NVSEF - Regenxbio: A Transformative Year

Summary

• Due to its tremendous pressure, the 2021/2022 Biotech Bear market knocked out nearly all biotech innovators.
• Nevertheless, certain rare companies like Regenxbio are defying bear market expectations.
• Asides from the recent AbbVie mega partnership, Regenxbio's RGX314 is advancing in two pivotal trials. Meanwhile, RGX121 is progressing in its Phase 3 study.

In the short run, the market is a voting machine but in the long run, it is a weighing machine. - Benjamin Graham

As a biotech investor, you can appreciate that patience is one of the most difficult virtues in investing as well as in life. After all, its power grows irresistibly with time. That being said, if you're an investor in REGENXBIO Inc. (RGNX) your patience over the previous few years has been tested. Nevertheless, the stock is showing signs of bear market defiance.

In the new few years, I strongly believe there are substantial upsides to Regenxbio due to various fundamental improvements. Unless the market takes a steeper turn Southbound, you can expect 2022 to be a transformative year for Regenxbio. In this research, I'll feature a fundamental analysis of the company and share with you my expectation of this intriguing growth equity.

Figure 1: Regenxbio chart

About The Company

As usual, I'll deliver a brief corporate overview for new investors. If you are familiar with the firm, I suggest that you skip to the subsequent section. Operating out of Rockville, Maryland, Regenxbio is laser-beam focused on the innovation and commercialization of gene therapy. By unlocking the power of the genes, Regenxbio is poised to fill the unmet needs in retinal, metabolic, and neurodegenerative diseases. I noted in my prior research ,

Catalyzing growth for Regenxbio is the gene delivery platform dubbed NAV . Of note, NAV uses highly advanced adeno-associated viral ((AAV)) vectors which confers improved therapeutic success. Specifically, NAV overcame all the setbacks like low efficacy and toxicity that hindered earlier generation AAVs. In fact, NAV works quite well that Regenxbio is able to license this technology to 20 different companies. One notable licensee, AveXis, got acquired by Novartis ( NVS ) for $8.7B. Better yet, its drug Zolgensma is already approved and being commercialized for spinal muscular atrophy.

Figure 2: Therapeutic pipeline

Licensee Development

As you can see, Regenxbio out-licensed their NAV technology to over 20 different companies. Notable partners (licensees) like Rocket Pharmaceuticals, AveXis, Prevail Therapeutics, and Ultragenyx leverage Regenxbio's NAV to innovate stellar medicines for various orphan (i.e., rare) diseases. By focusing on orphan conditions, they can enjoy a premium reimbursement to ensure that their innovation efforts are worthwhile.

Figure 3: NAV technology platform

Of various licensees, the most important and most advanced partner is AveXis - A Novartis acquisition. Interestingly, Novartis has launched its gene therapy for spinal muscular atrophy (i.e., SMA) beyond a blockbuster drug. In July 2022, Novartis disclosed that Zolgensma sales reached $379M with over 2.3K patients treated. On a forward basis, 4X $379M would equate to over $1.5B in annual sales. As Zolgensma sales continue to gain traction, Regenxbio is poised to profit from royalty revenue.

Of the aforesaid firms, Ultragenyx Pharmaceuticals ( RARE ) posted the most promising development. Specifically, Ultragenyx announced the dosing and enrollment of the Phase 3 study of DTX401 for Glycogen Storage Disease Type Ia (GSDIa). Additionally, Ultragenyx is initiating the Phase 3 (eNH3ance study) of DTX301 for Ornithine Transcarbamylase ((OTC)) Deficiency. Furthermore, the said firm is tinkering with a solution for Wilson's Disease by dosing UX701. Like AveXis, Ultragenyx is also focusing on orphan diseases which confers tremendous advantages for the company.

5X25 Strategy

Shifting gears, you should check into other organic pipeline development. On this front, Regenxbio is executing the so-called 5x25 strategy. That is to say, the company intends to launch at least five gene therapies either in the market or in an advanced clinical investigation by 2025.

Guided by their lofty aspiration, Regenxbio is advancing RGX-121 into its pivotal program for the treatment of MPSII. Two years from now, the firm is eager to file a marketing application for RGX-121. If approved, RGX-121 is poised to cut into the $4.7B MPS market (which is growing at a 10.4% CAGR). Sharing his insight on the progress of the 5x25 strategy, the President and CEO (Kenneth Mills) enthused :

Earlier today, we announced that the pivotal program for RGX-121, our AAV Therapeutic for the treatment of MPS II, is active and enrolling patients, making this our second program to enter this stage of development. We believe RGX-121 will advance rapidly through the clinic, supporting our intention to file a BLA in 2024 using the accelerated approval pathway.

Figure 4: Neurodegenerative franchises

RGX314 Advancement

Asides from RGX-121, the crown Jewel of this pipeline (i.e., RGX314) is also progressing steadily and surely. As you recall, RGX-314 is being developed for wet AMD. Of all assets, you can bet that RGX-314 is the most important one because of the tremendous unlocked value in this franchise.

As you recall from my prior research , Regenxbio recently secured a lucrative ($1.38B) partnership deal with AbbVie (ABBV) for the development and commercialization of RGX314 for wet AMD. As such, salient advancement from this front is crucial to the underlying value/growth of Regenxbio. Mr. Mills noted ,

RGX-314, being developed in collaboration with AbbVie, is also progressing well. We have two ongoing pivotal trials evaluating RGX-314 for the treatment of wet AMD and remain on track for a BLA filing in 2024. As previously announced, we also have progressed our Phase II trials evaluating suprachoroidal delivery of RGX-314. With our significant progress over the first half of the year along with a strong balance sheet to support the advancement of our leading AAV-gene therapy pipeline, we remain confident in our ability to deliver meaningful therapies to patients.

Figure 5: Underlying science of RGX-314

To realize the hidden value in RGX-314, you have to conduct comparative market analysis with the wet-AMD mega-blockbuster (Eylea). Accordingly, Eylea procured $9.2B for Regeneron ( REGN ) for Fiscal 2021. As you can see, Eylea's patent is set to expire in June of next year.

Consequently, there is a huge demand for novel drugs like RGX-314 to fill the gap. After all, the global macular edema and macular degeneration market are estimated to reach $16.5B by 2030. As you can imagine, RGX-314 is positioned to carve a significant percentage of this niche.

Competitor Landscape

Sizing up competition is important because it gives you a quick glimpse into the landscape where Regenxbio is operating. Here, Regenxbio goes toes-to-toes with other gene therapy innovators for rare diseases like Solid Biosciences ( SLDB ). I noted in a prior article :

As you know, Solid also innovates gene therapy for DMD. Notwithstanding, the data for Solid thus far disappointed investors. Asides from Solid, Sarepta Therapeutics ( SRPT ) is another dominant player in the DMD niche. For the wet AMD market, Regenxbio squares up against the flagship and mega-blockbuster Eylea.

Figure 6: Gene therapy innovators for rare diseases

Regardless of the competition, you can see that Regenxbio reigns supreme among competitors. That is to say, Regenxbio has worldwide rights to over 100 AAV vectors. Since AAV is the premier vector for gene therapy, Regenxbio is in an extremely strong position over other gene therapy innovators.

Now, if you've been following my research over the years, you can appreciate that I like to feature leading firms in various niches. Simply put, it pays to invest in leaders rather than other me-too innovators. That way, there is substantial value/growth potential that can entice an acquisition like Global Blood Therapeutics ( GBT ).

Don't get me wrong, I'm not saying that Regenxbio would be acquired. Be that as it may, the stellar NAV platform (coupled with robust partnerships like AbbVie and the licensees' programs) set Regenxbio apart from the competition. Therefore, it increases the chances that Regenxbio would be acquired.

Figure 7: Robust moat against competition

Financial Assessment

Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll analyze the 2Q2022 earnings report for the period that concluded on June 30.

As follows, Regenxbio procured $32.6M in revenues compared to $22.0M for the same period a year prior. Notably, all revenues came from Zolgensma sales royalty. As the blockbuster (Zolgensma) is gaining strong sales traction, you can expect royalty for Regenxbio to continue its current trend.

As revenue is still insignificant, let us check other meaningful metrics. That being said, the research and development (R&D) for the respective periods registered at $61.0M and $45.8M. I viewed the 33.1% R&D increase positively because the capital invested today can turn into blockbuster profits. After all, you have to plant a tree to enjoy its fruits.

Additionally, there were $70.9M ($1.58 per share) net loss compared to $57.5M ($1.36 per share) decline for the same comparison. You can see that the bottom line depreciation is widened because the company invested more capital into R&D. As Regenxbio gains additional approval and launches more drugs over time, I believe that the company would turn a net profit due to the economy of scale.

Figure 8: Key financial metrics

About the balance sheet, there were $682.0M in cash, equivalents, and investments. Against the $95.1M quarterly OpEx (and on top of the $32.6M quarterly revenue), there should be adequate capital to fund operation into 1Q2025 before the need for additional financing.

Valuation Analysis

It's important that you appraise Regenxbio to determine how much your shares are truly worth. Before running our figure, I liked to share with you the following:

Wall Street analysts typically employ a valuation method coined Discount Cash Flows (i.e., DCF). This valuation model follows a simple plug-and-chug approach. That aside, there are other valuation techniques such as price/sales and price/earnings. Now, there is no such thing as a right or wrong approach. The most important thing is to make sure you use the right technique for the appropriate type of stocks.

Given that developmental-stage biotech has yet to generate any revenues, I steer away from using DCF because it is most applicable for blue-chip equities. For developmental biotech, I leverage the combinations of both qualitative and quantitative variables. That is to say, I take into account the quality of the drug, comparative market analysis, chances of clinical trial success, and potential market penetration. For a medical diagnostic device, I focus on market penetration and sales. Qualitatively, I rely heavily on my intuition and forecasting experience over the decades.

Figure 9: Valuation analysis

Potential Risks

Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." At this point in its life cycle, the most salient risk for Regenxbio is whether the company would continue to generate positive data for the lead program RGX314. Of note, I ascribed a 35% chance of clinical failure. If that occurs, you can anticipate that your stock would tumble by roughly 40% and vice versa.

Moreover, other pipeline assets like RGX121 and RGX202 might deliver subpar clinical data. Despite the highly favorable chances of excellent clinical outcomes, there is no such thing as a guaranteed forecast when it comes to investment research. Beyond that, Regenxbio might grow too aggressively and thereby runs into a potential cash flow constraint.

Conclusions

In all, I maintain my strong buy recommendation on Regenxbio with a five out of five stars rating. As the premier gene-therapy innovator, Regenxbio's shares did not move much in the past few years. However, the stocks have been showing signs of a rally in August. That made sense due to the various fundamental advancements. One such event is the mega partnership with AbbVie for RGX314. The second one is the clinical advancement for RGX202 and RGX121. Going forward, you can anticipate strong clinical data to deliver additional pipeline progress. As more development materializes, the share price should follow.

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