ALPMF - Astellas Grinds Out A New Target In Stomach And Esophagus Cancer

2023-05-25 07:42:54 ET

Summary

• Patients with upper GI cancers are in dire need of new therapeutic options.
• Astellas is sitting on a shoo-in approval for a brand new targeted therapy based on highly promising clinical trial data.
• An approval in this space could mean important new revenue inroads for the company.

Investment Thesis

Astellas Pharma ( OTCPK:ALPMY ) has many drugs in its toolbox, and it appears as though it will be adding a new one in the coming year. Coupled with its other platform drugs in cancer space, now is a good time to consider a buy-in opportunity into the company, with caveats about competition and the relatively small impact that a single drug can make within a multidrug product line.

Introduction

ALPMY is an easily overlooked oncology player that has a range of approved drugs in different solid and heme malignancies, including AML, bladder cancer, and prostate cancer. They're no slouches when it comes to successful drug development in the field of oncology, which is why it's always exciting to see them continue to innovate.

The subject of today's article is no exception to this. What I want to do is give you a simplified overview of the target they're attacking, as well as the relevance for patients with these cancers. Finally, I want to provide you with a look at the potential impact an approval could have on their revenue stream and overall prospects, as well as a risk analysis.

Claudin as a Target in Esophageal/Stomach Cancer

For years, the management of cancers in the esophagus and stomach (so-called "esophagogastric" tumors, which we'll abbreviate EG) have presented many, many challenges for patients. It's a space dominated mainly by traditional chemotherapy, and this is only moderately effective.

The introduction of immune checkpoint inhibitors like nivolumab (Opdivo) and pembrolizumab (Keytruda) have opened up new avenues for patients, but even here there is controversy. Benefit has only been clearly established for patients who have higher PD-L1 expression, or who have other disease features that might predict effectiveness of immunotherapy (like MSI-high status, for example).

To date, the only bona fide target that we've been able to strongly capitalize on has been HER2, which is overexpressed in between 15% and 30% of EG cancers , depending on the tissue or origin. This target has been very successfully exploited, with drugs like trastuzumab deruxtecan leading the charge.

What's desperately needed is other targets so we can extend treatment benefit to other patients. And one of the chief among these targets in the past decade has been Claudin 18.2. Claudins normally help your cells form tight connections to form tissues with very regulated passage of materials. Claudin 18.2 is one member of the family that is expressed only on the mucosal tissue of the stomach .

More importantly, more than 10% of patients with stomach cancer harbor expression of this cell surface molecule, which makes it a prime target for antibody-based therapy. A few developmental agents of interest have been researched as potential treatment options in this setting, with ALPMY leading the charge using a molecule named zolbetuximab.

Long story short, in early 2023 ALPMY presented the first phase 3 trial for zolbetuximab at ASCO GI, which was subsequently published in Lancet . Adding zolbetuximab to standard chemotherapy for Claudin 18.2-positive, HER2-negative EG cancer improved the median progression-free survival by almost 2 months (10.61 vs 8.67 for zolbetuximab vs placebo). Patients also had longer overall survival with zolbetuximab.

These results may look modest overall, but you're looking at around a 25% improvement, with relatively minimal added toxicity.

Confirming and iterating on the benefit of zolbetuximab was the phase 3 GLOW study , which also showed improved overall survival when adding zolbetuximab to a different chemotherapy regimen but in the same Claudin-positive population of patients.

As of this writing, ALPMY has not announced a submission to the FDA based on these results, but I believe it's inevitable and likely to occur within the next several months. And based on these two phase 3 trials, I think it's highly likely that zolbetuximab will be approved in this Claudin-positive patient population.

Financial Assessment

As I mentioned before, ALPMY is not like a lot of the biotechs I cover where they're still awaiting a drug approval to get moving to sales. They have in their pocket a fair number of approved drugs already, the biggest of which being enzalutamide (Xtandi), which contributed 661.1 billion yen in global sales in 2022. Their other drugs, like enfortumab vedotin (Padcev) and gilteritinib (Xospata) had more modest sales of 44.4 and 46.6 billion yen, respectively.

Overall, ALPMY was able to grow revenues from 2021 to 2022 by 17.2% on the back of improved drug sales. And zolbetuximab has the opportunity to add to this. Consider that they expect Padcev sales to increase 22.3% to 66.7 billion yen in fiscal year 2023 on the back of a recent first-line approval in metastatic bladder cancer. Well, zolbetuximab will be entering the field as a frontline therapy, albeit only for a highly selected patient population.

It stands to reason that zolbetuximab is going to contribute a significant chunk to revenue within the next 5 years, although I don't think it will necessarily reach the heights of Xtandi, unless there is some kind of approval in a wider patient population. This is possible, given that zolbetuximab is also being studied in patients with pancreas cancer , but given how challenging that space is to develop new drugs in, I am not terribly optimistic.

Overall, ALPMY reported that they were profitable to the tune of 98.7 billion yen (approx $711 million), which is down 25.4% compared with fiscal year 2021. This reduction in profit was largely driven by growth in expense items like R&D, as well as a reported loss from "contingent considerations" mostly related to costs to prepare submission for zolbetuximab.

Risk Assessment

Regarding this news about zolbetuximab in particular, one should be concerned about potential competitors taking market share of an approved regimen. Of course, there are other companies developing anti-Claudin therapies, such as Transcenta's osemitamab, as well as bispecific antibodies and CAR T-cell therapies. However, these agents are all in early-phase study, and they'll have a fair bit of time before they're ready to move to the market. Zolbetuximab is poised to be approved perhaps as early as Q1 2024, so ALPMY will have a good chunk of time to establish familiarity and market share in the meantime.

Of course, ALPMY's core business does not and likely never will rest on zolbetuximab's shoulders. To that, you need to consider the lifespan of Xtandi, whose patent expiration is due in 2027 . At that point, the pipeline will need to have undergone a strong surge in order to make up for increased generic competition. Xtandi won't go away, but it likely won't be able to continue sales growth indefinitely, and it could very well shrink within the next 10 years.

That said, the company has a track record of earnings growth, and 2022 might end up being a blip on their chart, assuming they can make the inroads they predict with their antibody-based therapies.

Conclusion

At its last reported earnings, ALPMY sits at a P/E ratio of approximately 43, which places ALPMY in valuation terms on par with other mid-level hitters like Exelixis (P/E 40.79), Puma Biotechnology (P/E 30.26), and Incyte (P/E 44.6). Therefore, it is apparent that ALPMY is not strongly overvalued relative to its peers at this time, and any further growth in their earnings is likely to be reflected in share price appreciation. They don't seem overhyped, and they are no slouches in terms of sales.

What would it take for me to buy ALPMY? I think they're worthy of starting some kind of core position today with the expectation that they'll be able to reverse their trends in reduced profitability. They're certainly well worth a watch at this time and at these price points.

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