CDTX - Cidara Therapeutics: Reduced Risk Due To Janssen's Decision And Progress In The Oncology Pipeline

2023-09-22 19:48:58 ET

Summary

• Janssen's decision to proceed with CD388 further de-risks Cidara Therapeutics (CDTX) and validates the potential of the Cloudbreak platform.
• Combined with impressive preclinical data by oncology candidates presented in the Virtual Research & Development Day I upgrade my recommendation to "Strong buy".
• CDTX's cash runway is limited, but they are eligible for additional non-dilutive capital and I expect more partnerships will be formed to support Cloudbreak development.
• CDTX is a long-term investment that could be volatile and requires patience.

Overview of the thesis

In my prior coverage of Cidara Therapeutics ( CDTX ) I gave a "Buy" recommendation considering; (1) de-risking by rezafungin approval and pending milestones, (2) proven business model, and (3) enormous potential of the Cloudbreak platform. The major risk of the thesis was "Janssen opting out of CD388". Recent announcement of Janssen's election to proceed for CD388 further de-risks CDTX and validates potential of the Cloudbreak platform. I expect more partnership news on Cloudbreak platform (hopefuly during 2024), which would further validate CDTX's potential and force the market to value CDTX more fairly. Furthermore, in this article I provide an update based on the Sep-21 Research and Development Day Webinar .

Overview of the Cloudbreak platform

For a more detailed discussion of the advantages and potential of Cloudbreak platform please see my prior coverage . As a reminder here, the Cloudbreak platform represents drug-fc-conjugates ((DFC)) being developed for infectious diseases and oncology indications. CDTX is currently developing DFCs for validated targets, which means higher chance of successful clinical development, with proof-of-concept already available from CD388's efficacy in preventing experimental influenza illness and validation of its potential coming from Janssen collaboration.

DFCs consist of the Fc part of antibodies plus multiple targeting moieties, which can be small molecules or peptides. DFCs have major advantages over alternatives for the same targets, including small-molecules or other antibody-based therapeutics (monoclonal or bispecific antibodies, or antibody drug conjugates) combining the advantages of both; improved pharmacokinetics (i.e. long duration of action vs small molecules), potential for multi-targeting with a single DFC (i.e. higher efficacy and lower risk of resistance), theoretically less toxicity compared to small molecules due to being limited to the extra-cellular compartment, better tissue penetration and potential to access cryptic binding targets (compared to larger antibody-based therapeutics), less expensive compared to other antibody-based therapeutics, and potential expansion of the platform to numerous indications (even beyond the current targets of oncology and infectious diseases).

The difference in size between antibody-based therapeutics (ADCs and bispecifics) and DFCs is obvious from the above image. DFCs consist of just the Fc part of antibodies thus having much smaller size (= much better tumor penetration). Importantly, DFC technology is modular and adjustable to the needs of the indication. Both the Fc component and targeting moieties are modifiable. For example, the Fc component can be modified to have extended pk compared to wild-type Fc (=longer duration of action = lower dosing frequency) or to be immune silent. Given that there can be multiple targeting moieties in the same DFC there is also the possibility of multi-targeting with a single DFC (= higher potency and lower chance of emergence of resistance, the latter being important both in infectious diseases and even more in oncology). Furthermore, lack of penetration inside cells avoids off-target intracellular toxicity and allows aiming for increased potency and targeting receptors where prior attempts have failed due to off-target intracellular toxicity. The higher potency of DFCs also translates to improved costs of goods (in other words same efficacy with smaller quantity of DFCs compared to mAb).

Update on CD388 clinical data from 21-Sep research and development day webinar

Unfortunately, despite original announcement speakers from Janssen Pharmaceuticals were not available for the event due to "last minute conflict" and just provided the slides for the update on CD388 (also called JNJ0953). The presentation highlighted the unmet need and successfully meeting all goals in phase 1/2 studies;

• Safety; safety profile of CD388 is very good based on 114 patients that have received 1 dose (up to 900mg); no serious adverse events, no hypersensitivity reactions, mild and transient injection site events (pain, predominantly with the IM route), mild (most Grade 1, few Grade 2) transient adverse event.
• Sufficient duration of activity; The target dose for further development (150mg) achieved sufficient exposure for up to 165 days (23.5 weeks) suggesting sufficient protection for the whole flu season (average influenza season 13 weeks) with a single dose.
• Efficacy; CD388 significantly reduced PCR-confirmed influenza infection compared to placebo. Furthermore, CD388 significantly reduced viral load (new culture-based analysis confirm prior analysis) which could have implication with regards to CD388's ability to prevent transmission.

More data on CD388 will be presented by Janssen in the World Vaccine Conference.

Update on oncology pipeline from 21-Sep research and development day webinar

Current immuno-oncology therapies have significant limitations. Only a small proportion of patients respond and of those most develop resistance within 6 months. The tumor microenvironment contributing to immune-evasion has been recognized as a very important target in immuno-oncology. Therefore, there is an urgent need for multi-modal therapies that address tumor immune evasion mechanisms, reduce risk of emergence of resistance and achieve durable responses. The DFC platform appears well-positioned to adress these needs overcoming limitations of small-molecules and antibodies. Importantly DFCs combine the best attributes of both; smaller size and thus better tumor penetration and ability to target small receptors (similar to small-molecules), avoidance of off-target intracellular toxicity and long duration of action (like antibodies).

CDTX presented 3 ongoing programs, all of which target immune evasion mechanisms in the tumor microenvironment and can act synergistically;

- CD37-DFC (the more advanced program)

- First multi-targeting DFC (combined CD37/PD-1 inhibiting DFC)

- CCR5 targeted DFC; Notably prior attempts to target CCR5 with small molecules have failed due to off-target intracellular toxicity.

Notably, preclinical models have shown best-in-class potency of CD37-DFC and synergy with anti-PD-1 (hence the development of a combined CD-37/PD-1 DFC) resulting in successful tumor regression in mice tumor models, as well as durable responses and immune memory.

Finally, the image below depicts the planned clinical development timeline for CBO421 (CD-37 targeting DFC) which is currently the most advanced candidate (other candidates being in the preclinical stage). Initiation of phase 1 is planned in mid 2024, followed by a phase 2 in Q4 2025 and a phase 3 in Q2 2027. I hope it is clear to any potential investor that I see CDTX as a long-term investment.

Additional highlights from the event

At the end of the presentation CDTX highlighted, as an example, the potential of DFCs for microsatellite stable colorectal cancer, a notoriously difficult target for immunotherapy.

Unfortunately, there were no solid news on potential partnership discussions or on the timing of announcing the new partner that will take over CD388 from Janssen. Notably, CEO stated that for now Cidara plans to advance CBO421 into phase 1a and potentially phase 1b on its own supported by "multiple streams of milestone payments and royalties". Cidara is also considering the potential for partnering the program with a biotech owing a PD-1 inhibitor considering potential for synergy. Furthermore, CEO has expressed flexibility and plans to initiate partnership discussions on multiple plaforms but the objective is to retain substantial ownership on one or more of ongoing oncology programs.

CEO also highlighted that there are other ongoing programs (not revealed so far) with partnership potential. Very interesting, and probably overlooked, was the statement by CEO that "we look forward to share data on our autoimmune program at a later date", further validating my thesis of significant expansion potential of the Cloudbreak platform.

With regards to prophylactic rezafungin, RESPECT study is over 60% enrolled and completion of enrollment is expected by the end of 2024. Finally, CDTX clarified that it has discontinued the COVID-19 DFC program considering very high efficacy of vaccines. That was a good decision in my opinion.

Financials update

The only thing that changed since my prior coverage is a $7M milestone payment by Janssen. This is disappointingly low and does not extend much CDTX's cash runaway. CDTX is eligible to receive an additional $685 million in milestones but the timing, triggers and amount of these milestones are unknown. Nevertheless, as highlighted in my prior coverage, CDTX is "eligible to receive additional non-dilutive capital of up to approximately $47.1 million in development and regulatory milestones from our existing partnerships contingent on successful completion of activities planned for the next twelve months", meaning that CDTX should still be eligible for $40M during the next few quarters. I am also confident that CDTX will be able to form more partnerships to support Cloudbreak development in Oncology indications, which would further extend the cash runaway and limit need for dilutive cash raises.

Risks to the thesis

The following are major risks to the thesis;

• Delays by Janssen in proceeding with CD388 development. Janssen intends to transfer its rights and obligations under the agreement to another entity, which could take time. This could also mean delays in triggering milestone payments. Delays in CD388 clinical development would also risk competition reaching the market sooner. Notably, it is expected that it would take 1 flu season to complete a phase 2 study and 2 flu seasons to complete a phase 3 study. Hopefully, Janssen has already started discussions on transferring rights of CD388 and considering safety and efficacy in phase 1-2a trials, fast track designation and significant advantages over current standard of care, many companies should be interested. Of interest, CDTX's CEO has noted that "the new partner will likely be another Big Pharma and that potential suitors have reached out after the company publicly disclosed its divestments from the infectious disease space. He added that because the original deal was signed when CD388 was a preclinical asset, he expects there will be additional value Janssen could pursue in a new deal".

• The low cash balance can result in significant dilution if CDTX cannot form more partnerships soon and pending milestones are not enough.

• Impressive pre-clinical results in oncology more often than not do not translate to as impressive results in human trials.

• Despite theoretical advantages of DFCs competition is fierce and big pharma support will be vital for CDTX's success.

• DFC platform is at a very early stage, many years before potential commercialization and there is high risk of setbacks.

Conclusion

Janssen's decision was a major de-risking event, but this is not yet reflected enough in CDTX's stock price. Combined with updates on the oncology pipeline it is enough for me to upgrade my recommendation from "Buy" to "Strong Buy".

To sum up why I am bullish on CDTX:

- CDTX has already successfully developed a product (rezafungin) achieving FDA approval (pending approval in other regions) with potential label expansion to a larger indication.

- CDTX has a proven business model with 3 successful partnerships so far.

- Janssen choosing to keep the rights of CD388 validates the platform and significantly de-risks CDTX.

- DFC platform has enormous potential in various indications (including infectious diseases, oncology and autoimmune diseases).

- DFC clinical development programs are significantly de-risked considering well-validated targets.

- Although there is fierce competition for the same targets, this further validates the potential (many companies working on a target means the target is very promising) and DFCs appear to have major advantages over alternative options for same targets, combining best attributes of small molecules and antibodies. Furthermore, positive results by competitors could be seen as good news for CDTX's stock price, de-risking CDTX's development pipeline.

- Successfully meeting all goals in phase 1 CD388 studies, combined with impressive pre-clinical data in oncology, further de-risk the DFC platform.

- Based on the above I expect more partnership news and major upside potential for the stock.

However, any potential investor should seriously consider the risks described above. Overall, I believe the risk-reward is very favorable and I am planning to hold CDTX for several years and willing to tolerate any volatility in the meantime.

Your feedback is appreciated

Please comment below if you have any feedback (positive or negative), if you spot any mistakes, or if you believe I missed something important.

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