ELEV - Elevation Oncology: Rising On News But Not The Time To Buy

2024-01-17 15:21:00 ET

Summary

• Elevation Oncology experienced a significant increase in market capitalization in early 2024 based on positive guidance, but the company's main program is still early and risky.
• The company is focused on developing EO-3021, a novel antibody-drug conjugate targeting Claudin-18.2, which has shown promising results in preclinical and early clinical studies.
• They have enough funds to sustain its operations until Q2 2025, but that's right around the time the company says we should expect the next important data update.

Topline Summary

Elevation Oncology, Inc. ( ELEV ) had a very rocky early 2023, then spent the rest of the year drifting further and further out of relevancy. Starting almost immediately in 2024, the company spiked past $100 million market capitalization on the basis of positive guidance. Is now a good time to buy in? Well, while they have a now-proven target, the company's main program is still very early and very risky. I think they're worth the watch, but it's not time to commit just yet, pending some very unexpected catalyst.

Pipeline Overview

EO-3021

Ever since the company's unfortunate shelving of the once-promising HER3 antibody seribantumab , ELEV has been focused full force on the development of EO-3021, a novel antibody-drug conjugate against Claudin-18.2, a member of the Claudin family of tight junction molecules that is expressed in a wide range of solid tumors . It was licensed from a Chinese Biotech, CSPC Megalith Biopharmaceutical Co, back in July 2022 .

This is an exciting project at its face due in large part to the imminent approval of the first Claudin-18.2-directed therapy, which is Astellas Pharma's zolbetuximab, an asset I covered in some detail last year . But this agent demonstrated very encouraging proof of concept in Claudin-positive esophagogastric cancer in 2 different phase 3 studies.

Apparently, it's a good target, and ELEV wants to be one of the first crop of new contenders to build on exploiting it for therapeutic benefit.

That said, we don't have a lot to go on at this time with respect to EO-3021. At AACR 2023 , ELEV highlighted preclinical proof of concept, including apparently pristine selectivity for Claudin-18.2-positive cells and antitumor activity in patient-derived xenograft models.

The first-in-human data were presented at ASCO 2023 by CSPC. The poster, viewable here , highlights favorable tolerability among the 33 patients who have been treated so far. Of the 21 patients evaluable for efficacy, 8 (38.1%) achieved an objective response. ELEV's own phase 1 trial in the United States began in earnest back in August 2023.

On January 5, ELEV provided guidance for their expected milestones in 2024, namely to continue providing updates on the EO-3021 program in the middle of the year, with an expectation for data in 2025. They are also intending to expand into combination therapy approaches, with no clear guidance on which tumor types will be targeted first (likely gastric cancer).

Financial Overview

Per their most recent quarterly filing , ELEV held $98.8 million in total current assets, including $54.9 million in cash and equivalents and another $39.9 million in marketable securities. Their operating expenses, meanwhile, were $10.9 million, down from $38.5 million in the same quarter year over year. The net loss was $10.6 million.

Given these figures, as well as ELEV's own recent guidance , the company has enough funds on hand to carry them through roughly 8-9 quarters, well into 2025. The company themselves guide that they expect cash reserves to hold into Q2 2025.

Strengths and Risks

At this time, in my view, ELEV's biggest strength, possibly their only strength, is that they're chasing a target that has initial validation and nothing but room for improvement, and an antibody-drug conjugate has about as much potential to move that needle as anything else. The early data are looking fairly encouraging, though we definitely can't draw any important conclusions yet.

What about their cash position? ELEV has certainly accomplished a dramatic reduction in operating losses. Whereas with the 2022 expenses they would be easily in a near emergency situation, the company could probably now coast through the rest of 2024 without the need for a major dilutive event. That's good, because they're still trying to ramp up efforts for their Claudin ADC.

An important side note: zolbetuximab recently received a CRL essentially rejecting the NDA for approval, but this was due to manufacturing concerns and not some issue with the clinical data. Therefore, I do not think it will have an impact on other Claudin-related projects moving forward.

Unfortunately, that's about where the strengths of the company end at this time. I think they've got a solid shot in the clinic with EO-3021, but it's going to take a big chunk of time before we know what they have. And there's no guarantee that an ADC approach is going to improve outcomes over what zolbetuximab has shown in combination with naked chemotherapy.

On top of that, you have a company spiking out of nanocap territory for seemingly no reason, and the guidance that kicked it off doesn't really explain things to me. They announced that their cash is going to hold for a while at these operating levels, and, by the way, it's going to be another year before we see data? That's going to be an ouch for me, and by that time the company will be scrabbling for funds, so you can guess what that will mean for people who buy and hold in January 2024.

It's worth noting that ELEV is 25% owned by institutions, with another 29% held by hedge funds, suggesting a deep interest in the company outside the retail investor pool. To me, it doesn't say much about the long-term prospects of the company because data are the most important reasons to invest or not to invest, and these types of investors come and go as they deem fit.

Bottom Line Summary

ELEV has shown an interesting spike in share price worth explaining. Unfortunately, recent news, including their 2024 guidance, doesn't do that. More likely, the market is waking up to the fact that ELEV was essentially written off completely when they still had some air to breathe. I think this is an appropriate re-evaluation of the stock price, but it means that anyone just now seeing the stock has likely missed the rally out of the sub-$100 million market cap.

From here, there's not a lot we can expect in 2024 that should make us excited. You should make sure you're aware of this Claudin story, and even ELEV, but I think buying in today would likely make for a flat investment, at best. Therefore, I'm a hold on this equity, at least until we learn more. It will be worth revisiting at a later time.

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