AMAM - Ambrx: A Torrid 2022 And Sensational Start To 2023 On Prostate/Breast Cancer Data

Summary

• Ambrx shares faced delisting from the Nasdaq after a difficult 2022 that saw shares trade >$0.5.
• The company IPOd in June 2021, issuing 7m ADR shares and raising $126m.
• Ambrx had high hopes that lead candidate ARX788 could secure accelerated approval in HER+ breast cancer, but the approval of AstraZeneca's Enhertu seemingly ruined that opportunity.
• Meanwhile, Ambrx shares have been soaring owing to positive early data from a Phase 1 study of its Prostate cancer drug ARX517.
• Ambrx needs to find a partner for ARX788 and back up the early data from ARX517 - if either of these things happens, the share price could realise substantially more upside - the risk these events don't come to pass is equally as high.

Investment Overview

Over the past three months the American Depositary Receipt ("ADR") shares of Ambrx Biopharma (AMAM) have risen in value by >950%, rising from a December 2022 low of $0.4, to a high of $6.8 at the time of writing, which gives the biotech a market cap valuation of >$260m at the time of writing.

Before trying to understand what has brought about this remarkable reversal in fortunes - as recently as December, Ambrx had received a non-compliance notice from the NYSE after its share traded <$1 for 30 consecutive days - it's important to briefly discuss the history of the company as a listed entity.

Ambrx Ownership Structure and Pipeline

Ambrx has a somewhat complex ownership structure, summarized as below in the company's IPO prospectus - Ambrx raised ~$126m in June 2021, issuing 7m ADRs, each worth seven ordinary shares, at a price of $18 per ADS.

We are an exempted company incorporated in the Cayman Islands with limited liability. We commenced our operations in the United States in January 2003 through Ambrx, Inc., a Delaware corporation (Ambrx US).

In May 2015, we incorporated under the laws of the Cayman Islands and have become the ultimate holding company through a series of transactions.

As of December 31, 2020, we owned approximately 89% of Shanghai Ambrx Biomedical Co., Ltd., a limited liability company organized and existing under the laws of the People's Republic of China (Ambrx Shanghai).

As of the same date, Ambrx Shanghai owned 100% of Biolaxy Pharmaceutical Hong Kong Limited, a company incorporated in Hong Kong (Ambrx HK); Ambrx HK owned 100% of Ambrx US, and Ambrx US owned 100% of Ambrx Australia Pty Limited, a company incorporated in Australia (Ambrx AU).

The company is headquartered in La Jolla, Calif., and has now acquired the remaining 11% of Ambrx Shanghai it did not already own, and:

Purchased all outstanding shares of Ambrx HK from Ambrx Shanghai for an aggregate purchase price of $190.0 million, through the issuance of a promissory note to Ambrx Shanghai by Ambrx Biopharma Inc. for the purchase price.

In its 2021 20F Submission (released in April last year) Ambrx describes its business as follows:

We are a clinical-stage biologics company focused on discovering and developing a novel class of engineered precision biologics (EPBs), using our proprietary expanded genetic code technology platform that allows us to incorporate, in a site-specific manner, synthetic amino acids ("SAA") into proteins within living cells.

Ambrx' most advanced clinical stage candidate is - or at least was - ARX788, an anti-HER2 Antibody Drug Conjugate ("ADC") being evaluated in breast, gastric and other solid tumor trials.

A tumultuous 2022 saw the company appoint a new Chief Medical Officer ("CMO"), Janice Lu, and appoint a new interim Chief Executive Officer ("CEO"), Kate Hermans, and a new Chair of the Board of Directors, apparently in response to the abrupt departure of former President, CEO and Chairman of the Board Feng Tian, Ph.D, who had been with the company since 2004.

After all of this upheaval, Ambrx announced a strategic reprioritisation in October that would extend its cash runway into 2025, which involved cutting its workforce by 15%, and pausing development of ARX788 until a suitable partner could be found to continue studies ex-China.

Why Ex-China? Because within China, Ambrx is collaborating with a Pharma company, NovoCodex, which has been conducting a Phase 3 study of ARX788 -ACE-Breast-02.

Breast Cancer Data Triggers Mini Share Price Spike - Now Ambrx Needs A Partner

Back In December last year, at the San Antonio Breast Cancer Symposium Ambrx presented preliminary Phase 2 data from its Phase 2 ACE-Breast-03 study, announcing data highlights as follows:

• ARX788 provided clinical benefit to patients previously treated with T-DM1 who had disease progression
• Patients treated with ARX788 had a confirmed ORR of 57.1% (4/7 patients) and unconfirmed ORR of 71.4% (5/7 patients)
• The disease control rate was 100% (7/7 patients) for patients treated with ARX788
• All adverse events were well tolerated with 85.7% of patients experiencing drug-related AEs (any grade) with 0% of AEs leading to discontinuation and 0% of patients experiencing drug-related SAEs
• Treatment with ARX788 remains ongoing in this patient population with the median time of ARX788 therapy of 7.2 months

These data seem to be quite impressive and briefly sent Ambrx' stock soaring, from ~$0.4, to ~$4.5 overnight - clearly, some investors were desperate to acquire stock. It's important to note that in its strategic update in October, however, Ambrx had stated that it had opted to pause development of the drug owing to "a significant shift this past year in the HER2 metastatic breast cancer competitive landscape."

After some research, my conclusion is that this "shift" refers to the approval of pharma giant AstraZeneca ( AZN ) and Partner Daiichi Sankyo's Enhertu, a breast cancer drug that was approved for various types of HER-2 positive breast cancer in May last year, based on study results that showed the drug reduced the risk of disease by as much as 72% versus trastuzumab.

A statement in the risks section of Ambrx' 2021 10K submission runs as follows:

We plan to seek accelerated approval of ARX788 following the completion of the initial Phase 2 clinical trials, with subsequent trials providing the basis for full approval. However, it's possible that at the time of a BLA submission, ARX788 would not be eligible for accelerated approval or the FDA could determine that accelerated approval is not warranted.

In particular, because the FDA has already approved therapies for breast cancer, including those targeting HER2, and because additional products may be approved while we are developing ARX788, it's difficult to predict whether accelerated approval will be possible for ARX788 at the time we expect to submit a BLA.

Since the FDA did indeed grant approval to Enhertu in May last year - and the drug has been forecast by analysts to make peak sales of ~$5.8bn per annum - it therefore seems logical that an accelerated approval of ARX788 would no longer be possible.

The emergence of Enhertu as the new leading drug in breast cancer therapy may also explain why Ambrx' valuation suffered so badly in 2022, with investors realizing the accelerated approval opportunity would not materialize - although it does not quite explain the share price spike in December when the Phase 2 data was announced.

I would put this down to the fact that the data was promising enough to attract some speculative interest. The confirmed Overall Response Rate ("ORR") of 57% does not match the confirmed ORR from Enhertu's pivotal study of 78.5%, according to data released in December last year, which interestingly came out two days before Ambrx' ACE-Breast-03 data - but potentially marks the drug out as worthy of further study in some settings.

Ambrx appears to agree with that sentiment if its Investor Day presentation is anything to go by.

The presentation begins by stating that the ACE-Breast-03 study of ARX788 has been paused "while seeking partnership," as has a study of ARX788 in "multiple tumor types", the ACE-Pan-Tumor-01 study.

The presentation goes on to make a case for use of ARX788 in patients whose breast cancer has not improved after using Enhertu, or Roche's anti-HER2 therapy Kadycla - the first ADC to achieve $1bn in annual sales, back in 2020.

As we can see above, Ambrx points out that >24% of Enhertu patients see their camcers progress within 12 months, and that the approved drugs Kadycla, and Seagen's ( SGEN ) Tukysa are yet to prove that they could successfully treat these patients.

Ambrx goes on to suggest that the post-Enhertu market "could be a billion dollar opportunity," with as many as >14k patients potentially turning to ARX788 as a third line therapy if Enhertu, a second line therapy, were to fail them.

To summarize, the above post-Enhertu study pitch is probably not the pitch management hoped to be making - since until the approval of Enhertu they apparently stood a chance of making it to market first by winning an accelerated approval.

Back in August, Ambrx reported a cash position of $129.7m, and a net loss for the first six months of 2022 of $48.9m. Assuming Ambrx lost a similar sum in the second half of 2022, and bearing in mind that, in its investor day presentation, the company states the cost of running its planned Phase 2 study of ARX788 in 30 patients who have failed to respond to Enhertu, with a view to achieving an ORR of 20-30% and moving into a registrational trial, would be $20-$30m, it's understandable why management is searching for a partner.

Before discussing whether such a partner would be making a smart move or a foolish mistake by lending Ambrx the money to complete this study, let's consider the seeminlgy excellent data recently delivered by its new lead candidate, ARX517, in Prostate cancer.

ARX517's Prostate Cancer Data Sends Ambrx Share Price Soaring

In mid-February, Ambrx stock was trading ~$2.5 after the bump from its breast cancer data, but the company's stock price was then sent soaring by data from a Phase 1 study of ARX517 - an ADC "composed of a fully humanized anti-PSMA mAb linked to AS269, an Ambrx proprietary potent microtubule inhibitor" - in Prostate cancer, released on February 16th, as follows:

• First clinical data from ongoing Phase 1 dose escalation trial (APEX-01) shows a prostate-specific antigen ((PSA)) decrease of > 50% reduction in PSA levels from baseline in 3 of 3 patients with metastatic prostate cancer receiving ARX517 at 2.0 mg/kg (Cohort 6)
• Two of three patients in Cohort 6 experienced a greater than 90% reduction in PSA levels
• No drug-related severe adverse events (SAEs) or dose limiting toxicities (DLTs) have been observed
• These data provide early evidence of proof of concept for single-agent ARX517 as an ADC treatment for advanced prostate cancer

A 90% reduction in PSA in two out three patients and a 100% hit rate is an exciting dataset in a disease that is difficult to treat, and especially so given the study is enrolling patients who have failed two prior lines of therapy. The fact that no major adverse safety events were reported is an additional bonus. Trial investigator Dr. Michael Schweizer, an Associate Professor at the Fred Hutchinson Cancer Research Center commented:

Seeing a greater than 50% reduction in PSA levels in three of three patients at the 2.0 mg/kg dose level in this patient population is impressive, and ARX517 appears to be well tolerated so far. I am very optimistic for its future development. We look forward to more data from APEX-01, as the dose escalation continues in this difficult-to-treat patient population

It certainly seems as though investors share the investigator's optimism, as Ambrx stock has been climbing ever since, reaching highs of >$6.5, and valuing a company at >$250m, that faced delisting just six months earlier. It may be early days for the study, but it has now enrolled ~22 patients, so more encouraging data may be forthcoming.

On the negative side, similarly to the breast cancer opportunity, Novartis' ( NVS ) Pluvicto was approved in March last year to treat patients with metastatic castration-resistant prostate cancer (mCRPC) who test positive for the prostate-specific membrane antigen (PSMA), with a peak sales expectation, analysts believe , of ~$2bn per annum.

Ambrx argues that "widespread adoption and clinical application of Pluvicto may be challenging due to the limitations on utilization caused by the radioligand," but as with ARX788, it could be the case that ARX517 ends up playing second fiddle to Pluvicto, even if it is approved, which narrows the market opportunity.

The China Opportunity

Meanwhile, development of ARX788 remains ongoing - in China, at least, where Ambrx' partner NovoCodex Biopharmaceuticals is continuing with its Phase study ACE-Breast-02.

This week, Ambrx reported interim analysis from this study - which has enrolled 441 HER2 positive breast cancer patients who have been previously treated with taxane and trastuzumab - met its primary efficacy endpoint with statistical significance, "demonstrating a greater PFS benefit compared to the control."

NovoCodex says that it will submit a "communication application to seek marketing approval in China pending discussion with National Medical products Association ("NMPA"), and Ambrx will be entitled to earn low-teen percentage royalties on net sales of the drug in China.

Perhaps more importantly, the success of NovoCodex' trial in China may persuade a partner to back Ambrx' proposed study in the US, although there's a caveat in that the FDA has traditionally been skeptical of trial data coming from outside the US.

That means that Ambrx and any potential partner would likely not be able to use the ACE-Breast-02 data to convince the regulatory authorities to approve the drug in the US, and would have to finance further confirmatory studies of its own.

Conclusion - Ambrx' Encouraging Data Puts Company On Much More Sure Footing But Retail Investors Would Have To Brave To Invest Today

Summing up the investment case for Ambrx, the company is clearly in a much better place today than it was six months ago, and its share price reflects that. This could be an ideal time for the company to raise funds, which would dilute investors - a $150m raise for example may dilute the value of shares by as much as 50% - but could bring in the funds required to initiate the post-Enhertu study of ARX-778.

Although the approval of AstraZeneca's Enhertu has seemingly robbed Ambrx of the opportunity to fast track the approval of a promising breast cancer asset, the company has made a persuasive case that ARX788 may still have significant value as a post-Enhertu therapy, given that nearly one quarter of Enhertu patients may relapse within one year.

Meanwhile, the prostate cancer drug, provided data from the next 19 patients supports the data released in February, looks very promising, even if Pluvicto seems destined to become the dominant therapy in this space.

Ambrx' clearly needs additional funding to continue its work, and that funding likely needs to come from either a big Pharma partner, or a venture capital firm or hedge fund.

As a retail investor, the risks of losing the majority of any investment are self-evident, given that Ambrx' share price has previously dipped below $0.5 per share, let alone $1 per share.

On the other hand, it's also self-evident that Ambrx stock is volatile, and if we take management at their word that there is still a blockbuster (>$1bn sales per annum) in play in relation to ARX788, and a significant opportunity for ARX517 to gain approval in Prostate cancer based on the evidence to date, there's a strong argument that Ambrx's share price can keep growing and growing.

Drug development is a tough business when you're a small biotech struggling for funds, and a few hundred thousand's worth of investment from retail investors is not going to solve Ambrx' financial problems. Personally, I would advocate maintaining a watching brief on a company - and particularly on the progress of the Prostate study.

If the next set of data from that study are positive, it may well trigger another buying frenzy. And, if a partner is found to support further studies of ARX788, there's more upside on the cards. Alternatively, more positive prostate data could allow Ambrx to raise the funds it needs to initiate the post-Enhertu study.

Although I wouldn't be bold enough to advocate investing today - as I suspect some of the hype around, and buying of Ambrx stock will ease in the coming months and the company's stock decline in value, I would be cautiously optimistic that the best may be yet to come for Ambrx, and will continue to follow the company's progress.

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