2023-06-06 14:44:35 ET
Summary
- Biohaven Ltd is a spinout of assets from Biohaven Pharmaceutical - just before the parent company was acquired by Pfizer last year for >$11bn.
- Much of the management team that developed Biohaven Pharmaceuticals' Nurtec migraine therapy, plus six other pipeline assets acquired by Pfizer, appear to be working at the new company.
- Biohaven Ltd shares have risen in value from ~$6, to >$20 - +265% in less than one year.
- An investor day presentation delivered last week appears to have generated significant upside momentum. An NDA has been submitted to the FDA for approval of a spinocerebellar ataxia Type 3 drug.
- At a market cap valuation of nearly $1.5bn and with no other near-term approval shots in play, Biohaven shares are not cheap, but the team is experienced. I would not be surprised if the upside momentum continues.
Investment Overview
A few weeks ago I covered a small, San Diego-based biotech named Longboard Pharmaceuticals (LBPH) for Seeking Alpha, noting that the company - which is developing two promising clinical drug candidates targeting seizures and various neurological conditions - was spun out of Arena Pharmaceuticals in 2020, shortly before Arena itself was acquired by the New York-based pharma giant Pfizer ( PFE ).
Pfizer paid $6.7bn to acquire Arena and its lead drug candidate Etrasimod, a member of the Sphingosine-1-phosphate ("S1P") receptor modulator drug class, which looked a strong likelihood for approval in the autoimmune conditions ulcerative colitis and atopic dermatitis, with Phase 3 studies already underway.
Interestingly, one of Longboard's lead assets - LP-659 - is a member of the same drug class, which led me to speculate in my post:
It's tempting to wonder if Arena's management - perhaps even aware of impending M&A interest from a big pharma - was able to slip its candidates LP659 and LP352 out of the back door before any deal was done, reckoning that they might prove as successful in the clinic as Etrasimod was.
Whether Pfizer was aware that it would miss on two potentially valuable drug candidates owing to the last minute spin out is unknown - at least by this author - but it seems Arena is not the only company to have completed an opportunistic spin-out of promising clinical assets ahead of a Pfizer buyout.
In October last year - flush with cash from the remarkable success of its COVID vaccine, Comirnaty, and antiviral, Paxlovid (combined sales of >$55bn in 2022), Pfizer opted to pursue a buyout of migraine therapeutics specialist Biohaven, eventually paying ~$11.6bn to acquire the company and lead asset Nurtec.
Pfizer management believes it can extract ~$6bn in peak annual sales from Biohaven's Nurtec, plus its six pipeline assets, and as such, likely paid little attention to the fact that Biohaven ( BHVN ), just like Arena, completed a spin out of some intriguing assets just months before the sale of the parent business to Pfizer. Biohaven even opted to keep its parent company name. According to the spun-out Biohaven's Q123 10Q submission :
On May 9, 2022, the Board of Directors of Biohaven Pharmaceutical Holding Company Ltd. (the "Former Parent") approved and directed Former Parent's management to effect the spin-off of the Kv7 ion channel activators, glutamate modulation and myostatin inhibition platforms, preclinical product candidates, and certain corporate infrastructure then owned by Former Parent (collectively, the "Biohaven Business")
On Oct. 4, Biohaven Ltd ((BHVN)) began trading on the Nasdaq, with, according to a press release , "$258m in cash, a proven team and deep pipeline to continue its journey to advance science for patients." The new Biohaven is led by the old CEO - Dr. Vlad Coric, who built the old Biohaven from a $6m pre-money valuation into a business sold for '$13bn in total considerations," according to his company bio. According to the press release:
The Biohaven Board of Directors remains the same. Irfan Qureshi, M.D. is promoted to Chief Medical Officer (previously Senior Vice President of Neurology at Biohaven). And Tanya Fischer, M.D., Ph.D. is appointed Chief Development Officer and Head of Translational Medicine (previously at Alnylam Pharmaceuticals, Sanofi and Bristol-Myers Squibb).
Bruce Car, Ph.D. joins Biohaven as the new Chief Scientific Officer. Dr. Car brings more than 28 years of experience in the pharmaceutical industry having held numerous scientific leadership positions at Bristol-Myers Squibb and Dupont in which he was closely involved in advancing approximately 250 drug candidates
Initially trading at ~$6 per share, Biohaven then completed an offering at $10.5 per share, raising ~$302m, and shares continued to rise in value, reaching a high of $19 in January this year. After concluding its investor day last week, shares spiked in value to >$20, giving the company a market cap valuation (at the time of writing) of nearly $1.5bn, and investors a >250% return on investment in a few short months.
Whatever Pfizer may feel about its failure to secure a portfolio of "more than 13 clinical and pre-clinical programs with a focus on neuroscience and rare disorders including epilepsy, pain and mood disorders, obsessive compulsive disorder ("OCD"), spinocerebellar ataxia ("SCA") and spinal muscular atrophy ("SMA")," investors who bought Biohaven Ltd stock at the outset will doubtless be delighted with the outcome so far.
In this post, I'll take a deeper dive look at the pipeline portfolio, based on the investor day updates, and try to determine if buying Biohaven at >$20 per share today offers anything like the value opportunity that buying the stock at <$10 did eight months previously, and how much Pfizer may ultimately regret not including these spun-out assets in its deal for Biohaven's migraine franchise.
Biohaven Ltd Business and Pipeline Overview - Plenty Of Experience, Plenty Of Assets To Work With
It certainly seems as though Pfizer's buyout of Biohaven, the original, was all about the migraine assets, and overlooked the remaining pipeline, and, it seems, most of the staff.
As we can see above, Biohaven's team is large, well-qualified, and has plenty of experience - good news, considering there are five clinical programs to work on, eight preclinical programs, six novel small molecule approaches, four novel large molecule approaches, and 11-plus indications with high unmet need, Biohaven says.
Troriluzole Approval Shot
In fact, Biohaven Ltd may even be on the verge of securing a first approval, albeit in the ultra-rare indication of spinocerebellar ataxia Type 3, a debilitating neurogenerative disorder that causes frequent falls, wheelchair dependence, and difficulties with speech and swallowing, and for which there are no approved therapies.
The candidate is Troriluzole, a "third generation prodrug selected from >300 synthesised candidates," according to Biohaven's investor day presentation . Biohaven announced results from a Phase 3 study of the drug in May last year - according to the Q123 10Q:
The primary endpoint, change from baseline to Week 48 on the modified functional Scale for the Assessment and Rating of Ataxia (f-SARA), did not reach statistical significance in the overall SCA population as there was less than expected disease progression over the course of the study.
In the overall study population (N=213), the troriluzole and placebo groups each had mean baseline scores of 4.9 on the f-SARA and the two groups showed minimal change at the 48-week endpoint with f-SARA scores of 5.1 and 5.2, respectively (p=0.76).
When Biohaven looked at patients with the SCA Type 3 genotype only, however - a patient population that represented ~41% of the entire study, management reported that:
Troriluzole showed a numerical treatment benefit on the change in f-SARA score from baseline to Week 48 compared to placebo (least squares ("LS") mean change difference -0.55, nominal p-value = 0.053, 95% CI: -1.12, 0.01). SCA patients treated with troriluzole showed minimal disease progression over the study period.
In patients with milder forms of the disease, "troriluzole demonstrated a greater numerical treatment benefit on the change in f-SARA score from baseline to Week 48 compared to placebo," and across all genotypes, troriluzole was also shown to reduce the risk of falls.
Management has now submitted a New Drug Application to the FDA for troriluzole, although it is not yet known if the agency has accepted it, or when it may rule on an approval - that date is likely to be at least nine months away. The patient population is estimated by management to be ~6k in the US, and 4.6k in the EU and Japan.
There's a caveat here however - Troriluzole - a prodrug of riluzole, approved to treat Amyotrophic Lateral Sclerosis - already has failed to make it to the approval stage in several other indications, such as Alzheimer's, obsessive compulsive disorder and generalised anxiety disorder, having flunked key trials.
Analysts have formerly suggested the drug's approval chances in SCA could be as low as 25% (that was before late stage data was released), although the peak sales opportunity was set as high as $800m. I would divide that by 2, given the smaller patient population of SCA Type 3, and if approved, such a figure would represent an excellent start for the new company, but factoring in the risk, perhaps the figure should be halved again when attempting to value the company.
If we use a rule of thumb that a commercial stage biotech should trade at ~3-5x sales, Biohaven needs more than the Troriluzole opportunity in play to justify its current valuation, let alone further upside - luckily, Biohaven does have many more opportunities in play.
Breadth and Depth Of Pipeline Impresses - But The Market Will Have To Be Patient
As we can see above, Troriluzole aside, Biohaven has few near-term approval shots - many of its candidates are preclinical and still in the process of securing their Investigational New Drug ("IND") applications, which must be secured before in-human studies can begin.
With that said the next couple of years ought to throw up numerous late stage data readouts that can provide upside catalysts in the absence of commercial revenues (besides potentially Troriluzole).
Epilepsy and Bi-Polar - Late Stage Studies To Initiate This Year
BHV-7000, for example, is described by management as "an activator of Kv7.2/Kv7.3, a key ion channel involved in neuronal signaling and in regulating the hyperexcitable state in epilepsy," and it's addressing two markets that are substantial in terms of the patient population, and also areas of high unmet need - epilepsy, and bipolar disorder.
Early data seems to suggest BHV-7000 may have a stronger safety profile than other anti-seizure medications ("ASMs"), mainly because it does not activate the GABA pathway as other medications do.
The drug will shortly enter two "multicenter, international, placebo-controlled, double-blind studies to evaluate the efficacy of BHV-7000 in adolescents and adults with refractory focal epilepsy," with the primary endpoints being median percent change in the US, and responder rate in the EU, and the secondary endpoint being seizure freedom.
With 3m adults and nearly half a million children in the US suffering from epilepsy, this is a significant market opportunity for Biohaven, although the opportunity in bi-polar is larger still - some 11m patients, management believes, who require lifelong treatment.
Biohaven says that BHV-7000 "shares a mechanistic overlap" with approved mood stabilizers such as lamotrigine and lithium, and sees an opportunity to challenge the market incumbents by reducing the treatment burden, whilst maintaining the treatment effect.
There are no details provided around a Phase 2/3 trial design, although management says it plans to launch such a study before the end of the year.
Spinal Muscular Atrophy, Parkinson's, Pain and Protein Degradation - Biohaven Is Casting Nets Far and Wide
The remaining clinical assets provide more ballast to the bull thesis that Biohaven can become a successful, commercial stage pharmaceutical company worth 2,3, or even 5x more than its current valuation, which is shy of $1.5bn, although as with any pre-commercial biotech, nothing is guaranteed, whatever the early data might suggest.
Spinal Muscular Atrophy is an intriguing target - Spinraza, an antisense oligonucleotide, and Zolgensma, a gene therapy, are the only approved therapies to treat this disease and they are immensely expensive - >$650k for a course of Spinraza (in the first year), and nearly $2m for the gene therapy.
Taldefgrobep alfa is licensed by Biohaven from Bristol Myers Squibb ( BMY ), and it is a "a novel, Phase 3-ready anti-myostatin adnectin," according to Biohaven. A Phase 3 study has been initiated - RESILIENT - that is a 48-week, double-blind, placebo-controlled study with a primary objective of change in the 32 item Motor Function Measure ("MFM-32") total score.
Interestingly, Biohaven says it plans to target obesity with Taldefgrobep alfa, an indication that is generating monumental amounts of hype as new weight loss drugs from Novo Nordisk ( NVO ) - semaglutide, and Eli Lilly ( LLY ) - tirzepatide - are expected to become all-time best-selling drugs in this indication.
Meanwhile, BHV-8000 is a TYK2 / JAK1 inhibitor - both targets are well known and used in a variety of medications e.g. AbbVie's Rinvoq (JAK inhibition) and BMY's Sotyktu (TYK2 inhibitor) - presently indicated for neuroinflammatory disorders, with a Phase 2 in Parkinson's Disease set to be initiated in 2024.
In terms of the upcoming IND submissions, for pain (BHV-2100), and epilepsy and mood disorders (BHV-7010 looks like a next-generation BHV-7000), the one that stands out to me is actually the protein degrader BHV-1300 indicated for immune-mediated diseases.
Protein degradation - like e.g. messenger-RNA - is a process that sounds almost too good to be true - unwanted proteins can be marked out for destruction by the immune system with few off-target toxicities - but unlike MRNA technology, vindicated by the development of MRNA COVID vaccines, protein degradation has not yet had its proof of concept moment, despite the efforts of companies such as Kymera Therapeutics ( KYMR ).
Biohaven opted to begin their investor day presentation by discussing BNV-1300 and a Phase 2 study is expected to begin next year - positive data would open the door to all the major autoimmune markets, worth well in excess of $100bn per annum.
Finances, Risks, and Concluding Thoughts - Can Biohaven 2.0 Find A Drug - Or A Buyer - To Rival Nurtec and Pfizer?
With total current assets reported as of Q123 of $544m, and net loss $70m, Biohaven would seem to have a funding runway that stretches into 2025, hence investors should not need to worry about dilutive fundraisings dragging down the share price.
What strikes me as positive about Biohaven is the fact that apparently so many of the management team behind the successful migraine franchise continue to be involved with the spin-out, and if anything, the horizons have broadened, with triple-digit billion market opportunities in play across autoimmune, oncology, rare disease, and neurological conditions.
Naturally, it would be fanciful to think that every drug in Biohaven's portfolio is a home run. The most advanced asset to date, Troriluzole, is in fact a serial failure that even failed to meet its primary endpoint in its pivotal study in SCA, although there is certainly hope in relation to the smaller Type 3 population.
There's an enormous amount of data to wade through in the investor day presentation, and I would encourage any prospective investor in the company to go through it, even if it won't necessarily make a great deal of sense to a layman.
Having looked at hundreds of biotech companies' data in the past few years, in my view many of the theses Biohaven is advancing through its pipeline drugs do seem to be backed by established scientific rationale, with tweaks here and there to suggest improvement over approved standards of care e.g. BHV-7000 not activating the GABA pathway, or the use of an antibody-drug conjugate to target metabolic
My concern would be that it's hard to put a finger on a stand-out opportunity i.e. one that could soon be ready for a regulatory review, that has a first mover advantage, and some genuinely stand-out data to support an approval push, and without such an asset, a >$1bn valuation is creating a level of expectation that may not be met.
That for me would be the downside risk, plus the fact that the investor day hype may have created a buying frenzy that could soon die down - biotech company valuations have a tendency to drift downward when definitive upside catalysts are not in play.
As such, I would give Biohaven stock a "Hold" recommendation for now. The most valuable element of this company may be the fact that a management team that turned a $500m valuation company into one bought out by a major Pharma for >$11bn largely seems to have stuck together, and the level of experience appears to be very high, as is the breadth of ideas. If the FDA accepts the Troriluzole NDA, the share price may climb higher, and if the drug were to score an approval - which seems entirely possible, if not probable, investors may rue not buying the stock today.
I intend to keep my powder dry for now, but after reviewing the investor day presentation in full, my conclusion would be that Biohaven Ltd could be on the verge of becoming a genuinely significant player in neurology, autoimmune, and perhaps other fields besides. I wonder if Pfizer would have paid an additional $2 - $3bn to bolt these assets onto its deal for the migraine franchise? I suspect it may have done.
For further details see:
Biohaven: Spinout's Rampant Share Price Gains May Be Giving Pfizer A Headache