NUVL - Nuvalent: Good Medicine But Futuristic Valuation

2023-05-25 14:00:55 ET

Summary

• When I say futuristic valuation, I mean a valuation that would be justified if NUVL succeeded in the future.
• It hasn't yet, so the valuation seems unjustified.
• The company is doing good science and is managed by Deerfield, a Harvard professor, and an experienced CEO.

Nuvalent ( NUVL ) is a cancer drug developer focused on resolving kinase resistance and selectivity. Here's its pipeline:

Lead program NVL-520 is targeting advanced ROS1-positive NSCLC and other solid tumors, and recently presented positive phase 1 NSCLC data, which took the stock up considerably. Three days later, the company made a $200mn offering, and the stock lost some ground, but the chart has been generally very positive since October:

The second spike we see here is around April 18, which coincides with new preclinical data the company presented at AACR supporting the intracranial activity NVL-655, its second asset :

a brain-penetrant, ALK-selective tyrosine kinase inhibitor (TKI) designed to maintain activity against ALK and ALK mutations that confer resistance to currently approved therapies, and to avoid neurological adverse events and dose-limiting toxicities associated with TRK inhibition.

The phase 1 study was part of a phase 1/2 study of NVL-520. 35 people were enrolled at data cutoff. Five dose levels - ranging from 25 mg once daily ((QD)) to 125 mg QD - were evaluated. Every dose level led to exposures above all target efficacy thresholds.

21 heavily pretreated NSCLC patients saw 48% partial responses (10/21). Patients with ROS1 G2032R mutations saw an objective response rate (ORR) of 78% (7 out of 9 patients). In patients with a history of CNS metastases, ORR was 73% (8/11). Patients with two or more prior ROS1 TKIs and one or more prior lines of chemotherapy had an ORR of 53% (9/17); while patients previously treated with lorlatinib (sold as Lorbrena by Pfizer ( PFE )) or repotrectinib had an ORR of 50% (9/18).

There were no dose-limiting toxicities (DLTs), treatment-related serious adverse events (SAEs), treatment-emergent dizziness or adverse events leading to therapy reductions or discontinuations.

ROS1 positive NSCLC is a difficult cancer because of emerging treatment resistance and CNS involvement. NVL-520 has various properties conducive for it to become a major treatment option in this indication. NVL-520 is active against wild-type ROS1 fusions, which is a hallmark of this specific subset of NSCLC. It is also active against various treatment-emergent ROS1 resistance mutations like G2032R, D2033N, L2026M, S1986Y/F. NVL-520 is TRK sparing, which could minimize CNS adverse events. Lastly, NVL-520 is brain penetrant.

In this indication, there are 3000-4500 newly diagnosed patients in the US every year (incidence rate) who are naive to kinase inhibitors and have ROS1 positive NSCLC. 20-40% of them have CNS disease. Standard therapies here are crizotinib and entrectinib. However, crizotinib has trouble penetrating the brain.

Here's a comparative chart:

In 2nd line setting, for both G2032R mutation positive and negative, there is greater brain metastasis, however, there are no approved treatment options. This is where NVL-520 comes in. It is brain penetrating, but selectively spares off target inhibition of TRK, which is difficult because of its similarities with both ROS1 and ALK. TRK sparing avoids CNS adverse events, which may include the following:

Source - Company presentation

The second program, NVL-565, which presented preclinical data in April, does the same thing, but for ALK. However, I will not discuss it here, because the data is merely preclinical. Note though, that the ALK positive NSCLC market is triple the size of the ROS1 positive one, and while there are more drugs here, including one, lorlatinib, in 2nd line therapy, there are none in the 3rd line setting, which also has major CNS penetration.

Financials

Nuvalent has a market cap of $2.29bn and a cash balance of $472mn as of December 2022. This is quite high for such an early-stage company. Research and Development (R&D) expenses were $22.9 million for the fourth quarter of 2022, while General and Administrative (G&A) expenses were $6.4 million. At that rate, they have a cash runway of 12-14 quarters from December 2022.

The company is very heavily owned by institutions and hedge funds. Keyholder is Deerfield Management, which holds a very large percentage of outstanding shares. Insiders are not buying stock; there are a few sales and a number of option exercises.

Bottom Line

NUVL seems a bit overvalued, considering its early clinical stage. The science is interesting, however, there just isn't enough here to justify such a huge valuation. They have a very good amount of cash for such an early-stage company, but even the cash isn't enough to command a $2bn+ valuation. The cash, it appears, comes from the involvement of the money power of Deerfield Management with the chemistry of a Harvard professor, as well as with the CEO, who was a chemist at an earlier company founded by the same Harvard professor. Right now, therefore, if you are buying NUVL, you are paying for this mix, and not exactly for the company's science. Indeed, you would be paying a price you would pay if NVL-520 succeeded in a phase 3 trial and was already approved.

I would, therefore, wait for things to settle down and for either the valuation to go down and become realistic or for the company to do enough to justify such a high price tag.

For further details see: