the company’s Fabry disease cardiomyopathy therapy 4D-310, which utilizes the company’s evolved AAV vector C102, created for low-dose intravenous administration and delivery to the heart. Designed to boost levels of the AGA enzyme, 4D-310 was administered to six patients in the Phase 1 portion of a Phase 1/2 trial; however, three cases of atypical hemolytic uremic syndrome -- characterized by clotting in the small blood vessels of the kidneys – were reported, with one requiring hemodialysis. 4D halted enrollment in January 2023 and the FDA put a clinical hold on the trial in February 2023. With a global opportunity of ‘only’ $1.8 billion and with Sangamo Therapeutics’ gene therapy ST-920 set to enter a Phase 3 trial before YE23, the market barely reacted to this news.

4D-710 . The company’s one pulmonary candidate (4D-710) harnesses evolved vector A101, which was invented for aerosol administration to all major regions of the lungs, enabling efficient airway and alveolar cell transduction and transgene expression. It is undergoing evaluation in a Phase 1/2 trial for the treatment of cystic fibrosis, the most common fatal inherited disease in the U.S. Currently afflicting 30,000 Americans and 70,000 globally, it results from mutations in the cystic fibrosis transmembrane conductance regulator (CFTR) gene that disrupt normal lung function. Median life expectancy is only 40 years for those afflicted. The treatment market is currently dominated by Vertex’s ( VRTX ) twice-daily triple therapy of CFTR modulators.

Obviously, a one-time spray, if ever adjudicated safe and effective, has the potential to change the treatment landscape. The company released interim data from this study one month ago. They were encouraging and sparked a rally in the shares, which the equity has given back fully since then. So far to date, no adverse events have been reported, and biomarker data indicate successful transgene DNA delivery.

AD-175 . Returning to ophthalmology, 4D expects to enter geographic atrophy candidate AD-175 into the clinic sometime in 2024.

Balance Sheet & Analyst Commentary:

After receiving poor reception – down 20% to $16.50 on April 27, 2023 – from a 4D-150 data update, the company executed a secondary offering in which it raised net proceeds of $129.1 million at $16 per share, providing it with ~$331 million and a cash runway into 1H26.

Chardan Capital initiated the shares as a new Buy with a $30 price target earlier this week. Four other analyst firms have reissued Buy/Outperform ratings on FDMT so far in 2023 including BMO Capital and Bank of America. Price target proffered range from $33 to $50 a share. SVB Securities maintained its Hold rating a month ago.

Beneficial owner Viking Global concurs with the Street analysts (save SVB), adding 850,000 shares to its position on the May secondary, putting its ownership interest at 12%.

Verdict:

Despite boasting five assets in the clinic, the only two that currently matter for 4D Molecular Therapeutics, Inc. are 4D-150 and 4D-710. 4D-310 is still in clinical hold limbo and ophthalmological candidates 4D-110 and 4D-125 have seemingly been deemphasized by the management, who has does not conduct quarterly conference calls. As for 4D-150, four high-dose patients isn’t much to hang one’s hat on, but the potential of a one-time intravitreal administered therapy for wet AMD is very compelling.

Short of a revelation coming from its 4D-710 update, the next pivotal event for the company will be the Phase 2 PRISM data in 1H24. As such, 4D Molecular Therapeutics, Inc. is a stock we will reevaluate closer to YE23.

Choose your war well, for maybe the biggest coward of all is not the one that flees from the battle, but the one who chooses to fight the wrong one .”? Craig D. Lounsbrough.

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