2023-12-20 00:11:08 ET
Summary
- C4 Therapeutics' partnership with Merck has doubled the company's share price, but it is important to be aware of what this collaboration entails.
- Positive early clinical data for C4 Therapeutics' protein degraders is a significant catalyst for the company, but we mustn't get ahead of ourselves.
- C4 Therapeutics has a relatively strong financial position with $223.7 million in current assets and a cash runway of 8-9 quarters.
Topline Summary and Update
C4 Therapeutics ( CCCC ) is a company working on developing novel targeted "protein degraders" as treatment options for cancer. In my opening article covering them, I recommended against buying their stock due to the long wait time expected for meaningful clinical data. Well, news of a partnership has since doubled the share price for the company, and this is without a meaningful change in the timelines that I proposed for the company. As such, I continue to hold my position that right now is not a great time to buy into the company, regardless of what Merck sees in the early stages. However, I am upgrading my position to a "Hold" based on recent events.
Why the Change in the Rating?
The most important catalyst in my book is we got the first glimmers of clinical activity for protein degraders, which I cover below. These positive data, though early, are starting to build a foundation for CCCC. See the "Pipeline Updates" section for a clearer picture of these findings.
The Merck (MRK) partnership adds another sign that things are going in the right direction, though I wouldn't get too far ahead of myself in thinking it makes CCCC a shoo-in for success. See the "Strengths and Risks" section for more discussion on this point.
Pipeline Updates
CFT7455
The biggest update for CCCC, in my opinion, was their data readout at ASH 2023 . This presentation included readouts of the completed monotherapy dose escalation, as well as an interim analysis combining CFT7455 with dexamethasone, both in relapsed/refractory multiple myeloma.
Overall, the drug was well tolerated when given it for 14 days on, 14 days off, with neutropenia being the most common high-grade adverse event. Of the 4 patients who received the maximum dose of monotherapy, 3 had disease stabilization, and 1 had a partial response. This doesn't sound like too much, but it is worth noting that all 4 had multiple lines of prior therapy, and 3 of the patients had prior anti-BCMA therapy, giving a further nod to how heavily pretreated they were.
The combination group was only 9 patients, though the findings showed similar tolerability compared with CFT7455 monotherapy. Of 3 patients evaluable for response, 1 attained a stringent complete response, 1 attained a partial response, and 1 had stable disease.
Financial Overview
Per CCCC's Q3 2023 filing, the company held $223.7 million in current assets, including $61.0 million in cash and equivalents and $155.6 million in marketable securities. Their net loss was $26.0 million for the quarter, down from $35.9 million from the previous quarter due to increased collaboration revenue driven mainly by their partnership with Roche.
At this cash burn rate, the company has between 8 and 9 quarters of funds to operate, assuming the losses do not increase dramatically.
This does not account for the upfront funds from their announced deal with Merck, amounting to $10 million. The total funding amount may reach $2.5 billion if and when Merck decides to exercise various options and recognize undisclosed milestones in relation to undisclosed drug candidates.
Strengths and Risks
You can't deny that a partnership is a big deal for a company trying to break into the biotech space. With $10 million upfront, $600 million in milestones, and multiple billions eventually on the line, it further shores up CCCC's prospects. It is worth noting that this partnership is not based on any of the company's existing pipeline, so it will likely take a good amount of time before we see what's cooking between these two companies. Importantly, there is a real risk that Merck never exercises their options to develop these agents, making the partnership worth very little in the end. There's a lot of work to be done to realize the potential of this news.
More important for the investment thesis is the update in myeloma. These were good findings (as far as phase 1 can tell you) showing that further study is justified, especially with the CFT7455 plus dexamethasone combination. But you have to be careful about reading too far into response rates calculated for a literal handful of patients. The neutropenia continues to be a potential issue, but this is something that is a pretty common toxicity in cancer therapy, so a lot of hem/oncs are familiar with managing it.
Now that they have a bit more cash runway, hopefully, CCCC is going to be able to get themselves to a point where they can raise funds from a position of strength, data-wise. I'm less skeptical of this possibility now that we've seen the very early readouts, which continue to show more promise.
Bottom-Line Summary
There are some out there who want a person highlighting challenges with stocks to eat their lunch when an unexpected good news event vaults the share price. If you read my previous article beyond the "sell" recommendation, then you saw that I thought the premise here was cool, and that there was nothing to say CCCC's approach couldn't work. Only that there wasn't evidence yet that it would, and it's almost never reasonable to bank a thesis on the potential for big partnerships. December 2023 has been a month of important inflection for the company.
This is still not enough evidence for me to make a categorical "buy" recommendation, but it is enough where I'd say you're not being too cavalier if you feel like your risk tolerance justifies buying in. It's not for me, but I respect if it's for you, and I'm going to be continuing to root for the success of their pipeline moving forward.
For further details see:
C4 Therapeutics: Merck News Does Not Make It A Buy Yet, But Upgrading To Hold