IMCR - Ideaya Biosciences: Advancing Pipeline Further Evidence Needed For Immediate Entry

Summary

• IDEAYA caught a bid in the back end of FY22' as investors began to take notice of advancements in its clinical pipeline.
• The rally seems to have flattened into the new year, so we wanted to check if there's scope for it to extend further.
• The company's investigational compounds are pushing ahead and have potential to create a medical breakthrough as a combination therapy and/or monotherapy in melanoma and various solid tumours.
• However, the forward-looking economics of each segment aren't yet defined, and with rates volatility plaguing asset valuations, there's still some uncertainty in our opinion.
• Net-net, we rate IDYA a hold but are trigger-ready on this name when the time arrives.

Investment Thesis Summary

As the new year is bestowed upon us, we are back to deliver our readers the undercovered opportunities swimming around the healthcare, biotech and med-tech pools. There's been a number of advancements in the oncology space of late, with equal progress made within the melanoma and solid tumours. We've maintained our exposure to names focusing on melanoma treatment[s] into FY23', holding an allocation to Immunocore Holdings ( IMCR ), and remaining constructive on DermTech, Inc. ( DMTK ) at the same time. We encourage investors to read both publications [DermTech click here ; Immunocore click here ]

As we look to diversify broad exposure to the segment, we returned to our analysis on IDEAYA Biosciences, Inc. (IDYA) after recent wins with the FDA on its investigational drug, darovasertib. The market was formerly constructive on IDYA in late September FY22', sending the stock back above its previous highs before pushing into a sideways consolidation for the past 10-weeks [Exhibit 1]. Shares now trade back below the 50DMA, and so the question now turns to whether there's more upside to be expected.

Exhibit 1. IDYA pushing back above previous highs in FY22' before trading sideways for the past 10-weeks

IDYA recent developments

First off, it's important to note the FDA granted fast track designation to IDYA's darovasertib program as a combination therapy with Pfizer's ( PFE ) crizotinib [brand name Xalkori, an investigational c-MET inhibitor], investigating the treatment in patients with metastatic uveal melanoma ("MUM"). The fast track designation allows for expedited review process with potential for a more speedy FDA approval, via priority review of any new drug application ("NDA").

Interim results from the phase 1/2 multi-center, open-label basket trial [trial identifier: NCT03947385] evaluating the darovasertib and crizotinib combination showed promising clinical efficacy in patients with MUM. Of the patients with first-line MUM [n=8], 4 had confirmed partial responses, resulting in an overall response rate ("ORR") of 50%. Among the evaluable patients with any-line MUM [n=35], 11 had confirmed partial responses, yielding an ORR of 31%. Tumor shrinkage was observed in 89% of the patients with any-line MUM [n=31], with median progression-free survival rate of 5 months.

The remaining portions of the study are currently underway. It aims to assess the safety and efficacy profile of darovasertib in patients with solid tumours harbouring either GNAQ and/or GNA11 mutations, or protein kinase-C ("PRKC") fusions [Exhibit 2]. The distinguished study, that encompasses a total of 254 patients and is being conducted across 7 cohorts, will see patients receiving darovasertib alone, in combination with binimetinib [sold under the brand name Mektovi], or in combination with crizotinib, as above. During the dose-escalation and dose-expansion phases of the study, darovasertib will be taken bi-daily via oral administration. The primary endpoints seek to identify the dose-limiting toxicity, maximum tolerated dosage[s], plus dosing recommendations for the phase 2 trial along with duration of response.

Exhibit 2. Darovasertib and crizotinib investigation as a combination therapy for MUM

The second catalyst is that IDYA recently submitted an investigational new drug ("IND") application to the FDA for its IDE161 compound. If approved, IDYA will begin a phase 1/2 clinical trial to investigate safety and efficacy of its IDE161 program in treating patients with solid tumours presenting with homologous recombination deficiency ("HRD"). There is currently a pressing need for treatment options for patients suffering from HRD tumours, and a breakthrough here could attract serious attention from larger players within the space in our opinion. Just as a reminder, IDE161 is a small-molecule inhibitor of poly (ADP-ribose) glycohydrolase ("PARG") and has the potential to be a potent treatment if it is successful.

It's worth noting that the IDE161 target is situated within the same clinically validated pathway as poly (ADP-ribose) polymerase ("PARP"), that is involved in DNA repair and genomic stability. Although, IDE161 has a differentiated mechanism of action , in that it reverses the action of PAPR enzymes, reducing sensitivity to DNA damaging agents. Pending approval of the IND, the company intends to examine the pharmacokinetics and pharmacodynamics of IDE161 as a monotherapy in BRCA1/2-mutant breast and ovarian cancer patients. IDYA's full clinical pipeline is observed in Exhibit 3, below.

Exhibit 3. IDYA full clinical pipeline

Additional market data for IDYA investment reasoning

As investors look to put capital to work in FY23' we believe there's merit in analyzing equity flows into and out of selective stocks. With IDYA, this serves as good data due to the lack of earnings on hand, plus the fact its pipeline has yet to fully convert [hence building a full DCF, launch curve and assigning a probability of success are incredibly difficult at present, not to mention the shifting discount rate].

You'll see in Exhibit 4 that daily money flows into IDYA were strong across the midpoint and 3/4 point of FY22', before shifting tide to net-outflows by year end. As we've broached the new year flows have remained bottom-heavy, meaning price action has been quite flat.

We'd need to see equity flows revert to a buying-bias in order to create a good case for IDYA to re-rate further to the upside. As such, we'll be watching this data closely in the coming weeks.

Exhibit 4. Net daily money flows into/out of IDYA, 12-months to date

Looking at our point and figure studies, we see that IDYA has scope to potentially thrust higher to the $19 range, a marginal lift from the current market price. Again, more buying support is needed to justify another leg up from its current range, and this unfortunately corroborates a neutral view.

Exhibit 5. Small upside targets to $19 range

Just as one final assessment I wanted to observe the Fibonacci levels that formed from the last high in January FY22' to the May bottom, as seen below. From what it seems, IDYA tested 78% of the downmove at $19 in November and was rejected, and has traded sideways since. It has found support at preceding tab, however, it needs to break $19 in order to consolidate all of the move, which corresponds to $24. At this point in time, we're waiting on more evidence for this to occur, but are remaining very constructive on IDYA in the meantime.

Exhibit 6. Fibonacci levels from January FY22' high to May FY22' low, IDYA tested 78% of the retracement and was rejected, hasn't retested since

In short

We are very constructive on IDYA given its novel hypotheses in melanoma and solid tumours with HRD. However, whether this warrants an immediate entry or not is a different question altogether. At present, there's not the market data to suggest the stock could breakout again to the upside, but we are well aware this could change over the coming weeks to months. A break above $19-$20 would confirm this view, and demonstrate that investors are rewarding the company for its latest developments discussed in this report. For this reason, we rate a hold, and are trigger-ready on this name. We encourage investors to adopt the same sentiment.

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