INZY - Endpoints Unzipped: Inozyme's INZ-701 Twist In The Plot

2023-08-29 04:24:41 ET

Summary

• Inozyme Pharma specializes in rare diseases with INZ-701 as its lead product; faced a stock decline after INZ-701 updates.
• Company boasts strong financials; $140.2M assets (plus $64.5M from an August equity raise), >2 years of runway, positive INZ-701 trial results; 41.95% 1-year stock gain.
• Recommend a "Hold" on INZY shares due to clinical uncertainties, despite promising financials and drug progress.

Introduction

Inozyme Pharma ( INZY ) is a clinical-stage biopharmaceutical firm targeting rare diseases affecting vasculature, soft tissue, and skeleton. Specializing in the ENPP1 and ABCC6 genetic pathways, their lead product, INZ-701, has garnered attention from both FDA and EMA for treating these deficiencies.

Recent Developments: In August 2023, the company completed a public offering, securing around $64.5 million post-expenses. Additionally, Inozyme experienced a stock decline after revealing INZ-701 updates post FDA and EMA consultations.

The following article details Inozyme's developments and trials for drug INZ-701, financial standings, and provides a cautious investment recommendation.

Q2 Earnings Report

Looking at Inozyme's most recent earnings report , as of June 30, 2023, the company had cash and short-term investments totaling $140.2M. Together with the $64.5M from the August 2023 public offering, it expects to fund operations until Q4 2025. R&D expenses for the quarter were $11.7M, up from the prior year's $10M, primarily due to heightened clinical trial support costs. G&A expenses decreased to $4.7M from the previous year's $5.4M due to reduced stock-based compensation and cost-saving strategies. The quarter's net loss stood at $15.6M, a slight increase from $15.3M in the prior year.

Cash Runway & Liquidity

Turning to Inozyme's balance sheet , combining the values under 'Assets' for 'cash and cash equivalents', 'short-term investments', we find a total of $140.2M. The net cash used in operating activities over the six-month period ending June 30, 2023, is $33.3M, which equates to a monthly cash burn of approximately $5.5M. Using this value to compute the cash runway, Inozyme has roughly 25.5 months of runway based on its current assets. It's vital to acknowledge, however, that these values and estimates rely on historical data and may not be indicative of future performance. Furthermore, these estimates do not include the $64.5M raised from the August 2023 public offering.

Regarding the company's liquidity status, the presence of $140.2M in easily liquidated assets reflects a reasonable position for Inozyme. The balance sheet also indicates long-term debt of $31.9M, indicating the firm has taken on some leverage. Given the company's sizeable cash and equivalents position, coupled with its current debt level, it seems plausible for the company to secure additional financing if needed, although it would be contingent on external market conditions and the firm's strategic goals. These observations and/or estimates are my own and might vary from other analyses.

Valuation, Growth, & Momentum

According to Seeking Alpha data, Inozyme has an enterprise value of $198.81M and a market capitalization just north of $300M. Their capital structure shows substantial cash relative to a moderate debt. In a pre-revenue phase, evident by the consistent zero sales forecast, their growth is underpinned by the developmental stage of their drug, INZ-701. Positive trial results for INZ-701 highlight promising future earnings potential. Stock momentum is strong, with a 1-year gain of +41.95% despite recent volatility.

INZ-701 Development for ENPP1 Deficiency

Zeroing in on their most advanced program (ENPP1 Deficiency): In 2021, Inozyme initiated a Phase 1/2 trial for INZ-701 in adults with ENPP1 Deficiency. By April 2022, promising results indicated its safety and efficacy. In November 2022, patients began self-administering INZ-701. By February 2023, the drug showed favorable results, including increased stable PPi levels - which are believed to precede functional improvements.

Inozyme then shifted focus to children. In February 2023, the first child received INZ-701 through an expanded access program. By June, the ENERGY-1 trial for infants, targeting INZ-701's effect on ENPP1 Deficiency, started with results expected in late 2024.

In July 2023, Inozyme outlined its ENERGY-3 trial, starting in October. This trial will center on children with ENPP1 Deficiency, encompassing up to 33 participants aged 1-12. It aims to gauge INZ-701's efficacy and safety over a year against a control treatment.

A pivotal development in the ENERGY-3 design involves the trial's endpoints that stress functional improvements . The U.S. will measure changes in plasma PPi levels "supported by consistent trends in appropriate secondary endpoints," whereas the EU will evaluate both plasma PPi shifts and the RGI-C score. This follows guidelines from the FDA and PDCO, with the latter designating plasma PPi and RGI-C (structural assessment) as co-primary endpoints.

My Analysis & Recommendation

Inozyme's progression, marked by the growth of its primary drug, INZ-701, highlights the promise and inherent fluctuations of the biopharmaceutical sector. Boasting strong financial reserves and a reasonable debt framework, Inozyme's financial stance is both resilient and set for long-term sustainability, with projections to fund its activities until the last quarter of 2025. Nevertheless, the recent stock dip following the INZ-701 announcement might confuse shareholders, given the drug's generally favorable progress.

The core of shareholder apprehension seems to originate from the erected stringent goalposts in the, potentially, registration-enabling ENERGY-3 study. Such a development might make investors uneasy for two reasons: First, the difference in primary endpoints between the U.S. and EU - with the U.S. emphasizing plasma PPi measurements and the EU incorporating the RGI-C score - adds an extra dimension of intricacy. This variation raises questions about the definition and subsequent assessment of success. Second, the remark that the U.S. primary endpoint of plasma PPi should align with consistent trends in relevant secondary endpoints adds to the ambiguity. While INZ-701 appears effective in increasing plasma PPi levels, its capability to enhance functional results, like those assessed in secondary endpoints, remains to be seen.

In the upcoming period, shareholders should stay alert for any additional guidance or feedback from regulatory authorities like the FDA and PDCO. As these entities play a crucial role in the drug's potential and market reach, their opinions can significantly redirect Inozyme's path. Equally critical will be the initiation and initial results of the ENERGY-3 study in October 2023.

Given the current scenario, I'd advise maintaining a "Hold" stance on Inozyme Pharma's shares. The potential for a drop seems slightly pronounced, mainly because the capacity of INZ-701 to enhance functional results remains uncertain. Still, the company's core financial health is commendable, characterized by ample cash, reasonable debt, and an encouraging drug under development. Although I am weary of Inozyme's clinical prospects, its market valuation seems to already reflect lower odds of success. To put it simply, my current stance would be to refrain from purchasing at this moment.

For further details see: