GMDA - Gamida Cell: The Treacherous Path To Profitability

2023-08-14 19:02:02 ET

Summary

• Gamida Cell's approved therapy, Omisirge, shows faster neutrophil recovery and reduced infections in blood cancer patients compared to standard care.
• The long-term study of Omisirge includes a diverse patient population, improving its marketability.
• Cash headwinds continue to be a challenge, and their latest financial filings do not ease this uncertainty.

Topline Summary - Gamida Cell

Gamida Cell Ltd ( GMDA ) is the rare small cap biotech that has an actual approved product on the market. And it represents a huge market opportunity. But there's a good reason why they continue to live as a small to near microcap company: cash. They're running low, and that raises the risk quite a bit. There's a big opportunity here for the value investor, but I would be very cautious about going all in.

Pipeline Overview

One approved therapy, Omisirge, is a modified cord blood that is intended to be used as cell transplant. This approval was based on findings from a randomized, phase 3 trial showing comparable if not higher rates of neutrophil recovery following an umbilical cord blood transplant as part of the treatment for blood cancers.

The lynchpin was that neutrophils recovered almost twice as quickly compared with standard of care: a median of 10 days versus 20.5 days after the transplant for Omisirge and standard of care, respectively. This gives the patients almost 2 entire weeks of protection from serious infections, which is a key goal in the post-transplant recovery period. This led to reduced hospital stays in the phase 3 study, as well as fewer bacterial and fungal infections.

These kinds of "off-the-shelf" sources of hematopoietic stem cells are very important for patients who do not have a close family donor, and it's particularly challenging for patients who might be demographically underrepresented in the adult donor registries. Banked cord blood is a useful alternative in these situations, but there have historically been major problems with respect to the time it takes to restore the immune system after the conditioning regimen.

Update on Omisirge

The company recently published a long-term, pooled analysis of Omisirge supporting the durable safety and efficacy of the cell product, with the notable inclusion that 39% of the patients in these studies were non-white, which has been a key area of interest for oncology in recent years due to the underrepresentation of these patients in randomized trials historically. It means that the findings from the Omisirge program can be confidently extrapolated into a wider range of patients, hopefully also helping to improve marketability of the product.

GDA-201

At this time, GMDA is focusing most of its efforts on the commercialization of Omisirge. There is another early study exploring this as a stem cell source for patients with aplastic anemia, a condition where the bone marrow makes damaged stem cells that often fail to mature into useful blood cells.

GMDA is also working on an expanded natural killer product called GDA-201, which was shown in a phase 1/2 trial to be well tolerated, with a loud signal of activity in patients with heavily pretreated non-Hodgkin lymphoma.

Financial Assessment

In its Q2 filing , GMDA reported cash and equivalents of $54 million, with total assets rising to $58.8 million.

This was set against a net loss of $31.7 million for the quarter, as the company has increased its financial expenses and general/admin costs from the same time in 2022.

The financial expenses are unlikely to persist at these same levels quarter over quarter, since the bulk of this expense came from fair value impacts on the company's warrants liability and 2022 convertible notes.

If we take the total operating loss as the ongoing burn rate, then the company currently has between 2 and 3 quarters of cash on hand as they attempt to build their earnings machine. At the time of the filing, 12 transplant centers have been onboarded to receive Omisirge, with another 8 being onboarded. Moreover, GMDA disclosed that a large portion of payers and Medicare will be covering the costs of Omisirge. Considering the price tag north of $300,000, this payer coverage will be critical to improving uptake.

Strengths and Risks

GMDA's cash is definitely running out quickly, and getting past the losses is going to be a very challenging race. Obviously, the company's biggest strength by far is the approved product that they're currently building out. And the market for this product is huge. In 2021, there were 4,276 cord blood transplants reported to CIBMTR.

That's a potential market size of just above $1.4 billion per year, which has essentially no competition from other companies at this time. Per the company's Q2 filing, 20 of the nation's 70 transplant centers are on board or in the process, meaning that a significant chunk of these cord blood transplants are going to be eligible for Omisirge.

However, there is a very serious cash problem on hand, as well. The most optimistic projection I can make, given their current operating loss, is that GMDA can continue to run with its current assets into 2024, and the company themselves stated that they could make it into Q2 2024.

To date, the company has not disclosed a single sale of Omisirge. These things take time, of course, but in order to offset the operating losses, GMDA would need to capture a massive chunk of cord blood transplants in that time to complete the reversal into a profitable company, and that's not something that we see very often.

Long story short? I think we're looking at another round of dilution tied to a share offering to help them make it a few more quarters. Likely, the Q3 earnings timeline will be the first opportunity to see real earnings from Omisirge, and if the news is good, then the company will attempt to improve its balance sheet to carry itself through 2024, not just into it.

Bottom Line Summary

GMDA is in an awkward position as it sits on the holy grail of aspirational biotechs: a marketed product. Now the dog has caught the car, and they have to start dragging it back home. The upside potential is enormous, but I think there's substantial risk for someone entering right now. The second half of 2023 will be an important indicator and possibly an inflection point in value. I think the company is worth to consider a small investment in, but I would consider dividing that into a buy now (or soon) and then waiting until after the third quarter filing to see how the development of Omisirge is proceeding. At this time, there are too many unknowns to make an extremely strong buy recommendation.

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