MDGL - 89bio Inc.: A Big Bet On NASH

2023-08-10 13:48:08 ET

Summary

• 89bio, Inc. is a clinical-stage biotech company focused on developing therapies for liver and cardio-metabolic diseases.
• The stock surged after top-line data from a Phase 2 study for its primary drug candidate targeting NASH came out in March.
• The company ended the second quarter with nearly $480 million in cash and marketable securities, but has seen insider selling and short interest in the stock.
• Where does the stock go from here?  An analysis follows below.

Rivers know this: there is no hurry. We shall get there some day. ”? A.A. Milne.

Today, we take a deeper look at 89bio, Inc. ( ETNB ), which is targeting the large and potentially very lucrative nonalcoholic steatohepatitis, or NASH, space. The stock has had a good run this year on the back of encouraging trial data. Lately, the shares have seen some profit-taking, however. In addition, 89bio just posted its second quarter results . Where does the equity go from here? An analysis follows below.

Company Overview:

89bio, Inc. is headquartered in San Francisco. This clinical stage biotech company is focused on the development of therapies for the treatment of liver and cardio-metabolic diseases. The stock currently trades just north of $15.00 a share and sports an approximate market capitalization of just over $1.1 billion.

The company main asset is its primary drug candidate, pegozafermin. This is a glycoPEGylated analog of fibroblast growth factor 21 of FGF21, an endogenous metabolic hormone that regulates energy expenditure and glucose and lipid metabolism. The compound is being evaluated as a treatment of NASH as well as a potential treatment of severe hypertriglyceridemia , or SHTG. This condition where there is high level of triglycerides in the blood. This raises the risk of heart and pancreas related diseases.

Pegozafermin was developed off of 89bio's proprietary glycoPEGylation technology platform, designed to prolong the biological activity of FGF21 while maintaining the efficacy of native FGF21.

This hormone has been shown to reduce liver fat by increasing fatty acid oxidation. This reduces the formation of new fat in the liver and also reduces systemic levels of triglycerides (a certain type of fat).

NASH affects a large and growing population, estimated to affect over 25 million Americans by 2030. NASH is a severe form of non-alcoholic fatty liver disease, commonly known by the acronym NAFLD. It is characterized by inflammation and fibrosis (scarring) in the liver that can progress to cirrhosis, liver failure, and liver cancer. NAFLD affects a quarter of the population and NASH a quarter to a fifth of NAFLD individual. This growing affliction is driven primarily by the large increases in global obesity.

Individuals with NASH frequently have other significant metabolic co-morbidities. These include high blood sugar, elevated cholesterol and triglycerides, and systemic hypertension.

Recent Developments:

On March 22nd, the company disclosed topline data from a Phase 2b study called ENLIVEN trial evaluating pegozafermin as a treatment for NASH. At 24 weeks, two of three dosages being evaluated reached their primary histology endpoints with high statistical significance. According to management :

Data showed significant benefit across several key sub populations of NASH patients, including type 2 diabetes status, fibrosis stage (F2 or F3), and ALT levels and adding pegozafermin to patients taking GLP-1 therapies improved key NASH measures, including liver markers of fibrosis, improvements in liver fat, ALT levels as well as metabolic (HbA1c) markers. "

This news ignited a huge rise in the stock. Management plans to meet with the FDA as well as European authorities before year-end to come up with an agreed upon design for a pivotal Phase 3 study.

In late May, the company kicked off a Phase 3 trial "ENTRUST" evaluating pegozafermin to treat SHTG. Data from a Phase 2 study called ENTRIGUE highlighted the therapeutic potential of pegozafermin to treat SHTG.

Analyst Commentary & Balance Sheet:

Since first quarter results posted early in May, six analyst firms have either reissued or assigned Buy/Outperform. These including Oppenheimer, BTIG and Cantor Fitzgerald. Price targets proffered range from $30 to $41 a share.

Approximately 15% of the outstanding float in the stock is currently held short. Several insiders have sold approximately $2.5 million worth of shares collectively so far in 2023. In addition, a beneficial owner disposed of just over $40 million worth of shares late in March. The company ended the second quarter with nearly $480 million of cash and marketable securities on its balance sheet after posting a net loss of $38.4 million for the quarter. The cash on hand includes proceeds of a $275 million secondary offering executed in late March.

Verdict:

Not surprisingly, given the size of the NASH market, there are a lot of competitors pursuing this space including Madrigal Pharmaceuticals, Inc. ( MDGL ) and Akero Therapeutics, Inc. ( AKRO ). However, top line mid-stage trial data released by 89bio in late March was encouraging vis-à-vis what has been seen in the space.

Given the huge NASH market and results to date, 89bio, Inc. stock probably merits a small " watch item" position. Potential eventual approval to treat SHTG is also a plus. However, even with the recent pullback, the stock is still up more than 50% from its trading levels prior to the topline ENLIVEN data drop. I would probably wait to take a small stake in ENTB until after a design is agreed upon with the FDA for 89bio's pivotal Phase 3 study for NASH. That should give an investor a better projected timeline to potential approval.

Trees that are slow to grow bear the best fruit .”? Moliere.

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