CGEM - Cullinan Oncology: Inexplicably Trading Below Cash Despite Robust Data

2023-09-11 11:57:47 ET

Summary

• Cullinan Oncology's stock remains below cash value despite positive phase 1 trial data for its second asset, CLN-619.
• The company's lead asset, Zipalertinib, has shown promising results in treating EGFRex20ins NSCLC, positioning it as a potential treatment of choice in this patient population.
• Cullinan Oncology has initiated a phase 3 study for Zipalertinib and has released encouraging data for its second candidate, CLN-619, in heavily pretreated patients.

Cullinan Oncology ( CGEM ) continues to trade below cash despite releasing positive phase 1 monotherapy trial data from its second asset, CLN-619. I covered it last in April, and since then, the company has seen its stock go up around 30% on that data, but then settle down back to pretty much where it was back in April, give or take a penny.

Cullinan is a developer of targeted therapies for cancer patients. Lead asset is Zipalertinib, which is an EGFRex20ins inhibitor in a pivotal phase 2b trial in NSCLC patients with exon 20 insertion mutations. Zipalertinib is an orally bioavailable irreversible EGFR inhibitor intended to spare wild-type EGFR, thereby avoiding toxicities associated with wild-type EGFR engagement.

There are around 4500 US NSCLC patients with the EGFRex20ins mutation. Like I noted previously:

Taking a ballpark estimate of $100k per patient per year (based on prices of random NSCLC molecules , really), this gets us a $450mn market for the molecule.

Research has shown that EGFR ex20ins NSCLC is much more difficult to treat than more common mutations like in exon 19. I described phase 1 data earlier which showed some robust results in this difficult to treat population, in patients who had undergone multiple therapies, including with previous EGFR TKIs. The best response obtained was partial response, which is as good as it gets in this patient population at the present time. Thus, the data demonstrated that Zipalertinib could well become the treatment of choice in this niche patient population.

Indeed, Zipalertinib has done better than Takeda’s small molecule Exkivity, and Johnson & Johnson’s mAb Rybrevant, both approved for EGFR ex20ins NSCLC. Though the data is only numerically superior, as well as from a small number of patients in an unrelated trial, it is still indicative of the molecule’s prospects. Dizal’s sunvozertinib/DZD9008 is another molecule recently approved in China for EGFR ex20ins NSCLC. Albeit in somewhat different population demographics, yet this molecule has demonstrated a very high PR and cPR in trials, at 41% and 37% respectively, which compares very favorably to Zipalertinib:

Antitumor activity of sunvozertinib in patients with previously treated EGFRexon20ins NSCLC

Thus, this is strong competition, and despite the recent hurdles in bringing Chinese medicines to the US, soon, someone will make just such an attempt. Zipalertinib needs to establish itself well before that happens if the company wants any traction in the market.

In that regard, the company has begun enrollment in a global Phase 3 study evaluating zipalertinib plus chemotherapy versus chemotherapy alone in patients with EGFR exon 20 insertion mutation NSCLC in the first-line setting. There is no update yet on the registry for this study.

Their second candidate is CLN-619, a monoclonal antibody which promotes tumor cell lysis by immune cells through stabilizing the expression of tumor cell surface MICA/B. It is being tested as a monotherapy and in combination with checkpoint inhibitors targeting solid tumors in a phase 1 dose escalation study.

Recently, the company released data from this trial at ASCO 2023 in heavily pretreated patients. Data showed an acceptable safety profile and antitumor activity across multiple tumor types. There were no dose-limiting toxicities upto the highest tested dose. Key data :

Best responses among 22 evaluable patients receiving doses ?1 mg/kg included 1 confirmed complete response (parotid cancer), 2 confirmed partial responses (endometrial cancer), and 7 patients with stable disease (cervical, ovarian, breast, and salivary gland cancers).

The data is highly interesting, producing complete responses with a good safety profile. The company has initiated dose expansion cohorts in endometrial and cervical cancers.

Financials

CGEM has a market cap of $440mn and a cash balance of $512mn after a $38mn stock offering. Research and development (R&D) expenses were $27.4 million for the second quarter of 2023, while general and administrative (G&A) expenses were $10.2 million. That gives them a cash runway of 10–12 quarters.

The company is largely held by institutions at 55%. Keyholders are Bioimpact Capital, Biotechnology Value Fund and F2 Ventures (JOVAN-EMBIRICOS MORANA). There is heavy insider trading, and they are all mostly sales.

Risks

Cullinan’s market cap is not low, its cash reserve is high - this is how I am going to look at it. And that is very positive. Despite that, the market’s continuing ignorance of this fact is a worry. What does it know that we do not know?

Apart from that, the company is relatively early stage, and there is no telling what may happen between now and the completion of the phase 3 trial.

Bottom Line

I think I like CGEM. Data here is very interesting, and the high cash position vis-a-vis the pipeline derisks it. I will consider a pilot position in this stock.

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