MDGL - Akero Therapeutics: An Assessment

2023-08-24 07:41:04 ET

Summary

• Akero Therapeutics is a biopharmaceutical company focused on developing therapies for nonalcoholic steatohepatitis (NASH).
• NASH is a severe form of non-alcoholic fatty liver disease that can lead to liver failure and other serious health complications.
• Akero's lead candidate, EFX, has shown promising results in clinical trials for both compensated cirrhotic NASH and pre-cirrhotic NASH.
• What's ahead for Akero Therapeutics is discussed in the paragraphs below.

"It is better to remain silent at the risk of being thought a fool, than to talk and remove all doubt of it ."? Maurice Switzer

Today, we take a look at a developmental concern that is aiming at a very lucrative potential disease target. An analysis follows below.

Company Overview:

Akero Therapeutics, Inc. (AKRO) is a South San Francisco based biopharmaceutical concern focused on the development of therapies that restore metabolic balance and improve overall health. The company has one clinical asset, efruxifermin [EFX], which is undergoing evaluation for two nonalcoholic steatohepatitis [NASH] indications. Akero was founded in 2017 as Pippen Pharmaceuticals, changed to its current moniker in 2018, and went public in 2019, raising net proceeds of $99.5 million at $16 per share. Its stock currently trades near $48.00 a share, translating to an approximate market cap of $2.65 billion.

NASH

NASH is a severe form of non-alcoholic fatty liver disease ((NAFLD)), which is simply the excessive accumulation of fat in the liver due to patients' disproportionately high caloric intake versus their energy needs. NASH patients exhibit inflamed liver cells, which can lead to extensive scarring (fibrosis) of the liver. The affliction is associated with metabolic comorbidities, such as obesity, type II diabetes, and hypertension. Disease progression can lead to liver failure or hepatocellular carcinoma, which then frequently progresses into cardiovascular morbidity and mortality. Approximately half of patients with cirrhosis die within five years without a liver transplant.

NASH is measured two ways. One method is based on fibrosis severity with discrete fibrosis classified as F1 (no liver impairment) or F2 (impaired function). Bridging fibrosis, in which scarring has disrupted normal blood flow through the liver, and further impaired function is F3. F4 is permanent scarring and heretofore irreversible loss of liver function, more commonly known as cirrhosis. The other scoring system is known as NAFLD activity score ((NAS)), which is a 0-8 point scale comprised of severity of steatosis (fat accumulation) (0-3), lobular inflammation (0-3), and hepatocellular ballooning (0-2).

The prevalence of F2 to F4 NASH amongst Americans was estimated at 6.7 million in 2016 and is projected to rise with obesity rates to 14.1 million by 2030, according to a study published in Hepatology (2018). Additionally, the F2-F4 NASH population is expected to reach 12 million for citizens of the EU5 and Japan by 2030. There are currently no approved therapies for this indication, which has proven a graveyard for many pharma concerns due to both poor efficacy and toxicity issues. Most recently, Intercept Pharmaceuticals ( ICPT ) received a rejection from an FDA committee for its FXR agonist obeticholic acid.

EFX

Akero's answer to NASH (and only clinical candidate) is EFX, a subcutaneously injected analog of fibroblast growth factor 21 (FGF21), which is an endogenously expressed hormone that regulates metabolism of lipids, carbohydrates, and proteins throughout the body while protecting against cellular stress. It is an endocrine FGF, a subtype that initiates its biological activity by binding to a cell surface receptor known as Beta Klotho (Klotho). Once bound to Klotho, FGF21 binds to three specific FGF receptors (FGFR1c, FGFR2c, and FGFR3c), triggering a series of signaling cascades that permit it to perform its biological functions - namely, energy homeostasis, glucose-lipid-protein metabolism, and insulin sensitivity, as well as intracellular stress mitigation. For FGF21 to properly function, it requires an intact C-terminus and an intact N-terminus, which allow the binding to Klotho and the FGFRs.

EFX is engineered to be an improved version of native FGF21, featuring a much longer half life (approximately three days versus less than two hours), and an improved binding affinity for Klotho. To date, it has demonstrated significant promise in the clinic against two specific indications: compensated cirrhotic NASH (F4) and pre-cirrhotic NASH (F2/F3).

In a 128 (F2 or F3) patient Phase 2b trial (HARMONY), once-weekly EFX achieved its primary endpoint at two dosages with 39% of patients achieving at least a one-stage improvement in liver fibrosis with no worsening of NASH (based on NAS score) in the 28mg cohort (n=38) and 41% in the 50mg cohort (n=34) versus only 20% for placebo (n=41) at week 24 (both p<0.05). The study also met a key secondary endpoint with 47% and 76% of patients treated with 28mg and 50mg, respectively, achieving NASH resolution (NAS score of 0-1) without a worsening of fibrosis, versus 15% on placebo (p<0.01, p<0.001, respectively). Furthermore, a least squared mean liver fat reduction of 52% and 64% were achieved in the two dose cohorts (respectively) versus 6% on placebo. There were five discontinuations due to treatment related adverse events.

As for the cirrhotic (P4) NASH indication, Akero entered EFX into a Phase 2b study (SYMMETRY), with data expected to read out in 4Q23. This trial builds upon the company's Phase 2a trial (BALANCED) in which 30 cirrhotic patients were placed in an expansion cohort of P4 patients to evaluate EFX versus placebo. Of the 17 that volunteered for biopsies, 4 of 12 receiving EFX achieved fibrosis improvement without a worsening of NASH versus 0 of 5 on placebo. Seven of 12 achieved either fibrosis or NASH resolution. These data were especially encouraging considering the biopsies were gathered at week 16.

Also, as part of the ongoing SYMMETRY study, a 31-patient cohort was added (Cohort D), which evaluated EFX in combination with GLP-1 therapies in the treatment of patients with both type II diabetes with P1-P3 NASH. Solid results were read out on June 5, 2023, with patients treated with the combo (n=16) achieving a 65% relative reduction in liver fat versus 10% for GLP-1 alone (n=10) (p<0.001). Also, 88% of patients treated with the combination had at least a 50% reduction in liver fat as compared to 0% in the placebo group (p<0.001). It also demonstrated statistically significant reductions in key biomarkers for NASH. Shares of AKRO rallied 25% from $46.73 to $58.38 over the subsequent seven trading sessions but have since round-tripped back and headed lower.

Akero is huddling with the FDA to discuss a multi-trial Phase 3 program (SYNCHRONY) protocol, with the first two studies (SYNCHRONY Histology and Real-World) slated to initiate in 2H23. Histology will evaluate the efficacy of 28mg and 50mg EFX in a to-be-determined number of patients with pre-cirrhotic NASH (P2-P3). The primary endpoint will be > 1-stage fibrosis improvement and resolution of NASH. SYCHRONY Real-World will assess safety and tolerability of EFX in patients with non-invasively diagnosed NASH or NAFLD. The third trial (SYCHRONY Outcomes) will be a function of SYMMETRY data due in 4Q23.

EFX has received Fast Track and Breakthrough therapy designations for the treatment of NASH from the FDA, as well as a Priority Medicines designation from the EMA.

Competitive Landscape

With NASH setting up to be a multi-blockbuster indication for the first therapy to breakout of the clinic into commercialization, it is not surprising to see Akero's 10-K list no fewer than 41 other biotechs pursing the development of compounds that target NASH. The good news for Akero is that EFX has the most robust results of any clinical program to date. However, there are two competitors that are noteworthy.

89bio ( ETNB ) is also advancing a FGF21 analog (pegozafermin) through the clinic. In a Phase 2b study that was read out in March 2023, 27% of patients receiving once-every-two-week, subcutaneously injected 44mg pegozafermin achieved at least a one-stage improvement in fibrosis without a worsening of NASH, versus 7% on placebo at week 24. On a placebo-adjusted basis, this data point was somewhat in line with EFX. However, only 24% of patients on 89bio's candidate achieved NASH resolution with no worsening of fibrosis versus 61% for EFX 50mg - again, placebo adjusted. It should be noted that placebo response in HARMONY was significantly higher than in 89bio's trial (15% versus 2%).

That said, Madrigal Pharmaceuticals ( MDGL ) began a rolling BLA submission for its beta-thyroid hormone receptor agonist resmetirom in June 2023 that should complete in July 2023. Although an argument can be made as to EFX's superior efficacy, it would appear that Madrigal has a strong chance to attain first approval, as its daily oral therapy achieved NASH resolution (ballooning of 0, inflammation of 0-1) and > 2-point NAS reduction with no worsening of fibrosis versus placebo at 52 weeks (p<0.0001 at both doses). It also demonstrated statistically significant fibrosis improvement by at least one stage with no worsening of NAS.

Amgen In-License

Akero in-licensed EFX from Amgen (AMGN) in 2018 for $5 million upfront and convertible preferred stock that would become 1.9 million shares of common on its IPO. It is on the hook for $115 million of development, regulatory, and commercial milestones, of which it has paid out $2.5 million to date with another $7.5 million due when EFX enters Phase 3 study. Akero is also obligated to pay royalties of low to high single-digits on worldwide sales.

Balance Sheet & Analyst Commentary:

Pursuant to its 1Q23 update in May 2023 - but prior to its readout of Cohort D - Akero executed a secondary offering in which it raised net proceeds of $210.9 million at $42 per share, leaving the company with cash in excess of $500 million at June 30, 2023 and an operating runway into FY26. It also has debt of $25 million with untethered access to an additional $10 million.

Despite the possible early-2024 approval of Madrigal's resmetirom, Analyst firms like JP Morgan and Morgan Stanley are unanimously positive on Akero, featuring six buy or outperform ratings. Price targets proffered range from $49 to $70 a share.

Verdict:

The bet is that Madrigal will be first to market as it possesses approvable data and owns an oral delivery candidate that may be more appealing than a once-weekly subcutaneous injection like EFX. As for Akero, the more exciting data will come from SYMMETRY, as it is for cirrhotic NASH patients (P4) - an indication that Madrigal is not pursuing in its initial NDA submission for resmetirom, just P1-P3 NASH.

That said, even if the data from SYMMETRY is excellent, Akero still has to conduct three Phase 3 trials - of which length and size are still unknown - produce results, file applications, and wait. Approval and launch with unknown pricing for a potentially massive indication is still several years away - pricing for resmetirom, if approved, will inform pricing for EFX. At this point, with a ~$2 billion valuation net of net cash, Akero probably only merits a small covered call position for aggressive investors as it will likely trade sideways until the first Phase 3 data is read out, which is likely more than a year off. This gives the investor an opportunity to collect option premium on his or her position. Other than that, the stock seems a bit of a lottery ticket with only one shot on goal, albeit one targeting a massive potential indication.

"Whenever you find yourself on the side of the majority, it is time to reform (or pause and reflect) ."? Mark Twain

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