VRDN - Viridian Therapeutics: Disconnect Between Fundamentals And Share Price In 2023

2023-12-29 11:23:28 ET

Summary

• Shares of Viridian Therapeutics underperformed this year.
• Negative biotech sentiment was partly to blame, as well as Tepezza's Y/Y net sales declines, and some internal turmoil with two CEO changes.
• These events overshadowed many positive developments in the company's TED pipeline, and more recently, the pipeline expansion with two preclinical anti-FcRn candidates.
• In today's article, I provide an overview of this year's developments and the outlook for 2024 and beyond.

Shares of Viridian Therapeutics ( VRDN ) performed poorly this year, even if we consider the underperformance of biotech stocks. The stock is down more than 20% year-to-date, and even more from my very bullish late January article . Not all of this year’s developments were positive, but on a net basis, I believe they are as we have seen the progress and de-risking of the TED pipeline and important pipeline expansion with the addition of two preclinical anti-FcRn candidates. In this article, I provide an overview of developments in 2023 (not in chronological order) and what we should expect from the company in 2024.

Negative developments

In late 2022, Amgen ( AMGN ) announced it would acquire Horizon Therapeutics, and the announcement provided validation of Tepezza’s attractiveness as it accounted for a good part of the $28 billion price tag on Horizon. Viridian started 2023 strong with what was considered a competitive candidate to Tepezza which is administered the same way as a once every three weeks intravenous infusion, and with follow-on subcutaneously administered candidates VRDN-002 and VRDN-003.

Tepezza was expected to return to growth in 2023 but Horizon was experiencing some issues that included shorter treatment courses that reduced net sales per patient compared to the previous year, reimbursement troubles for chronic TED patients, and then, the real-world adverse safety findings related to hearing impairment caused by Tepezza. This was a known side effect of Tepezza, but in the real world, Tepezza seemed to do worse than in phase 2 and phase 3 trials, and this prompted a label update to more clearly emphasize this safety issue.

The closing of the acquisition of Horizon also dragged on and there were even concerns that it would not close, initially because of the pushback from the FTC, and later due to speculation that Amgen would use the FTC’s pushback to give up on the acquisition as Tepezza was not performing as expected. Amgen seemed undeterred and management continued to display enthusiasm for the deal and Tepezza, and the acquisition did close in early October.

These issues were among the most important to pressure Viridian’s share price in most of 2023.

However, there was some internal turmoil as well. The company started the year with Jonathan Violin as CEO, but he was replaced by Scott Myers in February, and Myers was then replaced by Stephen Mahoney in late October. It is not entirely clear why these changes happened, but after being appointed, Mahoney said that the key issue was that the company was not doing a good job communicating its plans and progress to investors. Some of the examples are the interpretation of phase 2 results of VRDN-001 in chronic TED patients over the summer and the introduction of a subcutaneous version of VRDN-001 that caused concerns that the trial of the preferred subcutaneous candidate VRDN-003 was not going well.

What became clear after Mahoney’s appointment was the far more active role of a key shareholder, the biotech hedge fund Fairmount Funds Management. Fairmount already had two board members but became a lot more front-facing as the Viridian board member and managing member of Fairmount, Peter Harwin, started to participate in investor conferences along with Mahoney.

Fairmount also led the financing round in late October and attracted other strong names in the industry, such as Perceptive Advisors, RTW Investments, and Venrock. So, while the CEO changes go in the negative section this year, I am very encouraged by the appointment of Mahoney, Fairmount’s increased engagement, and how they handled the recent updates.

Last, but certainly not least, was the very poor biotech sentiment as it was a big contributor to this year’s decline in Viridian’s share price, evidenced by the sentiment improving and the stock doubling from the lows in the last two months of the year.

Positive developments

There were plenty of positive events in 2023.

We saw two additional clinical de-risking events of VRDN-001 – in active TED patients at the start of 2023 and in chronic TED patients over the summer. However, the latter event was poorly received, and as mentioned, seems to have been the contributing factor to Myers' departure.

In mid-December, Viridian shared the phase 1 results of all three subcutaneous TED candidates and announced the selection of VRDN-003 as the subcutaneous candidate to proceed to pivotal trials in mid-2024.

This was the preferred scenario as VRDN-003 is an extended half-life version of VRDN-001 and has retained its potency and has the potential to be administered as an at-home, easy-to-use, subcutaneous injection and as infrequently as once a month, and potentially even once every two months and this outcome was very positive and unexpected and has addressed concerns about competitors like Acelyrin's ( SLRN ) lonigutamab being more convenient with potential for once a month subcutaneous administration.

However, we could say that these positive developments (excluding the potential for once every two months dosing of VRDN-003) were largely expected and in line with what we saw in 2022.

There was one development that I believe is far from being fully appreciated by investors – the late October pipeline expansion to include two anti-FcRn candidates VRDN-006 and VRDN-008. The anti-FcRn class of drugs has significantly expanded in the last few years, mainly thanks to argenx’s ( ARGX ) efgartigimod, and this includes the potential of these drugs to compete with Tepezza and Viridian’s VRDN-001 and VRDN-003 in the TED market.

This pipeline expansion makes Viridian uniquely positioned to defend its IGF-1R antibody franchise with the new anti-FcRn pipeline, as no other company has both an IGF-1R antibody and an anti-FcRn candidate in development or on the market.

With the introduction of the anti-FcRn pipeline, what should not be missed is the recently reported and very positive topline data of Immunovant’s ( IMVT ) batoclimab in Graves’ disease patients as they serve as a major de-risking event for a whole new market for the anti-FcRn class of drugs. As a reminder, TED is a complication of Graves’ disease, and I believe Viridian is well-positioned to be a fast-follower behind Immunovant and argenx and that it can be in a position to offer a treatment option to Graves’ disease patients and (so far uniquely) even two treatment options to TED patients.

While Tepezza’s net sales trajectory was in the negative developments section of the article, we did see sequential improvements in the next two quarters, and the Y/Y declines improved to 7% in each of the two quarters.

Horizon also announced positive phase 4 results of Tepezza in chronic TED patients. It was expected to work in this population, but it was still important to see clinical validation. Horizon also quickly secured a label change for Tepezza that clarified the language to include treatment of all TED patients because payers were mostly limiting the use of Tepezza to the active TED population that was studied in phase 2 and phase 3 trials. This should be a tailwind for Tepezza’s reimbursement and sales growth in 2024 and beyond and should increase the size of the market for Viridian’s products.

Amgen also remained optimistic on Tepezza’s growth prospects, not just because of the mentioned sequential recovery in net sales, but because of positive trends of some leading indicators such as patient enrollment forms, or PEFs, and improved payer coverage after the positive chronic TED data and these trends indicate Tepezza could finally return to growth in 2024 which bodes well for Viridian’s TED candidates.

Viridian also raised cash to extend the runway and the financing overhang has been removed ahead of the very important events in 2024.

Overall, I believe the changes to the long-term outlook were net positive and the new management team led by Fairmount seems competent and forward-looking considering the pipeline expansion to include two anti-FcRn candidates.

Outlook for 2024 and beyond

2024 will be the most important year in the company’s short history as we should see the results from two pivotal trials of IV-administered VRDN-001. The first is the THRIVE trial in active TED patients with topline data expected in mid-2024 and the second is the THRIVE-2 trial in chronic TED patients with topline data expected in late 2024.

The IGF-1R class of drugs itself is de-risked in the clinic thanks to the excellent results of Tepezza in both active and chronic TED populations, and VRDN-001 itself has demonstrated good results in three separate active TED patient cohorts and one chronic TED cohort. Success in the trial is to be expected and the key questions these trials will answer are the magnitude of treatment effect, how VRDN-001 compares to Tepezza on a cross-trial basis on the primary and secondary efficacy endpoints, and how safety looks, primarily as it relates to hearing impairment as this has become the more pronounced safety concern for Tepezza.

Based on VRDN-001’s data in several active TED cohorts and one chronic TED cohort, I expect VRDN-001 to generate strong phase 3 data in both trials in 2024.

The preclinical data the company will share on its second anti-FcRn candidate VRDN-008 next year will also be important as I view it as an important step because non-human primate data from this class has very good translation to humans.

And while VRDN-006 looks like a twin to argenx’s Vyvgart, VRDN-008 has an extended half-life and could differentiate from the class on administration frequency, and preliminary data in mice look good, but we need to see the data in non-human primates next year.

On the external side, it will be important for Tepezza’s growth trajectory to improve in 2024. Not necessarily after Q4 2023 and Q1 2024 results because the former will have some transition headwinds as the asset went to Amgen in early October, and the first quarter is a seasonally weak quarter for Tepezza. Still, we should also see a sequential improvement in net sales in Q4 2023 and continued improvements in the year-over-year growth trajectory in Q1 2024 followed by faster growth in Q2 2024 and beyond.

Looking beyond 2024, the thesis will shift from VRDN-001 to the subcutaneously administered VRDN-003, and then to the anti-FcRn pipeline to defend and potentially increase the peak sales potential in the TED market, and to expand into other indications with Graves’ disease being the natural and large market to go after in the second part of the decade.

Viridian has also shown it is proactive with pipeline expansion and we could see the company further expand its pipeline in the following years, although the anti-FcRn pipeline itself provides plenty of additional shots on goal beyond TED and Graves’ disease.

Finally, I consider Viridian a very attractive takeover target with the attraction further increasing if VRDN-001’s phase 3 data live up to or exceed expectations. VRDN-001 should be approved and launched in 2025, in a market where the patient base turns over every six months (Tepezza is only used for up to six months) and where launching a product will be much easier compared to chronic diseases where market uptake depends a lot more on switching patients from existing therapies. As such, Viridian represents an attractive takeover target for revenue-starved big pharma companies.

Risks

Two important risk factors have been largely (but not entirely) addressed this year:

• The introduction of the anti-FcRn pipeline covers the angle of potential competition in the TED market outside of the IGF-1R class. This does not guarantee Viridian will be successful, but improves the long-term outlook.
• The phase 1 results of VRDN-003 indicate it can be dosed once a month or even once every two months and they address the potential convenience advantage of competing candidates such as Acelyrin’s lonigutamab, and also of potentially orally available competitors as the extended administration frequency with a very convenient subcutaneous injection makes once or twice daily oral competitors less of a problem on the convenience side, so I am not as concerned about orally available competitors such as Sling Therapeutics’ (privately held) linsitinib.

The key risk factors in 2024 and the medium term are:

• The size of the market for the IGF-1R class and how Tepezza’s commercial uptake will look in the hands of Amgen.
• Phase 3 results of VRDN-001 in active and chronic TED patients in mid-and late 2024, respectively, and how it compares to Tepezza on both efficacy and safety (primarily hearing impairment on the safety side). But longer term, it will be more important to see how subcutaneously administered VRDN-003 does in pivotal trials (which could happen as soon as 2H 2025) as VRDN-001 should be just a transitional option until VRDN-003 arrives on the market. I expect the IGF-1R market to be dominated by subcutaneous versions of these products, from Tepezza, VRDN-003, to Acelyrin’s lonigutamab.
• Competition in the TED market beyond competing IGF-1R antibodies such as Tepezza, lonigutamab, or linsitinib, and beyond the anti-FcRn class of drugs led by Immunovant and argenx. We could see other approaches compete with Viridian’s candidates, one of which is Lassen Therapeutics’ (privately held) LASN01, an interleukin-11 receptor (‘IL-11R’) monoclonal antibody in development for the treatment of TED and also of idiopathic pulmonary fibrosis (‘IPF’). The first TED patient has been recently dosed in the phase 1 trial of LASN01, so, we have to wait and see how good this approach is.

Preclinical and phase 1 clinical results of the anti-FcRn candidates VRDN-006 and VRDN-008 will be important to defend the TED franchise, but also for the potential expansion beyond TED, and I suspect Graves’ disease is the next logical indication Viridian should go after with these candidates.

Financial risks are moderate at this point and should VRDN-001 and VRDN-003 be successful in pivotal TED trials, I anticipate Viridian will only need one more financing round before it becomes cash flow positive.

Conclusion

2023 was a successful year for Viridian (the company), with important clinical milestones for VRDN-001 and VRDN-003, the de-risking of the Tepezza and the IGF-1R class in chronic TED patients along with Tepezza’s sequential sales recovery in Q2 and Q3, Viridian expanding the pipeline to include two preclinical anti-FcRn candidates, and doing a financing round that extended the cash runway into 2026.

I believe that these positive developments outweigh the negative developments and this has created a disconnect between the fundamentals and Viridian’s valuation. I see the risk-reward as very favorable for the reward side and believe the events and catalysts in 2024 could push the stock significantly higher.

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