DAWN - Day One Biopharmaceuticals: Strong Potential Price Drop Opportunity Some Concerns

2023-04-07 07:37:15 ET

Summary

• Day One Biopharmaceuticals is looking to file an NDA after successful glioma data.
• DAWN is well-financed, having been VC supported in the initial years.
• However, the very large institutional presence with low-cost early shares and possibly early exit strategies is a concern for retail.

This is interesting; I covered Day One Biopharmaceuticals ( DAWN ) in a positive article on September 4, and on September 12, the stock went down 25%. The only news remotely relevant to Day One in that 7-day period was that the company appointed Garry Nicholson, who was earlier President of Pfizer Oncology, as Chairman of the Board. Why would a promising stock go down 25% because they selected a new Chairman?

This is the news :

And this is the stock price movement:

As you do see, the stock went up suddenly on June 13, and was down on September 13, just as suddenly. The relevant news was in June was this:

Even a large dilution the very next day left the stock undaunted.

So the data was from a mid-stage trial of Tovorafenib, an oral brain-penetrant type II pan-rapidly accelerated fibrosarcoma kinase inhibitor, which is in a pivotal trial targeting relapsed/progressive low-grade glioma in pediatric patients. I discussed this in my last coverage. The data was outstanding, and beat competing treatment paradigms hands down. The trial saw an ORR of 64%, whereas the best ORR we had seen before, from Dabrafenib in BRAF-mutated relapsed pLGG, was only 44%. Admittedly, such kinds of casual cross trial comparisons are only indicative, but they, at least, make it clear that Tovorafenib is no pushover.

So there's a good reason for the stock to nearly double on that data drop. However, the sudden fall on September 12 did not make sense. So I went into the insider transaction data, and there is some interesting stuff here . Julie Grant started selling her shares in July, less than a month after the glioma data.

She has continued selling right up to March this year, however her largest sells were in September. In the last 19 months, Julie Grant sold nearly $26mn worth of shares. Of these, she sold $24mn shares in 5 large transactions in September alone.

Ms. Grant is the co-founder and ex-CEO of Day One and she was the chairperson for about a year, and she was the one who was replaced by Garry Nicholson on September 12. Let's not read anything much into it apart from the fact that here was a co-founder who was exiting the company or at least bringing her profits home after their first major clinical success. I am almost certain the stock price drop is related to these events, but exactly how, escapes me.

Upon further research, there's a fund - Canaan Xi Lp - which also sold $11mn worth of shares in September. Ms. Grant is employed at Canaan. She is a General Partner. She was also appointed to the National Cancer Advisory Board, or NCAB, by President Biden in February. All good, so it appears that the original fund behind Day One took an exit on good data, and the stock took a beating as a result. This is probably inconsequential.

Other major funds that hold large stakes include Atlas Ventures, RA Capital Management, FMR LLC etc. Some of these funds have reduced stakes in the company, but general fund sentiment seems bullish overall .

Looking at all these, it appears that Day One's incubation period just got over, and the reins were handed over to the capable hands of Mr Nicholson, ex-Pfizer Oncology with multiple big pharma M&As under his belt or at least during his tenure.

Coming back to Day One, recently, the company announced that it will file an NDA "this summer." This was after the company reported top line data from the FIREFLY-1 trial, which retained the 64% ORR in 69 patients that was seen earlier in 22 patients. This included 3 complete responses and 41 partial ones. In terms of the safety profile, here's what the company said:

DAWN noted that tovorafenib was generally well-tolerated. The most common side effects related to the drug were change in hair color (75%), increased creatine phosphokinase (64%), anemia (46%), fatigue (42%) and maculopapular rash (42%).

Besides tovorafenib, which is being developed in relapsed and frontline pLGG as well as in RAF-mutated solid tumors, the company also has pimasertib, which is a MEK 1/2 inhibitor in phase 1 trials targeting MAPK-altered solid tumors. The first patient was dosed in March for frontline pLGG in a pivotal phase 3 trial.

Financials

DAWN has a market cap of $926mn and a cash balance of $342mn, Research and development expenses were $26.0 million and general and administrative expenses were $16.7 million for the previous quarter. At that rate, the company has a cash runway of 9-10 quarters.

Bottomline

The stock has taken a beating following earnings on March 6. Again, I fail to see why. This stock is an "institutional" stock - heavily owned by institutions, PE/VC firms and so on - and like all things "institutional," it has its own rhythm, which retail people will find difficult to understand. Last time, I said that I would be interested in taking up a position if the price drops, other things being equal. Well, the price did drop, and other things are equal or even better today with the consistent top line data, so I may take up a small position. But the heavy institutional presence worries me. Why? Because, although the presence of smart money indicates a high-potential company, some of these are early investors who will be looking to exit on good news. If that is the case, good news will not always result in prices going up, because these large stakeholders will drop a load of cheap shares in the market. Thus, if I buy, I will remain cautious and not sell on the news, but before or after.

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