ETNB - 89bio's Low Price Presents An Opportunity

2023-10-26 14:15:56 ET

Summary

• 89bio, Inc. stock dropped along with other NASH players after Akero's efruxifermin failed a phase 2 trial.
• Despite the drop, 89bio remains attractive with excellent phase 2 data and strong financials.
• 89bio's pegozafermin has shown positive results in reducing fibrosis and liver fat, and there is still potential for FGF21 molecules in the NASH field.

At least one of these emerging NASH players will make it good in the stock market, and if it isn’t 89bio, Inc. ( ETNB ), you cannot blame that on the 60% drop it has had since I last covered it in May. And why is that? Because late in the afternoon of October 10, much of the NASH space collapsed after Akero’s efruxifermin failed a phase 2 trial. ETNB was just one of those stocks which saw that sympathetic detonation. It was tagging along nicely, hovering at the $15-16 mark, and then overnight it went down to $7 - just like so many of the NASH players.

Does that present an opportunity?

It could. Let's not forget that ETNB posted excellent phase 2 data in March. The company is very well financed. A couple of insiders have significantly increased their positions. Of course, the last buys were from back in March, when the stock was trading at double today’s prices. I would love to see a few more such large buys now that the price is down through no fault of theirs. I guess we will soon see, once we get data for the buys in the next quarter. Bottom line, though, ETNB looks deliciously attractive right now.

ETNB’s NASH molecule pegozafermin is a glycoPEGylated analog of fibroblast growth factor 21, or FGF21, just like Akero’s efruxifermin is. Efruxifermin did produce strong data in September last year, demonstrating reduction in fibrosis. This trial was in earlier stage patients with significant fibrosis but no cirrhosis. However, in the SYMMETRY phase 2b trial in later stage NASH patients with compensated cirrhosis, it failed to meet its primary endpoint with statistical significance. A number of analysts still think efruxifermin has strong chances in pre-cirrhotic (F2-3) NASH, where they “ continue to see differentiated positioning.” Be that as it may, efruxifermin’s options in biopsy-confirmed F4-F5 NASH is difficult now, and what ETNB investors really want to understand is: how does that impact FGF21 molecules in general?

Here’s a quick look at ETNB’s data. This is from the Phase 2b ENLIVEN study, which had 219 patients, with four arms, pegozafermin 44 mg every two weeks, 30mg weekly, 15mg weekly, and placebo. Both the 44mg and 30mg arms reached both their primary histology endpoints :

- 44mg Q2W dose had a placebo-adjusted effect size of 20% on at least one-stage fibrosis improvement without worsening of NASH (p=0.008) and 24% on NASH resolution without worsening of fibrosis (p=0.0005) -

- 30mg QW dose had a placebo-adjusted effect size of 19% on at least one-stage fibrosis improvement without worsening of NASH (p=0.008) and 21% on NASH resolution without worsening of fibrosis (p=0.0009) -

Now, Akero’s Harmony trial also produced good data if you consider the completer population. But if you consider the more widely used ITT population, that data is not as good.

Each FGF21 is different, and it is tough to make predictions about one based on the performance of another. However, given the data ETNB has produced so far, I feel that the market reaction is overblown. I also think Akero’s trial design was too stringent, taking in patients with advanced disease, and also that 96 week data may be more competitive than the 36 week data that was provided. So the FGF21 angle is not a dead end yet.

Financials

89bio, Inc. has a market cap of $502mn and a cash balance of $478mn. Research and Development (R&D) Expenses were $34.9 million for the three months ended June 30, 2023, while general and Administrative (G&A) Expenses were $7.2 million. At that rate, the company has a cash runway of 10-12 quarters.

Bottomline

The NASH field is being taken as a zero sum game, and if a molecule fails to reduce cirrhosis, that company is considered gone. However, this does not give a true picture of these molecules. Many of these molecules do something positive - they either reduce liver fat, or reduce fibrosis, and some, like the GLP-1 inhibitors currently being tried in NASH, are active anti-diabetic drugs.

89bio, Inc.’s pegozafermin has proven its fibrosis and liver fat reduction capabilities in multiple trials, as has Akero’s EFX. It is also running a phase 3 trial in severe hypertriglyceridemia ((SHTG)), after publishing solid results in this indication. I think there’s a space for many of these drugs, even if they are not always able to handle advanced cirrhosis NASH patients. The best way to play the NASH field is to take a basket approach, buy shares of 5-8 of these companies, and adjust as they move along.

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