AKRO - Akero Therapeutics: NASH Differentiator Attractive Awaiting Additional Price Catalysts

Summary

• Akero caught a strong bid last year following positive top-line data from its HARMONY study.
• The company is aiming to provide a potential medical breakthrough in the treatment of nonalcoholic steatohepatitis.
• Investors have paused the rally for now, and additional catalysts are a while away on the horizon.
• Net-net, we rate AKRO a hold for now.

Investment Summary

We continue our research and trade positioning on under-exploited names within the broad healthcare spectrum that are seeking to provide medical breakthroughs in complex disease segments. Market data has turned us to Akero Therapeutics, Inc ( AKRO ) after the price response from its positive top-line data obtained from its phase 2 HARMONY study. Investors entered with strong demand, seeing the stock reprice back to a longer-term range. The rally looks to have lost steam in recent weeks, however, and this adds some uncertainty to price visibility looking ahead. The company's advancements in developing a potential treatment for complex liver disease is a compelling opportunity should it convert its nonalcoholic steatohepatitis pipeline. However, additional catalysts are some time away, and until these arrive, we rate AKRO a hold.

Exhibit 1. AKRO price response following HARMONY top-line data

AKRO – Niche exposure to complex liver disease pathways

The immediate price catalysts for AKRO to move the needle sit around advancements of its investigational efruxifermin ("EFX") label. Back in December, AKRO advised EFX received a breakthrough therapy designation ("BTD") from the FDA for potential treatment of nonalcoholic steatohepatitis ("NASH"). As a reminder, the BTD aims to expedite a drug that has shown robust safety and efficacy data in potentially serious or life-threatening disease segments. With that, it is therefore essential to have a base understanding of NASH to gauge the value proposition here.

NASH is a progressive form of nonalcoholic fatty liver disease ("NAFLD") that is classified by the accumulation of hepatic lipid droplets, resulting in hepatocyte [liver cells] injury, inflammation, and fibrosis. The condition is often accompanied by the presence of insulin resistance, hyperlipidemia, and obesity, linking it to a plethora of co-morbidities that require medical intervention.

The pathogenesis of NASH is complex and multifactorial, involving interactions between genetic, lifestyle, and metabolic factors. The hallmark of the condition is the presence of hepatocyte injury, which can manifest as ballooning degeneration, Mallory bodies, and fibrosis. Note, these were previously thought to be only associated with alcoholic hepatitis. Complicating matters, the extent and progression of fibrosis in NASH is highly variable, and can range from minimal or no fibrosis to cirrhosis. Therefore, a standardized treatment paradigm is highly needed in these substrata of the liver disease populous.

Exhibit 1. EFX treatment paradigm

Consequently, EFX is now a leading candidate for providing a medical breakthrough and potential treatment of NASH. It is currently undergoing evaluation in the HARMONY Phase 2b study . EFX's pharmacology aims to address the multi-systemic pathological phenotype of NASH, and, to mitigate the cardiovascular disease-related lipoprotein risk factors that commonly contribute to mortality in patients with the condition. It has been designed to emulate the biological activity of native fibroblast growth factor 21 ("FGF21"), and to offer the convenience of once-weekly administration.

Its efficacy and safety profile has been well-established in previous clinical trials. In particular, the evaluation in the HARMONY study of EFX in patients with biopsy-confirmed pre-cirrhotic NASH, with fibrosis stages 2 or 3 ("F2-F3"), delivered positive top line data released in September. It demonstrated efficacy in improving liver fibrosis, with 41% and 39% of patients receiving doses of 50mg and 28mg, respectively. In the follow-up phase, it demonstrated at least a one-stage improvement in fibrosis without exacerbation of NASH by week 24, compared to 20% in the placebo group. Additionally, 76% and 47% of patients receiving doses of 50mg and 28mg achieved resolution of NASH without worsening of fibrosis, compared to 15% in the placebo group.

The NASH treatment market is expected to exhibit a substantial growth trajectory in the coming years, driven by the rising incidence of global NASH cases and the growing unmet medical need for effective treatments. Research points to a geometric growth rate of 39% into FY30' and reach ~$16Bn by that time. This is underpinned by multiple drivers. For instance:

1. The increasing cost burden surrounding NASH and its extended health implications
2. Favourable reimbursement scenarios in developed markets
3. The significant influx of new entrants and investments, building out the number of candidates in the pipeline.

As a result of these market drivers, combined with AKRO's recent breakthroughs in its EFX pathway, we remain constructive on the company should it convert on its pipeline.

AKRO market generated data

The enormous rally following the HARMONY top-line data in September is seen in Exhibit 2. On the daily chart, we are still bullish above the cloud, with both the price line and lagging line in this territory. Back in September, investors immediately lifted demand, and the price response continued well into the new year. However, the rally has lost steam, and AKRO will need to catch another bid from here in order to remain bullish. The issue being, that additional price catalysts aren't expected until later in the year, with further data readouts from its pipeline studies. The good news from this, is that it tested the cloud top 2x throughout December and January, catching another bid each time.

Exhibit 2. Bullish above the cloud on the daily chart

Looking at the weekly market profile since December, we'd note the point of control ("POC") has drifted higher off the December low point until last week's trade [grey bar]. Buyers have been heavily active below each POC at depth, and the volume distribution has been fairly evenly distributed across each time frame. As a reminder, the POC represents the price at which the stock spent the most time each week, and, hence, the market's view of fair value. Therefore, the market's fair value has been tracking higher week-on-week to date. Given the depth of buyers below each POC we believe there's scope for the stock to continue rating higher, however, there's equal scope for it to pull back to previous POC's seen in early January. This balances the investment debate.

Exhibit 3. Weekly market profile with POC shifting higher, could re-rate higher, or pull back to January range

Consequently, we now have downside targets to $24.50, despite a previous upside target to $84.50. The breadth of these two targets places less confidence on the upper range, and we are inclined to believe the stock will continue in congestion sideways for the coming weeks.

Exhibit 4. Upside and downside targets both present

In short

The market's price response to ARKO's EFX updates was tremendously positive. The rally looks to have lost some steam, however. Moreover, additional catalysts aren't expected until Q2 this year at least. Nevertheless, should the company convert on its EFX pathway, this could represent a compelling investment opportunity. In that vein, we are opting to observe the stock from the sidelines until these catalysts arrive, and decide on positioning at those times. Net-net, rate hold.

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