TVTX - Chinook: CHK-336 Trial Pause Creates Buying Opportunity All Eyes On IgAN Readout

2023-04-20 03:02:46 ET

Summary

• On April 11th, KDNY announced a voluntary pause in the dosing of CHK-336 due to a serious adverse event in a single subject.
• We believe CHK-336's setback should not impact the IgAN readout and should be considered a clearing event.
• We maintain a buy rating on KDNY based on a) a clear IgAN catalyst in 2023, b) modest valuation (EV~ $1Bn), and c) a positive read-through expected from Sparsentan's approval.

Background: CHK-336 set-back is not a big deal

On April 11th, Chinook Therapeutics ( KDNY ) announced a voluntary pause in the dosing of CHK-336, an oral small molecule LDHA inhibitor for the treatment of hyperoxalurias, in an ongoing phase 1 clinical trial in healthy volunteers. This setback has led to the stock price dropping 5-8%, but the dip was bought shortly after. The pause was due to the advent of a serious adverse event (SAE) that occurred in a single subject after the first dose in the 125mg multiple ascending dose ((MAD)) groups, and dosing was halted according to the trial protocol. However, the management noted that further investigation is needed to confirm the cause of the SAE.

We believe the main value driver for KDNY remains atrasentan, and we do not see the CHK-336 setback impacting the IgAN readout. As such, we believe any weakness created by this news should be considered a buying opportunity moving into the Phase 3 IgAN trial proteinuria (ALIGN trial) expected in 3Q23, and the basket study of atrasentan studying FSGS/Alport expected in 4Q23.

Furthermore, we anticipate Travere ( TVTX ) (Sell rated) to release FSGS outcomes in 1H 2023 and the Phase 3 PROTECT trial studying IgAN's disease by 4Q 2023. We believe that TVTX's sparsentan's developments should be a net positive regardless of the data (either negative or positive), considering the superior clinical profile of atrasentan, which offers a cleaner (so far no talks of REMS programs) and more convenient pure play ERA, unlike sparsentan, which is a combination therapy (ACEi+ERA) adding more headache for prescribers who want to adapt individual dosing. For a more in-depth analysis of the landscape, please read our initiation article.

Risks

1. Competitive risk: if TVTX's launch of sparsentan experiences faster than expected uptake and the FDA lifts the REMS monitoring requirement, it can negatively impact atrasentan's launch expected in 2024.
2. Delays in the ALIGN trial readout (expected in 3Q23) or the accelerated approval of BION-1301 based on 9-month proteinuria results could negatively impact KDNY's stock.
3. Unforeseen adverse events or safety concerns in Chinook's ongoing clinical trials could cause significant delays and negatively affect the prospects of KDNY's drug candidates.

Bottom Line: Maintaining a Buy rating

We maintain our buy rating on Chinook Therapeutics due to several positive factors. Firstly, we view the company's progress in treating IgAN and its basket study as fairly de-risked, with the recent CHK-336 news acting as a clearing event. Secondly, after the recent sell-off of ~20%, Chinook has a modest EV of around $1 billion and a robust cash reserve of $370 million , which we believe is sufficient to fund operations for at least two years. Thirdly, we anticipate a positive read-through based on the approval of Travere's sparsentan with an underwhelming label . Given the drug's clear competitive advantage and superior efficacy and safety, we believe that the upcoming IgAN catalyst and accelerated approval of atrasentan in 2024 to be a key inflection point for the stock moving forward. Lastly, we see KDNY's anti-April candidate, BION-1301, as an underappreciated asset. We believe that the company will provide more guidance around the Phase 3 trial in the near future, which can introduce some additional enthusiasm from investors who are seeking a disease-modifying treatment targeting kidney diseases.

For further details see: