BPMC - Blueprint Medicines: Looking Toppy

2024-01-04 16:28:54 ET

Summary

• Today, we take a look at Blueprint Medicines Corporation, whose shares have nearly doubled in the past two months due to strong sales of its precision medicine Ayvakit.
• Ayvakit's label expansion into indolent systemic mastocytosis suggests blockbuster potential.
• However, the company's other commercial product, Gavreto, was a flop, leading to the termination of its partnership with Roche.
• A full investment analysis around Blueprint Medicines follows in the paragraphs below.

To be trusted is a greater compliment than to be loved .”? George MacDonald.

Shares of precision medicines concern Blueprint Medicines Corporation ( BPMC ) have nearly doubled in the past two months after posting strong Q3 2023 Ayvakit sales. The quarter featured the first full contribution from its label expansion into indolent systemic mastocytosis, suggesting blockbuster potential for Ayvakit. With plenty of cash – partially from out-licensing total flop Gavreto – but a significant burn and five early-stage clinical programs yet to be prioritized, Blueprint merited a deeper dive. An analysis follows below.

Company Overview:

Blueprint Medicines Corporation is a Cambridge, Massachusetts based commercial-stage biopharma concern focused on the development of precision medicines that target genetic drivers of disease for the treatment of cancer and blood disorders. It has two commercial products, Ayvakit for systemic mastocytosis [SM] (avapritinib) and Gavreto (pralsetinib) for rearranged during transfection (RET)-cancers, as well as four other clinical programs pursuing multiple indications. Blueprint was formed in 2011 and went public in 2015, raising net proceeds of $154.8 million at $18 per share. Its stock trades close to $85.00 a share, translating to an approximate market cap of $5.4 billion.

The company’s discovery platform identifies kinases that are drivers of diseases in genomically defined patient populations and creates compounds that selectively target said kinases. This approach has resulted in two FDA approvals – with widely varying results.

Commercial Products

Ayvakit . Blueprint’s only in-house commercial asset is once-daily, oral Ayvakit, which was approved by the FDA in June 2021 for patients with advanced SM and in May 2023 for patients with indolent SM ((ISM)). It is also green-lighted in Europe for advanced SM in a second-line setting. It was first approved in January 2020 for the treatment of metastatic gastrointestinal stromal tumors ((GIST)) harboring a PDGFRA exon 18 mutation, including (the most common) PDGFRA D842V.

Backing up a bit, SM is a rare disorder characterized by an overabundance of mast cells in the body. A mast cell is an immune (white blood) cell that normally protects one from disease. However, excessive amounts result in symptoms similar to an allergic reaction, triggered by alcohol, spicy foods, medication, etc., and manifesting in severe inflammation, organ damage, anaphylaxis, and anemia. Those with advanced (aggressive) SM have poor outcomes, with median overall survival of less than six months to 3.5 years. Fortunately, that category only represents about 5%-10% of total cases. ISM, although debilitating, is less severe, with a nearly normal life expectancy and represents the vast majority of SM cases. All three indications – including GIST – for which Ayvakit are approved (collectively known as KIT receptor inhibition) represent a global opportunity north of $3.5 billion (~$2.5 billion domestically).

Ayvakit’s ISM indication is a first and only approval, which is very significant given that the patient population is ~15 times the size of advanced SM, with ~7,500 patients diagnosed in the U.S. Treating approximately half the American ISM category with Ayvakit would result in the achievement of blockbuster status. To that end, in 3Q23 – its first full quarter armed with its ISM label – net sales of Ayvakit reached $54.2 million, representing a 90% improvement over 3Q22.

It should be noted that Cogent Biosciences ( COGT ) is advancing an ISM candidate (bezuclastinib) through the clinic in a registrational-directed Phase 2 study ((SUMMIT)) that appears to have equal efficacy and a stronger safety profile than Ayvakit with no central nervous system side effects. That said, Blueprint enjoys a significant first-mover advantage (assuming bezuclastinib approval) in a small patient population.

Gavreto . The company’s other commercial product is Gavreto, which received accelerated approval from the FDA for: adult patients with metastatic RET fusion-positive non-small cell lung cancer; patients 12 and older with advanced or metastatic RET-mutant medullary thyroid cancer [MTC] who require systemic therapy; as well as patients 12 and older with advanced metastatic RET fusion-positive thyroid cancer who require systemic therapy and are radioactive iodine-refractory – all in 2020.

Blueprint parlayed the anticipated accelerated approvals for Gavreto into a significant collaboration with Roche (RHHBY), under which it received $775 million upfront (including a $100 million investment at $96.57 per share) and was eligible to garner an additional $927 million in milestones and high-teens to mid-twenties royalties – all ex-U.S. except Greater China. Domestically, the two concerns agreed to a 50/50 profits share. In return, Roche received the development and commercial rights to pralsetinib ex-U.S. and Greater China, including the rights to opt-in to a next generation RET compound they were to co-develop.

Although a boon for Blueprint’s coffers, Gavreto proved to be a massive flop, producing FY22 sales of only ~$28 million, impelling Roche to return the previously promising asset and terminate the partnership in February 2023. Already on a protracted decline after achieving an all-time high of $125.61 on the back of Gavreto’s approval for thyroid cancers in December 2020, shares of BPMC already reflected the Roche deal termination news and its official announcement marked their low, down 70% to $37.89. Their direction reversed shortly thereafter with the Ayvakit’s May 2023 approval for ISM. That turn of events also thrust Ayvakit, which had been somewhat deprioritized when it could not expand its GIST label into unresectable or metastatic in a fourth-line setting, back into the company’s spotlight. It compelled management to take a harder look at its portfolio of clinical candidates in an attempt to trim expenses in light of Gavreto’s failure.

Pipeline

The results of that assessment are still somewhat unknown as management awaits some additional data from early stage trials before making prioritization decisions known, likely in early 2024.

BLU-222 . One candidate that seems destine to make the cut is BLU-222, which is designed to attack cancers vulnerable to CDK2 inhibition, including hormone-receptor positive, HER2-negative (HR+/HER-) breast cancer and CCNEE1 protein-amplified tumors. Initial data from a Phase 1/2 trial included a partial response from BLU-222 monotherapy in an HR+/HER- metastatic breast cancer patient who had received five prior lines of therapy, as well as a solid tolerability profile.

ISM Franchise . Blueprint is also looking to strengthen its ISM franchise and is investigating elenestinib in an early stage trial, with an eye on advancing another therapy (BLU-808) into the clinic. Elenestinib is designed to be an improved version of Ayvakit, with reduced off-target activity and lower penetration of the central nervous system – somewhat similar to Cogent’s clinical candidate bezuclastinib. BLU-808 is attacking spontaneous chronic urticaria, a mast cell disorder characterized by itchy welts (hives).

Other candidates include epidermal growth factor receptor ((EGFR)) inhibitors that can address a variety of activating mutations – including the L858R mutation (BLU-945) and exon 20 insertions (BLU-451) – for the treatment of non-small cell lung cancer ((NSCLC)). Two others, BLU-525 (EFGR+ NSCLC) and BLU-852 (advanced cancers) should enter the clinic shortly.

Q3 2023 Financials

After gaining momentum post-Ayvakit approval for the ISM indication, BPMC shares slumped after its now lead asset’s Q2 2023 sales were dogged by concerns of a slowdown in momentum with year-over-year growth decelerating to 40% from 64% in 1Q23 – a possible sign that the launch of the ISM indication was not as robust as hoped.

That all changed when Blueprint released Q3 2023 financials on October 26, 2023, posting Ayvakit sales that were up 90% year-over-year; thus, recapturing its momentum with results that were ~$6.0 million better than expectations. Blueprint’s stock rose 26% in the subsequent trading session and are now up 110% since just prior to that announcement. Management also indicated that it expects FY24 operating expenses to be around $600 million, down ~$100 million from Street consensus.

Balance Sheet & Analyst Commentary:

Thanks, in large measure to the upfront money from Roche, as well as royalty and debt financing, Blueprint is in good financial stead, holding cash and investments of $827.2 million against royalty and debt obligations of $678.5 million, which, given the ramp in Ayvakit sales, should provide it with a self-sustaining financial profile. The company has entered into royalty agreements for both Gavreto and Ayvakit. The latter involves payments up to 9.75% on annual sales up to $900 million with variable caps ranging from $362.5 million to $462.5 million contingent on the pace of repayment. Gavreto sales are a write down for Roche and will likely be one for Royalty Pharma (RPRX), who provided $150 million of financing to Blueprint.

Although largely positive, Street analysts’ opinions on the company run the gamut with nine buys and four outperform ratings against one sell, one underperform, and three holds. Their current median price target of $85 is right at the current trading levels of the stock. On average, they expect Blueprint to generate revenue of $243.0 million in FY23, followed by $396.3 million in FY24.

Verdict:

However, even with a meaningful drop in expenses and improved Ayvakit sales, the company could churn through $175 million to $250 million of cash in FY24. Besides Ayvakit, Blueprint is awash in early-stage programs that it has yet to prioritize. Its $5.6 billion market cap has already priced in blockbuster status for Ayvakit. After its two-month nearly 100% surge, now is the time to be taking profits in Blueprint Medicines Corporation shares, not initiating a position.

The trust of the innocent is the liar's most useful tool .” – Stephen King.

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