KDNY - Chinook Therapeutics: Travere's Pain Is Chinook's Gain

2023-05-19 14:59:05 ET

Summary

• Sparsentan, a key competitor, falters in the Phase 3 DUPLEX study for FSGS, opening potential market opportunities for Chinook's atrasentan.
• Atrasentan's trial design in ALIGN may increase its chances of success compared to sparsentan.
• Chinook has anti-APRIL disease-modifying therapy as a backup, providing a hedge and floor for valuation.
• Chinook's valuation is attractive after the recent sell-off, and have a solid cash runway for at least two years of operations.

Key competitor update & our take: Sparsentan falters as expected

On May 1st, Travere Therapeutics (TVTX) announced disappointing data from their DUPLEX Phase 3 study focusing on FSGS. The study did not achieve the primary efficacy endpoint for eGFR slope over a 108-week treatment period in a statistically significant manner.

When compared to the active control irbesartan, sparsentan showed a 0.3 mL/min/1.73m2 per year (95% CI: -1.74, 2.41) positive difference in eGFR total slope and a 0.9 mL/min/1.73m2 per year (95% CI: -1.27, 3.04) positive difference in eGFR chronic slope. We highlight that the total slope is the primary endpoint in the US and the secondary endpoint in the EU, while the chronic slope is the primary endpoint in the EU. Without showing a statistically significant slope of eGFR stabilization, we do not believe full approval is likely for both FSGS and IgAN (currently approved through an accelerated approval pathway). For both EMA and FDA, we believe chronic slope would be highly important for approval because it measures the eGFR after 6 weeks to avoid the initial hemodynamic effect known to be shown from RASi and ERAs. Net-net, we believe both chronic and total slope data were disappointing for Travere, and we think it is now questionable that the company will be able to get approved for FSGS and perhaps for IgANs as well (2-year data expected in 2023).

As expected, for proteinuria-related endpoints, following the 108-week treatment, sparsentan achieved an average 50% reduction in proteinuria from the baseline, as opposed to irbesartan's 32%, making a placebo-adjusted delta of 18%.

The safety data seems fairly clean, albeit we do not have specific patient-level data or any additional statistical detail. However, the company noted that the safety profile is similar to that of Irbesartan.

Our key take

Nevertheless, we believe this DUPLEX data indicates headwinds for IgAN and FSGS's full approval. Considering the similarity of FSGS and IgANs and the trial design, we believe the two-year DUPLEX data may foreshadow a similarly negative outcome for the IgAN PROTECT trial. We remind readers that Travere recently received the FDA's approval (accelerated approval) for IgANs, and they will need to show FDA full 2-year eGFR data for full approval. Although proteinuria is a more accepted and reasonably likely surrogate endpoint for the FDA compared to FSGS, we still believe it is unlikely that sparsentan would receive full approval without statistically significant eGFR separation vs. placebo at the 2-year mark. Moving forward, according to the company, although the primary endpoint was not met, Travere Therapeutics is examining potential ways for advancing FSGS treatment and intends to consult with regulators about a possible supplemental New Drug Application in the US. For the European market, Travere has partnered with CSL Vifor to pursue regulatory approval.

Competitive dynamic of IgAN treatments

Summary of IgAN drugs:

Drug

Company

Description

Status

Reduction in proteinuria

Tarpeyo

Calliditas

Oral formulation of budesonide

Approved (accelerated); eGFR data reported Mar 2023

34% (31% pbo-adjusted) in ph3 Nefigard

Filspari (sparsentan)

Travere

Oral endothelin type A & angiotensin II type 1 inhibitor

Approved (accelerated); eGFR data due Q4 2023

50% (35 points adjusted for irbesartan control) in ph3 Protect

Narsoplimab (OMS721)

Omeros

Anti-MASP2 antibody

Ph3 Artemis-IgAN ; proteinuria data due mid-2023

64% (no control arm) in ph2

Atrasentan

Chinook

Oral endothelin A receptor inhibitor

Ph3 Align ; proteinuria data due H2 2023

55% (no control arm) in ph2 Affinity

Iptacopan (LNP023)

Novartis

Oral complement factor B inhibitor

Ph3 Applause-IgAN ; proteinuria data due H2 2023

23% pbo-adjusted in ph2 *

Sibeprenlimab (VIS649)

Otsuka

Anti-April antibody

Ph3 Visionary ends Dec 2026

43% pbo-adjusted in ph2 **

*At highest dose (200mg BID); **pooled data with IV doses 2mg, 4mg & 8mg monthly. Source: Evaluate Pharma & clinicaltrials.gov .

Source: Clinical trial.gov, Evaluate Pharma, primary literature

Muddy Water short report represents a buying opportunity

Chinook's ( KDNY ) shares tumbled 18% after Muddy Waters wrote a short report; however, although we believe there is some degree of valid concern around the approvability of atrasentan, we believe a good chunk of the value of KDNY is driven by BION-1301, an anti-April therapy, forming the floor of the valuation, and Muddy Water's report does not mention that. Also, due to the trial design difference in ALIGN vs. PROTECT/DUPLEX, where ALIGN does not protocolize max dose ACEi as a control arm (unlike Travere's trials), there is a higher likelihood that the trial will show meaningful eGFR separation with the placebo (although, with negative DUPLEX data, our confidence on ERA's role in driving eGFR benefit has gone down). Net net, we believe Muddy Water's short report offers an excellent opportunity for investors to buy the dip.

Muddy Water's short thesis can be summarized as below :

1. KDNY's lead product candidate, atrasentan, is unlikely to be approved by the FDA.

2. Atrasentan has been shown to be harmful to patients' cardiovascular health, especially older and more fragile patients such as those with diabetic kidney disease, which is the largest potential patient population.

3. Atrasentan is inefficacious for chronic kidney disease.

4. AbbVie and Chinook seem to have systemically manipulated research findings and presentation on atrasentan to obscure these trial results.

5. Even if atrasentan were efficacious and safe, it would be unlikely to gain approval because a competing drug, sparsentan, has received accelerated and exclusive orphan drug approval by the US FDA for IgA nephropathy, the condition targeted in Chinook’s only Phase 3 trial, the ALIGN study.

6. From trial data, atrasentan appears inefficacious for chronic kidney disease. In the largest available study, atrasentan had no statistically-significant effect on advancement to end-stage renal disease, showing only a minor numerical difference between drug and placebo groups.

Q1 2023 earnings, key catalyst on track

Chinook Therapeutics ended 1Q23 with $357M in cash and equivalents, which we predict will sustain operations till 2024E, encompassing key value-driving events in 2023. These catalysts include a) P3 ALIGN topline data for atrasentan in IgA Nephropathy (IgAN) expected by 4Q23, b) P1/2 BION-1301 data in IgAN at the ERA Congress (expected in 2H23), and c) kick-starting the P3 BEYOND study for BION-1301 in IgAN by mid-2023.

Risks

1. Clinical trial outcomes: One of the main risk factors for investing in Chinook Therapeutics is the uncertainty surrounding the results of ongoing and future clinical trials. Failure to demonstrate safety and efficacy in clinical trials or obtain regulatory approvals could significantly impact the company's product pipeline and potential revenues.

2. Regulatory hurdles: Chinook Therapeutics may face regulatory challenges in obtaining approvals for its drug candidates from the FDA or other regulatory agencies. Changes in regulatory policies, requirements, or standards could further delay or hinder the development and commercialization of their products.

3. Competition: The biotechnology and pharmaceutical industries are highly competitive, with many companies developing similar therapies for the same indications. Chinook Therapeutics could face competition from larger, more established companies with greater resources, which may negatively impact its market share and revenue prospects.

4. Financial risks: As a biotechnology company, Chinook Therapeutics may require significant capital to fund research, development, and commercialization efforts. There is a risk that the company may not be able to secure sufficient funding, which could lead to delays or discontinuation of product development. Additionally, the company may not achieve profitability in the near term or at all, posing a risk to investors.

Conclusion

We maintain a buy rating for Chinook Therapeutics as we expect a positive readthrough from Travere's disappointing phase 3 DUPLEX data. Firstly, the faltering of sparsentan, a key competitor, may create additional market opportunities for Chinook's atrasentan as they both target the same mild-moderate IgAN population. Secondly, investors may perceive a higher chance of success for atrasentan in Phase 3 due to the trial design where they did not protocolize the highest tolerable dose of irbesartan as a control group in the ALIGN trial, which means greater placebo-adjusted delta can be shown (potentially hitting statistical significance by year 2). Thirdly, even if (in the worst case) all of the ERAs or ERA/RASi class does not receive full approvable from the FDA due to the changing posture around the accepted relationship between proteinuria and eGFR, Chinook has another phase 2 anti-APRIL disease-modifying therapy (BION-1301), providing a hedge and floor for the valuation backdrop. Lastly, after the recent sell-off of >20% in 1H 2023, Chinook has a cheap enterprise value of ~$1.1 billion and a solid cash reserve of $ 357m , which we believe is sufficient to fund operations for at least for two years. Net-net, we believe any weakness created by the TVTX's FSGS data should be a buying opportunity for KDYN as we get closer to the phase III IgAN ALIGN trial data readout expected in 3Q23 and the basket study (FSGS/Alport), which is expected in 4Q23.

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