ORTX - Orchard Therapeutics: A Reassessment

2023-09-18 09:20:41 ET

Summary

• Orchard Therapeutics plc is a London-based biotech company focused on developing gene therapies for rare diseases.
• The company's lead therapy, OTL-200, has received marketing authorization in Europe for the treatment of metachromatic leukodystrophy.
• Orchard's stock has suffered a significant decline, but there is potential for a rebound if OTL-200 receives FDA approval.
• A full investment analysis follows in the paragraphs below.

There are only two ways to live your life. One is as though nothing is a miracle. The other is as though everything is a miracle .”? Albert Einstein.

Today, we circle back on a small gene therapy concern we have not looked at in some time. The stock currently trades below cash value but does have some potential catalysts on the horizon. The shares are massively in Busted IPO territory as well. An analysis follows below.

Company Overview:

Orchard Therapeutics plc ( ORTX ) is a London-based commercial-stage biotechnology concern focused on the development of gene therapies for the treatment of rare diseases. The company has two gene therapies approved across Europe, having initiated a rolling BLA submission in the U.S. for one, while deprioritizing the other. It also has two other clinical programs: one to be assessed in a pivotal trial expected to initiate in 2H23; the other undergoing evaluation in a proof-of-concept study.

Orchard was formed in 2015, later acquiring the GSK, Inc. ( GSK ) rare disease gene therapy portfolio in 2018. It also went public in 2018, raising net proceeds of $205.5 million at $140 per American Depository Share ((ADS)), after giving effect to a one-for-ten reverse stock split executed in March 2023. Orchard’s ADSs trade just over five bucks a share, equating to an approximate market cap of $115 million.

Approach

The company’s approach to treatment is described as ex vivo autologous hematopoietic stem cell ((HSC)) gene therapy, in which the patient’s own blood cells are genetically modified outside the body and then reinserted with an objective of curing the disease in a single (and extremely pricey) treatment. The alteration outside the body involves the introduction of a functional copy of the missing or defective gene into the patient’s HSCs using a self-inactivating lentiviral vector, which can deliver its payload directly into the chromosome.

OTL-200 (Libmeldy)

Through this approach, Orchard is seeking its first-ever FDA approval – for OTL-200, which has marketing authorization (as Libmeldy) in the EU, UK, Iceland, Liechtenstein, and Norway for the treatment of early-onset metachromatic leukodystrophy ((MLD)). MLD is a rare (~1 in 100,000) fatal genetic central nervous system disorder characterized by a rapid and irreversible loss of motor and cognitive function. It is caused by a mutation in the arylsulfatase-A gene ((ARSA)), triggering an accumulation of sulfatides in the brain and other organs. In its late infantile {LI}form, approximately half of children pass away within five years of symptom onset; 44% at ten years for early juvenile {EJ}patients. With HSCs ability to cross the blood-brain barrier and deliver a functional copy of the ARSA gene to the brain, production of the enzyme that prevents the accumulation of sulfatides can occur; thus, correcting the underlying disease in a single treatment.

In clinical trials encompassing 29 patients (16 with LI MLD and 13 with EJ MLD), pre-symptomatic patients (n=20) experienced meaningfully less deterioration in motor function at two years and three years post treatment versus historical expectations for age and disease subtype-matched untreated patients as measured by the Gross Motor Function Measure (GMFM) total score (p<0.008). Early-symptomatic patients (n=9) exhibited a clear difference in GMFM total score at year 3 but did not reach statistical significance (p=0.054). ARSA activity was 20 times greater in pre-symptomatic patients at two years post-treatment (p<0.001) and 4.2 times greater in early-symptomatic patients (p=0.004). At the time of that integrated data analysis (November 2019), all treated LI patients were alive with a follow-up post-treatment of up to 7.5 years, while 10 of 13 EJ patients were still alive with a follow-up post-treatment of up to 6.5 years. The three deaths in this group were not deemed treatment related: two were disease progression and one was due to a left hemisphere cerebral ischemic stroke.

These data were enough to merit marketing authorization in Europe in December 2020. With a UK price tag of £2.8 million for the one-time therapy, it generated sales of $18.8 million in FY22, as the company works to get reimbursement in place across the continent – currently in four countries. However, the process with the FDA has been agonizingly slow. The best rationalization is that bluebird bio’s ( BLUE ) lentiviral vector had purportedly created significant adverse event issues – specifically insertional oncogenesis – which gave the FDA some pause concerning this approach.

That said, Orchard’s lentiviral therapies have not demonstrated any insertional oncogenesis issues as they have human promotor and regulatory elements that eliminate their capacity to activate neighboring genes. The agency was also dubious of the company’s natural history comparator arm data, placing additional information demands on Orchard in August 2021, resulting in a nearly three-year BLA submission delay. That said, the rolling BLA submission should be completed in July 2023, setting the stage for a possible early-2024 approval.

Ironically, OTL-200 is not the only EU-approved gene therapy that has not received FDA approval. Orchard’s Strimvelis was approved back in 2016 and came over as part of the package from GSX. The therapy, which is Orchard’s only one employing a gammaretroviral vector (not a lentiviral vector), inserts a functional ADA gene into children afflicted with adenosine deaminase severe combined immunodeficiency (ADA-SCID), otherwise known as the "bubble boy" disease due to the patients’ lack of an immune system. However, owing to the fact that a patient developed lymphoid T-cell leukemia from Strimvelis in 2020 – which hurt sales – the ultra-rare nature of the disease, and the FDA’s persistent stonewalling on a path towards approval in the U.S., management elected to deprioritize it in March 2022.

Strimvelis was not the company’s only casualty. Other deemphasized programs included OTL-103 for Wiskott Aldrich syndrome and OTL-102 for X-linked chronic granulomatous disease, as management pivoted away from diseases of immune deficiency to solely focus on severe neurometabolic diseases, which it believes are the company’s highest value programs. These moves occasioned a 30% reduction in the company’s workforce during 2022.

The company’s stock suffered as well, falling 98% peak-to-trough ($216.40 a share in April 2019 to $3.60 in December 2022).

Pipeline

OTL-203 . After OTL-200, Orchard’s most advanced clinical program is OTL-203, a lentiviral HSC gene therapy for the treatment of mucopolysaccharidosis type I (MPS-I), which is a lysosomal storage disease caused by a deficiency of enzyme alpha-L-iduronidase ((IDUA)). The disorder is characterized by skeletal abnormalities, neurodegeneration, organ enlargement, sight and hearing disturbances, and respiratory issues leading to death in early childhood. Hurler, or MPS-IH is the most severe form of the disorder. Afflicting ~1 in 100,000, most children are diagnosed before 18 months and are dead by year ten.

After generating data supportive of proof-of-concept in September 2022, OTL-203 received IND clearance from the FDA for a registrational trial in MPS-IH, which will randomize 40 patients 1:1 to receive either OTL-203 or current standard of care allogenic hematopoietic stem cell transplantation (allo-HSCT). Primary endpoint is complication free survival at two years. The study is scheduled to initiate in 2H23.

OTL-201 . The company’s other clinical program is OTL-201, a therapy that delivers a functional copy of the N-sulphoglucosamine sulphohydrolase (SGSH) gene to the patient’s HSCs to treat MPS-IIIA, a.k.a. Sanfilippo syndrome type A. A dysfunctional copy of SGSH leads to the buildup of mucopolysaccharides in the brain and other tissues, resulting in cognitive decline and loss of motor function. Individuals afflicted with MPS-IIIA (approximately 1-in-100,000 births) have a life expectancy of 10-25 years.

OTL-201 is undergoing assessment in a proof-of-concept study, which has produced encouraging findings to date, with four of five children demonstrating gain of cognitive skills in line with healthy children. Additional data is anticipated later in 2023.

Competitive Landscape

From an economic perspective, in the pursuit of rare disease indications, it is important that there aren’t multiple therapies hitting the market. In the MLD space, Orchard appears to have a market monopoly – how big that market is still somewhat unknown – assuming FDA approval. There are six studies that are actively testing newborns in the U.S., EU, and Mideast, with three cases identified out of a screening population of 96,000, meaning the market could be larger than originally calculated. As for MPS-I, REGENXBIO ( RGNX ) is furthest along of any competition (outside current standard of care HSCT) with an adeno-associated virus (AAV)-based gene therapy in Phase 1 study. The MPS-IIIA indication is being pursued in the clinic by three other biotechs, all of which are AAV-based gene therapies.

GSK Agreement

To obtain GSK’s rare disease gene therapy portfolio, Orchard issued shares of convertible preferred stock that transformed into a 19.9% ownership interest in the common at the time of the IPO. In the aggregate, the company is potentially obligated on milestones up to £90 million and royalties from mid-single digits to the low twenties, contingent upon the specific program. However, as part of the agreement, GSK assumes the priority review voucher for OTL-200 (if issued), which is valued at ~$100 million.

Balance Sheet & Analyst Commentary:

Owing to the regulatory delays, slow commercial ramps, and a sub-$1 stock price, Orchard was compelled to effect a 1-for-10 reverse stock split and execute a private placement in March 2023, selling the equivalent of 5.67 million ADSs and warrants for the purchase of an additional 6.23 million ADSs at $6 per unit, raising gross proceeds of $34.0 million. Additionally, the company agreed to sell the equivalent of 4.25 million ADSs and 4.675 million warrants at $8 per unit contingent upon Orchard’s announcement to file a BLA for OTL-200 with the FDA, raising additional gross proceeds of $34 million in June 2023. Another $120 million in similar financing (at $11 per unit) is triggered by OTL-200’s FDA approval. With cash of ~$150 million as of June 30, 2023, the company has an operating runway into mid-2025. It also carries notional debt of $28 million.

The three Street analysts covering Orchard are all bullish with a price objective of $15, $22, and $37.

Verdict:

With 40 to 50 new MLD patients in the U.S. every year and assuming a similar opportunity in the EU, OTL-200 could theoretically – assuming approval – reach $200 million in global annual sales. The ramp should be easier in the U.S. regarding reimbursement. That said, with results from its pivotal MPS-I study probably three to four years away, Orchard’s share price is essentially a binary event hinging on FDA approval or rejection of OTL-200, which could occur as early as January-February 2024. Trading at a discount to net cash, for those with a high tolerance for risk, Orchard’s OTL-200 decision is still worthy of a very small investment.

Miracles are a retelling in small letters of the very same story which is written across the whole world in letters too large for some of us to see .”? C.S. Lewis.

For further details see: