BLU - Bellus Health: Building Momentum Around CALM SOOTHE Studies

Summary

• Refractory chronic cough remains as a complex condition that requires a medical breakthrough for treatment.
• BELLUS Health Inc. is pushing ahead on this front, with recent support from evidence in its recent clinical trials.
• We note several potential inflection points from clinical trial momentum in FY23 for BLU.
• We rate BELLUS Health a hold but are constructive on the name.

Investment summary

We continue our series of deep dives investigating companies that are pushing to provide medical breakthroughs in complex disease segments. Most recently, we examined BELLUS Health Inc. ( BLU ) after noting the company's clinical trial and regulatory tailwinds over the past 12-24 months. Hence, I'm back today to discuss these findings and to provide context on the company's forward-looking market opportunity in a complex condition known as refractory chronic cough.

Net-net, there is clinical support for BLU's investigational compounds, however, the market has reversed course in its reward for the company's stock price in recent weeks. Technical studies are, therefore, unsupportive for immediate entry. We rate BLU a hold for now but are constructive on this name, and point investors to the upcoming clinical trial catalysts due for FY23, discussed in this report.

Exhibit 1. BLU 12-month price evolution

Understanding the market opportunity for refractory chronic cough

Refractory chronic cough ("RCC") is a type of chronic cough that does not respond to traditional treatments, such as antihistamines, bronchodilators, and corticosteroids. It is defined as a persistent cough lasting more than 8 weeks in adults or 4 weeks in children.

The pathophysiology of RCC is not fully understood, but it is thought to be caused by a complex interplay of factors, including abnormalities in the anatomo-physiology of the respiratory system, the nervous system, and the immune system. For example, RCC may be caused by structural abnormalities in the airways, such as asthma or chronic obstructive pulmonary disease ("COPD"), or by irritation or inflammation in the airways, such as caused by environmental irritants or allergens. It may also be caused by neurological disorders, such as chronic post-nasal drip or laryngeal sensory neuropathy, or by conditions that affect the immune system, such as eosinophilic bronchitis or allergic bronchopulmonary aspergillosis.

One potential target for the treatment of RCC is the P2X3 receptor, which is a subtype of purinergic receptors that are involved in the transmission of pain and sensory signals in the body. P2X3 receptors are expressed in sensory neurons in the respiratory system and are understood to be heavily involved in the pathogenesis of RCC. Studies also establish the receptor's role in pain perception and inflammation.

BLU's investigational compound, BLU-5937, is a selective P2X3 antagonist, and the company's recent clinical trial tailwinds have been well received by the market across 2021/2022. According to its latest 6-K filing , BLU asserts that " approximately 30% of chronic cough patients, or approximately 9 million patients in the U.S., are uncontrolled or have RCC, which is the expected addressable patient population for BLU-5937 ." With an unmet clinical need, there is potential for a large uptake for any successful treatment[s] amongst this population, in our estimation.

BLU recent developments - building momentum around CALM, SOOTHE trials

It's worth noting that in November, BLU began enrollment in both its Phase 3 studies surrounding its CALM pipeline, following promising feedback from the FDA, European Medicines Agency ("EMA"), and Medicines and Healthcare products Regulatory Agency ("MHRA"). These clinical trials comprise the two pivotal studies (with respective primary efficacy endpoints):

• CALM-1 , with primary endpoint examining the 24-hour cough frequency at 12 weeks;
• CALM-2 , primary outcome measure checking 24-hour cough frequency at 24 weeks.

Each trial features three arms of dosing: 25mg, 50mg, placebo, taken bi-daily. The company has received alignment from the FDA on using these endpoints " in a population enriched for baseline 24-hour cough frequency, " similar to the successful SOOTHE Phase 2b clinical trial.

Moreover, we'd note the safety database for both studies will be supported by an extension of CALM-1 and an open-label extension of CALM-2, (as well as an additional open-label extension of CALM-1). Investors can expect the topline results for both CALM-1 and CALM-2 in H2 of FY24' and FY25', respectively. This would, in our opinion, be a key inflection point should the readouts turn out to be positive.

Exhibit 2. CALM pathway with respective dosage arms

In addition to these trials, we'd also highlight that BLU has conducted validation work on The VitaloJAK cough monitoring system , "comparing compressed and non-compressed recordings" in a cohort of 45 participants from the SOOTHE Phase 2b trial. This trial - which began at the end of 2020 and saw the first participant dosed in December of that year - demonstrated that the 50mg and 200mg doses of BLU-5937, taken bi-daily, significantly reduced the primary endpoint of 24-hour cough frequency by 34% compared to placebo at day 28 (p-value ? alpha: 0.005). These results were posted in December last year, which you can see in the image below.

Safety data held up well in our opinion, as the treatment was generally well-tolerated at a dose response observed between the 12.5mg-50mg doses. This was again using the twice-daily protocol. By extension, the Phase 1 clinical trial investigating a once daily, extended-release formulation of BLU-5937 has also been initiated and is expected to be completed in H1 FY23. We'd encourage investors to keep a close eye out for movements on this data as well.

Exhibit 3. SOOTHE trial out-takes, demonstrating statistically significant responder rates in 24-hour cough frequency

Exhibit 4.

BLU technical data - rally looks to be exhausted

In the absence of earnings and profitability, we've consistently turned to technical studies of BLU's share price in order to understand how it's trading in the marketplace.

You'll see below the stock broke trend in October and has continued along a 19-week correction to the current mark. This followed a substantial rally that began back in June last year, despite the volatility in late-2021.

Price distribution has also crossed beneath the 50DMA and 250DMA's, leading us to believe the long-term bullish trade in BLUE has exhausted for now. Question is, what this means for prospective investors looking forwards.

Exhibit 5. BLU weekly price action. Rally looks to have exhausted for now, new catalysts required

To gauge price visibility down the line, we turned to point and figure analysis to remove the noise of time and get a more objective understanding of market positioning. You can see below that we have downside targets thrown off to $5.90, not conducive to a reversal to the upside. You'll also note the validity of these targets to date, with the majority of price levels being taken out after each objective has been set. This also supports the neutral view for now.

Exhibit 6. Downside targets to $5.90 after upside targets taken out

In short

The bottom line is that BLU has made quite meaningful advancements in an otherwise complex disease segment, being RCC. Its clinical trial momentum has been well received by the market, however, after a year-long rally, price action has reversed, and shares continue in a medium-term consolidation, as discussed above. There are likely many reasons for this, not to mention that, after a year-long rally, investors could finally book profits without incurring short-term capital gain tax by October. BLU stock has quantitative support from Seeking Alpha's factor grading and this also weighs in on the investment debate, and, along with the trial data discussed here, keeps us constructive on the name - just from the sidelines for now. Rate hold.

Exhibit 6. Quantitative grading, providing balance to the downside

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