ETNB - Akero Therapeutics: Excellent Data Solid Clinical Potential No Major Near Term Catalysts

2023-05-07 10:05:43 ET

Summary

• AKRO will produce phase 2b SYMMETRY data in 4Q, but phase 3 will be a few years away.
• I believe Madrigal's success and the far off phase 3 may dampen exuberance around SYMMETRY.
• However, SYMMETRY will prove its cirrhosis activity, so there may well be some movement.

I covered Akero ( AKRO ) many times before and bought some shares two years ago which has done very well for me. I took profits twice, and am holding onto a bunch of shares for the long run, expecting more from the company and its lead NASH molecule, Efruxifermin. Efruxifermin is an FGF21 analog Akero licensed from Amgen for $5mn, and in 2021, it produced solid phase 2a data. Data showed that the molecule was able to achieve at least a one-stage improvement in fibrosis without worsening of NAFLD activity score (NAS) for nearly half the treatment responders, and a two-stage improvement in nearly a third of them.

In both pre-cirrhotic and cirrhotic NASH patients, the phase 2a BALANCED study showed some of the strongest NASH results. The company started phase 2b studies in both these patient populations, HARMONY and SYMMETRY respectively. In September last year, the company published data from HARMONY; SYMMETRY data is planned in 4Q. Data showed that nearly 40% of patients in both the 50mg and the 28mg doses showed a 1-stage improvement, consistent with phase 2a results. Although in this measure, the two dose cohorts did similarly, in NASH resolution, the 50mg cohort did singularly better.

So far, Akero has produced data from NASH stages F1-F3, but it is an SC injection, whereas Madrigal ( MDGL ), a much advanced competitor with an oral drug, has done superbly well in F1-F3. Thus, these earlier stage markets will be owned by Madrigal, other things being equal; and Akero has to do well in the cirrhosis stage NASH, i.e. F4, to differentiate itself well. After completing a successful end-of-phase-2 meeting with the FDA, the company plans to begin a phase 3 study in H2 2023, however, don't expect topline data before 2026, because the trial is complicated. That's a long way away from Madrigal, which may get approval as early as early next year.

NASH is now a highly differentiated market despite early pipeline failures, so any study of individual contenders needs to take into account who else is in line. For Akero, for example, Madrigal is not exactly a proper comparison because Madrigal is at least 3 years ahead. A better comparison is 89Bio ( ETNB ), whose FGF21 analog has a similar mechanism to Efruxifermin, and just recently produced positive phase 2b data.

Data from the ENLIVEN study was as follows:

• 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).

• 44mg Q2W and 30mg QW doses had at least one-stage fibrosis improvement without worsening of NASH at 3.5 times placebo rate and NASH resolution without worsening of fibrosis at 12 to 14 times placebo rate.

If you compare these data side by side, then, with the usual caveats, the placebo arm did better than the drug arm in the Akero trial, but the simple ratio between the two arms favors 89Bio. I will be the first to admit that this sort of "analysis" has no real meaning in establishing any kind of superiority without considering a dozen different metrics. All that can be said is that 89Bio has competitive data.

Financials

AKRO has a market cap of $2.19bn and a cash balance of $351mn. Research and development expenses for the three-month ended December 31, 2022, were $18.3 million, while general and administrative expenses were $7.1 million. At that rate, the company is settled for cash for 10-12 quarters, however, the phase 3 trial will increase expenses so we should look at that cash runway conservatively. All told, though, they have a lot of cash.

AKRO has very high levels of institutional ownership, with nearly 65% held by institutions and 22% by hedge funds. Key holders are Avidity Partners, Janus Henderson, and Skorpios Trust. I have often noted that AKRO insiders almost never buy stocks, and often sell, sometimes as option exercises, but sometimes as outright open market sells as well. Their lack of skin in the game is galling, to say the least.

Akero's other problem is that the EFX patents it holds from Amgen expire by 2029, so they hardly get two full years of patent protection if they are approved in 2027. They do expect a composition of matter patent extension to 2034:

As of March 6, 2023, our patent portfolio relating to EFX includes twelve issued U.S. patents, one pending U.S. patent application, and issued and pending foreign counterpart patents in Europe, Asia, Canada, Australia, and Mexico. Seven issued U.S. patents include claims directed to the EFX product, the FGF21 polypeptide component of the EFX product, nucleic acids encoding the product and related polypeptides, polypeptide multimers, related compositions, and methods of using EFX to, e.g., treat diabetes, lower blood glucose in patients suffering from a metabolic disorder, improve glucose tolerance, lower body weight, or reduce triglyceride levels in patients. These issued U.S. patents are expected to expire in 2029. The pending U.S. patent application and related foreign counterparts are directed to a method of treating a patient with non-alcoholic steatohepatitis ((NASH)); if issued, the resulting U.S. patent is expected to expire in 2029. We currently anticipate that a composition of matter patent will be eligible for patent term extension to 2034 in the U.S. The portfolio further includes five issued U.S. patents that are directed to related polypeptides and methods of use. An international patent application is pending relating to EFX formulations.

Bottom Line

AKRO is a high-potential stock with strong data, and I am sure their drug will eventually be approved and benefit NASH cirrhosis patients. However, they have no major near-term catalyst this year except SYMMETRY data at the end of the year, and they are lagging a few years behind Madrigal. I will keep holding my shares, but I think I have made enough profits from AKRO, and I don't plan to buy any more AKRO shares at these prices.

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