SWTX - SpringWorks Therapeutics: FDA Decision Date Ahead

2023-07-12 15:33:06 ET

Summary

• Today we revisit SpringWorks Therapeutics, Inc. for the first time in nearly a year.
• The company's primary drug asset is on the cusp of garnering SpringWorks' first FDA approval for a rare affliction.
• An updated investment analysis follows in the paragraphs below.

You can cut all the flowers but you cannot keep Spring from coming .”? Pablo Neruda.

Today, we are putting SpringWorks Therapeutics, Inc. ( SWTX ) in the spotlight for the first time since our initial article on this developmental concern back in July of last year. We concluded that piece saying the stock at that time probably merited a small " watch item" position at best.

Other than a brief spike up in August, the stock has largely been range bound over the past 12 months. However, a lot can happen in a year. Therefore, it is time to circle back on SpringWorks. An updated analysis follows below.

Company Overview:

SpringWorks Therapeutics, Inc. is headquartered in Stamford, CT. This clinical staged biopharma firm is focused on developing treatments for underserved patient populations suffering from rare diseases and cancer. The stock currently trades right around $27.00 a share and sports an approximate market capitalization of $1.75 billion.

Currently SpringWorks primary drug candidate is an oral small molecule gamma-secretase inhibitor called nirogacestat. It is being developed as a monotherapy for the treatment of soft tissue carcinoma desmoid tumors as well as part of combination therapies with numerous partners like GSK Inc. ( GSK ) and Pfizer ( PFE ) targeting various indications.

Recent Developments:

Late last year, the company submitted an NDA for nirogacestat to be approved to treat desmoid tumors. The original PDUFA date on this marketing application was August 27th. The application received priority review status late this February. However, in early June the FDA decided to extend that action date to allow additional time to review additional analyses that were submitted to support the NDA. No new information was requested from SpringWorks.

Desmoid tumors are also known as aggressive fibromatosis. They are non-lethal and don't metastasize but can be extremely painful. They most often occur in the abdomen, arms and legs. Late-stage trial results to treat this indication met both the primary and secondary endpoints of the study. However, in an April article here on Seeking Alpha there were concerns about adverse effects, especially pregnant women. When top line data were originally released in May of last year, the news caused the stock to fall.

Development of nirogacestat as part of combination therapy has been a mixed bag. On the good news front, GSK expanded its global, non-exclusive license and collaboration agreement with SpringWorks around developing nirogacestat with GSK's Blenrep to target multiple myeloma or MM. The extension triggered a $75 million equity investment into SpringWorks as well as an additional $550 million in potential milestones.

Interestingly, this extension came just over three months after the companies announced Phase 1/2 trial results for this combination therapy to treat relapsed or refractory multiple myeloma ((RRMM)) that showed several ocular adverse events and triggered a sell-off in the stock of SWTX.

In addition, in August Allogene ( ALLO ) decided not to advance development ALLO-715 in combination with nirogacestat to treat MM after disappointing data from an early-stage trial.

Analyst Commentary & Balance Sheet:

Since May, Goldman Sachs, JP Morgan ($57 price target), Barclays ($41 price target) and H.C. Wainwright ($105 price target) have maintained or assigned Buy ratings on SWTX.

Approximately one third of the outstanding float in the shares are currently held short. One company director disposed of nearly $5 million worth of shares at the end of March. Three other insiders have sold approximately $125,000 worth of shares collectively so far in 2023.

SpringWorks ended the first quarter with just over $525 million in cash and marketable securities after posting a net loss of $73.4 million for the quarter.

Verdict:

Analyst firms and the bears in SpringWorks Therapeutics, Inc. stock have completely different views on the company and stock's prospects at the moment. It is unusual to see more than a third of the outstanding float of any stock held short. While FDA approval could be a temporary positive catalyst, safety concerns could make the initial rollout to treat desmoid tumors challenging. FDA rejection of the nirogacestat marketing application obviously would send the shares spiraling downward.

SpringWorks is burning a large amount of cash on a quarterly basis as well and a likely capital raise appears to loom on the horizon in 2024. Add in recent disappointments in development of nirogacestat as part of a combination therapy, and discretion seems to be the better part of value here. Therefore, the current risk/reward profile dictates there is no compelling reason to hold SpringWorks Therapeutics, Inc. stock at this time.

If we had no winter, the spring would not be so pleasant: if we did not sometimes taste of adversity, prosperity would not be so welcome ."? Anne Bradstreet.

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