2023-07-30 04:19:15 ET
Summary
- Checkpoint Therapeutics announced updated, longer-term data for cosibelimab from their pivotal trial in locally advanced and metastatic cutaneous squamous cell carcinoma “cSCC”.
- The data revealed improved response over time with higher complete response rates compared to previous readouts. The responses were durable with the median duration of response not yet reached.
- Checkpoint believes cosibelimab has a shot at a $1.6B market opportunity, yet, CKPT continues to trade in the gutter with a market cap of around $61M.
- My main concern for Checkpoint is still the possibility of the FDA rejecting Cosi for one or both cSCC BLAs. Plus, Checkpoint looks to be "going-it-alone" for commercialization in the United States. As a result, I am moving CKPT's conviction level down to 2 out of 5.
- I discuss my plans for my dormant CKPT position for the second half of 2023.
Checkpoint Therapeutics ( CKPT ) publicized updated, longer-term data for cosibelimab “cosi” from their pivotal trial in locally advanced and metastatic cutaneous squamous cell carcinoma “cSCC”. The results were exactly what I was looking for… improved response over time with higher complete response “CR” rates compared to March 2022’s data readout. Moreover, the data also revealed that responses were durable with the median duration of response not yet reached in both locally advanced and metastatic. A month prior to the updated cSCC data, the company also reported updated pharmacokinetic PK data for Cosi supports using “extended-interval” dosing, which should improve accessibility and dosing flexibility by giving the patient more treatment options. So, it appears that Checkpoint is moving closer to Cosi’s January 2024 PDUFA date with robust data that supports the drug’s safety, efficacy, and ease of use. If approved, Cosi would be entering the monstrous $125B immunotherapy market while other branded checkpoint inhibitors are heading toward their patent cliffs. Yet, CKPT continues to trade in the gutter with a market cap of around $61M . I believe CKPT is trading a noteworthy discount for its upside potential, especially considering the company just raised ~$10M in a direct offering to boost their financials. As a result, I am looking to restart my CKPT accumulation during the second half of 2023.
I intend to review the recent data and will provide my views on Cosi’s outlook. Then, I will discuss the ticker's valuation as well as some leading downside risks. Finally, I reveal my plan for restarting my accumulation.
Updated Cosi Data
Checkpoint’s recent Cosi update revealed that the drug had substantial increases in complete response rates in both locally advanced and metastatic cSCC pivotal trials compared to the March 2022 data. Looking at the data below, we can see that the majority of Cosi’s parameters improved in both local advanced and metastatic. As I previously mentioned, Cosi’s CR rate improved… dramatically over 8-9 months. In addition, we can see that we are still seeing response rate and the median duration of response has not been reached. Not only is this great in terms of getting a robust response, but it shows that Cosi’s dual mechanism of action is operative in humans.
Checkpoint Therapeutics Cosibelimab Updated Data in cSCC (Checkpoint Therapeutics)
Checkpoint also provided updated safety data from all cohorts, which was consistent with previous reports, with “ only 2% of patients experiencing a severe immune-related adverse event “irAE” and less than 1% of patients discontinuing treatment due to an irAE of any severity, both substantially lower than the rates observed with currently approved immunotherapies.” Despite Cosi continuing to show improved responses, the levels of antibody-dependent cell-mediated cytotoxicity are not out of control and causing safety concerns.
The company has already submitted a BLA for Cosi in both “metastatic cSCC and locally advanced cSCC who are not candidates for curative surgery or radiation.” The FDA has Cosi’s PDUFA goal date for January 3 rd of next year. In the meantime, the company is planning to present these recent results at an upcoming conference, which should give some additional analysis and insights.
My Take
I have a couple of takeaways from the data readout. First, is that Cosi is showing incredible long-term data for both safety and efficacy in both metastatic cSCC and locally advanced cSCC. It appears that the longer a patient stays on Cosi, the better the results, but without elevated safety concerns. Since Cosi has a double-tap approach by binding to PD-L1 with a persistent high target tumor occupancy to resuscitate T-cell anti-tumor response while also having a functional Fc domain to stimulate NK cells to prompt ADCC of tumor cells. This dual threat generates a potent combo to destroy cancerous tumors. Clearly, this is the type of data the company is looking for as they move towards a potential approval. It is possible that Cosi could be the preferred immunotherapy in the cSCC patient population, which the company believes is “a $1.6B annual U.S. market opportunity.” Again, this data most likely improves the likelihood Cosi is approved for both indications.
Second, I believe Cosi’s strong efficacy and response durability have validated the drug's dual mechanism of action. However, Cosi also has the potential to be a game-changer for patients who are on immunosuppressive drugs or have immunosuppressive conditions. This is believed to be due to Cosi being a PD-1/PD-L2 inhibitor verse the contemporary PD-1 inhibitors that have had issues with certain high-risk patient populations.
Checkpoint Therapeutics Cosibelimab’s Dual Mechanism Of Action (Checkpoint Therapeutics)
In my previous articles, I have highlighted how Cosi's early data was able to stack up beside some of the principal PD-1 therapies. The fresh data has basically solidified that Cosi has an edge on approved immunotherapies.
For metastatic cSCC, Cosi’s ORR is now 50%, which is comparable to Libtayo from Regeneron ( REGN ) and Sanofi ( SNY ) and superior to Merck's ( MRK ) Keytruda. For locally advanced cSCC, Cosi’s ORR is still 55%, again, superior to Libtayo and Keytruda.
Checkpoint Therapeutics Comparison to Approved Anti-PD-1s (Checkpoint Therapeutics)
Certainly, Cosi’s trials are not exact comparisons to Libtayo’s or Keytruda’s, so we cannot conclusively state that Cosi is head-and-shoulders above other checkpoint therapies. Still, there is a possibility the recent data will be able to satisfy the FDA to grant approval and encourage physicians to consider Cosi for cSCC.
The Opportunity
If Cosi is approved and providers adopt it for cSCC, we are looking at the possibility that Checkpoint is going to claim that $700M market share from Keytruda and Libtayo. Yes, it is unlikely that they will take it all, but even claiming half of that would have a significant impact on the company’s fundamentals.
Checkpoint Therapeutics cSCC U.S. Market Share (Checkpoint Therapeutics)
However, Cosi does have the potential to claim some of the market share which equals up to roughly 60% of the U.S. cSCC market, which is estimated to be roughly $1.6B. Checkpoint would only need to claim a small percentage of that market to really move the needle for a company with a market cap that is around $60M.
Even if Checkpoint only took 10% of the PD-1 market from Keytruda and Libtayo, we would be looking at $70M, which would make CKPT’s price-to-sales to be under 1x. The industry’s average is about 4x-5x, so the ticker is currently undervalued for even a small market penetration. If CKPT was to be priced in line with its peers, it would be trading over $14 per share.
The Street believes Checkpoint will not hit $70M in a couple of years, but will continue to report strong growth for the rest of the decade and will clear roughly $300M in annual revenue, which would be roughly 0.2x forward price-to-sales.
Checkpoint Therapeutics Annual Revenue Estimates (Checkpoint Therapeutics)
Using $300M in revenue estimate and the industry's average price-to-sales of 4x, we are looking at a fair value of over $60 per share at the current share count of 19.56M . A quick reminder, CKPT is trading at around $3 per share. Even if the company performed several offerings, CKPT would probably still offer some significant upside potential from the current valuation.
A Major Risk Remains
My main concern for Checkpoint is still the possibility of the FDA rejecting Cosi for one or both cSCC BLAs. Although Checkpoint has strong data, it is possible the FDA will demand clarification on some items, or they could ask Checkpoint to perform a larger study to validate the results, or they suggest the company run a bigger study with a U.S. patient population. Admittedly, I am just proposing a possible scenario, but I expect the market is going to require Checkpoint to have approval in hand and even a commercial strategy in place before it prices CKPT at a reasonable valuation.
At the moment, it appears the company is going to “go-it-alone” with commercialization in the U.S., and will look to partner or license for ex-U.S. territories.
Checkpoint Therapeutics Commercialization Strategy (Checkpoint Therapeutics)
Keep in mind, the company has a limited cash reserve of roughly $4.8M that they finished Q1 with, plus, $6.1M from an offering in April, as well as the estimated $10M they got from their recent offering. The company's cash burn has been undulating over the years going from roughly $5M up to nearly $20M a quarter, so it is hard to determine how much they have now, and if they will need more to keep the doors open and prepare for possible approval. Indeed, the trial expenses should be winding down, but I don't expect there is enough cash to really put the pedal down on commercial activities for a potential launch. Unless the company is able to find some partners to provide some upfront payments, investors should be prepared for additional dilution, or the company taking on debt to fund operations and commercialization efforts. Obviously, dilution would have a negative impact on the share price and cut those price targets down.
As a result, I am moving CKPT’s conviction rating from 3 out of 5 to 2 out of 5. As a result, I will restrict my position size and CKPT will remain in the Compounding Healthcare "Bio Boom" Portfolio for the foreseeable future.
My Plan
In my previous article , I discussed how CKPT was already been a big winner for me and had provided me with a "house money" position ahead of the previous Cosi readout. At the time, I was looking to reload my CKPT position during a prolonged sell-off in anticipation that the ticker would get a nice pop either before or after the data publication. On one hand, I never found a solid setup that encouraged me to really load up. In fact, I have only made two minuscule additions over the past couple of years. On the other hand, the ticker is down over 70% for the year with abysmal sentiment. One could say I dodged a bullet, but my remnant position was in the red. Although I am apprehensive about increasing my share sizing right now, I am willing to make small additions at this valuation despite the looming threat of dilution or debt. However, even if the company was to double the number of shares, I wouldn’t mind considering the potential upside if all goes well for Cosi in the coming years.
Looking at the CKPT Daily Chart, we can see the share price has been crushed by algorithms grinding her down. The share price has been rising off the bottom and is now bullish on the Go-No-Go indicator.
CKPT Daily Chart (Trendspider)
CKPT Daily Chart Enhanced View ( Trendspider )
However, there was a negative reaction to the recent data tested the aVWAP from the mid-May high. This tells me that selling pressure is still out there, so I will wait for the break of the next downtrend ray before clicking the buy button. Once the share price has moved out of the downtrend ray, I will wait for a retest of the uptrend ray coming from the late-May low. If the share price can survive the retest, I will increase my sizing to prepare for a potential “PDUFA Run-up”.
I do intend to sell a portion of these shares if CKPT hits my Sell Targets either before or after the FDA’s decision. If the FDA rejects Cosi’s BLA, I will sell a large portion of my position and will look to re-enter once Checkpoint has addressed the FDA’s concerns.
For further details see:
Checkpoint Therapeutics: Cosibelimab Data Bolsters Case For Dual-Approval In cSCC