ORTX - Orchard Therapeutics: Highly Valued Once Undervalued Today

2023-07-29 00:49:07 ET

Summary

• ORTX has been a terrible destroyer of investor value.
• Today, it has an upcoming BLA and a decent cash runway.
• There are various risks here, but if things work out, there may be some upside here.

I have been covering Orchard Therapeutics ( ORTX ), a pioneering gene therapy player, for well over three years now; however, my last coverage was more than 18 months ago, after I realized that ORTX is increasingly becoming a laggard. The stock is down 50% since, unfortunately proving my point. Let's take another look to see if there’s any upside from here.

In May 2020, when I first covered it, ORTX was a $1.7bn market cap company with a stock price of $105. Today, it has a market cap of $96mn and a stock price of $5 and change. ORTX owned the entire gene therapy asset portfolio of GSK, and had excellent late stage data from Libmeldy (OTL-200) for the treatment of metachromatic leukodystrophy (“MLD”), which even received a CHMP positive opinion (it got approved later). So I am wondering: what happened to ORTX?

First, here is how the pipeline looks right now:

If you compare that with the pipeline from 3 years ago, the STRIMVELIS asset does not appear here, and two other immunology assets, OTL-102 and OTL-103, have also disappeared. These two assets were in registrational trials, so with their disappearance, the entire pipeline has now been relegated to an early clinical POC stage. I am guessing that would be one reason for the fall of ORTX.

Here’s a bit of text from an old article from March 2021 to show where both OTL-200 and OTL-103 were at that time:

In the US, ORTX filed an IND for Libmeldy or ORT-200 in MLD which was approved in November, also receiving an RMAT designation . The RMAT will expedite the FDA review process, and ORT-200 has 9 years of data to back it up as well. The company has submitted data to the FDA on 39 patients, including 9 patients from the U.S., who have received OTL-200 as part of clinical studies and compassionate use programs conducted at the San Raffaele-Telethon Institute for Gene Therapy (SR-Tiget) in Milan, Italy. This data set includes post-treatment follow-up data of up to eight years in the earliest treated patients in these programs. However we still do not have a clear timeline for US approval of this asset in this indication. The company says it will announce a filing strategy by mid-2021.

In other development, the US application for ORT-103 targeting a rare immunodeficiency disorder called Wiskott-Aldrich Syndrome (WAS), has been pushed to 2022. The company said that delayed activities due to covid is impacting the timeline to develop a specific functional potency assay for OTL-103, as requested by the FDA. European application is on track for this year end.

So, ORTX had just submitted data for OTL-200 with the FDA, and also said that covid-related delays have pushed back the filing of OTL-103 in WAS. However, this program has now been removed. This has happened because in March last year, the company cut its workforce by 30% and abandoned this and other primary immunodeficiency program. As the company noted :

Regarding the regulatory status of the OTL-103 program in the U.S., Orchard recently received written feedback from the FDA. The company believes the path to a potential BLA filing may require additional time and further investment.

Another interesting fact is that during this time, ORTX also produced proof of concept data for OTL-203 in MPS-I (Mucopolysaccharidosis Type I). This is interesting because OTL-203 is still being shown as a POC stage asset in the pipeline diagram above. That’s because OTL-203 has moved away from MPS-1 and is now targeting MPS-IH. In Jan 2023, the FDA cleared an IND for this indication, Hurler subtype of mucopolysaccharidosis type I (MPS-IH). The company plans to evaluate OTL-203 against the standard of care in a global registrational trial, which is expected to start in H2 2023. However, despite not showing MPS-I in its pipeline, in the month of May, the company announced updated data from the POC trial which showed that a single patient “who had previously achieved the primary endpoint for a measure called supraphysiologic blood alpha-L-iduronidase demonstrated longitudinal growth in line with healthy children adjusted for age and gender.”

One painpoint I discussed earlier is that all of ORTX product candidates use a self-inactivating lentiviral vector, and bluebird bio’s (BLUE) experience with emerging oncogenesis from its own SIN lentiviral vectors has put a spanner in the works of every other company using this delivery modality, which includes ORTX.

Another painpoint is that in early 2021, the FDA basically told ORTX that the approval process for OTL-200 will be delayed to at least early 2023. The company does not offer much in the way of a reason for this, but it goes on to say :

This approach and timeline are subject to the successful completion of the remaining regulatory activities in advance of an expected pre-BLA meeting with FDA, including CMC interactions and demonstration of the natural history data as a representative comparator for the treated population.

The overarching problem for ORTX has always been the very small market of all its target indications combined. MLD, the lead indication, is a very small market. So are the other indications it is targeting. That has been exacerbated by this two-year delay in approval in the US. However, in June, the company said it expects the BLA to be completed mid-year, with possible FDA approval during the first half of 2024. So that’s a very good development.

Financials

ORTX has a market cap of $96mn and a cash balance of $146mn. The company also announced up to $188mn in strategic financing. Last quarter, they made $1.2mn from EU sales of Libmeldy. Research and development expenses were $16.0 million for the three months ended March 31, 2023, while selling, general and administrative expenses were $11.1 million. At that rate, they have a cash runway of 10-12 quarters.

Retail public holds around 38% of the stock, while institutions lead among the rest of the holders. Key holders are Federated Hermes, Zentree and others. Insiders never sell stock, and there are two recent purchases, one by the CEO.

Risks

ORTX is a shadow of its former self, and I do not recommend buying stocks with such low market cap, or those that need to do reverse splits to stay on NASDAQ. ORTX has also delayed its entire program for unexplained reasons, and generated tremendous loss of value for investors.

Bottomline

ORTX has seen a terrible fall from grace over the last 2 years. It was probably overvalued in those days; today, it may well be undervalued. If the BLA works out, they will gain exclusive to a small but dedicated market in the US. Current prices are also very low. They have a decent amount of cash. I will consider a small position at these prices, although, like I said, I will never recommend such stocks to anyone.

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