AGIO - Agios Pharmaceuticals: Strong Thalassemia Data Makes A Tempting Bull Case

2024-01-05 06:40:30 ET

Summary

• Agios Pharmaceuticals completed its IPO in 2013 and sold its oncology portfolio for $1.8bn in 2021. Its stock price is down 50% across a 5-year period.
• The company's focus is now on mitapivat, which has been approved for hemolytic anemia and is being studied for thalassemia and sickle cell disease.
• Positive results from the Phase 3 study of mitapivat in thalassemia suggest a potential approval in 2025 and a larger market opportunity.
• The SCD indication is even larger, and management believes it can secure approval in 2026.
• The recently approved gene therapies to treat SCD constitute a major threat - not least as Vertex's CASGEVY will likely soon be approved in thalassemia - but AGIO's oral pill has the edge on convenience. This could be a speculative buy opportunity.

Investment Overview

Cambridge, Massachusetts-based Agios Pharmaceuticals ( AGIO ) completed its Initial Public Offering over a decade ago in July 2013, raising ~$106m via the issuance of ~5.9m shares priced at $18 per share.

The company developed and successfully won approval for the isocitrate dehydrogenase-1 (IDH1) inhibitor Tibsovo, in 2017, for patients with relapsed or refractory ("r/r") acute myeloid lymphoma, and for newly diagnosed patients with IDH1 mutant AML in 2019, before opting to sell its entire oncology portfolio to Servier Pharmaceuticals, an independent global pharmaceutical company, for $1.8bn plus milestone payments and 5% royalties on US sales of Tibsovo, in a deal which completed in April 2021.

The company's focus switched to a new pipeline drug - mitapivat, which was undergoing two Phase 3 studies in transfusion-dependent and non-transfusion dependent thalassemia, and a Phase 2/3 study in Sickle Cell Disease ("SCD").

In February 2022, the Food and Drug Agency approved mitapivat - an activator of both wild-type and mutant pyruvate kinase ("PK") enzymes, according to Agios' latest (Q3) quarterly report , in the indication of hemolytic anemia in adults with PK deficiency, under the brand name Pyrukynd. The drug has subsequently been approved in the same indication in Europe and Great Britain.

Hemolytic anemia is a disorder in which the red blood cells are destroyed faster than they are made, whose symptoms include weakness, paleness, jaundice, dark-colored urine, fever, and inability to do physical activity (according to hopkinsmedicine.org ), which is usually treated with blood transfusions, or glucorticoids. Agios estimates that the "prevalence of PK deficiency is between approximately 3,000 and 8,000 individuals in the United States and EU", and although management believes the condition is under-diagnosed, Pyrukynd generated just $7.4m of revenues in Q3 2023, up only 10% year-on-year, suggesting this may not be a lucrative indication for the company.

Nevertheless, Agios has continued to develop mitapivat in the beta-thalassemia and SCD indications - both diseases with substantially larger patient populations of ~20k and ~130k respectively - and its stock price has been climbing this week on the back of promising new data from the Phase 3 "ENERGIZE" study of Pyrukynd.

ENERGIZE Study Results

In the 194-patient Phase 3 ENERGIZE study , non-transfusion-dependent thalassemia patients were randomised 2:1 to either 100mg mitapivat or placebo, and the study met its primary endpoint as treatment with mitapivat demonstrated a statistically significant increase in hemoglobin response rate compared to placebo. 55 patients in the mitapivat group were deemed "hemoglobin responders", versus just a single patient in the placebo arm.

The study also met its key secondary endpoints of change from baseline in both FACIT-Fatigue Score and hemoglobin concentration, and from a safety perspective, the mitapivat arm was reportedly similar to the placebo arm in terms of adverse events.

In summary, the results were arguably strong enough to support a successful FDA approval push for the orally available therapy and open up a much larger market opportunity, but management plans to wait until results from the second Phase 3 study, ENERGIZE-T, which includes transfusion-dependent patients, come available. Data from that ~240 patient study is expected mid-2024.

Agios hopes to be able to file its New Drug Application seeking a broad indication for all thalassemia patients, and all being well, expects to see Pyrukynd's label expanded in 2025. The company says it is looking for global commercial partners, with the Gulf region apparently home to ~70k thalassemia patients.

As such, it's no wonder Agios shares have been climbing since management presented the ENERGIZE data on 3rd January, from ~$22 per share, to ~$25 per share, although traded price at the time of writing is $24 per share. Not only does the data support a potential approval in beta-thalassemia in 2025, but it may also bode well for the Phase 2/3 RISE UP study Agios is conducting in SCD, a much larger market, which has already met its Phase 2 portion primary endpoint of hemoglobin response in patients in both 50 mg and 100 mg twice daily mitapivat arms.

Looking Ahead - Does Agios Merit A Higher Valuation Amid Competitive Threats?

News of the successful ENERGIZE study rocked shares in several gene therapy companies that have also developed beta-thalassemia and SCD therapies - most notably, CRISPR Therapeutics ( CRSP ), which secured approval for its ex vivo cell therapy CASGEVY to treat Sickle Cell Disease in early December, and bluebird bio ( BLUE ) whose Lyfgenia cell therapy was also approved in SCD on the same day.

Bluebird's Zyntelgo is already approved to treat beta thalassemia, while CRISPR Therapeutics' and partner Vertex' ( VRTX ) CASGEVY could be approved in transfusion-dependent beta thalassemia ("TDT") on March 24th, provided the FDA approves the drug, which seems likely given the approval in SCD.

Unlike orally available Pyrukynd, CASGEVY and Lyfgenia offer permanent, "one and done" cures for SCD and TDT - in CASGEVY's pivotal study in TDT, 24/27 TDT patients achieved the primary endpoint of transfusion-independence for at least 12 consecutive months, and 16/17 SCD patients 16/17 (94.1%) achieved the primary endpoint of freedom from vaso-occlusive crises ("VOCs") for at least 12 consecutive months. Bluebird's data is similarly compelling.

The major advantage that oral Pyrukynd may have is that both CASGEVY and Lyfgenia require patients to be hospitalised for a period of several weeks so that bone marrow cells can be harvested, engineered in a lab, and then reinfused back into the patient. The therapy has been shown to be both safe, effective, and long-lasting, but there are fears patients will object to the prolonged period in hospital and the somewhat radical nature of the treatment. Additionally, the companies are initially focusing on a patient pool of ~24k patients with the highest need and capability of undergoing therapy, leaving a large portion of the SCD market untouched.

Agios - which hopes to secure approval for Pyrukynd in SCD by 2026, is 2/3 years behind its rivals in this indication, and likely at least a year behind them in TDT too.

That gives Bluebird and CRISPR Therapeutics/Vertex plenty of time to persuade patients and physicians that its treatment is safe and effective, expand its addressable market, and potentially secure the reimbursement deals with insurers that will allow the high one-time cost of the gene therapies - $3.1m in the case of Lyfgenia, and $2.1m in the case of CASGEVY - to be met on behalf of patients.

The companies argue that the one-off costs of their therapies are far lower than the lifetime cost of treating a patient with TDT or SCD, not to mention the fact either therapy may potentially extend the lives of some patients and allow them to lead more productive and healthy lives.

Nevertheless, the market does not seem to be buying the gene therapy story yet, at least in these indications, and oral therapies are still highly prized - for example, in 2022, Pharma giant Pfizer ( PFE ) paid $5.4bn to acquire Global Blood Therapeutics ("GBT"), which markets and sells Oxbryta, a once-daily oral therapy indicated for SCD. Oxbryta earned revenues of ~$230m across the first nine months of 2023.

Agios' market cap is $1.3bn at the time of writing, and its share price $23.4, down 16% on a 12-month basis, and up 6% year-to-date. Speaking on the company's Q2 2023 earnings call , Agios CEO Brian Goff told analysts he believed Pyrukynd could achieve revenues of $200 - $225m in hemolytic anemia, before adding:

And of course, the bigger picture for us anyway, is that we are approaching the readout of the Thalassemia data. That is a meaningfully larger launch that has potential in 2025. And we may be in a scenario we start to look at the collective guidance of multiple launches.

With TDT being a market that is estimated to be ~5x larger than PK-deficient hemolytic anemia, we might speculate that Pyrukynd could achieve "blockbuster" revenues (>$1bn per annum) in these 2 indications alone if management expectations were met.

Arguably that is too high, given current Oxbryta sales in SCD, a market that is an order of magnitude larger than beta thalassemia, are apparently ~$300m per annum, although Pfizer has formerly suggested that it can tease >$3bn on peak annual sales from Oxbryta, and two pipeline drugs in Global Blood Therapeutics portfolio around the TDT and SCD indications.

Concluding Thoughts - Cash Rich, But Agios Has Ground To Make Up - Risk Reward Opportunity Is Finely Poised

As of Q3 2023, Agios reported a cash position of $872m, a net loss for the quarter of $91.3m, and $285m across the year-to-date. This suggests Agios, despite a heavy R&D spend, has a lengthy funding runway in place and investors need not fear dilutive fundraising activities in the short term.

Clearly, revenues from Pyrukynd in PK-deficient hemolytic anemia - $7.4m in Q3, and $19.7m year-to-date - are nowhere near as high as management has suggested they could grow - only time will tell if this a genuine triple-digit-million revenue opportunity or not, but in this indication alone, Pyrukynd and Agios probably do not deserve a market cap valuation >$1bn.

The opportunity in TDT, however, is now much clearer after the positive ENERGIZE data, and an approval in 2025 may be considered likely, although there is still another Phase 3 data set to review, in transfusion-dependent patients, which may represent the larger market opportunity.

Even if approved, Agios faces some commercial challenges, against existing therapeutic options, and likely against CASGEVY and Lyfgenia too - while Agios is a cash-rich company, Vertex, which boasts >$10bn of cash on its balance sheet, has the power to outspend its rival both in terms of marketing and R&D, working on making the cell therapy more palatable for patients, which, s mentioned, may increase its addressable market in time.

Otherwise, Agios lists competitors as follows in its 2022 annual report/ 10-K submission :

recently approved treatments for thalassemia, SCD, LR MDS and PKU include Reblozyl® from Merck ( MRK )/BMS ( BMY ) (formerly Acceleron/BMS); Revlimid® from BMS; Lentiglobin® from bluebird; Adakveo® from Novartis ( NVS ); Oxbryta® from Pfizer ( PFE ); Kuvan® and Palynziq® from BioMarin ( BMRN ) and Endari® from Emmaus

There is significant single-asset risk attached to an investment in Agios - although the company is developing a novel PK activator, AG-946, which has entered a Phase 2 study in myelodysplastic syndrome and a Phase 1 in SCD, and is also developing a PAH stabiliser indicated for Phenylketonuria, and has in agreement in place with the RNA-interference specialist Alnylam ( ALNY ) to investigate short-interfering RNA targets.

Nevertheless, most of the value implied by Agios' market cap valuation derives from its opportunity with mitapivat/Pyrukynd. My concern would be around whether thalassemia is a bona fide triple-digit million opportunity, with rival treatment options in place, and a potential reluctance for patients to seek treatment, and also whether Agios and mitapivat/Pyrukynd will simply arrive at the marketplace too late to challenge newly approved cell therapies, and also perhaps Pfizer's Inclacumab, acquired from GBT and already in Phase 3 studies to treat vaso-occlusive crises in SCD.

On the other hand, with data catalysts arriving every few months, strong data presented to date, a convenient oral dosing regimen for mitapivat, and an opportunity to gain approval in a >100k patient market in SCD, there are several reasons to believe Agios' valuation can grow, especially as the market takes a "wait and see" approach to gene therapies in this market. Would a Big Pharma make a bid for Agios ahead of an SCD data readout?

That would probably be too risky a move for a Big Pharma to make, but it would arguably be justified, given the strength of thalassemia data. A speculative investment in Agios at the current price may just prove to be a wise investment choice in 2024. The company has already shown it can develop a drug, secure commercial approval, and earn $2bn selling it to an interested party, after all. Perhaps lightning can strike twice, this time with Pyrukynd.

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