2023-11-13 02:13:54 ET
Summary
- Atara Biotherapeutics stock price dropped by 80% following failure of ATA188 in a phase 2 study in multiple sclerosis. This was an excessive reaction by the market in my opinion.
- ATRA's restructuring, tab-cel deal with Pierre Fabre, and lower future R&D expenses (considering failure of ATA188 and prioritization of ATA3219 and ATA3431) have extended cash runaway beyond Q3 2025.
- Pierre Fabre will not only take over all costs associated with tab-cel but will also pay ATRA $30M upfront, as well as $100M in regulatory milestone payments through BLA approval.
- According to the deal, the Company is entitled to up to $640M in total milestone payments as well as "significant" double-digit royalties of anticipated peak sales over $500M just in the US.
- The main risk to the thesis is regulatory delays (and therefore delays in milestone payments) which would significantly impact ATRA's cash runaway considering very high cash burn.
Thesis update
In my prior coverage I suggested Atara Biotherapeutics, Inc. (ATRA) as a speculative "Buy" based on upcoming topline results from a phase 2 trial in multiple sclerosis. Obviously, I couldn't have been more wrong. Despite strong pathophysiological rationale and promising early phase results, ATA188 not only failed but was even worse than placebo, which is a very surprising outcome. ATA188 considerably underperformed compared to prior trials, while placebo considerably overperformed, which was quite unexpected. Following announcement of the results, ATRA's stock price nose-dived by about 80%.
Part of my rationale for suggesting this speculative "Buy" was potential back-up from tab-cel, which is already approved in Europe, and a BLA is currently planned for Q2 2024. In this update, I will discuss recent updates on tab-cel (regulatory update, and global expansion of the deal with Pierre Fabre) and why I believe that ATRA has significant upside potential based on tab-cel. The major risk to the thesis is more regulatory delays in the US, which is not a risk to ignore, as ATRA's cash runaway (currently estimated to be beyond Q3 2025) is strongly dependent on achieving regulatory milestones related to tab-cel BLA.
Tab-cel overview
Tab-cel is an allogeneic T-cell immunotherapy targeting EBV-infected B-cells. It is being developed for EBV-associated post-transplant lymphoproliferative disease (EBV+ PTLD) in the setting of (1) solid organ transplant (SOT) after the failure of rituximab and rituximab plus chemotherapy or (2) allogeneic hematopoietic cell transplant ((HCT)) after the failure of rituximab. The treatment was already approved in Europe a year ago and a BLA is planned in the US in Q2 2024.
Prognosis in above-defined population is dismal, with a median overall survival of 0.7 months in HCT and 4.1 months in SOT. According to the ongoing ph3 ALLELE study about 51% of patients responded to tab-cel (50% of HCT patients and 52% of SOT patients). Switching to a different lot may increase responders by a further 29%. Among responders, response was seen within 1 month of treatment, median duration of response was 23 months and overall 1-year survival was 84% (100% in HCT and 75% in SOT) compared to 35% in non-responders. Real-world data from use of tab-cel in Europe under an Expanded Access Program further validate above results, with similar to better overall response rates and survival, including patients with primary central nervous system PTLD. The above seems to be compelling enough for approval (as validated by EMA's decision). FDA should have a more flexible stance for a life-saving treatment.
ATRA also pursues development of tab-cel in additional patient populations, with a primary focus on immunodeficiency-associated lymphoproliferative diseases (IA-LPDs), given the commonality of their EBV-driven mechanism of disease in immunocompromised patients, high unmet medical need and positive clinical data to date with tab-cel. To evaluate above potential ATRA is conducting a multi-cohort phase 2 study in both the US and EU which comprises a total of five patient populations, including IA-LPDs (primary or acquired), EBV+ PTLD involving the central nervous system, EBV+ PTLD where standard first-line therapy is inappropriate and EBV+ sarcomas where standard first-line therapy is inappropriate.
Regulatory update on tab-cel
The main issue with tab-cel (a typical issue for cell therapies) is Chemistry, Manufacturing, and Controls ((CMC)). For such products, FDA typically requests a clinical trial with the exact product that will be used commercially (see my recent coverage of CAPR for a similar example). This has resulted in years of regulatory delays in US, despite approval in Europe about a year ago. ATRA has been in multiple discussions with the FDA trying to align on a pathway that wouldn't require a new clinical trial. This is a reasonable request from ATRA in my opinion considering that the targeted indication is ultra-rare (i.e. there are feasibility issues with conducting another trial) and rapidly fatal (i.e. there is a major and urgent unmet need for patients). Notably, tab-cel marketing authorization in Europe was granted under " exceptional circumstances " which is "a type of marketing authorization granted to medicines where the applicant is unable to provide comprehensive data on the efficacy and safety under normal conditions of use, because the condition to be treated is rare or because collection of full information is not possible or is unethical". In my opinion, FDA should show similar flexibility for a rapidly fatal ultra-rare disease considering tab-cel's efficacy.
Below are quotes from the latest 10-Q on the most recent interactions of ATRA with the FDA:
- "At a Type B meeting in February 2022, we were not able to align with the FDA on comparability between tab-cel product versions used in the pivotal ALLELE study and the intended commercial product. The FDA initially recommended we conduct a new clinical trial with the commercial product to address the lack of alignment on comparability and to gain additional clinical experience with the intended commercial product."
- "In February 2023, we held a meeting with the FDA on clinical aspects for a potential BLA submission for tab-cel."
- "In April 2023, we held a meeting with the FDA to further discuss CMC matters relating to a potential BLA submission for tab-cel, and in August 2023, we held an additional meeting with the FDA, where we reached alignment on analytical comparability between clinical and intended commercial process versions of tab-cel."
- "We plan to request a pre-BLA meeting with the FDA to discuss various aspects of a proposed BLA submission. We may not ultimately reach agreement with the FDA on a path to BLA submission with the current clinical dataset. In this case, the conduct of an additional clinical trial or trials in the lead indication may be necessary to support a BLA for tab-cel, which would result in considerable delay to a BLA submission or could lead us not to pursue a BLA submission".
To sum up the above, and based on a recent PR by ATRA, there finally seems to be an alignment between ATRA and FDA, which allows pooling of the pivotal clinical trial data from different process versions in the BLA submission. ATRA will request a pre-BLA meeting with the FDA in Q1 2024 and expects to submit the BLA in Q2 2024, including the latest tab-cel pivotal data from the Phase 3 ALLELE study. Although there is still risk of regulatory delays, I tend to be optimistic considering the following:
- After all these years of meetings and discussions, I believe the path to approval should be clear.
- Consistent (and compelling) results have been shown in whatever product version was used. As stated by the CEO "whatever the type of study, whatever the process versions we've used in the past, and we've treated more than 400 patients with tab-cel across different disease and more than 260 patients in PTLD, EBV+ PTLD. So we have a very significant data package and experience. But whatever the study, whatever the process versions, we always have found similar results from an efficacy and safety point of view."
- Refractory/relapsed EBV+ PTLD is an ultra-rare (impractical to do a new study) and rapidly fatal (urgent unmet need) disease.
- Validation by approval in Europe,
- Validation by expanded Pierre Fabre deal (to be discussed below).
Overview of the deal with Pierre Fabre
Up until recently, ATRA had granted Pierre Fabre an exclusive license to commercialize and distribute Ebvallo in Europe and select emerging markets in the Middle East, Africa, Eastern Europe and Central Asia ("Initial Territory"). In December 2022, ATRA sold a portion of royalties rights and certain milestones to HCR Molag Fund L.P. (HCRx) for a total investment amount of $31.0 million, subject to a repayment cap between 185% and 250% of the total investment amount by HCRx (which to my understanding corresponds to $57M-$78M). As stated in the 10Q, ATRA does "not retain any meaningful milestone or royalty payments related to the Initial Territory under the A&R Commercialization Agreement until the applicable royalty cap under the HCRx Agreement is met, if at all, or until regulatory approval is achieved in the US or for another market within the Additional Territory". Therefore, not much revenue is expected from this agreement for ATRA anytime soon. Still, ATRA reported $2M in commercialization revenue in Q3, which is not insignificant considering current market cap (but is very low considering ATRA's cash burn).
As recently announced , in October 2023, Pierre Fabre's exclusive rights to research, develop, manufacture, commercialize and distribute tab-cel (Ebvallo) will be expanded to include all other countries in the world ("Additional Territory"). Under the agreement ATRA will be responsible, at Pierre Fabre's cost:
- to continue conducting the ongoing Phase 3 ALLELE clinical study and the Phase 2 multi-cohort clinical study
- for certain other activities directed to obtaining regulatory approval in the United States for tab-cel for EBV-associated post-transplant lymphoproliferative disease
- for manufacturing and supplying tab-cel to Pierre Fabre for commercialization (until the transfer of manufacturing responsibility to Pierre Fabre)
Pierre Fabre will be responsible, at its cost, for obtaining and maintaining all other required regulatory approvals and for commercialization and distribution of tab-cel, including conducting any other clinical study required. Manufacturing responsibility will also be transferred to Pierre Fabre.
To sum up the above, Pierre Fabre will take over all costs (clinical development, regulatory, manufacturing and commercialization) of tab-cel. In addition to taking overall costs, Pierre Fabre will pay ATRA:
- Approximately $30M in cash upfront and initial inventory purchase at closing ($20M upfront for the new agreement plus inventory purchase)
- Up to $620M in regulatory and commercial milestone payments. This includes $100M in regulatory milestone through BLA approval.
- "Significant" double digit royalties (for the later of; 12 years after the first commercial sale, the expiration of specified patent rights, or the expiration of all regulatory exclusivity). "Royalty payments may be reduced in certain specified customary circumstances".
ATRA's rationale for choosing Pierre Fabre
ATRA reported having discussion with other pharmas (mix of big/mid pharma and biotech) as well. The following reasons were offered for sticking to Pierre Fabre:
• Considering ATRA's cash balance and cash burn financials obviously played a big role, a good upfront payment being an important consideration.
• As discussed above, Pierre Fabre will not only pay upfront (+ significant milestones and royalties) but will also take over all costs and activities related to tab-cel, meaning a significant cost reduction for ATRA and allowing ATRA to focus resources on its CAR-T pipeline.
• ATRA also sees a committed partner in Pierre Fabre, tab-cel currently being Pierre Fabre's flagship product in US
• Having one partner is easier to manage
Considering ATRA's precarious financial situation it seems to me that they got a good and fair deal with Pierre Fabre.
Potential value of tab-cel in US
As explained above, Pierre Fabier is paying ATRA $30M upfront plus $100M in regulatory milestones through BLA approval, in addition to taking overall costs. This alone suggests that Pierre Fabre values the rights to tab-cel much more than $130M. So either Pierre Fabier is very wrong about tab-cel potential or ATRA is currently very undervalued based on just the tab-cel deal and not accounting for the potential of the rest of ATRA's pipeline.
ATRA estimates peak sales potential of >$500M in US alone (most of which from EBV+ PTLD indication and rest after label expansion). Double digit royalties of that would mean >$50M yearly revenue for ATRA at no cost (since Pierre Fabier is taking over all costs associated with tab-cel). Even achieving half of that would correspond to ATRA's current market cap. Based on an EV/sales ratio of 7, typical for biotechs, achieving even $25M in yearly revenues would correspond to a fair enterprise value of $175M, compared to a currently negative EV of -29M. Notably ATRA's valuation grade according to Seeking Alpha quant is A+ (albeit overall quant rating is currently a "Hold", with an "F" Momentum Grade).
Tab-cel's listed price in Europe is $640K. Considering typically 30-40% higher pricing in US compared to Europe this would correspond to $830K-$890K. Therefore, peak target sales of $500M would correspond to about 600 patients per year receiving the treatment. ATRA estimates "several hundred" EBV+ PTLD patients who failed rituximab or rituximab plus chemotherapy in the U.S. This seems reasonable. Based on the number of transplant recipients per year in US and PTLD epidemiology I estimate at least 437 new cases per year eligible for tab-cel (Table below).
Patient population | Number of transplant recipients per year * | Number of PTLD cases the 1st year after transplantation ** | Number of EBV+ PTLD the 1st year # | Number of R/R EBV+ PTLD the 1st year ^ |
HCT | 22827 | 274 | 274 | 137 |
Liver | 9234 | 111 | 66 | 33 |
Renal | 25000 | 400 | 240 | 120 |
Heart | 3817 | 122 | 73 | 37 |
Lung | 2569 | 113 | 68 | 34 |
Intestinal | 96 | 17 | 10 | 5 |
Multi-organ | 1339 | 236 | 141 | 71 |
Total | 64882 | 1272 | 873 | 437 |
* Based on the following references; number of HCTs per year, liver transplants per year, kidney transplants per year, heart transplants per year, lung transplants per year, intestinal transplants per year, multi-organ transplants per year. ** The cumulative incidence of PTLD over 5 years ranges from 1-2% in HCT and liver transplants, 1-3% in renal transplants, 2-6% in heart transplants, 2-9% in lung transplants, and 11-33% in intestinal or multiorgan transplants. Numbers in this column were calculated based on the mid-point of the above ranges and considering that 80% of PTLD occur in the 1st year after transplantation. # Nearly all cases of PTLD that occur following HCT are EBV positive while approximately 60% of PTLD cases that occur following SOT are EBV positive. ^ 40-60% of patients either do not respond to or progress following first line of therapy.
Overview of ATRA's CAR-T cell platform
ATRA's CAR-T cell platform is promising but also a risk due to high associated cash burn, as well as fierce competition. Therefore, it is worth taking a look at this pipeline. Note that the paragraphs below represent just an introductory overview of the pipeline. The platform is still at very early stage of clinical development (preclinical to phase 1) and whether the theoretical advantages of the platform would translate in the clinic remains to be determined. I may do a more detailed follow-up article after initial clinical data are announced (anticipated in H2 2024).
ATRA's platform is based on allogeneic (donor-derived) T cells that are enriched with specific T-cell receptors (TCR) that target EBV-infected cells. As explained by ATRA "unlike gene-edited approaches aimed to inactivate TCR function to reduce the risk for GvHD, EBV T cells maintain expression of native T-cell receptors that promote in vivo persistence, while also demonstrating inherently low alloreactivity due to their recognition of defined viral antigens". EBV T cells can be modified with a CAR to create CAR T-cell therapies to target a wide range of non-EBV-associated diseases. ATRA's ambitious goal is to develop a best-in-class CAR-T cell therapy for B-cell malignancies.
ATRA has decided to focus its R&D efforts on two assets; ATA3219 (CD-19 targeted CAR-T cells for B-cell malignancies and autoimmune disease) and ATA3431 (next-generation CD19, CD20 CAR-T cell in IND-enabling studies). ATRA hopes to address limitation of current treatments. Advantages of the platform include; off-the-self approach (rapid, within days, delivery), improved tolerability, persistence and improved trafficking (see ATRA's company presentation and this poster).
Financials
And here comes the major problem with ATRA. Huge cash burn relative to available cash. ATRA reported cash and cash equivalents of $102M as of September 30, 2023. This seems very little considering total operating expenses in Q3 of $72M, including $56.9M in R&D and $12.2M in G&A expenses. Nevertheless, considering recent restructuring, the expanded Pierre Fabre deal (and expected payments of $130M through BLA approval), failure of ATA188 (i.e. no more R&D expenses for this indication) ATRA has guided an extended cash runaway beyond Q3 2025. Hopefully, management will be thoughtful about cash burn going forward.
Next news to watch
- Finalization of the Pierre Fabre deal and receipt of the upfront $30M payment (expected December/ early January)
- News on timeline of the BLA submission. Good news would be BLA submission in Q2 2024 according to plan (and relevant milestone payment).
- Decision by the FDA to file the BLA submission (within 60 days of BLA submission) and PDUFA date determination (with/without AdCom). Given Breakthrough Therapy Designation (BTD), tab-cel should be eligible for a priority review (6 months after completion of BLA submission), which would mean a Q4 2024 PDUFA date. On the other hand (as proven so far), BTD may not necessarily lead to faster regulatory review.
- Initial data from Phase 2 tab-cel multi-cohort study is expected in December 2023.
- Preclinical data to be presented (poster) at ASH regarding ATA3431 showing that (compared to an autologous CD19, CD20 CAR-T benchmark) ATA3431 demonstrates potent antitumor activity, long-term persistence and superior tumor growth inhibition.
- Preliminary clinical data from Phase 1 study of ATA3219 in relapsed/refractory B-cell non-Hodgkin's lymphoma anticipated in the H2 2024.
- News on expansion of ATA3219 development into autoimmune diseases.
Risks
- The most important risk is regulatory delays in US. Regulatory milestone payments (as well as other milestones and royalties) is the only source of revenue for ATRA. Delays might result in ATRA doing a dilutive cash raise (which at current market cap would be detrimental). As acknowledged in the 10Q "in the event that we do not receive our anticipated payments and, as a result, our cash runway is materially impacted, our existing cash, cash equivalents and short-term investments as of September 30, 2023, will not be sufficient to fund our planned operations for at least the next twelve months". Furthermore, as stated in the 10Q "To alleviate the conditions that raise substantial doubt about our ability to continue as a going concern, we plan to secure additional capital, potentially through a combination of public or private security offerings; use of our ATM facilities; and/or strategic transactions". Therefore, even if BLA submission proceeds as planned, ATRA may raise cash sometime in 2024 (hopefully, from a better position if BLA is submitted and accepted in Q2 2024 as planned). Notably, ATRA recently registered a $400M mixed shelf offering . Both the 10Q and the S-3 were filed before EMBOLD topline results. Cash burn for R&D should now be much lower without ATA188.
- Another (longer-term) risk is suboptimal results from ATRA's remaining CAR-T cell pipeline.
- Finally, ATRA will face competition from several other biotechs targeting the same indications.
Conclusion
Failure of ATA188 was without doubt very bad news for ATRA. On a positive note it also means less R&D expenses (although positive results would be a much more preferrable outcome). Stock price has been excessively punished in my opinion. Considering an anticipated cash runaway beyond Q3 2025 (assuming regulatory milestone payments by Pierre Fabre) ATRA seems very undervalued based on just the global tab-cel agreement with Pierre Fabre (which is now responsible for all costs associated with tab-cel) and ignoring the potential of the rest of the pipeline. The main risk to the thesis is further regulatory delays which would also result in delays in milestone payments and would significantly impact ATRA's cash runaway. Overall, considering an asymmetric risk/reward I maintain my "Buy" rating, but I acknowledge the many risks and uncertainties about ATRA's future.
Your feedback is appreciated
Please comment below if you have any feedback (positive or negative), if you spot any mistakes, or if you believe I missed something important in my analysis.
For further details see:
Atara Biotherapeutics: Market Overreaction To Failed MS Study Creates Buy Opportunity