OLMA - Olema: Contrarian Small Cap Oncology Biotech (Reiterating Buy)

2023-08-20 02:57:33 ET

Summary

• Olema Pharmaceuticals has gained almost 30% since 1H 2023, outperforming XBI by 80%.
• The company's OP-1250 combination therapy for ER+ breast cancer showed promising results in a Phase 1b/2 study.
• Olema's strong financial position, upcoming catalysts, and aggressive development strategy support a Buy rating.

Reason for update: Q2 earnings and thesis update

Since we initiated Olema in 1H 2023, the stock has gained almost 30% (outperforming XBI by 80%). The company has recently announced its Q2 2023 earnings.

This article focuses on key updates that the company discussed during the earnings call, and we will explain why we maintain a buy rating on OLMA moving into 2024.

Olema Pharmaceuticals ( OLMA ), has recently emerged as a significant player in the realm of ER+ breast cancer treatments, if approved, potentially offering an attractive oral option to patients who are refractory to CDK4/6i and injectable SERDs/oral SERDs (i.e., Orserdu). We advise investors who want to explore the company's base technology in depth to read our initiation article.

OP-1250's combination data

The company's commitment to revolutionizing ER+ breast cancer therapy is underscored by its intensive development of the CERAN and SERD OP-1250. The company published new data on OP-1250 (Palazestrant ) recently during the ESMO Breast Cancer Annual Congress, where the company disclosed promising interim results of a pivotal Phase 1b/2 study, combining palazestrant with palbociclib.

The standout findings, the absence of neutropenia AEs, and the lack of DDIs within the tested dosage range set Olema distinctly apart, skirting challenges other oral SERD initiatives have faced. The impending release of Phase 1b results, examining palazestrant's combination with ribociclib in Q4 2023, aligns with the growing medical trend of favoring ribociclib in CDK4/6i + endocrine therapy combinations for advanced ER+ BC cases.

May's OP-1250 data recap summary

Olema Pharmaceuticals has unveiled interim results from its progressing Phase Ib/II clinical trial.

BTVI Key summary of the trial results and publication:

The focus of this study is OP-1250, Olema's complete estrogen receptor (CERAN) and selective ER degrader (SERD), paired with palbociclib, a known CDK4/6 inhibitor.

This combination aims to address ER+/HER2- metastatic breast cancer. The results, updated as of March 8, 2023, were showcased in an abstract titled "A Phase 1b/2 Exploration of OP-1250 with Palbociclib in Advanced/Metastatic HR+/HER2- Breast Cancer", presented at the 2023 ESMO Breast Cancer Annual Congress on May 11, 2023.

Previous data were accessible in December 2022.

Design Overview: The abstract elucidated updates on pharmacokinetics ((PK)), drug interactions, safety metrics, and efficacy derived from the study combining OP-1250 with palbociclib. Patients, with a history of endocrine therapy and permitted chemotherapy, were categorized into sequential groups. These groups received ascending doses of OP-1250 alongside a consistent dose of palbociclib, following a 3+3 design leading to dose expansion.

Key Findings:

• Safety: Among 29 participants, combining up to 120 mg of OP-1250 with 125 mg of palbociclib showcased good tolerance and safety. No noteworthy drug interactions or induced metabolism of palbociclib was detected. Both drugs, when combined, retained their expected exposure levels. No significant increase in adverse event frequency or intensity was noted.
• Efficacy: Notably, tumor responses and consistent disease stabilization were evident, even in patients previously administered palbociclib or other CDK4/6 inhibitors.
• Pharmacokinetics: OP-1250 displayed commendable pharmacokinetics, including high oral uptake, dose-responsive exposure, and an extended eight-day half-life. In terms of drug interactions, none were noted between palbociclib and OP-1250 within the 30 mg to 120 mg dose range.

Adverse Events: Most treatments with OP-1250 (up to the prescribed Phase II dosage of 120 mg) were deemed safe. A majority of the recorded adverse events were of Grade 1 or 2. Commonly reported symptoms included neutropenia, nausea, vomiting, among others. Neutropenia, however, was reversible and aligned with the expected profile.

Conclusion: In summary, the combination of OP-1250 and palbociclib has exhibited promising results, proving to be well-tolerated with consistent safety profiles for each drug. Tumor response in this predominantly pre-treated demographic is encouraging. These findings augment the rationale for continuing investigations into this combination.

Orserdu's robust sales hint at an attractive opportunity for novel SERDs

As Menarini's oral SERD, Orserdu, secured approval in January 2023 and subsequently witnessed a significant sales uptick (~$175m projected for FY 2023), the trajectory suggests a favorable market response for Olema's ventures. Furthermore, we believe that Orseredu's success during 2023 and 2024 can bring some degree of M&A fantasy to Olema which should add positive momentum to the stock price.

A key catalyst to look for

Upcoming Events: Anticipate significant data revelation from Olema, including:

1. Presentation of Phase 2 monotherapy data with palazestrant at the ESMO Congress on October 22nd, 2023.
2. Initiation of Phase 3 OPERA-01 trial in Q4 2023 for metastatic ER+ BC patients.
3. Further Phase 1b results, showcasing palazestrant’s efficacy in combination with both ribociclib and palbociclib, also set for Q4 2023.

Robust financials - cash runway until Q2 '25

Their recent Q2 2023 financial disclosure highlighted a commendable cash and securities reserve of $167.4M and the company guided cash runway until Q2 2025, which is reassuring (our rule of thumb for SMID cap biotech is >1 year of cash runway and presence of near term catalyst).

Risk factors

1. Regulatory Hurdles: Olema's drugs might face unexpected regulatory barriers or delays that can hamper commercialization.
2. Clinical Trial Outcomes: Like any biotech firm, there's a risk of clinical trials not meeting primary endpoints or demonstrating efficacy.
3. Market Competition: The emergence of superior or more efficient treatments from competitors can threaten Olema's market share.
4. Pricing and Reimbursement Issues: Achieving favorable pricing and reimbursement from insurers remains challenging, impacting profitability.

Conclusion

Considering Olema’s strong financial position (cash runway until Q2 25), promising clinical updates with multiple upcoming catalysts on the horizon, and aggressive development strategy for its ER+ breast cancer treatments, we maintain our Buy rating. As the breast cancer community shifts towards advanced "oral" treatment regimens to address the ESR1 mutation, we believe there can be multiple oral SERD/SERM agents that can generate attractive $300-500m revenue in this 2L segment (using Orserdu's peak sales estimate as a benchmark ). Although the market for oral SERDs is getting saturated, we see Olema's CERAN platform differentiated. Furthermore, as Orserdu ramps up, we believe OLMA may be an attractive mid/late-stage acquisition target for big pharma who want a piece of the attractive cancer treatment market.

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