LYEL - Lyell Immunopharma: No Real Chance Of A Rebound

Summary

• Lyell Immunopharma is a US biotechnology developer of innovative therapies for various types of cancer.
• Shares are falling in trend and headwinds could continue due to lost glamour for the portfolio.
• LYEL stock should not earn much more than a Sell rating. But when there's no choice but to hold shares, the stance must be maintained without giving up hope entirely.

Lyell Immunopharma Has a Sell Rating, But There Is a Small Possibility That the Future Could Still Turn Positive for A Hold

US-listed biotech stocks appear to be enjoying better momentum than the broader US market, as illustrated in the chart below comparing the iShares Biotechnology ETF ( IBB ), the benchmark for US-listed biotechnology companies, with the SPDR S&P 500 Trust ETF ( SPY ), the measure of the US stock market.

Lyell Immunopharma, Inc. ( LYEL ) is not one of the stocks that has contributed positively to the biotech sector's performance, as its shares appear to have lost much of their luster in recent months.

A portfolio of innovative cancer treatments with no major updates in the pipeline this year and the exit of a well-known drugmaker from a collaboration agreement is a situation that currently tilts the recommendation toward a Sell rating.

For the investor who has no choice but to hold his position, perhaps to avoid a serious loss if he sells the asset, there would still be hope that things would turn in his favor.

About Lyell Immunopharma, Inc. in the Biotech Industry

Lyell Immunopharma, Inc., headquartered in South San Francisco, California, is a clinical-stage biotech company focused on T-cell (a type of immune cell) reprogramming. The company's goal is to develop therapies based on cells that show an enhanced response to solid tumors.

In developing its therapies, Lyell Immunopharma uses the following technologies:

• The first technology is an ex vivo genetic reprogramming technology called Gen-R, which allows the researcher to overcome T cell exhaustion. T cell exhaustion occurs when T cells are no longer able to eliminate cancer cells (or cells infected with a virus). This condition can occur when the body's immune system stays active for too long due to cancer or a chronic infection. The unusually high levels of immune checkpoint proteins on the surface of exhausted T cells keep T cell activity suppressed. By targeting these proteins, the drugs help T cells to get rid of cancer cells more effectively.
• The second technology is an ex vivo epigenetic reprogramming technology called Epi-R, which makes it possible to create a population of T cells with persistent stemness ( the ability to remain the progenitor of a cell progeny for a long time) .

Lyell Immunopharma Pipeline of Drug Candidates

The pipeline of Lyell Immunopharma includes the following drug candidates:

• LYL797 is a T-cell product candidate for the treatment of non-small cell lung cancer and triple-negative breast cancer.

• LYL845 is an investigational tumor-infiltrating lymphocyte product candidate (a T-cell therapy) that targets multiple solid tumors. Solid tumors are called "solid" because they are a solid mass of cancer cells that grow anywhere in the body and can affect any organ system except the blood, bone marrow or lymph nodes. Breast cancer is an example of a solid tumor. When the blood, bone marrow or lymph nodes are affected, the tumor is a liquid tumor, as are leukemia, lymphoma and myeloma.

On October 6, 2022, Lyell received U.S. Food and Drug Administration approval to study LYL845 as a potential treatment for melanoma. The product will then be screened for other pathologies such as non-small cell lung and colorectal cancer. The study aims to determine the safety, tolerability and recommended dosing of LYL845 as the primary objective. The determination of its antitumor activity will be the secondary aim of the study. Recruitment of the people for the study is planned for this year.

• NY-ESO-1 is a T-cell product candidate for the treatment of synovial sarcoma and other solid tumors. Lyell was in a research and development collaboration and had a license agreement with GlaxoSmithKline regarding the NY-ESO-1 program. However, on December 24, 2022, GSK plc ( GSK ) terminated its collaboration with Lyell to develop NY-ESO-1. The termination also affects second-generation product candidates, including Lyell's genetic and epigenetic reprogramming technologies called LYL132 and LYL331. The decision was made for strategic reasons and had nothing to do with the clinical efficacy or safety of the technology.

The Targeted Diseases

Non-Small Cell Lung Cancer [NSCLC] is the name of a broader category of disease in the sense that it includes several types of lung cancer. What they all have in common, however, is that the malignancy originates in the tissue of the lungs. Smoking is now widely recognized by medical professionals as the leading cause of non-small cell lung cancer. According to some statistics , a number of patients, accounting for about 26% of all NSCLC patients, manage to live with the disease for an average of about 5 years (the survival rate).

About Triple-Negative Breast Cancer . Normally, breast cancer has one of the following three receptors: the female hormone estrogen, the female hormone progesterone and the human epidermal growth factor. These receptors are sort of backdoors that allow treatments to gain access to and destroy cancer cells. Therefore, to treat breast cancer, oncologists may use hormone therapies or other drugs that target epidermal growth factors, depending on the type of receptor the cancer cell displays.

In so-called triple-negative breast cancer , the cancer cell does not have any of these receptors, so doctors do not have many options for treating this type of breast cancer. However, it is still possible to resort to chemotherapy, which fortunately gives significant results.

According to some statistics , about 91% of all patients diagnosed with triple-negative breast cancer five years ago are still alive. This survival rate decreases as the disease spreads.

Malignant melanoma is a pigmented skin cancer because its dark or black color is due to the accumulation of melanin in the cells. Surgery is generally successful if skin cancer is caught at an early stage. Skin cancer has its triggers in environmental and genetic factors. Environmental factors such as exposure to ultraviolet [UV] rays from the sun and from tanning lamps and couches all contribute to a significant risk of developing malignant melanoma.

Synovial sarcoma consists of a mass of solid tumor cells growing in the tissue around the joints of the upper and lower extremities (survival rate 65% , 5 years after diagnosis). However, synovial sarcoma can also occur in the trunk of the human body, in the chest and abdomen (survival rate 40% , 5 years after diagnosis) as well as in other areas such as the head and the neck. Synovial sarcoma can also spread to other sites in the human body, reaching the lungs, skeletal system and lymph glands.

How Lyell Immunopharma Is Doing Financially

Because Lyell Immunopharma is still in the clinical stage, it does not sell any treatment. Despite an agreement with GSK, no additional research and development activities were conducted during the third quarter of 2022 , resulting in zero revenue.

However, the company conducted other research and development activities that resulted in expenses of $41.6 million in the third quarter of 2022. This item increased by 32.5% year-on-year primarily due to an increase in labor costs.

General and administrative expenses increased 23.1% year-on-year to $26.1 million in the third quarter of 2022, driven by higher stock-based compensation expenses and the application of certain operating expenses.

Lyell's net loss for the third quarter of 2022 was $70.3 million, worse than the net loss of $48.9 million for the same quarter last year. While the non-GAAP net loss of $43.7 million for the third quarter of 2022 deteriorated compared to the non-GAAP net loss of $35.7 million for the third quarter of 2021.

As of September 30, 2022, Lyell's balance sheet reported $750.7 million in cash and short-term investments, which the company estimates is sufficient to continue to fund its operations into 2026.

Regarding Lyell's financial health, the Altman Z-Score, available by scrolling down to the risk section of this page , shows a score of 5.72 on the US biotech company's balance sheet. This ratio means the company is in safe areas.

As a guide for those unfamiliar with this financial indicator, the Altman Z-Score measures the likelihood of bankruptcy. As the Altman Z-Score is above 3, Lyell has no chance of going bankrupt.

On the other hand, if the financial ratio is below 1.8, there is a significant risk of bankruptcy. These are the extremes, while the indicator in the middle can take different gradations of risk from medium-low to medium-high.

The Stock Price and Its Catalysts

Lyell Immunopharma, Inc.'s portfolio may have lost some momentum in light of recent events, which could explain the overall bearish sentiment surrounding the stock. This, coupled with strong downward pressure from rate hike policies, has seen shares fall more than 60% from their early October 2022 peak of $8.09 per share to the current $3.08 per share. The market cap hovers at around $767.92 million as of this writing.

Shares are currently trading below the 200- and 75-day simple moving average lines and also below the midpoint of $5.74 of the 52-week range of $2.74 to $8.74.

No relevant updates regarding the pipeline of products under development are currently expected for the next few months of 2023.

A type of event like the presentation of research data, if promising, can cause a significant rebound in the stock price. Because it would restore confidence in the company and its growth prospects, sparking some enthusiasm among investors who are still somewhat delusional after GSK's exit from the synovial sarcoma treatment project.

This negative sentiment is reflected in the 14-day Relative Strength Index [RSI] curve, which appears to be suggesting that the stock is on a path to lower share prices. The RSI stands at 42.78 which means that the stock is still far from oversold levels despite the sharp drop over the last 4 months.

But 2023 is likely to be stingy in terms of clinical results being discussed at medical conferences and hence the likelihood that the stock could deviate from current price trend is not high right now.

Something in that direction will be moving, but not before 2024, with two key milestones on the schedule that will include initial clinical data from Lyell's product candidates, namely LYL797 and LYL845.

About LYL797 milestone : because administrative inconveniences did not allow for a sufficient enrollment rate right from the start of activities, Lyell has postponed the presentation of the first study data to 2024. As a result, the company believes it has more time to enroll and therefore will be able to provide more meaningful data.

The primary objective of the study will be to determine the safety, tolerability and recommended dosing of LYL797 as a potential future treatment for patients with advanced solid tumors.

About LYL845 milestone : first data from a study evaluating LYL845 as a potential future treatment for melanoma are also expected in 2024.

For this reason, Lyell stock should be placed on a sell list to free up funds that could be more profitably employed in other assets/markets, provided that the disposal of Lyell stock does not result in a loss that is difficult to recover.

If the latter were the case, the investor who decides to keep the shares in his portfolio could still bet on an increase in the share price, although the probability of this favorable event seems very small at the moment.

A Dim Hope of Rebound

Though the financial resources can fund another two years of research and development, shareholders are still concerned as Lyell is currently burning money and investigational products are still in their infancy.

But the availability of more funds in the future could lose any semblance of dim hope for something more concrete if the Fed eases further rate hikes this year. If the market gives Lyell's finances a shot as the Fed eases policy, it could be very beneficial for the stock price, reflecting the market's strong confidence in the quality of Lyell's research.

Judging by the performance of the stock price after the company's presentation to investors on May 17, 2022 , when the stock price rebounded sharply after the event (see chart above), the market should have confidence in the research activities of this company. However, it is not certain that the market's positive view of Lyell will be reflected in another strong rally in the stock price next time, which carries a significant risk that the Hold rating will not deliver the desired outcome.

Conclusion

Lyell Immunopharma is a biotechnology developer of innovative therapies for various types of cancer. Shares have fallen sharply on the Fed's aggressive stance, but headwinds may persist as the portfolio appears to have lost some of its glamour. There are signs that shares are looking to continue their bearish ride, so this stock should not earn much more than a Sell rating. The bullish sentiment is unlikely to materialize any time soon, but if there is no alternative but to Hold the position, things could still turn positive.

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