2023-08-28 02:26:53 ET
Summary
- Biohaven faces FDA rejection for troriluzole; explores further discussions and potential subgroup focus.
- Despite FDA setback, Biohaven maintains a strong cash position, diversified pipeline, and ongoing R&D efforts.
- Given current uncertainties and valuation, I recommend a "Sell" stance on Biohaven's stock.
Introduction
Biohaven ( BHVN ) is a biopharmaceutical company pioneering treatments for both rare and common diseases. Their expertise spans diseases like migraine, depression, and schizophrenia, with a dynamic pipeline targeting conditions with limited treatments. The company utilizes innovative platforms, such as Kv7 ion channel and glutamate modulation, and possesses a diverse portfolio, including research on neuropathic pain and novel technologies like MoDE.
Recent Developments: The FDA declined Biohaven's new drug application for troriluzole, citing insufficient Phase 3 trial results. Biohaven plans to pursue further FDA discussions.
The following article details Biohaven's recent developments, including FDA's rejection of a drug application, their financial position, and investment considerations.
Q2 Earnings Report
Looking at Biohaven's most recent earnings report , as of June 30, 2023, the company held $349M in cash and equivalents, down from $467.9M at the end of 2022, with $13.9M restricted and excluding $40.4M payable to the Former Parent. R&D expenses in Q2 2023 dropped to $79.5M from $177.1M in Q2 2022, largely due to decreased non-cash share-based compensation costs. G&A expenses also reduced to $14.5M from $20M over the same period. Other income showed a net gain of $5.8M in Q2 2023, compared to a slight expense in 2022. The company reported a net loss of $90.3M in Q2 2023, a significant improvement from the $203.3M loss in the same period of 2022.
Cash Runway & Liquidity
Turning to Biohaven's balance sheet , as of June 30, 2023, the combination of 'Cash and cash equivalents', 'Marketable securities', and 'Investments' amounts to $335.1M. Within a span of six months ending June 30, 2023, the company experienced a net cash outflow from operating activities of $122.0M, translating to an average monthly cash burn of about $20.3M. Based on these numbers, the company's cash runway, which indicates how long it can sustain its current burn rate, stands at roughly 16.5 months. It's essential to note that these values and estimates are based on historical data and might not directly indicate future performance.
Regarding liquidity, Biohaven exhibits reasonable liquid assets to cover its short-term obligations. However, with no listed debts, the company's financial leverage appears minimal. Given the company's healthy liquidity position and minimal liabilities, securing additional financing, should the need arise, seems plausible. These observations and/or estimates are my own and might vary from other analyses.
Valuation, Growth, & Momentum
According to Seeking Alpha data: Biohaven's capital structure reveals a relatively small amount of debt in comparison to its market capitalization, combined with a substantial cash position. With an enterprise value of $1.01B, the firm's valuation metrics, such as P/E, are not applicable, as Biohaven is in a pre-revenue phase. As indicated by minimal sales projections for 2024 and 2025, its growth is being assessed in light of its developmental stage, focusing on the earnings potential and the inherent uncertainties tied to drug development. The stock's momentum over the last 9 months has been notably positive, outpacing the S&P 500.
Clinical Updates
Biohaven is actively advancing its research and development initiatives:
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Kv7 Platform: Biohaven emphasizes the promising potential of its Kv7 platform. Specifically, BHV-7000, a Kv7.2/3 activator, is progressing with a Phase 1 EEG study set for the first half of 2023 and pivotal studies for focal epilepsy and bipolar disorder beginning in the latter half of the year.
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Bispecific Platform: Updates were shared about their targeted extracellular protein degradation franchise, which includes various programs. Notably, the IND application for BHV-1300, an innovative IgG degrader, is scheduled for submission in 2023.
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TYK2/JAK1 Inhibition: With BHV-8000, a dual TYK2/JAK1 inhibitor designed to penetrate the brain, dosing has commenced in a Phase 1 study involving healthy volunteers.
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Taldefgrobep Alfa:
- For Spinal Muscular Atrophy, they anticipate completing the enrollment of around 225 patients in a global Phase 3 trial by 2023.
- For Metabolic Disorders, the initiation of a Phase 2 trial is planned for the second half of 2023.
Regulatory Updates
On the regulatory front, Biohaven's investigational drug, troriluzole , underwent a crucial Phase 3 clinical trial targeting spinocerebellar ataxia ((SCA)). However, its results presented a dichotomy. While the primary endpoint, measured by the change in the f-SARA score from the start to the end of 48 weeks, did not meet statistical significance for the general SCA population, deeper analyses hinted at a potential silver lining, especially among a certain SCA subtype.
The FDA's decision to not accept the NDA for troriluzole is rooted in the lack of clear statistical significance in the drug's primary efficacy measure. This implies that for the broad SCA patient population, troriluzole did not show a pronounced advantage over the placebo. In drug approval processes, meeting the primary endpoint is paramount as it demonstrates the drug's efficacy, setting the stage for its market potential and therapeutic impact.
While the overall results were not promising, post hoc analysis brought forth intriguing insights. Specifically, patients with SCA Type 3—a subgroup accounting for 41% of the study participants—seemed to benefit from troriluzole. This subgroup showed minimal disease progression and a significant reduction in fall risk. Additionally, the f-SARA Gait Item score findings suggested that troriluzole might be particularly beneficial for patients who could ambulate independently at the outset.
The company is positioned at a crossroads. Assuming a Type A meeting with the FDA does not yield favorable outcomes, a new trial might be on the horizon. This time, the company could potentially focus on the SCA Type 3 subgroup, where the drug showed promise. Such a pivot could optimize the chances of approval, targeting a specific patient population.
A Type A meeting with the FDA is essentially a high-priority discussion that centers on significant drug development matters. It offers the company an opportunity to address the FDA's concerns, present additional data, or strategize on the path forward. Given the mixed results of the Phase 3 trial, this meeting will be pivotal in shaping troriluzole's future.
My Analysis & Recommendation
In summing up Biohaven's present state and future prospects, it is evident that the path forward for troriluzole seems challenging. The FDA's recent rejection based on unclear statistical significance in its primary efficacy casts a shadow over its overall potential, even if a subgroup of SCA Type 3 patients displayed promising results. While these findings indicate that there might still be a ray of hope for troriluzole, particularly if the company refocuses its efforts on this specific subgroup, investors need to be cautious and aware of the potential risks and setbacks that could arise from another round of clinical trials and subsequent FDA evaluations.
Outside of troriluzole, it's worth noting that much of Biohaven's portfolio is, in essence, still in the early phases. Although Taldefgrobep Alfa is enrolling for a Phase 3 in Spinal Muscular Atrophy, this figures to be a tough call, particularly in the context of available disease-modifying therapies (DMT). Subsequently, Biohaven's drug will have to prove beneficial in addition to DMTs. Phase 1/2 data demonstrated improvements in lean body mass , but it remains to be seen if this will translate into significant functional improvements. To play devil's advocate: whilst the odds appear low to me, Phase 3 success could, undoubtedly, transform Biohaven. For now, Biohaven's valuation appears somewhat stretched when considering the current stage of many of its projects, even with its admirable cash position and relatively low debt.
Looking ahead, investors should keep an eye on Biohaven's forthcoming interactions with the FDA, particularly any developments regarding the much-anticipated Type A meeting. This interaction is crucial, as it will likely dictate the company's immediate strategy surrounding troriluzole. Furthermore, given the importance of the Kv7 and Bispecific platforms, as well as the TYK2/JAK1 inhibitor, staying abreast of updates in these areas will be pivotal for understanding the company's long-term potential.
Considering the company's present situation, its stretched valuation, and the uncertainties associated with its pipeline (particularly troriluzole), I recommend a "Sell" on Biohaven. The myriad of challenges associated with the biopharmaceutical industry, combined with the recent FDA setback, makes its current valuation difficult to justify.
Risks to Thesis
When the facts change, I change my mind.
In recommending a "Sell" for Biohaven, there are risks and counterpoints that might challenge my recommendation:
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Underestimation of Pipeline: I may have undervalued the potential of Biohaven's diverse pipeline. While troriluzole faced a setback, other drugs in the pipeline could become significant revenue streams.
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Bias Towards FDA Rejection: The emphasis on the FDA rejection could be seen as overly bearish. The drug showed promise in a subset of patients, and a successful pivot towards this subgroup could lead to eventual approval.
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Cash Reserves: With a substantial cash position, Biohaven has a buffer against short-term operational risks and has the potential to invest in promising R&D initiatives or even acquisitions.
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Industry Comparisons: Other biotech companies in similar stages might have comparable or even more elevated valuations. Thus, judging Biohaven's valuation in isolation might be myopic.
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Momentum: The company's stock outpaced the S&P 500 in recent months. Dismissing this momentum could be a mistake.
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Market Perception: There's a risk that I'm emphasizing the company's uncertainties too much, while the market may have a more optimistic view based on future potential.
For further details see:
Biohaven's Valuation Challenge: Weighing Potential Against Setbacks