BMY - Ventyx Biosciences: Not Chasing This Rally

Summary

• Today, we take our first look at Ventyx Biosciences, Inc., a small California based biotech firm with a promising pipeline.
• A FDA approval triggered a big rally in this heavily shorted stock this week.  However, is the rise sustainable?
• An investment analysis follows in the paragraphs below.

No sound is more ominous than the silence of a patient man . ? Joyce Rachelle

Today, we put Ventyx Biosciences, Inc. ( VTYX ) in the spotlight for the first time. The shares have one of few big winners in the market over the past week thanks to a recent FDA approval by a competitor in the same space. But can the rally last? We attempt to answer that question via the analysis below.

Company Overview:

Ventyx Biosciences is headquartered just outside of San Diego. The company is focused on developing small molecule product candidates for inflammatory diseases and autoimmune disorders. With large recent rally in the stock, the shares are near $37.00 and sport an approximate market capitalization of $1.9 billion.

The company is pursuing drug candidates that are targeting large treatment markets. The company has several compounds in early stage development within its pipeline. All of these small molecule compounds were all internally discovered and Ventyx Biosciences owns all the rights to these candidates.

Its main asset at this time is a candidate called VTX958. This is a selective allosteric TYK2 inhibitor whose functional selectivity may give it advantages over other TYK2 inhibitors.

The company plans to initiate Phase 2 trials for VTX958 in psoriasis, Crohn's disease, and psoriatic arthritis by the end of this year after posting positive Phase 1 results in mid-August.

In addition to VTX-958, the company also advancing its candidate 'VTX-002'. This is an oral, selective sphingosine 1 phosphate receptor 1 (S1P1R) modulator in development for ulcerative colitis (UC). VTX-002 is currently enrolling patients in a Phase 2 study to treat UC, and that trial should report topline data in 2023. Leadership believes that this ongoing Phase 2 trial may serve as the first of two pivotal trials required for registration in UC.

In the second quarter of this year, the company announced positive topline data from the Phase 1 trial of another candidate called VTX2735 in healthy volunteers. VTX2735 is an oral, selective inhibitor of NLRP3 that is designed for the treatment of systemic inflammatory diseases. Management plans to initiate a Phase 2 trial in cryopyrin-associated periodic syndrome [CAPS] patients in the fourth quarter of this year.

Recent Developments:

Interestingly, the stock soared on Monday on a FDA approval garnered by another company. Specifically, Bristol-Myers Squibb's ( BMY ) TYK2 inhibitor Sotyktu (deucravacitinib) for plaque psoriasis was approved by the FDA without a black-box warning. That last part was what was key for the market. Oppenheimer cited this absence of a black box warning for Sotyktu as a ' significant win for Ventyx, deucravacitinib and other TYK2 developers ' while raising the firm's price target on VTYX to $65 from $40 right after the FDA approval was announced.

TYK2 is from a family of proteins called Janus kinases, or JAKs. Other JAK inhibitors, when used in treating rheumatoid arthritis, have been linked to cardiovascular complications and cancer. The FDA has required warnings on the labels of JAK inhibitors like Pfizer's ( PFE ) Xeljanz. So the lack of a black box warning is significant.

Analyst Commentary & Balance Sheet:

The analyst community is encouraged by the FDA approval. Six analyst firms including Piper Sandler and Jefferies have reiterated Buy ratings on VTYX over the past week, two of which had significant upward price target revisions. Price target proffered range from $50 to $65 a share.

Nearly one out of every four shares of outstanding float is currently held short in this stock. There has been no insider activity in these shares so far in 2022. At the end of the second quarter, Ventyx Biosciences held just under $260 million in cash and marketable securities on its balance sheet which is expected to support all operations into the first half of 2024. The company has no long-term debt.

Verdict:

The company is targeting some very large markets with the candidates it is developing within its pipeline. The Psoriasis target population is a $20 billion market as one example. The company also believes VTX-958 may unlock a major market opportunity in Crohn's disease. This is currently greater than a $13 billion global opportunity.

If successful in trials, VTX958 could offer several positive attributes that other compounds on the market do not and can be taken in a pill form instead of having to be injected like AbbVie's ( ABBV ) Humira or Amgen's ( AMGN ) Enbrel.

Ventyx Biosciences also has other ' shots on goal ' in development. All this said, the company is years away from potential commercialization. Obviously deucravacitinib or Sotyktu has a nice little head start in the psoriasis market thanks to its FDA approval this week.

I also wonder how much of last week's rally was due to a ' short squeeze ' given how much of the outstanding float was short when the FDA approval was announced. I also wouldn't be totally surprised if the company uses the big rally in the stock to raise additional capital via a secondary offering at these higher prices.

Therefore, I plan to keep an eye on this evolving story. If the shares come back under the $30 level, I might be even pick up a small ' watch item ' in Ventyx Biosciences at that time as the company has several potential near term catalysts on the horizon. However, I am not personally going to chase this rally.

Worry is the triumph of fear. ? Aniekee Tochukwu Ezekiel

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