VYGR - Voyager Therapeutics' Strategic Partnerships And TRACER Technology - Speculative Buy

2023-12-04 08:01:49 ET

Summary

• Voyager Therapeutics is a biotech firm focused on gene therapy treatments for CNS diseases, with preclinical trials for Parkinson's, ALS, and Alzheimer's.
• The company's TRACER platform allows for the delivery of therapeutic genes to previously inaccessible brain regions, unlocking potential drug delivery mechanisms.
• Voyager has secured partnerships and licensing agreements with major pharmaceutical companies, including Novartis, Pfizer, and Neurocrine, showcasing the value of its IP.
• The stock's valuation appears rather cheap, trading at 1.4 times its net cash value, with enough cash runway until 2025. Thus, I rate it a viable "speculative buy."

Voyager Therapeutics, Inc. (VYGR) is a promising biotechnology firm in gene therapy treatments for central nervous system [CNS] diseases. The company's product pipeline remains in preclinical trials for therapies against Parkinson's disease, amyotrophic lateral sclerosis [ALS], and Alzheimer's disease. The journey to complete the clinical trials for these therapies is extensive. However, VYGR's most significant development is its TRACER platform, which enables crossing the BBB to deliver therapeutic genes to affected cells. The TRACER platform allows VYGR to reach previously inaccessible brain regions, unlocking promising potential drug delivery mechanisms. After weighing its upside and risks, I think the current valuation for the company looks cheap enough to warrant a "buy" from more speculative investors aware of the risks.

Business Overview

Voyager Therapeutics is a biotechnology company based in Cambridge, Massachusetts. VYGR was founded in 2014, and its IPO was in November 2015. VYGR works in developing gene therapy treatments for CNS diseases and has several different programs at various stages of development. However, all of them are pre-clinical trials, which makes this a company without any FDA-approved IP. Thus, for the foreseeable future, VYGR's only financing can be through equity, debt, or IP licensing. Fortunately for shareholders, VYGR's IP portfolio appears promising and has contributed meaningful licensing revenues.

VYGR's product pipeline includes preclinical trials in Parkinson's disease, amyotrophic lateral sclerosis, Alzheimer's disease, and other CNS illnesses. In 2024, VYGR plans to file an Investigational New Drug [IND] for Alzheimer's disease therapy based on an anti-tau antibody program to start clinical trials. The program aims to slow the progress of the disease by targeting tau proteins. For these therapies, the road ahead is still very long, with several clinical trial phases and regulatory milestones yet to be fulfilled. However, as previously noted, licensing revenues are still possible due to the tech's promising potential.

VYGR's Crown Jewel

Nevertheless, VYGR's more significant intellectual property is the TRACER platform, which can create AAV capsids that can cross the blood-brain barrier [BBB] and efficiently deliver gene copies to a chosen target. TRACER is a name that comes from tds Tropism Redirection of AAV by Cell-Type-specific Expression of RNA. This platform improved viral carriers, developing AAV capsids to deliver and express a functional gene in cells affected by a mutation. AAVs are Adeno-Associated Viruses that serve as vectors to provide a therapeutic gene copy to the patient's cells, bringing an expected one-time treatment for neurological diseases.

Therefore, the great advantage of the TRACER Platform is that it allows crossing the BBB and accessing previously unreachable regions of the brain, overcoming an obstacle that has hindered the development of gene therapies for CNS diseases. VYGR leverages its TRACER technology to achieve collaborations with big pharma companies for developing gene therapies for specific diseases. This is a notable breakthrough as it unlocks a new generation of treatments and drugs that can directly interact with different CNS areas efficiently and likely have fewer side effects. The latter is still to be proven in actual clinical trials, but it certainly adds favorable optionality from a risk-reward point of view.

However, it's key not to discount VYGR because it has nothing in clinical trials yet. First, VYGR plans to file an IND for its Anti-Tau Antibody IP in 1H2024, just around the corner. Likewise, the company can file an IND for its ALS gene therapy program by mid-2025. Both either of these would officially make VYGR a company in clinical trials. But more importantly, the reality is that VYGR can indeed monetize its IP. At the same time, it develops it, particularly the TRACER IP, because it's vital for drug delivery and opens up new possibilities for other pharmaceuticals. At the same time, IP licensing and other partnerships are generally beneficial from an R&D standpoint, which should further boost VYGR's eventual clinical trials.

IP Licensing and Partnerships: Novartis, Pfizer, and Neurocrine

In March 2022, Novartis announced an agreement with VYGR to develop treatments for three neurological disorders in a deal with the potential to reach $1.7 billion for royalties and milestones. Novartis paid $54 million upfront for these programs with two additional targets. The identity of the targets is yet undisclosed. In March 2023, VYGR also received an additional $25 million and is eligible to receive up to $600 million for milestone achievements plus royalties.

The deal with Novartis tested the TRACER technology and led to a $630 million agreement with Pfizer in October 2022, with $30 million upfront for gene therapies to treat neurological and cardiovascular diseases. Pfizer's confidence in the VYGR technology sparked interest in big pharma to make deals for using the VYGR platform targeting specific diseases. As previously mentioned, this is a fairly versatile IP, potentially useful for various applications, making it exceedingly valuable.

Moreover, the agreement with Neurocrine Biosciences includes three gene therapy programs for CNS diseases using the TRACER platform. Neurocrine paid $175 million upfront, including $39 million in equity. Neurocrine will fund a GBA1 program through a Phase 1 trial to collaborate with VYGR as part of the deal. The GBA1 gene therapy is focused on Parkinson's disease treatment and other disorders related to mutations in the GBA1 gene. After the results of this clinical trial, VYGR could elect to co-develop and co-commercialize the GBA1 program with Neurocrine in the US or receive a payment of up to $985 million in total development milestones and royalties of 20% on US net sales.

Relatively Cheap: Valuation Analysis

From a revenue perspective, in VYGR's most recent earnings call , VYGR's executives highlighted that the company has generated over $200 million in non-dilutive partnering revenue in 2023 with agreements that provide royalty and revenue possibilities. In Q3 2023, the company had about $253 million in cash. Additionally, other funding is expected as reimbursements from collaborations. With this revenue, VYGR´s operations are sustained into mid-2025.

Yet, as you can see, analysts currently expect a major revenue decline for VYGR into 2024. This would occur just as the company starts to gear up for its IND on its Anti-Tau Antibody IP. This would ostensibly be a period of high investment in CAPEX and R&D expenses, so I reckon cash burn could increase considerably in 2024. But at the same time, the 2024 estimate of just $32.64 million in revenues seems rather pessimistic and could be easily revised upwards. After all, VYGR's IP has so far proven very versatile, so it's possible new partnerships and IP licensing agreements occur that boost the company's 2024 revenues. Still, despite the current assumptions and without new deals, VYGR thinks it has enough cash to last until 2025.

Nevertheless, it's vital to understand VYGR's cash burn rate using the latest quarterly figures. Looking at the company's quarterly cash flow statement, I estimate it burned $21.9 million in the last quarter by adding up the cash flow from operations and net CAPEX. This implies an annual cash burn rate of $87.6 million. Using the latest cash reserves of $252.9 million, that suggests a cash runway of 2.9 years. In fact, with this approach, I think VYGR could even have enough cash until 2026. So, it's safe to say that the company has enough capital to develop its IP, maybe even past Phase 1 trials. This is because Phase 1 trials usually take up to 2 years, more or less, as a rule of thumb. Naturally, VYGR's timetable can be significantly different, but it's a useful reference point to understand how well-capitalized the company is now.

Additionally, VYGR has a negligible debt of $21.03 million. Given the current market cap of $334.80 million, VYGR is trading at 1.4 times its net cash value. Other valuation multiples also suggest that the company is cheap. However, please consider it's also burning through cash, so this multiple should continue to rise if all else remains equal. It's also a company that is very much in its nascent stages, so an eventual FDA approval is still many years away because clinical trials have several phases, each often taking up years. I'd argue this is the company's biggest caveat from an investment perspective. But at the same time, its IP seems uniquely positioned to be potentially invaluable for many applications, particularly the TRACER IP. If any potential application is discovered and addresses a sizeable TAM, then the current valuation could be a remarkably good entry price for new investors.

Investment Thesis Risks

Naturally, the investment thesis for VYGR is inherently highly speculative. The company doesn't have any clinical trials yet, so even though its IP appears promising, it could be deemed unsafe or ineffective when rigorously tested. This would derail the investment case I've laid out in this article and could lead to a substantial capital loss. Also, more specifically, it's significantly reliant on licensing revenues. These are highly concentrated on a few big partners, so losing partners for any reason could quickly blow the company's cash flow and financing.

Moreover, since there's a long way until a possible FDA approval, we can't discount the possibility that VYGR's promising IP will become obsolete or subpar compared to a better, newer alternative by then. Also, if VYGR requires additional capital from the markets for any reason, the ongoing macro uncertainty and high rates could force VYGR to raise capital at a higher cost of capital, thereby hurting its valuation. But overall, I think most of these risks are somewhat general for biotechs, though they instantiate in VYGR very concretely, making them worth monitoring if you're an investor.

Conclusion

VYGR is a relatively promising company in its nascent stages with its current IP. I see great potential for TRACER, and its applications could prove invaluable years down the road. However, at the same time, we can't simply ignore the highly speculative nature of VYGR and the uncertain macroeconomic situation. These are risks investors need to carefully consider before investing in VYGR. Yet, I doubt they're enough to dissuade more speculative investors from taking smaller long-term stakes in the company, almost investing as an option for its future. It's a nuanced picture, but I think, on balance, VYGR is doing great, given it's still in its early stages, which is why I think it's a good "speculative buy."

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