GILD - Arcellx's CAR-T Hold: Turmoil Triumphs And Trading Tips

2023-06-21 07:00:30 ET

Summary

• Arcellx's CART-ddBCMA program faces a clinical hold due to a patient's death, but the company plans to work with the FDA to amend the protocol.
• The company has a strong financial standing, a robust partnership with Kite Pharma, and promising treatment candidates despite the temporary clinical hold.
• Investors are advised to hold on to shares and monitor developments relating to the hold and Arcellx's other pipeline projects.

Introduction

Arcellx ( ACLX ) is a clinical-stage biotech company pioneering innovative cell therapies to treat incurable diseases like cancer. Leveraging a unique synthetic binding scaffold, the D-Domain, they aim to surpass traditional CAR-T therapies' limitations. Their lead product, CART-ddBCMA, is under evaluation for treating relapsed or refractory multiple myeloma. Other noteworthy projects include ARC-SparX therapies targeting different conditions. Committed to advancing cell therapy, Arcellx continues to expand its clinical and preclinical pipeline.

Recent developments: On Monday, Arcellx announced a clinical hold on its CART-ddBCMA investigational new drug program after a recent patient death. Shares of Arcellx are off nearly 10% following the news.

Arcellx Q1 2023 Earnings

Before we take a closer look into the clinical hold, let's review the company's most recent financial report . As of March 31, 2023, Arcellx reported $533.6 million in cash, cash equivalents, and marketable securities, expected to fund operations till the first half of 2025. Collaboration revenue for Q1 2023 was $17.9 million, up from zero in Q1 2022, due to their contract with Kite Pharma. Research and development expenses rose to $32.9 million, an increase of $14.8 million from Q1 2022, primarily due to the advancement of the CART-ddBCMA clinical program and increased headcount. General and administrative expenses increased by $7.4 million to $15.4 million due to increased headcount and professional fees. Net loss was $27.3 million, up from $26.0 million in Q1 2022.

CART-ddBCMA: Phase 1 Data & Kite Collaboration

During the 2022 American Society of Hematology Annual Meeting, Arcellx unveiled encouraging Phase 1 trial results for their pioneering CART-ddBCMA treatment targeting relapsed or refractory multiple myeloma (rrMM). By October 2022, 38 patients had been examined, showing an impressive 100% overall response rate, with 71% reaching a full or stringent complete response. Among these patients, 81% presented high-risk prognostic features, with 80% attaining a complete or stringent complete response after 12 months. Progression-free survival rates at 6, 12, and 18 months were 92%, 73%, and 65% respectively, based on Kaplan-Meier analysis. Notably, adverse events were effectively managed, and the CART-ddBCMA treatment demonstrated an average viability of 98%.

Despite the poor prognostic factors in the enrolled patient population, with 68% being penta-refractory and all patients triple refractory, CART-ddBCMA showcased its potential as a leading treatment for rrMM, a condition Arcellx projects to be a $12 billion addressable CAR-T market. This promising outcome led Arcellx to kick-start the pivotal iMMagine-1 Phase 2 clinical trial, with the aim of garnering data robust enough to support a Biologics License Application to the U.S. Food and Drug Administration. Arcellx also plans to explore CART-ddBCMA's potential in earlier therapy lines through the iMMagine-2 Phase 3 clinical trial.

By December, Arcellx and Kite ( GILD ) announced a strategic global alliance to co-develop and co-commercialize the CART-ddBCMA therapy for rrMM. The partnership involved an upfront payment of $225M and a $100M equity investment from Kite to Arcellx. The two companies agreed to share costs related to development, clinical trials, and commercialization, with profits in the U.S. split evenly. Outside the U.S., Kite will take charge of commercializing the product, while Arcellx will receive royalties ranging from low to mid-teens on sales.

CART-ddBCMA: Clinical Hold

Arcellx announced a clinical hold by the FDA on its Phase 2 CART-ddBCMA program for rrMM due to a patient's death. The company believes limited bridging therapy options contributed to the situation and plans to work with the FDA to amend the protocol. Meanwhile, treatment for existing patients can continue. Arcellx remains confident in the therapy's potential and intends to resolve the issue promptly.

The clinical hold indicates the seriousness with which the FDA treats safety in clinical trials. While this pause could delay the progress of Arcellx's program, it is crucial for ensuring patient safety. Given the continued treatment allowance for current patients, the FDA seems to understand the potential benefits of the therapy. The hold might provide Arcellx an opportunity to refine its protocol and further prove the effectiveness and safety of their CART-ddBCMA treatment.

My Analysis & Recommendation

The recent clinical hold on Arcellx's promising CART-ddBCMA program is a significant setback, but not an insurmountable one. Biotech companies are no strangers to the hurdles of clinical trials, and this challenge offers an opportunity to revisit the protocol and refine the safety measures. With the high therapeutic potential of CART-ddBCMA previously demonstrated in Phase 1 trials, and considering the FDA's allowance for current patients to continue treatment, it suggests a willingness to work collaboratively with Arcellx in the interest of patient safety. Investors should watch for how Arcellx navigates this situation, their proposed amendments to the protocol, and the timeline for resolution.

The partnership with Kite Pharma, a recognized leader in global cell therapy, is another important consideration. With the potential for a shared financial burden and resources, Arcellx stands to gain not just economically, but also in expertise, potentially bolstering their ability to resolve the current hold and facilitate future development and commercialization efforts. Additionally, the strong financial health of Arcellx, with sufficient funds expected to last until 2025, provides the company with ample time to remedy the current situation and continue its operations without immediate financial strain.

From an investment standpoint, the Arcellx case presents a typical scenario in the volatile landscape of biotech, where breakthrough potential is often accompanied by significant risk. Given the company's strong financial standing, robust partnership, and promising treatment candidate despite the temporary clinical hold, the recommendation is to 'Hold' on to the shares. Should the clinical hold be lifted, Arcellx's stock could potentially see a significant upswing, owing to the addressable market and therapeutic potential of CART-ddBCMA. In the meantime, investors should monitor the situation closely for developments relating to the hold and Arcellx's other pipeline projects.

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